Strategica 2015. Local versus Global

International Academic Conference – Third Edition – Bucharest, October 29-31, 2015

Local versus Global Edited by Constantin Brătianu Alexandra Zbuchea Florina Pînzaru Elena-Mădălina Vătămănescu Ramona-Diana Leon

STRATEGICA Local versus Global

CONFERENCE HONORARY CHAIRS Remus Pricopie, Rector, National University of Political Studies and Public Administration, Bucharest, Romania Alina Bârgăoanu, Vice-Rector, National University of Political Studies and Public Administration, Bucharest, Romania CO-CHAIRS Constantin Brătianu, Professor, Bucharest University of Economic Studies, Romania Florina Pînzaru, Dean, College of Management, National University of Political Studies and Public Administration, Bucharest, Romania TRACK CHAIRS Laurențiu Anghel, Bucharest University of Economic Studies, Romania Lucian Anghel, National University of Political Studies and Public Administration, Bucharest, Romania Constantin Brătianu, Bucharest University of Economic Studies, Romania Gianluca Colombo, University of Lugano, Lugano, Switzerland Johan Cottyn, Vives University, Kortrijk, Belgium Anikó Csepregi, University of Pannonia, Veszprém, Hungary Patrizia Gazzola, Insubria University, Varese, Italy Balázs Heidrich, Budapest Business School, Budapest, Hungary Martin Henson, University of Essex, UK Istvan Lengyel, Banking Association for Central and Eastern Europe (BACEE) Ramona-Diana Leon, National University of Political Studies and Public Administration, Bucharest, Romania Andreas Nachbagauer, University of Applied Studies BFI Vienna, Vienna, Austria Mariana Nicolae, Bucharest University of Economic Studies, Romania Lajos Szabó, University of Pannonia, Veszprém, Hungary Nino Papachashvili, Ivane Javakhishvili Tbilisi State University, Tbilisi, Georgia Cristian Păun, Bucharest University of Economic Studies, Romania Zoltán Veres, University of Pannonia, Veszprém, Hungary Alexandra Zbuchea, National University of Political Studies and Public Administration, Bucharest, Romania

SCIENTIFIC COMMITTEE Laurențiu Anghel, Bucharest University of Economic Studies, Romania Nedra Bahri-Ammari, IHEC of Cartage, Tunisia Dumitru Borţun, National University of Political Studies and Public Administration, Bucharest, Romania Johan Cottyn, VIVES University, Belgium Camelia Crişan, National University of Political Studies and Public Administration, Bucharest, Romania Nicolae Dănilă, Bucharest University of Economic Studies, Romania Daniel Glaser-Segula, Texas A&M University San Antonio, Texas, USA Øyvind Ihlen, Department of Media and Communication, University of Oslo, Norway Omkumar Krishnan, Indian Institute of Management Kozhikode, India Raquel Meneses, University of Porto, Portugal Andreas Nachbagauer, University of Applied Sciences BFI Vienna, Austria Mariana Nicolae, Bucharest University of Economic Studies, Romania Luminița Nicolescu, Bucharest University of Economic Studies, Romania Dimitrios Nikolaidis, City College International Faculty of Sheffield University, Thessaloniki, Greece Marina Ochkovskaya, Lomonosov Moscow State University, Russia Cristian Păun, Bucharest University of Economic Studies, Bucharest, Romania Lajos Szabó, Pannonia University, Hungary Eduardo Tome, Universidade Europeia, Laureatte Group, Lisbon, Portugal Kathleen Voges, Texas A&M University-San Antonio, Texas, USA

ORGANIZING COMMITTEE Lucian Anghel, National University of Political Studies and Public Administration, Bucharest, Romania Costin Dămășaru, National University of Political Studies and Public Administration, Bucharest, Romania Ramona-Diana Leon, National University of Political Studies and Public Administration, Bucharest, Romania Andreea Mitan, National University of Political Studies and Public Administration, Bucharest, Romania Lucian Simion, National University of Political Studies and Public Administration, Bucharest, Romania Laurențiu-Mihai Treapăt, National University of Political Studies and Public Administration, Bucharest, Romania Elena-Mădălina Vătămănescu, National University of Political Studies and Public Administration, Bucharest, Romania Alexandra Zbuchea, National University of Political Studies and Public Administration, Bucharest, Romania

ADDITIONAL REVIEWERS Stefano Amelio, Bergamo University, Bergamo, Italy Andreia Gabriela Andrei, "Alexandru Ioan Cuza" University, Iași, Romania Laurențiu Anghel, Bucharest University of Economic Studies, Romania Constantin Brătianu, Bucharest University of Economic Studies, Romania Gianluca Colombo, University of Lugano, Lugano, Switzerland Anikó Csepregi, University of Pannonia, Veszprém, Hungary Diana-Luiza Dumitriu, National University of Political Studies and Public Administration, Bucharest, Romania Olena Dymchenko, O.M. Beketov National University of Urban Economy in Kharkiv, Ukraine Patrizia Gazzola, Insubria University, Varese, Italy Piero Mella, Pavia University, Pavia, Italy Elena Querci, Insubria University, Varese, Italy Olena Panova, O.M. Beketov National University of Urban Economy in Kharkiv, Ukraine Nino Papachashvili, Ivane Javakhishvili Tbilisi State University, Tbilisi, Georgia Roberta Rita Pezzetti, Insubria University, Varese, Italy David Slavata, Technical University of Ostrava, Czech Republic Lajos Szabó, University of Pannonia, Veszprém, Hungary Margaret Thompson, Clayton State University, Georgia, USA Laurențiu-Mihai Treapăt, National University of Political Studies and Public Administration, Bucharest, Romania Elena-Mădălina Vătămănescu, National University of Political Studies and Public Administration, Bucharest, Romania José Antonio Vega Vidal, Pontificia Comillas University, Madrid, Spain Alexandra Zbuchea, National University of Political Studies and Public Administration, Bucharest, Romania

STRATEGICA International Academic Conference – Third Edition – Bucharest, Romania, October 29-31, 2015

Local versus Global Edited by Constantin Brătianu Alexandra Zbuchea Florina Pînzaru Elena-Mădălina Vătămănescu Ramona-Diana Leon

All the rights of this version belong to Faculty of Management (SNSPA), 2015.

Wording, contents and translation quality of the paper are entirely in the charge of authors. Articles or extracts from this book may be reprinted on condition that the names of the authors and the title of the book are clearly stated.

The opinions expressed in the papers published are the authors’ own and do not necessarily express the views of the editors of this volume. The authors assume all responsibility for the ideas expressed in the materials published.

SNSPA, Faculty of Management 6 Povernei Street, Sector 1, Bucharest, Romania www.facultateademanagement.ro ISSN: 2392-702X ISBN: 978-606-749-054-1

Contents

Foreword / 13

Corporate Social Responsibility and Global Strategy Collective ethic identity in the Low Cost High Value companies / 15 Elena Querci Building CSR in the corporate strategy / 23 Patrizia Gazzola, Gianluca Colombo Embedding sustainability into business strategy: the role of the balanced scorecard / 32 Anna Pistoni, Lucrezia Songini CSR strategies and value creation in the Agro-food sector: a comparative perspective / 43 Gloria Fiorani, Cristina Mititelu, Irene Litardi, Cecilia Embriaco How can delocalization follow a correct sustainable supply chain approach? Lessons from Rana Plaza disaster in Bangladesh / 55 Irene Litardi, Gloria Fiorani, Cristina Mititelu, Stefano Bonci CSR integration in the strategy. An Italian excellence able to compete with global leaders / 64 Claudio Battistini, Patrizia Gazzola Responsible and sustainable luxury in the global market: new emerging strategies in the luxury sector / 73 Enrica Pavione, Roberta Pezzetti IAS/IFRS and social responsibility: is there a connection? / 81 Stefano Amelio Implementing CSR strategy in nonprofit organizations, the rule of Sustainability report / 91 Patrizia Gazzola, Massimo Ratti Policies and strategies in business value-creating organizations / 100 Piero Mella, Patrizia Gazzola

Challenges of Strategic Management The performance-based funding scheme of universities / 113 Juha Kettunen Managing organizational learning as a challenge in strategy / 123 Adrienn Ferincz, Lilla Hortoványi

Ambidextrous management in different growth phases / 133 Dávid Taródy, Lilla Hortoványi Human energy management in organizations – a new management imperative / 144 Grażyna Osbert-Pociecha The present and preferred culture for project organizations: investigation based on the Competing Values Framework / 155 Lajos Szabó, Anikó Csepregi Games without frontiers? The interplay of subcultures and their territories in a Hungarian Business School / 166 Nick Chandler, Balázs Heidrich The importance of SHRM processes within the organizations from Romania / 178 Carmen Novac, Cristina Vidroiu Going global: key insights from two Mexican companies / 189 Martha Rivera-Pesquera, Silvia Cacho-Elizondo Handling supply chain disruptions. Global versus local firms / 202 Denisa Mamillo Implementation of the LEAN production approach to production problems in a process at Toyota Motor Manufacturing Turkey / 211 Seher Arslankaya, Nur Yonar The impact of changes in management of human resources / 220 Arsim Gjinovci

Knowledge Management Organizational knowledge dynamics: a metaphorical analysis / 227

Constantin Brătianu Stimulating strategic organizational processes: knowledge creation and organizational learning / 235 Cristian Valentin Hapenciuc, Ruxandra Bejinaru The education and the vocational training of adults - vectors of the development of the intellectual capital / 244 Livia Elena Vranciu, Cristian Valentin Hapenciuc, Daniela Mihaela Neamțu, Ruxandra Bejinaru European dimension of education in the context of globalization and global competitiveness / 255 Luminița-Claudia Corbu, Daniela Neamțu, Gabriela Cioban Intellectual capital: an epistemological approach / 268 Ramona - Diana Leon, Raúl Rodríguez Rodríguez

On commercialization process of innovative training / 277 Jacek Woźniak Knowledge creation that requires repositioning in learning and innovation / 285 Dana Niculescu Exploring the potential of serious games’ online communities in leveraging collective intelligence / 294 Alexandru Capatina, Gianita Bleoju The relational leader. A preliminary framework for corporate intercultural accommodation / 303 Elena-Mădălina Vătămănescu, Vlad-Andrei Alexandru, Andreia Gabriela Andrei The effects of knowledge from collaborations on exploratory innovation of Greek SMEs / 313 Anastasios Karamanos

Challenges of Integration into the World Economy and Development The impact of ASEAN – China Free Trade Agreement on European Economy / 320 Andrea Mantovani New forms and trends of international trade amid the global crisis / 327 Tamta Mikaberidze Cluster as a tool for the challenges of development / 336 Ineza Gagnidze Preferential trade regimes as tools for integrating small countries into the World Trading System (Case of Georgia) / 345 Marine Tavartkiladze Prospects to improve the tourist market operation in Georgia / 353 Marina Metreveli, Irina Gogorishvili Integration with the EU: prospects for foreign trade of Eastern partnership countries / 362 Eka Sepashvili Economics The rationality of a social animal / 373 Cristian Păun Cochrane-Orcutt procedure in response to the effects of European Monetary Union on trade volume between Euro-Area and Albania / 383 Ardita Todri, Marsel Sulanjaku Analysis of the effects of the structural funds absorbed during the 2007-2013 period in the Northeast Region of Romania using a Cobb-Douglas production function / 393 Andrei-Alexandru Moroşan, Cristian Valentin Hapenciuc, Iulian Condratov

FDI in the South Caucasus: institutional and regional development context / 399 Lela Jamagidze Assessment of economic viability in agriculture / 411 Jurate Savickiene, Astrida Miceikiene, Lucija Jurgelaitiene The effect of taxes and subsidies on economic viability of farms / 424 Astrida Miceikiene, Jurate Savickiene, Danute Binkiene Fast-growth economies and the determinants of competitiveness in Latin America and the Caribbean / 437 Pablo Collazzo, Loic Taieb Exploring the relation between national competitiveness and economic growth: the case of CEE EU member states / 451 Romana Korez Vide Beyond form and rule. Making more out of informality / 461 Juvaria Jafri, Ummad Mazhar Gaining competitive advantage in a global business environment - the case of SMEs in emerging markets / 470 Ana-Maria German, Mircea Boșcoianu EBA's Stress Testing: A substantiated analysis or an image exercise / 478 Eugen Marius Comiş, Steliana Moraru Finance and Banking Sovereign default analysis through extreme events identification / 487 Vasile George Marica, Lucian Claudiu Anghel On so-called “random walk theory” at the global FX market / 498 Vladimir Prelov A framework for analyzing the Romanian banking market by new entry institutions / 509 Laurențiu-Mihai Treapăt, Ion Ivan Tackling the complex problem of foreign currency loans and systemic risk - Romanian case study / 518 Anda Gheorghiu, Laurențiu-Mihai Treapăt European taxation - between flat and progressive tax / 528 Cristina Vlad, Petre Brezeanu

Management and Leadership The importance of corporate governance in banking. Evidence from the banks listed at Bucharest Stock Exchange / 536 Mircea Perpelea, Alina Mihalcea

Entrepreneurial intentions among university students in the Balkans / 546 Roena Agolli, Laura Claudia Neagu, Anastasios Karamanos The Dark Triad of personality in organizational life – a correlational study with counterproductive work behavior and work locus of control / 555 Dan Florin Stănescu, Laura Mohorea The importance of the right choice of communication flow / 562 Elvira Kuhn Crisis management and conflict management in public administration and private organizations / 572 Mircea Aurel Niţă

Business Ethics and CSR Corporates and NGOs collaborating for volunteering / 580 Alexandra Zbuchea, Carmen Marcu Social innovation - a global shaper of the digital civil society / 589 Steliana Moraru, Eugen Marius Comiș The Corporate socially responsible investing criteria in Private Equity: relevance and business impact / 599 José Antonio Vega Vidal, José Luis Fernández The liberalization of the energy markets in the globalization context / 609 Titus Suciu Rethinking public administration beyond transparency. The role of training and education / 618 Mauro Romanelli Sustaining public healthcare organizations: accreditation, legitimacy and personnel assessment / 628 Mauro Romanelli, Maria Ferrara, Paola Briganti, Domenico Salvatore Towards sustainable Parliaments / 636 Mauro Romanelli Effectiveness of allocation of health system non-financial resources / 647 Paulina Ucieklak-Jeż, Agnieszka Bem, Paweł Prędkiewicz Impact of hospital’s profitability on structure of its liabilities / 657 Agnieszka Bem, Paweł Prędkiewicz, Paulina Ucieklak-Jeż, Rafał Siedlecki Measures of hospital’s financial condition – empirical study / 666 Rafał Siedlecki, Agnieszka Bem, Paweł Prędkiewicz, Paulina Ucieklak-Jeż

Marketing and Consumer Behavior Symbolic consumption of luxury: an example of luxury fashion goods in Russia / 677 Anna Peshkova, Taylan Ürkmez, Ralf Wagner Personal branding: the marketization of self in the digital landscape / 686 Diana-Luiza Dumitriu, Cătălina Virginia Ciobanu Emotions - drivers of online virality content characteristics of viral blog articles in Romania / 694 Romina Alexandra Stan, Ana Cruz BES 6001 certification and green marketing in the construction industry: the Romanian and UK cases / 707 Cătălin Lupoaie, Ana Cruz The influence of online reviews on brand equity and purchase intention of smartphones and tablets in Romania / 719 Mariana - Cătălina Boicu, Ana Cruz, Anastasios Karamanos City branding as response to the local versus global debate / 729 Gabriela Popescu Cross-cultural variations in consumer behavior: literature review / 740 Galina Timokhina, Ralf Wagner, Taylan Ürkmez Marketing: it’s all about digital / 751 Florina Pînzaru

Foreword

Change, complexity and interconnectivity are the characteristics of the contemporary economies and societies. Globalization and the new social and economic patterns have profoundly influenced the way governments, managers and leaders approach their businesses. Staying and thinking locally have become a menace for the organization survival in a dynamic global arena. The economic drivers and the profit goals have pushed the organization out of its domestic environment and placed it in the middle of the global trends. In this light, thinking and acting globally are no longer seen as an imperative for the development of corporations or large enterprises, but as an adaptive exigency for small and medium organizations whose management has to assume a global mindset. Hereby, going beyond the national borders and beyond the cultural differences is a prerequisite of staying in the game. In this context, the Strategica 2015 International Conference (October 29-31, Bucharest, Romania) focuses on the local versus global dynamics, from myriad standpoints: business, economics, finance, management, marketing, ethics and such. The Faculty of Management from the National University of Political Studies and Public Administration (SNSPA), Bucharest, Romania initiated Strategica in 2013, in partnership with the National Bank of Romania. Every year the span of the conference grew constantly, from over 30 academic papers and more than 70 participants from 12 countries in 2013 to over 80 papers presented by almost 170 participants from 20 countries in 2015. The quality of the studies presented has been certified by the indexation of the previous volumes of the conference in Thomson Reuters. The present volume incorporates the papers discussed during the nine special sessions proposed: Economics, Finance and Banking, Management and Leadership, Marketing and Consumer Behavior, Knowledge Management, Corporate Social Responsibility and Global Strategy, Challenges of Strategic Management, Business Ethics and CSR, and Challenges of Integration into the World Economy and Development. The diversity of the topics approached by the participants at Strategica 2015 makes this volume an image of the wide variety of concerns of academia and practice. Having this in mind, we hope that the enclosed research will be interesting and provocative, rich in ideas and stimuli for further studies. The Editors

Corporate Social Responsibility and Global Strategy

Corporate Social Responsibility and Global Strategy

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COLLECTIVE ETHIC IDENTITY IN THE LOW COST HIGH VALUE COMPANIES Elena QUERCI Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Abstract. The global social and economic changes have induced companies to innovate more quickly and to administer business costs, from supplies through production and logistics, to reduce and contain inefficiency. The purpose is to offer consumers goods and services with high levels of real and perceived value, at fair prices. The low cost high value production philosophy is based on a set of behaviors designed to offer goods and services at low cost respecting the quality factor, implementing innovative distribution processes and modern management policies, while encouraging a consumer style can generate high benefits for consumers, for businesses and for the country's system. Companies that choose to adopt Low Cost/High Value strategies produce goods or services with characteristics which are important for customers like design, environmental safeguards and easy access, for more natural, ecological environmental products. The companies, in defining business objectives and decisions that will follow them, will have to consider both the economic choices and both social ones. It is possible reach the long-term development if companies put their attention to the various stakeholders' needs by combining them with the respect of the rules and social values, and therefore necessary to balance economic value and competitive and the intangible value given by the consensus achieved by having undertaken social and environmental policies. The final objective is to analyze the strategies implemented and business models of three companies that have adopted low cost high value, the Centro Medico Santagostino, OdontoSalute and Nau! in northern Italy. The three companies in addition to the signing of the ethical code dell'AssoLowcost are engaged at various levels to increase their social responsibility. It is with "cross-case analysis" that we will try to identify the specific features of the low cost high value business model and the contribution to the corporate social responsibility. Keywords: Low Cost High Value; business model; venture capital; prime move; environment.

Introduction This research focuses on and analyzes certain management and strategic factors that have lead companies to position themselves in the low cost/high value sectors and the contribution to the corporate social responsibility. The global social and economic changes have induced companies to innovate more quickly and to administer business costs, from supplies through production and logistics, to reduce and contain inefficiency. The purpose is to offer consumers goods and services with high levels of real and perceived value, at fair prices. The final objective is to analyze the strategies implemented, and the business models of three companies that have adopted low cost/high value, particularly in the realm of health services and what is their contribution to corporate social responsibility with the study of “cross-case analysis” (Osterwalder, Pigneur & Tucci, 2005). The growth of new business ventures is very important; new entrepreneurs and new ideas entering into an economic-productive system, lead to new goods and production techniques and encourage the interaction between people, ideas and capital that results in the inception and development of new fields of business. This, in turn, sparks a virtuous cycle, leading to the growth of technical and organizational skills that makes it possible to recreate the pattern in other businesses operating in the same field.

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Organization and research method An analysis of changing economic and political choices in health care will be highlighted if there is a new real space of action for companies to be compared with the activity of supply of health care services. Wanting to prove, therefore, that there is a new sector that stands between the public and private health care, business health low cost high quality and sustainable. The specific objective and the ultimate goal of the research is to be put in benchmarking, through the study of cases, Hartley (1994), which may act as a guide for those who want to go down this road or want to improve their corporate policies in view of low cost high value in order to maintain the virtuous cycle of economic growth and healthy. The adoption of a descriptive research design, fieldwork and qualitative method is the default choice in the structuring of research and considered appropriate to achieving the objectives of the work to define the business model for Low Cost High Value in health care providers (Selltiz, Wrightsman, & Cook, 1976). Case studies are considered the most effective course to come up with answers to “how” and “why” questions when researchers have only limited control over events, but at the same time want to explore con-current trends with the aim of explaining certain phenomena and casual relationships. This is the reason why case studies and real stories are the research strategies that are most suitable to this kind of study. Yin R.K.(2003) suggested applying the logic of “literal e theoretical replication”, which is based either on the identification of cases that will give similar results (literal replication ) or which will give different results, but for predictable reasons (theoretical replication). The importance of this logic is that it allows for the extension or replication of the emerging theory. In our case we have chosen the “literal replication” analyzing three kinds of companies active in the low cost/high value sector to find their similarities. They are Italian companies working in northern Italy: the Centro Medico Santagostino Milan in Lombardy, OdontoSalute Gemona in Friuli - Venezia Giulia and NAU! In Castiglion Olona, Varese. They are companies that have adopted the low cost/high quality philosophy by focusing on improving their organization and creating economies of scale to cut costs, thus making health services available to a wider range of consumers. These companies adhere to the ethical code drawn up by the AssoLowcost and so, while adopting different business strategies, they must follow similar parameters. Ethical codes in low cost high value The function of the ethical codes is to present the "charters of rights and fundamental duties, with which the company clarifies its ethical and social responsibilities towards the various stakeholders, internal (shareholders, employees and management) and external (customers, suppliers, competitors, social and natural environment surrounding and public institutions). Through the code of ethics, despite their differences, we try to make explicit a kind of "social contract" that binds the company to the various groups and and individuals that interact directly or indirectly with it and have the rights and interests at stake against him (Sacconi, De Colle & Baldin, 2001). Companies associated with AssoLowcost must respect the general principles of the his ethic code the companies should commit to put at the center of their strategies geared towards sustainable economic development to improve the quality of life, to try to meet the needs of society and the communities in which they operate, helping to solve problems and respecting their cultures, religions and traditions, with particular attention that their activities do not conflict with the protection of the rights and dignity of man. The ethic code of AssoLowcost promotes the principles of Corporate Social Responsibility and the respect of following documents presented in table 1.

Corporate Social Responsibility and Global Strategy Table 1. Reference documents CRS AssoLowcost Universal Declaration of Human Rights (ONU 1948);

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DIRECTIVE 2006/54 / EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation;

European Convention for the Protection of Human Rights and Fundamental Freedoms (1950);

London Convention on Civil Liability for damages related to the environment derived from oil pollution (1999)

Declaration of the Rights of the Child of the United Nations (1959.1989);

EU regulation 2006/1907 Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) on the subject of dangerous chemicals

ILO Conventions relating to the Fundamental Principles Decree Decree no. 22/97 in terms of waste management, hazardous waste, packaging and packaging waste. of Workers' Rights, with particular reference to the protection of child labor n. 138, 182 and 190; Washington Convention on international trade in flora and fauna and the danger of their extinction (1973)

Montreal Convention (1999), the EU Regulation (EC) No 2027/97, as amended by Regulation (EC) No. 889/2002 and Regulation (EC) No 261/2004 as well as endorsed by the Bill of Rights ENAC passenger enacted concerning air transport;

Convention of Rio de Janeiro on sustainable development and the specific rights charters, international conventions and regulations regarding specified below in relation to particular industries (1992);

Vienna Convention on Nuclear Safety (1998);

The policy developed by the European Union in the Green Paper "Promoting a European framework for Corporate Social Responsibility 2001", in support of corporate social responsibility, defines it as the voluntary integration of social concerns and environmental concerns in their business operations and in their interaction with their stakeholders. The growth of new businesses that adopt the corporate social responsibility is very important; new entrepreneurs and new ideas that come into a system of economic productivity, lead to new goods and production technologies and foster interaction between people, ideas and capital that results in the birth and development of new fields of activity. So is possible to give form to a virtuous circle, leading to the growth of technical and organizational skills that makes it possible to recreate the model in other companies in the same sector. the continuous monitoring of the European Commission shows that The number of EU enterprises that have signed up to the ten CSR principles of the United Nations Global Compact has risen from 600 in 2006 to over 1900 in 2011, COM (2011) 681. It is possible reach the long-term development if companies put their attention to the various stakeholders' needs by combining them with the respect of the rules and social values, and therefore necessary to balance economic value and competitive and the intangible value given by the consensus achieved by having undertaken social and environmental policies, Mario Carrassi, Vittorio Peragine (2007). It is to consider what was said by the authors Michael E. Porter and Mark R. Kramer (2001) as regards Creating Shared Value as an equilibrium between economic results and CRS: “Companies can create economic value by creating societal value. There are three distinct ways to do this: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company’s locations. Each of these is part of the virtuous circle of shared value; improving value in one area gives rise to opportunities in the others” The company to build community consensus must on the one hand efforts to meet human needs and the other side to try to reach them must invest and this can only be done effectively if there are financial resources to create precisely effectiveness and efficiency also at the individual level. It is a circular process in which all aspects of social, environmental and economic are linked together and

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when a connection is broken here is that the company will face serious difficulties, because if there is wealth you can not take corporate operations and environmental protection in line with the expectations of stakeholders and the community and it is unable to generate even greater consensus, attraction of human resources and virtuous image of the company that is reflected in a certain degree of competitive strength, therefore profit The three companies studied in the cases work in addition to the signing of the code of ethics dell'AssoLowcost are engaged at various levels to increase their social responsibility. They are the prime mover that launch innovations, investing in the development of new products, and accept the risk of exploring unknown territory. Nau! It manufactures and sells eyeglasses, sunglasses and contact lenses, high levels of design, selection of frames with low impact with recycled materials, strictly in line with the trends and habits of their patrons. This company chose to partner with Legambiente; OdontoSalute are clinics specializing in dental care, and every year presented the sustainability report. The Centro Medico Santagostino is the first clinic low cost multifunctional surgery with medical examinations subject to price control (maximum fee: 60 Euros). The starting capital of the Centro Medico Santagostino was conferred from Oltre Venture Capital Sociale, an investment fund ethically committed in projects and services aimed at the so-called "gray area of social fragility”. Applying the method of venture capital to the social: offering funds, experience and managerial competence. The advantage of being first movers lies in the ability of the company to be in a pole-position to gain economically and this can be reached through several stages. In the first stage a particular advantage of the pioneer over its rivals can usually be attributed to some variable such as unique resources, or a particular foresight, or even just to a stroke of luck. Once this variable occurs, a series of mechanisms allow the company to take advantage of its position to increase the scope, or the length, of its profit as a first mover. It is important to bear in mind that in certain markets there is only room for a limited number of profitable enterprises so the first move is to select the most interesting niche sectors and then to put into effect those strategies that will limit the space available to further competitors (Lieberman & Montgomery, 1988). The next step is to pass from narrow and traditional skills to the wider and newer skills necessary, at the same time as the rules of the game are being re-written. Norman (2002) calls prime mover innovator/inventor those individuals that he considers “creators of sleeping assets markets". The prime mover transforms these assets into liquidity that can be advantageously employed in a different context. In this sense the prime mover makes all the players richer, leading others to identify untapped assets to be exploited, such as, in the realm of low cost high value health services, short waiting lists, comfortable accommodation and convenient geographical locations. They have a new approach as subjects capable of impacting on the outside environment. They are organizations that don’t only understand the changing market but, in some ways, implement or direct the change itself (Norman, 2002) The prime mover has considerable advantages, among them technological leadership, learning curves, brand identification, as well as the opportunity to shift the switching expenses on to the client and the chance to exploit the positive effects generated by customer satisfaction (Querci, 2014)

Case works The business model that AssoLowcost recommends for its members is based on the following success factors: clear and transparent information regarding the prices charged for different services, careful attention to contact and reservation procedures, with several options for remote access to services, concentrate on certain services to achieve those economies of scale necessary to contain costs, adopting quality control standards in order to guarantee high levels of quality, implementing purchasing procedures and underwriting supply contracts with partner companies, relies mainly on word of mouth from clients, who pass on to others their favorable impressions regarding services rendered. So that a product or service enters the wider family of low cost and high value is not just a product or service sold at a low price because of lower quality, it is necessary that the general reduction of costs should not be attributed only to the lower cost the raw material or to a lower level of quality in the production phase, but should be attributed in large part to the optimization of other activities that are part of the value chain

Corporate Social Responsibility and Global Strategy

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in the respect of ethical values, social responsibility and environmental protection. The three cases studied, Centro Medico Santagostino, Progetto Dentale Apollonia (from June 2013 the name has been changed to OdontaSalute) and NAU! though offering different types of goods and services, shared certain common elements like business strategies, the organization of their supply chains and customer satisfaction and orientation.The company Nau!, manufactures and sells prescription eyeglasses, sunglasses and contact lenses fig.3.1. It was founded in 2004, and is located in the province of Varese in northern Italy.

Figure 1. Mix product category of Nau! (www.nauottica.com)

The company chose Legambiente as partners; the association, which works to protect the environment. Legambiente has an innovative approach to the topic of the economy and employment. Their aim is to promote and enhance the wide variety of production activities (local products, cultural heritage, technical innovation and maintenance of urban and regional), which are able to improve the quality of the environment and to give more competitiveness for Italy. Since 1986, every summer, the Green Schooner Legambiente makes the circumnavigation of the Italian coast by collecting and examining about 500 water samples and performing on each of the analyzes required by law. Apart from spreading in real time the results of the analysis of the places visited, the boat offers environmental events in each stage to talk with citizens and governments of all the issues that affect the health of the sea: from fishing to tourism activities, from nautical sabotage, by reckless coasts to the phenomenon of erosion. Promotes and enhances the fundamental role of marine protected areas for the conservation of the fragile marine ecosystem. Promotes sustainable tourism in respect of the territories and ecosystems. The crew of the schooner green wears glasses recycled plastic Nau! Nau! signature and supports projects for the defence and preservation of the environment, supports campaigns to protect the ecosystem and donates, for every pair of glasses sold in recycled plastic, a contribution to Legambiente. Concern for the environment has led Nau! optics to realize the first eyeglasses and sunglasses in recycled plastic. The particularity in the processing is that the recycling, defined pre-consumer, takes place with the use of milling and curls of machining of its frames. The production process of these collections is certified by the Institute for the Promotion of the plastics for recycling that issued the Certificate of Conformity Plastic Second Life - Category B. The line of eyewear (Querci, 2013). The majority shareholder of the Medical Center Santagostino is a capital fund "patients and responsible" that does not require a specific return on investment, but that provides managerial and public relations

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(capacity building). The company which funded the Medical Center Santagostino, for 70% of capital invested, is Oltre Venture which operates in the field of Venture Capital Association, bringing the amount of 1,500,000 euro investment with the aim not to cash, but to come back in two years, in order to expand and improve services, while 30% of the remaining capital is made available by financing partners that accept a minimum remuneration of capital, equal to 3%. The Medical Center Santagostino operates outside the system of accreditation of the NHS and it is stated in the private sector, but in a quasi-market, between profit and non profit. The Medical Center Santagostino, is an innovative project which can not be separated from economic revenue. In fact, although the primary objective of lenders is not profit, but the exploitation of economically sustainable initiatives for social interest, to start a project of this nature serve specific skills, as well as a substantial capital to invest in the early stage, but also in conservation of a high standard of quality throughout the process of affirmation and development of the initiative (Mariani, 2012). The company Venture addition to the traditional supplier of venture capital has added an offer of an innovative financial instrument to support the social, funding and supporting the development of companies that pursue activities in the economic sustainability and social value, working in those sectors characterized mainly by a socio-economic fragility. Besides Venture operates in the Venture Capital Company and was established in November 2006 and its actions are aimed at two main areas of investment: - the study and analysis of the evolution of social needs, becoming a permanent observatory on intervention models most innovative and effective - The role of "incubator" of enterprise with organizations or persons bringing innovative business idea in the social and potentially attractive to new investors including Venture same addition. As in financing with venture capital involvement of Oltre Venture it does not end only with the help of financial resources but also provides managerial skills and know-how in the social sphere. Allowing you to successfully combine some key factors such as: - entrepreneurship - both managerial and financial skills - focus on results - he partnership between investors and entrepreneurs. This form of financing satisfies two types of innovation: innovation in the field of financing, characterized by the overcoming of traditional philanthropy, the first example in the Italian economic landscape, investing in venture capital enterprises engaged in innovation in this area and the innovation firm that faces new sectors or experiments with new types of offers on products / services mature. The investment risk is mitigated by the knowledge of supporting complex and innovative business ideas with a major social return. OdontoSalute have fourteen locations, in north, center e sud Italy, ample parking, near airports, and motorway exits, very diverse socio-economic clientele. Seven clinics are owned by other franchise agreement, they have special agreements with hotels, restaurants and transportation companies to ensure a pleasant stay during treatment Large volumes of sales and narrow margins are the philosophy of all three companies and suppliers have had to conform to this same policy. Just one of the six dental clinics of the OdontoSalute group invoices, in one month, what a traditional dental clinic invoices in a year, giving it a strong bargaining position with suppliers, which are never very numerous. The strategies to contain costs benefit patients who are offered quality services at lower prices than those of the competition, with minimum waiting lists and easy access to care. The social report of OdontoSalute highlights its approach with stakeholders to its Corporate Social Responsibility and evaluate the benefits produced by the multiplicity of outcomes that positive relationships are maintained with the communities, or social groups (young and old), represented by all agencies, organizations, formal organizations and informs them that they are in contact in various ways with the clinics.

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The term stakeholder is used in this context to identify and classify all subjects, individual and collective, that interact more and less structured with the company; relations that are characterized by the sharing of objectives, from intentionality and projects, reports of business-to-business or non-commercial research, animation and social promotion. All these subjects considered (companies, groups, communities and citizenship), along with OdontoSalute, constitute a large social system of reference within which the actions and behaviors of each social actor able to create positive synergies for the entire system. In these links social actors live a mutual and constructive in which there is convergence of purpose and collaborative attitudes, and where well-being and success of each is tied to the fate of others. Conclusions A code is intended as text deliberately developed by management to shape the perception of the reality of others. Subsequently, the language of the code is seen as an attempt to interpret the situation and to build the social reality (Ainsworth & Hardy, 2004). It is demonstrated that the company is a cohesive group in terms of responsibility and ethical behavior, and who in this group must follow the common ethical principles. In line with a perspective proposed by Brewer & Gardner (2004). The three companies studied are able to look beyond the boundaries of the core business and interact with the main economic players (suppliers, partners and customers), co-operating to generate income, is the reason for the success of Low Cost/High Value enterprises. The value of these enterprises has its roots in three strategic ideas. The first is to offer customers/patients an incentive to take advantage of what is being offered, that is a complex variety of goods and services, so that they will be satisfied with their choice. There are many examples in the cases we have studied. At Medical senter Santagostino the waiting rooms have Wifi, a library and a quiet meditation room, at OdontoSalute, they have special agreements with hotels, restaurants and transportation companies to ensure a pleasant stay during treatment, NAU! has chosen Legambiente as a partner; the association, which works to protect the environment, has embraced the popular fast fashion movement. The companies work to constantly strive to come up with proposals that involve customers and suppliers, sympathizers and business partners, in an effort to put together new consumer packages something which is possible put in with rethinking relationships and business choices. Finally it is important to consider a competitive advantage as the sum of the efforts of all the people involved, communicating with customers to repeat winning strategies. Value must be aggressively pursued to ensure a “dynamic overhaul of the enterprise” (Kachaner, Lindgardt & Michael, 2010). Good timing is one of the ingredients which contributed to the success of the three companies; they were the first to enter the low cost market, meeting the demands of a clientele that, for cultural or ethical reasons, was ready to welcome their. Compared three business models that become evident that the narrow definition in which low cost equals cheaper it is limited is no longer true because of the greater importance of employees, attention to the expectations and needs of customers and the wide choice of products and services. If, at first, business choices and the organization of the three companies have been motivated by the recession and the contraction in consumer income, research shows that this consumption trend will last over time, regardless of the economic crisis.

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References Brewer, M.B., and Gardner, W. (2004). Who is this "We"? Levels of collective identity and self representations. In Jo Hatch, M. and Schultz, M. (Eds.), Organizational Identity: A Reader. Oxford: Oxford University Press. Carrassi, M., and Peragine, V., (2007) Responsabilità sociale d’impresa: Fondamenti teorici e strumenti di comunicazione. Milano: Franco Angeli. COM (2001). 366 final Green Paper Promoting a European framework for Corporate Social Responsibility. Retrieved from http://eurlex.europa.eu/LexUriServ/site/en/com/2001/com2001_0366en01.pdf. COM (2011). 681 Final Communication from the Commission to the European Parliament, the Council. The European Economic and Social Committee and the Committee of the Regions. A renewed EU strategy 2011-14 for Corporate Social Responsibility EC Brussels. Retrieved from http://eurlex.europa.eu/legal-content/EN/TXT/? uri=CELEX:52011DC068. Del Vecchio, M., and Rappini, V. (2010). Low cost in sanità. In Cantù, E. (Ed.), Rapporto OASI 2010 L'Aziendalizzazione nella sanità italiana. Milano: Egea. Hartley, J.F. (1994). Case studies in organizational research. In Cassel, C., and Symon, G. Qualitative methods in Organizational Research. A Practical Guide (pp.1-9). London: Sage Publications. Hartshorn, J., & Wheeler, D. (2002). Facilitating Strategic business Responses to Sustainability Prospects and Challenges for Professional Services Firms. Greener Management International, 40(1), 107119. Kachaner, N., Lindgardt, Z., and Michael, D. (2010). The new Low Cost. Boston Consulting Group. Kathleenm, E. (1989). Building Theories from Case Study Research. Academy of Management Review, 14(4), 532-550. Klassen, R.D., and Mclaughlin C.P. (1996). The impact of environmental management on firm performance. Management science, 42(8), 1199-1214. Lieberman, M.B., and Montgomery, D.B. (1988). First-Mover advantages. Strategic Management Journal, 9(S1), 41-58. Mariani, G. (2012). Conoscenza e creazione di valore. Il ruolo del Business Plan. Milano: Franco Angeli. Michael, M.E., Porter, E., and Kramer, M.R. (2011). Creating Shared Value. Harvard Business Review, January-February Issue, 63-70. Normann, R., and Ramirez, R. (1998). Designing interactive strategy: From value chain to value constellation. Chichester: Wiley. Osterwalder, A., Pigneur, Y., and Tucci, C.L. (2005). Clarifying Business Models: Origins, Present, and Future oft he Concept. Communications of the Association for Information Systems, 16, Article 1. Retrieved from http://aisel.aisnet.org/cais/vol16/iss1/1. Querci, E. (2014). The business model for Low Cost High Value in the development of the domestic medical tourism industry Enterprise and the Competitive Enviroment. Paper presented at Faculty of Business and Economics, Mendel University in Brno, March 6-7, 2014. Sacconi, L., De Colle, S., and Baldin, E. (2001). Progetto Q-Res: la qualità della responsabilità eticaspociale d'impresa. LIUC Papers 95. CELE-Centre for Ethics, Law & Economics. Selltiz, C., Wrightsman, L.S., and Cook, S.W. (1976). Research methods in social relations. 3rd ed. New York: Holt, Rinehart & Winston. Yin, R.K. (2003). Case Study Research: Design and Methods. Thousand Oaks: Sage Publications. Websites: AssoLowcost: www.AssoLowcost.eu Cento Medico Santagostino: www.cmsantagostino.it NAU!: www.nauottica.com OdontoSalute: http://www.odontosalute.it Oltre Venture: http://www.oltreventure.co

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BUILDING CSR IN THE CORPORATE STRATEGY Patrizia GAZZOLA Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Gianluca COLOMBO University of Lugano 13 Buffi, Lugano, Switzerland [email protected]

Abstract. The aim of the study is to build a model for the development of the comprehensive and integrative framework for a Corporate Social Responsibility (CSR) implementation in the corporate strategy. Due to pressing environmental, social and economic challenges facing our society today, the subject of CSR has become increasingly interesting for companies. A growing number of companies develop their corporate social responsibility in response to a variety of social, environmental and economic pressures. The goal is to send a signal to the different stakeholders (Freeman, 2001; Colombo & Gazzola, 2013a). The fundamental problem with CSR practice is that companies usually don’t have a CSR strategy, but rather numerous disparate CSR programs and initiatives (Rangan, Chase & Karim, 2012). It is crucial that the companies carefully integrate CSR into their corporate strategies (Carroll & Shabana, 2010). The research is divided into two parts. The first part is theoretical and the second one is empirical. In the theoretical part we analyze the fundamental principles of Corporate Social Responsibility and the integration of CSR in the corporate strategy, analyzing the existing approaches to its implementation. The research question we pose is how a company can successfully carry out the integration of CSR into its strategic management. We consider five stages: informal and defensive CSR; charitable CSR; systemic CSR; innovative CSR and dominant CSR (Gazzola & Colombo, 2014a). This study shows, through a model, what path a company takes, what stages of CSR are in the path, the strategic logic of these stages and into the different challenges the company faces. The model is based on the organizational growth model by Greiner (1998), on the stage model for the development of corporate by Mirvis and Googins (2006) and on the stages of the development of CSR in corporate strategy by Molteni (2007). In the empirical part we have used an explorative case-study methodology to research the integration of CSR principles in corporate strategy models. This part is formed according to the synthesis of the theoretical framework, to better understand the development model of CSR into strategy, we consider two companies that have distinguished themselves for their CSR strategy in different way: Brunello Cucinelli and Nestlé. By planning out CSR as part of a corporate strategy, organizations can ensure that profits and increasing shareholder value don’t overshadow the need to behave ethically to their stakeholders (Gazzola & Colombo, 2014b). Keywords: Corporate Social Responsibility; corporate strategy; development; growth model; social challenges.

Introduction and methodology The aim of the study is the proposal of comprehensive and integrative framework for a CSR implementation developed in the corporate strategy. The research shows, through a model, what path a company takes, what stages of CSR are in the path, the strategic logic of these stages and into the different challenges the company faces. The objective of the study can be met by answering the two corresponding research questions: - How should the company integrate CSR into its strategy? - When is it better to integrate CSR into the strategy? A growing number of companies develop their CSR in response to a variety of social, environmental and economic pressures. The fundamental problem with CSR practice is that companies usually don’t have a CSR strategy, but rather numerous disparate CSR programs and initiatives (Rangan, Chase & Karim,

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2012). Considering the many drivers of CSR within a company, and the many different motivations underlying the various initiatives, it is crucial that the organizations carefully integrate CSR into their corporate strategies (Carroll & Shabana, 2010). Many companies are realizing that CSR is also a viable component of their overall business strategy, along with such traditional functions as marketing, branding, research and development, innovation, and operations. By planning out CSR as part of a corporate strategy, organizations can ensure that profits and increasing shareholder value don’t overshadow the need to behave ethically to their stakeholders (Colombo & Gazzola, 2012). The methodology in the elaboration of this article comes from the author’s previous research, which formed the main part of the overall research. The new research was based on the previous one but we have applied and tested the model to some companies (Gazzola & Colombo, 2014a). The paper is divided into two sections: first one covers the fundamental theoretical principles and the second part is empirical. In the theoretical part, in order to build a coherent model of development, we reviewed pivotal literature within the areas of inquiry, based on a backward and forward searching strategy. The model is based on the organizational growth model by Greiner (1998), on the stage model for the development of corporate by Mirvis and Googins (2006) and on the stages of the development of CSR in corporate strategy by Molteni (2007). We used peer reviewed and practitioner-oriented journal articles, book chapters and working papers. In the empirical part we test the theoretical frameworks using a multiple case study approach (Eisenhardt, 1989) examining organizations that have successfully integrated CSR into their corporate strategy. This type of methodology proves appropriate for two reasons: - the relevant literature is more concerned with the contributions of companies to social prosperity, than with the requirements and difficulties of applying the principles of CSR in practice; - the few studies that treat CSR as a corporate strategy have no empirical basis and do not cover the entire process of strategic implementation. To fill this void in the literature, we have analyzed the application of the model in two companies that had not a typical path for the process of CSR implementation in the business strategy. We focus on corporations that have successfully integrated CSR into corporate strategy to analyze how they have chosen to go about this integration process. The knowledge gained from the case studies improves the theoretical frameworks and suggests how, in practice, CSR can be integrated into corporate strategy. Literature review According with Freeman and Hasnaoui (2010, p.420) nowadays CSR is not yet a universally adopted concept as it is still understood differentially despite increasing pressures for its incorporation into business practices. Simons (1995) argues that since management systems provide the tools that permit to choose, organize, deploy and monitor the strategy, managers use management systems to drive strategic renewal. The company that introduces the CSR into the companies’ management systems should: a) give evidence of the ‘real’ will of companies to integrate CSR into their strategy; b) provide the means for effectively changing operational practices. Porter and Kramer (2002, 2006) and Galbreath (2009) consider the importance of the integration between strategy and society, and between competitive advantage and corporate social responsibility, proposing an analytical model based on the social impacts of the value chain and the role of corporate social responsibility in the competitive context. Mirvis and Googins (2006) identify five stages of evolution in the process of integration between social responsibility and corporate strategy. Sharp and Zaidman (2010) analyze processes by applying Jarzabkowski’s model (2005) to the integration of social responsibility into corporate strategy. The triangular model highlights the interconnected relationships among management, organization community and strategy. The interconnection among these three elements is expressed in the firm’s routines and procedures and is aimed at reflecting the social values of management and social strategy into the firm’s activities.

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According with McKinsey (2009), it appears that although most executives agree on the strategic interest of CSR, none of them fully include CSR aspects when implementing business projects: the integration of CSR within management systems would remain weak. Despite the importance of management systems when integrating CSR into business, little research has been conducted on this topic (Adams, 2002; Berland & Essid, 2009; Norris & O'Dwyer, 2004). The relationship between business and society The increased attention on CSR is a result of pertinacious work by governments, media and NGOs, holding, large corporations, responsible for the societal and environmental consequences of their business practices (Porter & Kramer, 2006). There are many factors that fully or partially influenced the increase of the attention on CSR. The main important drivers of CSR are: - 1. Ecological Sustainability. Pollution, waste, natural resource depletion, climate change and the like continue to increase the CSR discussion and heighten expectations for proactive corporate action. (Werther & Chandler, 2013). - 2.Globalization. The multinational corporations increase their power and increased their responsibility. Globalization has fueled the need to filter all strategic decisions through a CSR lens to ensure optimal outcomes for different stakeholders. (Werther & Chandler, 2013). - 3.Social media. The technology development gives citizens immediate access to transparent information and news at the click of a computer key. Through the Internet and other electronic mediums the flow of information has shifted back to the stakeholders giving them a beneficial influence. (Werther & Chandler, 2013). 4. Reputation. Honest CSR is a way to protect the reputation, company image and the brand. The brand depends on public perception of the corporation (Kramer & Porter, 2006; Werther & Chandler, 2013). 5. Moral Obligation. Companies adopt CSR because they believe that they have a responsibility to be a good citizen and “do the right thing” (Kramer & Porter, 2006). 6. Sustainability. Meeting the needs of a present without compromising the ability of future generations to meet their own needs (WCED, 1987). The companies focus on environmental and community management because they belief that it will beneficial for the company in the long run (Kramer & Porter 2006). 7. License to operate. A great number of companies engage in CSR only because they are forced to follow regulations and obtain permissions from government, communities, or other relevant stakeholders. (Kramer & Porter, 2006). We can consider CSR like a concept by which companies integrate the principles of social and environmental responsibility in their operations as well as in the way they interact with their stakeholders. This definition has two perspectives: - social and environment responsibility in their operations requires internal change processes to integrate the principles into business operations; - interactions with stakeholders require stakeholder engagement (Zollo et al., 2009). In the current business environment, CSR has become not only the “right thing to do”, but it has also become the “competitive” thing to do. The frontiers of corporate social responsibility are moving into a focus on a relationship between business and society. It is a new way of looking at the companies and their role in society, both in practice and in management education (Waddock & McIntosh, 2009). Management education, which has been criticized in the financial crisis period, has an important role to play, but in a changed form. Corporate responsibility is becoming a social movement (Ditlev-Simonsen & Gottschalk, 2011). The foundation of CSR actually refers to the role of business in society, and to management practices that have a positive impact on society and environment (European Commission, 25/10/2011). We are assisting to an increasing of the demand for transparency and to growing expectations that corporations measure, report, and continuously improve their social, environmental, and economic performance. As it was just noted, we are passing form a conception that perceives CSR as an obligation to one that recognizes CSR as a strategy with opportunities to exploit (Colombo & Gazzola, 2013b).

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The stages of development of CSR in the strategy Most companies already work with CSR indirectly and the integration process is therefore more about structuring it, put it into standard procedures. To ensure success, the change has to be driven by top management so that CSR is put on the corporate agenda. It is important to incorporate CSR in the formulation of the vision, mission and values of the organization. By linking CSR to the values of the organization, it becomes part of the corporate culture and thereby a natural part of the activities. Integrate CSR into the corporate strategy is an opportunity offered by the development of corporate strategy aligned with business goals, deeply rooted in the principles and values of corporate social responsible (Ganescu, 2012). If a company builds a business strategy to align economic, social and environmental performance to long-term business values, corporate social responsibility becomes part of the business and gives long-term value for the company and for the society (Rochlin et al., 2005, p.8). Where negative perceptions of organizations prevail, brand boycotts often follow as consumers, particularly in wealthy industrialized countries, seek to punish parent organizations. But here in lies an opportunity for a new approach to competitive strategy based around social resources. (Meehan, Meehan & Richards, 2006). Social Responsibility cannot be just a response to problems when they arise. Only if the company includes social responsibility since its foundation in the business strategy, social responsibility, as a concept, is integrated into daily decisions making. Preferably, to obtain best results CSR should be aligned with the company’s specific corporate objectives and core competencies. Companies, integrating the CSR into strategy, maximize the value of corporate responsibility commitments. The identification of critical stakeholders, the definition of objectives in order to satisfy them, and the utilization of a reporting tool are crucial steps to integrate the CSR into strategy. Companies that are comparable in terms of size and power, and are influenced by the same external conditions, choose different CSR programs and initiatives or social responsibility strategies. This choice may be influenced by various pressures and incentives, which generate innovation pressure, as a first step in implementing the strategy (Van Bommel, 2011, p.900) or even by local or national perception of the impact of these strategies. Than the drivers of CSR influence in different way the companies. It’s possible to identify 5 stage of the integration of the CSR in the strategy (Figure 1). The figure shows how the development of CSR is linked to the corporate culture and the transition from one stage to another (Greiner, 1998) is determined by changing the management culture.

