What is Carroll’s Pyramid of Corporate Social Responsibility?

Pyramid of Corporate Social Responsibility is a simple framework that argues on the aspect that why organizations should meet their corporate social responsibilities. The pyramid was developed by Archie Carroll and highlights on the four main responsibilities of the organization, namely, Economic, Legal, Ethical, and Discretionary or Philanthropic. and we also learn

In a complete ongoing process of globalization, business is required to keep pace with the fast changing systems. In order to remain competitive, companies need to evaluate their competitive advantages. Various strategic models such as Porter’s generic strategies, SWOT or Porter’s five forces need to be updated to the current factors shaping the business environment.

Therefore, big companies such as Microsoft, Lego, Arla Foods, Nestle, Ikea, have been basing their strategies by conducting bench marking. A useful tool that can help in evaluating the strengths and weaknesses of the company is the competitive profile matrix also known as the CPM matrix.

Here is the broad overview of what we are going to learn in this classs:

1.Features of the Carroll’s Pyramid of Corporate Social Responsibility

2. 4 Components of Carroll’s Pyramid of Corporate Social Responsibility

3.Strengths and Weaknesses of Carroll’s Pyramid of Corporate Social Responsibility

There are many other topics that we are going to covered in this class. so without any delay..Let’s get stated thanks..

Anatomy of Carroll’s Pyramid of Corporate Social Responsibility

In the current era, it is expected from the corporate companies to come forward and help the various institutions and communities and take part in filling the shortages for the welfare of the society and as a part of their corporate social responsibilities.

All the 4 components of Carroll’s Pyramid of Corporate Social Responsibility complement each other but are not mutually exclusive.

The factor of Corporate Social Responsibility has been around for more than six decades now, but its importance and practice came into the picture much later.

The first component of the framework is the economic responsibility that is to generate profits for the company.

The second component is legal responsibility that is to adhere to the laws and compliances set by the society.

The third component is ethical responsibility and is closely linked to the second one. It harps on the fact that the businesses should indulge in the righteous practiced even when they are not compelled by the law.

The fourth component is the philanthropic responsibility that involves serving the society by contributing towards social, educational, cultural, and recreational purposes.

The pyramid is still quite relevant even in today’s market scenario and is regularly discussed, debated, cited, modified, and criticized by the various corporate leaders, politicians, academia, and social commentators.

To understand the true relevance of the entire framework and use it on an optimal level, it is necessary for the corporate companies to focus on its practical implications and applications and look beyond the point of debate and discussions.

The entire framework of the pyramid is easy to use and understand given its fundamentals that make the companies comprehend its necessary principles and set forth the practices within the organization to reach the top of the pyramid.

Features of the Carroll’s Pyramid of Corporate Social Responsibility

The first and foremost feature of the pyramid is that it is built on the foundation and objective of profit signifying that the aspect of profit always comes first for the company.

The second feature comes in line is that the company needs to ensure that it dedicatedly complies with all the prevalent laws, regulations, and compliances.

It is necessary for the company to understand that before considering the philanthropic responsibilities, it needs to meet its ethical duties before.

4 Components of Carroll’s Pyramid of Corporate Social Responsibility

  • Economic – For the business to survive on a long-term basis and benefit the society, the first responsibility of the company is to gain profits.
  • Legal – It is imperative for the company to obey and adhere to the laws and regulations related to the nature of its business, competition, employment, and health and safety among others.
  • Ethical – It is important for the company to act on the grounds of ethics and morals in society and should also go beyond the narrow requirements of the law and order.
  • Philanthropic – It is the responsibility of the company to give back to society. This facet of responsibility holds an important place even though it is discretionary in nature.

Strengths and Weaknesses of Carroll’s Pyramid of Corporate Social Responsibility

Strengths

The model is easy to use and understand.

It conveys the message that CSR has more than one element to it.

It lays its main emphasis on the aspect of profit generation.

Weaknesses

The model seems too simplistic to many corporate leaders.

There is an argument that should morals and ethics come at the top before the profit generation.

Businesses do not always adhere to the factors of CSR.

In-depth analysis of the 4 responsibilities of Carroll’s Pyramid of Corporate Social Responsibility

Carroll’s Pyramid of Corporate Social Responsibility - 2

1) Economic

The economic responsibilities are the most basic and significant part and elements of the business. It is quite imperative for the business to generate the maximum amounts of profits for its shareholders and stakeholders and the model itself states that the business is an economic unit to the society as a whole.

