Corporate Social Responsibility

Yoo-Taek Lee
Boston University School of Management

Some issues in Pharmaceutical Industry

1. Tuberculosis medications are 95% effective in curing TB and cost $10 for a six-month course of treatment 2. Oral rehydration therapy (ORT) is highly effective in treating dehydration caused by diarrheal diseases, for 33 cents per treatment 3. Antibiotics for pneumonia are 90% effective, for 27cents per dose 4. Antimalarials are 95% effective, with per-treatment costs as low as 12 cents 5. Vaccines are 85% effective in preventing measles, for as little as 26 cents per dose 6. (Source: Leisinger, 2005)
Yoo-Taek Lee, ytlee@bu.edu

Questions?
1. What has to do with a pharmaceutical corporates social responsibility? 2. To whom? 3. For what? 4. To what extent is a pharmaceutical corporation responsible?

Yoo-Taek Lee, ytlee@bu.edu

150 All-Star Candidate Companies

7.80 7.60 7.40

7.20
7.00 6.80 6.60 6.40 6.20 2006 2007 2008 2009 2010

Yoo-Taek Lee, ytlee@bu.edu

30 All-Star Companies
8.20 8.00 7.80 7.60 7.40 7.20

7.00
6.80 6.60 6.40 6.20

2006

2007

2008

2009

2010

Yoo-Taek Lee, ytlee@bu.edu

Agenda

1. 2. 3. 4. 5. 6.

Competitive Environment Why CSR? What is the nature of Firm? The evolution of CSR concept What is the concept of Creating Shared Value? SCV as a part of Management System

Yoo-Taek Lee, ytlee@bu.edu

 CSR

Yoo-Taek Lee, ytlee@bu.edu

1. Competitive Environment
Top 10% of firms (1994)

A? B? C?

1994 10% 10% () 10 2004 ?

1994

D? E?

2004

Bottom 10% of firms (1994)

F?

(Source: Anita, 2005)

10 years later...
?
IBM Apple
Dell-HP Sony Apple Coca Cola Pepsi GM Toyota Motorola - Samsung Bottom 10% of firms (1994)
(Source: Anita, 2005)

Top 10% of firms (1994)

C 1994 D 2004

Bottleneck of Growth

1993

56,472

56,472

75

Larger than 300 people

2003

14,315

Larger than 500 people

Dynamic Competitive Environment

Old
H H

New
Type 3 Goal

Performance

Performance L

Type 2

Type 1

Time

Time

2. Why CSR?
Why does CSR Matter?
Why is CSR Important to Firms?

Yoo-Taek Lee, ytlee@bu.edu

Ranking/Market/Standard/ Virtue ?
1. The most admired companies ranking

2010

8 25

2010

7 33

2010

17

2011

2011

2011

-8
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Ranking/Market/Standard/ Virtue ?
2. Market
[Source: 2004 Cone Corporate Citizenship Study]

I am likely to switch from one brand to another that is about the same in price and quality, if the other brand is associated with a cause
100% 80% 86%

85%
65% 66%

60% 40% 20%

0% 2004 2002 1999 1993 % of Americans

Yoo-Taek Lee, ytlee@bu.edu

Ranking/Market/Standard/ Virtue ?
2. Market

I would do the following if I found out about a companys

unlawful or unethical practices
% of Americans

[Source: 2004 Cone Corporate Citizenship Study]

Yoo-Taek Lee, ytlee@bu.edu

Ranking/Market/Standard/ Virtue ?
3. Standard: License to do a business in Global
Example: ISO 26000

As an International Standards to
provide guideline on Social

Responsibility, applicable target of

ISO 26000 is all public and private organizations.

And It a rule to apply to not only

developed countries but also developing countries.

Yoo-Taek Lee, ytlee@bu.edu

Ranking/Market/Standard/ Virtue ?

Yoo-Taek Lee, ytlee@bu.edu

3. What is the role of firms?

Why do we expect Firms to take into account Social Responsibility?
What is the nature of the Firm?

Yoo-Taek Lee, ytlee@bu.edu

Theory of Firm and CSR

Neo-classical Economist

Behavioral Theory

Resource-based View of Firm

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4. The evolving concept of CSR

From the Strategy Perspective of View, how has the CSR Evolved?
What is the most recent and significant CSR concept ?

