Location, Location, Location: Placing SR within an Organization’s Business Model
Written by Carla Susmilch
When it comes to purchasing real estate, it’s all about Location. A three-bedroom flat near one of London’s major tube stops will cost you much more than a large house in a Texas suburb. A similar concept exists with regard to where Social Responsibility is placed within the organizational structure of a business. Often, Social Responsibility is organized within either the Supply Chain or Legal/Compliance functions.
In an article last year (Motivating Corporations to Do Good), The New York Times took up the question, “Is it naïve to expect corporations to assist in addressing the social, economic and environmental challenges of the day?” I would argue that it is naïve to expect corporations to address social, economic, and environmental challenges without outside pressure (governmental or societal) if those challenges do not have a market solution. If the issue is not being addressed by the market today – then it is fair to question if it ever will. Eventually, the issues will be addressed – if not by the market independently,in response to societal and/or government action.
If, as an organization, you do not address social, economic and environmental issues related to your business, then there is a risk you will be caught flat-footed when customers or the government eventually demand it. It is a gamble to assume that your organization will not need to address these challenges. A safer approach may be to ask when the demands will come, and how you will be positioned respective to your competitors when they do.
Operating from the understanding that activities associated with Social Responsibility serve to mitigate risk and create a likely competitive advantage, we accept them as a necessity, not a luxury. The question then becomes, “How can I maximize SR’s effectiveness over the long-term?” A part of the answer is determined by where you place it within your organization’s structure – Supply Chain or Compliance?
All About the Benjamin’s
If Social Responsibility does get incased into an organization, the question then turns to where should it dwell? People might differ on the strategic positioning of SR within their edifice. Below highlights a few Pros and Cons of SR placement within an organization.
Residing within the Supply Chain allows for improved visibility into factory risk. This advantage in visibility results from the additional information obtained through daily interaction with those making product and sourcing decisions. Due to this additional information and improved visibility, factory risk can be better assessed and mitigated.
Proximity to those making the product and sourcing decisions often improves Social Responsibility’s access to the parties from whom product is sourced. This access allows for standards to be more seamlessly communicated to vendors during onboarding processes. Insertion into existing onboarding processes reduces the risk of failing to communicate effectively with a vendor.
Finally, the opportunity to influence the individuals making product and sourcing decisions can improve those decisions over time. If appropriate incentive structures are in place, the input that these parties receive from Social Responsibility professionals can allow them to make decisions that are in the organization’s best overall interest.
Cost pressure is generally a constant across private organizations and within their structure; however, budgetary considerations often vary based on the mission and incentive structures of overall business decision makers.
Supply Chain decision makers are incentivized to supply high quality product at low cost. Doing so allows for organizations to protect or improve their margin. It is well recognized that consumers are price-conscious. The recognition that a growing share are also conscious of Social Responsibility activities is catching-up. There is often an inherent conflict between these desires, but many Supply Chain decision makers will err on the side of cost.
Doing so diminishes the effectiveness of Social Responsibility activities in a variety of ways. First, if the organization’s business warrants an increase in the supply base, Social Responsibility may be the last division within the Supply Chain division to be scaled – as other functions are likely to be given priority. Second, there is a fear that an increase in standards is likely to put upward pressure on Cost of Goods (CoGs), the exact opposite direction hoped for by the decision maker.
A divided house cannot stand. Without the full support of the leadership to which Social Responsibility reports, it cannot be maximally effective. Social Responsibility can often end up being viewed as an obstacle instead of a critical function. Ifnot an outright target of eventual cost cutting initiatives, the department’s effectiveness can gradually be diminished until this course of action cannot be ignored.
When Social Responsibility is placed in the organization near Legal, Risk Management, and Public Relations, there can be a significant difference in performance. Most of these benefits result from a more natural alignment of purpose. The focus rests more with risk mitigation and perception management rather than hard numbers related to make-it/move-it activities in the Supply Chain. This is in contrast to the natural tension present when situated within the Supply Chain.
First, Social Responsibility budgets – while always scrutinized, will be scrutinized with an improved understanding of the benefit provided. This decreases the likelihood of underfunding relative to placement within the Supply Chain. Second, consistently partnering with Legal, Risk Management, and Public Relations can improve response in the event that a significant risk is identified or an event occurs. Third, Social Responsibility will be able to more fully advocate from a pure SR perspective rather than feeling pressure from Supply Chain leadership. This will result in decisions being made from a different level within the organization with additional information.
The “Cons” of positioning SR outside the Supply Chain have more to do with foregoing the benefits resulting from positioning within the Supply Chain. Namely – 1) Visibility, 2) Access, 3) Influence. While the tension between objectives is relieved within the Supply Chain – it is not removed from the organization. The increase in the distance between Social Responsibility and Supply Chain can result in gaps in communication. As a result, issues may not be addressed as quickly and the potential financial impacts of risk can increase.
Where to go from here?
Ultimately the location of a Social Responsibility division is a business decision each company needs to make based on their mission and desires of their stakeholders. What is important to note though, is that there should be a place within the business model for Social Responsibility. The division shouldn’t be seen as an “add on to a business model” but instead an integral part of the business. Armed with this information and a commitment to Social Responsibility activities, organizations can make wide-eyed decisions and get the most from their SR department, leading to a more socially compliant and sustainable company.
Carla Susmilch is a Program Manager for Sumerra – a global compliance and consulting company. She has previous experience working in Social Responsibility in a Brand role, and currently represents a Third Party Provider. For further information, please contact Carla Susmilch at firstname.lastname@example.org or visit Sumerra.com to see a list of services Sumerra can provide you.