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Figure 1. 5 stages of development of the CSR in the strategy (adapted and integrated from Molteni, 2007 and from Mirvis & Googins, 2006)

Below we describe the 5 stages of development of CSR: 1. Informal and defensive CSR. The complexity of the integration of the CSR in the strategy depends on factors such as the size of the enterprise and the nature of its operations. For most small and mediumsized enterprises, especially micro-enterprises, the CSR process is likely to remain informal and intuitive. In other companies the CSR practices, which are typically limited, are undertaken only if and when it can be shown that shareholder value will be protected as a result (Visser, 2010). 2. Charitable CSR. A company supports various social and environmental causes through donations and sponsorships, for community groups or civil society organizations. The company starts to use communication tools such as sustainable report. 3. Systemic CSR. CSR is focused at the micro level, supporting social or environmental issues that happen to align with its strategy, but without changing that strategy 4. Innovative CSR. The CSR focuses its activities on identifying and tackling the root causes of our present unsustainability and irresponsibility, typically through innovating business models, revolutionizing their processes, products and services and lobbying for progressive National and international policies. At this stage the process of integration of CSR into the strategy is completed. CSR focuses on understanding the interconnections of the macro level system – society and ecosystems – and changing its strategy to optimize the outcomes for this larger human and ecological system. 5. Dominant CSR, it's relating the CSR activities to the company’s core business often through adherence to CSR codes and implementation of social and environmental management systems, which typically involve cycles of CSR policy development, goal and target setting, programmed implementation, auditing and reporting (Gazzola & Colombo, 2014a). Brunello Cucinelli: the humanistic enterprise Brunello Cucinelli is the President and Managing Director of Brunello Cucinelli SpA, a company famous the world over for its production of cashmere apparel, which are exported throughout Europe and to the United States, Japan, Russia, and the Far East. Brunello Cucinelli SpA carries on operations in the

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world’s principal cities with 1.000 points of sale in multibrand stores and around 80 monobrand boutiques, over 750 employees, and a turnover of which three quarters come from international markets. His entrepreneurial story began in 1978, at the age of 25, when he opened a small 40m2 workshop. Throughout the 1980s the business grew and developed. Now the Brunello Cucinelli brand is at the top of the luxury pyramid for the cashmere of Italian quality. It is internationally recognized as one of the prime examples of "absolute luxury". It combines superb Italian manufacturing with an ability to be innovative and to set trends while preserving distinctive taste and style focusing on a luxurious casual-chic total look. The ethical, humanist-inspired entrepreneurial model places people at the center of the production process. It encourages the creativity of each worker and simultaneously develops within them a sense of profound participation in the group's success and goals. This commitment is shared on all levels of the company and with outside contractors and clients around the globe who are extremely loyal and who trust the company (www.brunellocucinelli.com). He is persuaded that culture is central to the production of beautiful things. He restored the medieval village where the company is headquartered and also built a theater there. His notion of "the humanistic firm" is based on the following business model: a third of the profits go to employees (who are paid wages and salaries higher than the industry average), a third to the community, and a third is retained as entrepreneurial profit on the investment made. This approach has paid off handsomely in market terms, since the company has managed to grow during the crisis. Earnings have grown in parallel with reputation. (Corbellini & Marafioti, 2011). The business is run on the philosophy of “supreme good” for the workers and the environment in which they work and not just for the profit. Cucinelli defines the business as “giving business a meaning that goes beyond profit and reinvesting to improve the lives of workers, to enhance and restore the beauty of the world.” Cucinelli certainly practices what he preaches, gaining favorable coverage. Interestingly, the designer believes that his business model is mandated by the consumer, despite the fact that the fashion industry has traditionally been seen as ambivalent towards CSR. “Luxury consumers want to know, or will want to know, that their goods are made humanely.” (Cross, 2013). Cucinelli is an enterprise in which the orientation to CSR is part of the genetic heritage of the company from the beginning for the presence of a strongly leadership sensitive to social and environmental issues. If we consider the model of 5 stages of development of the CSR in the strategy, we can consider that Cucinelli is undertaking the fifth stage of the development where CSR is dominant. Nestlé: the exchange of strategy In this case study we consider a company that start his CSR strategy in different way than Cucinelli. In March 2010, the environmental organization Greenpeace has denounced Nestlé for using palm oil used for the production of Indonesian snacks. On the website of Greenpeace appeared a Facebook campaign to save the complaint - Indonesian forests and habitats of orangutans. The environmental organization has revealed that the products of the Swiss group, including snacks chocolate KitKat, was contained palm oil from areas at risk of Southeast Asia and the Indonesian obtained supplies from a supplier who behaved in an unsustainable way. After the complaint appeared on Facebook and Twitter several protest groups who supported the Greenpeace campaign against Nestle. The corporation has defended itself by saying that he used only 0.7% of global palm oil Greenpeace has released a touching video on YouTube. Nestlé initially responded by requiring the removal of the video from YouTube, citing copyright. This has led to a series of criticisms on social media and made sure that grew curious about the video that appeared on YouTube and within hours was seen 180.000 times globally. The challenge for Nestlé has been twofold. They had to limit the damage in the immediate and longerterm deal with the problem of supply of palm oil. It was to turn the reputational risk (Gazzola, 2007; 2012) into an opportunity. The strategy followed by Nestlé was to not try to control social media conversations but adjust their approach. First, to deal with the damage of short, Nestlé has suspended supplies of palm oil from the Indonesian company and requested a meeting with Greenpeace in which he presented the details of its new supply chain of palm oil. Nestlé has also joined the Roundtable on Sustainable Palm Oil a partnership of companies and other entities designed to eliminate the production unsustainable. Nestlé had set up a “digital acceleration team” as part of Nestlé’s efforts to monitor social

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media sentiment 24 hours a day. When the team sees problems, the communications unit co-ordinates the company’s engagement with the relevant parties, such as suppliers, campaigners, governments and consumers. (Ionescu-Somers & Enders, 2012). Nestlé now has a goal of using only palm oil certified as sustainable by 2015. In the strategy of Nestle now there is talk of creating shared value, appears on the website the following statement: "Creating Shared Value is a fundamental part of Nestlé's way of working and focuses on specific areas of activity of the company - call nutrition, Water Resources and Rural Development - in which there is a greater potential for creating value for both the joint company for the shareholders" (www.nestle.it). In addition, Nestlé, in order to ensure a successful long-term objective, creates value not only for shareholders but also for the society in which it operates. It is what is called Creating Shared Value. This is not philanthropy, but an integral part of their business strategy: to create value for their shareholders and their company, intend to create value for the communities in the countries in which it operate, from farmers to employees, up to their consumers (Colombo & Gazzola, 2013a). A necessary condition for the Creating Shared Value is demonstrate responsible behavior or ensure compliance with the Nestlé Corporate Business Principles, national legislation and international standards and ensure that our activities are environmentally sound, socially just and economically viable. Nestlé has begun the process of development of CSR in response to a situation of crisis related to environmental scandal. Therefore the company decides for a development integration accelerated of CSR into the strategy, burning stages of the proposed model. Conclusion and implication

The model is focus on developing and integrating CSR objectives into corporate strategy and it becomes a driver of its development. The model shows an incremental approach. Not always the evolutionary path follow exactly the stages. The CSR is a maturation process inside of an organization. The phases of the model show a typical journey. There are companies jumping phase of the model because they have to react to a crisis and companies that have CSR in their culture from the beginning. The cases analyzed showed that the model could be used also to understand in what stage of development the companies are (Table 1) and what was the evolutionary path. Table 1. Stage of CSR for Brunello Cucinelli and Nestlé

The experience of Brunello Cucinelli shows the orientation to CSR from the beginning for the presence of a strongly leadership sensitive to social and environmental issues. The CSR has undergone changes over the years but the initial stages of the model have been skipped. Nestlé, instead, approached the CSR to respond to a crisis. Nestlé responded to a catastrophic event from the environment by initiating a process of development of CSR in forced marches. The company could

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not implement CSR gradually and has had to implement a development accelerated CSR in corporate strategy by combining the stages of the model. The model allows to: - see at what stage of development of CSR is the company and - see if there are conditions for the next stage. The model also shows that the socially responsible actions should be designed into the corporate strategy, as they can contribute significantly to the generation of the wealth of intangible assets, which are the foundation of competitive advantage of modern enterprises. Problems generated by not integrating socially responsible practices into the corporate strategy can be noticed when assessing the costs and benefits of implemented projects, in the selection of technology, in the relationship with community, and in the structure of incentives for performance. The resources spent on public policy for the community in this context are “an investment for the future”.

References Adams, C.A. (2002). Internal organisational factors influencing corporate social and ethical reporting Beyong current theorising. Accounting, Auditing & Accountability Journal, 15(2), 223-250. Berland, N., and Essid, M. (2009). RSE, systèmes de contrôle et pilotage de la performance globale. In Proceeding of 28th AFC (French Management Accounting), Annual Congrees (Poitiers, France), May 27-29, 2009. Carroll, A.B., and Shabana, K.M. (2010). The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice. International Journal of Management Reviews, 12(1), 85-105. Colombo, G., and Gazzola, P. (2012). Estetica ed etica dell’organizzazione: semplicità e complessità dell’agire sostenibile. Estados Gerais da Gestão nos Países de Expressão Latina (SGMPEL) Lisboa, March 22-24, 2012. Colombo, G., and Gazzola, P. (2013a). Stakeholder engagement between managerial action and communication. The Annals of the University of Oradea Economic Sciences, Tom XXI, 2nd December Issue, 97-105. Colombo, G., and Gazzola, P. (2013b). Aesthetics and ethics of the sustainable organizations. European Scientific Journal ESJ, Special Edition, 2(December), 291-301. Corbellini, E. and Marafioti, E. (2011). Il lusso piace di più se è responsabile. Sarfatti 25, 8 September 2011. Cross, H. (2013), Artisanship, CSR and the End of “High End” Fashion. The Culture-ist, 19 June 2013. Ditlev-Simonsen, C.D., and Gottschalk, P. (2011). Stages of growth model for corporate social responsibility. International Journal of Corporate Governance, 2(3/4), 268–287. Eisenhardt, K M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550. European Commission (2011). A renewed EU strategy 2011-14 for Corporate Social Responsibility. European Commission, Brussels, October 25, 2011. Freeman, E.R. (2001). Stakeholder Theory of the Modern Corporation. Perspectives in Business Ethics, 3(1), 38-48. Freeman, I., and Hasnaoui, A. (2010). The Meaning of Corporate Social Responsibility: The Vision of Four Nations. Journal of Business Ethics, 100(3), 419-443. Galbreath, J. (2009). Building corporate social responsibility into strategy. European Business Review, 21(2), 109-127 Ganescu, M.C. (2012). Corporate social responsibility, a strategy to create and consolidate sustainable businesses. Theoretical and Applied Economics, 11(576), 91-106. Gazzola, P., and Colombo, G. (2014b). Ethics and CSR. The strategy debate. Confluências Interdisciplinary Review of Sociology and Law, 16(1), 84-98. Gazzola, P., and Colombo, G. (2014a), CSR integration into the corporate strategy. Cross-Cultural Management Journal, XVI, 2(6), 331-338.

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Gazzola, P. (2012). CSR per scelta o per necessità?. Santarcangelo di Romagna: Maggioli Editore. Gazzola, P. (2007). CSR e reputazione nella creazione di valore sostenibile. In Mella, P., & Velo, D., (Eds.), Creazione di valore, corporate governance e informativa societaria (pp.65-86). Milano: Giuffrè Editore SpA. Greiner, L.E. (1998). Evolution and revolution as organizations grow. Harvard Business Review, 76(3), 55-68. Ionescu-Somers, A., and Enders, A. (2012). How Nestlé dealt with a social media campaign against. Financial Times, 12 April 2012. Jarzabkowski, P. (2005). Strategy as practice. An Activity Based Approach. London: Sage. McKinsey (2009). Valuing corporate social responsibility. McKinsey Global Survey Results, February 2009. Meehan, J., Meehan, K., and Richards, A. (2006). Corporate social responsibility: the 3C-SR model. International Journal of Social Economics, 33(5/6), 386-398. Mirvis, P., and Googins, B. (2006). Stages of Corporate Citizenship. California Management Review, 48(2), 104-126. Molteni, M. (2007). Gli stadi di sviluppo della CSR nella strategia aziendale. Impresa Progetto, Ditea, 2. Retrieved from http://www.impresaprogetto.it/sites/impresaprogetto.it/files/articles/ip_207_saggio_molteni.pdf. Norris, G., and O'Dwyer, B. (2004). Motivating socially responsive decision-making: the operation of management controls in a socially responsive organization. The British Accounting Review, 36(2), 173-196. Porter, M.E., and Kramer, M.R. (2006). Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 80(12), 56-68 Porter, M.E., and Kramer, M.R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 84(12), 78-92 Rangan, K., Chase, L., and Karim, S. (2012). Why Every Company Needs a CSR Strategy and How to Build It.. Harvard Business School Working Paper, 12-088, April 2012. Rochlin, S., Witter, K., Monaghan, P., and Murray, V. (2005). Putting the corporate into corporate responsibility. In Raymond P. (Ed.), Accountability forum: Corporate responsibility and core business (pp.5-13). London: Greenleaf Publishing. Sharp, N, and Zaidman, N. (2010). Strategization of CSR. Journal of Business Ethics, 93(1), 51-71. Simons, R. (1995). Levers of control. Boston: Harvard Business School Press. Van Bommel, H.W.M. (2011). A conceptual framework for analyzing sustainablity strategies in industrial supply networks from an innovation perspective. Journal of Cleaner Production, 19(8), 895-904. Visser, W. (2010). The Age of Responsibility: CSR 2.0 and the New DNA of Business. Journal of Business Systems, Governance and Ethics, 5(3), 7-22. Waddock, S., and McIntosh, M. (2009). Beyond Corporate Responsibility: Implications for Management Development. Business and Society Review, 114(3), 295-325. WCED (1987). United Nations World Commission on Environment and Development, 1987, “Brundtland Report”, WCED. Werther, W., and Chandler, D. (2013). Strategic Corporate Social Responsibility. Thousand Oaks: Sage Publications. Zollo, M., Minoja, M., Casanova, L., Hockerts, K., Neergaard, P., Schneider, S., and Tencati, A. (2009). Towards an internal change management perspective of CSR: evidence from project RESPONSE on the sources of cognitive alignment between managers and their stakeholders, and their implications for social performance. Corporate Governance, 9(4), 355-372. Websites: www.brunellocucinelli.com www.nestle.it

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EMBEDDING SUSTAINABILITY INTO BUSINESS STRATEGY: THE ROLE OF THE BALANCED SCORECARD Anna PISTONI University of Insubria 2 Ravasi St., Varese, Italy [email protected] Lucrezia SONGINI University of Eastern Piedmont 8 Perrone St., Novara, Italy [email protected] Abstract. This paper aims to analyze the relationship between the firm business strategy and its social strategy, highlighting the role played by performance measurement systems (PMSs), in particular the balanced scorecard (BSC), in favoring the alignment between the two aspects of the company life. Actually, PMSs play a fundamental role for the implementation of a social strategy: in the organizations those objectives are pursued and those actions are implemented which managers are responsible for and upon which they are evaluated and rewarded. PMSs also deal with the identification of the drivers of past and future performance and the related indicators, favoring the alignment between the business strategy and the social strategy. The design, implementation and use of PMSs focused on CSR and sustainability ask firms big efforts in order to redesign traditional PMSs. This paper aims to present and discuss the different approaches that can be adopted by firms on the relationship between business strategy and social strategy and its impact on PMSs, in particular on the BSC. The research method is based on the analysis of two case studies of European firms that made different choices with regard to the relationship between the business strategy and the social strategy. Moreover, they follow different decisions with respect to the structure and content of the sustainability BSC, the process of implementing it, the relationship with traditional planning and control systems, and the role of different organizational departments. Research findings show that a life cycle of the BSC seems to emerge. At the beginning, when sustainability has to be embedded into the organization and it has to be perceived as a corporate priority, the BSC seems to be the more effective tool. Afterwards, when the new approach has come into use and sustainability has been gradually incorporated into organizational culture, systems and actions, the routine can be managed by some simpler tools, like a set of KPIs. Keywords: balanced scorecard; social strategy; business strategy; performance measurement systems; case studies; sustainability; corporate social responsibility.

Introduction The relationship between the business strategy and the social strategy has become more and more relevant, due to the financial and economic crisis, which asks for a new strategic paradigm. However, a firm that intends to embed CSR and sustainability into practice needs to use managerial mechanisms to influence worker’s behavior and to align individual objectives with company’s goals and strategies (Dixon, Nanni & Vollmann, 1990). Performance measurement systems (PMSs) play a fundamental role, because in the organizations those objectives are pursued and those actions are implemented which managers are responsible for and upon which they are evaluated and rewarded. Dealing with the identification of the drivers of past and future performance and the related indicators, PMSs can also favor the alignment between the business strategy and the social strategy. The design, implementation and use of PMSs, focused on CSR and sustainability, ask an enterprise big efforts, to integrate the actual financial PMSs. The critical performance areas to be monitored have to consider the relevant stakeholders, the business strategic objectives and the triple bottom line (TBL) perspectives; the indicators, the measurement rules and the relationship among different KPIs have to be redesigned. The frequency of measurement should favor timely and reliable analysis. Finally, traditional

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systems focused on financial indicators need to be integrated with new accounting systems, such as environmental and social accounting. A trade –off exists between the number of indicators which can be regularly and timely elaborated and communicated and the costs of their measuring and processing. The described efforts may explain the limited diffusion of PMSs oriented to CSR and sustainability. Among the different proposals developed by scholars, one of the most appreciated framework is the Sustainability Balanced Scorecard. In this paper, we concentrate our attention particularly on this tool, analyzing the characteristics of its design and implementation and the relation with firm strategy. Two case studies are presented, about firms that have introduced the Sustainability Balanced Scorecard. More in depth, paper’s main objectives are as follows: 1. to explore the relationship between business strategy and social strategy; 2. to analyse and discuss design choices of the balanced scorecard (structure and content) that guarantee the consistency between the business strategy and the CSR/sustainability approach; 3. to identify points of strength and weakness underlying the implementation of a balanced scorecard oriented to CSR and sustainability.

Business strategy vs. social strategy: the missing link? The relationship between the business strategy and the social strategy represents an issue underdeveloped by the literature. Authors who dealt with this topic often seem to consider the social strategy and the business strategy distinct and parallel issues. According to Minoja (2008) various theoretical streams on the relationship between the firm’s economic and social objectives have been developed by the literature. Some authors state that the firm does not have any other obligation than the merely objective of maximizing shareholder value (Levitt, 1958; Friedman, 1970). Other studies recognize the social and ethical responsibilities of the firm. According to Minztberg (1983) being committed to ethics is not in conflict with financial, strategic and operational concerns. According to Coda (1988, 2004) the relationship between the financial, competitive and social goals of the firm is circular, and not rival; each dimension influences reciprocally the other ones. The stakeholder theory affirms that social issues are comprised among firm objectives, consistently with the following principles: - the firm’s decisions and actions imply not only economic, but also social impacts; - organizations inevitably involve social as well as economic consequences, inextricably intertwined; - the firm uses resources and competences which allow it to proactively and effectively cope also with social issues (Porter & Kramer, 2002; Margolis & Walsh, 2003); - dealing with the stakeholders’ needs and issues is not inconsistent with the shareholders’ value. Another research stream recognizes that the firm has obligations towards stakeholders, but consider social issues as instrumental and subordinate to the objective of maximization of profit and shareholders’ value. Giving attention to social issues and stakeholders’ interests improves the firm legitimization, and its reputation, strengthens the consensus from stakeholders, generates intangible assets, and reduces the firm’s risk profile (Wartick & Cochran, 1985; Wood, 1991; Godfrey, 2005; Mackey et al., 2007). To sum up, the relationship between the business strategy and the social strategy has been analyzed by the literature according to three main perspective. The first one considers the sustainability strategy and goals instrumental and subordinated to the business strategy and the competitive and financial objectives. The second one recognizes that the firm has obligations towards stakeholders, because it has to follow ethical principles and behaviors. However, such perspective may consider the social strategy as a distinct one from the business strategy. According to the last perspective, CSR and sustainability are strictly integrated into the company goals and mission, defining a long-term convergence among financial, competitive and social objectives, and a coincidence between the business and the social strategy.

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The role of PMSs in implementing social strategy A company pursuing a strategy based on CSR and sustainability needs to define objectives and programs, and to measure their achievement adopting a new perspective. However, the impact of sustainability and CSR on PMSs has recently gained some interest by the academic world, while the business world shows a more cautious approach. The practice highlights that different choices are undertaken by enterprises, in order to revise their performance measurement systems, considering a CSR and sustainable approach. Some companies integrate the managerial reporting systems with a few social and environmental indicators (KPIs) (Keeble, et. al, 2003; Searcy, et al., 2005; Chee Tahir & Darton, 2010; Ramos & Caeiro, 2010). Other firms develop and use new performance measurement frameworks, focused on CSR and sustainability (Milne, 1996; Rouse & Putterill, 2003; Norris & O’Dwyer, 2004; Kaplan & Norton, 2004; Durden, 2008). Starting from the beginning of ’90s, some authors signaled the importance of having specific managerial tools devoted to measure and represent the sustainable and CSR performance, deployed into both the environmental and the social perspectives (Epstein, 1995; Schaltegger et al., 1996; Elkington, 1997; Epstein & Manzoni, 2006). All such frameworks are multi-level and multi-stakeholder. The most popular proposals are summarized in table 1. Table 1. PMS frameworks oriented to CSR/sustainability Framework Authors Value Reporting Wright and Keegan (1997) Intellectual Capital Model Edvinsson and Malone (1997); Sveiby (1997); Stewart (1999) Comparative Business Scorecard Kanji (1998); Kanji, Moura and Sa (2002) Ethical Performance Scorecard Spiller (2000) Performance Prism Neely et al. (2002) Sustainable Balanced Scorecard Epstein and Wisner (2001); Figge et al. (2002); Epstein and Roy (2003a, 2003b) SIGMA Sustainable Scorecard www.sigmaproject.org Integral framework for performance measurement Rouse and Putterill (2003) new Balanced Scorecard Kaplan and Norton (2004) Responsive Business Scorecard Woerd and Brink (2004) Thematic Balanced Scorecard Dias-Sardinha and Reijnders (2005) Corporate Sustainability Performance Pyramid Epstein and Wisner (2006) Dartboards and Clovers of Sustainability Model Bonacchi and Rinaldi (2007)

Agreeing with such scholars, we state that the implementation of the social strategy finds an important driver in the PMS that favors the alignment among decisions, actions and attitudes. Next paragraph deals with design choices to be applied in order to develop a Sustainability Balanced Scorecard, as an effective mechanism to implement social strategy.

The Balanced Scorecard as a tool for implementing social strategy Among different PMSs frameworks devoted to drive the implementation of the social strategy, many scholars suggest the use of the Balanced Scorecard as an effective tool (Kaplan & Norton, 2001). With reference to this specific topic, different are the proposals coming from the literature. Epstein and Manzoni (2006) contended the introduction of the sustainability perspective into the four traditional perspectives of the BSC. According to this proposal, the enterprise should maintain its business BSC, but adding new objectives and indicators aimed at capturing sustainability inside each traditional dimension (Figure 1)

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Figure 1. Integration between business strategy and social strategy: sustainability embedded inside traditional BSC dimensions

This alternative should be appropriate when the management believe sustainability playing a relevant strategic role for the firm’s success, and so it has to be embedded into business strategy. Such BSC framework is useful in order to pursue an integration between the business strategy and the social strategy. Figge et al. (2002) suggest the opportunity to add a new dimension of performance to the four ones of the BSC, the so-called “non-market” perspective, devoted to hold the sustainability objectives and performance indicators (Figure 2). In the evaluation process, this fifth dimension should have a different weight related to the importance that the sustainability has among organization priorities.

Figure 2. Social strategy distinct from business strategy: a fifth perspective inside BSC

According to this approach, the sustainability join the firm business objectives without a complete integration with them. This kind of solution is particularly effective, either for firms that have just begun to deal with the sustainability issues or for those organizations that prefer to maintain separate the business and the social strategy. Epstein and Wisner (2001) propose the design of a specific scorecard devoted to the sustainability. They argue that a new performance measurement framework should be developed, in addition to the business BSC, which considers sustainability and stakeholder satisfaction: both a triple bottom line (TBL) approach, and a stakeholder focus, which articulates goals and indicators into relevant stakeholder categories, are recommended (Figure 3).

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Figure 3. Social strategy distinct from business strategy: two separate BSCs

As the sustainability BSC operates as a separate tool from the business BSC, the social strategy is considered as separate and distinct from the business one. Finally, Kaplan and Norton (2004) in the framework developed in 2004 pay attention to sustainability perspective, stating that all stakeholders’ interests have to be included into the BSC, if this is useful to the business strategy. They suggest the introduction of some sustainability objectives and measures inside the “Internal processes” perspective, specifically in the “Environment, Health and Safety” area (Figure 4). According to their proposal, social strategy is instrumental to business strategy.

Figure 4. Kaplan and Norton Sustinability BSC (2004)

To sum up, sustainability and CSR are embedded into the BSC following four main design choices, depending on the relationship a firm adopts between its social and business strategy:

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if social strategy and goals are considered as instrumental and subordinated to the business strategy and competitive and financial objectives, we can expect that Kaplan and Norton’s framework (2004) is applied; if social strategy is considered distinct from business strategy, two different design choices can be made. The former one is the addition of the sustainability perspective to the traditional BSC model (Figge et al., 2002); the latter one is the development of a specific sustainability BSC as a separate tool from the traditional BSC (Epstein & Wisner, 2001); finally, when CSR and sustainability are strictly integrated into the company goals and mission, and a coincidence between social strategy and business strategy occurred, CSR and sustainability objectives and measures are deployed pervasively into the four perspectives of the traditional BSC.

Empirical evidences Research design The research method was based on the analysis of two case studies of European firms, which embedded sustainability and CSR in their strategic goals, organization and managerial mechanisms. Case studies were performed through semi-structured interviews, and the analysis of secondary sources. Informants included: the chief executive officer, the managing director, the chief financial officer, the controller, the CSR manager, and the Communication department director. Data collection focused on research variables describing the company, the CSR and sustainability strategy, the business strategy, and the impact of CSR and sustainability on the organization, managerial mechanisms and PMSs. The several informants, direct observations, different data sources and the analysis of secondary sources, such as company documentation and corporate website, allowed for triangulation, to check the internal consistency of data. A comparative analysis across the two cases was carried out, after an explanatory and descriptive analysis of each company. Case study 1: Alpha Alfa is a multi-utility that provides energy (gas, electricity), water and waste management services to a total customer base of approximately two million users. Alpha aims to guarantee an innovative corporate model based on a multi-business approach with strong roots in the community. It places sustainability as a key element of company strategy. The business strategy is developed along three lines: energy, networks and environment. Such strategic priorities are supported by some strategic sustainable objectives: reduction of environmental impacts, increasing service quality and safety, involvement and dialogue with stakeholders, communication and workforce involvement, career advancement and efficient use of skills and know-how, alignment with code of ethics principles, sense of belonging and corporate culture, promotion of the quality, safety and environmental policy. Alpha has published the Sustainability Report since 2003. In October 2010, the Balanced Scorecard System Management department within the Corporate Social Responsibility Department was established. Alpha’s BSC articulates the corporate strategy and social responsibility policies into specific operational projects managed by managers and periodically monitored. Such projects are an integral part of the management bonus system. The innovation of this approach consists of considering the achievement of strategic objectives of social and environmental sustainability as a condition for the achievement of the company’s economic and financial objectives over the medium and long term. The objectives are articulated into four areas: development, quality and corporate social responsibility, organizational integration, efficiency upgrading. The commitments to stakeholders are also considered in the BSC. Each year, the strategic map, updated consistently with the contents of the business plan, provides a summary of the strategic objectives and Alpha’s commitment to stakeholders. To achieve strategic objectives of increasing the company’s long-term value, many priority projects are selected during the budgeting process. Members of the Executive Committee are in charge of such projects. Each project within the BSC system is assigned to a manager and is part of his/her bonus system.

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Case study 2: Gamma Gamma is one of the largest European listed utility. It has been listed on a European and the New York stock exchanges since 1999. In 2002, the corporate social responsibility (CSR) project was launched, directly sponsored by the CEO. In order to foster the integration of respect for the environment and society into its business activities, Gamma ensured that its Board of Directors assumed responsibility for sustainability and for the integration of planning and audit processes with sustainability objectives and indicators. In 2002, two new organization departments were established: the Corporate Social Responsibility unit, within the Corporate Communication Department, and the GammaDATA unit, within the Corporate Administration, Finance and Control Department. The latter was in charge of the CSR planning and control process, defining CSR objectives, evaluating CSR projects and compiling managerial reports for top management. Within the Corporate Administration, Finance and Control Department, a new role was also established: the CSR controller. Many data owners were identified to be in charge of and manage KPIs for the Sustainability Report and rating agencies’ questionnaires. In May 2003, the 2002 Sustainability Report was published. In July 2003, social and environmental questions arising from business activities and relations with stakeholders were translated into a set of corporate social responsibility objectives. They were incorporated as an integral part of the Company Business Plan as well as the budgeting and reporting systems. Gamma has created a system of data collection that compiles information at quarterly intervals and, using specific key performance indicators, is able to: illustrate the main actions being undertaken for improvement; highlight deviations from corporate goals so that prompt corrective action may be taken. The specific planning and control mechanisms are: - the Sustainability Data: it contains the annual guidelines for the CSR planning and control activities - the CSR Plan: it is devoted to formalize the objectives and the action plans required for the development and implementation of the sustainability strategy during the specific budget period and the following five years. - the Quarterly Scorecard: it contains some highlights on the most relevant CSR facts of the quarter; - the Business Review: every six months, it presents to the CEO the current situation of the CSR projects, and the planned initiatives for the following twelve months. - the Sustainability Scorecard: it was first realized in 2006. Each of the 100 KPIs reported in the Sustainability Scorecard is linked to a specific critical success factor. A set of objectives, ranging from a minimum of two to a maximum of eight, is linked to each critical success factor. The actual value, target and trend of each KPI are measured by means of a score that reflects the degree of variance between the target and the actual value. The Sustainability Scorecard has been developed by the Business Planning and CSR Control manager with the help of IT resources. It is organized according to a TBL structure. Recently the sustainability scorecard has been called in question. It is noteworthy that the sustainability planning and control systems and process have not substituted traditional planning and control systems, but represent a parallel, but distinct system.

Conclusions The impact of sustainability on PMSs has traditionally been studied with reference to the external reporting. Only more recently proposals on the sustainability BSC have emerged in the literature. According to how the relation between business strategy and social strategy is considered, authors suggest different design choices to embed sustainability and CSR into the BSC. The analyzed cases highlight different design choices with respect to the structure and content of the sustainability BSC, the process of implementing it, the relationship with traditional planning and control systems, and the role of different organizational departments (table 2).

Corporate Social Responsibility and Global Strategy Table 2. Strategy and PMSs in Alpha and Gamma Alpha Relationship between business Social strategy and business strategy and social strategy strategy are linked Planning and control systems Sustainability embedded into planning, budgeting, reporting and incentives Sustainability balanced Sustainability embedded inside four scorecard areas of the balanced scorecard: development, quality and corporate social responsibility, organizational integration, efficiency upgrading Department involved in CSR / sustainability planning and control

The unit in charge of sustainability BSC is inside the CSR department

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Gamma The two strategies are distinct Sustainability planning and control systems are distinct from the traditional/ financial ones The sustainability balanced scorecard is distinct and parallel with respect to the traditional planning and control systems, and it is organized accordingly to a triple bottom line approach Two organizational units in charge of sustainability: the first one is in charge of external communication and it is under the Communication department, the second one is in charge of sustainability planning and control systems and it is inside the accounting, finance and control department

We can say that Alpha considers social strategy and business strategy highly linked. Consequently, it has adopted the traditional BSC where sustainability KPIs are inside the four different areas. This choice could be the consequence of the fact that Alpha is owned by local municipalities and operates in energy, water and waste management, delivering public services to local communities. On the contrary, Gamma considers social strategy distinct from business strategy. Being a listed company, sustainability has been adopted mostly for communication and image purposes, and to be admitted to social indexes, in order to attract social investors. As suggested by Riccaboni and Leone (2009), we can say that the analyzed companies have adapted rather than adopted the concept of sustainability. Integrating financial, social and environmental goals, pre-existing values and paradigms (such as shareholders’ interests and profitability) have been not questioned. Rather than against traditional concepts, sustainability is treated as something complementary to them. However, the analysis of the two cases allows to identify two different profiles of the meaning of sustainability: - the first profile, implemented in Gamma, is market oriented. According to this perspective, sustainability is a vehicle for improving the company’s attractiveness for customers, and investors: social strategy can be considered as instrumental to business strategy; - the second profile of sustainability, implemented by Alpha, is corporate value oriented. Sustainability is viewed as a key point of the company’s culture; it strongly directs the decision processes and the activities. Thus, social strategy and business strategy are coincident. In all case studies sustainability has been introduced within the organization through formalized mechanisms and tools. In fact, PMSs have played a relevant role in the implementation of the new strategic guidelines. New organizational units and roles in charge of sustainability BSC have been established. Sustainable targets and objectives for the organization as a whole, as well as for divisions and departments, have been identified, and a sustainability plan, budget, managerial reporting and incentives have been adopted. A clear and well-framed definition of strategic objectives in terms of sustainability and their translation into specific and measurable targets have been defined, which represent fundamental guides in embedding social and environmental issues in organization management practices and day-today operations. The integration of sustainable strategies with the traditional planning and monitoring system seems to be one of the key elements of the successful embedding of sustainability within the organization. As argued by Riccaboni and Leone (2009) the integration rather than the replacement of existing tools and practices

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looks like a facilitator of the progressive internalization of the sustainability principles within the organization. However, the findings of case studies show also some differences between the two firms. In fact, Gamma considers the sustainability strategy mostly as a separate dimension from the business strategy. Thus, consistently with Epstein and Wisner (2001) it has arranged a sustainability balanced scorecard separate from the financial and traditional managerial reporting. Such findings seem to show an incomplete integration between the business and the sustainability strategies, which are viewed as two distinct aspects of the firm’s life, and not completely integrated. Partially different is the approach adopted by Alpha. The traditional balanced scorecard integrates the sustainability objectives and indicators, as supported by Epstein and Manzoni (2006), showing a more strict coincidence between social strategy and business strategy. It is noteworthy that in Gamma the sustainable balanced scorecard has been recently called into question. The reasons explaining such choice can be summarized as follows: - the balanced scorecard is considered too much complex in relation to the achievable benefits; - the balanced scorecard is considered less flexible than other performance measurement tools such as a set of KPIs; - the maintenance of the balanced scorecard requests costly interventions for the design and maintenance of the information systems. To conclude, we can say that a life cycle of the BSC seems to emerge by the analyzed case studies. At the beginning, when sustainability has to be brought into the organization and it has to be perceived as a corporate priority by the employees, the BSC seems to be the more effective tool. Afterwards, when the new approach has come into use and sustainability has been gradually incorporated into organizational culture, systems and actions, the routine can be managed by some simpler tools, like a set of KPIs.

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Epstein, M.J., and Roy, M.J. (2003b). Improving sustainability performance: specifying, implementing and measuring key principles. Journal of General Management, 29(1), 15-31. Epstein, M., and Wisner, P.S. (2001). Using a Balanced Scorecard to implement sustainability. Environmental Quality Management, 11(Winter), 1-10. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 32-33, 122, 124, 126. Godfrey, P.C. (2005). The relationship between corporate philanthropy and shareholder wealth: a risk management perspective. Academy of Management Review, 30(4), 777-798. Kanji, G.K. (1998). Measurement of business excellence. Total Quality Management, 9(7), 633-643. Kanji, G.K., and Moura e Sa, P. (2002), Kanji’s Business Scorecard. Total Quality Management, 13(1), 13-27. Kaplan, R.S., and Norton, D.P. (2001). The Strategy Focused Organization. Boston: Harvard Business School Press. Kaplan, R.S., and Norton, D.P. (2004). Strategy Maps. Boston: Harvard Business School Press. Keeble, J., Topiol, S., and Berkeley, S. (2003). Using indicators to measure sustainability performance at a corporate and project level. Journal of Business Ethics, 44(2/3), 149–158. Levitt, T. (1958). The dangers of social responsibility. Harvard Business Review, 36(5), 41-50. Mackey, A., Mackey, T.B. and Barney, J. B. (2007). Corporate social responsibility and firm performance: investor preferences and corporate strategies. Academy of Management Review, 32(3), 817-835. Margolis, J.D., and Walsh, J.P. (2003). Misery Loves Company: rethinking Social Initiatives by Business. Administrative Science Quarterly, 48(2), 268-305. Milne, M.J. (1996). On sustainability; the environment and management accounting. Management Accounting Research, 7(1), 135-61. Minoja, M. (2008). Responsabilità sociale e strategia. Milano: Egea. Mintzberg, H. (1983). The case for corporate social responsibility. The Journal of Business Strategy, 4(2), 3-15. Neely, A.D., Adams, C., and Kennerley, M. (2002). The Performance Prism: the Scorecard for Measuring and Managing Business Success. London: FT Prentice Hall. Norris, G., and O’Dwyer, B. (2004). Motivating socially responsive decision making: the operation of management controls in a socially responsive organization. The British Accounting Review, 36(2), 173-196. Porter, M.E., and Kramer, R.M. (2002). The Competitive Advantage of Corporate Philantrophy. Harvard Business Review, 80(12), 56-69. Ramos, T.B., and Caeiro, S. (2010). Meta-performance evaluation of sustainability indicators. Ecological Indicators, 10(2), 157–166. Riccaboni, A., and Leone, E.L. (2009). Implementing strategies through management control systems: the case of sustainability. International Journal of Productivity and Performance Management, 59(2), 130-144. Rouse, P., and Putterill, M. (2003). An integral framework for performance measurement. Management Decision, 41(8), 791-805. Schaltegger, S., Muller, K., and Hindriksen, H. (1996). Corporate Environmental Accounting. Chichester: Wiley. Searcy, C., Karapetrovic, S., and McCartney, D. (2005). Designing sustainable development indicators: Analysis for a case utility. Measuring Business Excellence, 9(2), 33–39. Spiller, R. (2000). Ethical Business and Investment: a model for business and society. Journal of Business Ethics, 27(1-2), 149-160. Stewart, T.A. (1999). Intellectual Capital. The new Wealth of Organizations. New York: Doubleday. Sveiby, K.E. (1997). The new Organizational Wealth. Managing and Measuring Knowledge-based Assets. San Francisco, CA: Berret Koehler. Wartick S., and Cochran, P. (1985). The evolution of the Corporate Social Performance Model. Academy of Management Review, 10(4), 758-69. Woerd, F., and Brink, T. (2004). Feasibility of a responsive business scorecard. Journal of Business Ethics, 55(2), 173-186.

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Wood, D.J. (1991). Corporate Social Performance Revisited. Academy of Management Review, 16(4), 691-718. Wright, P.D., and Keegan, D.P. (1997). Pursuing Value: the Emerging Art of the Reporting on the Future. PW Papers, Price Waterhouse LLP. Websites: www.sigma-project.org

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CSR STRATEGIES AND VALUE CREATION IN THE AGRO-FOOD SECTOR: A COMPARATIVE PERSPECTIVE Gloria FIORANI Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Cristina MITITELU Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Irene LITARDI Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Cecilia EMBRIACO Tor Vergata University 2 Columbia St., Rome, Italy Abstract. The research aims to analyze and compare CSR strategies of four companies in the Italian Agro-food sector with the aim of investigating the level of integration of the CSR policies into the business strategy. The analysis aims to investigate 1) whether the leadership of the market, in terms of revenues, geographical and sectorial pervasiveness, is a factor that can lead to a greater focus on social and environmental issues and to a greater integration of CSR in business strategy and (2) the role of the CSR strategies in value creation in the Agrofood sector in the current economic recession. The findings underlines the best practices and the positioning of each company in terms of CSR integration into the business strategy. Keywords: CSR strategy; value creation; economic crises; benchmarking; agro-food sector.

Introduction Corporate social responsibility has often been presented as a firm’s responsibility to do good or to give back to society. CSR is not an obligation but provides a process for structuring win-win arrangements between the business and its stakeholders. CSR strategies aim to transform the cultural mindset within the firm management operational business with the end to create value (Martin, Petty & Wallace, 2009). Different drivers can lead to business’ promotion of CSR. Leaders’ views to fulfil economic, legal, ethical responsibilities lead to framing the organization's responsiveness, and businesses' relationships with the stakeholder (Wood & Jones, 1995). In the last few years the Agro-food sector, due to the consumers’ attention to issues of environmental and social sustainability of production, raised its interests and sensitivity to issues concerning health and food safety and environment aspects. The competitiveness and success of the companies operating in the sector are consequently dependent on the assurance of adequate levels of sustainability. The attention required is not only economic but also social and environmental, producing healthy and genuine food, contributing to the protection of natural and environmental resources and creating jobs with attention to the quality of work.

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The research aims to analyze and compare CSR strategies of four important companies in the Italian Agro-food sector (Ferrero, Nestlé, Barilla and Valfrutta, §3), on the base of the main literature theoretical models. The main objectives (§2) is investigating: 1. whether the leadership of the market, in terms of revenues, geographical and sectorial pervasiveness, is a factor that can lead to a greater focus on social and environmental issues and to a greater integration of CSR in business strategy (§3). 2. the role of CSR strategies in the Agro-food sector during the current economic recession (§4). The theoretical models of analysis, supporting the entire parameters of the comparative studies research relies on the CSR stages model proposed by Molteni §5), the model of Global Corporate Citizenship proposed by Schwab (§5), the empirical studies on the CSR value creation during the crises (§4), theories of stakeholder management (§3.5) and the concepts of shared value and value creation (§6).

Objectives and methodology The first research objective (Objective 1) aims to investigate whether the leadership of the market, in terms of revenues, geographical and sectorial pervasiveness, is a factor that can lead to a greater focus on social and environmental issues and to a greater integration of CSR in business strategy. The method (Methodology 1) used to address the first research objective is the comparative case study in a view of benchmarking of the four companies. The study performs a documental analysis, mapping the main socials and environmental CSR initiatives at the case studies level. In-depth are assessed the levels of integration of CSR into the business strategy, on different scaling of initiatives adopted (communication forms, standards and certifications, modes of stakeholder engagement). The method permits to assess the maturity of the CSR integration into the business strategy, positioning each company within the five-stage model proposed by Molteni (2007). The Global Corporate Citizenship model of Schwab (2008) will also be used with the aim to systemize the companies’ strategies and show the degree of internalization of the four pillars of good practices of global citizenship. It looks to the business action as a ‘good active citizen’ not only in the communities and countries where operate, but also at the global level, being attentive to present and to improve the future. The research integrates the documental analysis by structured interviews with the CSR business managers (Methodology 2), investigating the evolution of CSR strategies in the current economic crises (Objective 2). Previous studies (McKinsey, 2009; Fiorani & Meneguzzo, 2010) on CSR value creation in times of recession bring under debate conflicting perspectives and conclusions. Therefore, seems useful to investigate the dynamics of the sector. The interviews performed aimed to gather the perception of the managers with the main benefits of CSR strategies in the core business and the impact of the economic crisis on CSR investment (years 2008-2014). Case studies analysis Leadership of the market The first research objective analyze if the market leadership and turnover are factors that may lead to being more attentive to the socio-environmental issues. Therefore, a comparison of the case studies turnover for the year 2013 is undertaken.

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Turnover in miliards of euro 76,2

80 70 60 50 40 30 20 10

8,1

3,5

1,5

Barilla

Valfrutta

0 Ferrero

Nestle Turnover 2013

Figure 1. Benchmarking turnover (year 2013) (the data for Valfrutta refers to Conserve Italia)

The above figure underlines the leadership of Nestle within the industry. The group has a strong presence both nationally and internationally, both geographically and economically, being the largest company in the world. The main office is located in Vevey, Switzerland, but its operative offices are scattered around the world. Its leadership stems partly from the fact that the company covers a great part of the market since it produces and distributes a huge range of products from mineral water to homogenized, frozen and dairy products. In this context, the further analysis focuses on understanding whether the market leadership and turnover are factors that may lead the Nestlé group, more than others, to be more attentive to the socioenvironmental issues. To reach such objective, the next section of the analysis investigates, in a comparative perspective, the sustainability policies adopted by the four groups under study. Social and environmental initiatives The following table introduces a summary overview of the social and environmental initiatives implemented by the companies. Table 1. List of social and environmental initiatives

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The comparison of the various initiatives (see Figure 2), similar to the results of the previous parameters, shows that Nestlé has a greater commitment to socio-environmental initiatives. Findings show that Barilla and Ferrero focus more on the social initiatives while Valfrutta and Nestlé are engaging with the environmental initiatives.

12 10

10 8

8

8 7

6

Social

5

4

Environmental 3

2

3 1

0 Ferrero

Nestle

Barilla

Valfrutta

Figure 2. Comparison of the social and environmental initiatives

Interesting are also the findings referring to the geographical position of such interventions. The Nestle Group focuses primarily, both for social and environment measures, on the African continent, particularly in countries such as Ghana, South Africa, Ethiopia, Nigeria and Kenya. However, the Nestlé social and environmental commitments are going beyond, focusing in many other countries such as Europe and Mexico. The Barilla Group activities are focusing on countries such as the USA, Germany, Sweden, Greece, Brazil, Italy, France and Turkey. Its main initiatives deal with both ‘nutrition education’ and the development of a sustainable agriculture. A significant commitment towards nutrition education is also directed to other countries such as Singapore, Japan, Switzerland, and Russia. The group Valfrutta primarily focuses its interventions in Latin America, by sending aid in the form of food to the active missionaries in Peru, along with the Operation Mato Grosso promoted by Don Bosco Missions Onlus. This action contributes to cover the needs of food shortages that plague the region. The company also supports the Association Friends of Benin, dedicated to the poor population in Benin, situated in West African area, where meningitis, malaria, hunger and lack of drinking water are reasons of very high infant mortality. In terms of geographic distribution, the main achievements are attributable to Ferrero group. Its social and environmental commitment are spread in many countries around the world, from Europe to Asia, particularly India, to Latin America countries, like Chile and Georgia, and finally to Africa countries such as Ghana, Nigeria and Côte d'Ivoire.

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Number and frequency of social reports The bellow analysis shows the year in which the companies have produced their own social and sustainability reports, also indicating from which year began the reporting activity and their frequency to date. Table 2. Frequency of Social reports

The findings show that the companies, from the moment started to take the path of socio-environmental reporting, consistently published the social report over the years. The Nestlé group was the first to adopt the social report, followed by Ferrero and Barilla. Instead Valfrutta, despite its commitment to the socioenvironmental initiatives, as yet has not started to publish any social report. However, it should be noted that in 2013 the group Conserve Italy, which is part of Valfrutta, signed an understanding with the Ministry of Environment, stating its growing interest and commitment to corporate social responsibility.

Standard and certifications The bellow analysis introduces an investigation on the guidelines, standards and certifications that, over the years, have been adopted by the companies. Table 3. Standard, guidelines and certifications

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The findings allow identifying the main company that, compared to others, embraced advanced social responsibility policies. Ferrero, compared to others, is committed to achieving these standards and, furthermore, is the only one that, with the objective to act in a more ethical and transparent manner and further to contribute to the health and welfare of society, has embraced in 2013, the ISO 26000 guidelines, which provides guidance on how companies can operate in a more socially responsible manner. Additionally, worth noting Barilla, Nestlé and Ferrero that obtained a certification GRI A (A +). Modes of stakeholder engagement CSR evolution towards the logic of global corporate citizenship has had a significant impact on the modes of stakeholder management and engagement. It raised the attention to the criteria and procedures for stakeholder classification and segmentation, going beyond the traditional approach towards the multistakeholder management logics. Stakeholder engagement helps the companies to shape responses to common challenges, to drive performance improvements, and ultimately strengthen collective action. The feedbacks gathered in meetings are taken into consideration in the development of policies, commitments, and actions, and are also the basis for the analysis of materiality in the next years. Mitchell (1997) proposes a theory identifying stakeholders categories mapped through the possession of requirements such as the (1) power (i.e. defined as the ability to impose the will on others, and in decision making); (2) legitimacy in the relationship between the stakeholders and company (i.e. concerning the sphere of social recognition); (3) urgency in the claim of the stakeholder (i.e. the ability to put pressure on the company). From the different combinations of the three attributes are driving seven categories of stakeholders, grouped into three categories (depending on their importance, and determined by the possession of one, two or three attributes), as underlined in the figure 3.

Figure 3. Stakeholder mapping: stakeholder categories Mitchell (1997)

Once classified and identified the stakeholders, the core management should adopt a process aimed at their involvement, based on modes and techniques to organize their participation. These methods of involvement may be more or less intense. It may be simple information, consultation through surveys, focus groups, and workshops aimed at the formulation of social responsibility policies, and active involvement based on collaboration in the implementation of CSR strategies. A summary of the main initiatives of stakeholder engagement adopted is introduced by table 4.