The company has to overcome the various internal and external factors that work as an obstacle for the overall growth and development of the business. Right from facing the competition, brand enhancement, marketing and promotional techniques to overcoming other business and market dynamics; the main responsibility of the company is to generate the maximum amount of profit by making sensible strategic business decisions.

2) Legal

The second layer of the pyramid talks about the legal responsibilities of the company. The management of the company has to adhere to the laws and compliances laid by society and the authorities related to the nature of the business and its business operations.

3) Ethical

The main difference between the ethical responsibilities of the firm from the legal and economic responsibilities is that ethical responsibilities are at the discretion of the management and are not required for the company to fulfill but are expected by the society. It talks about the moral values and rights that are not written in the books of law but are the expectations of the society. It refers to the good and ethical behavior of the company whilst conducting its business operations serving as the guideline for the future.

4) Philanthropic

This set of responsibilities stand at the top of the pyramid and it harps on the fact that it is imperative to be a good corporate citizen and should provide impetus in improving the quality of life of the society and its people. Volunteering in various community programs, corporate contribution, fundraising for social issues, and other such initiatives should be undertaken and initiated by the company with the motive of giving back to society. To some extent, this set of responsibilities are desired and expected by the society from the corporate company.

Take Away from Carroll’s Pyramid of Corporate Social Responsibility

If the company does not fulfill its economic responsibilities and not generate enough profits, it directly affects the employees and owners of the company.

Legal set of responsibilities are quite important and vital for the business to survive within the ecosystem, but they also have a relationship with the employees, customers, and other stakeholders of the company.

Ethical responsibilities frequently engage with the customers and employees, but they impact the other stakeholders of the firm.

Philanthropic responsibilities influence the morale of the employees, enhance the brand value, and have a major impact on the community.

Through the competitive profile matrix, companies can find out – which are the areas where they need to be strong in, and which are the ones where they need to improve. They can do this by analyzing their main competitors in the market and asses them based on several success specific factors. These factors, on which the analysis is made, depend greatly on the industry in which the company is operating. Such factors could be: market share, range of productsbrand reputation, etc.

Steps in developing a competitive profile matrix

If you want to develop a competitive profile matrix, the first step is to define your competitors. Once you have finalized the competitors you are going to focus on, you need to decide the most important factors which are needed to be successful in the respective industry. Once these factors are identified, you need to identify the factors in which your competitors are strong or weak.

Once you have decided a factor for making the matrix, than for each factor, a weight and a rank is going to be assigned. The weight can range from 0.0(low importance) to 1.0 (high importance) and indicates how important the factor is for succeeding in the industry. The ratings present how well are companies doing in each area and it ranges from 4 to 1, from the highest strength to the highest weakness. Afterwards, the weight is multiplied by the rank, resulting the score. The company with the highest score proves to be stronger than its competitors.

This identification and the subsequent classification of the factors will give you a fair reading of your competitive profile in the market as well as the competitive profile of other competitors. This will help you define your exact competitive advantages and tailor your strategy accordingly. Thus, the competitive profile matrix paves the way for you to overtake your competition.

Let’s take an example of the competitive profile matrix with the company Arla Foods, which is the largest producer of dairy products in Scandinavia. As the company has been expanding greatly in Scandinavia, holding approximately 85% of the market share in this region, they continued to follow their expansion also in Europe and in Africa. Africa represents a great challenge for them as the way business is conducted on this continent differs greatly when compared to the others.

One of their current plans is to approach the East African market through milk powder initially. The thing that they have taken into consideration consists in mapping all the potential direct competitors for the small sachets of milk powder. Following a market research, they have identified that in Tanzania, the primary focus country, there are two main direct competitors: Cowbell (a Swiss manufacturing company) and Moregold (a Tanzanian milk powder company).

The research was done with the help of a Competitive profile matrix which is shown below. As you can see, the factors selected for the dairy industry were brand reputation, market share, low cost structure, variety of distribution channels and others. All of these factors were weighted and a score was calculated. This score showed that both Cowbell and MoreGold were very strong competitors in the market for Arla foods.


Competitive profile matrix


The competitive profile matrix or CPM matrix is used as a tool in decision making. However, as many other business models of strategy, the competitive profile matrix it has its own drawbacks. The main drawback consists in the subjectivity of the person conducting the analysis, as the weights and ranks differ on personal interpretation, assumptions values and beliefs.

