Tag Archives: competitive advantage

The Responsible Supply Chain Management and its effect on Corporate Reputation

supply chain(image source: Carlson School of Management, University of Minnesota)

 

Corporate reputation has often been defined as “a set of attributes ascribed to a firm, that is inferred from the firm’s past actions” (Weigelt & Camerer, 1988, p. 443). Fombrun and Shanley (1990) argued that reputation “signals publics about how a firm’s products, jobs, strategies and prospects compare to those of competing firms” (p. 233). The value of reputation has been subject to extensive research, which has highlighted that reputation influences the stakeholders’ perceptions (Money, Hillenbrand & Downing, 2011), the customers’ choices and their purchase intentions (Keh & Xie, 2009; Siegel & Vitaliano, 2007; Mohr & Webb, 2005) Therefore, corporate reputation is related to corporate financial performance (Camilleri, 2012; Flanagan, O’Shaughnessy, & Palmer, 2011). Much of the work on corporate social–financial performance also implicitly assumes that this relationship is positive, because an improved reputation facilitates revenue and profit growth (Orlitzky et al., 2003; Surroca, Tribó & Waddock,. 2010).

Extant work suggests that reputation is important because it establishes credibility (Greyser, 1999; Herbig et al., 1994). The notion that reputation is related to credibility has also been noted in the wider corporate social (and environmental) responsibility literature. McWilliams and Siegel (2001) argued that building a reputation of ‘responsibility’ can signal an improved reputation (Husted & Allen, 2007; Brammer & Millington, 2005; McWilliams & Siegel, 2001; Fombrun & Shanley, 1990). Hence, responsible corporate behaviour “builds trust and enhances the firm’s reputation, which in turn attracts customers, employees, suppliers and distributors, not to mention earning the public’s goodwill” (Lantos, 2001, p. 606). In a similar vein, Lewis (2003) also held that responsible behaviours can establish trust and ultimately develop a company’s reputation. Social and environmental activities not only can enhance the reputation of the firm, but also enhance the goodwill trust of stakeholders (Carlisle and Faulkner, 2005; Siltaoja, 2006).
Therefore, corporate reputation is fundamentally a signal to stakeholders (Ponzi, Fombrun & Gardberg, 2011) and is particularly important in markets where there is imperfect information (Hoejmose et al., 2014.; Weigelt & Camerer, 1988). The market signals, including engagement in social and environmental issues could help to improve corporate image (McWilliams & Siegel, 2001; Bagnoli & Watts, 2003).

Markley and Davis (2007) also noted that responsible behaviours could send positive market signals to a range of stakeholders. Today’s firms are expected to implement responsible supply chain practices. If they won’t they run the risk of damaging their reputation and image among their stakeholders. Hence, there is scope for firms to implement socially and environmentally responsible practices in their supply chains (Ansett, 2007). Responsible supply chain management encapsulates social issues (e.g. child labour, working conditions, human rights et cetera) and / or environmental matters (e.g. environmental protection, waste management, recycling, reusing natural resources et cetera) (Hoejmose et al., 2013; Carter & Rogers, 2008; Seuring & Muller, 2008). Such responsible behaviours shield the firms from negative media attention and consumer boycotts (Hoejmose et al., 2013). The companies’ stronger engagement in socially responsible supply chain management enables them to manage exposure to risk (Tate et al, 2010; Van De Ven & Jeurissen, 2005). Thus, the businesses’ stakeholder engagement and their responsible procurement of materials and products is linked to corporate reputation, which in turn allows them to target discerning customer groups (Phillips & Caldwell, 2005; Roberts, 2003).

Kleindorfer, Singhal, and Wassenhove (2005) suggested that responsible supply chain practices can lead to increased profitability, as customer satisfaction and loyalty will improve as a result of a stronger reputation. Therefore, firms risk losing customers to rival companies over time, particularly if they fail to be responsible in their supply chain. In fact, Harwood & Humby (2008) findings suggested that suppliers were adhering to specific corporate social responsibility (CSR) requirements in order to reduce their exposure to risk. It may appear that the real value of social and environmental management is perhaps not from its role in enhancing reputation, but more about protecting it. This reflects Burke’s (2011) argumentation as he suggested that a firm’s corporate reputation is enhanced through positive actions, the programmes they implement and the other tangible things that they do.