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Table 4. Main initiatives of stakeholder engagement

The findings show that Nestlé and Ferrero are the major companies, compared to others, that implemented and demonstrated the importance of the effective dialog with the stakeholders and its role in the creation of shared value. Such orientation is visible at the level of the approach towards dialog based on listening to opinions and concerns and the communication of the commitments. In particular, the Ferrero group is oriented towards enacting models of participation through focus groups, which provides tools for listening and learning and enhance and create communication between different subjects. The main purpose of the focus group is to achieve a better understanding among participants, improving the quality of interpersonal relationships, and creating new channels of communication. In order to verify the companies readiness for dialog with the stakeholders, the authors tried to investigate beyond what stated in the official documents. Therefore, the research methodology integrated an analysis based on survey submission that allowed gathering of primary data evidence on the companies’ approaches. At the level of each case study has been submitted online questionnaires. A questionnaire directed to the leaders dealing with CSR and looking to investigate what is the impact of the crisis on the CSR strategies. Another questionnaire directed to employees and aiming to investigate the perceptions of the CSR policies within the company. The method procedures involved the direct survey submission of the questionnaire by Dr. Embraico, in 2014, while being a graduate student. The author plays ‘a latent stakeholder’, if we consider the Mitchell et al. (1997) theories, to a certain degree “challenging /demanding” the core management of the organization. The relevant attribute of the author is the ‘urgency’ by administrating a questionnaire. This type of stakeholder is to a certain degree a nuisance for managers since it is neither dangerous nor endorsed. Given the time limits, energy, and resources, companies may decide do not consider this stakeholder. Based on the analysis of the companies’ behaviors has been identified four types of approaches to dialog: 1. Closed -“Totally”: the company not opened to dialog; not answering to emails and probably there is not a function dedicated to CSR (i.e., Valfrutta); 2. Closed - “detached”: the company cannot respond to the survey because it is not required to support and assist graduate students; the company provides only filtered information and invited to website consultation (i.e. Nestlé). 3. Closed – “courteous” (motivated): the company policy does not allow to disclose additional information to that exposed on the company website. The company justifies the impossibility to answering the questionnaire due to confidentiality and data sensitivity (i.e. Barilla). 4. Open - “controlled”: the company is interested in stakeholders, even if they are not a key priority for the company’s activity. Despite the policy does not allow to disclose additional information beyond that disclosed on the website and to submit the questionnaire, the company granted an interview with the CSR

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manager or a responsible person in the CSR function. It is the case of Ferrero, who probably has recognized the stakeholder approach “graduate student” with the attribute of legitimacy, classifying it as a stakeholder “with expectations”. However, this type of stakeholder depends on other stakeholders or company managers expectations. CSR and value creation Burke and Logsdon (1996) defines value creation as identifiable, measurable economic benefits that the firm expects to receive. It occurs by combining firm resources in new ways to increase the potential productivity of those resources. The focal point is finding win-win outcomes and positive synergies, creating value-based systems. McKinsey study in collaboration with the Boston College's Center for Corporate Citizenship and the Sustainable Investment Research Analyst Network in 2009 revealed whether and how the environmental and social programs create value. In particular the study show whether and how CSR policies may have generated benefits and economic value to businesses, especially during the slowdown in economic growth, also stressing the relationships, direct or indirect, between social responsibility and competitiveness. The survey was conducted at the international level and involved a large number of CFO’s, investors and professionals of CSR. The findings show that the CSR programs have created shareholder value and have generated positive effects in terms of reputation, growth, quality management and return on equity. However have been stressed that the financial crisis and the slowdown in economic growth have reduced the priority of social and environmental programs for the benefit of those of governance. McKinsey survey has been replicated by Fiorani and Meneguzzo, in 2010, on a sample of 50 professionals of CSR in Italy. Findings shows that, in times of economic crisis, 63% of managers believe that CSR programs not only have assumed a new centrality and prominence, but are expected to play a greater impact in the next 3 to 5 years. Unlike, the McKinsey survey results of 2008, only a third of respondents believe that the economic crisis has not had significant effects on CSR programs or the fact that these programs pass into a second place. Therefore, there is a greater awareness of the strategic role of CSR. The crisis acted as an accelerator of the commitment of companies to sustainability, strengthening the belief that it is an important solution to address the growing market uncertainty, rebuild relationships and trust between business and society. Increasingly common is, therefore, the belief that a coherent involvement in sustainability strengthens the business competitiveness and improves economic performance. The managers were aware that CSR can become a competitive tool if integrated into business strategies. On a similar vein, the interview with Ferrero Group’s CSR manager, on the agro-food sector and the current and future CSR policies relevance and role to the sector and during recession confirms the results of Fiorani and Meneguzzo study in 2010. According to the CSR manager, in managing the effects on the environment and natural resources, reducing the consumption of resources or polluting emissions and waste can not only result in reduced impact on the environment, but such strategy can also bring benefits by reducing energy bill and raw materials costs. Thus, at a time of crisis like the current one - says the manager - has been instrumental for the company to adopt a CSR approach, which in this context of crisis is not decaying, but rather it is more active than ever. CSR strategy integration: findings In order to better interpret the empirical findings emerging from the comparative cases, the authors used the CSR stage model developed by Molteni (2007) in order to identify the position of the companies analyzed in relation to the degree of integration of corporate social responsibility strategy. The model provides a process of CSR evolution, of a gradual and incremental integration of CSR into business strategy and is based on five main stages: informal, current, systematic, innovative and dominant (see figure 4).

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Figure 4. CSR stages of development (Molteni, 2007)

Findings shows that Valfrutta group could be placed between the informal and current phase of CSR development (see figure 5). Some elements emphasize the social and environmental interests of the company. However, there are not the systematic implementation of the social or environmental initiatives in favor of the community and do not have a large number of certifications, except for the FSC (Forest Stewardship Council). In addition, the group seems to have a function dedicated to CSR with an office and a manager, however, it is not implementing procedures for stakeholder engagement, and not performing the sustainability reporting. Instead, Barilla Group position is in the phase of innovative CSR. The CSR level of integration is likely to create competitive advantages by reducing costs associated with waste and the simultaneous satisfaction of various stakeholders, such as employees, the environment, and the community. In addition, the CSR in Barilla is placed at the service of multiple stakeholders through targeted involvement methods and regular meetings at least once a year. On similar grounds is the Nestlé, which ranks among the innovative and dominant phase of CSR development, “surpassing” Barilla due to the largest number of certifications, socio-environmental reports and the commitment to stakeholder engagement. The analysis shows that the company since 2011 has doubled the annual meetings with its stakeholders. The Nestlé approach is towards stakeholder engagement, using key stakeholders involvement through dialog and interactive communication, identifying expectations, setting or revising policies and strategies. Ferrero company’s approach instead shows availability and interest towards others types of stakeholders that are not key to the business activity. The case of the stakeholder approach “graduate student”, can be interpreted as a possible awareness to stakeholder legitimacy and expectation to have access to information. Within the limits of corporate policies and protection of sensitive data, the manager of the company has listened and tried to respond to requests made by stakeholder. In the perspective of the research publication - which may lead to assume a certain “power” or influence due to dissemination of information on the company strategies- it is believed that the Ferrero’s choice was strategically farsighted. Despite the visible commitment with which Nestlé is working in the socio-environmental field, it is believed that the Ferrero group places on the higher dominant stage of CSR. The dominant position due to the fact that the company has succeeded in developing a new model of business management designed to

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value the group and its brands consistently through the integration of social and environmental values in the strategies pursued. The Ferrero position is justified by the numerous corporate giving initiatives and the active integration of social actions with the economic ones.

Figure 5. The positioning of the companies in the CSR stages model

Ferrero’s business actions are integral part of the communities in which it operates more than its competitors in the sector. The social commitment of the Group has become the instrument towards the full integration of the organization, its stakeholders and the environment in which it operates. Ferrero can be considered a “good corporate citizen” because it has moved from a vision in which the goal is the satisfaction of individual stakeholders to one targeting the society wellbeing. It is achieved integrating different initiatives, through community philanthropy actions and listening to all categories of stakeholders (the motto is: “the quality can be assured with the contribution of all”). The representation and systematization of Ferrero’s CSR strategies and activities are in line with Global Corporate Citizenship Model (Schwab, 2008) (see figure 6). The model show that the group has internalized all four pillars of good practices of global citizenship (corporate governance; corporate philanthropy; social responsibility; social entrepreneurship, at the bottom, being the economic contribution). Therefore, the company approach underline that in addition to an active engagement in CSR initiatives (orientation to external stakeholders, adoption of accountability and reporting systems based on the approach triple bottom line), simultaneously puts in place actions of community philanthropy, provides its human resources (skills and know-how) for projects that benefit the community (community volunteering), develops social entrepreneurship initiatives (Social Entrepreneurship), supporting spin-off and start-up of social enterprises or creating its own foundation, and engages directly on Corporate Governance (inward orientation to shareholders). The group acts as a ‘good active citizen’ not only in the communities and countries where operates, but also at a global level. It is attentive to improve the present and the future, alongside the existing institutions. On the other side, the data from interview and sustainability reports underlines that Ferrero’s sustainability goals have grown from year to year, entailing an increase in investments and a widening of geographical areas of actions. The social and environment initiatives and their investments during the crisis, increased, and are expected to rise gradually. Therefore, can be concluded that the leadership in the market belongs to Nestlé while Ferrero group leads the dominant strategy of CSR.

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Figure 6. The model of GCC for Ferrero (Schwab, 2008)

Conclusions and implications Scholarly findings (Fiorani & Meneguzzo, 2010) shows that CSR is a winning strategy for a company's competitive advantage in time of crises. The research confirms similar results for Ferrero Group. The CSR in itself does not guarantee the success of a business, a high rate of sustainable growth, a low unemployment rate, and greater economic stability. However, to prevent the financial crisis without the CSR it is more difficult; the negative effects of the financial crisis can be buffered by the quality and efficiency of each organization (Argadona, 2009). Therefore, the reputational capital is fundamental to business and its strengthening through a transparent and open communication. Several researchers agree that companies with a good reputation can better resist crisis, with lower economic losses than those who do not have a good reputation. CSR should be considered as a long-term investment on future competitiveness, overcoming the identification of CSR with corporate philanthropy, volunteering, social marketing actions or cause related marketing, in order to integrate shared value processes (Porter & Kramer, 2006). The authors argued that “companies must take steps to integrate their business and society, generating economic value in a way that simultaneously create value for the company and for the larger system in which it operates (suppliers, community, territory), along the entire value chain, with the attention to the decentralization of production at the international level (outsourcing)”. In the actual scenario, the business are increasingly forced to move towards a sustainable approach, given the scarcity of natural resources and increasing social and environmental issues. Businesses are starting to change the sustainability of their supply chain in the key element to reach the competitive advantage. The growing pressure from stakeholders drives an increasing number of businesses s to pay attention to social and environmental issues in the territory (motto “Think Global, Act Local”). However, European Commission reports show that today less than 10% of large enterprises in the EU regularly publishes information on the environmental and social aspects. The EU Council approved the 2014 Directive on the reporting of social and environmental information (2014/95 / EC “Non-Financial Disclosure”). The Directive should be adopted by the national legislation of European countries by end 2016. The Directive represents a boost for the future development of CSR. In Italy there is a need for greater support from the institutions and public administration through public awareness, promotion of certification systems, policies for partnerships creation, platforms for the exchange of knowledge and research centers aimed at the spread of CSR. However, research findings show that despite Italy do not have specific legislation or national coordination in the field, holds a leading position in terms of CSR. Such position is mainly due to the bottom-up approach to social and environmental innovation and the presence of best practice companies like Ferrero, where CSR is the central element in the business strategy definition.

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References Argadona, A. (2009). Responsabilità sociale delle imprese. Journal of Business Ethics, 89(3), 303-318. Burke, L., and Logsdon, J.M. (1996). How Corporate Social Responsibility Pays Off. Long Range Planning, 29(4), 495–502. Fiorani, G., and Meneguzzo, M. (2012). CSR, impatto della crisi economica e creazione di valore. Il punto di vista dei CSR manager in Italia. Sviluppo e Organizzazione, 249(1), 54-63. Martin, J.D., Petty, J.W., and Wallace, J.S. (2009). Value-Based Management with Corporate Social Responsibility. 2nd ed. New York: Oxford University Press. McKinsey (2009). Valuing corporate social responsibility. Retrieved from https://www.mckinseyquarterly.comValuingcorporate_social_responsibility_McKinsey. Mitchell, R., Agle, B., and Wood, D. (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts. Academy of Management Review, 22(4), 853– 886. Molteni, M. (2007). Gli stadi di sviluppo della CSR nella strategia aziendale. Impresa progetto (Rivista online del DITEA), 2. Retrieved from http://www.impresaprogetto.it/sites/impresaprogetto.it/files/articles/ip_2-07_saggio_molteni.pdf. Porter, M.E. and Kramer, M.R. (2006). Strategy and society. The Link between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 84(12), 78-92. Shwab, K. (2008). Global Corporate Citizenship. Foreign Affairs, 87(1), 107-118. Wood, D.J., and Jones, R.E. (1995). Stakeholder mismatching: A theoretical problem in empirical research on corporate social performance. International Journal of Organizational Analysis, 3(3), 229-267.

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HOW CAN DELOCALIZATION FOLLOW A CORRECT SUSTAINABLE SUPPLY CHAIN APPROACH? LESSONS FROM RANA PLAZA DISASTER IN BANGLADESH Irene LITARDI Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Gloria FIORANI Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Cristina MITITELU Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Stefano BONCI Tor Vergata University 2 Columbia St., Rome, Italy [email protected] Abstract. The aim of this paper is to analyze the state of the art of CSR in the process of delocalization by multinationals in the textile sector. In particular, the study focuses on the strategies employed in the supply chain as a result of the Rana Plaza disaster in Bangladesh. The first aim of the research is to define the causes that saw multinationals involved in such a disaster. The second objective of the paper is to identify the CSR strategies that have been implemented by textile sector in Bangladesh to get over the impact of the negatives causes, underlined in the first part of the paper. The research methods to address the objectives are: a) a descriptive analysis of the Rana Plaza disaster to identify the critical aspects; b) documental analysis of the main theories of CSR that could have prevented this disaster; c) critical analysis of the reactions and strategic actions adopted after the disaster by the institutions, associations of workers and local unions, non-governmental organizations, as well as the companies responsible for the incident. The primary findings show the negative externalities of social and moral dimension behind the delocalization phenomenon that caused the disaster of Rana Plaza. It is due among others to the lack of control in the workplace, lack of control of the codes of conduct, disparity of the codes of ethics and lack of adequate legislation for workers’ rights in Bangladesh. Keywords: Corporate Social Responsibility; global strategy; sustainable supply chain; social compliance model; Rana Plaza disaster; reputational risk; delocalization.

Introduction The globalization allowed multinationals to carry out a massive relocation of intensive human capital phases in developing countries, where the savings from lower labor costs allow a competitive advantage in comparison to companies that do not delocalize their production. China, Bangladesh and other countries of Southeast Asia and Central and South America have become places where the lowest cost of labor attracts investments of the largest global traders. Two aspects facilitated this phenomenon 1) all the processes that helped to eliminate barriers and stimulate global trade; 2) the awareness of corporations to specific needs such as getting a better flexibility and a better streamlining within the business units, which have been provided through outsourcing and delocalizing the production. The outsourcing activities with less value making allowed

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concentrating their efforts on the core business activities. The Western multinationals investment of huge capital in outsourcing and offshoring brought a significant source of wealth for the local communities. Such context endorsed in emerging countries an intense downward competition based on the price at the workforce’s expense in terms of salary, union rights and harsh working conditions that increased the risk of accidents, often turning into real disasters. The global scenario redefined to a certain degree the roles for different countries: while Western countries exercise the role of brand leaders, many developing countries have become key partners regarding the delivery system. The centrality of the relationships in the clothing and textile sector is defined by the brand company, which brands the product and puts it on the market, thus taking responsibility towards consumers. The case study of the Rana Plaza factory, located in the Savar district on the outskirts of Dhaka (Bangladesh), collapsed due to structural failure on the morning of the 24th April 2013. The disaster had more than 1,100 people died, mostly young women and more than 600 severely injured. Apparently the structural failure was caused by the vibrations created by the machinery because building was not suitable to accommodate factories and machinery used in the production of the goods. Looking to the previous accidents in the supply chain of the industry in Bangladesh (a blaze in the Tazreen Fashion Factory) have been considered with a certain degree of confusion. Distinctively, the magnitude of the disaster of Rana Plaza has led the corporation of the sector to admit their direct responsibilities. The building housed a number of clothing factories that employed about 5,000 people, several shops, and a bank. This massive disaster has highlighted the inefficiency of the corporations supply chain management, based in developing countries, and how this results in a substantial reputational risk, even if they already applied a social compliance model. On this background, the research aims to analyze the supply chain’s model adopted by corporations and the adequate CSR implementation in the supply chain in developing countries. This analysis will take into account two factors: the value chain in the process of supply and the geographical matrix understood from west to east, that is from “brand company” to “supply enterprise”. Case study analysis Guidotti (2006) noted that the dynamics of delocalization in the emerging countries, where the protection of workers is minimal, lead Western companies to run into what is called reputational risk in terms of sales, image and repositioning in the market. In this case, the risk is negative because the reputation becomes a threat to the performance of a company (Schettini & Gherardini, 2011). The reputational risk for the brand corporations, whose economic implications can cancel the competitive advantage created by the savings obtained through the same delocalization of process of production (Klein & Dawar, 2004). In the early ‘90s a major scandal that raised the attention to media involved the Nike Inc (Brause, Locke & Qin, 2007) for its exploitation of child labor and low paid workers. The episode has heavily damaged the company’s reputation. The public opinion was influenced by the high attention that the media has given to the scandal, and consequently the consumer’s trust dropped sharply, in parallel to its commercial revenues. Therefore, Rana Plaza is not the first of this kind of disasters and delocalizing in countries with a weak protection of the working conditions. The companies could have prevented this disaster through an appropriate risk assessment: evaluating the geographical, historical, political and cultural conditions in place. Bangladesh, in fact, is the seventh most populous country in the world and the last decade has seen an average annual growth rate of 6%. Nevertheless, the increasing development did not affect the high rate of poverty, which in the recent years remains above 30%. The textile and clothing sector is the backbone of the industrial sector, and 80% of the country's exports in 2013 exceeded $21 billion, around 18% of GDP. With the obtained independence from Pakistan in 1971, the government nationalized the textile

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industry, which was mostly controlled by large Pakistan’s businessmen (Table 1). The government nationalized the industry through the establishment of Bangladesh Textile Mills Corporation or BTMC. The bureaucratic barriers in combination with other problems, such as low labor productivity, lack of planning and control, lack of accountability and disorganization, have led to a lack of profitability of the industry and made the government decide to privatize the production gradually. Another factor that could have had an effect on this growth is the Multi-Fiber Arrangement (MFA) (1974-2005), an international agreement that governed the textile and clothing sector through the imposition of restrictions on shareexports to industrialized countries by certain leading countries in the field, such as China, South Korea and Taiwan. The primary aim was to protect and safeguard the European industries and North America, but the same restrictions allowed other developing countries to make their way in this market area. Table 1. Phases of the development of Ready-Made Garments (RMG) (Mazedul Islam et al., 2013) TIME PHASES OF DEVELOPMENT 1977-1980 First phase of growth 1981-1982

Process of privatization of enterprises

1982-1985

Years of great development and boom in the sector

1985

Imposition of restrictions on share-export

1990’s

Significant development of the clothing sector

2005

End of the control system of the units

Currently, Bangladesh is one of the largest exporters in the world of textiles and clothing along with China, the undisputed leader in the field. The RMG industry is a significant source of wealth from the point of view of employment, accounting for 45% of all employment in the secondary sector of the country. Over 95% of the owned textile factories are governed by companies or business families of Bangladesh, rather than foreign investors. The fact that most of these investments are managed by local entrepreneurs means that there is an established interest in the future of the industry in Bangladesh. Some of the main issues to deal with is the dependence of the textile industry from imports of inputs. Clothing manufacturers need to import materials, resulting in higher purchase costs and disrupting the efforts to speed up response times. Furthermore makes the clothing manufacturers vulnerable to movements in exchange rates and the logistical problems of transport, in conjunction with the risk of supply disruptions stemming from a potential political conflict. The lack of investment in research and development, the difficulties of access to credit and the lack of infrastructure and security are among the factors that prevent proper development of the textile sector and ensure that the competitive advantage is based purely on low labor costs. Despite the national economic growth, the working conditions in the textile industry are among the worst in the world. The various accidents in recent history highlighted specifics problems related to safety in the workplace. Local entrepreneurs have built production facilities without complying with the safety regulations set by the government, and this has not ensured adequate measures for the supervision and implementation of the rules. All this involves nearly 4 million textile workers, who represent about 45% of the industrial employment; about 20 million people depend indirectly on this sector for their sustenance. Three are the main problems for the sector in Bangladesh: 1) poor working conditions, low wages and in particular other problems specific to women (80% - 85% of the workforce of the RMG sector) including difficulty in care for their children, lack of bargaining power and the absence of career opportunities; 2) informal employment/sector (ILO, 2003) as the low availability of regular jobs has meant that the work not regularly formalized continued to constitute a significant share of employment for the past 10 years. Over 80% of all manufacturing work in Bangladesh is carried out by non-regularized workers who earn three times less than workers in good standing and that, consequently, do not have any protection regarding basic health and paid rest (ILO Report, 2013); 3) youth workers between 15 and 24 years in Bangladesh have been particularly affected by the lack of improvements in the labor market and have not benefited from the economic gains of recent years. For this category participation to the labor market and employment rates are low and stagnant. Around 13 million young people participate in the labor market, 47.6% of the total, a percentage significantly lower than the corresponding rate reported for adults aged

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25 to 64 years (64%). The employment rate’s gap between the young and the adults is 22.9 percentage points. In a country with these problems, where there is not institutional help of any kind, many tools can be employ. For this reason, the implementation of CSR in the supply chain is required not only in the native country of the brand company but also, and especially, in the one of the “supply enterprise”. The development of a process that allows the company to have a good reputation starts with the identification of the relevant stakeholders and with understanding what they expect from the company. Moreover, it is useful to develop a good business reporting and communication, which allows these stakeholders to monitor the activity of the company in a transparent way (Reputation Institute, 2012). Thereby reputation management and everything related to the activities of corporate social responsibility overlap quite clearly. Analyzing the various cases of sweatshop scandal, such as Walmart, Gap, Disney, H & M, Ciquita, and Nike Inc, it is possible to identify the necessary drivers in order to reorganize the supply chain from the perspective of social responsibility and ethics.    

Awareness to raising campaigns by NGOs and civil groups Activism unions and employee associations Social Responsible Investing Attention of Governments and supranational institutions Figure 1. Drivers influencing the ethical management in the supply chain

Figure 1 demonstrates that the image and reputational risks are the direct results of the increasing importance of socially responsible consumers (Guidotti, 2006). The implementation of the principles of sustainability in the supply chain management requires the development of specific tasks: define standards and codes of ethics, social and environmental conduct; make compatible the interests of the parties involved; assessing the sustainability practices of suppliers; analyze the governance, efficiency and management of systemic coordination among partners; mediate conflicts by trying to manage them; take appropriate and preventive measures; monitor impacts and processes. It is possible to bring back the ethical management of the supply chain across time in what we might call an evolution of international companies approach on Ethical Supply Chain Management, that is all those activities that are due to the ethical control of the supply chain. Since the early nineties, the first steps of this development are inspired by non-governmental organizations. Their lobby encourages businesses to discipline themselves by drawing up codes of conduct as a business response to the risks associated with the relocation in contexts characterized by small workers protection and substantial cost advantages. The systems of the codes, created independently and voluntarily, allowed to define a set of standards, rules and practices of conduct that regulate the relationships in all phases of the supply chain. The codes of conduct developed and adopted in the field of workers’ rights basis on the conventions set out by International Labour Organization (ILO), in particular from the eight fundamental conventions in the “Declaration on Principles and Rights at Work and its Follow-up”, adopted during the International Labour Conference held in Geneva in June 1998. The traditional approach to the realization of this process is the Social Compliance Model (or model of social compliance), “which has the aim to verify compliance of suppliers and sub-suppliers relation to national laws on the subject of work and the code of conduct stipulated by the company” (Guidotti, 2006). The implementation issues led companies do not anticipate the disasters in the supply chain. Among issues worth noting the production of many codes of conduct that not represent national legislation and culture of the supply enterprises, individual autonomy in the development of codes of conduct, the voluntary adoption of report and lack of appropriate process of auditing by the companies. Hence is required a process of analysis based on risk assessment in order to identify which suppliers are most likely to violate the rules, implement the monitoring on working conditions and on workers protection

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and to adopt a binding form of reports with financial and non-financial indicators. An example is the Global Reporting Initiative, which introduces a number of indicators of supply chain involving different aspects such as how to purchase (procurement) environmental impacts (emissions, environmental assessment), social issues (human rights, labor practices, decent wages). To investigate the possible forms of cooperation between brand companies and suppliers, it is crucial to understand the governance models of supply chain at the international level that are articulated in the manner of purchase and the contractual arrangements. It can be identified five types of chain (Gereffi et al., 2005): supply chain based on market relations, modular supply chain, relational supply chain, hierarchical chains and captive chain (Figure 2).

Figure 2. Chain’ types and governance models

In the types of relational, hierarchical and captive supply chain, the leader company due to its influence on the supply chain, has a chance to develop vertical collaborations rather than forms of negotiation, usually implemented by customers in order to deal with suppliers in the supply chains of market or modular type. While the first types of chain expansion of CSR practices is facilitated by the power of the company leader in the market by developing constructive and collaborative relationships based on the interest and mutual trust, regarding the second models (market and modular) the expansion of responsible practices is distorted by the variety and the extent of the criteria that different companies demand individually and of the related control procedures, not always coordinated. In these types of supply chains, in fact, the suppliers, having to interact with a large number of companies, are often obliged to comply with various codes of conduct (they are processed individually by the leader companies). All this increases costs related to the application of procedures for sustainability for the suppliers, which are not shared by all players in the sector. It is clear that it is possible draw a positive relationship between the integration of CSR practices in the supply chain and the "strength" of the companies leaders in the supply chain, a factor that depends causally from the number of competitors. For this reason at the beginning of the new millennium many organizations have begun to question the effectiveness of the model of social conformity in relation to the fact that this type of approach is characterized by the individual initiative of each company. It begins to take a series of multi-stakeholder initiatives characterized by a collaborative approach to the various stakeholders. The collaboration involves the contribution of NGOs, trade unions

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and companies that through their expertise can make a greater contribution to the sustainability issue (Table 2). Table 2. Multistakeholder initiative YEAR NAME

STAKEHOLDER

AIMS Code of conduct based on ILO standards, monitoring process, repair and verification of the achievement of these standards

CONSIDERATION

Fair Labor Association

Companies, schools, universities and civil society organizations

1998

Ethical Trading Initiative

Department for International Development of the British Government, companies, trade unions, civil society organizations

ETI code of conduct on labor practices based on ILO standards

Lack of multistakeholder organizations engaged in the diffusion of the fundamental labor rights

2003

Joint Initiative onAccountability and Workers’ Right

European Commission and the USA Department of State, the main organizations multistakeholder EU and USA

Increased cooperation to reunify the main organizations multistakeholder EU and USA engaged in the diffusion of the fundamental labor rights

Unique collaboration that exceeds traditional multistakeholder approach

2006

Global Social Compliance Program

Companies, NGOs, and civil society organizations

Global platform crossindustry: harmonize existing efforts and provide a common approach

Based more on monitoring; prevalence of brand companies that finance the platform

1999

Lack of governmental stakeholder

Even if these collaborations have tried to limit the problems in the supply chain, in countries with cheap manpower, the proliferation of codes of conduct did not stop, as well as the decrease of controls were not carried out by appropriate staff. These difficulties can be traced following two main types of issues: 1) difficulties for companies, unable to make a suitable level of monitoring and implementation, often for unsustainable costs; 2) difficulties for suppliers that, keeping often contractual relationships with various companies, have had to comply with many codes of conduct, standards and rules not always consistent with each other. In response to the accident in Dhaka and failures of initiatives of non-unitary vision, there was an agreement between the European Commission, led by Trade Commissioner De Gucht, the Bangladesh government, represented by Foreign Minister Dr. Dipu Moni, and the International Labour Organization represented by the Director General Guy Ryder. The agreement “Sustainability Compact for continuous improvements in labor rights and factory safety in the Ready-Made Garment and Knitwear Industry in Bangladesh” (Table 3) was created in order to establish a sustainable supply chain, culturally and structurally. Table 3. Bangladesh Global Sustainability Compact INITIATIVE “Sustainability Compact for continuous improvements in labor rights and factory safety in the ReadyMade Garment and Knitwear Industry in Bangladesh.” 07.08. 2013

STAKEHOLDER

EC, ILO, clothing retailers, associations of employers and trade unions, Governments of the US, UK, Switzerland and the Netherlands (the last countries financed the “Better Work Program financed”)

AIMS

CONSIDERATIONS

Respect for labor rights, through the implementation of a Public Administration reform to strengthen the labors rights

Adoption: Bangladesh Labour Act, Labour Act edited on 07.22.2013, approaching the national legislation with international labor standards; National Occupational Safety and Health (OSH) Policy on 11.05.2013. Increased capacity of the Ministry of Labour and HR upgrade the Directorate of Inspection for Factories and Establishments (DIFE).

Monitoring the structural integrity of the buildings used to work through the

Registering 187 new unions trades in RMG industry; Determination of a determined approach to the construction

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recruitment of additional inspectors

of buildings for the production by the National Tripartite Committee

To encourage responsible business conduct. The Government is committed to joining and benefit from the Better Work Program (BWP), between the ILO and the International Finance Corporation (IFC).

Qualification of BWP Bangladesh; 1685 structural controls completed, initiated the launch of the database, accessible to all, on RMG enterprises as a tool for reporting on inspections for job security

Moreover, it was signed the Accord On Fire and Building Safety in Bangladesh, legally binding for a duration of five years, signed by over 150 clothing companies from 20 different countries in Europe, North America, Asia and Australia, two Global Trade Union and several trade unions Bengalis. Clean Clothes Campaign, Worker Rights Consortium, International Labor Rights Forum, and Maquila Solidarity Network are NGOs witnessed the Accord. The ILO works as an independent guide and can provide support in the implementation phase. It aimes the customers (brands, traders, suppliers) that supply from factories operating in Bangladesh. The mission of the agreement is to make the textile factories in Bangladesh a safe workplace. Among the different rules, the Accord includes independent safety inspections in factories and public disclosure of inspection results. Where security issues are identified, the retailers agree on ensuring that safety measures will be carried out through mechanisms that will allow workers of the involved enterprises to keep being paid. As signatories to the Accord, the companies devolve to a maximum contribution of US $ 500,000 per year. The level of support is based on a scale proportionate to the volume of the annual business enterprise. The result of these multistakeholder and transnational initiatives by brand leaders was to restore a positive corporate image and to enhance its reputation, through a unified action of ethical control of the supply chain management. It was made possible through an appropriate identification of critical risks in textile/clothing supply chain sector: territorial risk, sector-specific risks, risk-related to supply chain structuring and internal relations risk (Table 4). Table 4. Risk assessment activities TERRITORIAL SECTOR SPECIFIC Risks: political, environmental conditions, labor rights, population, violation of human rights and children's rights

Risks: flammability of textiles, toxicity of chemicals used in production processes and incorporated into products, security products, water management and natural resource used, risk to consumer health and safety

STRUCTURE Risks: fragmentation, dispersion, difficulty of assessing the reliability of suppliers in terms of compliance with international standards, quality and safety of products offered

RELATIONAL Risks: selection of partners located in various countries geographically and culturally far, it could lead companies to not know how to manage coherent and integrated relationships

Conclusions During the recent years heavily defined by globalization, one of the main issues of Corporate Social Responsibility is characterized by the ethical control of supply chains. The Western economy, in fact, holds its recent development for the consistent supply of products coming from suppliers located in countries with low labor costs, qualified by social and environmental standards quite low in comparison with those of the industrialized countries, which are now well expressed in numerous documents of international organizations, such as the ILO Conventions. Leading enterprises of the channel as the big brand companies and large commercial corporations are found to be accomplices to what happens in their supply chain, and they are responsible for their suppliers’ behavior.

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Corporate Social Responsibility cannot be confined only to the company but must involve all components of the supply chain, the company of which is an integral part. The choice of suppliers can represent an essential characteristic regarding the business activities, but also for the success of CSR strategies and reputation of the company itself. The latter element is important in current markets for the high degree of competition and the increased availability of information, which have made consumers more active and susceptible to certain ethical issues. Large companies, in fact, are no longer held liable to the community only for internal activities, but increasingly for the environmental and social impacts of their suppliers as well as of their entire supply chain (Andersen et al., 2009). For large companies, the management of relationships with suppliers and supply chain management are an essential element for the implementation of CSR strategies. Big international companies, leaders of industries, have the duty not only to manage an ethical approach in its structures, but automatically to be responsible for using their power to influence and raise awareness in a positive way for the weakest parts of the supply chain they belong to, such as suppliers from emerging and developing Countries. This action should encourage the establishment to adopt appropriate environmental and social standards and the gradual spread of better practices (Amaeshi et al., 2008). The integration of CSR in the supply chain is a way for companies to: provide answers to the ethical problem by encouraging the improvement of the company atmosphere; minimize the reputational risk linked to the process of global outsourcing and delocalization, which involved the economy of Western companies trying to increase the confidence of consumers; create positive conditions for development, improving relations with international, national and local Institutions. Most companies are aware that the implementation of social and environmental standards in supply chains requires the control working mechanisms of its suppliers (Jenkins et al., 2002). International companies have started the stipulation of ethical guides and codes of conduct to ensure acceptable working conditions in their supply chains. Some of these companies have developed specific codes of conduct that included criteria of social responsibility in the supply chain management and specific criteria for relationships with suppliers, increasing own standards or promoting CSR initiatives throughout the supply chain in collaboration with NGOs. Following the disaster of the Rana Plaza, in order to avoid exposing the suppliers of emerging markets to the duplication of compliance efforts to more ethical standards and trying to reduce the consequent inefficiencies, brand companies are promoting initiatives of horizontal collaboration between competitors orders to effectively promote and implement CSR across the supply chain, even in those sectors in which the structure can complicate this process. To date, Bangladesh Accord report (October 2014) emphasizes that on 1,106 enterprises inspected were made over 400 corrective action plans from suppliers and the signatory companies. More than 80,000 security issues have been identified, and they must sort out. Among the most common corrective actions adopted, we can find reducing weight loads and structures strengthening, installation of fire doors and automatic alarm systems. In 17 of the inspected facilities, the integrity of the structure was below the acceptable levels, recommending the evacuation of the building and the block of production. The collaborative and Transnational multistakeholder approach responds to the production of a single code of conduct that Western societies could propose to the providers of developing countries like they do with types of audit/monitoring. In this way it will be possible to limit the proliferation of different social models of compliance done by the purchasing companies, which slow down the process of accountability in supply chains, hindering the application of international labor standards and respect for human rights for a non-unitary vision of Western Governments, brand companies, trade union and the main International Organizations.

References Andersen, M., and Skjoett-Larsen, T. (2009). Corporate Social Responsibility in global supply chains. Supply Chain Management: an International Journal, 14(2), 75-86. Banerjee Saxena, S., (2010). Competitiveness in the Garment and Textiles Industry: Creating a

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supportive environment. A case study of Bangladesh. The Asia Foundation, Occasional Paper No. 1/2010. Better Work Programme Bangladesh (2014). Fire and building safety in the ready-made garment sector of Bangladesh. Retrieved from http://betterwork.org/global/wp-content/uploads/BWB-Fire-andbuilding-safety-in-the-garment-sector-of-Bangladesh2.pdf. Blecker, T., and Kersten, W. (Eds.) (2006). Managing Risks in Supply Chains: How to Build Reliable Collaboration in Logistics. Berlin: Erich Schmidt Verlag. Brown, G. (2007). CSR brings limited progress on Work-Place Safety in Global Supply Chain. Occupational Hazard, 69(8), 16-20. Freestone, O.M., and McGoldrick, P.J. (2008). Motivation of the Ethical Consumer. Journal of Business Ethics, 79(4), 445-467. Gereffi, G., Humphrey, J., and Sturgeon, T. (2005). The Governance of the Global Value Chains. Review of International Political Economy, 12(1), 78-104. Guidotti, S. (2006). Il controllo etico delle catene di fornitura. I quaderni dell'Osservatorio Operandi. Milano: Altis, Università Cattolica. International Labour Organization (ILO) (2014). OECD Roundtable on Responsible Supply Chains. Textile and Garment Sector, Session Summaries. Paris: Conference Centre. Islam, M., and Khan, A.M. (2013). Textile Industries in Bangladesh and Challenges of Growth. Research Journal of Engineering Sciences, 2(2), 31-37. Locke, R.M., Qin, F., and Brause, A. (2007). Does Monitoring Improve Labor Standards? Lessons from Nike. ILR Review, 61(1), 3-31. PricewatherhouseCoopers (2006). Sourcing overseas for the Retail Sector. CSR and the Ethical Supply Chain. Retrieved from https://www.pwc.ch/user_content/editor/files/newsletter_retail_cons_worlds/pwc_retail_cons_worl ds_58-06e.pdf. Risso, M. (2014). Collaborazioni di settore per la sostenibilità nelle filiere internazionali. Milano: Franco Angeli. Siegle, L. (2014). We Are What We Wear: Unravelling fast fashion and the collapse of Rana Plaza. Guardian Shorts Books (Kindle Edition).

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CSR INTEGRATION IN THE STRATEGY. AN ITALIAN EXCELLENCE ABLE TO COMPETE WITH GLOBAL LEADERS Claudio BATTISTINI Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Patrizia GAZZOLA Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Abstract. The present work aims at understanding how multinational corporations act and behave both at national and international level in the fields of corporate social responsibility and sustainable development, trying to draw up conclusions about their integration of ethical values and stakeholders engagement in the strategy. The study will then presents how big multinational enterprises react to the increasing pressures from stakeholders reporting their corporate social responsibility at global level. The article is divided upon two sections: the first section entails a critical review of the literature about shareholder and stakeholder management, corporate social responsibility and stakeholder engagement; the second section performs a critical analysis of the corporate social responsibility reporting of 5 big multinational competitors in the challenging business of high technology adhesive tapes. The analysis will also present a good starting point for an Italian excellence, historically able to base its history and success on the strong values orientation, to develop an accurate reporting activity of its socially responsible practices. We will therefore show a comparison among those 5 major competitors which enable us a) to understand how these companies operate at global level and engage stakeholders in the entrepreneurial project and b) to examine how these companies react to increasing internal and external pressures reporting and communicating their CSR activities. We will conclude how all corporations present a positive relation among internationalization and CSR, underlining how Corporate Social Responsibility cannot be only considered as the carrying on of charity programs by enterprises; we will show how all the involved firm present a good stakeholders disclosure and present themselves as committed in the communication of CSR programs. With his book (Freeman 1984) the author revolutionized the way of thinking about business, its purposes and approaches. The main shift this new train of thought had been able to generate, therefore, is the multi-stakeholder vision of the enterprise. Firms traditionally were only focused on maximizing shareholders’ value and managers were considered as agents of shareholders with the main task to serve their interests; the publication of Freeman criticized this approach sustaining that businesses, in order to create a sustainable business models and create value in the long term (Colombo & Gazzola, 2013), have to take into account interests and needs of a multitude of stakeholders’ categories, which directly or indirectly could affect or be affected from the activity of enterprises. Keywords: Corporate Social Responsibility strategy; sustainable development; stakeholders; globalization; social engagement; communication; reporting.

Introduction The entire world gives increasing prominence to environmental care and the lack of natural resources. The entire world gives increasing prominence to social scandals, like the exploitation of labor in less developed countries. The entire world gives increasing prominence to financial scandals of the last decades and to financial crisis of the last years, both able kneel down several economies. Those are all real and serious problems leading the mobilization of national and international institutions for the creation of sustainable development models (Arvidsson, 2010). In the last decades many firms, particularly multinational corporations (MNC), operated mainly with the aim of maximizing their profits giving attention to the rewards’ maximization for their shareholders. Such behaviors’ let firms and managers to be accused as the main advocate of environmental, social and financial problems (Czinkota & Ronkainen, 2008). Hence, the main point of the discussion is now the challenge for the firm to create new business models able to create synergies among ethics and business purposes (Scherer et al., 2013); the open-ended research of money, profits and power is no more to be considered to be a sustainable

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model; firms have to understand the importance of a long term perspective of the entrepreneurial project giving ethical imprint to their strategies and activities (Colombo & Gazzola, 2013). Corporate Social Responsibility: through engagement and process The concept of Corporate Social Responsibility became more and more important as the process of globalization of the economy boosted (Googler & Shi, 2009). The process of globalization (Crane, Matten & Spence, 2008) brought to intense changes in the business environment (Cantwell, 2014). The phenomenon has to be defined as an era that dramatically changed the way of living and conducting business. Corporate social responsibility, social policies, political and environmental policies are considered as a challenge for any economic and non-economic actor of the globalization process. Pressures and relevance attributed to MNCs (Anderson, Teisl & Noblet, 2012) in the promotion of a new and socially responsible mindset of conducting business worldwide let the literature to define CSR as the key driver of firms’ strategy (Hartman, Rubin & Dhanda, 2007) and therefore its analysis and penetration in the business model (Arjaliès & Pean, 2009) of corporations is becoming a challenge for scholars and executives. As Simons (1995) stated, management systems represent a relevant factor to drive strategic renewals. In his publication Simons proposed a framework to evaluate the business strategy (Mintzberg, 1987) and the management system of the firm in order to understand its ability to pursue the intended strategy and grab the opportunities of the emergent strategy (Gazzola & Colombo, 2014).

Figure 1. Controlling business strategy: key variables to be analyzed (Simons, 1995)

Simons (1995) refers to 1) 2 management systems useful to serve the intended strategy of the firm, i.e., the boundary systems, useful to set limits to managers, showing what is permitted and forbidden in order to avoid opportunity - seeking behavior; diagnostic control systems, useful to control the goals achieved by the managers, to motivate, monitor and reward the specific achievements. 2) 2 management systems useful to serve the emergent strategy of the firm, i.e., interactive control systems, useful to stimulate interactions and organizational learning among mangers in order to generate new business opportunities, ideas and strategies; belief systems, useful to inspire the direct research of business opportunities providing manager purposes and values of the company. So that management systems have to focus on the attention of managers to strategic goals of the company and their ability to pursue those strategic goals in a sustainable and responsible way, i.e., integration of CSR values in the strategy is to be seen as the new challenge for firms. Therefore Simons in his model already gave high attention to the importance of values to which the firm inspires its activity, able moreover to positively motivate people in their work and create positive working environment. This sheds light on the importance of including CSR in the business strategy. CSR, as at the beginning of the discussion among literature and businessmen, should no more be seen as a factor supporting the strategy of the firm and making their images (William, Werther & Chandler, 2005) better at the eyes of consumers and public opinion. The social responsibility of firm should now be included in the strategy as a key driver to ensure a long lasting perspective to

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entrepreneurial projects (Beschorner & Müller, 2007). The ideas of including CSR in the culture of the firm and pursue the social engagement of business are becoming more and more important. The creation of value for internal and external stakeholders has to be integrated in the strategy of the firm, its values and mission. The integration of values in the strategy of the firm (Bondy, Moon & Mattem, 2012) is not only to be considered a theoretical framework built up in the literature, it is instead possible to summarize it in a process made up by 3 different class of activities: 1) the definition of the main elements, i.e., the decisions of the top management about CSR, the objectives to achieve and the resources to allocate for each objective. 2) the integration of the strategic view of the firm with those main drivers, i.e., the review of the vision, strategy and value of the firm, the identification of KPI, and monitoring of the on-going strategy. 3) the communication of the results obtained, i.e., draw up a reporting scheme, define the level of achievement of the objective proposed and communicate the performance to the different stakeholders’ category. These 3 class of activities are then to be split up and will end with the definition of the process of CSR made up by 8 different steps, each one strictly interconnected each other:

Figure 2. The learning cycle of CSR process (adapted from http://www.copenhagencharter.com/)

I. endorsement the top management, which refers to the decision of the top management to establish a long lasting relation with stakeholders. The top management of the firm have to determine the objectives and the resources allocation for those socially responsible activities. This process requires energies and investments for the firm, it is therefore necessary that people believe in social responsibility and sustain the internal process of socially responsible activities. II. identify the key stakeholders is a critical activity. Among the literature there is no evidence of a ranking of stakeholders according to their importance for the activity of the firm; this is a task delegated to mangers who have to determine which category of stakeholders include in the reporting. Usually the choice of management fall back to those stakeholders that have a high interest in the activity of the firm and an high influence ability among the public opinion. III. create a dialogue with key stakeholders, this particularly requires a strong stakeholders orientation along of the structure of enterprise. Hence, a “stakeholder oriented” structure is only the base. It is then important to have communication channels like a properly adapted website, offices and location, and periodical conference during which establish discussions with them. IV. identify key performance indicators which refer to the economic and non-economic indicators of the firm and build up the reporting of the performance. According to the Copenhagen Charter the performance indicators should be substantial and measurable. V. supervise performance indicators and the values of the company, which consist in the continuous monitoring of the performance of the firm upon the selected KPI. VI. determine

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objectives, budget and strategic plans for improvement, which refers to the possibility to capture changes and act to prevent hypothetical problem with stakeholders. VII. prepare and publish reports which is actually called “social reporting”. It can then have internal or (in the biggest enterprises) external auditors, in order to prevent situation of self-reference. VIII. create a dialogue with stakeholders based on feedbacks about the performance of the firm. This is a critical phase for the top management of the firm (Stoll, 2008) which should receive feedbacks from different stakeholders and install a learning cycle which enable the firm to approach the subsequent cycle process with increasing awareness (Parguel et al., 2011). As it is possible to analyze, the model designed is represented as “learning cycle” meaning that it gives the opportunity to enterprises to continuously increase their own competencies in such activities over time. Competitors analysis The main competitors analyzed represent worldwide giants in diversified industrial businesses, they are 3M, Lohmann, Scapa and Tesa. The Italian firm BiesSse Group, whose core business is the production of high technological adhesive tapes, represents the Italian excellence able to compete with them at international level. We could list many reasons behind the company success, mainly identifiable in: 1) the values that mark and distinguish the firm as solid and reliable, both internally and externally, as well in well-functioning economic situation as in crisis economic conjectures; 2) the entrepreneurial spirit of the family, as well in the founders as in the following generations, and of the top managers of the firms; 3) the continuous research on innovation and market opportunities worldwide. The business of adhesive tapes is definitely a critical business, particularly in environmental issues, like pollutions and emissions, and social issues such as the health and safety of employees. It deals in fact with many chemical materials and complex production lines that require a continuous monitoring. Those tapes are mainly addressed to automotive market, flexographic and letterpress printing markets and industrial markets. In this context then, aspects such as corporate social responsibility and triple bottom line reporting play a key role for the company profile assessment and sustainable development creation. This leads many firms in taking care of the requirements and pressures of different stakeholders categories and report their initiatives with continuous growing and worldwide accepted models. Case study no. 1: 3M 3M has its corporate vision and mission clearly specified and defined: “3M is a science and technology company that creates. For decades, 3M scientists and engineers have developed products that solve problems. 3M is also a company that cares – improving lives each day” The mission of 3M has the aim: To Improve Every Life through Innovative Giving in Education, Community and the Environment – mirroring the corporate vision: 3M Technology Advancing Every Company - 3M Products Enhancing Every Home - 3M Innovation Improving Every Life. Moreover, all the information related to 3M and its own sustainability reporting come from company’s website and public documents (www.3m.com). What we can here understand is that the company gives a high attention to sustainability, environmental and social challenges and responsibilities; of course the huge dimension and the structure of the firm facilitate the investments possibilities of 3M in the TBL reporting. The Sustainability Report, as aggregation of results, is then the leading document to understand and analyze the corporate social responsibility of 3M. It is made up by 84 pages and is divided into five parts: 1) introduction of the company and sustainability challenge; 2) specification of the financial, social and environmental performance with a sustainability performance summary; 3) results of the relation and engagement with suppliers and communities; 4) presentation of the GRI disclosure and external auditing; 5) awards and conclusions of the sustainability strategy of the firm. The model used by 3M is the one of GRI and it presents a B+ Level of Disclosure according to the GRI Application Levels. This means that the firm presents a very high level of disclosure of its economic, social and environmental responsibility; the “+” indicates that the report has been subject to assurance from external auditors, in particular 3M commissioned for the last report audit the ISOS Group, in order to assess the reliability and credibility of its report in the field of both social, environmental and health and safety indicators. The GRI model is the worldwide most accepted and recognized model for sustainability reporting and follows the Triple Bottom Line reporting, i.e., it integrates in a unique model the financial sustainability, the environmental sustainability and the social sustainability of the firm. According to the definition and challenge of 3M, the firm is used to define: a) economic success as building long-lasting relations with customers and providing for them solutions to their sustainability challenge; b) environmental protection as providing solutions for the environmental

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challenges of the firms and its customers; c) social responsibility as making efforts for stakeholders engagement and sustainability performance improvement. Moreover 3M identifies nine stakeholders of its activity: employees, customers, investors, government, local communities, suppliers/contractors and industry associations, NGOs, media and organizations. In the sustainability report of 2014 there is also the evidence of the engagement of 3M with its stakeholder. The firm conducted a survey able to engage more than 1500 stakeholders, both internally and externally. Internal and external stakeholder (included academia, civil society, private sector, supplier, trade association, media and customers) had been interviewed on social and environmental issues. The results of such survey had been summarized in the materiality matrix which is made up by 3 variables; the x-axis measures the importance of the identified factors for the different stakeholder categories, the y-axis on the other hand measures the impact on firm’s reputation of such factors, and the green bubble represent the perceived ability of 3M to make the difference (low level or high level) in that areas that stakeholders identified as importance and that affect their reputation on the company.

