Saturday, 8 May 2010

Guest Blog: Active Assistance drives real CSR

While recognizing that BOP [bottom of the pyramid] suppliers are endemic to such sectors as agra-business [small farms feeding into large farms feeding into coops/distributors, and so on], we should also note that most of the world’s economy is sustained by SMEs [small medium size enterprises]. This is not only true for advanced industrial nations like the US, EU, Canada, Japan, but is especially true in developing nations, even one like China. SMEs feed the Chinese heated economy more than state owned enterprises [SOEs].

Aside: I warn Westerners trying to do business in China not to be enamored of SOE powerhouses. These mega companies do not deal with little foreigners, and unless you can match their might, you will be dismissed outright. Opportunity in China is with the SMEs not only because there are more of them but also because they are hungry to do business with similar enterprises from abroad. They too cannot easily work with SOE monopolies, so foreign SMEs and Chinese SMEs have similar issues in terms of competitive advantage and growth opportunities.

It is an easy step to go from BOP to SME, and while the level of poverty may not be the same, the restrictions in size are quite similar. Multi-national corporations have the infrastructure, resources [people and otherwise], and financial capabilities to design, develop and implement across the board standards, which ultimately have a nugatory impact on SMEs which do not have comparable resources to implement them. This inability eliminates many from participating in MNC advantages on a global basis. From a business perspective [in addition to any CSR consideration], it stops good business practices in their tracks.

I was particularly taken by the “AAA” stance, that is, active assistance approach. It is not enough for a financially well-heeled MNC to establish a standard – whether it is a sustainability standard or a quality standard or a service standard – and then expect all of its suppliers in the chain to comply. Compliance is but one fact, and as essential as that may be, it must be recognized that compliance can defeat the entire goal by forcing suppliers [BOP, SME, etc] to subvert the goal by circumventing actual implementation through a smoke and mirror process [e.g., agreeing to comply but finding sub-suppliers to provide output, hence separating outcome (perceived good practices) from output (goods produced by someone else)].

This is the Mattel Toys issue with lead paint – policing the supplier contract to ensure compliance with quality standards while contributing little to the supplier’s ability to meet those standards in the first place. “Policing compliance” is the lowest common denominator of “managing inter-organizational relationships” along complex supply chains.

Active Assistance means you the customer get into the boat with the supplier and row towards the same horizon together/jointly. To me, this is key – AAA is an attempt to go from finger-pointing accusations from outsiders to collective effort of all key stakeholders to ensure everything that possibly can be done is done. More than compliance, it is about building opportunity – for the supplier and for yourself as the customer of the supplier. We are all in this together, so let’s stop throwing brick bats at supposed offenders. It is time to move away from the “management by fault/accusation” mode, with penalties incurred [a la Walmart].

This case also has an interesting take on global supply chains – we go from inter-organizational relations to developing a sense of inter-organizational shared responsibility. The issues for Starbuck’s are twofold: quality product at source and dependable/reliable/consistent source of supply. In the globalized business world, the real competitive issues are not products in the market, but the ability of a MNC to secure supply in the first place and to handle delivery/velocity through the pipeline to end use. Supply has become the critical issue – the new war of the worlds – whether that supply is coffee, water, gold, steel, coal, lumber, fish, or what have you. They who control the supply of any one thing have power over all the others.

Purely, from an enlightened self interest business perspective, Starbuck’s ‘do good sustainability principles’ are as much about securing sustainable supply, that is, steady and assured, as about sustainability from a social and environmental perspective. This is not to lessen or criticize the value of what Starbucks does; it is to put it in perspective. For me, CSR at root is about making money, winning the competition war, being profitable. One hugs mountain dwelling poor coffee growers in Mexico in order to ensure consistent, steady supply of quality coffee, and the financial viability of the company. It is not just for good PR to attract overfed North Americans to buy their morning lattes with a good conscience.

Guest Blogger: Victor Deyglio, President, Canadian Professional Logistics Institute

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