IB Group-5 Tisco CSR Case (1)
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Transcript of IB Group-5 Tisco CSR Case (1)
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TIGHT ROPE WALK ATTATA STEEL:
BALANCING PROFITS AND CSR
Team Members09IB-027: Baiju Hindocha 09IB-028: Jasjit Singh Banga 09IB-029: Joseph Thomas 09IB-030: Manik Bhalla 09IB-031: Manmohan Sharma 09IB-032: Neeraj Agrawal
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Profile of Tata Steel
‘Flagship’ company of the Tata group, founded in 1907
Outbid CSN of Brazil to acquire Corus—an Anglo-Dutch steel-maker which is several times its own size
Currently the fifth largest steel company in the world
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How to answer IMPM candidate's question?Question 1
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Tata Steel’s CSR Activities
Administration of Jamshedpur (Under JUSCO) CSR activities in other areas:
Health care (20%) Education (15%) Rural development (10%) Relief operations after natural calamities (10%) Sports and adventure (10%) Civic and community services (10%) Vocational training (10%) Environment (10%) Art and culture (5%)
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Tata Steel’s CSR Activities
CSR managed by Social Services Division through it’s 5 key departments and other departments: Community Development and Social Welfare (CDSW) Tata Steel Rural Development Society (TSRDS) Tata Steel Family Initiatives Foundation Tribal Cultural Society (TCS)
Expenditure on these 4 departments: Rs. 14.70 Cr Sports and Adventure (Rs. 5.30 Cr) Medical Care (Rs. 34.70 Cr) Environment Management (Rs. 125 Cr) Philanthropy (Rs. 6 Cr)
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Tata Steel’s CSR Activities
Portfolio of programs: Income generation programs Healthcare and hygiene Education Relief operations Sports and adventure Tribal welfare Philanthropy Civic administration Environment management % of profit spent on CSR activities: Approximately
6%
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“But, why are you wasting so much of shareholders’ money on activities that clearly fall within the purview of
local or state governments?Why don't you stick to your main
business?”
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Importance of CSR
Core Values: Reason for existence: Purpose of business is to
improve quality of life of people Concentrate on nation-building activities Plow back wealth generated in the
communities where it was earned Treat employees as producers of wealth and
members of Tata ‘joint family’ Treat all stakeholders with due respect and
fairness
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Importance of CSR
Need for literacy, healthcare, infrastructure, employee welfare for the benefit of the company
Community goodwill important for avoiding unrest at plant
Reduction in number of employees, spinning off of Jamshedpur administration show company focus
No dearth of funds for expansion Fame because of Tata Football Academy
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CSR in Competitive Environment
% of profit invested back in CSR activities has dropped from 12% to 6% (Absolute figure has not reduced)
Need to make CSR activities more professionally managed and leaner to reduce costs
Measure effectiveness of each CSR department for appraisal
Outsource CSR activities to NGOs
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The decision to divert shareholder’s wealth towards self-assumed social responsibilities …Was it justified?Question 2
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SWOT Analysis
• Better image• Influence investors’
decision to hold its shares
• Consumers’ and suppliers’ willingness to buy or sell
• Potential recruits’ eagerness to join it and existing employees’ motivation to stay
• Loss in business due to cost ineffectiveness
• Increase in expectations
• Loss in focus on core competencies
• Higher employee costs
• Better work environment for employees
• Neutralizes the negative impact of business on society
• Accountability and transparency in business operation
• Long-term cost savings
S W
OT
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Different Viewpoints
• Justified and commendable on ethical grounds
CSR Advocates’ View
• Great reputation, long-lasting commitment from talented individuals, very good labour-management relations and decades without striking
Savvy View
• Ultimately the array of non-core activities began negatively to affect the core steel business
Cynical View
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Negative Effects of CSR on Tata Steel
Company’s growth was hindered by the enormous social philanthropy
Had to cut its workforce Redesigned its Social welfare programs Lost focus on its corporate strategy
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CSR agenda and strategy: Outdated?Question3
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Current Situation
Misalignment between the business and CSR strategies
Fixed budget to encourage wide range of community-based charities, which allows the corporate contributions pie to be cut into more pieces
Corporate cash resources are allocated to social projects without seeking their viability
Activities are concentrated in areas where resources are available for investment and resource poor areas are neglected
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Lack of Centralized Consulting
Support for All Business Units
Opaque Functioning
Financial Dependency
Absence of Management Development
Problems in Fundraising and non-scalability
Strategic GapIn-consistency of
Business Practices
ISSUES
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Agenda and Strategy for future?Question 4
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Tata Steel to disengage from CSR activities or become even more active? Question5
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Value Gained on Tata Brand Equity Due to CSR ($US BN)
Value of Tata brand $9.92
2008 Tata CSR contributions $0.60
Cost of CSR contribution in perpetuity $6.03
Value of Tata brand over CSR investment $3.89
Value of Brand equity due to CSR $1.94
% return on CSR for Brand Equity 32%
Annualized value of Tata brand $0.99 Annualized value of Tata brand over CSR investment $0.39 Annualized value gained on brand equity due to CSR $0.19
% Return on CSR for Brand Equity 32%*Source http://www.indianmba.com/Faculty_Column/FC955/fc955.html
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Why not Disengage? CSR: Brand of TATA Helped in Economical Downturn Employee cost Saving• Less Salary• Least Employee Iteration rate• Effective labor force
Various Social & Political benefits Why not engage more Actively?
More CSR: Compared to Industry Standards Cost: Already matter of concern Cut Throat Competition
Neither
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“CSR initiatives must not be viewed as costs, but as investments, which
serve as the foundation of its competitive advantage and long-term
profitability”
“A concept whereby companiesintegrate social and environmental
concerns in their business operations and in
their interaction with their stakeholders on a voluntary basis”
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The Three Pillars
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Striking a BalanceTwo Approaches
Outward looking , concentrating on expectations of stakeholders
Social ContributionEcological Contribution
Inward looking, focusing on internal issues and aligning CSR activities with core competencies
Economical ContributionResource Enhancement
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Agenda - Ideal Approach
Benefits in both directions Society - Give back to get more Business - Gain more to give more
Managed from the top level & thought about strategically
Should be treated as a part of core business rather than a tangential project
Stakeholder and market expectations should be kept in mind
The benefits to society should be well communicated
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Pillars of Sustainability
Adapting to New Markets Aligning Internal and External CSR policies New Markets CSR Committee
Stepping it up a Notch: Evaluating Product Lifecycle Impact on Society Tata’s not in India anymore Product Lifecycle Impact Metrics to alleviate
this negative impact through collaboration with other Tata companies
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Product life-cycle Matrix
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Pillars of Sustainability Aligning Purpose with Profit: Internal
CSR Market Intense pressure to prove that focusing
on the community can continue to generate profits
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Way Ahead
Step 1
• Create Local Taskforce • Revise Internal Sustainability System to be
More Flexible and subsequent rollout
Step 2
• Increase Coordination with All Stakeholders
• Rollout New Lifecycle based index
Step 3
• Commence rollout of CSR credits trading market
• Implement and Revise CSR Trading Market as Necessary
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Thank you