Yoo-Taek Lee, ytlee@bu.edu

The Evolving Concept of CSR

CSR as Management System Strategic/ Pro-active Voluntary/ Active Management/ Protective Duty/ Reactive Developing Socially Responsible Value Chains SRVCs Creating Shared Value Doing well by doing good Not sure, but it may helps (bandwagon effect) Have to do to reduce the risk Have to do in respond to pressure
CSV

Philanthropic/ Doing Good From the Heart Owner/ Individual Agent/ Top Mgt. Function/ CSR Team Employees/ Company Un-Structured Company Structured Company/ Supply Chain Collaborative

Yoo-Taek Lee, ytlee@bu.edu

5. What is the concept of CSV?

What is new with CSV?
Dont think of responsibility to society Think of firm and society as interrelated Extend value proposition to society

Yoo-Taek Lee, ytlee@bu.edu

Creating Shared Value

Rethinking Capitalism!

Economic Value

Shared Value

Social Value

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The Convergence of Interests

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Maximizing Philanthropys Value

Pure philanthropy

Social and economic value created Social Benefit Advancing knowledge Improving the performance of grant recipients Signaling other funders Selecting the best grantees Economic Benefit
(Source: Porter and Kramer, 2002)

Pure business

CSV and Firm Strategy

H

D F

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Economic Value L

A C

(NOGs, )

B L Social Value H

CSV and Firms Competitiveness

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Continuous Innovation for CSV

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Risk of CSV
Focusing on Economic Value for Society and Forgetting Virtue!

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6. The actual question is how?

More specifically, how can firms create shared value in the real business environment?

How can a firm link CVS to its management system?

Yoo-Taek Lee, ytlee@bu.edu

Shifting the point of view

Yoo-Taek Lee, ytlee@bu.edu

Transformation to a CSR Embedded Organization

Yoo-Taek Lee, ytlee@bu.edu

System-Based Competition
Lets think about Wal-mart case for a moment! What are the success factors of Wal-mart?
Kmart 1979 1,891 stores $7.25 million average revenues /store Wal-mart 1979 229 stores $3.6 million average revenues /store Wal-mart 1989 Growth rate of 25% per year The highest sales per square foot The highest Inventory turns The highest operating profit 8% of pretax return on sales (nearly double that of K mart)

Wal-Mart Management System

Internal Fleet Happy greeters High Service Cross-docking system # Section Manager Internal Truck Drivers (On time delivery) Vendor Management Inventory

Operational Efficiency

POS System

Video Conference

Everyday Low Price

Low Cost Lots of Self-Service Location (Suburbs) Purchasing Power

Fact-based Management System

Input

Output

Yoo-Taek Lee, ytlee@bu.edu

Fact-based CSR Management System

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Socially Responsible Shared Value Chain

Feedback / Shared Value

Input

Output

Collaborative Social Responsibility

Vision/Goal?

Shared Vision

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Voice of Customer

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 Identification

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H Voice of Society

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Yoo-Taek Lee, ytlee@bu.edu

Fact-based System
The facts and nothing but the facts! Why?
Avoid misleading the organization Indicator of success of a business Measurement and feedback loops

How do we know how well we do our work without knowing the facts?

Alignment
The secret of survival is to concentrate on
Attitude (nose up) Altitude Airspeed

System thinking
The relationship between parts becomes as important as the parts themselves

Conclusion

Do you have your own system?

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How do you manage your life?

Yoo-Taek Lee, ytlee@bu.edu

 Yoo-Taek Lee, ytlee@bu.edu

Level of Details
Zero Defect
H Range of check Size of defect

L L # of check H

Economic downturn?
Total: -10
Food outside of home: -110 Personal care products & service: -78 Transportation: -70 Clothing and service: -45 Cash contributions: -28 Tobacco product: -13 Housing: -10

Entertainment: -6
Food at home: 28 Health care: 29 Insurance: 43 Reading: 53 Education: 90

Source: Simon Kucher & Partners

Final Thoughts
Dayfly Grasshopper

Frog

 When the storm comes, some build walls, the others build windmills
- an old proverb -

Thank You!