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Corporate Social Responsibility. Outsourcing Strategy. Ron Babin, Ryerson University, Toronto Canada [email protected] Agenda. Introduction Theoretical frameworks CSR Standards Research Fieldwork CSR Directions for Buyers, Providers and Advisors Conclusion.

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Corporate Social Responsibility

Outsourcing Strategy

Ron Babin, Ryerson University, Toronto Canada

[email protected]


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Agenda

  • Introduction

  • Theoretical frameworks

  • CSR Standards

  • Research Fieldwork

  • CSR Directions for Buyers, Providers and Advisors

  • Conclusion

Corporate Social Responsibility


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This research may guide industry stakeholders

Global outsourcing continues to grow at 10-20%

Organizations must defend their social and environmental profile

Outsource providers have not embraced CSR or environmental responsibilities

Social and environmental responsibilities will become very important to outsource providers and buyers

Corporate Social Responsibility


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Theoretical Frameworks

The Pyramid of Corporate Social Responsibility*

*Archie Carroll “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders” Business Horizons 34, 1991

Social Responsibility to Stakeholders

Be a good corporate citizen.

Contribute resources to the community; improve the quality of life.

Philanthropic

Responsibilities

Be ethical.

Obligation to do what is right, just, and fair. Avoid harm.

Ethical

Responsibilities

Obey the law.

Law is society’s codification of right and wrong. Play by the rules of the game.

Legal

Responsibilities

Economic

Responsibilities

Be profitable.

The foundation on which all others rest.

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Theoretical Frameworks

Relationship

Competency

CSR ?

Organizational

Design

Planning and

Contracting

Governance

Delivery Competency

Business

Management

Leadership

Customer

Development

Program

Management

Domain

Expertise

Transformation

Competency

Behaviour

Management

Process

Re-Engineering

Sourcing

Technology

Exploitation

*Source: MIT Sloan Review, Global Sourcing of Business and IT Services, by L Willcocks and M Lacity

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Theoretical Frameworks

Do outsource participants view CSR as a key advantage or disadvantage?

Providers

Onshore (North Am)

Offshore (India)

Buyers

Banks

Communications

Retail

Governments

Research Question

Questions for Participants

Questions for Participants

Advisors

Lawyers

Accountants

Consultants

  • Do you have a CSR program for offshore outsourcing?

  • How do you quantify CSR capabilities to your buyers, to your shareholders?

  • How has CSR profile assisted in:

    • Winning contracts?

    • Maintaining client relationships?

    • Attracting workers?

    • Attaining government support?

  • Do you evaluate provider CSR capabilities?

  • When selecting providers and awarding outsourcing contracts how important is CSR to

    • Management team?

    • Shareholders?

    • Clients & community?

    • Employees?

    • Environment?

  • Would a poor CSR profile cause you to revoke or terminate an outsourcing agreement?

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CSR Standards

  • SA 8000

  • “A set of international workplace and human rights standards developed by Social Accountability International, with input from numerous NGOs and based on the Conventions of the ILO and the Universal Declaration of Human Rights” (Miles, 2004)

  • May emerge as international standard, required by vendors to remain a member of the supply chain of large MNCs (Miles, 2004)

  • Global Reporting Initiative (GRI)

  • GRI provides a “trusted and credible framework for sustainability reporting that can be used by organizations of any size, sector or location.” (GRI, 2008)

  • GRI was developed over the last ten years and is now broadly recognized by many organizations as a standard for corporate responsibility and sustainability reporting

  • GRI provides a public record of organizations which have voluntarily provided their sustainability reports

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CSR Standards

  • ISO 26000

  • The ISO 26000 standard addresses core CSR subjects including governance, human rights, labour practices, the environment, fair operating practices, consumer issues and community involvement and development

  • ISO 26000 is a working draft that has not yet been ratified by ISO members and therefore has not yet been implemented

  • This standard provides a guide for organizations to voluntarily adopt CSR practices

  • With participation from about 80 countries and many stakeholder groups, ISO 26000 will likely be recognized as a universal standard, across most industries, when it is completed

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Fieldwork

  • To better understand the nature of the research problem, preliminary fieldwork was conducted in April, May and June 2008

  • Fieldwork consisted of interviews and an electronic survey with outsourcing providers, buyers and advisors in Canada

