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Lecture 10 MBF2213 | Operations Management

Prepared by Dr Khairul Anuar

L10: Operation and Corporate Social Responsibility

Operations and corporate social responsibility (CSR) – Slack et al. identify the following key questions:

• What is corporate social responsibility?

• How does the wider view of corporate social

responsibility influence operations management?

• How can operations managers analyze CSR issues?

Key operations questions

‘CSR is the business contribution to our sustainable development goals.

Essentially it is about how business takes account of its economic, social

and environmental impacts in the way it operates – maximising the

benefits and minimising the downsides. Specifically, we see CSR as the

voluntary actions that business can take, over and above compliance with

minimum legal requirements, to address both its own competitive

interests and the interests of wider society’. (UK Government)

Corporate social responsibility

‘Corporate Social Responsibility …is listening and responding to the needs of a company's

stakeholders. This includes the requirements of sustainable development. We believe that

building good relationships with employees, suppliers and wider society is the best

guarantee of long-term success. This is the backbone of our approach to CSR’. (Marks and

Spencer's, Retailer)

‘*Our vision is to+… enable the profitable and responsible growth of our airports. One of our

six strategies to achieve that purpose is to earn the trust of our stakeholders. Corporate

responsibility is about how we manage our social and environmental impacts as part of our

day to day business, in order to earn that trust’. (BAA, Airport operator)

Corporate social responsibility (Continued)

3 Ps of CSR

• People, planet and profit (the so-called ‘3Ps’)

• Also known as the triple-bottom line.

• The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profit);

• it must minimise (or ideally eliminate) its negative environmental impacts (planet);

• it must act in conformity with societal expectations (people).

• These three factors are obviously highly inter-related.

• Many companies now report regularly on the subject producing Sustainability and/or CSR (Corporate Social Responsibility) reports whose content is increasingly scrutinised by investors and financial institutions.

2-3

3Ps and CSR

• The CSR concept has pushed further and further up the corporate agenda as business strives to act responsibly towards people, planet and profit (the ‘3Ps’). Some driving forces pushing CSR up the corporate agenda (including OSH {occuptatonal safety and health} are:

• Informed investors recognise that the business risk (both internal and external) for companies that successfully manage their social and environmental impact is lower than the business average

• Consumers prefer products that are produced in a socially responsible way

• Increased concern about the damage caused by economic activity to the environment

• Transparency of business activities brought about by the media and modern information and communication technologies

• Search for new forms of global governance

• Measurement of progress toward sustainable development:

2-3

Operations strategy decisions

Design decisions

Improvement decisions

Planning and control decisions

Stakeholder dimension

Social dimension

Environmental (sustainability)

dimension

Voluntariness dimension

Economic dimension

Analyzing operations decisions

The five ‘dimensions’ of CSR for operations managers

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The five ‘dimensions’ of CSR for operations managers

Three years ago

High Very high

Moderate Low Very low

Don’t know

Today High Very high

Moderate Low

Three years hence

Very low Don’t know

High Very high

Moderate

Low

How executives view the importance (degree of priority) of corporate responsibility

Corporate social responsibility

(Data from Economist Intelligence Unit, Jan 2008)

A necessary cost of doing business

Something that gives us a distinctive

position in the market

Meaningless if it includes what we would do anyway

A waste of money

20

0

60

40

Corporate social responsibility (Continued)

(Data from Economist Intelligence Unit, Jan 2008)

Which of the following do you agree with? Corporate responsibility is…

Do ethical and financial performance trade-off?

Ethical performance

Fin

anci

al p

erf

orm

ance

The efficient frontier between ethical and financial performance

Repositioning between ethical and financial performance

Changing the balance (trade-off) between ethical and financial performance

Do ethical and financial performance trade-off? (Continued)

Ethical performance

Fin

anci

al p

erf

orm

ance

Simultaneously improving both ethical and financial performance , partly because extreme positions on either are becoming less acceptable

Societal pressure + reputational risk defining minimum ethical standards

Stockholder expectations defining

minimum financial standards

Breach of ethical

practice

Negative consequence of breach of ethical

practice

Assess the potential causes of, and risks from, any breach of ethical practice

CSR as risk management

Prevent breaches of ethical practice

occurring

Mitigate the effects of any breach of ethical practice

Recover from the effects of any breach of

ethical practice

The Gap between perception. reality and intention

1. What went wrong with Gap’s ethical procedures?

2. How did it try and prevent damaging incidents such as this?

3. What more could Gap do?

4.