Figure 3. 3M Sustainability Matrix (www.3m.com)

Case study no. 2: Lohmann Lohmann dedicates a section of the company’s website to its history, its values (http://www.lohmanntapes.com/), code of conduct, policies, environmental and quality care and ISO certificates. In all those sections we can identify the formalization of its own social responsibility in 3 main documents: the Supplier Code of Conduct which represents the minimum requirements and expectations with respect to ethical business conduct of suppliers; the Code of Conduct which looks like a preamble of the sustainability report, since it presents and describes the values of the company and its engagement in sustainability; the Sustainability with Lohmann divided into 3 parts: environmental care, economics and social welfare. We have to anticipate how such documents don’t follow any of the presented and recognized model for sustainability reporting, however it is well structured and allow the recipient to well understand the firm’s commitment in sustainability issues. Also for Lohmann the Sustainability Report represents the most important document in order to understand the company’s perception and engagement in corporate social responsibility. The document is made up by 18 pages and follows the TBL reporting, i.e., it gives evidence of the commitment of the firm both in economic, environmental and social responsibility identifying stakeholders categories for each bottom line and addressing measures and indicators for each one of them: Employees, Investors, Customer, Natural Resources, Environment, Communities, NGOs, Associations.

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Case study no. 3: Tesa On company’s web site it is possible, also for Tesa (http://www.tesa.com/), to find a section dedicated to the communication of responsibility of the firm. The company makes available: the Tesa Progress Report where the responsibility and commitment of the firm are presented and detailed; the Tesa Code of Conduct where policies in terms of compliance, fair dealing, company’s assets, working environment, employee integrity and corporate citizenship are presented; Tesa ISO Certifications in countries where the firm operates. The firm identifies 4 main areas of interest in terms of sustainability: products, employees, environment, society. The progress report, published online since 2008, is made up by 24 pages and gives the evidence of the company’s sustainability in 5 parts: 1) the declaration of support to UN Global Compact; 2) the human rights and labor standards; 3) the environment, climate and environmental protection; 4) the compliance and fair competition; 5) the social commitment. Since 2001 the firm is also part of the UN Global Compact therefore, like we saw before in the analysis of 3M, Tesa follows the 10 Principles of the Global Compact with the aim of promoting a sustainable globalization. As we can see from the study of Tesa, the company does not follow any standard nationally or internationally recognized and does not present any integration of the economic reporting with the social and environmental ones. Case study no. 4: Scapa The one of Scapa is a very interesting case of our analysis. The firm presents itself as structured and globally present, however there a very small evidence of its corporate social responsibility and sustainability in the company’s website. No sections of it are dedicated to sustainability and the documents available are mainly focused on the firm, its products, its shareholders and customers. Hence, on the web site we can find: the Foundation for Growth (http://www.scapa.com/) where the entire year of Scapa is presented; here the main focus is in investors and customers and a smaller evidence in given to sustainability and employees and the Investor Presentation, where an overview of the different market segments of the firm is presented. The focus in each market is devoted to the financial performance, revenues growth and investors satisfaction. ISO Certificates for products quality and reliability and a single page document about Health and Safety Policy with some objective of Scapa in terms of environmental health and safety is presented. Therefore, the only evidence of the corporate social responsibility of the firm are presented in the yearly presented Foundation for Growth. Here, there is the evidence of 2 main stakeholders of the firm, besides the aforementioned shareholders and customers; those are: employees, where there are some aspects dedicated to diversity respect, talent development and the creation of a healthy working environment and the environment, where there are some aspects dedicated to efficiency, reduction of material waste, emission and recycling. We have to remark how all these aspects are treated only from a descriptive perspective, no evidence of numbers dedicated to explain such aspect are present. Case study no. 5: BiesSse Group Established in 1970s, BiesSse Group is an Italian global and fast growing company providing integrated solutions designed to optimize and innovate the costumers’ production process. In its early years BiesSse was involved in the sale of tapes for industrial application, in 1984 was installed the first production center in Sedriano (MI), Italy. BiesSse was the first company in Italy to produce high quality technical adhesive tapes for a wide range of industrial applications. During its growth process BiesSse has been continuously focused in the internationalization of its activities: in 2004 was established BiesSse do Brasil, in 2007 was established BiesSse Gmbh in Austria and there was installed the first coating plant entirely designed and built internally. In 2010 was opened BiesSse Asia in Singapor and then BiesSse China. Nowadays BiesSse counts roughly 100 employees and covers an area of about 11 000 square meters. The adhesive tapes division deals with the design, development and sell of high technical adhesive tapes for application in the major business (automotive, printing and industrial application), complying with the most challenging industrial requirements. The industrial equipment division deals with design, development and manufacturing of “turn-key” customized industrial machinery competing with the most complex industrial installation and ensuring an optimum integration of adhesive tapes. The range of products vary from coating plants to lathes and cutting machines to flexographic printing plants to high precision laboratory instruments. The industrial software division deals with the design and

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development of advanced software solutions to operate and supervise the industrial process. The range of software concerns supervision systems for production, self-diagnosis software for industrial plans and complete management control software for integrated operation of all company processes. We present here what are the key points of BiesSse in presenting and communicating its responsibility with respect to its stakeholders. Two important sections in the website of BiesSse (http://www.biessseworld.com/) are available, they are dedicated to the Value System and to the Quality & Sustainability of the firm. Analyzing the former section emerge clearly the Vision, the Mission of the firm and the Corporate Values. The vision of the firm declaim how the firm is acting in order to became: “A Model and Contagious Team of Passionate Individuals Able to Create Value and Generate Satisfaction and WellBeing in Others” whereas the mission at the base of the strategy and process of the BiesSse declaims that the firm is organized in order to “Create, Design and Build Highly Advanced Solutions to Improve, Innovate and Revolutionize Industrial Processes by Making them Highly Performing, Effective and Efficient”. The Website of the firm dedicate an important section to the attention to stakeholders; such attention is defined in the values of the firm, that can be summarized in: 1) keeping people at the center of the entrepreneurial project, enhancing their personal and professional growth, the sharing of ideas and the self-fulfillment. 2) an high integration of the vision, mission and enterprise’s values in the strategy of the firm. 3) a critical attention and care to the environment and its resources. The other section of the website, dedicated to Quality and Sustainability, has the aim to give evidence of the commitment of the firm for a sustainable growth and global approach; we can in fact identify important values that the firm is trying to carry on in parallel with its economic activity, and perpetuating both internally and externally the enterprise’s boundaries. Results analysis and interpretation In the present section we have performed a comparison of the main competitors of BiesSse Group in the field of social reporting and sustainable behavior, with the aim of understanding the relevance of these issues for a panel of selected multinational corporation and with the aim of understanding the possibility of the implementation of such reporting in BiesSse Group in order to fill the gap with the main competitors of the company worldwide. The case study has been performed analyzing all the sections and documents presented in the website of the company and the behavior of these firms in the communication via social media. Here we present a summary of the results obtained: Table 1. Summary of results and interpretation 3M Lohmann HQ of the Firm US Germany Worldwide Presence

Model of social reporting

America Europe Asia & Pacific Middle east & Africa

North America Europe Middle east & Asia

Global Reporting Initiative (GRI)

No one of the nationally or internationally recognized model

Tesa Germany

Scapa UK

BiesSse Italy

America Europe Middle east & Asia Pacific Africa

North America Europe Asia Pacific

Europe

No one of the nationally or internationally recognized model

No one of the nationally or internationally recognized model

South America Asia Pacific No one of the nationally or internationally recognized model

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Associations and NGOs Customers Employees Government Investors Local communities Media Organizations Suppliers/contra ctors and industry

Associations and NGOs Communities Customers Employees Environment Investors Natural resources

Employees Environment Customers Society

Code of Conduct Ethical Code Sustainability GRI Report

Code of Conduct Supplier Code of Conduct Sustainability with Lohmann

Tesa Code of Conduct Tesa ISO Certifications Tesa Progress Report

Customers Employees Environment Shareholders

Customer Employees Environment Natural Resources

Foundation for Growth Investor presentation ISO certificates

No One

Here we can summarize 6 points and interpretation of the consolidated results of our analysis: I. all the firms analyzed are present with subsidiaries and manufacturing plants worldwide and the idea of their global sustainability care gives evidence on how globalization and corporate social responsibility are two aspects possible to carry on jointly. II. despite the only case of 3M that uses the GRI model, all the other firms do not present at the moment any of the social reporting model nationally or internationally recognized. This gives evidence of two main results, on one hand the drafting of such recognized models requires energies and resources that not all firms (even if they are multinational corporations) can utilize; on the other hand there is nevertheless the evidence of the importance of those themes at international level. III. particularly interesting is the disclosure of stakeholders care from these multinational corporations. As we summarized in the table we can analyze two different situations, on one hand 3M and Lohmann with an high number of stakeholders kept into esteem, the reference pertain both to primary and secondary stakeholders; on the other hand Tesa and Scapa who consider almost half of the stakeholders of 3M and Lohmann and they are mainly primary stakeholders. IV. all firms take increasingly care of the environment. This is an interesting point of arrival for many customers that are more and more looking at companies environmental friendly in an industry, the one of B2B and that deal with complex production processes using chemical components with important emissions in the atmosphere. V. even if 3M presents itself as the most structured firm with a global aggregated sustainability reporting (following the GRI) and different reporting in each country where the company is present, Lohmann and Tesa present many different documents in order to communicate their sustainability with Code of Conduct for the company and for suppliers. The communication of such activities, for all enterprises, has evidence both in their internet website and through social media. VI. BiesSse represents the Italian excellence able to base its success in the integration of corporate values in the strategy of the firm. A high enhancement of growth of people, engagement of all employees at all levels ensure their best satisfactions and results for the firm. Such values integration and continuous research of quality in the internal processes lay down the groundwork for the entrepreneurial success and let the firm to be defined a champion able to compete with big global players.

References Anderson, M.W., Teisl, M., and Noblet, C. (2012). Giving voice to the future in sustainability: retrospective assessment to learn prospective stakeholder engagement. Ecological Economics, 84(1), 1-6. Arjaliès, D.L., and Péan, J.M. (2009). CSR: a new business model for multinational companies? A study of the management system used by the French CAC 40 Companies to integrate CSR into their strategy. CSR and Management System. Retrieved from http://www.economie.polytechnique.edu/servlet/com.univ.collaboratif.utils.LectureFichiergw?ID_ FICHIER=1265647883119&ID_FICHE=55100.

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Arvidsson, S. (2010). Communication of corporate social responsibility: a study of the views of

management teams in large companies. Journal of Business Ethics, 96(3), 339-354. Beschorner, T., and Müller, M. (2007). Social standards: toward an active ethical involvement of business in developing countries. Journal of Business Ethics, 73(1), 11-20. Bondy, K., Moon, J., and Matten, D. (2012). An institution of corporate social responsibility in multinational corporations: forms and implications. Journal of Business Ethics, 111(2), 281 – 299. Cantwell, J. (2014). Revisiting international business theory: a capabilities-based theory of the MNE. Journal of International Business Studies, 45(1), 1-7. Colombo, G., and Gazzola, P. (2013). Aesthetics and ethics of the sustainable organizations. European Scientific Journal, 2, 291-301. Crane, A., Matten, D., and Spence, L.J. (2008). Corporate Social Responsibility; readings and cases in a global context. New York: Routledge. Czinkota, M.R., and Ronkainen, I.A. (2008). Trends and indicators in international business. Management International Review, 49(2), 249-266. Gazzola, P., and Colombo, G. (2014). CSR integration into the corporate strategy. Cross-Cultural Management Journal, 2(6), 331-338. Gugler, P., and Shi, J.Y.J. (2009). Corporate social responsibility for developing country multinational corporations: lost war in pertaining global competitiveness?. Journal of Business Ethics, 87(1), 324. Hah, K., and Freeman, S. (2014). Multinational enterprises subsidiaries and their CSR: a conceptual framework of the management of CSR in smaller emerging economies. Journal of Business Ethics, 122(1), 125-136. Hartman, L.P., Rubin, R.S., and Dhanda, K.K. (2007). The communication of corporate social responsibility: United States and European Union multinational corporations. Journal of Business Ethics, 74(4), 373-389. Parguel, B., Benoît-Moreau, F., and Larceneux, F. (2011). How sustainability ratings might deter “Greenwashing”: a closer look at ethical corporate communication. Journal of Business Ethics, 102(1), 15-28. Scherer, A.G., Palazzo, G., and Matten, D. (2013). The business firm as a political actor: a new theory of firm for a globalized world, Business and Society, 53(2), 143-156. Simons, R. (1995). Levers of Control: How managers use innovative control systems to drive strategic renewal. Boston: Harvard Business School Press. Stoll, M.L. (2008). Blacklash hits business ethics: finding effective strategies for communicating the importance of corporate social responsibility. Journal of Business Ethics, 78(1), 17-24. Werther Jr., W.B., and Chandler, D. (2005). Strategic corporate social responsibility as global brand insurance. Business Horizon, 48(4), 317-324. Websites: http://www.3m.com http://www.biessseworld.com/ http://www.lohmann-tapes.com/ http://www.scapa.com/ http://www.tesa.com/

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RESPONSIBLE AND SUSTAINABLE LUXURY IN THE GLOBAL MARKET: NEW EMERGING STRATEGIES IN THE LUXURY SECTOR Enrica PAVIONE Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Roberta PEZZETTI Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Abstract. The term “responsible luxury” has been coined to refer to the commitment of luxury companies responsible for their production to the society and the environment. In the last years, many drivers should motivate luxury companies to engage in more sustainable practices. On the one hand, consumers seek new forms of luxury that show respect for natural resources and human beings, yet standing by traditional factors such as quality, creativity, originality, craftsmanship and savoir-faire. At the same time, the recent economic crisis has thrust the consumers towards the search for responsible luxury. Many wealthy consumers have been shocked by the financial crisis and show a growing awareness of environmental and social issues; this combined effects combined have contributed to enhancing the social awareness of high-end consumers. In the new economic and competitive scenario, luxury brands must base their identity and image on a set of values through which they should be known and publicly judged by both clients and the market; sustainable development and corporate social responsibility strategies offer a particularly suitable platform to enrich the value-set of luxury brands. In this framework, the luxury industry is undergoing a process of self-analysis and redefinition of competitive strategies in the light of social responsibility and sustainable dimension. In order to create both financial and non-financial value, sustainable development needs to be incorporated in the core strategy of the firm and its core business. Revisiting products, services and managerial processes in the direction of sustainable development and developing new socially responsible business models are becoming the key dimensions to create strong and long lasting value both for the firm and for the society. In this perspective, the paper provides an analysis of the main drivers that in the luxury industry are leading to a growing integration of social responsibility and sustainable development principles in the competitive strategies of luxury firms. In particular, this paper focuses on innovations emerging in the luxury industry both at strategic and organizational levels and provides an overview of new emerging innovative business models coherent with the principles of corporate social responsibility and sustainability. The theoretical analysis is supported by presentation of the case of fashion luxury, which represents an example of innovation in competitive strategies and brand management practices to enhance both worldwide competitiveness and corporate brand reputation. Keywords: luxury demand drivers; strategic choices; responsible luxury; fashion luxury; eco-luxury.

Introduction The concept of luxury appears particularly complex to define exhaustively. First, we must distinguish between the concept of luxury in general and the product/brand of luxury (Beverland, 2004). The first is connected to the characters of quality, prestige, elite status, and “art of living” connected to the concepts of pleasure and exclusive wellness (Kapferer, 1997; Phau & Prendergast, 2000; Dubois & Czellar, 2002). The second has specific strategic implications connected to the ability of the company to offer extremely differentiated products, characterized by excellent quality, exclusivity, uniqueness, rarity, and craftsmanship (Dubois & Paternault, 1995; Della Bella, 2002). For this type of product, the consumer associates a symbolic value of status that goes beyond the specific functions of use and justifies the willingness to pay a premium price.

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From the product perspective, a luxury brand is traditionally associated with the presence of positional goods; i.e., items to which the value, for the one possessing it is connected to the perception that the others have of the product itself. Regarding these distinctive characteristics, it is evident that consumer satisfaction is connected not only to the utility and the qualitative characteristics of the luxury product, but also to the social position and to the prestige it gives the owner. The requirement to preserve the positional nature of the items and services over time is translated into the need for luxury companies to mobilize a plurality of heterogeneous resources and coordinate strongly diversified skills, through flexible forms of connection between the company and the various actors involved in the manufacturing and innovation process (creative people, artisanal masters, scientists, researchers, managers). The centrality of artistic creativity and manufacturing craftsmanship in the manufacturing process of the luxury companies is closely connected to the importance of innovation. The luxury sector may be considered an innovation-driven industry in which different but complementary dimensions of the innovation are based, driving the competitiveness of the individual companies and overall sector growth: science-driven innovation, guided by technology; innovation brought by artistic creativity; innovation connected to the ability to continual renew artistic-manufacturing skills and the artisanal knowledge strongly rooted in the culture of a territory, that often boasts ancient traditions. These considerations indicate the profound complexity of the world of luxury and the consequent difficulty in circumscribing the sector within well-defined boundaries. It appears undeniable that for many luxury products, the brand represents the qualifying factor; equally evident is the growing importance of products personalized to the limit of uniqueness, often with very high prices, that go beyond the brand, instead relying on the intrinsic characteristics of the product, such as esthetic quality, craftsmanship of the processing, etc. In this picture of great complexity, some Authors have introduced the concept of meta-luxury to indicate a heterogeneous world that escapes the traditional sector definitions: “Meta-luxury is a business paradigm based on knowledge, purpose and the pursuit of timelessness, ultimately embodied in a unique achievement” (Ricca & Robins, 2012, p.10). In this perspective, meta-luxury represents a specific business model based on three key principles: knowledge, purpose and timelessness. Craftsmanship, focus, history and rarity are the critical success factors that, in the perspective of the final customer, confer on a product a qualification of excellence. Drivers of demand and company strategies The luxury sector is traditionally divided in three macro-segments, to which the same number of products and consumers correspond (Kapferer, 2006): - inaccessible luxury, which concerns scarce items, often made to measure, of the highest quality and hand-crafted production, distributed extremely selectively and with very high prices; this segment corresponds to the “high-end” market; - intermediate luxury, which includes products that imitate inaccessible items in brand and style; these products, although not custom made, may be suited to the needs of the consumer and are distributed selectively in the medium-high price range (for example, clothing that totally or partly duplicates a haute couture model); - accessible luxury, which corresponds to the “masstige” segment; this is a branded product of serial production, more accessible to the consumer seeking a luxury product at an accessible price. The recent evolving dynamic that characterizes luxury suggests the opportunity of dividing the sector into sub-segments, to better capture the characteristics of the consumer at the global level, as well as the importance that the cultural as well as geographic elements, have on the choice of purchase. Recent research conducted by Boston Consulting Group (2014) proposes segmentation of luxury demand in 12 segments (Absolute Luxurer, Megacitier, Experiencer, Socialwearer, LittlePrince Fashionista, Status Seeker, Classpirational, Luxe-Immune, Rich-Upcomer, TimelessProper, Omnigifter); each segment corresponds to a well-defined luxury consumer profile not only in socio-economic and demographic

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terms, but above all in terms of attitude and behavioral: seeking uniqueness of the product, attitude toward fashion, degree of emotional connection to the brand, loyalty to the brand, degree of independence in the choice, seeking social status, etc. Beyond the terminology used and the number of identifiable segments, is observed a polarization of the global demand in two macro categories that, with a certain approximation, refer to the high-end segment (or inaccessible luxury) and to the mass market segment (or “democratic” luxury). Although recognizing the importance of sub-segmentation in guiding company marketing policies regarding the various components of the demand, under the strategic profile and business models, the decisions for competitive positioning are concentrated on one hand on the demand expressed by the accessible luxury segment, with the perspective of making wide profit margins in relatively short times and to affirm the global strength of the brand. On the other hand, sustained growth at the global level is seen (both dimensional and in terms of billing) in the extreme or inaccessible luxury segment, in which demand is based on values intrinsic to the concept of luxury itself: quality, exclusivity, rarity, craftsmanship, timeless classicism, and promotion of the “made in” as a strategic asset regarding more sought-after external aspects in the mass market segment (brand recognition, esthetic components, esthetic of the design, coolness). The strategic nature of these assets for this segment of demand is confirmed not only in mature markets, in which the demand is represented by the European and United States elite, but increasingly also finds confirmation in the emerging markets, where the importance attributed to the intrinsic values of luxury drives purchase choice and brand loyalty. Authentic and desirable luxury focuses in particular on a strong expansion of the demand for experiential luxury, which leads to growth in the sectors of home furnishings, hotels, vacations, and personal wellness. To capture the opportunity for this part of the demand, the luxury companies increasingly integrate the sale of products characterized by qualitative excellence and craftsmanship with the experiential offer of multi-sensorial purchases that also determine a renovation of the points of sale. This picture also includes the development of the “tailor-made,” unbranded limited editions and unique pieces. The two strategic options for market coverage (mass market vs. high-end segment) are not necessarily alternatives to each other. In recent years, the development of large conglomerate companies (such as LVMH Group, Group Richemont, PPR), with brand portfolios that include exclusive lines destined to the elite segment and mass-luxury products, demonstrate companies’ desire to capture the opportunity offered by both demand segments. Beyond the strategies adopted, the overall capacity of the luxury companies to preserve the long-term value of the brand identity is based increasingly on promoting the intrinsic elements of the product/service and its strongly distinctive characteristics. This picture indicates the growing importance attributed to the topics of responsibility and sustainability, an importance that appears closely connected to the evolution of the concept of luxury itself and to its intrinsic values. These are good taste, the savoir faire of choosing fine materials, authenticity, elegance, quality and value over time, creating the bridge that links the world of luxury with that of sustainability. Indirectly, luxury is connected to the concept of sustainability since the value of craftsmanship, especially if territorial, is strongly connected to that of social responsibility; through the savoir faire often passed down for centuries, the luxury product assumes extremely different characteristics from those of an item for mass consumption. The same evolution of characteristics of global demand explains the growing attention toward responsible and sustainable luxury. From the unreachable dream connected to the possession of a particular product, the concept of luxury tends to free itself from the economic value of a product and from the individual’s spending capacity to be connected instead to a more intrinsically ethical/social idea of value, to a lifestyle connected to emotional and experiential values. In this picture, the concepts of responsible and sustainable luxury come to life, and, from a mere marketing choice, increasingly assume a strategic value, becoming an important tool of differentiation.

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The growing importance of responsible and sustainable luxury: an overview In general, the attention to social responsibility requires a company to constantly examine the impact of its own actions on all stakeholders, coordinating the interests of the latter with its own. Despite the traditional economical and economic-business literature presenting economic and social goals and the contrast between them (Friedman, 1970), in the last decades, there has been a widespread conviction that both objectives can coexist and that the social objectives can become sources of competitive advantage (Porter & Kramer, 2002). With specific reference to the luxury sector, social responsibility, as underlined, has been assuming a growing importance in the last years. Up to the 1970s, in a context in which environmental concerns began to assume importance, the luxury companies were limited to communication strategies, through green marketing initiatives. It was only from the 1990s that sensitivity toward environmental and social problem assumed a new value, not only communicative, but above all anchored to the effective productive and organizational capacity of the companies. Along with innovation and a propensity to internationalization, social responsibility, including all those interventions of attention to the territory and to the collectivity in which the company operates, means respect and protection of the environment, promotion of human resources, safety and protection of health and working conditions, thus becoming a fundamental driver for development in the luxury sector. The orientation toward social responsibility is closely connected to sustainability, an increasingly essential element to be able to operate in the changed competitive scenario. The concept of sustainability has attained wide acceptance over time, to the point of superseding that of social responsibility (Giron, 2010). In a strict sense, it refers primarily to the ecological dimension. In this perspective, being sustainable from an ecological perspective means making choices able to reduce the environmental impact of production activity, in terms of containment of consumption and product execution; its production modality or the raw materials used do not burden the environment. Simultaneously, this concept of sustainability is accompanied by the respect for the health and conditions of the workers and consumers, human rights and to creating renewed relationships with the local community and all stakeholders. In a broader and more strategic sense, the concept of sustainability encompasses seeking wellness, a better quality of life, and a sense of responsibility toward the community. In an environmental scenario in which the variable “wellness” becomes increasingly a measure of the wealth that a production system is able to produce, the attention to sustainability goes in the direction of behavior that is not exhausted in ethical responsibility and in respect for regulations, but assumes a strategic significance. The strategic approach to sustainability affects the entire value chain, from the commercial proposal to the relationship with the consumer, until managing the end of life of a product, within an increasingly more extensive and complex network. The empirical evidence shows how the higher performing companies in the sustainability aspect are those able to integrate them in the processes of governance and to reconsider their business models, with the objective of capturing the opportunity for growth that a sustainable approach provides (Hoffmann & Coste-Maniere, 2012). A particularly revealing aspect to emphasize concerns the different characteristics that the relationship between luxury and sustainability may assume. On one hand, the prestige connotation of a luxury product may be reinforced, increasing the exclusivity of the brand and its perceived value; sustainability in this case is seen as an additional attribute to the preexisting offer of a luxury product, in some way “instrumental” to its reinforcement. Many large groups, such as Gucci and Hermès, moved in this direction. On the other hand, sustainability may be conceived of as an original source of luxury. In more recent times, in the realm of business experience, niche products seem to revolve around the promotion of sustainable aspects of the production line (such as, for example, a particular valuable raw material), around which a luxury brand is built. In this type of experience, the sustainable resource for luxury does not increase the perceived value of a pre-existing product, but generates an exclusive property. This latter aspect appears particularly revealing and may lead to defining new business models from the existing natural resources and from their connection with the territorial realities (Banathy, 1996) and with local

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actors. In this case, defining innovative inter-organizational solutions for creating proposals for sustainable offers may represent a driver to promote new brands created under the sign of sustainability, from an ecological and social perspective. In every case, the element that emerges with great clarity is the close link created between the assumption of a sustainable approach and innovation. Sustainability is one of the most important vectors of innovation from the technological, organizational, commercial and social perspective. The attention toward the topic connected to the theme of sustainability, in primis environmental, influence the business models that characterize luxury, opens interesting spaces for defining new proposed supply, affecting product information, on the supply relationships, on the branding policies (Allen, Walker & Brady, 2012; Guercini & Ranfagni, 2012). In this picture, attention is drawn to the Green Supply Chain Management (GSCM), as a source of competitive advantage (Hong, Kwon & Roh, 2009), which imposes new manufacturing relationships in the realm of the line, guided by principles often associated with the “three Rs” (Reduce, Re-use, Recycle) (Aragon-Correa & Sharma, 2003), as will be underlined in the pursuit of the work. In this perspective, the selection criteria of the suppliers become central, the means with which are enacted the supply relationships and the traceability of the manufacturing processes. An approach oriented to sustainability may further have a meaningful impact on the developmental processes of a new product and on defining the relationship between concept and competitive positioning. In the textile industry, for example, the development of production techniques and innovative products today represent the main fulcrum of the competitive advantage. An important part of the research and development in the field of new materials, finishing and the manufacturing processes is guided by a growing drive toward sustainability, which becomes an essential strategic element. In the same way, the innovation incorporated in the creative process assumes a fundamental role. Those seeking new design systems represent the point of departure for sustainable change management, often oriented to the seeking a blend between art and luxury and to the requirement to respond to the demand for ethical products and behavior by the consumers. For example, in recent years, the realm of innovative design developed “slow design,” which emphasizes the centrality of the creative process rather than the product (Fuad-Luke, 2002). Thus, the differentiation of sustainable luxury items begins from their creation, from the design to the final distribution, thus involving all the links of the value chain. Thus in the creative process, in the creation and the attribution of value to the product, sustainability finds its greatest expression in the world of luxury. In this perspective, the market of the fashion-luxury, for its intrinsic characteristics and its vocation to excellence, represents a privileged workshop to be able to observe and analyze the socially responsible behavior of the companies, in the picture of a broader strategic design for reinforcement of the competitive advantage and redefinition of the business models. Sustainability in the fashion luxury Fashion, above all for the high price sector, has developed business models over time that historically have given little space to sustainability. The luxury fashion segment has only recently taken up the challenge of sustainability, imposed by a profoundly changed context. If, on the surface, the concepts of fashion and of sustainability may appear antithetical, in realty, at least until the era of mass consumption, fashion was sustainable by definition, based on the artisanal processing of naturel resources. The business models of the fashion-clothing system still show a certain delay in showing itself sensitive overall to the paradigm of sustainability, regarding other sectors that have been most affected. The reasons refer to the fact that the world of fashion, in the last decades, was based on a

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model of interaction with the market based nearly exclusively on image, evocation and communication, rather than on the production processes and development of sustainable assets. An important evolution of the concept of sustainability in fashion began from the Third Millennium as a consequence of new trends emerging from the demand side. The need for a sustainable approach in the fashion market appears consistent with the changed characteristics of the customer, increasingly interested in receiving the stamp of social approval in a globalized society and thus to express a request for differentiated products, that along with the traditional intrinsic values of fashion, also show attention to the quality of life. To the “beautiful and well-made” product the modern consumer tends to add a social and hedonist dimension, represented by the capacity of the product to provide wellness, to show a social value, made of links with the territory, intrinsic knowledge, and propriety of the stakeholder community relations. The economic crisis following 2008 has further increased the share of consumers who are more attentive to the value dimension of the fashion system. Sustainability becomes an element of differentiation and of competitive advantage (Ricchetti & Frisa, 2011). The topics associated with responsibility and sustainability become crucial and push fashion companies to focus renewed attention on manufacturing processes and to review their business models, assigning priority to transparency, to sustainable values integrated in the strategic processes and manufacturing, to the consideration of all stakeholders. In this picture, the product assumes a new centrality and a new meaning; along with its content of craftsmanship, quality and savoir faire, intrinsic characteristics that enhance product value become important: traceability, raw materials, different finishings, and the value of the “made in…” In this context, fashion companies have launched new business models, reconsidering the relationships and developing strategic partnerships and new relationship modes with all of the actors involved, in a sort of green agreement based on cooperation and sharing objectives. In this sense, a sustainable approach must be translated into virtuous behavior by all stakeholders, principally in the direction of sharing the phases of creation and open and transparent communication. Specifically, the new business models emerging in luxury fashion are based on some critical success factors that compensate in financial performance for investments in sustainability: the savings in terms of resources used (water and energy), lower waste of materials, reduction of costs of non- sustainability (deriving for example from legal impositions), the ability to introduce new products, and greater attention to the relationships with the local community and the customers. From all this, it is seen that the evaluation of the economic importance of a company of fashion may not overlook considerations connected to the sustainability of investments and of the entire chain of the manufacturing processes. Some studies have identified the strategic variable “sustainable” able to generate competitive advantages for fashion companies, summarized in some salient points: - control of the supply chain; - training, technological and financial support to the suppliers; - consideration of the environmental aspects in all the business processes; - promotion of the quality of the work, the training and qualification of the employees; - promotion of relationships with the local community. In testimony to the importance of the social dimension in companies’ strategic vision, systems for measuring the performance of luxury companies increasingly tend to be based not only on the economic results, but also on the social and environmental consequences. In the light of these considerations, in recent years many fashion companies have launched numerous initiatives oriented to sustainability and ways of communicating and measuring it. One example is the Sustainable Apparel Coalition project. Implemented in 2011 by a group of leading international brands in the clothing and shoe sector, in order to guide the entire sector toward a vision of sustainability built around three pillars: approaching multiple stakeholders for measurement and evaluation of the

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sustainability performance of the product; promoting technological innovations and the pertinent business models, and adopting new collaborative practices among the actors of the supply chain. Eco-luxury: recycling, reuse and reduction in the fashion luxury In the light of the above considerations, it appears evident that fashion companies need to invest in technologies and manufacturing processes able to reduce environmental impact; increasing safety for the consumers means not only adopting measures to contain risks of environmental impact, but also reinventing the manufacturing processes to enhance the materials and create products that, along with the traditional values associated with the idea of luxury, respect the environment and respond to purchase choices increasingly dictated by emotional aspects. In this context, the concept of eco-luxury has spread in recent years (Giron, 2010), being understood as an approach oriented to excellence using the best practices connected to attaining environmental sustainability. In specific terms, these practices are generally linked to the “three R’s: recycling, reuse and reduction. In the world of fashion, above all in recent years, these dimensions have assumed increased importance, demonstrating the greatest sensitivity toward the environment and, more in general, social responsibility. In terms of recycling, the most evident behavior in textile-fashion involves transforming carefully-chosen PET (polyethylene terephthalate) containers into continuous filaments suitable to be used in clothing as fleece, padding, and composite materials. Reuse, in general, refers to reusing the product by extending its life cycle, revitalized and reintroduced into the market. The practice of reuse in the fashion-clothing market takes two routes, not alternative. One is the trend toward producing customized, personalized items, in which is seen a return to artisanal measures and manual processing and the development of the world of vintage. To this was added, in very recent times and also following the economic crisis, the birth of points of sale and barter of second-hand clothing and fashion accessories, the diffusion of which is often mediated by internet and social networks (Viale, 2010). Savings (reduction) in the fashion manufacturing processes are based above all on energy efficiency, deriving from the possibility of containing costs and reducing consumption of water resources necessary for processing the raw materials. For example, there are many cases of manufacturers of textile machines that increasingly focus their value proposition on energy savings. Specifically, the areas of intervention to ensure sustainability in the fashion system exist on all the phases of the value chain (Ricchetti & Frisa, 2011): - provision of raw materials (low ecological impact, deriving from recycling, renewable sources or fair trade initiatives); - production (reducing energy consumption, reusing water resources in the manufacturing processes, adopting technologies inspired by ecological principles, recycling discards and excess production, etc.); - logistics (rationalizing transportation flow, improving vehicles, and reducing packaging); - promotion (eco-compatible preparation, furnishings etc., forms of communication and encouraging reduced environmental impact); - end of life: (reuse, recycling, degree of biodegradability). The various combinations of the three R’s translate into differentiation of market and business models, in which the element of sustainability is configured as a critical success factor. Conclusions For the luxury sector and in particular for the fashion market, social responsibility and sustainability are becoming a strategic element of great importance, source of a competitive advantage. Concepts such as ethics, respect for the environment, and the consideration of all stakeholders become central in companies’ strategic vision. The increased sensitivity of consumers toward the questions correlated to sustainability causes fashion brands to improve their reputation by encompassing social responsibility in their value proposal. Studies conducted on leading companies in the fashion market indicate that social responsibility as a mere marketing tool is increasingly becoming an integral element of the value proposition and driver of

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competitive success (Corbellini & Marafioti, 2013). In this way, the concerns of ethical nature extend to the entire value chain and to all the stakeholders, integrating in a strategic vision of long-term budgetary and social success. The knowledge of the changed competitive context in which companies find themselves operating inevitably leads sustainability to become a powerful driver of innovation. This perspective, in a phase of growing affirmation, reflects on the need for luxury sector companies to redirect their strategic approach toward transforming social responsibility and sustainability into a competitive opportunity to benefit the individual companies or the sector overall. These trends open interesting research opportunities under the profile of the analysis of strategic behavior and the business models emerging in the sector, even today barely investigated by Management literature.

References Allen, M.W., Walker, K.L., and Brady, R. (2012). Sustainability Discourse with a Supply Chain Relationship: Mapping Convergence and Divergence. Journal of Business Communication, 49(3), 210-236. Aragon-Correa, J.A., and Sharma, S. (2003). A Contingent Resource-Based View of Proactive Environmental Strategy. Academy of Management Journal, 28(1), 71-88. Banathy, H.B. (1996). Designing Social Systems in a Changing World. New York: Plenum Press. Beverland, M. (2004). Uncovering “Theories-in-Use”: Building Luxury Wine Brands. European Journal of Marketing, 38(3/4), 446-466. Boston Consulting Group (2014). True Luxury Global Consumer Insight. Retrieved from http://www.luxesf.com/2014/06/true-luxury-global-consumer-insight-a-study-from-the-bostonconsulting-group/. Corbellini, E., and Marafioti, E. (2013). La CSR nella moda. Strumento di marketing o elemento fondante della strategia d’impresa. Economia & Management. Retrieved from http://www.egeaonline.it/editore/catalogo/la-csr-nella-moda.aspx. Della Bella, C. (2002). Value-value companies nel settore del lusso. Cogenerazione di valore per azionisti, investitori e management. Egea: Milano. Dubois, B., and Paternault, C. (1995). Observations: Understanding the World of International Luxury Brands. Journal of Advertising Research, 35(4), 69-76. Dubois, B., and Czellar, S. (2002). Prestige Brands or Luxury Brands? An Exploratory Inquiry on Consumer Perceptions. Brand Management Track, HEC School of Management and University of Geneva. Fuad-Luke, A. (2002). Slow Design: A Paradigm Shift in Design Philosophy?. Paper presented at Development by Design, Bangalore, India, November 2002. Friedman, M. (1970). The Social Responsibility of Business is to Increase Its Profits. New York Time Magazine, September 13, 1970. Giron, M.E. (2010). Inside Luxury. London: LID Publishing Ltd. Guercini, S., and Ranfagni, S. (2012). Social and Green Sustainability and the Italian Mediterranean Fashion Brands. Paper presented at EUROMED Congress Marseille, June 28-29, 2012. Hoffmann, J, and Coste-Maniere, I. (2012). Luxury Strategy in Action. New York: Palgrave Macmillan. Hong, P., Kwon, H., and Roh, J.J. (2009). Implementation of Strategic Green Orientation in Supply Chain. European Journal of Innovation Management, 12(4), 512-532. Kapferer, J.N. (1997). Managing luxury brands. Journal of Brand Management, 4(4), 251-260. Kapferer, J.N. (2006). The Two Business Cultures of Luxury Brands. In Schroeder, J.E., and SalzerMörling, M. (Eds.), Brand Culture (pp.1-16). London: UCL Press. Phau, I., and Prendergast, G. (2000). Consuming Luxury Brands. The Relevance of the “Rarity Principle. Journal of Brand Management, 8(2), 122-38. Porter, M.E., and Kramer, M.R. (2002). The Competitive Advantage of Corporate Philanthropy. Harvard Business Review, December, 5-16. Ricca, M., and Robins, R. (2012). Meta-luxury. Brands and the Culture for Excellence. New York: Palgrave Macmillan. Ricchetti, M, and Frisa, M.L. (Eds.) (2011). Il bello e il buono. Le ragioni della moda sostenibile. Venezia: Marsilio Editori. Viale, G. (2010). La civiltà del riuso. Bari: Laterza.

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IAS/IFRS AND SOCIAL RESPONSIBILITY: IS THERE A CONNECTION? Stefano AMELIO University of Bergamo 19 Salvecchio St., Bergamo, Italy [email protected] Abstract. The aim of the paper is to evaluate the degree of social responsibility arising from the statement of comprehensive income prepared according to IAS/IFRS, to demonstrate whether the values obtained from prospects and from the calculation of the indicators are sufficient to analyze the Company's performance from the perspective of social responsibility and sustainable value or not. The European Union launched a process of harmonization – in order to reduce the variability of accounting rules by issuing important Directives – then subsequently it moved to the standardization process, consisting in the adoption of a single set of accounting principles to be applied uniformly to all businesses. To achieve this last objective, the European Union adopted the IAS/IFRS developed by the International Accounting Standards Board (IASB). The research is divided into two sections and the approach used is mainly theoretical and qualitative. In the first part, the financial statements to be prepared according to IAS 1 and IAS 7 and, in particular, the so called statement of profit or loss and other comprehensive income for the period are analyzed by underling the function of the same and by presenting some financial performance indicators. Then, the research highlights that these values obtained are not useful to communicate the company's strategy in terms of social responsibility and sustainable value. In the second part the analyses exposes the concept of social balance as a means to interact with all the stakeholders of a firm and not only with the shareholders who are the main recipients of the financial statements prepared according to IAS/IFRS. According to the social responsibility view the IAS/IFRS financial statements should be accompanied by the social balance. Not considering the firm only as a system for the production of financial/economic value but also as economic social actor which operates in a social environment to which it belongs and with which it interacts, it becomes crucial to complete the set of financial statements stated from IAS 1 with a social balance as well as the same IAS 1 contemplates. Keywords: IAS/IFRS; performance; social balance; social responsibility; statement of profit or loss.

Introduction The theory of business management explains how the characteristics and the evolution of the accounting systems in each country are influenced by environmental, economic, legal, political and cultural factors that characterize the local context (Rinaldi, 2014). In relation to this point, the UE has opted for the introduction of a set of accounting principles to be adopted by some kinds of Member countries companies. In recent years the EU has launched a process of standardization and harmonization of firms’ economic and financial communications. In particular, there have been numerous requests for accounting uniformity in order to reduce the cost of capital, increasing the efficiency and effectiveness of markets and reducing production’ costs and analysis of information provided by businesses (Ferraris Franceschi & Cerbioni 2004). The application of different accounting standards in each member country has given a low degree of comparability of financial statements of European companies, constituting, in fact, a brake on the development of these markets (Amelio, Gavana, & Gazzola, 2014). According to IAS 1 (revised 2007) “financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it” (IAS 1, par. 9).

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Alongside the adoption of IAS/IFRS occurred with the EU regulation, it is important to consider the content of the “Conceptual Framework for Financial Reporting” issued by the IASB in September 2010 and currently under revision. This document introduces the corpus of international accounting standards but it does not represent a real principle and it is not intended to indicate specific accounting treatments for business operations (Moretti, 2004). As discussed, both in IAS 1/7, both in the Framework, the reference is always to the financial statements, meaning the representation of the financial position, financial performance and cash flows of an entity that is useful to “present and potential investors, lenders and other creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and providing or settling loans or other forms of credit” (OB2). These principles, then, are compulsory for the preparation of some kinds of financial statements, but not for the preparation of social and environmental reports. In this perspective, firms are considered only as systems for the creation of economic and financial value for their shareholders (Gazzola & Mella, 2004). In particular, there are various financial performance indicators that, starting from the financial statements prepared according to the IAS 1, could be calculated to measure the economic and financial performance of a company (Gazzola & Amelio, 2014; Gazzola & Mella, 2004). In the research, the main purpose is to demonstrate whether the values obtained from the financial statements prospects and, subsequently, the values obtained from the calculation of the indicators are sufficient to analyze the company’s performance from the perspective of social responsibility and sustainable value or not. In fact, firms are also an economic social actor which operates in a social environment to which they belong and with which they interact. For this reason in the second part of the research the concept of social balance is explained, as a means to interact with all the stakeholders of a firm and not only with the shareholders who are the main recipients of the financial statements prepared according to IAS/IFRS. In particular, the social-environmental reporting aims to highlight the complex influences that the company exerts on the environment and the social “fabric”, enabling various categories of stakeholders to assess performance other than those strictly related to the generation of profit (Cardillo & Molina, 2011). Despite the non-compulsory nature of social-environmental reporting, there is a two-way link between the traditional accounting and social responsibility: the logic underlying the social report should be read in relation to the national business administration principles that support the traditional accounting. Starting from this assumption and surpassing the national level to achieve the international accounting standards level, this research aims to understand if there is a connection between social responsibility and IAS/IFRS. To achieve this goal, a theoretical and qualitative approach was mainly adopted. The research is divided into two parts: In the first part the financial statements to be prepared according to IAS 1 and IAS 7 and, in particular, the so called statement of comprehensive income are analyzed; In particular the study underlines the function of the same and presents some financial performance indicators. On the other hand, in the second section the concept of social balance as a means to interact with all the stakeholders of a firm and not only with the shareholders who are the main recipients of the financial statements prepared according to IAS/IFRS is exposed.

The “statement of profit or loss and other comprehensive income” and the financial performance To demonstrate whether the values obtained from prospects and also the values obtained from the calculation of the indicators are sufficient to analyze the Company's performance from the perspective of

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social responsibility and sustainable value or not, it is important to start the study by analyzing, in particular, the second prospectus regulated by IAS 1: statement of profit or loss and other comprehensive income for the period. The IAS 1 provides a single document setting out the "extended" income for the period (total comprehensive income, TCI): the name of the prospectus is “statement of profit or loss and other comprehensive income”. There is a single result: the expanded income, which is an indicator of the overall performance of the company (Bamber & Als, 2010). The statement of profit or loss and other comprehensive income illustrates the financial performance and results of operations of a company for a period of time, therefore, it includes both realized and unrealized values (Bhamornsiri & Wiggins, 2001). The comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners (IAS 1, par. 7). In the statement, the result is an income that includes the net income (obtained from the balance between revenues and operating costs) and changes in value of assets that are recognized only to the equity: the other comprehensive income - OCI (Goncharov & Hodgson, 2008; Fernandez Carro & Arana, 2010). In this way, the performance is not only potential but it is enlarged to all the elements that meet the definition of income and expenses. According to the IAS 1 revised, since January 2009 and until the drafting of the statements with annual periods closing on 30 June 2012, there were two alternatives of presentation (Van Cauwenberge & De Beelde, 2007; Solomon & Dragomirescu, 2009): a) a single statement of comprehensive income, that presents all items of income and expense recognised in the period or b) two separate statements: - a statement displaying components of profit or loss (separate statement of comprehensive income) and - a statement of comprehensive income that begins with profit or loss (bottom line of the separate statement of comprehensive income) and displays the items of other comprehensive income for the reporting period (IAS 1 par. 81). Editors could then choose whether to present one statement, which contains both types of information, or two separate statements. The EU Regulation n. 475/2012 has brought some changes to IAS 1 with the aim to achieve a greater clarity. These changes took effect from the commencement date of companies first financial year starting on or after 1 July 2012. First of all, the title of the section, and consequently the title of the statement, has changed from “Statement of comprehensive income” to “statement of profit or loss and other comprehensive income”. In addition, the following paragraphs have been added: - par. 10A: “An entity may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section. An entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss”. - Par. 81A: “The statement of profit or loss and other comprehensive income (statement of comprehensive income) shall present, in addition to the profit or loss and other comprehensive income sections: (a) profit or loss; (b) total other comprehensive income; (c) comprehensive income for the period, being the total of profit or loss and other comprehensive income.

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If an entity presents a separate statement of profit or loss it does not present the profit or loss section in the statement presenting comprehensive income. How is it possible to note, paragraph 10A replaces paragraph 81, which was deleted. For this reason it is possible to say that there still exists the possibility to draft the statement by using alternately: - a single statement of profit or loss and other comprehensive income (the so called statement of comprehensive income) subdivided into two sections: the profit or loss section and the other comprehensive income section; in this statement of comprehensive income it is necessary to present, in addition to the profit or loss and other comprehensive income sections, the profit or loss, the total other comprehensive income and the comprehensive income for the period, being the total of profit or loss and other comprehensive income. - two statements: a separate statement of profit or loss and a statement presenting comprehensive income; in this case, the profit or loss section mustn’t be presented in the statement presenting comprehensive income. In addition, there are two options to present the OCI components (IAS 1, par. 91): - Net of tax related effects - Before related tax effects In both cases it is required to disclosure the effect of tax for each component of the other comprehensive income in the notes. An entity shall present an analysis of expenses using a classification based on either (IAS 1, par. 99): - the nature of expenses or - the function of expenses within the entity, whichever provides information that is reliable and more relevant. Also in this case, IAS 1 gives discretion to the writer of the statement; The choice between the function of expense method and the nature of expense method depends on historical and industry factors and the nature of the entity. The result of the statement of comprehensive income is the comprehensive income. The statement of comprehensive income illustrates the financial performance and results of operations of a particular company or entity for a period of time. The statement of comprehensive income aggregates the income statement and the other comprehensive income (items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs). It’s important to understand that the comprehensive income includes traditional net income and also the effects of changes recorded in other comprehensive income (Bini, 2007). As we know the difference between net income and comprehensive income is known as other comprehensive income. Other comprehensive income includes items such as: changes in revaluation surplus; actuarial gains and losses on defined benefit plans; gains and losses arising from translating the financial statements of a foreign operation; gains and losses on remeasuring available-for-sale financial assets; the effective portion of gains and losses on hedging instruments in a cash flow hedge. According to IAS 1, the statement doesn’t have a rigid content in fact the person who drew it up has broad discretion in choosing the scheme considered most appropriate for representing the operating performance and the economic result of the period. Despite this, IAS 1 states that in addition to items required by other IFRSs, the profit or loss section (in case of single statement) or the statement of profit or loss (in case of two statements) shall include a set of line items (IAS 1, par. 82). In addition, the editor can add line items, headings and subtotals if he considers that this representation is relevant to a better understanding of the corporate balance (IAS 1, par. 85). The statement of profit or loss and other comprehensive income for the period, together with some of the values exposed in other statements, allows for the calculation of a suitable system of economic and

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financial ratios that translate the values produced into performance indicators in order to assess whether or not the economic-financial objectives of the business and profit organization have been achieved (Gazzola & Mella, 2004) from the point of view of the management and also to investigate the convenience in making an investment from the point of view of an investor (Gazzola & Amelio, 2014). In particular these indicators allow some categories of stakeholder (Donaldson & Preston, 1995; Pellicelli, 2002) to assess the corporation’s efficiency. In particular, the main and most useful ratios that could be used by the stakeholders (in particular by the shareholders) are: - ROE (return on equity): it is calculated as the ratio between the net income and the equity. - ROE_CI (return on equity – comprehensive income): it represents the ratio between the total comprehensive income and the net worth (equity). In both cases, ROE measures the profitability of a company for the investor, but, while in the first case it takes into account only the values that are under the control of the manager, in the second one the numerator of the ratio also includes all those values that take the name of other comprehensive income and that, as explained above, represent the changes in the value of the assets. - EPS (earnings per shares): it is calculated as the net profits divided by daily average shares outstanding; by this way, this indicator tells the shareholder what the profit is for every share that they own. The use of ROE_CI as an alternative to ROE commonly calculated depends on the role that is attributed to the other comprehensive income (and consequently the total comprehensive income) compared to net income. In particular, it is interesting to understand whether the OCI provides additional information for the evaluation of financial performance with respect to the simple net income or not (Gazzola & Amelio, 2013). The “statement of profit or loss and other comprehensive income”, the financial ratios and the social responsibility The values contained in the statement of profit or loss and other comprehensive income and in the other statements whose drafting is required by IAS 1, par. 10 to define the set of financial statements complete derive only from monetary exchanges with third economies and for this reason: - they don’t derive from non-monetary ties with the social environment (for example: employment, pollution); - they don’t contain ethical values; - they don’t explicit the ability of the firm to operate compatibly with the environment. To evaluate a company in full, namely to conduct a comprehensive assessment, it is not enough to rely solely on the indicators above, and consequently only on the compulsory statements required by IAS 1. To evaluate the overall impact of the firm’s activity on the community (Hill & Jones, 1992), it is important to expand the audience of these documents to all the stakeholders and not just to the shareholders. The companies, in fact, are not only systems for the production of value but also economic social actors which operate in a social environment to which they belong and with which they interact, not only through a system of monetary and financial exchanges but also through physical, human and communication flows that produce knowledge, trust and reputation (Gazzola & Mella, 2004). For this reason, it becomes fundamental for the companies’ success and for a better evaluation from the stakeholders to support the corporate balance (with the statements required by IAS 1, par. 10) with a new document, the social balance (Wilson, 1999; Cardillo & Molina, 2011; Cavicchi et al., 2003) in a perspective of social responsibility reporting. In recent decades the social reporting had a significant expansion; this led to the birth of numerous study groups, who made several proposals for the preparation of social reporting documents (Orlandini, 2008; Bandettini, 1987). In particular, it is possible to identify different paths of development in the international arena (mainly in countries such as USA, UK, France, Germany and Italy).