The lack of quantified data is another major disadvantage of this tool, as the disadvantage in one factor can be paid off by an advantage in another one. Lack of information can also create difficulties in this analysis, as gaining access to this kind of private information can prove to be rather difficult. Therefore, the CPM should be used as an orientation tool for getting a bird’s eye view on the point where your company is standing as compared to your competitors.

A Competitive strategy can be defined as the action plan which takes place over a long period of time and is used by different companies and firms in order to gain a competitive advantage over the rivals that they tend to have in the business industry

The generic strategies described by Michael Porter are essential to explain how a company e uses its competitive advantage to compete within a similar industry.

Therefore, Porter suggested that the company can use either the differentiation or cost leadership or focus strategy as a competitive edge to survive in the market.

Table of Contents

Concept of competitive strategy

As mentioned above, Porter suggested either of the three strategies to survive in a competitive business. The company must use only one out of three competitive strategies.

This will help the company to survive and minimize the risk, but if the company does not choose one of three competitive strategies, then there would be a loss of resources.

All of the six strategies designed by porter enlists the interaction between production differentiation, cost minimization, and focus on the market of the firm.

Industry, according to porter, has many segments which can be targeted by different companies. Primary there are two types of competitive advantages according to the porter theory, which is differentiation or lower cost, compared to its rival firms. When the company has a unique competitive advantage, then that company can overcome the five forces easily.

There are two basic competitive advantages and when these are combined with the scope of activities which will help the organization to achieve a performance which is above average amongst all the other competitors in the industry. There are two variants of the focus strategy, which are differentiation focus and cost focus.

It can be summarized that if, in general, all of the segments or most of the segments, are targeted by a firm or an industry which is based on targeting the price-conscious customers then it is following the cost leadership competitive strategy in order to beat the competition.

Also, when the target customers were not price-conscious but are conscious of the features or attributes of the product with respect to quality or service, then the organization requires a higher price for the product.

In this case, it is pursuing a differentiation strategy which ensures that it needs to differentiate the product amongst other competitors by placing itself as unique in the minds of the customer.

Also, if the organization is seen to focus on a few selected segments, then it is said that the organization is following a focus strategy.

Importance of competitive strategy

Competitive strategies

Profit is the baseline for almost every company in the market. Without profit, the company cannot survive since it forms the baseline of all the operations. Although the modern definitions of baseline have been changed, the property remains the most important one nevertheless.

In order to gain better profits, the company has to have a better sale of their products or services. This can be done only with the help of either better products, better prices, or having a unique selling proposition.

Every company strives to beat its competitors in order to have better profits and gain an edge in the market. This is where the concept of competitive strategy comes into the picture.

With the help of a competitive strategy, the organization can modify itself according to the needs of the market and armament itself with required tools and changes in order to combat other competitors. The cooperative strategy is a plan which will help the company to beat other players in the market by planned strategy.

Competitive strategy is also important so that the organization does not wander from its vision and Mission. The competitive strategy helps to keep the organization focused on its goals.

In the product cycle, when the product is on a plateau or flat phase where there is no growth, neither degrowth. During this phase, the product requires a push and a planned competitive strategy which will help it soar past the competitors and increase the sale in the market which will, in turn, increase the survival in the market. Competitive strategy is thus very essential for the survival of the product in the market.

Whenever a company undergoes reform for rebranding for a particular product or the entire product design or even the entire company, then competitive strategy becomes very crucial.

Having a new competitor strategy to beat the rival companies or their products by rebranding or redesigning their products helps the company to gain better profits and create a new image in the market.

Porter’s Competitive Strategies

leadership strategy

#1. Cost leadership strategy

This is a strategy as described by the porter in which the firm has their source of getting the market share by placing their products to the price-sensitive or cost-conscious customers. They can achieve this by offering the best and lowest prices on the products.

They can also offer a low price to value ratio. In order to maintain the profit levels, the organization needs to have a high return on investment and the operating cost, which will ensure that the profit line does not fall below its competitors. There are three ways to achieve this:

The first is by achieving lower operating costs, which is achieved by having a high volume of standardized products. These are basic products with no additional increments or personalization, which is why the production cost is lowered because of moments and standard components.

The number of models or variants are the method in order to ensure a larger and faster production and the overheads are minimized by paying less to their employees or locating the manufacturing facility to lower rented areas.

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