Therefore, the distinction between reputation protection and enhancement is subtle, but important. Corporate reputation protection is concerned with evidencing the firms’ efforts to meeting the stakeholders’ expectations, whilst reputation enhancement goes beyond a purely evidential basis to encompass embedded practice. Corporate reputation protection occurs when firms can prove to stakeholders that they took reasonable steps to prevent an incident from happening (Coombs, 2014). In fact, corporate reputations could be easily jeopardised by irresponsible supply chain practices which may “directly harm business contracts, marketing, and sub-sourcing, and damage the corporation’s brands and the trust they have established with their business customers” (Lee & Kim, 2009, p. 144). These companies’ failure to manage their supply chain in a responsible manner could result in negative repercussions for their organisational performance. Conversely, the corporations’ reputation and credentials in socially responsible supply chain management could lead them to achieve a competitive advantage (Ansett, 2007; McWilliams et al., 2006).

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Filed under Business, Corporate Social Responsibility, Corporate Sustainability and Responsibility, Shared Value, Stakeholder Engagement

Creating Shared Value Leverages the Value Chain

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Socio-economic actions and environmental changes play a vital role in determining the prices of core commodities. Undoubtedly, the availability of commodities can change the dynamics in supply chain relationships. It is in the interest of suppliers to forge fruitful and collaborative working relationships with their customers. For instance, farm workers are demanding bigger shares from the profits of wine producers, coffee makers and the like. In this day and age, businesses will have to look at new ‘shared value’ models as customers are often expecting greater reliability, higher quality, reduced lead times and frequent deliveries from their suppliers.

‘Creating shared value’ needs to address not only value chain requirements but to ensure that programmes are built on joint principles. Of course, many businesses may be genuinely interested in investing in philanthropic initiatives. However, this particular proposition suggests that businesses can leverage themselves as they gain a competitive advantage.  Inevitably, this notion suggests  that there is a need for co-creative and innovative approaches rather than blueprints.

CASE STUDIES

“Take Novartis as an example. They saw a shared value opportunity in selling their pharmaceuticals in rural India, where 70% of the population lives. The obstacle was not the prices they charged but the social conditions in the region: a chronic lack of health-seeking behaviour in the community, healthcare providers with virtually no healthcare training, and tens of thousands of local clinics without a reliable supply chain. Looking through a shared value lens, Novartis saw these social problems as business opportunities: they hired hundreds of community health educators, held training camps for providers, and built up a distribution system to 50,000 rural clinics.

For Novartis, the result was an entirely new business model that is essential to their future. In the coming decade, emerging markets with similar challenges are predicted to account for 75% of the growth in global pharmaceutical sales. For 42 million people in India, the results are access to a vastly improved level of healthcare that neither government nor NGOs were providing.

Or consider Southwire, a US company that manufactures wire and cable in a small town in Georgia. Their machinists were retiring and the local high school, burdened by a 40% dropout rate, wasn’t producing the workforce they needed. So Southwire partnered with the school, opened a factory nearby to employ the most at-risk students, part-time, using attractive wages as an incentive, and mentored their academic performance. Nearly 100% of the students in the Southwire program completed high school, and 1/3 went on to become Southwire employees. And, by the way, that factory near the school generates a million dollar annual profit.

These examples are not examples of corporate social responsibility or sustainability. They are examples of businesses grabbing hold of a social issue that is at the core of their business, and figuring out how to wrap that into their strategy and operations. These companies are using the resources and capabilities of business to solve very specific social problems in ways that are aligned with the company’s strategy, that strengthen its competitive positioning, and that enable it to make more money” (More details are available in the Guardian – Better ways of doing business: Creating Shared Value).

More blogs about “Shared Value” approaches!

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February 5, 2013 · 4:36 pm