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In relation to methods/documents to be used in the social responsibility reporting, the main proposals are as follows: - The Copenhagen Charter, a management guide to the stakeholder reporting; - Accountability 1000 (AA1000); - GRI (Soustainability Reporting Guidelines on Economics, Environmental and Social Performance); - SA8000 (Social Accountability); - CSR (Europe Voluntary Guidelines for Action on CSR Communication and Reporting); - GBS (Social Balance drawing principles); - Q-Res Project (Centre for Ethics Law and Economics); - CSR SC Document (Italian Ministry of labour and social policy); - BITC (Business in the Community); - LBG (London Benchmarking Group); - Business Impact. The proposals listed above, allow us to define the essential features of the social balance but before proceeding, it is important to define the term “social balance” starting from the general concept of balance. The term balance can have different meanings depending on the purpose for which the document is drawn up and the objects that have been taken into account. In fact we can have corporate balance, extraordinary balance, consolidated balance, balance of mission, social balance, sustainability reports. the social balance is the output of a process of social responsibility reporting and it allows to make known the value created in the face of the social costs incurred (Di Stefano, 1990). It often happens that the documents resulting from the reporting process are named differently, but with similar content, or, on the contrary, that documents with the same designation present completely different content. In relation to the names used in the operational reality, we can find in particular the following expressions: - social balance; - balance of mission; - balance of mandate; - sustainability report; - balance of participation; - environmental report. In the following pages, for a question of convenience, the term social balance will be used in a broad sense, including in this term a wider range of documents similar to it, but not identical. In particular, we can say that it is still difficult to clearly delineate the perimeter of the individual documents that are part of the process of social responsibility listed above and, to avoid to go into the difficult task to highlight the distinctive features of the same, it was decided to use primarily the term “social balance” and consequently to use the other terms as synonyms. The company, therefore, becomes responsible not only towards shareholders but also towards stakeholders. In doctrine the concept of CSR (corporate social responsibility) has been developed as opposed to the shareholder theory (Friedman, 1970) where the only goal is to generate the profit for shareholders, i.e., to maximize the economic value of the shares: the indicators above and mainly the EPS responds precisely to this theory. From the perspective of CSR, it is necessary to move from shareholder theory to stakeholder theory (Freeman, 1984) but to do this it becomes important to consider companies as social systems. In this sense, the companies not only have to meet the interests of shareholders, but they must try to meet the demands of the various stakeholders with whom they systematically interact; only in this way the company will have a durable life and will create value over time (Gazzola, 2012). Adopting social responsibility practices and therefore sustainable growth actions, leads to a reduction of short term profit but it points the way to a long term profit that is based on solid foundations.

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Such practices, being costly for the company, could therefore lead to a reduction of net income and thus to a worsening of ROE, ROE_CI and EPS indicators in the short term. As regards to the long term, it is not possible to state that the financial return will grow: there are various research on the relationship between CSR and financial performance but the results are conflicting: some studies have reported a positive relationship (Waddock & Graves, 1997, Ziegler & al., 2007), others a negative one (Wright & Ferris, 1997), others no relationship (McWilliams & Siegel, 2000, Schroder, 2007). When the CSR is fully integrated in companies and in organizations' operational management practices (Horobet & Belascu, 2012), it becomes complicated to try to measure its effects separately. To do so, it should be possible to keep all other factors constant and then measure the performance before and after the adoption of socially responsible practices. Nevertheless, be socially responsible can strengthen a company's reputation (Schaltegger & Figge, 2000) and, consequently, can create a long term competitive advantage, with positive consequences for sales (Molteni, 2004) and, consequently, for the results of the statement. The creation of social value of the company becomes a necessary condition to maintain a healthy process of creating economic and financial value. If the statement of profit or loss and other comprehensive income is the tool to highlight the economic and financial values, the document to report and communicate the responsible management for sustainable development is the social balance (Vermiglio, 2000; Rusconi, 2007). Conclusions and implications As previously stated, the social balance shifts the attention from the creation of economic and financial values by the productive organization to the creation of social and environmental values by the organization as a social agent (Gazzola & Mella, 2004). The indicators described above are not sufficient to measure social (Kaplan & Norton, 1992) performance (Clarkson, 1995); in order to do this, it is necessary to build some indicators calculated by using the elements explained in the social balance; only in this way it becomes possible to assess the company’s capacity to create social sustainable value. The problem is that these indicators are difficult to identify (Tencati, 2002). Despite this, several authors (Schmid-Schenbein et al., 2001; Zeithaml et al., 1990; Welford, 1996; Bailey, 1982) have identified the following indicators that may be useful for our purposes: - The frequency of voluntary resignations; - The absentee rate; - The movements from one work category to another; - The hours of internal professional training; - The frequency of worksite incidents and professional illnesses; - The proportion of female to total personnel; - The indicators of safety; - The crime rate; - The presence of certifications approved ate the national or supranational levels. Contextualizing these findings at the level of international accounting standards, the IAS 1, par. 14 states that “Many entities also present, outside the financial statements, reports and statements such as environmental reports and value added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group. Reports and statements presented outside financial statements are outside the scope of IFRSs”. This demonstrates the increasing attention that this issue is internationally cladding. Adhering to the thesis that includes the presentation of the social balance as a social need and not just as a choice, the international current situation is not so good. The preparation of this document, as well as nationally, even at international level, is not mandatory; furthermore, if the company chooses to draw up the social balance, it is outside the scope of IFRSs and consequently it does not meet a standardized regulation that would allow to reach a socially international comparability of social statements.

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Companies, in preparing the social balance, have, over time, improved the quality disclosures. despite this, as already mentioned, companies continue to adopt various models of reporting, negatively affecting the comparability and understandability of the documents that, on the contrary, exist at corporate balance level thanks to IAS/IFRS. The sustainability report is a free document in terms of content, however, it would be appropriate to provide an international standard scheme (Cardillo & Molina, 2011). Only by following this path, we could get the full understanding of the company, as well as we would achieve that goal of standardization pursued by the EU. On these basis, the research can be further extended by introducing quantitative methods in order to understand the level of adoption of the social balance by companies subjected to IAS/IFRS, namely the level of respect of par. 14 mentioned above. References Amelio, S., Gavana, G., and Gazzola, P. (2014). IAS/IFRS: gli schemi di bilancio: stato patrimoniale e conto economico secondo i principi contabili internazionali. Padova: Cedam. Bailey, K.D. (1982). Methods of Social Research. New York: The Free Press. Bamber L.S., Jiang (Xuefeng) J., Petroni K., and Wang I. Y. (2010). Comprehensive Income: Who’s Afraid of Performance Reporting?. The Accounting Review, 85(1), 97-126. Bandettini, A. (1987). Spunti di riflessione sulle esperienze dei maggiori paesi europei in tema di bilancio sociale. Saggi di economia Aziendale per Lino Lazzini. Milano: Giuffrè. Bhamornsiri, S., and Wiggins, C. (2001). Comprehensive income disclosures. The CPA Journal, 71(10), 54-56. Bini, M. (2008). Tra Europa e Usa è lite sui conti. Il Sole 24 Ore, 30 June 2007. Cardillo, E., and Molina, S. (2011). IAS-IFRS e rendicontazione socio-ambientale: una verifica della estendibilità dei principi generali del Framework alla valutazione della qualità dei documenti volontari. Financial Reporting. Retrieved from http://www.frjournal.eu/content/financial-reportingissues-0. Cavicchi, G., Dalledonne, A., Durand, C., and Pezzato, G. (2003). Responsabilità sociale ed ambientale dell'impresa. Milano: Ipsoa. Clarkson, M.E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20(1), 92-117. Di Stefano, G. (1990). Il sistema delle comunicazioni economiche finanziarie nella realtà aziendale moderna. Milano: Giuffrè. Donaldson, T., and Preston, L.E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of management Review, 20(1), 65-91. Fernández, F.S., and Arana, M.M.C. (2010). Effects of comprehensive income on ROE in a context of crisis: empirical evidence for IBEX-35 listed companies (2004-2008). International Business & Economics Research Journal (IBER), 9(1), 117-128. Ferraris Franceschi, R., and Cerbioni, F. (2004). Principi internazionali ed effetti locali: opportunità e vincoli del processo di armonizzazione. Rivista di Ragioneria e di Economia Aziendale, 7(8), 386397. Freeman, R. (1984). Strategic management: a stakeholder approach. Boston: Pitman. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, 13(1), 32-33. Gazzola, P. (2012). CSR per scelta o per necessità. Santarcangelo di Romagna: Maggioli Editore. Gazzola, P., and Amelio, S. (2012a). One or two statement approach for the income statement of Czech companies?. Trends economics and management, 6(Special issue 12), 68-82. Gazzola, P., and Amelio, S. (2012b). What kind of Statement of comprehensive income for the Czech Republic. University of Technology, Faculty of Business Mana, Brno, 20, 21, 22 September, 2012.

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Gazzola, P., and Amelio, S. (2013). The other comprehensive income in turbulent time. In ECE 2013Enterprise and the Competitive Environment International Conference. Bucovice: Martin Striz Publishing. Gazzola, P., and Amelio, S. (2014a). Is total comprehensive income or net income better for the evaluation of companies’ financial performance?. Central European Review of Economic Issues, 17(1), 39-51. Gazzola, P., and Amelio, S. (2014b). Roe in Turbulent Time. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 62(2), 347-353. Gazzola, P., and Amelio, S. (2014c). The impact of comprehensive income on the financial ratios in a period of crises. Procedia Economics and Finance, 12(1), 174-183. Gazzola, P., and Mella, P. (2004). From Values to “Value”. From the Creation of the Value of Firms to Sustainable Growth. Economia Aziendale Online, 3(1), 1-18. Gazzola, P., and Mella, P. (2012). Corporate Performance and Corporate Social Responsibility (CSR). A necessary choice?. Economia Aziendale Online, 3(1), 1-22. Goncharov, I., and Hodgson, A. (2008). Comprehensive income in Europe: valuation, prediction and conservative issues. Annales Universitatis Apulensis Series Oeconomica, 1(10), 1-38. Hill, C.W., and Jones, T.M. (1992). Stakeholder-agency theory. Journal of management studies, 29(2), 131-154. Horobet, A., and Belascu, L. (2012). Corporate Social Responsibility at the Global Level: An Investigation of Performances and Integration of Socially Responsible Investments. Economics & Sociology, 5(2A), 24. Kaplan, R.S., and Norton, D.P. (1992). The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review, 70(1), 71-79. McWilliams, A., and Siegel, D. (2000). Research notes and communications. Corporate social responsibility and financial performance: correlation or misspecification?. Strategic management journal, 21(5), 603-609. Molteni, M. (2004). Responsabilità sociale e performance d'impresa. Per una sintesi socio-competitiva. Milano: Vita e pensiero. Orlandini, P. (2008). Rendicontazione e responsabilità sociale. Torino: G. Giappichelli Editore. Pellicelli, G. (2002). Strategie d’impresa. Milano: Egea Università Bocconi Editore. Rinaldi, L. (2014). Introduction, in Amelio, S., Gavana, G., & Gazzola, P. (2014). IAS/IFRS: gli schemi di bilancio: stato patrimoniale e conto economico secondo i principi contabili internazionali. Padova: Cedam. Rusconi, G. (2007). Etica, responsabilità sociale d’impresa e coinvolgimento degli stakeholder. Impresa progetto, 1(1), 1-24. Rusconi, G., and Contrafatto, M. (2013). Corporate social accounting and accounts: a duty of accountability. Impresa Progetto-Electronic Journal of Management, 2. Retrieved from http://www.impresaprogetto.it/sites/impresaprogetto.it/files/articles/ipejm_articolco_n_6_2_2013_r usconi_def.pdf. Schaltegger, S., and Figge, F. (2000). Environmental shareholder value: economic success with corporate environmental management. Eco-management and Auditing, 7(1), 29-42. Schmid-Schoenbein, O., Braunschweig, A., & Oetterli, G. (2001). Social Performance Indicators for the Financial Industry: Key Performance Indicators (draft 1), Zurich, December 2001. Schröder, M. (2007). Is there a difference? The performance characteristics of SRI equity indices. Journal of Business Finance & Accounting, 34(1-2), 331-348. Solomon, D.C.,and& Dragomirescu, S.E. (2009). New dimensions in enterprise’s financial performance reporting: The statement of comprehensive income. Journal of Finances, Banks and Accountancy, 18(3), 1170-1175. Tencati, A. (2002). Sostenibilità, impresa e perfomance: un nuovo modello di evaluation and reporting. Milano: Egea. Van Cauwenberge, P., and De Beelde, I. (2007). A critical note on empirical comprehensive income research (No. 07/463). Ghent University, Faculty of Economics and Business Administration. Van Cauwenberge, P., and De Beelde, I. (2007). On the IASB comprehensive income project: an analysis of the case for dual income display. Abacus, 43(1), 1-26. Vermiglio, F. (2000). Il cantiere aperto del bilancio sociale. Rivista Cooperazione, 1(2), 88.

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Waddock, S.A., and Graves, S.B. (1997). The corporate social performance-financial performance link. Strategic management journal, 18(4), 303-319. Welford, R. (1999). Corporate environmental management. Hyderabad: Universities Press. Wilson, A. (1999). Social Reporting. Developing Theory and Current Practice. In Bennett, M., James, P., and Klinkers, L. (Eds.), (1999). Sustainable measures: evaluation and reporting of environmental and social performance. Sheffield: Greenleaf Publishing. Wright, P., and Ferris, S.P. (1997). Agency conflict and corporate strategy: The effect of divestment on corporate value. Strategic management journal, 18(1), 77-83. Zeithaml, V.A., Parasuraman, A., and Berry, L.L. (1990). Delivering quality service: Balancing customer perceptions and expectations. New York: Simon and Schuster. Ziegler, A., Schroeder, M., and Rennings, K. (2007). The effect of environmental and social performance on the stock performance of European corporations. Environmental and Resource Economics, 37(4), 661-680.

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IMPLEMENTING CSR STRATEGY IN NON-PROFIT ORGANIZATIONS, THE ROLE OF SUSTAINABILITY REPORT Patrizia GAZZOLA Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Massimo RATTI Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Abstract. The purpose of this paper is to analyze the concept of Corporate Social Responsibility (CSR) and its communication with the sustainability report (Gazzola & Meo Colombo, 2011). We try to understand how it can be effectively introduced in a non-profit organization. To this aim, we consider evidences from an Italian case study: the Fondazione Renato Piatti Onlus. The Fondazione Renato Piatti is a non-profit organization of Social Utility, made up in Varese, to design, implement and manage services for people with intellectual and/or relational disabilities and their families. In the first part we analyze the CSR for nonprofit organizations and the sustainability report like an important instrument of communication. In the second part we present the evidences from the case study. The research is exploratory in nature when considering the connection of corporate social responsibility efforts to the non-profit sector, a qualitative methodology was chosen over quantitative methods. Specifically, the case study was used to show what strategy a non-profit organization can develop. During last decades the concept of CSR has continued to grow in importance and significance (Carroll & Shabana, 2010) especially for companies. Nowadays CSR strategies received a growing attention from both businesses and non-profit organizations (Kotler & Lee, 2005; Soonawalla & Alnoor, 2005). For non-profit organizations, applying social responsibility is not a voluntarily issue. Non-profit organizations have an ethical obligation to their stakeholder and to the public to conduct their activities with accountability and transparency (Gazzola & Ratti, 2014). Scholars have increasingly been studying the impact of corporate social responsibility as a business strategy in for-profit companies (Porter & Kramer, 2006; Mcwilliam, Siegel & Wright, 2006). However, there is still lack of researches on how non-profit organizations implement CSR into the strategy. As a consequence of the above remarks, non-profit organizations fail to correctly implement a successful long term CSR strategy (Schwartz & Gibb, 1999). Keywords: non-profit; sustainable report; strategy; CSR; communication.

Introduction Non-profit organizations are facing a growing accountability challenge in the wake of corporate and nonprofit scandals and increased demands for accountability and demonstrated results on the part of funders. This governance challenge has given rise to numerous international efforts to promote non-profit accountability and transparency. In response to the demands of this new social system, non-profit organizations begin to wonder what a responsible organization is like, as an exercise of assumption of its responsibilities. For this sector, the starting point of social responsibility is the coherence between the values and the social proposal being done from their action fields: cooperation for development, social, human aid or environment. In the non-profit sector we consider transparency and accountability as the great availability of relevant, reliable information about the performance, the financial situation, and the governance of the organization. They are the amount of information that an organization provides to the stakeholders about itself and how honestly and quickly it reveals this information. Non-profit organizations have an ethical obligation to conduct their activities in a way that is accountable and transparent because normally they work for the community. Non-profit organizations should convey information to the stakeholders about their missions, the activities and the decision-making processes. This information should be easily accessible to the stakeholders and should create external visibility, community understanding and trust in the organization, conditions necessary to find donors. Non-profit organizations work with communities and community donors need to know how their money is used (Gazzola & Ratti, 2013).

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The term "non-profit organization" expresses that the organization does not aim primarily to make a profit, in reality, profits are often achieved (Salamon & Anheier, 1997). However, these profits are not distributed to the shareholders, but are usually used to realize the organization's purpose or are retained. There is only one common denominator among the number of different viewpoints (Badelt, 1999), namely to try to consciously distance oneself from the for-profit world of the private sector. In the research we highlight the importance for a non-profit organization to give to the community the correct information on the activity and on the management. Public availability to the financial information of non-profit organizations is important because the non-accessibility may result in the loss of public confidence. The particular socio-economic function cannot be highlighted effectively using information tools designed to meet the needs of business. The management for the increase of the collective wellbeing cannot be valued in economic terms. It is necessary to carry out a process of social information that can be both a public relations tool, communication, dialogue and coordination of the different social areas: the sustainability report. Open access is important for efficient capital flow and for well-informed donation decisions because they have a responsibility to account for their impacts on stakeholders, and in doing so hope to enhance trust, relationships, engagement and improve business processes to yield greater overall sustainable impact. The paper is divided into two parts. In the first part we analyze the CSR for non-profit organizations and the sustainability report like an important instrument of communication. In the second part we present the evidences from an Italian case study: the Fondazione Renato Piatti Onlus. The Fondazione Renato Piatti is a non-profit organization of Social Utility, made up in Varese, to design, implement and manage services for people with intellectual and/or relational disabilities and their families. The research is exploratory in nature when considering the connection of corporate social responsibility efforts to the non-profit sector, a qualitative methodology was chosen over quantitative methods. A conceptual framework is developed from the theory of Corporate Social Responsibility. A case study research design incorporates a structured face-to-face interview to the manager of the Fondazione Renato Piatti to explain why and how the sustainability report is implemented in a non-profit organization. Pertinent documents are reviewed in order to supplement the structured review. The case study is used to show what strategy a non-profit organization can develop. Scholars have increasingly been studying the impact of corporate social responsibility as a business strategy in for-profit institutions, and results frequently indicate benefits to the organizations such as increased reputation, sales, and reduced reputation damage during crises. Little is known about the impact of corporate social responsibility on organizations from the non-profit sector, however (Waters, & Ott, 2014).

Literature review The acceptance of stakeholder theory (Freeman, 1984) has meant that organizations have had to redefine their competitive strategies and the way they manage social issues, since these are evaluated by public and determine how new groups of subjects judge the non-profit legitimization. As a result outside communication represents an important opportunity for the organization to increase its social acceptance and offer its own point of view, supported by information that, as much as possible, is understandable, objective and verifiable. Kim and Reber (2008) suggest that corporate social responsibility is a “central relationship-building activity within organizations” (p.341). There are numerous potential benefits of engaging in corporate social responsibility activities also for a non-profit organization, for example: increased levels of volunteerism, positivity in the workplace environment, more media coverage, reduced costs, and a better public image. These benefits may create long-lasting effects such as reputation enhancement (Jo, 2011; Kim & Lee, 2011), creating organizational value (Bortree, 2009), and stakeholder loyalty (Gomez & Chalmeta, 2011).

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For non-profit organizations, applying social responsibility is not only a voluntarily issue. Non-profit organizations have an ethical obligation to their stakeholder and to the public to conduct their activities with accountability and transparency (Gazzola & Ratti, 2014). These organizations should regularly and openly convey information to the stakeholder (Freeman, 1984) about their vision, mission, objectives, activities, accomplishments, decision-making processes and organizational structure. Information from a non-profit organization should be easily accessible to the stakeholder and should create external visibility, public understanding and trust in the organization, conditions necessary to find donors. For the non-profit organization, the starting point of social responsibility is the coherence between the values and their action fields: climate change, sustainable development, health, employment, energy, security, environment, etc. In order to build the CSR, the organization has to develop seven areas of interest: people within the organization, stakeholders, mission and values, transparency, environmental management, communication and social involvement (Vidal et al., 2005). The development of these areas is especially relevant because it impacts directly on the organizations reason of being. The main reason is that values are the core of these organizations, and they are present throughout the organization. These values are also found in the social responsibility, what forces somehow that the organizations evolve towards their own social responsibility. The dimensions of corporate social responsibility are closely aligned with the goals of many non-profit organizations that function primarily to serve the public interest (Ferris, 1998). They have a responsibility to account for their impacts on stakeholders and, in doing so, they can enhance trust, relationships, engagement and improve business processes to yield greater overall sustainable impact. According with Meyer, Ferrari and Zoebeli (2012) a comprehensive way to be transparent is to produce an annual report. The organization can lay out in a more compelling document the highlights of achievements, services and financial records with photos and graphics and make these readily available to the public by posting it on the website (Zainon et al., 2013).

Sustainability report for non-profit Until several decades ago for a non-profit organization it was thought sufficient to declare to be nonprofit; today, instead, there is a general interest that is revealed not only as the sum of the expectations of the individuals with whom the organization has direct relations but also as a collective interest. All nonprofits provide some type of community benefit (Colombo & Gazzola, 2014); that is why the organization gets the advantage of being a non-profit entity. Accountability includes ensuring that the organization is effectively providing this benefit service (be it feeding the homeless, protecting the environment, offering a cultural endeavor, etc.). Organizations need to evaluate their services impartially and perform a needs assessment of their stakeholder, making changes if needed. This often happens as part of a strategic planning process and it is a critical part of being an accountable organization (Anheier et al., 2011). The more the organization can assure that is accountable and transparent the more trustworthy the organization will be viewed by the public, donors, constituents and regulators. Non-profit organization voluntarily divulge information on their ethical behavior and their relations with the social and natural environment because of the advantages this brings in terms of economics, image and credibility, which increases the global value of the organization. As it is a voluntary document, there is at present no general and single standard for its drafting; thus each organization can choose the format that is closest to its situation and size, choosing from the most common national and international models (Gazzola, 2012). As a communications document the sustainability report has an internal and external validity that reveals how the complex interdependence between the economic and socio-political factors has become increasingly more uniform, punctual, complete and transparent, deeply rooted in and consequent on the business decisions (Adam & Frost, 2008). It seeks to achieve the following objectives: - give all stakeholders an overall picture of the organization's performance, thereby initiating an interactive process of social communication (Browne & Nuttall, 2013);

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- provide useful information on the quantity and quality of the organization's activities in order to broaden and improve, even from an ethical-social point of view, stakeholder knowledge and the possibilities to assess such activities and make appropriate decisions. From the internal point of view this document highlights the functions of internal management and mission reinforcement. With reference to internal management the sustainability report, by comparing the resources consumed (perhaps even destroyed) with the results achieved, permits a careful reflection on the production processes and strategy formulation, at the same time offering the possibility to verify the coherence between the activities undertaken and those values that should inspire the organization's operations, favor the involvement of all the stakeholders and thereby allow the firm to strengthen its mission. From the external point of view the sustainability report has the important functions of information and image management. In fact, the sustainability report is a useful instrument to inform stakeholders about the organization's economic, social and environmental performance, in order to promote both the image and reputation of a non-profit organization that is committed to responsible practices. Thus the sustainability report must be a valid instrument that stimulates and heightens the awareness of management in responsibly pursuing an effective social role to continually improve non-profit organization performance (Manetti & Toccafondi, 2014). Drafting a sustainability report means joining the pursuit of mission with the collective interest; it is an index of progress on the communications front as well. The sustainability report must express and harmoniously reconcile the economic measures and the quality of the relationship between the organization and its stakeholders, represented by the collectivity (Vlad, 2012).

Why non-profit organizations has to implement sustainability report To respond to the new information needs of society it was necessary to define the characteristics of a sustainable report that allows non-profit organizations to implement a strategy of widespread and transparent communication capable of obtaining social consensus and legitimization, which are at the core of the achievement of any other objective, including earnings and competitiveness (Morsing & Schultz, 2006). There are many reasons for a non-profit to implement a reporting process: - Improve the reputation. Sustainability report help to build trust with stakeholders and manage reputation proactively (BSR, 2011; Ernst & Young, 2013). - Improve the economic, social and environmental impact on society and communicate those impacts to stakeholders to share best practices and encourage similar improvements from others. - Create positive relationship with companies. There is a positive relationships between many non-profit organizations and companies, because they serving as a partner to the business, guiding them to more sustainable initiatives. - Improve the efficiency. Non-profit organizations need to be efficient not to waste money. - Attract top talent. Top talent from the nation’s best schools often see the corporate citizenship of the company as a criterion for working for that company. The economic, social and environmental improvements itemized in sustainability reports might just be enough to turn the right workers and volunteers on to the organization, ensuring it attracts the right talent at the right time. - Attract top donors. Donors, pinched for funds and torn between too many charities, might be influenced by the transparency of a sustainability report. The report would provide confidence that donor funds are appropriately spent. The organization can gain the competitive advantage in the fundraising war. - Meeting the expectations of employees. Employees were a vital audience for sustainability reporting and the result of the issuing of a sustainable report is to increase employee loyalty (Ernst & Young, 2012). With sustainability report the organization drive internal employee engagement. - Stakeholder dialogue and engagement. The process of reporting is an opportunity for reflection of corporate social responsibilities and for listening to the voices of their stakeholders. “Transparency” and “dialogue” are linked. - Transparency. The number of organizations and individuals asking non-profit about their social and

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environmental performance has grown tremendously during the past decade. - Ensure internal governance, ethics and risk management practices. The reporting process can help organizations to reflect about realistic and feasible steps towards building a sustainable future, which is the real challenge. Fondazione Renato Piatti Onlus: a reality in the territory of Varese and not only Fondazione Renato Piatti Onlus, was established in 1999 by the will of a group of parents members of National Association of Families of People with Intellectual Disabilities (Anffas) Varese, motivated by the need to find an agency that can professionally manage existing services and develop new ones; so, on 1 January 2000, this organization began operations dealing with the management of two diurnals centers and a residential one, in the town of Varese (www.fondazionepiatti.it). Since that time, keeping in mind the policy address that the center had the full realization of the "Plan of Life" Anffas for people with intellectual and relational disabilities, also associated with physical, mental and sensory disability, Fondazione Piatti has increased the introduction of new services in collaboration with the Lombardy Region and local institutions; in fact, to date, the commitment of this non-profit organization led to the creation of many units offered, which allow the organization to meet the needs of 350 guests attended daily by more than 400 people, divided between operators, in the health and social care, and volunteers. For this reason Fondazione Piatti is recognized as a qualified reality in the network of personal services, and its mission is to ensure that people with mental and intellectual illness and their families can live the best possible condition of being over their entire lives without discrimination based on disability, creating the conditions to develop or regain their skills and autonomy and to encourage

Figure 1. Cover of the Social Report 2013 Fondazione Renato Piatti Onlus

their social inclusion. To this end, this organization provides care services and assistance for different needs and age, aimed at finding the appropriate individual support can promote the autonomy and social inclusion, inspired by two fundamental principles, arising from the thought Anffas, which seeks to put in place in the daily management of its business and strategic: the respect for human rights and the relationship between the terms of the condition of health, environment and disability.

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It is evident, therefore, that an organization of this size have the need and the requirement to have also a tool able to make more clear and transparent to its stakeholders that is able to do, every day, for people with intellectual and relational disabilities. Then, starting in 2008, the governing bodies of the Fondazione Piatti, have decided to take the experience of the construction of a Mission report for 2008, which is useful to start a growth path that would lead, in 2010, to develop the first document of sustainability reporting for 2009; from then on, have been prepared the financial statements of the following years, introducing each time more information and making necessary changes, useful to achieve the goal of building a tool capable of reporting comprehensively on all activities of the organization and respond in full to the information needs of all stakeholders But what are the reasons that have led this organization to start a complex and expensive, such as the drafting of a Sustainability Report? And what were the responses obtained through this effort reporting? Asked who were referred to the President of Fondazione Renato Piatti Onlus, Ms Cesarina Del Vecchio, and the General Manager, Dr. Michele Imperiali. The reflections that have meant that the Board of this institution to approve the introduction of the Sustainability Report are varied, but all based on the need to ensure greater visibility and greater transparency in relation to its stakeholders; indeed, as the General Manager, the organization, which receives funds for their livelihood through funding arising from the public (contributions arising from the Health System and Regional Social-health), those derived from individuals through the public system (5 per thousand) and those arising from private (companies or individual citizen) through direct donations, began to feel the need to "make a qualitative leap in relations of accountability with the public system and with other stakeholders", identifying how suitable instrument for this work, the Sustainability Report. A document which, according to Dr. Imperiali, ensures the commitment and the clarity of Fondazione Piatti, an organization in which governance is comprised entirely of volunteers in the parental component, all directors, including the Chairman, do not receive any compensation for the office held. Besides that, according to the President, it was decided to start this effort reporting as there was the need to introduce a guarantee instrument, which allowed to have a quick overview of the situation, both qualitatively and quantitatively, in the face of that the statute does not provide for any accountability to shareholders. The Sustainability Report, therefore, may have given the opportunity to Foundation dishes "tell the world that it is a serious organization". Finally, this document has been seen as a driving force for communication, to be able to capture the attention of stakeholders who, at that time, had no direct contacts with the Fondazione Piatti, and the results of this effort have been seen since the first edition. For this reason, reaffirms Dr. Imperiali, this document will continue to be drawn up in the coming years with the aim, however, to make it more "attractive and usable".

Figure 2. Functional organization of Fondazione Renato Piatti Onlus

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All this has led in 2014 to the drafting of a document in which they are 86.2% completely and 1.5% partially of so-called 'essential information' (65 in total) and 43.1% completely and 3.4% in part of socalled 'voluntary information' under the model of the Italian Agency for the Third Sector. Its creation started from the stage where it provides for the creation of the working group that focused on the level of preparation of the document and it was made up of the Management Area Director, the Director of Services and the Social Area Director, coordinated by the Head of Communication, Dr. Maurizio Ferrari, all supported by the practical support of their direct reports to collect meaningful data to be included in the document. To this was added the analysis of the data resulting from the survey done to certain stakeholders on the Sustainability Report of the previous year; by sending email to a questionnaire it was found, in fact, that it was necessary to work on making the document less voluminous, with a language as possible understandable by all stakeholders. All this work was performed in the first months of the year and the approval of the document by the Board of Directors took place March 19, 2014, only to be published in June, of course of the same year. Conclusions and implications CSR for non-profit organizations has long been of interest to organization leaders, funders, and the communities in which non-profits reside. Today there is a general interest that is revealed not only as the sum of the expectations of the individuals with whom the organization has direct relations but also as a collective interest. In the face of the recent economic downturn and increased expectations of mission impact and accountability, non-profit organizations face a myriad of challenges in establishing and defining CSR in the long term. Non-profits serving low-income communities often struggle to raise funds, as few community members have the means to contribute financial support to non-profits. They have to face the following issues: - Many non-profit organizations are over-reliant on external sources of funding, such as government grants that have been cut back in recent years. - Non-profits depend on marketing and branding efforts to help promote and sustain their programs and services, but branding considerations are often overlooked in the non-profit sector. - Donors increasingly want access to up-to-date information about an organization's operations and finances as a way of ensuring return on their investment. The need thus arises for the organization to communicate, to make its actions visible to the outside, and as a result to obtain social legitimization for these actions (Gazzola & Meo Colombo, 2011). This research focuses on the experiences of not profit organization in implementing the sustainability report. Fondazione Piatti incorporates CSR in the organization’s management principle. From the case study it’s possible to understand that the legitimacy achieved by coherence is necessary for non-profit organization to fulfil the social role. The social support legitimizes the organizations for this action, and that social support will come from organizations that execute projects and carry out activities in a responsible way (Vidal et al., 2005). The rapid growth of the sector, the increasing public participation and the social demand will make the CSR of non-profit a key factor of competitiveness and sustainability in the next years. The analysis on the CSR in non-profit organizations clearly requires further study, yet the case study shows in this paper allow us to offer various reflections and encourages us to continue in this research because non-profit organizations must increase their accountability and transparency.

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References Adams, C.A., and Frost, G.R. (2008). Integrating sustainability reporting into management practices. Accounting Forum, 32(4), 288–302. Anheier, H., Haß, R., Then, V., Beller, A., and Wehrsig, S. (2011). Accountability & Transparency: A Comparative Study of German Non-profit Organizations, Public Agencies and Forprofit Corporations. Hertie School of Governance (HSoG) and the Centre for Social Investment (CSI) of Heidelberg University. Badelt, Ch. (Hrsg.), and Bachstein, W. (1999). Handbuch der Non-profit Organisation, Strukturen und Management. Stuttgart: Schäffer-Poeschel. BSR (2011). State of Sustainable Business. GlobeScan, Poll 2011, BSR. Bortree, D.S. (2009). The impact of green initiatives on environmental legitimacy and admiration of the organization. Public Relations Review, 35(2), 133-135. Browne, J., and Nuttall, R. (2013). Beyond corporate social responsibility: Integrated external engagement, The McKinsey Quarterly, April Issue, 1–11. Carroll, A.B., and Shabana, K.M. (2010). The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice. International Journal of Management Reviews, 12(1), 85–105. Colombo, G., and Gazzola, P. (2014). Ethics and CSR. The strategy debate. Confluências. Interdisciplinary Review of Sociology and Law Ethics and CSR: the strategy debate, 16(1), 84-98. Ernst & Young (2012). Six Growing Trends in Corporate Sustainability. GreenBiz Group. Ernst & Young, Boston College Center for Corporate Citizenship (2013). The Value of Sustainability Reporting. Ernst & Young, Boston College Center for Corporate Citizenship. Ferris, J.M. (1998). The role of the non-profit sector in a self-governing society: A view from the United States. Voluntas: International Journal of Voluntary and Non-profit Organizations, 9(2), 137-151 Freeman, R.E. (1984). Strategic management: a stakeholder approach. Marshfield, MA: Pitman Publishing. Gazzola, P. (2012). CSR per scelta o per necessità. Santarcangelo di Romagna (RN): Maggioli Editore. Gazzola, P., and Meo Colombo, C. (2011). The role of the sustainability report in capitalistic firm. The Annals of the University of Oradea – Economic Sciences, XX(2), 243-250. Gazzola, P., and Ratti, M. (2014). Transparency in Italian non-profit organizations. The Annals of the University of Oradea – Economic Sciences, XXIII(1), 123-133. Gazzola, P., and Ratti, M. (2013). Non-profit organizations: a culture of opacity. In Tomacek, P., and Vankova, I. (Eds.), Theoretical and Practical Issues of Public economics and Administration. Ostrava: VSB – Technical University of Ostrava, Faculty of Economics. Gomez, L.M., and Chalmeta, R. (2011). Corporate responsibility in US corporate websites: A pilot study. Public Relations Review, 37(1), 93-95. Jo, S. (2011). Factors shaping activists’ perceptions of corporate organizations: An empirical case from South Korea. Public Relations Review, 37(2), 178-180. Kim, S., and Lee, Y.J. (2011). The complex attribution process of corporate social responsibility motives. Public Relations Review, 38(1), 168-170. Kim, S., and Reber, B.H. (2008). Public relations’ place in corporate social responsibility: Practitioners define their role. Public Relations Review, 34(4), 337–342. Manetti, G., and Toccafondi, S. (2014). Defining the Content of Sustainability Reports in Non-profit Organizations: Do Stakeholders Really Matter?. Journal of Non-profit & Public Sector Marketing, 26(1), 35-61. McWilliams, A., Siegel, D.S., and Wright, P.M. (2006). Corporate Social Responsibility: Strategic Implications. Journal of Management Studies, 43(1), 1-18. Meyer, B., Ferrari, D., and Zoebeli, D. (2012). Transparency of NPOs’ financial reporting: A quantitative study of annual reports. ISTR-Conference in Siena, July 2012. Morsing, M., and Schultz, M. (2006). Corporate social responsibility communication: Stakeholder information, response and involvement strategies. Business Ethics - A European Review, 15(4), 323-338. Kotler, P., and Lee, N. (2005). Corporate Social Responsibility – Doing the Most Good for Your Company and Your Cause. New Jersey: John Wiley and Sons, Inc.

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Porter, M.E. and Kramer, M.R. (2006). Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 84(12), 78-92. Salamon, L.M., and Anheier, H.K. (1997). Defining the non-profit sector: a crossnational analysis. Manchester: Manchester University Press. Schwartz, P., and Blair, G. (1999). When Good Companies Do Bad Things: Responsibility and Risk in an Age of Globalization. New York: John Wiley and Sons. Soonawalla, K., and Bhimani, A. (2005). From conformance to performance: the corporate responsibilities continuum. Journal of Accounting and Public Policy, 24(3), 165-174. Vidal, P., Torres, D., Guix, B. and Rodríguez, M.P. (2005). The Social Responsibility of Non-Profit Organisations. A conceptual Approach and Development of SRO model. Observatori del Tercer Sector. Vlad, S. (2012). The motivation and ways of morivating the human resources – Bes Wesern Hotel Central Arad. The Annals of the University of Oradea - Economic Sciences, XXI(2), 398-404. Waters, R.D., and Ott, H.K. (2014). Corporate Social Responsibility and the Non-profit Sector: Assessing the Thoughts and Practices across Three Non-profit Subsectors. Public Relations Journal, 8(3), 118. Retrieved from http://www.prsa.org/Intelligence/PRJournal/Vol8/No3/. Zainon, S., Hashim, M., Yahaya, N., and Atan, R. (2013). Annual Reports of Non-profit Organizations (NPOs): An Analysis. Journal of Modern Accounting and Auditing, 9(2), 183-192. Websites: www.fondazionepiatti.it

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POLICIES AND STRATEGIES IN BUSINESS VALUE-CREATING ORGANIZATIONS Piero MELLA University of Pavia 5 San Felice St., 27100, Pavia, Italy [email protected] Patrizia GAZZOLA Insubria University 71 Monte Generoso St., Varese, Italy [email protected] Abstract. This conceptual paper seeks to demonstrate that, just as individuals in a Social System are responsible for their own actions and behavior with respect to the other individuals in the system, organizations, as vital entities (following Beer’s Viable System Model) that make up the Social System, must also necessarily be held accountable for the economic and non-economic consequences of their actions. The complex “decision-action” interaction leads the organization to behave as a cognitive entity, as a vital unitary system, that must be held “socially responsible” for its own actions, as these are produced, in turn, by its own decisions. This results in the necessity and inevitability of CSR. Specifically, the MOEST demonstrates that the action of every BVCO assumes a Corporate Governance that specifies stakeholder objectives and environmental constraints, in this way defining the various levels of CSR. The present study deals with the following topics: 1. In what sense are Business Value-Creating Organizations (BVCOs) cognitive and vital systems, and thus responsible actors in the Social System? To demonstrate this, Beer’s VSM and Mella’s MOEST (Organization as an Efficient System of Transformation) are used; 2. How does the interdependence among objectives, decisions and controls function? In this regard, this paper will examine in particular the role of policies and strategies in producing the management dynamics in organizations.3. The CSR as representing a fundamental variable in the strategy of BVCOs, as corporate ethics and reputation is based on this. Keywords: value creation; capitalistic firms; autopoietic systems; teleonomic systems; control systems; MOEST; balanced scorecard.

Introduction Just as individuals acting in Social Systems are responsible for their own actions and behavior with respect to the other individuals in the system, Organizations, as vital entities, must also necessarily be held accountable for the economic and non-economic consequences of their decisions, actions and controls, which are determined by policies and strategies. This study is based on a coherent framework built on the following guidelines: 1. The processes for the production of value are carried out by permanent production organizations, in particular Business Value-Creating Organizations (BVCO), or “capitalistic firms”; 2. From an internal point of view, BVOCs are operationally-closed systems that are at the same time structurally and behaviorally coupled to the environment; they perceive disturbances such as external stimuli, process these, and act (react or pro-act) to balance the network of vital processes; 3. In this sense, BVCOs can be conceived of as “conscious cognitive systems” that link themselves to the environment through a system of processed, up-dated, and evaluated information which we can define as the representation of the external world; 4. From an external point of view, BVCOs are teleonomic systems that can continue to exist only as long as their performance as systems for the production of value is appreciated by the environment, according to a coherent system of performance indicators for the production of value (productivity, quality, economic efficiency, returns, Economic Value Added and Economic Value of the Firm). In this framework “capitalistic firms” are BVCOs that are viewed as systems acting in a complex environment whose maximum objective is the creation of economic and financial value for their

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shareholders. From an internal point of view, performance for shareholders is based on profit and the value of capital, and it is measured by a system of monetary values. Again from an internal point of view, performance must also be assessed according to non-monetary variables; for example, based on Kaplan’s balanced scorecard model (see below). From an external point of view, if firms are seen as vital systems operating in the environment, then performance is perceived by external stakeholders as the capacity to produce sustainable value by means of ethical business and managerial behaviour. In order to achieve autopoiesis and maintain the organization viable indefinitely, three particularly significant models have been proposed: 1) Beer’s Viable System Model, which indicates the structure organizations must have in order to remain indefinitely viable; 2) Mella’s Model of the Organization as an Efficient System of Transformation (MOEST), which points out that the main condition of vitality of organizations consists in their carrying out five parallel transformations in the search for maximum efficiency: a. a productive transformation of factors into production, governed by productivity and by quality; b. an economic transformation of costs and revenues into operating income, governed by prices and therefore by the market; c. a financial transformation of capital into returns, governed by risk; d. an entrepreneurial transformation of information into objectives and policies, specifying the levers, that is, the strategies, for controlling these; e. a managerial (organizational) transformation of strategies into decisions, actions and management controls. 3) The model of organizations as control systems, in the sense that a firm must set a system of objectives for itself which is centered on its shareholders and stakeholders. These objectives can be achieved by the organization only if it acts as a system of control that produces effective strategies for carrying out a policy regarding the production of value which does not exclusively benefit the shareholders but instead concerns a vast group of stakeholders. As a result we must also broaden our notion of the production of sustainable value in order to include both social value and environmental value. Despite the differing perspectives from which firms can be viewed, it is appropriate to introduce capitalistic firms, viewed as autopoietic and teleonomic business and profit-oriented BVCOs (Mella, 2005), whose fitness resides in their capability, or efficiency, to produce adequate levels of economic and financial values through a network of efficient processes carried out by a structure of organs (processors) joined by networks of control systems (Mella, 2014; Alter & Hage, 1993). The capitalistic firm as an autopoietic and teleonomic system Capitalistic firms are autopoietic systems (Varela, 1979; Maturana & Varela, 1980; Bednarz, 1988; Luhmann, 1995) in the sense that, through their metabolic processes, they produce themselves by regenerating the network of financial and economic processes, searching for the metabolic and energy inputs in the environment which are useful for autopoiesis and fleeing from those which are damaging (Zeleny & Hufford, 1992; Mingers, 1994). Defining teleonomy as the ability of an autopoietic system to maintain its existence by regenerating its autopoietic processes, then capitalistic firms are undoubtedly teleonomic systems, in that they maintain their own autopoiesis by carrying out cognitive processes aimed at giving significance to the environmental stimuli, translating these into information that is structured in knowledge and producing a reactive and proactive behaviour in order to search for the conditions that allow individuals to benefit, directly or indirectly, from the achievement of a common end that defines the capitalistic firms’ teleology. We can also distinguish between endogenous teleonomy and exogenous teleonomy (Monod, 1970, p.124; for an opposing view see Maturana-Varela 1988; Paetau, 1997). While endogenous teleonomy characterizes the internal structural dynamics of the organization, exogenous teleonomy characterizes its environmental dynamics.

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The organization has a high endogenous teleonomy if, by developing efficient processes of adaptation, it continues to exist despite the unfavorable structural disturbances from the environment; it is characterized by a high exogenous teleonomy if the environment itself sets the conditions that favor its autopoiesis, and thus its lasting existence, as a unit as well as an organizational type (Toffler, 1985). In this sense the organizational activity of cognition and learning (De Geus, 1988; Senge, 2006) is necessary for the organization's teleonomy. The capitalistic firm as a viable system Stafford Beer (1979, 1981, 1984) has developed a model of the firm as a viable system, which is briefly outlined in figure 1. In this now classic model based on the autopoietic and teleonomic view of organizations, Beer identifies the minimum structure that every organization must have in order to remain vital for a long time.

Figure 1. A synthesis of the Viable System Model

Directing the reader to Beer’s books for a detailed description, here it is enough to mention that Beer directly interprets organizations and firms, when observed from the outside, as cybernetic systems, and thus as unitary Control Systems that include management directly in the chain of control (see below). The viable system model (VSM) assumes that in every organization five interconnected subsystems (SS) can be identified:  SS1: OPERATIONS. These are the operational units that, by interacting with the environment, carry out the processes for which the organization was created.  SS2: COORDINATION. To avoid any interference and conflict among the SS1s regarding the use of common resources, the SS2s must be assigned the task of coordinating the SS1s over time and space.

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 SS3: CONTROL. The coordination carried out by the SS2s is necessary but not sufficient without a control over the achievement of the objectives of the SS1s. The control subsystem formulates plans and programmes that represent the objectives that the SS1 units must pursue in a coordinated manner. SS3 is connected to the subsequent SS4 and SS5s to form a higher-order subsystem that produces the organization’s intelligence.  SS4: INTELLIGENCE. The organization can survive only if it is able to observe the environment to obtain information, make forecasts and create action programmes based on foreseeable future scenarios.  SS5: POLICY. This subsystem guarantees the unitary management of the organization by defining the policies needed to achieve the vital objectives set by the stakeholders. The capitalistic firm as a system of efficient transformations The VSM illustrates the structure an organization must have to remain vital, but it does not highlight the economic and financial processes that all capitalistic firms – when viewed as autopoietic and teleonomic organizations – must necessarily carry out through their structures to remain vital. A specific model (in many respects parallel to the VSM) the MOEST, has been proposed by Mella (2005; 2012, 2014). The MOEST considers all capitalistic firms as systems of transformation that, in order to remain in existence over time, must carry out five interconnected vital transformations, each of which, operating with maximum efficiency, carries out a vital function similar to what is proposed in the VSM. Unlike the VSM, which represents organizations from the point of view of their structural synthesis, the MOEST sees them from a functional viewpoint. Moreover, the MOEST highlights the role of information and communication from and to the stakeholders, and thus the need to define the reputational and ethical spheres of organizational behavior. The MOEST, shown in figure 2, interprets capitalistic firms as operating systems of transformation that carry out five parallel efficient transformations: 1. an efficient PRODUCTIVE TRANSFORMATION [P] of factors into production; this is a transformation of utility governed by maximum productivity and quality; 2. an efficient ECONOMIC TRANSFORMATION [E] of costs and revenues into EBIT (operating income); it is immediately clear that economic efficiency depends on productivity, which reflects productive efficiency, and on the ratio between the average selling price and the average unit cost of production, which represents market efficiency; 3. a FINANCIAL TRANSFORMATION [F] of risks, which transforms capital into the maximum returns and guarantees the maintenance of the firm’s financial integrity; the profit organization that finances its economic processes with external capital in the form of Equity and Debt, which constitute the Invested Capital, becomes a capitalistic enterprise. 4. an ENTREPRENEURIAL TRANSFORMATION [I] whose function is to monitor the present and future environments in order to: a) identify the survival conditions and define the maximum objectives that will guarantee an enduring vitality; b) decide which entrepreneurial policies have priority in terms of the vital objectives; c) for each objective, establish the entrepreneurial strategies to order the most effective control levers which lead to a continual readjustment of the firm's strategic position. To carry out this function, [I] produces a continual transformation of information and forecasts into strategic decisions, preparing the long-term plans and programs and designing the management control systems that give rise to and regulate the three other transformations for the achievement of the objectives of quality, productivity, economic efficiency and profitability. This transformation is referred to as “entrepreneurial”, since it produces to the maximum extent possible the conceptual, creative and innovative activities that characterize the entrepreneurial function. 5. a MANAGERIAL (organizational) TRANSFORMATION [M] of strategies into programs that represent the operational guide for actions and management control. [M] undertakes five sub-functions: (1) it divides the vital objectives determined by [I] into operational objectives to be assigned to the organs (functions) and operational units; (2) it divides the overall entrepreneurial strategies drawn up by [I] into functional and operational strategies, which it assigns to the organs and operational units that carry out the “technical”

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transformations, and as a consequence (3) it draws up the operational programs and budgets that serve as the operational objectives for the Control Systems, which are required to achieve the maximum level of productive, economic and financial efficiency; (4) it carries out the managerial coordination of the organs, operational units and members of the organization that together represent the engines of the “technical” transformations; (5) it decides on the operational regulations which oblige the controlled units (organs, units and individuals) to undertake the necessary actions to achieve the objectives. The operational units of SS1, as described by Beer (figure 1), correspond to the units that carry out the “technical” transformations of the MOEST. The “cognitive” transformations of the MOEST, both entrepreneurial and managerial, perfectly correspond to the activities assigned to the other four subsystems of the VSM.