  • The methodology seeks to compare the perspectives of providers, buyers and advisors, based on the results of the interviews and survey

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Fieldwork - Interviews

  • Interviews were designed to understand how CSR considerations affect outsourcing decisions, in IT or IT enabled services

  • The interviewees were senior executives in their representative organizations, who were initially contacted to confirm their interest in this research topic

  • Interviews included representatives from two major banks, two consumer product companies, two global outsourcing providers and three legal and accounting advisors

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Fieldwork - Interviews

12 Key Messages from Interviews

CSR will be driven in response to consumer issues

CSR in outsourcing in new and relevant

Environmental issues are important CSR topics

CSR protects an organization’s brand reputation

CSR can be a competitive advantage

Due diligence in establishing an outsourcing contract is key

Unions may play a role in CSR

Diversity has become a standard requirement for some outsourcing arrangements

Be cautious of CSR as flavour-of-the-month

Government intervention may force CSR capabilities

Universal CSR standards are being defined

Industry CSR standards may apply

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Fieldwork - Interviews

12 Key Messages from Interviews

1 - CSR will be driven by response to consumers issues.

  • Organizations frequently respond to consumer pressures regarding CSR issues, as demonstrated by Nike

  • Consumer product organizations have established CSR frameworks and focus on products that may be tainted by CSR issues such as child labour or worker safety

  • Financial service representatives suggested that reputational risk is an important issue in any outsourcing activity

  • Companies that have established CSR processes for consumer products and services may be well equipped to quickly apply those methods to an outsourcing arrangement

    2 -CSR in outsourcing is new and relevant.

  • Several interviewees suggested that the CSR factor in outsourcing decisions was new, they had not seen any of these issues previously, but they expected CSR to be an issue in the near future

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Fieldwork - Interviews

12 Key Messages from Interviews

3 - Environmental topics are important social responsibility issues

  • Many interviewees suggested that environmental concerns such as carbon footprint, will be important social issue in the very near future

  • A major economic driver will be the need for sustainable and environmentally friendly power, especially for data centres and related technology hubs

  • For example, as power costs increase and the concentration and power consumption of data centres increase, organizations must very diligent in how they design and deploy ICT capabilities

    4 - An organization’s brand reputation is an important CSR protection. Several interviewees mentioned that major organizations would protect their reputation and “do the right thing” with respect to CSR

  • Several mentioned how the offshore data centres look identical to their North American corporate campuses

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Fieldwork - Interviews

12 Key Messages from Interviews

5 - CSR can be a competitive advantage

  • One provider was very explicit in citing CSR capabilities as a definite advantage compared to other competitors, and especially when compared to second tier, or start-up, outsourcing providers

    6 - Due diligence is a key component in CSR

  • Several advisors suggested that a thorough walk-through of CSR capability, in the due diligence phase of contracting, is the best way to ensure that the provider can live up to the CSR requirements of the buyer

  • However, no one was able to identify standards or norms other than the client’s own expectations for CSR.

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Fieldwork - Interviews

12 Key Messages from Interviews

7 - Unions may play a role in CSR

  • Outsourcing has social issues ‘at home’ when jobs are moved overseas and local employees are displaced. This issue is especially acute in a union environment, such as a data centre or back-office

    8 - Diversity has become a standard requirement for some outsourcing arrangements

  • US Government contracts require Minority and Women-owned Business Enterprises (MWBE) to encourage diversity in outsourcing arrangements

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Fieldwork - Interviews

12 Key Messages from Interviews

9 - Be cautious of CSR as flavour-of-the-month

  • Several interviewees cautioned that CSR may become a marketing message, lacking substance, for some organizations

  • Organizations may quickly respond to consumer concerns with slick marketing messages rather than substantive CSR programs

  • One interviewee expressed caution about “green-washing” on environmental issues

    10 - Government intervention may force CSR capabilities

  • In Canada at least one province has implemented a carbon tax, and others are discussing that possibility

  • Other jurisdictions, perhaps California, will have similar laws that impact how an organization manages its carbon footprint

  • For IT infrastructure outsourcers this suggests that a model that can demonstrate an efficient carbon management capability will be important

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Fieldwork - Interviews

12 Key Messages from Interviews

11 – Universal CSR standards are being defined

  • ISO 26000 “provides guidance on the underlying principles of social responsibility, the core subjects and issues pertaining to social responsibility and on ways to implement social responsibility within an organization.” This may become the global benchmark for CSR across all organizations in any industry, including outsourcing

  • Interestingly, none of the interviewees mentioned ISO 26000

  • Similarly, the Global Reporting Initiative (GRI) which provides a uniform structure for reporting was not mentioned in any interview

    12 - Industry CSR standards apply as well

  • GRI has defined standards for industry sectors, such as financial institutions, automotive manufacturing metals and mining, etc.

