Doing Well by Doing Good – Social Responsibility that ‘Pays’ for SMEs

With growing social awareness of corporate social responsibility (CSR) within the last decades and mounting calls from the UK government for sustainable growth, SMEs face pressures to adopt CSR activities that satisfy their communities, employees, consumers, the environment or society in general.  The European Commission  (2011) defines CSR as ‘the responsibility of enterprises for their impacts on society’ and states that enterprises should have ‘a process in place to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close co-operation with stakeholders’. The increasing adoption of CSR activities is however constrained by the limited resources that SMEs possess. Therefore, which CSR activities should SMEs prioritise?

Research conducted at the Centre for Employment, Competitiveness and Growth at Kent Business School suggests that SMEs need to focus on CSR activities that contribute to their competitive advantage and enhance their growth (measured as growth in sales turnover). Furthermore, having a strategic plan in place and operating in markets that are growing can also boost sales. These practical implications address a recent call for desirable sustainable practices that balance sustainability and financial concerns.

Which CSR activities ‘pay’?

Our research has shown that SMEs can benefit (in terms of high sales growth) from adopting CSR activities related to the community such as: developing untapped talent; creating jobs for residents; supporting employee giving, supporting volunteering, and philanthropic activities. Those SMEs, and in particular the ones found to compete on price, are more likely to benefit from these activities as they act as free advertising in the community and attract a more committed and motivated workforce.

Our research has also shown that SMEs that compete on quality or innovation can benefit (in terms of high sales growth) from adopting CSR activities related to the workforce such as: good staff recruitment and development; promoting a culture of partnership in the workplace based around trust and mutual commitment; promoting a culture of work-life balance; providing conditions for flexible working, including support for working parents; considering  health and safety issues at management level; reporting  publicly on a range of health and safety issues. These activities are likely to attract a better skilled workforce that can enhance the company’s competitive advantage and sales growth.

What can SMEs do?

Firstly, managers of SMEs should continue to invest in CSR activities that are related to their local community, as these are likely to encourage fast growth through the links fostered with their immediate target market, suppliers and immediate pool of workforce. In doing so they are also likely to capitalise on their social capital.  Secondly, to avoid a steep decline in their sales, managers of SMEs should invest in CSR activities that are related to the workforce. These can increase staff loyalty, motivation and productivity and decrease the costs associated with high staff turnover, thus making resources available for firm growth. In particular, SMEs that compete via a differentiation or a quality driven strategy need to invest in CSR activities related to the workforce, as this can attract better skilled people that can lead to more innovation, to the creation of distinctive capabilities, more difficult to imitate and hence contributing to the firms’ competitive strategy and growth. Thirdly, managers of SMEs need to rethink their involvement in CSR strategies related to the environment and make sure these CSR activities are aligned with the competitive strategy that their firms pursue, so that resources are not detracted from enhancing the company’s competitive advantage.

In order to make sure that the CSR activities implemented ‘pay off’, managers of SMEs should also have a well-defined strategy in place and CSR activities should be linked with this strategy. Furthermore, managers of well-established SMEs need to make sure that their firms are agile and flexible enough to make the necessary changes in their processes so that the CSR activities implemented contribute to firm growth. Finally, the growth achieved by SMEs is also affected by the market trend in the market where these companies compete. SMEs need to make sure that they operate in growing markets or that they diversify, so that some of their markets are growing.

Overall the message is that sustainable growth and development emerge from businesses that contribute socially and economically as well as environmentally, such that other sources of sustainability, and not just the environmental ones, are integrally linked.

For further information, or to register for our quarterly e-bulletin, please contact infoecg@kent.com

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