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Figure 2. Model of the organization as an efficient system of transformation (Mella, 2014)

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The capitalistic firm as a control system The five transformations of the MOEST are interconnected. A necessary condition for the firm to activate the first three “technical” transformations [P], [E] and [F], is that two “cognitive” transformations also be carried out: the entrepreneurial [I] and managerial [M] transformations, whose function is to “control” the “technical” transformations. Figure 2 shows that the entrepreneurial transformation, [I], identifies, or receives from the governance, the vital objectives for survival and determines the policies and general programs that become the strategic objectives the managerial transformation, [M], must achieve through the Control Systems (normally defined as strategic), which act at the business and general function levels. Figure 2 indicates that the managerial transformation, [M], translates the strategic objectives into operational objectives, to be achieved by means of a planning and budgeting program which is necessary for the operational control system to produce the necessary strategy to activate the available levers. The entrepreneurial transformation, [I], is, in turn, subject to an institutional control at an even higher level, carried out by the stakeholders, who represent the CORPORATE GOVERNANCE. In fact, the amount of control [I] has in the organization depends on the limits set by the governance. The model in Figure 3 (see Appendix) illustrates the role of the three technical transformations in implementing the control in order to achieve the vital objectives and provides technical clarity regarding the policies and strategies of production organizations viewed as multi-objective, multi-lever Control Systems. Viewed as control systems, capitalistic firms display a cognitive behavior aimed at survival, and it can be viewed as a living system that reproduces itself over time, along the lines of Maturana & Varela’s analysis: “If living systems are machines, that they are physical autopoietic machines is trivially obvious [...] However we deem the converse is also true: a physical system, if autopoietic, is living” (Maturana & Varela, 1980, p.82). The idea that the capitalistic firm is a living system which self-regulate its dynamics in the environment to achieve vital objectives, has been excellently described by Salvatore Vicari in a convincing book entitled The Organization as a Living System (Vicari, 1991) and by Arie De Geus in his work The Living Company: Habits for Survival in a Turbulent Business (2002; see also 1997). De Geus clearly shows the importance of cognition and learning for an organization’s teleonomy, especially large corporations, whose teleonomic activity can be interpreted only by assuming that the organization (company) is a living being and the decisions for organizational activities taken by this living being result from a learning process. It is not without significance that the Forward of this work was written by Peter Senge, who sums up the reasons organizations must be viewed as living beings and not as simple machines. Among these reasons, I find the following quite convincing: Seeing a company as a machine implies that its actions are actually reactions to goals and decisions made by management. Seeing a company as a living being means that it has its own goals and its own capacity of autonomous action. Seeing a company as a machine implies that it will run down, unless it is rebuilt by management. Seeing a company as a living being means that it is capable of regenerating itself, of continuity as an identifiable entity beyond its present members. Seeing a company as a machine implies that its members are employees or, worse, “human resources”, humans standing in reserve, waiting to be used. Seeing a company as a living being leads to seeing its members as human work communities. Finally, seeing a company as a machine implies that it learns only as the sum of the learning of its individual employees. Seeing a company as a living being means that it can learn as an entity, just as the theater troop, jazz ensemble, or championship sport team can actually learn as an entity. In this book Arie argues that only living beings can learn (Senge 1997, pp.IX-X).

Management is the extrinsic manifestation of the so-called “cognitive chain”, implemented at every level of the organization, which is composed of the “decision-action-control” links in the chain, which produce the outcomes in the environment composed of the various categories of stakeholders. The complex

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“decision-action-control” interaction leads the organization to behave as a cognitive entity, as a viable unitary system, that must be held “socially responsible” for its own actions, as these are produced, in turn, by its own decisions. To maintain the conditions for viability, organizations internally determine the policies and activate the levers and strategies needed to eliminate the negative effects from environmental disturbances during the course of their existence; such disturbances cannot be foreseen at the moment the system is designed and created.

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The Capitalistic firm viewed as an economic social actor The capitalistic enterprise viewed as an autopoietic and vital system of control is an economic social actor, in the sense that it interfaces and interacts with a set of external, or institutional interlocutors, or stakeholders – in an ethical, social and political (ethical) environment – that influence the organization’s structure and processes through a system of corporate governance (Carroll, 1996; Freeman, 1991). The autopoiesis of the firm, when viewed as an economic social actor, depends on its external teleonomy, which represents the capacity to earn the appreciation of the stakeholders who are not components of the organization but who gain external advantages, individual or social, from its existence (Toffler, 1985). The production of adequate levels of economic value of the firm (EVF), from which shareholder value derives and the maintenance of the conditions of sustainability represent the maximum objectives imposed by [I] on [M] (Arnold & Davies, 2000; Mella & Pellicelli, 2008). However, the entrepreneurial transformation is, in turn, controlled by the stakeholders, who activate the corporate governance and set the maximum Institutional Objectives and the environmental restrictions for the survival of the organization as a vital system. According to the concept of sustainability – originally introduced in the 1987 Brundtland report, Our Common Future, which was commissioned for the United Nations – whose central principle is “development which meets the needs of the present without compromising the ability of future generations to meet their own needs'” (WCED, 1987), the following hypothesis is proposed: the capitalist firm, as a social unit, must produce social shared “value” (Harrison et. al., 1998), understood in the broader sense that its economic existence as a producer of economic and financial values must be appreciated in terms of the sustainability of the development path of the firm and evaluated by a wide range of social

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performance measures of outcome or benefit: the efficiency of materials, technical innovation, energy efficiency, community relations, eco design, product recyclability, and employee relations. The attainment of perceived levels of social performance produces reputation, brand and confidence, so that the environment itself sets the conditions for the firm’s legitimation and consent, which favors autopoiesis and thus a lasting existence for the enterprise as a social unit as well as an organizational type. This implies, on the one hand, the organizational ability to recognize the set of relevant stakeholders as well as to identify their expectations, and on the other the capability to communicate the global “value” produced in terms of social benefits and prevented damage to the physical environment. The following section proposes an expanded model of the Balanced Scorecard which also includes these social variables. Expanding the Balanced Scorecard in a capitalistic firm Capitalistic firms cannot be limited to merely controlling financial performance. A number of other interesting non-financial variables can serve as performance indicators. Created by Kaplan and Norton (1992, 1996, 2001), the Balanced Scorecard (BSC) is one type of corporate dashboard, which provides top management with information for a continual evaluation of the performance of an entire firm. As an instrument of strategic control, the role of the BSC can be represented by a model entirely similar to the one in figure 4, considering only the rectangular boxes.

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Figure 4. The BSC as a strategy-forming instrument (Mella, 2012, p.190)

The BSC considers four strategic variables, or perspectives (or focuses), held to be fundamental for providing management with a “balanced” perspective on the strategic performance of the firm: 1. Financial perspective: how the organization wishes to be viewed by its shareholders; 2. Customer perspective: how the organization wishes to be viewed by its customers; 3. Internal Business Processes perspective: through which processes must the organization develop its abilities in order to satisfy its shareholders and customers; 4. Organizational Learning and Growth perspective: which changes and improvements must the company make to implement its vision.

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Each perspective is represented in a scorecard and a weight of relative importance is assigned to it. For each perspective a limited number of performance measures that managers deem truly significant are included in the BSC, as shown in figure 5.

Figure 5. Weights and measures of the BSC perspectives (Kaplan and Norton 2001, p.375).

The following measures are particularly efficient in choosing each perspective: a) measures for the financial perspective: value of the action, growth in profits, profit rate, ROI, EVA, ROE, operating costs, operating margin, corporate objectives, survival, profitability, growth, cost reduction, increase in ROI, cash flow, earnings, increase in earnings, profit rate of shares, and so on (Mella, 2005); b) measures for the client perspective: service level, market share, new clients, new products, new markets, customer satisfaction, customer loyalty, product reliability, perceived quality of the product and/or collateral services, customer complaints, etc.; c) measures for the internal perspective: increase in efficiency, quality of processes, utilization rate of production capacity, stock storage period, waste, recycling rate of production waste, remanufacturing, lead time, average unit cost, employee morale, motivation, and so on; d) measures for the learning and growth perspective: trend in value creation, product diversification, supplier diversification, increase in R&D, risk diversification, strengthening of internal control, development of new products, continual improvement, technological leadership, employee involvement, etc. In its original formulation the BSC had a mainly internal point of view. In order to measure social performance (Clarkson, 1995) it is useful to include in the BSC a new scorecard that measure the firm’s capacity to create well-being for the collectivity and demonstrate the firm’s social utility by indicating its capacity to achieve social and environmental objectives (Ranganathan, 1999). In fact, capitalistic firms must, in any event, include in their strategy actions that guarantee that the environmental constraints of sustainability, ethical behaviour and, in general, Corporate Social Responsibility (CSR) are respected. For this reason the model in figure 4 also includes a fifth scorecard (the hexagonal shape) for the continuous monitoring of the performance of the entire firm evaluated from an external perspective with regard to the interactions with the external stakeholders. In effect, according to Kaplan and Norton, The four perspectives could be viewed as a scheme of reference and not as a straighjacket. Many organizations use the BSC and establish relative weights for each of the scorecard measures. These relative weights are used to evaluate performance (Kaplan & Norton 1996, p.34). If, as we have indicated, the scorecard could guide us in growing our business, then it is natural to believe it possible to change the number of perspectives, areas, or focusses (Olve et al., 1999, p.120).

The measures for the new external perspective could involve, for example: actions to guarantee CSR; respect for the environment and measures for environmental sustainability; the elimination of refuse without damage to the environment; the use of the “commons”; the use of renewable and clean sources of energy; ethical behavior by the organization; ethical production that does not harm individuals; measures to enhance the reputation of the organization (Gazzola & Mella, 2015; EEA, 2001). Conclusion and final remarks The BVCOs should not be considered merely as systems for the production of value for stockholders but also as economic social actors which operate in a social environment to which they belong and with

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which they interact, not only through a system of monetary and financial exchanges (Clarkson, 1995) but also through physical, human and communication flows that produce knowledge, trust and reputation with regard to the optimal use and safeguarding of human, natural and social resources. In this way it becomes possible to judge the social responsibility of the firm (Keeley, 1988) and promote an image that gains the consensus of the collectivity and enhances the reputation of the firm, which in turn is fundamental for ensuring greater trust by the public (Zadek, 2001). Economic prosperity, environmental quality and social justice are the pillars on which the creation of corporate value is based, according to the “triple bottom line” (Warren, 1999). Autopoiesis thus implies both the attainment of a high degree of endogenous teleonomy, through the search for internal conditions for survival by means of an optimal mix of creativity, productivity and incentive systems, and a high degree of exogenous teleonomy, which guarantees the external conditions for survival through an increase in customer satisfaction (obtained from the optimal mix of quantity, quality, variety and price of production) as well as in social satisfaction, deriving from the valued social impact of the organization (spread of employment, rise in average income, payment of taxes, environmental interest, etc.). In order to maintain the autopoiesis and viability of capitalist firms, the entrepreneurial and managerial transformations must formulate strategies that guarantee investors a financial return (interest or dividends) at least equal to the opportunity cost of the best alternative investment (fair cost of capital), while maintaining an acceptable degree of risk (actuarial integrity) and, in any event, preserving the purchasing power of their capital (monetary integrity) (Boulton et al., 2000). Nevertheless, autopoiesis also depends on the extent to which the policies and strategies of the entrepreneurial transformation respect the constraints imposed by the external stakeholders and thus guarantee ethical behavior, the sustainability of production, the safeguarding of the environment, and, in the final analysis, the social needs of the entire collectivity. References Alter, C., and Hage J. (1993). Organizations working together. London: Sage Publications. Arnold, G., and Davies, M. (2000). Value-based Management: Context and Application. New York: Wiley. Bednarz, J. (1988). Autopoiesis: The Organizational Closure of Social Systems, Systems Research, 5(1), 57-64. Beer, S. (1979). The heart of enterprise. New York: Wiley. Beer, S. (1981). Brain of the Firm. New York: Wiley. Beer, S. (1984). The Viable System Model: its provenance, methodology and pathology. Operational Research Society, 35(1), 7-25. Bennet, M., and James. P. (1999). Key Themes in Environmental, Social and Sustainability Performance Evaluation and Reporting. In Bennet. M.J. (Ed.), Sustainable Measures. Evaluation and Reporting of environmental and Social Performance (pp.29–74). Sheffield: Greenleaf Publishing. Boulton, R., Libert, B., and Samek, S. (2000). Cracking the Value Code: How Successful Businesses are Creating Wealth in the New Economy. New York: Harper Business. Carroll, A.B. (1996). Business and Society: Ethics and Stakeholder Management. 3rd ed. Cincinnati: South-Western College Publishing. Clarkson, M.B. (1995). A stakeholder framework for analysing and evaluating corporate social performance, Academy of Management Review, 20(1), 92-117. de Geus, A. (1988). Planning as learning. Harvard Business Review, 66(2), 70-74. de Geus, A. (1997). The Living Company. Growth, Learning and Longevity in Business. London: Nicholas Brealey Publishing Limited. de Geus, A. (2002). The Living Company: Habits for Survival in a Turbulent Business. Boston, MA: Harvard Business Review Press. EEA (2001). European Environment Agency Environmental signals. Copenhagen. Freeman, R.E. (1991). Business Ethics: The State of the Art. New York: Oxford University Press.

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Gazzola, P, and Mella, P. (2015). Ethics Builds Reputation. International Journal of Markets and Business Systems, 1(1), 38-52. Harrison, J S., and Caron, H.S.J. (1998). Strategic Management of Organizations and Stakeholders: Concepts and Cases. 2nd. ed. Cincinnati: South-Western. Kaplan, R.S., and Norton, D.P. (1992). The Balanced Scorecard. Measures that Drive Performance. Harvard Business Review, 70(1), 71-79. Kaplan, R.S., and Norton, D.P. (1996). The Balanced Scorecard. Translating Strategy into Action. Boston, MA: Harvard Business School Press. Kaplan, R.S., and Norton, D.P. (2001). Transforming the Balanced Scorecard from performance measurement to strategic management. Accounting Horizons, 15(2), 147-160. Keeley, M. (1988). A social contract theory of organizations. Indiana: University of Notre Dame. Luhmann, N. (1995). Social Systems. Stanford, CA: Stanford University Press. Maturana, H.R., and Varela, F.J. (1980). Autopoiesis and Cognition. The Realization of living. Boston: Reidel Publishing. Maturana H. R. and Varela F. J. (1988). The tree of knowledge. Boston, MA: New Science Library. Mella, P. (2005). Performance Indicators in Business Value-Creating Organizations. Economia Aziendale, 2(1), 25-52. Mella, P. (2014). Systems Thinking. Intelligence in Action. Berlin, New York: Springer International Publishing. Mella, P. (2014). The Magic Ring. Systems Thinking Approach to Control Systems. Berlin, New York: Springer International Publishing. Mella, P., and Pellicelli, M. (2008). The Origin of Value Based Management: Five Interpretative Models of an Unavoidable Evolution. International Journal of Knowledge, Culture and Change Management, 8(1), 23-32. Mingers, J. (1994). Self-Producing Systems: Implications and Applications of Autopoiesis. New York: Plenum Publishing. Monod, J. (1970). Chance and Necessity. New York: Vintage Books. Olve, N.G., Roy, J., & Wetter M. (1999). Performance Drivers: a practical guide to using the Balanced scorecard. London/New York: Wiley. Paetau M. (1997). Organizations as self-referential and autopoietic social systems. GMD - FIT-KI Research Focus Culture, Media, Technology. Ranganathan, J. (1999). Signs of Sustainability. In Bennet, M., & James P. (Eds.), Sustainable Measures. Evaluation and Reporting of Environmental and Social Performance (pp.475-495). Sheffield. Greenleaf Publishing. Rappaport, A. (1998). Creating Shareholder Value: A Guide for Managers and Investors. New York: The Free Press. Senge, P. (2006). The Fifth Discipline: The Art and Practice of the Learning Organization. New York, Doubleday. Toffler A. (1985). The Adaptive Corporation. New York: McGraw Hill. Varela, F.J. (1979). Principles of biological autonomy. Boston: Kluwer Academic. Vicari, S. (1991). The firm as a living system. Milan: Etas. Warren, R. (1999). Company legitimacy in the new millennium. Business Ethics, 8(4), 214-224. WCED (1987). Our Common Future. Oxford: Oxford University Press. Zadek, S. (2001). The Civil Corporation. The New Economy of Corporate Citizenship. London: Earthscan. Zeleny, M., and Hufford, K. (1992). The Application of Autopoiesis in Systems Analysis: Are Autopoietic Systems Also Social Systems? International Journal of General Systems, 21(2), 145160.

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Appendix – Control systems in short A variable Yt is “controllable” if, on a temporal, discrete or continuous scale, t=1, 2, …, we can assign it a given value Y* (set-point) which can represent an objective, goal, constraint, or limit of Yt . If Yt ≠ Y*, we can measure a distance, variance or error, indicated by E(Y)t = Y*-Yt . We define Xt as a control variable which determines the values of Yt according to a causal relation (defined by some process or apparatus), so that, by acting on Xt , we can produce a dynamics for Yt that tends toward Y*. We define as a Control System any set of apparatuses, logical or technical (algorithm or machine, rule or structure, etc.) that, for a set of instants, perceives E(Y)t, calculates and assigns the values Xt, and produces the appropriate Yt to gradually annul, when possible, the error E(Y)t = Y*-Yt* at instant t*. The variable Xt (or, if there is more than one variable, the vector [X]) is also defined as the action variable, the control lever, or the active variable. If [X] is composed of N action variables, the system is called a multi-lever control system. We define the manager of the Control System (in the broadest sense of the term) as the subject (individual, group, organ or organization) that, through a series of decisions – based on its particular culture, experience and preferences – can regulate the Xt in order to change the Yt . We define the governance of the system as the process by which the objective Y*, or the vector [Y*], is determined. With multi-lever systems it is fundamental to understand the concept of strategy, which entails programming the activation of the various levers to achieve the objectives. In multi-objective systems the choice of strategy is coupled to the definition of policy; that is, the activity through which the governance and management choose the order of priorities regarding the various objectives. Specifying the control strategies requires introducing the concept of cost–benefit analysis applied to the various levers. Specifying the control policies brings up the notion of a scale of priorities for the various objectives.

Standard Model of a one-lever Control System (Mella, 2014, p.49)

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THE PERFORMANCE-BASED FUNDING SCHEME OF UNIVERSITIES Juha KETTUNEN Turku University of Applied Sciences 30 Lemminkaisenkatu, Turku, Finland [email protected] Abstract. The purpose of this study is to analyse the effectiveness of the performance-based funding scheme of the Finnish universities that was adopted at the beginning of 2013. The political decision-makers expect that the funding scheme will create incentives for the universities to improve performance, but these funding schemes have largely failed in many other countries, primarily because public funding is only a small share of the total funding of universities. This study is interesting because Finnish universities have no tuition fees, unlike in many other countries, and the state allocates funding based on the objectives achieved. The empirical evidence of the graduation rates indicates that graduation rates increased when a new scheme was adopted, especially among male students, who have more room for improvement than female students. The new performance-based funding scheme allocates the funding according to the output-based indicators and limits the scope of strategic planning and the autonomy of the university. The performance-based funding scheme is transformed to the strategy map of the balanced scorecard. The new funding scheme steers universities in many respects but leaves the research and teaching skills to the discretion of the universities. The new scheme has also diminished the importance of the performance agreements between the university and the Ministry. The scheme increases the incentives for universities to improve the processes and structures in order to attain as much public funding as possible. It is optimal for the central administration of the university to allocate resources to faculties and other organisational units following the criteria of the performance-based funding scheme. The new funding scheme has made the universities compete with each other, because the total funding to the universities is allocated to each university according to the funding scheme. There is a tendency that the funding schemes are occasionally improved. The findings of this study are useful for those who wish to modify the funding scheme in the future. Keywords: financing; funding scheme; incentives; performance; university; higher education.

Introduction The long duration of studies and low graduation rates in higher education have attracted attention from Finnish decision-makers who are trying to find solutions to the weak performance of universities. Performance-based funding represents an attempt to encourage universities to improve quality and performance while helping the nation to improve economic growth and employment. The aim of performance-based funding is to motivate institutions to improve their processes of research and education. Previous studies indicate that the effectiveness of performance-based funding is limited (Volkwein & Tanberg, 2008). Public funding represents only a small proportion of the total funding of higher education in many countries, diminishing the steering effect. Finland is an exception, because Finnish universities require no tuition fees in degree education. The performance-based funding scheme has been allocated to the state funding of Finnish universities since the beginning of 2013. While efforts have been made to develop a more transparent and clearer funding scheme in order to increase its steering effect, the elaborate indicator-based system, particularly in the case of Finnish universities, has over the years become increasingly complex because there has been a tendency to introduce new elements to the unsatisfactory scheme (Melin, et al., 2015). The purpose of this study is to describe and analyse the performance-based funding scheme of Finnish universities based on many output-based indicators. The funding scheme is translated to the strategy map of the balanced scorecard approach developed by Kaplan and Norton (2001, 2004). The strategy map reveals that the funding scheme does not pay attention to the research and teaching skills of

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universities. Neither does it encourage universities to increase the funding of education by means other than state funding. The missing indicators of the funding scheme are left to the autonomy of the universities. Results from the United States show that performance-based funding schemes have been unstable and uneven. The study by McLendon, Hearn and Deaton (2006) shows that only half of the states have adopted performance-based funding for higher education, and half of those that adopted performance funding later eliminated it. These poor results have led to the many changes in the amount and criteria of public funding (Dougherty, Natow & Vega, 2012). The balanced scorecard approach is useful, because it aims to balance the perspectives of the customer, financing, processes and structures, and learning and growth. It also makes sure that all the necessary elements are included in the implementation of the funding scheme. Empirical evidence is presented using the data of Education Statistics compiled by the Statistics Finland. The results indicate that unlike in many other countries, the graduation rates in Finland improved when the new funding scheme was adopted. In particular, the graduation rates improved among male students, who on average have lower graduation rates than female students. This notable steering effect can be explained by the fact that there are no tuition fees, and state funding has a notable role in the total overall funding of Finnish universities. In such a situation, universities attempt to improve their processes and structures in order to obtain as much state funding as possible. The remainder of this paper is set up as follows. The next section includes the literature review, which argues that funding schemes in higher education should create incentives for universities, teachers, and students to improve performance. The third section includes data and methodology. It presents the performance-based funding scheme of the Finnish universities and transfers it to the strategy map, which can be used to reveal the unbalanced indicators of the funding scheme. The results and discussion in the fourth section present the empirical evidence about the graduation rates for Finnish universities at the time when the new funding scheme was adopted. The concluding comments are presented in the final section. Literature review The shift of the cost burden from governments to students is a worldwide trend manifested in the introduction or increasing of tuition fees and user charges for food and lodging, along with the diminution of student grants. The phenomenon is seen globally and recently also in Europe, which had for a long time remained a continent where higher education did not commonly require tuition fees. Finland is one of the last bastions where education toward degrees is free from tuition fees. This provides an interesting environment in which to study the performance-based funding scheme, which was adopted in Finnish universities from the beginning of 2013. Most developed countries have subsidized the provision of higher education and applied funding schemes which rely on contributions from students. The problem with tuition fees is that some of the students may be unable to pay them, and even if loans are available, education is often viewed as a risky investment, which can hinder participation. Funding schemes that rely on income-contingent loans provide insurance against uncertain educational outcomes (Del Rey & Racionero, 2010). Loans, when offered, should be large enough to cover tuition fees and living costs. Chapman (2006) considered the following funding schemes: 1) the traditional tax-subsidy system where the cost of education is financed by general taxes, 2) pure loans, where each student pays for her or his own education, 3) income-contingent loans with risk-sharing, where successful graduates pay the full cost of their education but the cost to educate unsuccessful students is financed by general taxes and is, hence, shared by the whole population, and 4) income-contingent loans with riskpooling, where successful students pay the full cost of the education of their cohort. Repayment can

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be income contingent or limited to a certain percentage of earnings, income surtax, or additional tax on income until the loan has been repaid (Johnstone, 2004). Finland offers income-contingent loans for living costs financed by general taxes. García-Peñalosa and Wälde (2000) show that, when education outcomes are uncertain and the degree of risk aversion is large enough, income-contingent loans with risk-pooling are better than either pure loans, because they provide greater insurance, or income-contingent loans with risk-sharing, because they do not involve any redistribution from non-students to students. Del Rey and Racionero (2010) also agreed with these results and found that the income-contingent loans provide a system with the largest insurance. The arguments for funding higher education via lower state funding and higher tuition fees largely rest on the slow economic growth, which forces central governments to cut expenditures on higher education. Vandenberghe and Debande (2008) estimated how higher tuition fees influence graduates’ private return on educational investment using data from Belgium, Germany, and the United Kingdom. They found that increasing tuition fees and costs of higher education does not significantly affect the private rate of return. The introduction and increase of tuition fees shifts the cost burden from the public sector to students. The educational ambitions of students depend on their social background (Holm & Jaeger, 2008). The proportion of students from disadvantaged backgrounds is lamentably small and the public funding comes from general taxation while the major beneficiaries come from better-off backgrounds (Barr, 2005). When students and their families pay little or nothing, either in tuition or for food or lodging, the students may be too tempted to remain in that status for a very long time, denying society and the economy the advantages of their potential productivity and presumed enhanced usefulness, whether to themselves or to the state. However, with a little cost sharing in the form of tuition fees and other costs, a much greater incentive is at least presumed to be on the part of the student to study hard and graduate on time (Johnstone, 2004). Tuition fees and income-contingent loans with risk-pooling is one option which can be considered in Finland in the future. The duration of studies is a great challenge to Finnish education policy, because the duration of higher education studies in Finland is among the longest in the countries of the Organisation for Economic Cooperation and Development (OECD). In 2013, the median time to master’s degree completion at universities was 6.5 years (Melin et al., 2015). The Finnish funding scheme relies on the myth that all universities are identical, should act identically, and should therefore be funded equally, and therefore can be questioned, but differential central funding is too complex to be the only mechanism. Barr (2005) argues that universities could institute a funding system by which institutions can charge to reflect their different costs and missions. Universities could collect the fees, which are covered by a loan entitlement. Students receive substantial benefits without tuition fees. It is therefore efficient and fair that they bear some of the costs (Barr, 2009). Tuition fees give universities more resources to improve quality and help improve efficiency, but an obvious argument is that fees deter students from poor backgrounds to be saddled with income-contingent loans. Political objectives are implemented by public funding and, in many cases, by performance-based funding schemes. The political decision-making tries to implement incentives to improve performance and establish sanctions for poor outcomes (Alexander, 2000; Burke, 2002; Herbst, 2007; Layzell, 1999; McLendon et al., 2006). Performance funding emphasises the importance of public accountability and dilutes the scope of institutional autonomy (Alexander, 2000; Dunn, 2003; Huisman & Currie, 2004; Lane, 2007). The weakening of institutional autonomy subsequently reduces the importance of strategic management at the institutions. Public accountability and performance-based funding schemes have largely failed to achieve any real improvements in student outcomes. Volkwein and Tandberg (2008) present empirical evidence about

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failed accountability policies and government reforms in the United States using the dataset from 2000 to 2006. In addition, the study by Nisar (2015) found that paying for performance in most impact assessment studies have shown that such accountability policies have had a limited effect on the performance of higher education institutions in the United States. Moreover, the study by Dougherty and Reddy (2013) indicates that the underlying theory of performance-based funding is not well understood or articulated and it has done little to improve educational outcomes. One of the reasons is that performance-based funding represents only a small share of the total funding with tuition fees and other income. In addition, the role of teachers and other staff has not been fully analysed. The performance-based funding scheme may not be efficient to increase incentives, because the autonomous teachers may not be interested in the general objectives of education policy and the university if they do not receive any personal benefits from the increased funding. The performancebased funding scheme is also unable to create incentives for students to be efficient and graduate by the scheduled time. Students’ incentives cannot be improved solely by the performance-based funding scheme, but the literature suggests income-contingent loans for the relevant funding mechanism. Data and methodology The challenges of Finnish education and science policy include internationalisation, doctoral education, late starting time in higher education, the long duration of studies, and the quality of research infrastructure. Small organisational units, the innovative working environments of institutions, and lack in risk taking have been seen as elements affecting the low quality of activities. The incoherence, low focus, and differentiation of higher education institutions have been seen as obstacles to high quality. The Government Programme states that the funding scheme should be renewed to better support the objectives of education policy such as completion of studies, faster transition to working life, the intensification of administration, the improvement of quality in education and research, internationalisation, and the stronger profiling of institutions to their focal areas. The funding scheme of universities aims to improve the achievement of the political objectives at the universities. The performance-based funding scheme creates prerequisites for the main tasks of universities, which include education towards degrees and research affecting the societal relationship and external impact of the university. It is natural that the funding scheme should include funding criteria that describe the main tasks of institutions. Additional funding is available for research, but less so for education, because Finland has no tuition fees in degree education. The purpose of the funding scheme is to create stability for the universities so that the funding is based on the average performance of the previous three years. Each university knows the next year’s funding in its budget because funding is based on the calculation of the criteria of three previous years. Another purpose is the efficiency and effectiveness, which are implemented by output indicators. Most of the funding criteria are based on the results achieved by universities. The funding of the education and science policy is agreed for the period of performance agreement, which is four years. The funding of education is based on the number of master’s degrees agreed upon for the period of the performance agreement. The agreed-on numbers of degrees are upper limits for the performance funding and make sure to achieve the needs of society. With 55 European Credit Transfer System (ECTS) credits annually, the funding scheme also spurs the efficiency of the education process to shorten the duration of studies and increase the number of degrees awarded. The employment of graduates is also taken into account. The student exchange encourages incoming and outgoing students to have at least three months’ mobility.

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The funding of publications is based on the quality criteria. The Publication Forum of the Federation of Finnish Learned Societies maintains and develops the classification of scientific publication channels. It has a rating system of one (basic), two (leading) and three (top) to classify the quality of articles. Monographs also have a category, which has a weight of four. The number of doctoral degrees is classified in research with a notable weight in the funding scheme and is agreed upon as an upper limit in the performance agreements. The funding scheme encourages an institution to increase the competition for external funding for research, because state funding is not sufficient for all the necessary research. The scheme also encourages institutions to increase the number of foreign teaching and research staff and doctoral degrees to foreign students. The funding of education and science policy aims to create a high international profile, the implementation of institutional strategic plans, and the national tasks of institutions such as appliance intensiveness and education in small groups. This funding aims to encourage institutions to make structural changes to bigger units and other aims of the education and science policy. The funding also includes funding specific requirements in the more expensive fields of education such as appliance intensiveness in natural sciences, technology, and medicine, and expensive education in arts education. It also supports the National Library of Finland and Teacher Training Schools. The performance-based funding scheme means that universities are competing with each other. This is based on the fact that the annual state budget allocates a certain amount of funding for the university sector, and the funding is allocated for universities based on their performance. If a university improves its performance of the indicator more than others, the university is able to increase its funding on the basis on that criteria. The other indicators allocate funding in a similar way. The development of all the indicators and their weights determines the total funding. It is ideal for any university to keep its business secret about how to improve their efficiency when competing with other universities. Figure 1 describes the performance-based funding scheme of Finnish universities from the beginning of 2013. The funding scheme is a matrix where education, research, and education and science policy are described by the horizontal shapes while the external impact, quality, and internationalisation are described by the vertical columns. The crossroads of horizontal and vertical shapes include 15 criteria of the funding scheme. The weight of education is 41%, research 34%, and education and science policy 25%.

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Figure 1. The performance-based funding scheme of Finnish universities from the beginning of 2013

Education policy is a political plan for a better future. The strategic plan is an institutional blueprint which takes into account education policy and designs a better future. The strategic plans are commonly implemented and communicated using balanced scorecards developed by Kaplan and Norton (2001, 2004). The balanced scorecard approach has been widely implemented in higher education (Kettunen, 2008, 2011, 2015). Hence the balanced scorecard can be applied in education policy and the performance-based funding scheme. Figure 2 depicts the strategy map of the performance-based funding scheme of Finnish universities. The strategy map developed in this study includes the perspectives of customers, financial, processes and structures, and learning and growth, along with causal linkages between them. The strategy map is a useful tool for making sure that all the necessary and relevant elements are included in the future planning. Hence it can reveal elements that can be included in the scheme in the future, when it is better, developed to meet the needs of education policy and the reality of universities.

Challenges of Strategic Management

Student and employer satisfaction Employed graduates 1%

Customer

Financial

Processes and structues

Learning and growth

119

  Funding for research  Competed research funding 9% 

Research Doctoral degrees 9% Publications 13% Foreign teaching and research staff 2%

Education and science policy Strategy  funding 10% National  activities 7%

Research skills

 

Funding for education Field-based funding 8%

Teaching Master’s degrees 15% Bachelor’s degrees 9% Credits from the Open University 2% Students achieved 55 credits 11% Master’s degrees to foreign students 1% Doctoral degrees to foreign students 1% Student exchange 2%

Teaching skills

Figure 2. The performance-based funding scheme of Finnish universities placed in the strategy map

The customer perspective includes only the number of employed gradates with a small weight of 1%. When the funding scheme described in this study was initially planned, there were plans to also include feedback from students in the funding scheme, but there were statistical difficulties including the feedback indicator in the scheme and therefore that was left for future development. The financial perspective includes the objectives “funding for research” and “funding for education”. The funding for research is obtained from the frame programme Horizon 2020 of the European Union, international foundations and funds, the Academy of Finland, the Finnish Funding Agency for Innovation (Tekes) and various companies. Funding for degree education comes entirely from the state. The funding for continuing education and service to society is not included in the funding scheme, but it only includes the field-based funding of expensive education with a weight of 8%. The processes and structures perspective depicts the innovation chain from research to support services and structures (education and science policy) and finally teaching. The research process includes the research indicators with a total weight of 25%, support services and structures with a weight of 17%, and teaching, which has the highest weight of 40%. Criticism can be presented on the placement of the number of doctoral degrees and on the number of doctoral degrees of foreign students. They are not only doing research but also receiving education at the same time. Another criticism can be presented on the foreign teaching and research staff, which partly belongs to teaching. The learning and growth perspective is non-existent in the funding scheme. The perspective does not have any indicators included in the funding scheme. One of the key issues of the balanced scorecard approach is that it is an extension of accounting and action plan to also include learning and growth, which is important in the knowledge economy, especially in knowledge-intensive organisations. The funding scheme also does not pay any attention to the knowledge and skills of teachers and research staff, even though they are important drivers of the external impact, quality, and internationalisation. The knowledge and skills are left to the autonomy of universities. There is no obligatory teacher training at Finnish universities.

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Results and discussion The central statistical office of Finland, Statistics Finland, published Education Statistics concerning the years 2012-2013, when the new performance-based funding scheme was introduced. The reform of the new system was well known at the universities beforehand, because the rectors of the universities and many other people were involved in the planning of the funding scheme. Hence the universities had time to adapt to the new system even though the teachers and other staff of the universities value autonomy and inevitably have some degree of resistance to change. Table 1 depicts the graduation rates of students at bachelor’s or master’s degree level at Finnish universities in 2012 and 2013 by gender and measured at 4.5 and 5.5 years of study. The results indicate that graduation rates have increased at the 4.5 years of study mark. The most notable effect was seen among male students. The graduation rates did not, however, change notably at 5.5 years of study. It is also noteworthy that female students clearly achieve higher graduation rates than male students. Later years will provide more evidence about the graduation rates, but at this stage we can conclude that these preliminary results support the argument that the performance-based funding scheme promotes more rapid graduation. Table 1. The graduation rates at bachelor’s and master’s degree levels at Finnish universities in 2012 and 2013

Length of study

Gender

4.5 years

Men

36.9

40.2

Women

58.6

59.3

Men

49.6

49.4

Women

68.8

69.0

5.5 years

Graduation rate 2012, % Graduation rate 2013, %

The steering effect and clarity of the funding scheme depend on the potential of universities to influence the funding criteria. The national funding scheme has a stronger effect in Finland than in many other counties, because higher education in Finland has no tuition fees. Hence, the funding scheme limits the scope of the universities’ autonomy. It also limits the scope of strategic decisionmaking for the university, which must carefully follow the funding scheme if it wants to secure as much state funding as possible. Performance-based funding has also diminished the importance of performance agreements between the university and the Ministry of Education and Culture. Funding is targeted to universities according to the performance-based funding scheme. The university is able to allocate the funding to faculties and support services as they choose. If the central administration of the university uses its own funding scheme that is entirely different from the national funding scheme, that does not create incentives to behave according to the national funding scheme. Therefore, it is optimal for the central administration to use the national funding scheme when it allocates resources to the various organisational units of the university. Quality is a notable element in the funding scheme. It is meaningful, however, to note that the funding scheme does not pay attention to the quality audit of the national quality assurance agency. The quality assurance systems of the Finnish universities are audited every sixth year by the Finnish Education Evaluation Centre, which is the national quality assurance agency. If the university does not pass the quality audit, it will be re-audited after two or three years, but this does not affect the funding of the university.

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Conclusions and implications This study analysed the performance-based funding scheme of Finnish universities adopted from the beginning of 2013. The new funding system brought a notable amount of output measures to the funding scheme, which aims to improve performance and quality in higher education. The study is interesting because Finland is one of the few remaining countries that have no tuition fees for higher education. Compared with other countries where public funding has only a minor share of the total funding, the Finnish system has larger incentive effects on efficiency and effectiveness. The importance of strategic planning and performance agreements between the university and the Ministry has diminished due to the indicator-driven performance-based funding system of the universities. It is optimal for universities to improve processes and structures to achieve as much public funding as possible. It is also best for the university to allocate resources to the faculties and other organisational units following the criteria of the state funding. The funding scheme forces universities to compete with one other. The performance-based funding scheme was translated to the strategy map of the balanced scorecard approach, which is able to make certain that all the necessary elements are included in the scheme. The strategy map revealed that the Finnish funding scheme does not cover research and teaching skills but leaves them to the autonomy of the universities. The funding scheme does not include any output measures in the funding of education even though continuing education and service to society are potential activities to collect external funding. The empirical investigation demonstrates that graduation rates have increased at the bachelor’s and master’s levels since the new funding scheme was adopted. The Education Statistics of the central statistical office show that the increase was found at 4.5 years of study. Graduation rates overall are higher among female students, but the increase in graduation rate was notable among male students, who have more room for improvement. At 5.5 years of study, there were no notable changes in the graduation rates. These results support the argument that the performance-based funding scheme is able to affect the graduation rate. References Alexander, F.K. (2000). The Changing Face of Accountability: Monitoring and Assessing Institutional Performance in Higher Education. The Journal of Higher Education, 71(4), 411431. Barr, N. (2009). Financing Higher Education: Lessons from Economic Theory and Reform in England. Higher Education in Europe, 34(2), 201-209. Barr, N. (2005). Financing Higher Education. Finance & Development, 42(2), 34-37. Burke, J.C. (2002). Funding Public Colleges and Universities for Performance: Popularity, Problems, and Prospects. Albany, NY: Rockefeller Institute Press. Chapman, B. (2006). Income Contingent Loans for Higher Education: International reforms. In: Hanushek, E.A., and Welch, F. (Eds.), Handbook on the Economics of Education (pp.14351503). Amsterdam: North Holland. Del Rey, E., and Racionero, M. (2010). Financing Schemes for Higher Education. European Journal of Political Economy, 26(1), 104-113. Dunn, D.D. (2003). Accountability, Democratic Theory, and Higher Education. Educational Policy, 17(1), 60-79. Dougherty, K.J., Natow, R.S., and Vega, B.E. (2012). Popular But Unstable: Explaining Why State Performance Funding Systems in the United States Often Do Not Persist. Teachers College Record, 114(3), 1-42. Dougherty, K.J., and Reddy, V. (2013). Performance Funding for Higher Education: What Are the Mechanisms? What are the Impacts?. ASHE Higher Education Report, 39(2). Retrieved from http:// onlinelibrary.wiley.com/doi/10.1002/aehe.v39.2/issuetoc.

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García-Peñalosa, C., and Wälde, K. (2000). Efficiency and Equity Effects of Subsidies to Higher Education. Oxford Economic Papers, 52(4), 702-722. Herbst, M. (2007). Financing Public Universities: The Case of Performance Funding. Berlin: Springer. Holm, A., and Jaeger, M.M. (2008). Does Relative Risk Aversion Explain Educational Inequality? A Dynamic Choice Approach. Research in Social Stratification and Mobility, 26(3), 199-219. Huisman, J., and Currie, J (2004). Accountability in Higher Education: Bridge over Troubled Water? Higher Education, 48(4), 529-551. Johnstone, D.B. (2004). The Economics and Politics of Cost Sharing in Higher Education: Comparative Perspectives. Economics of Education Review, 23(4), 403-410. Kaplan, R., and Norton, D. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston: Harvard Business School Press. Kaplan, R., and Norton, D. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston, MA: Harvard Business School Press. Kettunen, J. (2008). A Conceptual Framework to Help Evaluate the Quality of Institutional Performance. Quality Assurance in Education, 16(4), 322-332. Kettunen, J. (2011). Strategy and Quality Maps in Higher Education. US-China Education Review, 8(2), 149-156. Kettunen, J. (2015). Stakeholder Relationships in Higher Education. Tertiary Education and Management, 21(1), 56-65. Lane, J.E. (2007). The Spider Web of Oversight: An Analysis of External Oversight of Higher Education. The Journal of Higher Education, 78(6), 615-644. Layzell, D.T. (1999). Linking Performance to Funding Outcomes at the State Level for Public Institutions of Higher Education: Past, Present, and Future. Research in Higher Education, 40(2), 233-246. McLendon, M.K., Hearn, J.C., and Deaton, S.R. (2006). Called to Account: Analyzing the Origins and Spread of State Performance-Accountability Policies for Higher Education. Educational Evaluation and Policy Analysis, 28(1), 1-24. Melin, G., Zuijdam, F., Good, B., Angelis, J., Enberg, J., Fikkers, D.J., Puukka, J., Swenning, A., Kosk, K., Lastunen, J., and Zegel, S. (2015). Towards a Future Proof System for Higher Education and Research in Finland. Publications of the Ministry on Education and Culture, Finland 2015:11. Retrieved from http://www.minedu.fi/OPM/Julkaisut/2015/higher_education.html?lang=en. Nisar, M. (2015). Higher Education Governance and Performance Based Funding as an Ecology of Games. Higher Education, 69(2), 289-302. Vandenberghe, V., and Debande, O. (2008). Refinancing Europe's Higher Education through Deferred and Income-Contingent Fees: An Empirical Assessment Using Belgian, German and UK Data. European Journal of Political Economy, 24(2), 364-386. Volkwein, J., and Tandberg, D. (2008). Measuring Up: Examining the Connections among State Structural Characteristics, Regulatory Practices, and Performance. Research in Higher Education, 49(2), 180-197.

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MANAGING ORGANIZATIONAL LEARNING AS A CHALLENGE IN STRATEGY Adrienn FERINCZ Corvinus University of Budapest Fővám tér 8, 1093, Budapest, Hungary [email protected] Lilla HORTOVÁNYI Corvinus University of Budapest Fővám tér 8, 1093, Budapest, Hungary [email protected] Abstract. The proposed paper is a comprehensive literature review in entrepreneurial management with a focus on organizational learning. The aim of the paper is to organize and clarify the diverse aspects of the field and enhance our understanding of the potential roles of the entrepreneur and entrepreneurship in organizational learning. Authors propose that the entrepreneur inside the organization is the source, the trigger of organizational changes. The entrepreneur’s way of thinking and learning affect the organizations learning mechanisms. This entrepreneur can be the owner-manager at the enterprise, but also can be a middle-manager with innovative way of thinking and good ideas. The entrepreneurial manager is the driver of both organizational learning and change. The topic of interest lies in the intersection of the two fields: entrepreneurial management and organizational learning. There were earlier attempts to collect the different interpretations of entrepreneurial learning. One of the most comprehensive is Erdélyi’s (2010) who tried to differentiate between studies based on their research focus – within what scope the researcher investigated entrepreneurial learning –, and identified individual studies, organizational level studies and macro level studies. However, this categorization is easy to understand and good for separate different studies, it is limited only to investigating the scope where (on what level) the researcher examines the entrepreneurial learning phenomenon. There is a gap in the literature as there are several interpretations of entrepreneurial learning in the existing literature without any unified conception what entrepreneurial learning is. Authors seek answers for the following questions: (1) what can entrepreneurial learning mean inside an organization? (2) What are the similarities and differences between entrepreneurial learning and organizational learning? (3) How can change be interpreted across the four different research areas? Based on the literature review authors formulated a research model that highlights a research gap and identifies four different interpretations of entrepreneurial learning. Keywords: entrepreneurial learning; organizational learning; corporate entrepreneurship; individual learning; intuition.

Introduction The entrepreneurial learning concept is an emerging area of literature at the intersection of organizational learning and entrepreneurship. Thanks to this complexity, the literature is diverse, and contains several interpretations of entrepreneurial learning, drawing on both areas. According to Erdélyi (2010), there are only few entrepreneurial learning researchers who are immersed in both research areas, so there is no unified concept of entrepreneurial learning. In the authors’ interpretation, this lack of holistic conception is not a problem but instead highlights that there are some research areas with unanswered questions. To introduce these questions, this paper starts by exploring the different entrepreneurial learning interpretations in the literature. Afterwards authors give an overview of the different aspects of the entrepreneurial learning phenomena based on a comprehensive examination of the existing literature. This results in a research model that identifies four different interpretations of entrepreneurial learning.

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Literature review Collection of entrepreneurial learning perspectives Erdélyi (2010) made a detailed review of this topic and summed up the main results of entrepreneurial learning studies. In his opinion, the roots of entrepreneurial learning lie in the late 1980s and early 1990s. Studies in this period discussed the diffusion of innovation (Attewell, 1992; Van De Ven & Polley, 1992) or the role of networks in the entrepreneurial process in terms that imply some forms of learning (Birley, 1985; Dubini & Aldrich, 1991; Larson, 1991; Powell et al., 1996). The true concept of entrepreneurial learning, however, only began to emerge in the late 1990s. Based on this, the authors’ conclusion is that the main roots of this research area are in entrepreneurship rather than organizational learning. Erdélyi (2010) separated entrepreneurial researches into two main groups. The first examined entrepreneurial learning as personal learning, and the second conceived it as collective learning. Table 1 shows this categorization. Table 1. Different perspectives of entrepreneurial learning (based on Erdélyi, 2010) Example of authors Management learning Personal learning

Collective learning

Management education Individual firm Network

As experiential learning

Deakins et al. (2000)

As cognitive process

Crossan et al. (1999)

In the workplace

Lans et al. (2008)

Role of educational institutions

Wee (2004)

Role of government agency

Rae (2007)

SME, R&D unit

Van De Ven and Polley (1992)

Local network

Dubini and Aldrich (1991)

National systems of innovation

Lundvall (1992)

The personal learning perspective can be divided into two main groups. The first includes research that takes entrepreneurial learning as a form of management learning (Deakins et al., 2000). In this field, experiential learning has a strong influence. Within the personal learning perspective, there is an approach that tries to capture the opportunity-recognition process and focuses on the entrepreneur’s perception mechanisms during business opportunity identification and decision-making processes. In the second perspective, of learning as a cognitive process, researchers combine cognition with other approaches such as experiential learning (Corbett, 2005, 2007), the 4I framework of Crossan et al. (1999), or the psychological theories of creativity (Lumpkin & Lichtenstein, 2005). Under the personal learning perspective, there is a particular subset of research that examines entrepreneurial learning from an educational perspective. Researchers within this perspective try to find answers to questions such as whether entrepreneurship can be taught, and if so, how (Lans et al., 2008; Lans & Mulder 2009; Kempster & Cope 2010). Within the collective learning perspective, three main subgroups are considered. The first examines entrepreneurial learning at the individual firm level (especially SME or R&D units). The second focuses on inter-organizational networks, and the third investigates national innovation systems. In Erdélyi’s (2010) interpretation, the organizational context is determinant, and much more important than the examination of personality or cognition of the individual entrepreneur. At the individual firm level, there are new thoughts about exploration, organizational learning as adaptation, innovation development, and the learning organization. By broadening the scope of entrepreneurial learning, this collective perspective is more interested in the internal mechanisms of learning that lead to organizational learning.