  • In Canada outsourcing regulations have been defined forfinancial institutions by the Office of the Superintendent of Financial Institutions

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Fieldwork - Survey

  • A short survey was conducted to test the wording and focus of the research questions

  • SurveyMonkey was used for electronic distribution and analysis of results

  • Survey questions were based on three sources:

    • ISO 26000 Social Responsibility Working Draft 4.2

    • Carroll’s Pyramid of Corporate Social Responsibility (1991) which was extended to include environmental issues

    • Key messages from the preliminary interviews

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Fieldwork – Survey results

  • CSR is not an issue in today’s outsourcing arrangements

    • Respondents were ‘Not Certain’ that they had considered a provider’s CSR capability in past outsourcing decisions, although some respondents certainly did Agree that they had considered some CSR capabilities in outsourcers

    • With respect to the respondents’ inclusion of formal CSR capability evaluation in the outsourcing evaluation, the average answer was a clear ‘Not Certain’

    • When respondents were asked if an outsourcer’s CSR capabilities and claims had ever been validated or audited, the average answer is a clear ‘Rarely’

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Fieldwork – Survey results

  • CSR will become important in future outsourcing arrangements.

    • In this survey, outsourcing buyers are slightly above Uncertain (3.3 out of 5.0) if they would give preference today to suppliers who have demonstrated CSR capabilities.

    • However, in the future the respondents expect that CSR considerations certainly will become more important, potentially much more important (4.3 out of 5.0)

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Fieldwork – Survey results

  • Environment issues will become very important CSR topics in future outsourcing arrangements

    • Respondents identified CSR topics that would be included in future evaluation of an outsource provider:

      • 100% of respondents identified Environmental Issues

      • 86% identified Labour and Fair Operating Practices

      • 71% identified Human Rights

      • 57% identified Consumer Issues

      • 29% identified Community Involvement

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Fieldwork – Survey results

  • Carroll’s CSR Pyramid identifies the priority of CSR capabilities as Economic (most important), Legal, Ethical, Philanthropic (least important)

  • Carroll’s model does not identify environmental capabilities, so environmental questions were added to the survey

  • Respondents to the survey provided the following CSR capability priorities:

    • Legal Strongly agree (4.7)

    • Environmental Strongly agree (4.5)

    • Economic Agree (4.3)

    • Ethical Agree (4.1)

    • Philanthropic Uncertain (3.2)

Carroll’s CSR Pyramid

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CSR Directions - Buyers

  • Buyers should formalize their CSR expectations for their providers, with a likely emphasis on environmental issues that are relevant for the buyer

  • Buyers should validate outsource suppliers CSR claims

  • Buyers should articulate their CSR expectations in requests for proposal (RFPs) and in contract renewal discussions

  • Buyers should rely on relevant standards from their industry for measuring CSR capability, such as ISO 26000 and GRI reporting requirements

  • Buyers in a consumer oriented service should hold their outsource suppliers to the same level of CSR capability that consumers expect of the buyer

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CSR Directions - Providers

  • Outsourcing providers should anticipate CSR expectations from the market

  • Providers who are able to demonstrate leadership in these issues may be able to carve out a niche or defend a competitive advantage

  • Providers should be prepared to demonstrate their CSR capabilities, especially with respect to industry standards

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CSR Directions - Advisors

  • Outsourcing advisors should understand CSR capability issues and be prepared to work with outsourcing buyer and provider clients to resolve incompatibilities, especially regarding environmental issues.

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Conclusion

  • CSR is an inevitable development in the outsourcing industry

  • Environmental issues will dominate the agenda in the near future

  • Global standards such as ISO 26000 and GRI will guide outsource providers and buyers

  • Outsource providers who embrace CSR and environmental sustainability will have a competitive advantage

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