(Refer to case study in Slack et al., page 642-643 and GAP’s CSR policy here: http://www.gap-personnel.com/otherpages.php?id=76)

Most operations decisions have a corporate social responsibility dimension, for example:

Product/service design – customer safety, recyclability of materials, energy consumption

Network design – employment implications and environmental impact of location

Layout of facilities – staff safety, disabled customer access

Process technology – staff safety, waste and product disposal, noise pollution, fumes and emissions

Job design – workplace stress, unsocial working hours

Capacity planning and control – employment policies

Inventory planning and control – price manipulation.

CSR and operations management

• To supply the average person’s basic needs in the:

US - it takes 12.2 acres of land,

Netherlands - it takes 8 acres, and

India - it takes 1 acre.

• Calculated this way,

the Dutch ecological footprint covers 15 times the area of the Netherlands.

India’s ecological footprint is 1.35 of its area.

Most dramatically, if the entire world lived like North Americans, it would

take three planet earths to support the present world population.

Ecological footprints

Typical aims include the following:

• Acknowledging shared responsibilities for addressing global challenges and affirming

that our common humanity doesn’t stop at national borders.

• Recognizing that all individuals are equal in dignity and have the right to certain

entitlements, rather than viewing them as objects of benevolence or charity.

• Embracing the importance of gender and the need for attention to the often different

impacts of economic and social policies on women and men.

• Affirming that a world connected by technology and trade must also be connected by

shared values, norms of behaviour and systems of accountability.

The ethical globalization movement

Decision area Some globalization issues

Product/service design Transferability of product/service design

Adaptation of design to fit culture and legislation

Network design Location of global network of facilities

Ownership and capacity change legislation

Layout of facilities Cultural reaction to work organization

Process technology Serviceability and maintenance of technology

Skills availability

Job design Cost of labour

Skills availability

Cultural reaction to work requirements

Planning and control

(including MRP, JIT and

project planning and

control)

Cultural reaction to necessity for planning

Cultural reaction to need for flexibility

Globalization

Decision area Some globalization issues

Capacity planning and

control

Differences in seasonality and demand patterns

Legislation part-time or temporary work contracts

Legislation and cultural view of flexible working

Inventory planning and

control

Storage conditions and climatic sensitivity

Cost of capital and other storage cost differences

Supply chain planning

and control

Real cost of transportation

Differences in contractual arrangements

Supplier conformance to employment standards

Quality planning and

control and TQM

Cultural views of acceptable quality

Cultural views of participation in improvement groups

Safety

Failure prevention and

recovery

Maintenance support

Cultural attitude to risk

Flexibility of response to failure

Globalization (Continued)

Product/service design – Recyclability of materials, energy consumption, waste material generation

Some environmental considerations of operations management decisions

Network design – Environmental impact of location, development of suppliers in environmental practice, reducing transport-related energy

Layout of facilities – Energy efficiency

Process technology – Waste and product disposal, noise pollution, fume and emission pollution, energy efficiency

Job design – Transportation of staff to/from work, development in environmental education

Planning and control (including MRP, JIT and project planning and control) – material utilization and wastage, environmental impact of project management, transport pollution of frequent JIT supply.

Corporate social responsibility

Some environmental considerations of operations management decisions (continued)

Capacity planning and control – Over-production waste of poor planning, local impact of extended operating hours

Inventory planning and control – Energy management of replenishment transportation, obsolescence and wastage

Supply chain planning and control – Minimizing energy consumption in distribution, recyclability of transportation consumables

Quality planning and control and TQM – Scrap and wastage of materials, waste in energy consumption

Failure prevention and recovery – Environmental impact of process failures, recovery to minimize impact of failures.

Corporate social responsibility (Continued)

Is packaging necessary?

Reduce packaging

Yes

Reuse

Yes Recycle

Yes

Eliminate unwanted packaging

No

Can packaging

be reused?

No

Can packaging

be recycled?

No Minimize packaging No

Identifying waste minimization in packaging

Can packaging

be reduced? Yes

Yes

(Refer to case study in Slack et al. (page 638)

ISO 14000

The ISO 1400 standard. It has a three-section environmental management system which covers initial planning, implementation and objective assessment.

ISO 1400 makes a number of specific requirements:

a commitment by top-level management to environmental management;

the development and communication of an environmental policy;

the establishment of relevant and legal and regulatory requirements;

the setting of environmental objectives and targets;

the establishment and updating of a specific environmental programme, or programmes, geared to achieving the objectives and targets;

the implementation of supporting systems such as training, operational control and emergency planning;

regular monitoring and measurement of all operational activities;

a full audit procedure to review the working and suitability of the system.