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First the authors give an overview of the individual approaches of entrepreneurial learning in the existing literature. The aim is to highlight that both individual and collective approach need to be examined parallel to capture the real nature of learning in entrepreneurial organizations. Relationship between the individualistic and organizational approach This section examines the learning of the entrepreneur and the entrepreneurial organization separately. The relationship between the two, however, is a very interesting research area. Warren (2004) proposed some challenges around the concept of the owner-manager. In the authors’ interpretation, this narrow focus is not necessary, because the causes of the problems do not lie in the proprietorship. Authors therefore use the construct of an entrepreneur instead of owner-manager. According to Warren (2004, p.7), the entrepreneur’s “learning processes must be effective in terms of personal development, and also impact successfully on the enterprise. Thus, successful adaptation of the enterprise is inseparable from, and is to some extent an emergent property of, the entrepreneur’s learning”. The entrepreneur has a pervasive influence on the learning ability of the firm, and his/her willingness to encourage learning in the organization greatly influences organizational learning (Chandler & Hanks, 1998; Stanworth & Curran, 2000; Jones & Macpherson, 2006). As the organization grows, painful learning crises can result if the personal learning and development of the entrepreneur lags behind the managerial requirements of a growing organization (Cope & Watts, 2000). With a maturing enterprise boundary, the entrepreneur must delegate and control, including about learning. Middle managers play a significant role in vertical organizational communication, learning and knowledge sharing (Csepregi, 2012; Gaál et al., 2012; 2013). This delegation to middle managers can be a problem when the entrepreneur dominates the organization, relying on direct authority and high levels of informality (Rothwell, 1992; Vossen, 1998; Jones & Macpherson, 2006). These problems and challenges are strongly related to the entrepreneur–manager discrepancy. As the entrepreneurial organization grows, internal processes and systems emerge and the organizational members begin to specialize. The organization begins to develop separately from the entrepreneur, as tasks and responsibility are delegated (Stevenson, 2006). In this period, “highly creative entrepreneurs are sometimes unable, or unwilling to meet the administrative challenges that accompany the growth stage. As a result, they leave the enterprise and move on to other ventures” (Kuratko, 2009, p.374). Entrepreneurial activity is a type of behavior and administrative management is different from entrepreneurial management. Administrative managers focus on everyday work and operate the organization using routines. Entrepreneurs focus on directing and modifying market processes, search continuously for new ideas and opportunities and try to realize and exploit these new opportunities (Stevenson, 2006). The entrepreneur aims for fast growth. An entrepreneurial culture therefore encourages employees to seek new opportunities and does not penalize failure (Szerb & Márkus, 2014). “An effective entrepreneur is not one who, from the outset, is able to plan a particularly effective organizational form, but one who is able to make an organization responsive to new information and reactive towards new opportunities” (Hortoványi, 2012, p.34). One of the most well-known ideas in this area is Schumpeter’s (1980) claim that the entrepreneur ceases to be an entrepreneur as he/she starts to manage his/her enterprise. This statement places a negative slant on management. It also suggests that the entrepreneur will struggle to manage the organization. The conclusion is that only those entrepreneurs who are able to find the balance between being an entrepreneur and a manager will succeed in moving to the next stage. “Adaptive firms need to retain certain entrepreneurial characteristics to encourage innovation and creativity. The entrepreneur needs to translate this spirit of innovation and creativity to his or her personnel while

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personally making a transition toward a more managerial style. Remaining entrepreneurial while making the transition to some of the more administrative traits is vital to the successful growth of a venture.” (Kuratko, 2009, p.378). The shift and balance between entrepreneur and manager is also crucial to organizational performance and organizational learning. However organizational learning is a separated research area, some entrepreneurial learning perspectives encompass the effect of the entrepreneur on the organization’s learning processes, which is huge. According to Quinn (1978), entrepreneurs are facilitators of organizational learning. Authors therefore think it is important to examine in parallel entrepreneurial and organizational learning, looking at the intersection of the individual and firm level. To authors’ mind, the intersection of entrepreneurial and organizational learning is an interesting and underresearched area. Individual aspects of entrepreneurial learning Holcomb et al. (2009) used the term ‘entrepreneurial learning’ in both a descriptive and qualitative sense. The descriptive sense refers to learning by people known as entrepreneurs, while the qualitative sense refers to a type of learning process by which managers recognize learning opportunities. Authors will introduce these two approaches separately and then highlight interesting research questions about the different aspects of entrepreneurial learning. Descriptive sense - learning of the entrepreneur The descriptive aspect of entrepreneurial learning uses certain assumptions: “Learning is not an optional extra, but is central to the entrepreneurial process: Effective entrepreneurs are exceptional learners. They learn from everything. They learn from customers, suppliers, and especially competitors. They learn from employees and associates. They learn from other entrepreneurs. They learn from experience. They learn by doing. They learn from what works, and more importantly, from what doesn’t work.” (Smilor, 1997, p.344). Learning plays pivotal roles in the new venture creation process, from developing the competencies needed to start a new venture (Erikson, 2003) to recognizing opportunities and coping with the challenges of the external environment (Cope & Watts, 2000; Harrison & Leitch, 2005; Politis, 2005; Fayolle & Gailly 2008). According to Bagheri and Pihie (2011), the majority of entrepreneurial learning definitions are based on different aspects of the experiential learning model (Kolb, 1984), including experimentation, conceptualization, reflection and experience (Pittaway & Cope, 2007). Politis (2005) identified three main components in the process of entrepreneurial learning. These were (1) entrepreneurs’ career experience, (2) the transformation process, and (3) entrepreneurial knowledge, which encompasses recognizing and acting on entrepreneurial opportunities and coping with the liabilities of newness. In this interpretation, entrepreneurial learning also focuses on the individual learning process of the entrepreneur. Rae and Carswell (2000) looked at entrepreneurial learning as the cognitive processes of gaining and structuring knowledge as well as giving meaning to experiences. In the model of Holcomb et al. (2009), entrepreneurial learning includes two types of experiential learning, direct and vicarious. According to Bagheri and Pihie (2011), there is a strong belief that entrepreneurial learning is an action-orientated process through which entrepreneurs experience the various phases of business creation and management. They suggested that entrepreneurial learning has four dimensions, experience, reflection, social interaction and observation. Based on other works (Cope & Watts, 2000; Cope, 2003), Bagheri and Pihie (2011, p.455) proposed that reflective learning was the most significant learning mechanism for entrepreneurs, because it “creates fundamental changes in their self-awareness and insights on how to manage their business effectively”.

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Cope defined (2005) five types of learning for entrepreneurs: (1) learning about oneself, (2) learning about business, (3) learning about the environment and entrepreneurial networks, (4) learning about small business management and (5) learning about natural and management relationships. The last two have been largely excluded from entrepreneurial learning research, thank to the focus on the second and third. There is, therefore, a huge need for research on the entrepreneur's learning about how to run and control the business effectively, and the relationship between internal and external elements. According to Harrison and Leitch (2007), entrepreneurial learning is still fragmented. There are therefore, a number of areas of learning in the context of entrepreneurship and the development of small and medium enterprises (SMEs), for example: - New venture creation (Lichtenstein, Lumpkin & Walton, 2000; Erickson, 2003); - SME growth and development (Wyer, Mason & Theodorakopoulos, 2000); - Innovation (Ravasci & Turati, 2005); - New technology-based firm formation (Fontes & Coombs, 1996); - Venture capital (Busenitz, Fiet & Moesel, 2004); - Enterprise training and learning capability (Chaston, Badger & Sadler-Smith, 1999; Rae & Carswell, 2000, Szabó et al., 2011); and - Applications of the learning organization construct in SMEs (Choueke & Armstrong, 1998). In spite of this fragmentation authors think there are still research areas that have unanswered questions on the learning of the entrepreneur. Qualitative sense – Opportunity recognition and intuition In the qualitative sense, entrepreneurial learning is a way of thinking, in particular about opportunity recognition and intuition. Crossan and colleagues defined a learning process starting with individual intuition (Crossan et al., 1999; Dutta & Crossan, 2005). They identified two kinds of intuition: expert and entrepreneurial intuition (see Table 2). Table 2. Comparison of expert and entrepreneurial intuition (based on Crossan et al., 1999, pp.528-529) Expert intuition Entrepreneurial intuition Process of recognizing past pattern The expert no Capability to make novel connections, perceive new longer has to think consciously about action or emergent relations and discern possibilities that have not been identified previously. Rooted deeply in individual experience that Relation to innovation and change hardly can be explained and examined Past oriented Future oriented Supports exploitation activity Supports exploration activity

Dutta and Crossan (2005) matched expert intuition with what they described as the ‘Kirznerian approach’ and the entrepreneurial intuition with the ‘Schumpeterian approach’: “The Kirznerian entrepreneur is essentially concerned with restoring balance in the economy by embarking on entrepreneurial opportunities that arise out of knowledge and of information asymmetries among its constituents. In contrast the Schumpeterian entrepreneur is primarily involved in a process of creative destruction in which entrepreneurial opportunities arise essentially as a result of a disequilibrating action of the entrepreneur” (Dutta & Crossan, 2005, p.432).

Lecher and Kinghorn (2014) used this approach to compare expert and entrepreneurial learning based on three factors: (1) opportunity recognition, (2) opportunity realization and (3) problem-solving strategy. Based on this comparison authors suggest:

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- Expert learning has similar characteristics to single-loop learning (Argyris, 1977) because of the non-conscious and path-dependent attributes; and - Entrepreneurial learning is similar to double-loop learning (Argyris, 1977) due to the path-breaking nature, and its search for new and better ways of working. The characteristics of expert intuition and learning are outside the qualitative sense of entrepreneurial learning, but these processes can also be characteristic for the entrepreneur. Zoltayné (2006) investigated bounded rationality and the role of intuition in decision-making. Intuition is usually defined as knowing or sensing something without the use of rational processes. Gladwell (2005) defined it as: “The moments when we know something without knowing why”. He said that there are decisions that cannot be explained rationally and the brain has an adaptive subconscious part that works in a special way. This kind of intuition resembles expert intuition. In authors’ opinion, entrepreneurial intuition has a dominant role in entrepreneurial learning and entrepreneurship. It is, however, also interesting to investigate expert intuition, especially when the entrepreneur has to manage his or her firm. Discussion Entrepreneurial learning bears the marks of both entrepreneurship and learning. To define my research interest, I created a model (see Figure 1) of these two dimensions. The first dimension covers the interpretation of the entrepreneurial aspects of entrepreneurial learning. The word entrepreneurial can be related to the person who learns (descriptive sense) or the way of thinking, which is strongly connected to opportunity recognition and intuition (qualitative sense). The second dimension is the learning part, which can be seen as individual or organizational. This dimension considers which part of learning is the focus of the research. Figure 1 shows this model and Figure 2 the most relevant questions and challenges along each part. Entrepreneurial part Qualitative sense: a type of a learning process

Entrepreneurial learning as the entrepreneurial intuiting and way of thinking in individual learning

Descriptive sense: learning by people known as entrepreneurs

Entrepreneurial learning as the learning process of the entrepreneur

Entrepreneurial learning as entrepreneurial intuiting and way of thinking in organizational learning Entrepreneurial learning as the learning process of the entrepreneur and its effects on organizational learning

Individual

Organizational Learning part

Figure 1. Interpretation of entrepreneurial learning across 2 dimensions

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Entrepreneurial part Qualitative sense: a type of a learning process

Descriptive sense: learning by people known as entrepreneurs

What cognition does characterize the entrepreneurial way of thinking and learning? Why are entrepreneurs different in regard of learning? How does the entrepreneur learn? How can an entrepreneur build up his/her enterprise with the help of his/her own learning?

How can an organization explore new opportunities? How can it enhance entrepreneurial way of thinking and learning in existing organizations? How does the entrepreneur affect the organization’s learning processes? How can the organization get through internal and external challenges with the help of organizational learning?

Individual

Organizational Learning part

Figure 2. Most relevant research questions across the dimensions of entrepreneurial learning

Authors propose to focus on the relationship between the learning of entrepreneur and organization (boxes colored grey in Figure 1 and 2). Authors have not been able to find much prior research on this area. Erdélyi’s (2010) categorization of personal learning as a cognitive process can be linked to individual learning in the qualitative sense. Likewise, personal learning as management learning can be mapped to individual learning in the descriptive sense in my model. In Erdélyi’s (2010) work, the individual firm category can be mapped onto the organizational dimension in the authors’ model. This work, however, mostly covers the qualitative interpretation and not the intersection of entrepreneurial and organizational learning. In regard of change this paper proposes that the individual parts of this model means in qualitative sense a cognitive change and in the descriptive sense the change of the entrepreneur’s behavior based on his/her experience. The organizational part means change at organizational level. Authors assume that in the qualitative sense of entrepreneurial learning change means cognitive change, double-loop learning in strategy and exploration activities. On the other hand they presume that in the descriptive sense of entrepreneurial learning change has to be investigated in the entrepreneur-organization relation by assessing the change in organizational behavior and cognition affected by the entrepreneur. Conclusions and implications This paper is a comprehensive literature review in entrepreneurial management with a focus on organizational learning. Authors identified four different interpretations of entrepreneurial learning and highlighted that there is a gap in literature regarding the entrepreneur’s effect on organizational learning. The entrepreneur is the trigger of changes and learning however the qualitative sense of entrepreneurial learning focuses on the entrepreneurial behavior and thinking rather than on the entrepreneur as a person. To manage change and learning is a great managerial challenge within an organization, specifically for an entrepreneur who is good in opportunity recognition but not always good in managing its organization. By understanding the role of learning, especially entrepreneurial learning in change, can help practitioners as well in enhancing the organizational ability to change and learn in reply to the challenges of the changing environment and organizational growth. Authors propose that the explored gap in literature needs to be investigated in order to answer the defined research questions and to deeply understand organizational learning processes and change in entrepreneurial firms.

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AMBIDEXTROUS MANAGEMENT IN DIFFERENT GROWTH PHASES Dávid TARÓDY Corvinus University of Budapest 8 Fővám, 1093, Budapest, Hungary [email protected] Lilla HORTOVÁNYI Corvinus University of Budapest 8 Fővám, 1093, Budapest, Hungary [email protected] Abstract. According to Greiner, historical forces and previous management decisions rather than external factors shape an organisation’s future. On a competitive market, the only way to survive is to grow. Companies go through a series of different evolutionary periods, but each stage is challenged by a crisis period, when previous practices and routines become out-dated. Management in this haste to grow often forget Greiner’s main message: without answering critical organisational development questions future growth prospects will definitely damage. The theory of ambidexterity focuses on organisations, which are adaptive in the long term and formalized in the short term, structures which can explore new market opportunities but are also able to exploit them effectively. However creating ambidexterity is a contradictory challenge. Burgelman’s (1991) adaptation paradox calls managers’ attention for the problem that concentrating on the present reduces the ability of preparing for the challenges in the future. Authors in this research seek answers for the question, how this paradox distorts top-managers perceptions and decisions and lead to excessive exploration at the expense of corporate growth. Because solutions for one crisis become definitely a major problem in the next crisis, and it is always tempting for managers to choose a solution that were tried before. Authors interpret dominant growth schemes in Greiner’s phases as an exploration activity and the solution of crises as exploitation answers, which enable the organisation to continue growth on a next level. Authors carried out 43 interviews with middle and top managers in three organizations in the automotive, agricultural and baking industry. The sample of companies was selected by size, age, growth rate in the past, structure and level of diversification. The research revealed that it is possible to survive crises with 'quasi solutions', but management failures accumulate: lack of professional knowledge and skills leads to inappropriate organisational development solutions, which creates a functional specialist level with high responsibility and task avoidance. At a critical point, organisations have to solve all the previous crises correctly. The cause of this phenomenon lies in feedback-asynchrony: market’s reaction time is faster and more direct than the costs of missing or wrong organisational development decisions. Keywords: ambidexterity; exploration; exploitation; growth; control-crisis.

Introduction The authors of the present research highlight that temporal aspects have an important role in the relation between ambidexterity and growth. Although prior literature describes growth and the solutions of growth crises in a prescriptive way, in practise there are several organisations that are able to grow continuously without following the classic growth patterns and survive crises with “quasi-solutions”. Examining this phenomenon authors seek answers for the following questions: (1) how can ambidexterity interpreted in the different phases of corporate growth? (2) how can the relationship between exploitation and exploration be described in the growing process? (3) What are the catalysing or inhibitor effects between exploration and exploitation and growth crises?

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Theoretical background The theory of ambidexterity has attracted the interest of many researchers since the last decades. Various literatures have argued that organisations need to become ambidextrous (Gibson & Birkinshaw, 2004; He & Wong 2004). The main thought of organisational ambidexterity is that firms need to create adaptive, innovation-oriented structure that can explore faster and more efficiently the new business opportunities and also can exploit more effectively the current, existing opportunities (Kauppila, 2010). March (1991) sees the long-term success of organisations in the exploitation of the existing competencies and abilities and in developing radical new competencies. Most researches in the prior literature take exploration and exploitation for different kinds of innovation. Exploratory innovation is radical, means pursuing new knowledge and developing new products and services in order to meet the needs of emerging customers or markets (Benner & Tushman, 2003, p.243; Jansen et al., 2006). Exploitative innovations are incremental, are built upon existing knowledge and extend existing products and services for existing customers (Benner & Tushman, 2003, p.243). According to Jansen et al. (2008) “exploration and exploitation may require fundamentally different and inconsistent architectures and competencies that can create paradoxical challenges.” Exploration refers to search, variation and experimentation that result from decentralization, loose cultures, and less formalized processes. Exploitation, on the contrary, captures refinement, efficiency, and improvement that succeed by reducing variance and increasing control and formalization (Benner & Tushman, 2003; March, 1991). Smith and Tushman (2005) define “exploration as a sum of changes that mean revolutionary, developing or already existing, but for the firm a new market and also a new opportunity”. On the contrary they describe exploitation as an incremental development and changing process focusing on the existing customers. So exploration raises the complications and exploitation tries to reduce uncertainty and a routine problem solving process. According to Wales (2011) the ambidextrous model can be spatially heterogeneous but temporally homogenous. In the following chapter authors introduce the different aspects of ambidexterity regarding space and time. The structural approach of organisational ambidexterity Researches in the field of organisational ambidexterity can be categorized into two different groups. First one is basically a group of researches that examines the structure and certain structural elements and the role of top management in ambidexterity. Main representatives of this approach are Tushman and O’Reilly (1996). According to them outstanding organisational performance is based on structural mechanisms and solutions as decentralization, common culture and vision, supporting and flexible management. According to Smith and Tushman (2005) the top management embodies the integration of exploration and exploitation. Gibson and Birkinshaw (2004) also take the creation of the appropriate organisational context for the tasks of the senior managers. Jansen et al. (2008) examine top managers, their characteristics and managerial behaviour with that they can cope with the conflicts coming from ambidexterity. This approach focuses on the question of structural separation regarding ambidexterity.

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Temporal aspects of ambidexterity Prior literatures have defined organisational ambidexterity as the ability of firms to pursue and synchronize exploratory and exploitative innovation simultaneously (He & Wong, 2004; Jansen et al., 2008; Tushman & O’Reilly, 1996). The simultaneous creation of exploration and exploitation is hindered by several discrepancies. According to March (1991) that is advantageous in the short run is not sure that it is also advantageous in the long run. Burgelman (1991) calls attention to the paradox between the adaptation to the existing environmental circumstances and the preparing for the future changes. He thinks that concentrating on the present reduces the ability of the organisation in preparing for the challenges in the future. That means it is very difficult to manage the different focus and temporal aspects of exploitation and exploration simultaneously in the organisation while these two compete for the same resources. There are also hints of exploration and exploitation in organizational growth literature, however these researches takes the ambidextrous capabilities for a sequential process (Szabó, 2012). Greiner (1972) describes that organizational growth can be characterized by changes between external, market focus and internal, organizational management focus. This means a series in change between focusing on internal and external problems and solutions, and between flexibility and control (Quinn & Rohrbaugh, 1983). Therefore growth literature also investigates exploration and exploitation activities but as a sequential and not a simultaneous process.

Relation between exploration and exploitation Management problems are routed in time (Greiner, 1972). As organization is getting older, the natural consequence is to grow. According to Greiner, companies go through a series of different evolutionary periods. Growth will usually continue at a steady pace until a revolutionary stage is reached. Each evolutionary stage is challenged by a crisis period, when practices and routines become outdated. Without developing new management solutions, organization will not be able to grow again. The pressure to change most of the times does not come from external threats to survival but more of the time from the managerial desire to grow and be more successful (Volderba, 1996). The strategic decisions made early in a firm’s history generally affect its strategy for years afterward (Sandberg, 1992). Not only do such decisions lock a firm into a strategy, but they also affect its structure and systems (Dobák, 1999). The structures and processes have become part of an integrated whole over the years in which it is difficult to change one element without unraveling the whole (Eisenhardt, 1988). In line with that, Fauchart and Keilbach (2009) have shown that the routines create an “exploitation trap”: as more are introduced, the less an organization is capable to adapt to changing requirements and rejuvenate itself. The pressure for stability is not just inertia, there are short-term forces that require organisation to maximize and fully utilize their existing competencies and capabilities (Volderba, 1996).

Methodology Researchers applied qualitative case study research. According to Yin (1994), case study method is recommended when the researcher tries to find answers for “how” and “why” type of questions about a present occurrence. The applied case study research is based on semi-structured interviews, document analysis and observation in three organisations. Several interviews were made within each organisation: the middle and top managers, as well as frontline employees. The sample of companies was selected in order to meet the following criteria:  Size – annual turnover between 10 and 30 M €.

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 Age – age is a critical factor in growth (Greiner, 1972), so authors decided to choose at least 20year-old organisations.  Growth – steady growth rate.  Structure – at least 3 organisational levels and 2 managerial levels.  Diversification – product diversification and/or geographical expansion. In summary, 43 interviews were recorded within three organisations. The average length of an interview was two to three hours. All the recordings were converted into text files word for word. Researchers invested a great effort to capture each word as well as pausing in typing the text. Consequently, the context in which every interview was made (location, atmosphere, including the perceived mood, emotions, and gestures of interviewees) was also recorded. Researchers applied QSR NVivo software for analysing the data. During the analysis, the primary codes were the dimensions of management functions (strategy, organisation, control, motivation and leadership); structural factors such as division of labour and authority, coordination and configuration.

Results Flamholtz and Hua (2002) use the construct of growing pains as crisis-symptoms. The authors provided evidence in their quantitative research that there is strong relationship between financial performance and growing pains. In the following section, authors will introduce the three examined organisations by the classic set of growing pains in order to demonstrate the critical status of these companies. All firms were founded in the early ‘90s in Hungary (after the regime change) by an entrepreneurially oriented expert – all of them were young engineers with masters degree. Their stories show great similarities: aggressive growth, strong industrial and technological focus, constant product and/or market diversification. In the recent years all of them went through a radical restructuring process which focused on structure, processes, coordination and control, and managerial knowledge and skills as well. The companies grew too big and became unmanageably complex. For instance, the automotive company - in order to compensate the extreme effects of the global crisis - had three major strategic revenue source in 3 brands before 2007 - now it has more than 10 critical source in each of its 8 brands and has expanded extremely, now it has 4 branches! The agricultural company’s core competence is in special seed corn production - after two acquisitions it is interested in stock-raising, industrial and food crop production and special drying and cleaning services – in these days the holding has branches. The baking company invested 4 M € in new production technologies in order to meet the requirements of its multinational customers – new robots and machines needed new organisation and control solutions, but the managerial answer wasn’t so “obvious” than the technological development. It is also hard to synchronize the operation of its two factories. Authors noticed common crisis-symptoms: firstly, the top-management became overloaded. A natural consequence of this process was the emerging need for an autonomous middle-management, but they perceived this new expectation as a strain rather than an opportunity. Conflicts were encoded in this operation – overall perception of growth problems was that “there are not enough hours in the day” and middle-managers identified themselves as fire-fighters, not wise creators. The increasing complexity led to impenetrable relations and processes, people were not aware of what other people do. Fire fighters, who were in constant conflict with their principals, sabotaged structural coordination tools like meetings and projects which resulted in intensifying isolation and task avoidance (poor plan follow-up, inefficient meetings). At the end of this process, insecurity in jobs created a vicious circle that constantly increased the distance between top- and middle-management. Every organisation interpreted the situation as a (partly) moral crisis, but this diagnosis was wrong: malformed structures, missing control mechanisms and lack of management skills led to this situation, not personal conflicts. As Flamholtz and Hua (2002) state: “This set of classic growing pains are not only

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problems in and of themselves, we believe that they are symptoms of a deeper problem, and a ‘signal’ or warning that the organisation needs to make a fundamental change in its infrastructure.” The last warning sign was similar in each of the introduced companies: financial problems and/or high fluctuation. In the darkest days, it wasn’t sure that the automotive company’s largest branch can open its workshop because of the extreme fluctuation. The baking company’s profit disappeared in 2013 and became a well-known unattractive workplace in its region. The co-founder of the agricultural company started his own firm and started to headhunt the key employees. In Table 1 Readers can find a detailed description of how managers perceived and interpreted their organisations situation and what symptoms their growth crisis create.

Table 1. Crisis symptoms interpreted by Flamholtz & Hua’s (2002) growing pains classification

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Discussion In the following section, authors introduce their results and interpret their findings using Greiner’s (1972) model and his suggested organisational practices in the five phases of growth. Using Greiner’s definition, authors interpret a phase’s dominant growth scheme as an exploration activity (new product and market, sustained growth with efficiency focus, expansion and diversification) and the solution of crises as exploitation (management, functional organisation, divisional organisation with developed control techniques), which can enable the next exploration phase. Authors analyse exploitation solutions by Dobák and Antal’s (2010) management functions in order to understand the reasons of the differences. These functions are strategic planning and target setting, organisation, motivation and control. The top-management’s organisational activity creates the structure, which can described and analysed by the division of labour, division of authority and coordination.

Creativity phase and leadership crisis In the first phase of an organisation’s life-cycle a new product and/or market is its only growth catalyst. This innovation is induced by an entrepreneur leader, who is deeply involved in everyday activities. The communication and organisation is informal, but this “disorganisation” makes the company able to react extremely fast to feedbacks and exploit the products and markets. In the creativity phase a make and sell strategic approach dominates with informal structure and strong personal management presence and control. When the number of employees constantly increase and operation becomes more and more complex, need for new management functions emerge. This is the first time, when the organisation faces a growth crisis: the company outgrows its previously successful informal framework. According to Greiner (1972), the optimal solution of this situation is a “strong manager who has the necessary knowledge and skills to introduce new business techniques”, but none of the examined companies made this decision. In every cases the founders remained the firm's CEO, preserved their strong market and technological focus and continued their active participation in everyday operation: - The baking company's CEO was informally the real production manager. - When the automotive company couldn’t meet the car importers requirements, always the CEO sold the last missing ones. - Although the agricultural company had a plant manager, he was a functional specialist not a real leader because it was never allowed to him to make an own decision. This is the first growth failure: in the CEE region it is quite impossible for a small venture to hire an educated manager – the real problem is, that founder doesn’t feel the importance to acquire this knowledge and skills. The reason for this phenomenon lies in market feedback. The company is growing extremely and it has a working, proved “recipe”: make and sell focus and informal operation, where management duties are stigmatized as unwanted, because “making and selling” creates the value. The excessive exploration focused management pattern distracts the founders attention from a correct exploitation answer, but there aren’t financial warning signs in the short term, only positive market feedbacks. Direction phase and autonomy crisis According to Greiner (1972), a strong and educated manager has to build a centralised functional organisational structure, which main strength lies in technocratic and structural coordinating tools: with work standards, incentives and budgets the organisation becomes able to radically improve its efficiency and grow in quantity.

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But a “make and sell” focused entrepreneur leader who doesn’t understand the importance of professional management is not able and –more importantly– not willing to build a centralised structure, because it limits his freedom too. In this phase, all of the examined company diversified dramatically its product portfolio, but this direction wasn’t in line with the “instinctively” emerging functional organisational structure. As a consequence of this process and the founders missing management knowledge, the evolved organisations had serious problems. On the surface, every company had a proper functional structure, but the division of labour and authority was mixed: - At the automotive company, the relationship between real functions (accounting, IT, marketing) and business units (car trade, service stations, rent’a’car, car fleets) was unclear. - The agricultural company had many sales representatives, but it hasn’t got a real sales manager. Additionally, its division of labour was an evolutionary mix of product and regional based separation, which caused serious conflicts in that department. - In the case of the baking company, handling and coordinating geographically distant factories within a functional structure was a hard to solve problem for a long time and caused significant costs. The operation was slowing down, but the theoretical solution for the emerging autonomy crisis wasn’t feasible. Instead of educating autonomous managers, the system created a wide range of egoistic functional specialists, because –as a consequence of the first phase and the first failure– the technological knowledge was overrated in the culture. However there was a lack of proper organisational structure and professional management the firms’ overall financial performance were still positive (although the speed of growth was slowing down), and this feedback put the managements to sleep. They interpreted the symptoms as personal conflicts and weaknesses, not system-level results of a range of serious management failures.

Delegation phase and control crisis The extremely overloaded top-management was motivated but wasn’t able to create a decentralised organisational structure, which is the key enabler of growth in Greiner’s (1972) delegation phase. The system “created a monster”, problems accumulated: lack of management knowledge on top- and middle level, which is conserved by a structure filled with functionally egoistic experts with low willingness to take responsibility, and a “make and sell”-focused culture. In the delegation phase, management wanted firstly to “outgrow” the problem. It proved to be impossible with the following symptoms: uncontrollable units had been established with high fluctuation, frustrated top-management who were afraid of the future of their life’s work, and –last but not least– shrinking profitability. Efficiency was poor and new ideas -created generally by the topmanagement- weren't transformed to products because of middle-managers' incapability and resistance. The moment, where the vicious circle broke was the point, where the crisis became financially sensible. This was the focal point, where top-management understood that the previously successful recipe is not working anymore. The examined organisations in the last 3-5 years had to make up for every missed organisational development: - Firstly, they came through a radical restructuring and process development. Work standards were rationalised, coordination tools (structural and technocratic) were introduced. - Top-management went through a shocking period, when they were extremely motivated to become real CEO’s who are able to understand and use corporate coordination and governance tools. - Balanced Scorecards strongly integrated with work standards and performance management systems were introduced. - Centralised middle-management education programs were started in order to help and make them able to use coordination tools and manage their branches with responsibility.

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To summarize, problems accumulated and reached a critical level during the control crises. In Table 2 authors identify the 3 main growth management failures, analyse the reason of them and explain the results of the wrong decisions using Dobák and Antal’s (2010) management functions. Table 2. Analysis of management solutions, failures and reasons in Greiner’s (1972) first three growth phases Creativity

Direction

Delegation

Failure

Founder doesn't become an educated manager.

Founder fails to build an appropriate organisational structure.

Founder can't transform functional specialists to qualified managers.

Reason

The informal organisational and leadership style and market success distracts founders attention from management issues.

Market feedback of explorative activities are faster and more perceptible than benefits of organisational development. The firm's overall financial performance is still positive.

The founder's management and leadership pattern as a role model is misleading and his constant operative involvement prevents the development of autonomous middle-management.

Strategy

Make and sell

Make and sell instead of efficiency focus

Make and sell expansion

Organisation Informal

Centralized, functional Problems in division of labour, authority and coordination

Decentralised - "hybrid" division of labour (mixed elements of functional and divisional organisational form), conflicts in authorities

Motivation

Creativity, new challenges, ownership

Salary and bonuses

Bonuses

Control

Personal control

Bureaucratic elements, financial control, but the real control mechanism is still the founders personal power and symbol

Control is still financial and personal - lack of processand customer-oriented control.

Conclusions and implications Authors carried out a qualitative case study research based on a longitudinal examination of three middle-sized companies. Authors interpreted ambidexterity as a sequential process, where –based on Greiner (1972) – intensive exploration and the fitting exploitative solutions (structure, processes, management and leadership) result in aggressive growth. At the end of a growth period a crisis forms where management has to recognize the misfit between exploration activities and exploitative elements: only new structure and management methods can enable the company to continue its aggressive growth trend (Greiner, 1972). To summarize, the solution of a growth crisis (exploitation) is the catalyst of the next, explorative growth-period. The article provides a deep understanding of how organisations led by an entrepreneur foundermanager grow; what challenges and solutions they have and how the previously successful entrepreneurial focus and market success can divert their attention from managerial and organisational development. The research revealed that it is possible to survive crises with 'quasi solutions', but wrong decisions accumulate: the first step is that the founder doesn't become an educated manager. This problem directly leads to inappropriate organisational development solutions. As a consequence of this process, middle-management "inherits" founders are not professional and market/technology focused

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management and leadership pattern. This complex set of problems makes control crises unsolvable in itself: organisations have to solve all the previous crises correctly, otherwise they can't cope with control issues. The answer for the question, why control crisis is the crucial point in this process, is the following: this is the first stage where organisational problems become financially perceptible. This shocking recognition breaks that previously dominant view that only external, make and sell focused growth can lead to market success. The reason for this phenomenon is that explorative activities distracts management's attention from organisational development. The cause of this strategic problem lies in feedback-asynchrony: market’s reaction time is much faster, more direct and more tangible than current effects of long-term organisational development. But another factor is also strengthening this problem: lack of organisational development doesn't occur directly in form of costs – it only limits future growth prospects. This asynchrony misleads managers and motivates them to repeat previously successful explorative (make and sell) and exploitative (informality, active operative engagement, expert role) patterns. It’s important, that authors absolutely agree with the content of Greiner’s (1972) model – the focus of this research is to provide new results to the relationship and sequence of crises and introduce that misleading force that makes difficult to follow the theoretical growth pattern.

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Quinn, R.E., and Rohrbaugh, J. (1983). A Spatial Model of Effectiveness Criteria: Towards a Competing Values Approach to Organizational Analysis. Management Science, 29(3), 363-377. Sandberg, W.R. (1992). Strategic management’s potential contribution to a Theory of Entrepreneurship. Entrepreneurship Theory and Practice, 16(1), 73-90. Smith, W.K., and Tushman, M.L. (2005). Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams. Organization Science, 16(5), 522-536. Szabó, Zs.R. (2012). Uncertainty, strategy and performance – qualitative research among entrepreneurs of SMEs. Vezetéstudomány, 43(12), 23-31. Tushman, M.L., and O’Reilly, C.A. (1996). Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38(4), 8-30. Volberda, H.W. (1996). Toward the flexible form: How to remain vital in hypercompetitive environments. Organization. Science, 7(4), 359-374. Wales, W., Monsen, E., and McKelvie, A. (2011). The Organizational Pervasiveness of Entrepreneurial Orientation. ETP, 35(5), 895-923. Yin, R.K. (1994). Case Study Research. London: Sage Publications.

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HUMAN ENERGY MANAGEMENT IN ORGANISATIONS – A NEW MANAGEMENT IMPERATIVE Grażyna OSBERT-POCIECHA Wrocław University of Economics 118/120 Komandorska, 53-345 Wrocław, Poland [email protected] Abstract. For many years, both theory and practice of management have been determined by hard (analytical) approach, placing the emphasis on quantitative (material) factors. The need for improvement in both strategic and operating effectiveness has stimulated research interest in soft, qualitative (intangible) factors, in particular those related to human dimension, such as human attitudes, behaviours, and energy. The problem of energy brought about by people and their involvement in organisations must be recognized. Organizational energy, in accordance with the synergistic effect, is not a simple sum of the energies of the individuals. The energy level determines the potential for organisational development. Lack of energy makes it difficult for organisations to introduce changes and implement innovations. Consequently, managing an organization’s energy is vital to achieve the desired goals and to ensure productivity. It is surprising that, although so much has been said about the role of energy in the world we live in, there is not enough interest in managing the energy of organisations. We must realize that all organisational activities require energy to materialize. Professional literature dealing with issues related to organisational development, crises and successes rarely puts a proper focus on the concept of organizational energy. The aim of this paper is to indicate the need for rational management of an organization’s energy. The deductive considerations on the nature of organisational energy and the need to manage it properly have been supplemented by the results of a survey addressing the practical understanding of the conceptual framework and the use of energy in organisations. In particular, the study examined some of the activities which support the release of human energy in organisations, rationalise its use (i.e. the progress in the implementation of the concept of Human Energy), and prevent energy wastage in organisations. Keywords: conceptualization of organisational energy; management of organisational energy; energy wastage; survey – energy in business practice.

Introduction Elaborating on the thesis attributed to A. Einstein that ‘everything is energy’ (Lederman & Teresi, 2012), it may be postulated that every activity, every movement results in vibration and transfer of energy, and it is the energy that preserves and maintains the integrity and balance of the material world. In this context, the role of energy in the lives of individuals and organisations cannot be overstated. Professional literature on the subject of development, continuation, crises and successes of modern organisations has put a relatively weak emphasis on the energy of organisations. In the organisational setting, energy can be perceived as: - a source of its operational capabilities, through its potential to maintain homeostasis, both in internal dimension and in the organisation’s relations with the external environment, - a driver for the realisation of organisational objectives and expected results, - the prime mover which may exert a positive or destructive effect on the organisation’s development and stability. In other words, energy represents the essence of an organisation and all its inherent traits. While energy as a concept represents the most fundamental attribute of the surrounding reality, professional references to ‘energy of organisations’ have so far been fairly indirect and largely instinctive. In line with the former paradigm of ‘hard approach’ to organisations as technical and social systems, the bulk of organisational effort was concentrated on a suitable configuration of selected resources, on the optimisation of internal work processes, on the development of

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organisational structures to support the evolving spectrum of managerial functions, and – in strategic dimension – on establishing directions and variants of activities adjusted to the internal and external determinants of organisational operation. With the recent paradigm shift and the resulting recognition of the special role of human resources in organisations, the human factor has been elevated as the most primal (natural) source of organisational energy. The recognition of the need for careful and insightful studies of organisational energy is manifested, among other things, in the context of: - the growing pace of changes, with resulting demand for energy needed to effect those changes, - the consistent decrease of organisational life cycle, which can be perceived as a manifestation of the scarcity of ‘life-giving’ energy at the level of the organisation as a whole, - energy depletion as a growing phenomenon among organisational workers, manifested particularly by the increased rate of employee burnout. The problem of sustaining a rational management and efficient flow of organisational energy is of particular importance in the context of recurring crises (economic, social, political), cost reduction, limitation of pro-development investment outlays and other symptoms of organisational stagnation. Organisational energy – a conceptual framework Energy - in a popular approach (Welbourne, 2014) - is understood as an internal ability/capacity to act or perform. Energy is a prime mover, offering the organisation a potential to achieve its objectives, to introduce and effect changes, and to improve the effectiveness of operation. Loehr and Schwartz (2001) present a similar approach in their definition of energy, based on the performance pyramid concept. In their approach, a lasting capacity to perform work is a product of integrated physical, emotional, mental and spiritual abilities of individuals. Schiuma, Mason and Kennerley (2007) emphasise the notion that reducing the nature of energy to a mere source of work performance (in the sense of involvement in daily, routine activities) is an unacceptable simplification of the concept, since energy involves other factors, such as vitality, enthusiasm and vigour. In this sense, energy is also a manifestation of the potential for work intensification. All the above qualities are of fundamental value for the formulation and realisation of organisational objectives. Cross, Barker and Parker (2003) emphasise a functional similarity between the energy of individuals (human resources) and that of an organisation. Thus, assuming that man is the most fundamental source of energy and that an organisation is a structure/set of individuals cooperating with the view of reaching particular objectives, the energy of an organisation is directly correlated to the energy of individual members, but is far more than a simple sum of energy of individual members. The collective level of energy is supplemented and empowered by the energy generated within individual teams of cooperating individuals, and by the energy produced in cross-team relationships. Therefore, organisational energy is a result of synergistic integration of energy of individuals and teams (Schiuma et al., 2007). Bruch and Vogel (2011) define organisational energy in terms of its ability to mobilise the emotional, cognitive and behavioural potential for the realisation of organisational objectives. At the same time, the authors highlight some of the most fundamental factors responsible for energy generation, such as the organisational infrastructure, organisational culture and social interactions. It is through social interactions that people exchange emotions, thoughts and actions, by means of imitation, guidance and direction (in the sense of following the lead of others), and by being inspired to take up certain actions.

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All the above factors add to the combined effect of stimulating and increasing the collective energy of the organisation as a whole. Organisational energy is thus inherently linked with human presence. Human qualities (such as knowledge, skills, physical strength, mental power, assorted personality traits and behavioural patterns, to name a few) give us power to generate new economic value – for this reason alone, organisations perceive humans in terms of capital. The recently studies on human capital emphasise the role of ‘creative capital’ (Florida & Goodnight, 2005) as a driver of economic development by stressing that the key factor is not knowledge itself but the ability to utilise the accumulated knowledge for the purpose of generating new ideas, solutions or products. The potential located in human (or social) capital is the main incentive for increasing its effects. A good example here is the so-called ‘human capital investment’. On the other hand, it may form incentives to take up activities aimed at releasing this potential by transforming it into energy required for the realisation of specific objectives. In the light of the above, there is a need for recognising the conceptual framework and the relations between the potential and the energy of human capital and the potential and energy of the organisation as such (the more so that the two are typically used interchangeably). The nature of ‘potential’ as it applies to an organisation as a whole has recently been studied by Adamiec (2011). The author stresses that the term itself escapes easy definition due to the paradoxical nature of the concept (‘a thing that is and is not’). On the one hand, potential cannot be identified by human senses (cannot be touched, perceived or measured). On the other hand, it constitutes a fundamental source of changes, due to its ability to create new values/products and its power to transform goals and objectives into specific results. Author accentuate the fact that the inherent properties of organisations make them particularly effective for exploiting and making the most of human potential. The opposite standpoint is based on the observation that the present operational qualities of organisations tend to stifle the real human potential. In this view, humans, with their complexity, open-mind approach and unlimited possibilities, are crammed into rigid frames of organisational structure, which has the result of limiting and constraining the development of their true potential. Adamiec (2011, p.141) in his concept of an organisation open to human potential (OOHP), postulates that organisational structures should not be perceived as ‘cages’ for storing human potential. On the contrary – they should concentrate their effort on forming the best possible conditions for proper and effective utilisation of human potential. This may require the organisation to adopt some measures for shaping employee transgression (overcoming the existing boundaries) and self-realisation (accumulating new valuable skills and developing the most effective personality traits). By developing employee competences, organisations can boost the development of human potential as such. The author of the OOHP concept places particular emphasis on human competences as the prime mover for the expression of human potential (this applies both to meta-competences such as the ability to learn, flexibility, interactivity, creativity, etc., and to specific competences directly related to the task at hand). By providing suitable conditions for its development, organisations can harness this potential and release the latent energy for the realisation of planned objectives or tasks. In general, it is often emphasised that potential is difficult to predict ex ante, and it can only be examined ex post. In effect, research and professional literature are decidedly more involved in the identification of favourable conditions for releasing the potential and of solutions and instruments that facilitate this release for the purpose of defining new objectives and creating new values for the organisation.

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In the light of the above observations, it may be concluded that potential is a feature that reflects hypothetical prospects of an organisation based not only on resource configuration but also on operational determinants (such as leadership level), while energy represents the released part of the potential employed for the realisation of specific activities and yielding specific effects. Hence, the two notions are closely correlated, but not identical, contrary to the apparent conclusion based on the frequent interchangeable use of the two terms. The release of potential (and the corresponding energy increase) requires some form of motivation. Adamiec (2011, p.152) postulates the need to employ motivation ‘of higher order’, as opposed to the ‘more-of-the-same’ approach. A relatively frequent phenomenon observed in the context of relations between motivation and energy release is the burnout effect. Since the will to act and the initiation of tasks do not necessarily lead to the effective realisation of an objective, the action (as a result of motivation interpreted here mainly in the sense of justifying the decision to act) is attempted, but discontinued after a period of stagnation. This type of situation can be interpreted as evidence for the lack/depletion of energy. This, again, proves that there is no true analogy between the notions of motivation and energy. Motivation is particularly important in the context of stimulating the desired outcome. The released potential may take on the shape of positive energy, boosting the chance of success or helping the organisation survive crises. It may also take on a more negative form of energy, resulting in collapse (bankruptcy). ‘Positive organisational potential’ (Stankiewicz, 2010), a concept developed in the early years of the 21st century on the basis of the Positive Organizational Scholarship model (Cameron, Dutton & Quinn, 2003), In line with its assumptions, conditions for development and realisation of creative processes are directly related to positive emotions experienced by employees. It is those emotions that motivate them to reach outstanding goals, to strive for perfection, to broaden their horizons, to experiment and to cope with new challenges in a creative way. This forms the so-called positive spirals of flourishing which translate positive emotions into greater involvement, increasing the effectiveness of organisations and ultimately generating further positive emotions among employees (Cameron et al., 2003, p.3). While the conceptual framework of positive organisational potential covers a broad spectrum of factors that condition pro-development behaviours of employees, its model representation is only reduced to two aggregated components: positive organisational culture and positive organisational climate (Stankiewicz, 2010, p.75, 107, 141). At the same time, the concept puts strong emphasis on the fact that the release of organisational potential is not an automatic result of the process – it must be stimulated by the use of carefully selected instruments and by provision of favourable conditions. To sum up, the energy of an organisation as a techno-social system cannot be reduced to a simple task of amassing and configuring of suitable resources (material, financial, information-related), since the major determinant of success is the energy of people. Employee energy is the main driver of progress for the organisation (and its internal substructures), both in quantitative and qualitative dimension. It serves as a binding agent that enhances the inherent synergistic effects of organisational structure. Without energy, there is no action, no movement, no potential for change, improvement or realisation of goals. Therefore, the main focus is placed on provision of a suitable energy level in an organisation and on shaping conditions that facilitate continuous flow of energy, based on the assumption that each and every task or objective consumes a certain energy quantum. One of the most important discerning traits of organisational energy is its dynamics, closely related to the concurrent processes of energy generation and depletion (consumption), collectively referred to in subject literature as oscillation (Schiuma et al., 2007). Consequently, the levels and states of organisational energy fluctuate over time – with level representing the quantum, and state

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corresponding to the characteristics or quality of energy. The state of energy at a given time point may be influenced by such factors as emotional agitation, involvement, intellectual capacities, the sense of responsibility, the urgency of the problem at hand, enthusiasm, contentment, and so on. The use of energy, therefore, is a continuous effort at balancing the oscillation between systematic generation/stimulation of energy and the ongoing depletion or release of it. Managing human energy in organisations – the inevitable challenge for the future Professional literature (Williamson, 2011) increasingly emphasises the postulates to depart from the universally adopted approach to humans as an organisational resource. At the same time, it postulates the need for adopting a human potential management approach or a shift from Human Resource to Human Energy (Powell & Gifford, 2014). This may be viewed as a manifestation of the trend to place the focus on human potential and energy in organisations. Rationalisation of this approach is established on the following assumptions: - proper recognition of human potential/energy will offer more rational use of their organisational input, while at the same time offering individual members more optimal ways to manage their energy, - if employee potential is taken care of, it is likely to enhance employees’ responsibility towards organizations and create a feeling of organizational ownership/partnership, which could automatically lead to the achievement of organizational objectives, - it helps employees develop their potential and contribute their best to the organization in the face of current dynamic environment, which necessitates continuous updates of organizational strategies, structures and systems. The operation of modern organisations is increasingly determined by the pace of changes, both in the external and internal dimension, which has the effect of increasing the overall complexity of processes (and the number of objectives). In this context, the key challenge is to provide durable motivation (i.e., motivation kept at a desired level), both in the sense of inducing its flow and in utilising it for the purpose of reaching specific targets. Under the previous context of relative operational stability, the classic approach to motivation defined in terms of induction phase (generating the objectives) and maintenance phase (ensuring the realisation of objectives) was quite capable of bringing positive effects based on the structure of the available energy resources. The present operating conditions have changed it: the organisational needs and the corresponding objectives are subject to dynamic fluctuations, with continuous inflow of new priorities and the associated strong motivations which compete with one another for the increasingly dispersed energy resources. Under equifinality conditions, the same results can be obtained using a multitude of approaches (techniques, instruments), each with different energy requirements. It is therefore essential to perceive organisational operation not only from the viewpoint of effectiveness in reaching their objectives, but also from the perspective of effective management of the scarce energy resources available for their realisation. Due to the dynamic fluctuation of factors that determine the realisation of objectives, their energy requirements can also fluctuate over time. Some of the surplus energy can be turned down to increase organisational adaptation and flexibility, some may be redirected to ensure the realisation of new objectives which are more adequate under the changed conditions. Some of the ongoing objectives may be postponed or discontinued, regardless of the current stage of completion, resulting in disturbances in the flow of broadly defined motivation (both at the induction and at the maintenance phase), and ultimately leading to energy waste. To meet the present challenge of ongoing changes in organisational environment, it seems necessary to redefine the concept of motivation, hitherto approached as a coherent factor released in response to particular needs (including the organisational needs for development), and ultimately fulfilling the essence of management. Nowadays, in the face of increased competition which may emerge even as early as the objective generation phase, the study of objectives in the context of motivation required

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for their satisfaction is no longer adequate. Organisations need to optimise their structure of objectives in terms of their impact on the process of managing the organisational energy expenditure. In the opinion of Bruch (2010), modern companies operating under constant effectiveness pressure in an increasingly unpredictable environment and in the face of returning crises are equally more likely to fall into the acceleration trap – they keep pursuing their objectives at a similar or even greater scale and complexity, with no regard for the increased scarcity of resources, including human resources. The excessive pace may help the organisation meet the expected targets, but at the cost of depleting the available energy. In such an approach, employee energy can no longer be effectively utilised for productive purposes. Employees are burdened with the so-called destructive engagement practices, which may manifest in aggression, frustration, increased resistance to change, lack of identification with organisational ant team objectives, and so on. Ultimately, this may lead to deterioration of financial position, customer relation problems or the loss of competitive market advantage. Therefore, to avoid the unnecessary depletion of energy on the realisation of unwarranted objectives (activities, changes), the organisation should concert their effort on releasing this energy at a suitable moment, and on maintaining its operational level (the so-called feeling of urgency) to keep it manageable ready to be utilised in accordance with the current structure of priorities. In other words, organisations should focus on activities that streamline the use of energy and manage its flow. Questionnaire survey results A questionnaire survey which was as part of preliminary research grant application procedures, conducted in the 4th quarter of 2014, was designed to study the problem of organisational energy and its significance for business practice. Ultimately, for the purpose of this report, 44 responses were taken into account, representing 25 companies. The respondent sample was random, and the selection was based on reported willingness to participate in the survey. Research methodology was construed on the assumption that each company under examination should be represented by no less than two respondents: a representative of the ownership/top management level, and a representative of a functional area related to human resource management (de facto, for six of the companies under study, the author was unable to obtain a second response). A dominant group of respondents were representatives of production companies, typically with no outstanding market position. In general, the companies under study operated on domestic market and were in a relatively good financial and economic standing. Of all the respondents, 20 represented companies founded before 1989 (i.e. before the date of Poland’s transition to market economy), and 24 represented companies founded in the transformation period. A little less than half of the respondents worked for companies still in their growth phase, with similar representation of companies in expansion phase. It should be noted that the research sample based on the above methodology cannot be regarded as representative. For this reason, the results of the survey cannot be used as basis for any verifications or generalisations – they can only provide poll results for the sake of exemplification of certain observations or speculations which should be addressed in a more detailed study. Of special note is the fact that of all the 44 respondents, as many as 36 (82%) voiced their explicit belief that energy is a factor applicable in the organisational context, that energy is a precondition of effective operation of the company, and that energy directly translates into economic results (success). Ca. 61% of the respondents were adamant in their belief that organisations utilise their energy mainly for the realisation of objectives/targets directly related to the current business model, with the remaining responses representing the view that organisational energy is mainly directed to those objectives that lead to the change of the present status quo. At the same time, some 11% of the

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respondents believed that this type of involvement was related to changes introduced with the view of satisfying the requirements of company development, while 18% described those changes as reactive, i.e. undertaken in response to (or under the compulsion of) external or internal stimuli/pressures. The remaining 10% of the respondents believed that their companies were equally involved in utilising their energy for effecting pro-development changes and for responding to current operational requirements. With respect to the understanding of organisational energy as a factor inherently related to human presence in the organisation, both business practitioners and theoreticians found it hard to provide an unambiguous (i.e. based on the ontological principle of rigid logical reasoning) definition of the term ‘organisational energy’, despite the relatively universal use of the term in everyday setting. The most often quoted responses to this query identified organisational energy as: - the prime mover in the process of realisation of objectives ( 15.5 pts)1 - a ‘fuel’ used to intensify the effort in reaching company objectives, one that requires concentration and involvement, and one that is inherently related to human presence (15.5 pts) - a degree to which the company is able to mobilise the emotional, cognitive and behavioural potential for the realisation of its objectives (14 pts). The following definitions were decidedly less frequent in the survey responses: - a sense of positive agitation, will to act, vitality (9.5 pts) - a form of translating motivation into action, with motivation defined as the ability to utilise the energy (6 pts) - an ability to perform work or to make an effort (4 pts). It is worth noting that the responses to the question identifying a definition of organisational energy are fairly accurate in describing its nature; they also directly relate energy to the realisation of objectives (as one of the inherent management functions). One of the most notable results confirming the problem of energy in organisations (irrespective of the difficulties in identifying the sense of the term) can be found in responses to the question on the perceived level of energy waste. An overwhelming 75% of the respondents subscribed to the view that organisations do indeed waste their energy. Their reported estimates on the amount of energy wasted (misdirected) by their respective companies are shown in Table 1: Table 1. Estimated energy wasted by organisations No. Level of wasted energy % of responses 1. 10-15 % 23 2. 20-25 % 25 3. 30-35 % 13.5 4. 40-50 % 13.5

Analyses of data describing the respondent sample structure offered no potential for discerning any trends or discriminants that would suggest certain ‘predisposition’ to waste energy (large variances were found in every segment of the respondent sample). Table 2 presents the perceived manifestations of energy wastage in companies under study: Table 2. Manifestations of energy wastage No. Identified manifestations of energy wastage 1. poor work-time organisation 2. unfinished projects 3. needless processes 4. needless expansion of structures 5. others, such as: poor management of information flow (documents), increased complexity (offers too elaborated, too much pressure on 1

% of responses 30 24 17 15 10

Points were calculated with weight of 1 for answers placed at the top of the list, and 0.5 for answers ranked second.

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formalisation), inability to learn from errors, etc. excess inventory

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Summing up the above, it seems that, despite considerable progress and plentiful applications in such management subdisciplines as process management, project management, and design of organisational structures, these particular areas of operation remain fairly unexplored in business practice. As such, they appear to be prime targets for the exploration of potential sources of effectiveness increase. One of the most characteristic observations made in relation to the study was the emphasis on time factor – poor organisation of employee work time was reported as the most frequent manifestation of energy wastage. Time-related problems are also evident in such management flaws as failure to respect the proper sequence of activities and by unwarranted reduction of preparation phase – with resulting stoppages, overlapping tasks (e.g. data input), excessive focus on selected activities (obsessive inbox checking), conducting personal business during the working hours, and so on. It seems that time organisation and management is the prime target in the search for rationalisation of energy use in organisations. The next question tackled by the respondents addressed some of the factors (conditions) that facilitate the release of positive energy in organisations. It must be noted that the respondents generally acknowledged their polarity and ambivalence: in some configurations, certain factors may stimulate the release of positive energy, while in others they may have a decidedly opposite effect of obstructing it. Table 3 presents a ranking of determinants believed to have a stimulating effect on the release of positive energy in organisations. Table 3. Factors that support the release of positive energy in organisations No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Factors that affect the release of energy in organisations personnel policy (strictly human-oriented) flat (horizontal) organisational structure, effective communication examples and patterns to learn from, benchmarking simple, clear and effective procedures organisational culture (preference for openness, participation, tolerance, cooperation) limited scope and frequency of control trust level respect for established principles and values external guidance (advisory, auditing) others, such as preference for teamwork

% of responses 17.8 16.1 13.8 12.5 11.5 11.5 11.5 2.7 1.8 0.8

The collected responses suggest that the most important factor to facilitate the release of positive energy in organisations under study is the personnel policy in its broadest sense, i.e. the whole range of activities directly addressed to employees. The approach to these activities is perceived as an indicator of pro-human, individualised management of human resources which directly impacts the release of employee energy (by stimulating, hampering or, in some cases, blocking the energy flow). The next factor in the ranking of responses was the organisational structure as basis for organisational architecture that facilitates cooperation within the organisation. Company structure should facilitate the effective flow of information without affecting the length of decision-making paths (long-drawnout decisions have the effect of dispersing employee energy). Another important factor is the provision of models and patterns for employees to follow (mainly in the context of attitudes and behaviours). Clarity and simplicity of procedures (and processes) are also believed to stimulate the release of energy and the focus on the most important tasks (overcomplicated and unclear procedures tend to dissipate employee energy). The responses show lesser significance attributed to such factors as open organisational culture, limitation of control (with self-control as a substitute) and cooperation based on mutual trust – with similar percentages of responses. The provision, acceptance and respect for established principles was reported as supportive (although relatively less frequently). The remaining

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factors, such as external guidance from advisory, certification or auditing companies, were reported as being of marginal significance for the release of positive energy in organisations. Another problem addressed in the study was the recognition of active management of human energy in organisations. Activities listed by the respondents were ranked based on the number of responses - see Table 4. Table 4. Management of human energy in organisations Activities in support of rational management of human energy in No. organisations 1 Solutions within the motivation system, relating wages to productivity and effectiveness 2 Attractive and rich training programmes 3 Integration and team-building activities 4 Simplification of procedures (shortening of the decision-making paths) 5 Open HR (communicating with employees, coaching) 6 Development programs, promotion paths 7 Individualised system of awards for employees 8 Sports and recreation programs addressed to employees 9 Regular meetings with top management representatives 10 Preference for teamwork 11 Rational holiday policy 12 Inclusion of medical insurance in the structure of the motivation system 13 Building favourable organisational culture based on openness and tolerance 14 Flexible working hours 15 Broadening the scope of employee participation in decision-making 16 Effective system of employee evaluation 17 Provision of aesthetic and ergonomic working conditions 18 Celebrating company successes, emphasis on company PR 19 Social services and benefits

Number of responses 15 11 10 9 9 8 7 7 6 3 3 3 3 3 3 2 2 2 2

Analysis of the responses presented in Table 4 suggests that companies under study were quite schematic in their approach to managing human energy. The collected responses typically reported well-established practices of the motivation system, training function and shaping of interpersonal relations, as well as activities of a more organisational character, aimed at limiting the energy wastage. It is worth noting that those activities, by and large, are focused on energy release, with relatively weak representation of activities aimed at regenerating and replenishing human energy (this aspect is generally managed by employees themselves, as part of their spare time activities). There is a decided lack of a holistic approach among companies under study; activities are widely dispersed, inconsistent and rather provisional. Some of them are enforced by pending legislation, others are undertaken by companies on a voluntary basis. In general, the majority of respondents report that the aspect of proper management of human energy as an instrument utilised in company operation was a relatively new addition, one that still requires formulation of certain principles, structuring of activities, and provision of new instruments. In their evaluation of the position and the tasks realised by Human Resource services in the context of employee expectations with respect to energy management, only the representatives of two of companies under study believed that their organisations were advanced in their realisation of the Human Energy Management concept. Further 13 companies were evaluated as successful in implementing the concept only in selected aspects/activities. The remaining 10 companies (in the opinion of survey respondents) were regarded as decidedly lacking in their realisation of the Human Energy Management concept.

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Conclusions and implications The study emphasises the need for wider dissemination of the problem of organisational energy, particularly with respect to the energy of individual employees. While the respondents were generally in favour of the view that organisational energy is a major determinant of company effectiveness and development, including the ability to meet specific operational and strategic objectives, it must be noted that energy, as a factor of influence, is still under-represented in scientific studies. The general view is that energy is an obvious element of company operation, one that needs no systematic studies on theoretical and practical level. One of the obvious reasons is the difficulty in ontological anchoring of the concept and in specifying its conceptual framework, also with respect to its correlations with other concepts in circulation, such as potential, motivation, involvement, emotions or ‘the flow’ as defined by Ciskszentmihalyi (1990) this area is still fairly unrecognised and under-represented in professional research. In addition, the concept of organisational energy necessitates a more detailed recognition and structuring of the fundamental concept of synergistic effect – another challenge for future research. Analyses of present conditions of organisational operation, particularly the pace of changes and the resulting implications, suggests that the need for introducing measures to rationalise the management of human energy in organisations is quite pronounced. This should not be reduced to routine activities aimed at reducing energy wastage, but should also include measures to counteract such effects as the resistance to change, the strategic reorientation due to energy shortage or the negative/destructive impact of human energy. In the light of the largely depleted potential to improve operational effectiveness and development based on the use of material and quantitative factors under the so-called ‘hard’ (analytical) approach to management, the need is strong to pursue new sources of effectiveness, with soft (qualitative, immaterial) factors being a viable alternative for the purpose. These include factors directly related to human dimension, i.e. human abilities, skills, behaviours, attitudes and energy. Such an approach, however, requires a set of specific instruments for effective management of energy in organisations, including: - instruments for diagnosing (measuring) of organisational energy, - instruments for releasing the energy and managing its flow (in response to specific needs related to the realisation of objectives and tasks), - solutions to prevent or limit the extent of energy wastage, - ways to replenish the energy or measures to substitute the energy requirements in organisations. Further concerted effort and wider research is needed, supported by projects and practical applications, to meet the above challenges and to crystallise the new imperative of human energy management. References Adamiec, M. (2011). Potencjał ludzki w organizacji. Warszawa: Difin. Bruch, H., and Vogel, B. (2011). Fully Charged: How Great Leaders Boost Their Organization's Energy and Ignite High Performance. Boston, MA: Harvard Business Review Press. Bruch, H. (2010). Odbuduj zasoby energetyczne swojej organizacji. Harvard Business Review Polska, IV(1), 114-116. Cameron, K.S., Dutton, J.E., and Quinn, R.E. (2003). Positive Organizational ScholarshipFoundations of a New Discipline. San Francisco: Berrett-Koehler Publisher. Cross, R., Baker, W., and Parker, A. (2003). What Creates Energy in Organizations?. MIT Sloan Management Review, 45(1), 51-56. Csikszentmihalyi, M. (1990). Flow: the Psychology of Optimal Experience. New York: New York Harper & Row. Florida, R., and Goodnight, J. (2005). Managing for Creativity. Harvard Business Review, 83(VII),

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124-131. Lederman, L., and Teresi, D. (2012). Jeśli świat jest odpowiedzią, jak brzmi pytanie?. Warszawa: Wydawnictwo Prószyński i S-ka. Loehr, J., and Schwartz, T. (2001). The making of corporate athlete. Harvard Business Review, 79(I), 120-128. Powell, M., and Gifford, J. (2014). My Steam Engine is Broken: Taking the Organization from the Industrial Era to the Age of Ideas. New York: LID Publishing. Schippers, M.C., and Hogens,R. (2011). Energy Management of People in Organizations: A Review and Research Agenda. Journal of Business and Psychology, 26(2), 193-203. Schiuma, G., Mason, S., and Kennerley, M. (2007). Assessing energy within organisations. Measuring Business Excellence, 11(3), 69-78. Stankiewicz, M.J. (2010). Pozytywny potencjał organizacji. Wstęp do użytecznej teorii zarządzania. Toruń: Wydawnictwo Dom Organizatora TNOiK. Williamson, D. (2011). Mining for hidden potential. Human Resource Management International Digest, 19(7), 3-8. Welbourne, M.T. (2014). Two numbers for growth, innovation and high performance: Working and optimal employee energy. Organizational Dynamics, 43(2), 180-188.

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THE PRESENT AND PREFERRED CULTURE FOR PROJECT ORGANIZATIONS: INVESTIGATION BASED ON THE COMPETING VALUES FRAMEWORK Lajos SZABÓ University of Pannonia 10 Egyetem St., Veszprém, Hungary [email protected] Anikó CSEPREGI University of Pannonia 10 Egyetem St., Veszprém, Hungary [email protected] Abstract. The topic of culture has received increasing attention not only in the management literature (Deal & Kennedy, 2000; Schein, 2010; Alvesson, 2013) but also in the project management literature during the last few years (Wiewiora et al., 2013). Although a considerable amount of research has investigated organizational culture, less research has been conducted on the comparison of present and preferred cultures in project context. This paper aims to fill this gap by focusing on project managers and on the investigation of the present and the preferred culture profile of their project organizations. Based on Cameron and Quinn's (2011) Competing Values Framework (CVF) using the Organizational Culture Assessment Instrument (OCAI) a quantitative survey was conducted. The questionnaire used gathered data from project managers working in various industries and organizations. The sample consisted of 695 respondents. The empirical study focused on categorizing project organizations based on their developed present culture profile and revealing the difference between the present and preferred culture profiles. The study hypothesizes that four project organization groups can be revealed based on their dominant orientation. That is the domination of one of the four culture types of Cameron and Quinn’s framework (Clan, Adhocracy, Hierarchy, or Market cultures). To test this hypothesis cluster analysis was used. The study also hypothesizes that the present and preferred culture profiles of project organizations do not show significant difference. To prove this statement paired samples t-test was chosen. The results showed that instead of four groups of project organizations with one dominant culture, there are only three project organizations with the domination of one culture type: a project organization in which Clan culture type dominates, a project organization that has a dominant Market culture type and one with a dominant Hierarchy culture type. No project organization group was revealed characterized by the dominance of Adhocracy culture type. Continuing the investigation with these three project organizations, the present and preferred project culture profiles were compared. The results showed that in all three cases (project organizations) there are differences between the present and preferred project culture profiles. These differences are manifested mainly by the change of the dominant culture type but the remaining culture types determining the culture profile of the project organizations also show differences. Keywords: organizational culture; project manager; project organization; change; CVF.

Introduction Projects appear in various parts of our lives from highways, railroad constructions through software, product or service development till sport events and cultural gatherings. Knowing this requires the knowledge of the methods and techniques used during the planning and realization of projects. On the other hand, since project team members are gathered together temporarily the project organization develops its own culture. Cultural aspects have significant effect on the development and utilization of competencies being indispensable in the achievement of favorable market positions as well (Gaál et al., 2009). Taking these into consideration, after the introduction, we structure this paper in the following sections. First, we introduce project, project teams and organizational culture. Next, we present the research framework and the sample of the study. Then, the hypotheses and the chosen method are demonstrated, which is followed by the interpretation of the findings of the study. Finally, before the conclusion, the last section deals with the practical application of the results.

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Project and project teams Time, task, team and transition are four concepts illustrating how projects differ from other organizational form types. If we look at projects from an organizing perspective it can be perceived as a non-linear process during which things take place between the project start and end (Lundin & Söderholm, 1995). Being considered unique appears in having a unique task or solution thus it has no ready-made solutions and this causes uncertainty in projects (Hallgren & Maaninen-Olsson, 2009). Kerzner (2006, p.2) stresses the importance of objective when defining a project which according to him “can be considered to be any series of activities and tasks that have a specific objective to be completed within certain specifications (time, cost, quality)” while Gareis (2005, p.41) states that a „project is a temporary organization for the performance of a relatively unique, short-to medium-term strategically important business process of medium or large scope”. A project team plays an important role in project success. Based on the general team definition of Katzenbach and Smith (1993), project teams can be defined as temporary organizations containing a small number of people with complementary skills who are committed to the project’s purpose, a set of project goals, and a common approach for which they hold themselves mutually accountable. Aggteleky and Bajna (1994) differentiate between core-team and temporary-team members. While core-team members participate in the whole project process from the beginning to the end, temporaryteam members are specialist who enter into the project at a well-defined moment and work on the project for a certain time period based on the project time schedule (Figure 1).

Figure 1. Project team members (based on Aggteleky & Bajna, 1994)

Managing a project team is the process for "... tracking team member performance, providing feedback, resolving issues, and coordinating changes to enhance project performance" (PMI, 2013, p.199). The main task of this process is “to observe the team behavior, to manage conflicts, to resolve issues, and to appraise team member performance” (PMI, 2013, p.215). The expectations towards employees working in project organizations are also high especially regarding co-operational skills: they should be able to work well in teams, and to lead and maintain close ties with others outside the project organization (e.g. with other organizational members) (Pant et al., 1996). Project managers face a big challenge: while leaders of traditional organizations have longer time to create, develop and change the organizational culture, project managers have to concentrate on project goals and expected project results and less attention is paid and less time is given to the culture of the project team. Since the integrative perspective on organizational culture gave rise to academic discussions (Smircich, 1983, Archer, 1988, Martin & Meyerson, 1988) it is suggested by Henrie and Souza-Poza (2005) that project managers should look for information on project culture. Thus in the following, organizational culture and different organizational culture types are introduced.

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Organizational culture The phenomenon when "organizations have their distinctive ways of solving problems, treating employees, passing the traditions, etc.".."is called organizational culture by organizational and management sciences" (Heidrich & Chandler, 2011, p.667). According to Cheung et al. (2011, p.33) an "organizational culture gives identity to an organization". Schein (1990) believes that new organizational members need to be taught about organization culture and considers it as shared values and beliefs that guide behavioral norms in an organization. Kono (1990) also stresses the importance of shared values as one of the three elements of organizational culture besides decision-making patterns and overt behavior patterns. Organizational culture can also be considered as a way of shaping members’ behavior (Grey, 2009) however Smircich (1983) argues that interpreting it is influenced by one’s assumptions. Alvesson (1993) considers culture rather a dynamic concept than a static one since there is a change in time in the project environment, management focus, and partners. Martin (2002) uses three classifications to describe organizational culture: analyzing the content themes (espoused and inferred cultural values), mapping the formal and informal practices (rules, rules, procedure, and management styles), and analyzing cultural forms (describing physical arrangements, stories, rituals, humor, myths, and heroes). Literature provides several categorization of organizational culture being presented as follows. In Kono’s (1990) classification of culture types three axes that are related to performance and employee satisfaction were used: innovative vs. conservative, analytical vs. intuitive and social distance between hierarchy levels. Based on their combination five culture types were identified that are Vitalized, Follow the leader and vitalized, Bureaucratic, Stagnant, Stagnant and Follow the leader. While Handy (1993) by addressing the organizational phenomena that contribute to the successes and downfalls of business organizations used four types of culture to describe organizational culture, namely Power, Role, Task and Person cultures. These provide a framework for understanding organizational culture. Trompenaars and Hampden-Turner (2002) also define four types of cultures but based on their aspects of organizational structure that are the general relationship between employees and organization, the vertical and hierarchical system of structure, and the general view of employees about the organization’s goals. Taking these into consideration two dimensions (equality-hierarchy, and orientation to person or task) were used to distinguish four culture types: Incubator, Guided missile, Family, and Eiffel tower culture. According to Cameron and Quinn (2011) organizations are seldom characterized by a single cultural type and thus tend to develop a dominant culture over time as they adapt and respond to the challenges and changes in the environment surrounding them. They used the Organizational Culture Assessment Instrument (OCAI) to develop a measurement of organizational culture. The Competing Values Framework (CVF) aiming to find the most important criteria and factors for effective organizational operation was the basis for OCAI (Quinn & Rohrbaugh, 1981). This CVF developed by them allows an assessment of a dominant culture across six key cultural characteristics (dominant characteristics, organizational leadership, management of employees, organizational glue, strategic emphasis and criteria of success). It also recognizes the complex nature of culture based on two primary dimensions. The first dimension is related to formal–informal organizational processes and the extremes of this continuum represent the competing demands of flexibility and discretion versus stability and control. On the other hand, the second dimension reflects the conflicting demands of the internal organization and the external environment. Thus on the one end of this continuum the focus on internal integration, organizational processes, and structural stability and control appear, while on the other end the emphasis on competition, interaction with the environment, and a focus on outcomes. These dimensions create four quadrants representing four culture types: Clan, Adhocracy, Hierarchy and Market (Figure 2). This Framework also enables the mapping of preferred culture types besides the present ones (Cameron & Quinn, 2011).

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Figure 2. The four culture types (based on Cameron & Quinn, 2011)

This Framework was chosen for a number of reasons. Firstly, the model allows for the simultaneous existence of a number of different culture types within an organization, which is more suited to the project work. Secondly, previous studies have confirmed that CVF has already been used to measure organizational culture's relationship with various variables (Balogh et al. 2011; Bogdány, 2014; Bognár, 2013; Chandler, 2014; Ferreira, 2014; Wiewiora et al., 2013). Thirdly, the instrument developed shows current perceptions in comparison with preferences in the organization, thus gives an additional dimension of organizational values and perceptions. Research framework and research sample The Strategic Management Research Group at University of Pannonia, Veszprém started a study in 2014 investigating project organizations of various sizes. As members of the Research Group we were involved in the development and implementation of “Project management in the XXI century” questionnaire as well. One of the purposes of the research study was to categorize project organizations in Hungary based on their developed present culture profile and to reveal the difference between their present and preferred culture profiles. Based on this purpose the study aimed to answer the following questions: Question 1: How many groups of project organizations can be revealed based on their dominant culture orientation in Hungary? Question 2: Is there a difference between the present and the preferred culture profiles of the revealed project organization groups? The survey using the “Project management in the XXI century” questionnaire was conducted between 1st of March and 30th of September 2014. The questionnaire was available during this period and was sent out online and paper to organizations operating in Hungary. The participants of the survey were project managers. 695 questionnaires returned were analyzable. Table 1 lists the statistics on the characteristics of the organizations (for-profit/nonprofit, micro / small / medium / large) and the, number of project team members. Table 1. Statistics of the research sample Organization and project characteristics All Sector for-profit non-profit Size micro (1 - 9) small (10 - 49) medium (50 - 249) large (250 - ) Number of project team 0 – 5 members 6 – 10 11 – 50 51 –

N 695 540 155 89 150 152 304 216 275 168 36

% 77.7 22.3 12.8 21.6 21.9 43.7 31.1 39.6 24.1 5.2

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According to the sector, 77.7 % of the organizations are for-profit and 22.3 % non-profit. 12.8 % of these organizations are micro, 22.3 % small-sized, 21.9 % medium-sized and 43.7 % large-sized. 70.7% of the projects have less than 10 project team members, while 29.3 % have more than 11 project team members. The hypotheses, the chosen method and the findings Based on the research questions the following hypotheses are put forward for testing: Hypothesis 1: Four groups of project organizations can be revealed based on their dominant culture orientation. Project organizations with the domination of Clan, Adhocracy, Market, and Hierarchy culture types. Hypothesis 2: There is no difference between the present culture profiles versus the preferred culture profiles of the revealed project organization groups. The first hypothesis assumes that based on the project managers’ perception of the culture profile of their project organizations one of the four culture types will be more dominant than the others. While the second hypothesis is based on the result of the first one and assumes that the preferred culture profile of the project organizations does not differ from the present (current) culture profile they developed together and having the domination of one culture type. As the basis for the investigation a questionnaire including questions based on the OCAI of Cameron and Quinn (2011) was used. Within these questions four statements belong to each of the six key characteristics (dominant characteristics, organizational leadership, management of employees, organizational glue, strategic emphasis and criteria of success). To construct the culture profile of the project organizations the project managers were asked to divide 100 points over the four statements that correspond to the four culture types. The participants of the survey first filled in the ‘now’ column representing the present culture profile, after which they were asked to answer the ‘preferred’ column revealing the preferred culture profile for the future meaning that the culture in which they would like to operate in the future. The average score for each culture type is calculated by adding together the responses of each statements and dividing them by 6. This assessment method enables the measurement of the extent to which one of the four culture types dominates the culture profile. The higher the score is, the more dominant a certain culture type is. The method also allows comparison regarding the present and preferred culture types and by focusing on selected values changes in the culture can brought about (Cameron & Quinn, 2011). To test the first hypothesis cluster analysis was used. The aim of cluster analysis is to determine which objects are similar and dissimilar, and categorize them accordingly (Holden & LeDrew, 1998). As typical requirements of clustering the following features can be mentioned: scalability, ability to deal with different types of attributes, discovery of clusters with arbitrary shape, minimal requirements for domain knowledge to determine input parameters, ability to deal with noisy data, insensitivity to the order of input records, high dimensionality, constraint-based clustering, interpretability and usability (Gupta, 2008; Han & Kamber, 2006; Pujari, 2001). Regarding the clustering algorithm, we used K-means clustering being one of the oldest and most widely used clustering algorithms. K-means clustering being a prototype based, partitional clustering algorithm attempts to find K non-overlapping clusters that are represented by their centroids being the means of the points within the cluster. During the K-means clustering process every point is assigned to the closest centroid, and thus the collection of points assigned to the centroid will thus form a cluster. The centroids are updated taking into account the points assigned to the given cluster. The clustering process of K-means is repeated until the points do not change the clusters (Wu, 2012). The results of the analysis are presented in Table 2 and Table 3.

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Table 2 shows that three clusters were formed by using the K-means clustering. The first cluster contains 268, the second 164, and the third one 263 cases. Table 3. Final cluster centers of the project organizations Culture types Clusters 1 2 3 Clan 19 17 37 Adhocracy 21 11 20 Market 36 23 20 Hierarchy 24 49 23

Table 3 summarizes the final cluster centers of the project organizations. It can be seen that all three project organizations are not characterized by a single culture type. All four culture types are present in each project organization (cluster) but in all three clusters one culture type dominates (that is being highlighted). Figure 2 represents the culture profile of the revealed three project organization groups based on Cameron and Quinn’s (2011) framework.

Figure 2. Project organization groups based on their culture profile

The results show that instead of four groups of project organizations with one dominant culture, there are only three groups of project organizations with the domination of one culture: a group of project organizations in which Clan culture type dominates, project organizations that have a dominant Market culture type and one group with a dominant Hierarchy culture type. The analysis did not reveal any group of project organizations characterized by the dominance of Adhocracy culture type. Clan culture type is like an extended family and is considered a friendly place to work. Loyalty holds the organization together. Empowerment and facilitation of participant and their commitment is important. On the other, hand Market culture type is a result-oriented workplace, where market leadership is important and winning holds the organization together. Competitiveness and productivity are mentioned as core values and are achieved through emphasis on external positioning. Hierarchy

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culture type, where procedures govern people, is a formalized and structure place to work. The glue that holds the organization together is based on formal rules and policies (Cameron & Quinn, 2011). Based upon the findings the first hypothesis is party accepted and the following thesis could be stated. Thesis 1: Three project organization groups can be revealed based on their dominant culture orientation. A project culture profile with the dominance of Clan culture type, and another in which the Market culture type dominates and one that has a dominant Hierarchy culture type. Regarding the second hypothesis we used paired samples t-test to measure that there is no difference between the present culture profiles versus the preferred culture profiles of the three revealed project organization groups. We found this test appropriate, since it is used when two groups of values are related or connected to each other (Rubin, 2010) as the present and the preferred culture types of the project organizations in this case. Table 3 displays the results related to the paired samples t-test comparing all present and preferred culture types of the three reveals project organization groups (with Clan, Market, and Hierarchy domination). Table 3. Paired Samples Test

It can be seen that at all three cases the project managers would like to work in the future at project organizations where the features of the present dominant culture type would decrease most significantly (Clan: 4,4; Market: 7,0; Hierarchy: 16,7). This can be considered one of the most interesting results. In Figure 3 the length of the lines symbolizes the extent of change concerning the given culture type. That is, although at the first group of project organizations the project managers prefer to work in a culture with the dominance of Clan culture type, but its extent of decrease is significant and twice as large as the extent of increase of Adhocracy and Market culture types in respect of the preferred culture profile. The change of the culture profile also shows that there is a movement towards external focus and differentiation. This shows that they wish to be more effective by focusing on interaction and competition with those being outside their organizations (Cameron & Quinn, 2011). Concerning project organizations with dominant Market culture type the preferred culture profile in this case is also characterized by the dominance of Market culture type, but the extent of change shows that the most significant change (decrease) takes place regarding the Market culture type. This is

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followed by the significant increase of Clan culture type, while the smallest change can be seen at Adhocracy culture type. On the whole it can be observed that there is a different movement at these project organizations towards flexibility and discretion. Meaning, that they view themselves in the future effective if they are characterized by being changing, adaptable and organic (Cameron & Quinn, 2011).

Figure 3. The change of project organization groups’ culture profile

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Regarding project organizations with Hierarchy domination the larges extent of change can be revealed related to the Hierarchy culture type. Comparing all three project organization groups the largest and the most significant decrease of the dominant culture type can be discovered here. The ranking of the remaining three culture types in respect to the extent of change is: Adhocracy, Clan and Market culture types. The movement shows a mixture of the previous two cases since at this culture profile there is a movement on the one hand toward flexibility and discretion and on the other hand towards external focus and differentiation as well. Based upon these findings the second hypothesis is rejected and the following thesis could be stated. Thesis 2: There are differences between all present and preferred culture types at project organizations with Hierarchy domination, while concerning project organizations with Clan and Market domination difference can only be revealed regarding three culture types and in the remaining one there is no difference. Practical application Creating an effective project organization is always one of the biggest challenges for project managers. In case of normal organizational operation there is more time to plan a change management program in order to create the most desirable organizational culture. However project managers do not have the occasion to carry out any kind of change management program related to cultural changes. The result of our study shows that the preferred culture of a project organization should be a balanced one. Projects are complex, complicated one-time processes and these characteristics indicate the balanced feature of the culture of the project organization (Szabó, 2012, p.4). The project should focus on the external environment as well as on the internal integration and at the same time should have a certain degree of stability but should also provide the potential for flexibility. Once the culture has a dominant dimension the project manager and the project team face an imbalanced situation and the need for a balanced culture arises. In this culture effective knowledge sharing can also occur (Óvári, 2004). If project managers are aware of this phenomenon before starting a project, they have better opportunity to design their project organizations and to recruit the appropriate project team members for it.

Conclusion In this paper using the framework of Cameron and Quinn (2011) the culture profile of project organizations operating in Hungary was examined. The study on the one hand assumed that there are four groups of project organizations based on their dominant orientation and that the present and preferred culture profiles of these project organizations do not show significant difference. Based on Cameron and Quinn's (2011) CVF using the OCAI a quantitative survey was conducted. With a sample of 695 project managers the results showed that there are only three project organizations with the domination of one culture type: Clan, Market and Hierarchy culture types. Comparing the present and preferred project culture profiles the results showed that is a difference between the present and preferred project culture types at project organizations with Hierarchy domination, and at project organizations with Clan and Market domination three culture types show difference. References Aggteleky, B., and Bajna, M. (1994). Projekttervezés, Projektmenedzsment. Budapest: KözDok Rt. Alvesson, M. (1993). Cultural perspectives on organizations. Cambridge: Cambridge University Press Alvesson, M. (2013). Understanding organizational culture. 2nd ed. London: Sage Publications. Archer, M. (1988). Culture and agency. The place of culture in social theory. Cambridge: Cambridge University Press.

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Balogh, Á., Gaál, Z, and Szabó, L. (2011). Relationship between organizational culture and cultural intelligenc. Management and Marketing, 6(1), 95-110. Bogdány, E. (2014). Passing the leadership baton in Hungarian small- and medium sized enterprises. Pannon Management Review, 3(4), December, 87-118. Bognár, F. (2013). The impact of organizational culture and maintenance strategy in organizational business process. Pannon Management Review, 3(1), March, 93-127. Cameron, K.S. and Quinn, R.E. (2011). Diagnosing and changing organizational culture: Based on the competing values framework. Revised ed.. San Francisco: John Wiley & Sons. Chandler, N. (2014) A critical review of market-orientation in the organisational culture of postmerger organisations. Management and Marketing, 9(2), 111-124. Cheung, S.O., Wong, P.S., and Wu, A.W. (2011). Towards an organizational culture framework in construction. International Journal of Project Management, 29(1), 33-44. Deal, T.E. & Kennedy, A.A. (2000). Corporate Cultures: The Rites and Rituals of Corporate Life. Harmondsworth: Perseus Books. Ferreira, A.I. (2014). Competing Values Framework and its impact on the intellectual capital dimensions: evidence from different Portuguese organizational sectors. Knowledge Management Research & Practice, 12(1), 86-96. Gaál, Z., Szabó, L., Obermayer-Kovács, N., Kovács, Z., and Balogh, Á. (2009). Knowledge Management and Competitiveness through Cultural Lens. In Erzsébet Noszkay, E. (Ed.), The Capital of Intelligence: The Intelligence of Capital (pp. 85-97). Budapest, Hungary: ALMA MATER, Foundation for Information Society. Gareis, R. (2005). Happy Projects!. Vienna: Manz Verlag. Grey, C. (2009). A very short, fairly interesting and reasonably cheap book about studying organizations. 2nd ed. London: Sage. Gupta, G.K. (2008). Introduction to Data Mining with Case Studies. Prentice Hall of India. Hallgren, M., & Maaninen-Olsson, E. (2009). Deviations and the breakdown of project management principles. International Journal of Managing Projects in Business, 2(1), 53-69. Han, J., and Kamber, M. (2006). Data Mining: Concepts and Techniques. 2nd ed. Boston: Morgan Kaufmann Publishers. Handy, C. (1993). Understanding Organizations. 4th ed. London: Penguin. Heidrich, B., and Chandler, N. (2011). The effect of market-oriented subcultures on post-merger higher education institutions. US-China Education Review, 1(5), 666-681. Henrie, M., and Sousa-Poza, A. (2005). Project management: a cultural literary review. Project Management Journal, 36(2). 5-14. Holden, H., and LeDrew, E. (1998). Spectral discrimination of healthy and non-healthy corals based on cluster analysis, principal components analysis, and derivative spectroscopy. Remote Sensing of Environment, 65(2), 217-224. Katzenbach, J.R., and Smith, D.K. (1993). The Wisdom of Teams: Creating the High-performance Organization. Boston: Harvard Business School. Kerzner, H. (2006). Project Management: A Systems Approach to Planning, Scheduling and Controlling. New Jersey: Wiley & Sons, Hoboken. Kono, T. (1990). Corporate culture and long range planning. Long Range Planning, 23(9), 9-19. Lundin, R.A., and Söderholm, A. (1995). A theory of the temporary organization. Scandinavian Journal of Management, 11(4), 437-455. Martin, J. (2002). Organizational culture mapping the terrain. London: Sage Martin, J., and Meyerson D. (1988). Organizational cultures and the denial, channeling and acknowledgment of ambiguity. In Pondy, L., Boland, R., & Thomas, H. (Eds.), Managing ambiguity and change (pp. 93–125). Chichester: John-Wiley. Óvári, N. (2004). The future: knowledge sharing culture. Paper presented at MicroCAD 2004 International Scientific Conference, Miskolci Egyetem, Miskolc, Hungary, 18-19 March 2004. Pant, D.P., Allinson, C.W., and Hayes, J. (1996). Transferring the western model of project organisations to a bureaucratic culture: The case of Nepal. International Journal of Project Management, 14(1), 53-57. Project Management Institute [PMI] (2013). A Guide to the Project Management Body of Knowledge (PMBOK®). Pennsylvania: Project Management Institute.

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Pujari, A.K (2001). Data Mining Techniques. Hyderabad: Universities Press. Quinn, R.E., and Rohrbaugh, J. (1981). A competing values approach to organizational effectiveness. Public Productivity Review, 5(2), 122-140. Rubin, A. (2010). Statistics for evidence-based practice and evaluation. Cengage: Books/Cole. Schein, E.H. (1990). Organizational culture. American Psychologist, 45(2), 109-119. Schein, E.H. (2010). Organization culture and leadership. San Francisco, CA: Wiley & Sons. Smircich, L. (1983). Concepts of culture and organizational analysis. Administrative Science Quarterly, 28(3), 339-358. Szabó, L. (2012). Projekt menedzsment. Harlow: Pearson Publishing. Trompenaars, F., and Hampden-Turner, C. (2002). Riding the waves of culture: Understanding cultural diversity in business. 2nd ed. London: Nicholas Brealey. Wiewiora, A., Trigunarsyah, B., Murphy, G., and Coffey, V. (2013). Organizational culture and willingness to share knowledge: A competing values perspective in Australian context. International Journal of Project Management, 31(8), 1163-1174. Wu, J. (2012). Advances in K-means clustering. Berlin: Springer-Verlag.

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GAMES WITHOUT FRONTIERS? THE INTERPLAY OF SUBCULTURES AND THEIR TERRITORIES IN A HUNGARIAN BUSINESS SCHOOL Nick CHANDLER Budapest Business School 10-12 Buzogany, Budapest 1149, Hungary [email protected] Balázs HEIDRICH Budapest Business School 10-12 Buzogany, Budapest 1149, Hungary [email protected] Abstract. Using a combination of qualitative and quantitative methods, this study seeks to explore the diversity of culture amongst the staff of a business school in Hungary and then examine how this diversity may impact upon the organisation’s orientations towards three aspects of market orientation: interfunctional cooperation; competition and the student orientation. The diversity of culture is found through the identification of five subcultures. These subcultures exhibit signs of both heterogeneity and homogeneity as two pairs of subcultures are divided not by differences in values themselves but by the expressed strength of values. The empirical findings indicate that each subculture varies in perception of the dominant cultures of the organisation and its particular market orientation in relation to culture type. Furthermore, some subcultures perceive themselves as enhancing, when this may not be the case and others perceive themselves as counter cultures. The qualitative study confirms that subcultures have both homogenous and heterogeneous aspects in relation to other subcultures as well as the perceived dominant culture. This greater complexity gives an extension to the existing perspectives taken on organisation culture, although this would need to be confirmed with generalizable research. Keywords: Business School; subcultures; heterogeneity; homogeneity.

Introduction The notion of territory seems endemic with subcultures. In the 1950s street gangs called ‘the Bills’ were named after their territories and gang wars globally display a distinct sense of territory and boundaries. This is not to say that all subcultures have distinct territories and boundaries, as with the Harley Davidson subculture (Schouten & McAlexander, 1993), the basis for commonality was common consumption habits based upon common values that transgressed boundaries as Schouten and McAlexander (1993) claim the four main elements of the subculture to be: “consumer-initiated newproduct development, mass-marketed mystique, extraordinary brand identification, and transcendence of national and cultural boundaries”. This paper seeks to examine whether subcultures in higher education can be considered inherently territorial or with transversal boundaries within the context of recent changes in Hungarian higher education. The change drivers in both public and private organisations are often cited as: globalization, economic rationalism and information technology (Burke & MacKenzie, 2002; Weber & Weber, 2001). Following recent changes in Hungarian higher education, Business Faculties of universities and colleges and Business Schools are left with significantly less income from the government and with less students applying for their programmes, which are now almost all tuition fee based. Recent enrolment statistics show a 50% decline in the number of applicants to business programmes. The two latest changes to the Budapest Business School, the focus of this study, being firstly that as of 1 July 2013 a significant amount employees retired because working and receiving pension at the same time became illegal. At some Faculties (Colleges) of BBS the rate of retirement of lecturers over age 60 was as high as 30% of the total teaching staff. Secondly, all HEIs in Hungary are required as of

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September 2014 to have joint governance with the rector dealing with academic issues and the chancellor as a representative of government, dealing with financial and staffing issues. The aim of this study is to consider the culture of the entire organisation as it bears the weight of these changes.

The potential for cultural complexity The concept of a homogenous organisational culture is referred to as the unified or ‘unitarist’ perspective which allows the classification of organisation culture. However, the larger and more complex an organisation becomes the less likelihood of a monolithic culture with all members of the organisation ascribing to the same values. Kuh and Whitt (1988, p.27) highlight this point in the context of higher education: “the ‘small homogenous society’ analogue … is surely strained when applied to many contemporary institutions of higher education”. Moreover, Bowen and Schuster (1986) found that members of different disciplines showed different values, attitudes and personal characteristics. The concept of a culture having a number of differing cultures existing simultaneously within the organization seems to allow for the complexity of different functions and professions, varying locations, as are found in higher education, and yet the question arises as to whether these cultural types co-exist within one culture or are rather indicators of significant fragmentation with the organizational culture. Subcultures are more likely to develop in bureaucratic, larger, or more complex organizations since these organizations are more likely to encompass a variety of functions and technologies (Trice & Beyer, 1993). The Budapest Business School was initially three separate colleges until a merger in 1999. The three colleges have remained in their locations after the merger in 1999, although the structure was changed from a hierarchical to a matrix one as a means of encouraging greater cooperation and contact across the three colleges. Territorial notions There are many pressures upon staff in Higher Education institutions (HEIs) to direct their focus towards a particular area: lecturers may feel pulled (or pushed) towards a focus on research or reputation, administrative staff may see students as the number one concern and management may be concerned with enrolments and survival as well as staying ahead of the competition, to name but a few possibilities. Early works on academic culture such as Becher’s (1987) tribes and territories, HEIs are perceived as comprising of diverse groups, protective of their territories and rather heterogeneous in nature. Furthermore, Musselin (2013, p.26) refers to the academic profession as “simultaneously affected by bureaucratic and market forces”. The apparent diversity across functional and hierarchical divisions and the tug-of-war between internal bureaucracy and external market pressures indicate the need for an extensive study beyond the espoused values and desired orientations offered by top management. Hence, this study seeks to explore the role that interfunctional collaboration plays in this picture, but rather between departments and faculties rather than looking for external collaboration with employers and other institutions, and consider all employees from all levels and functions of the organisation. Becher’s (1987) metaphor of academic tribes and territories carries with it images of groups fighting over a scarcity of resources and attempts to push forward existing boundaries as a means of increasing resources available. This doesn’t seem to far from the image of academic departments looking to increase yearly budget allocations at the expense of others and aiming for a greater range of courses or projects that may be seen as ‘belonging’ to other departments. It may be easy to imagine wise tribal elders who know the ropes and are more highly respected by younger generations. Becher claims that boundaries even exist within boundaries and mini subcultures exist through specializations within a given discipline. Yet despite the apparent plethora of boundaries, Bergquist (1993) found that the

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borders between the disciplines and specializations in HEIs are vehemently upheld to such an extent that in many cases only the administrative staff and librarians are allowed to be interdisciplinary. Tierney (1988) asserts there may be numerous subcultures in a university or college. As subcultures may emerge in reaction to external factors such as a forced merger, new technology or a desired market orientation, it should be noted that this study is concerned not solely with the strategic level thinking of top management but rather the entire staff that make up the Business School. The reason for including the entire staff in this study is not only as a means of getting a snapshot of the culture of the entire organisation rather than the espoused vales of top management but also as all levels of the organisation have contact or connection with the student. Traversing boundaries Martin and Siehl (1983) categorised organizational subcultures into enhancing, orthogonal, and counter cultures. Within the context of Schein’s pivotal and peripheral values this subculture typology indicates a co-existence of subcultures within an organisation without detriment to the dominant culture and its core values. In enhancing subcultures, members adhere to dominant organizational culture values enthusiastically, with both pivotal and peripheral values being consistent with the larger organization’s core values. In orthogonal subcultures members uphold the dominant cultures’ values as pivotal values, but they also have their own set of distinct, but not conflicting, peripheral values. The third type is the counterculture. In a counter culture, the members reject the core values of the dominant culture and have peripheral and pivotal values contrary to core organizational values. In this study, the perceptions that subcultures have of themselves as enhancing, orthogonal or a counterculture will be examined in relation to other subcultures as well as the market-orientation. This typology of subcultures can be seen in higher education, as according to Martin and Siehl (1983, p.53), an orthogonal subculture was found in faculty as they ‘simultaneously accept the core values of the (institution) and a separate, unconflicting set of values particular to themselves’. Kuh and Whitt (1988, p.50) proposed that in higher education there may be “conforming (enhancing) or orthogonal enclaves, such as the faculty senate, that may challenge aspects of the dominant culture”. Hatch (1997) presents a slightly modified view of subculture types as they are seen on a scale of increasing diversification rather than as three concrete types, as can be seen in the following figure:

Figure 1. The diversification of subcultures (Hatch, 1997, p.229)

As can be seen in the figure, a unitary culture refers to the integration or unitarist perspective of Martin (2002) with a single monolithic organisational culture. An integrated organisational culture is when the enhancing subcultures are a part of the overall dominant organisational culture which may be seen as a combination of the integration and differentiation perspectives of Martin (2002). The slightly differentiated organisational culture refers to a collection of both enhancing and orthogonal subcultures, with varying combination of peripheral and pivotal values and still takes a combination of

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the integration and differentiation perspectives of Martin (2002). A significantly differentiated culture refers to no enhancing subcultures and only orthogonal or counter subcultures. The subcultures may be heterogeneous (a differentiation perspective), but there is still the existence of a dominant culture as well. In the disorganised form of organisation, there is no dominant culture and subcultures have no common values, which takes the fragmentation perspective of Martin (2002). Hatch’s (1997) work not only serves to support the possibility of a multi-perspective approach to research into organisational culture but also entertains the idea that the cultural map of an organisation could be one of a number of possible combinations with varying degrees of common peripheral and pivotal values for enhancing and orthogonal subcultures, countercultures, a dominant culture and fragmented sections of ambiguity and uncertainty. Yeung et al. (1991) found clusters of cultures within a single firm and developed typologies based on these culture types as follows: the ‘group culture’ is a subculture with a high degree of commitment, loyalty and tradition (‘employee-oriented culture’, Hofstede, 1990); the ‘hierarchical culture’ has a large number of professional rules and policies (‘profession-oriented’, Hofstede 1990); the ‘rational culture’ puts a focus on the accomplishment of tasks and goals (‘task-oriented’/ ‘results-oriented’, Hofstede, 1990); and the ‘developmental culture’ has a strong commitment to innovation and development (‘innovation-centred’, Hofstede, 1990). This list of four typologies is not exhaustive and should not be seen as discounting the concepts of pivotal and peripheral values, as each of them may contain the aspects required to become one of three typologies put forward by Schein (1988). For example, the value of commitment, loyalty and tradition of the group culture could be the pivotal values of the subculture and it may have other peripheral values which are in contrast to the overarching values of the dominant culture. However, this does indicate another means by which subcultures may be classified. In contrast with this, Alderfer (1987) finds two types of groups in organisations; organizational groups (based on tasks, hierarchy, location etc.); and identity groups (based on birth, race, gender, social origins etc.). Salk (1989) adds a third group referred to as the associational groups (based on external associations such as political party, educational and professional group memberships). Merton (1957) characterizes different behaviours of staff members as part of their role sets and in connection with this, role expectations and norms appear. An example of this could be that of a teacher in an HEI who is part of an occupational group with a strong orientation towards research and learning and whose expectations are constrained by local government and the Ministry of Education. Likewise a female teacher may have role expectations associated with gender or marital status despite being in a professional context. This seems to indicate that typologies may be far more complex than simply three or four groupings and that there are possibilities for overlap as mentioned earlier when referring to subculture boundaries. When considering typologies of subcultures, those used for organisational culture may also be applied. For example, the question of whether a culture is strong or weak, soft or hard, formal or informal, could also be examined in the context of subcultures in relation to other subcultures or the overall dominant culture within an organisation (Boisnier & Chatman, 2002). Methodology To study the organisational culture of the Budapest Business School, a mixed methods approach was used. Following the literature review and the inherent complexity of culture in higher education, a method was sought that would uncover the disparity of values rather than generalize the entire culture into one specific type. Furthermore, a method was considered by which subcultures could emerge. Although a few studies pointed towards initiating the study with a qualitative approach, however there were concerns that methods such as interviews might highlight the values and perceptions of a number of individuals but not be considered representative of an unknown number of subcultures. Moreover, usage of this method to uncover subcultures in the entire organisation presupposes that all staff have an awareness of culture, subcultures and the values of other members across an organisation that is

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split by location and still feeling the effects of a merger. We considered this assumption too great a leap of faith and opted for a quantitative approach as a means of assessing the key characteristics that fit the definition of subcultures as: “a subset of an organisation’s members who interact regularly with one another, identify themselves as a distinct group within the organisation, share a set of problems, and routinely take action on the basis of collective understandings unique to the group (Van Maanen & Barley, 1985). Thus, the initial study measured organisational culture using the Organisational Culture Assessment Instrument (OCAI), which is based on the Competing Values Framework (CVF). This Framework was originally designed and implemented by Cameron and Quinn (1999) in an educational context and it has since been used to analyse the organisational cultures in many HEIs around the world (Kleijnen et al., 2009; Ferreira and Hill, 2008). The model allows for a number of different cultural types to exist simultaneously within one organisation and has already been used in Hungary although not for a higher education institution (Gaál et al., 2010). Using the data, a hierarchical cluster analysis was undertaken using Ward’s method as a means of identifying potential subcultures. This method was used by Hofstede (1998). In this way, participants are grouped into clusters based on the commonality of values across four dimensions (see figure 1), and using SPSS software this results in a dendogram (tree diagram). The Market Orientation Inventory (Hemsley-Brown & OPlatka, 2010) was used to assess the orientation in the organisation, which was developed for a higher education setting and considers three dimensions of market orientation: customer orientation, competitor orientation and interfunctional orientation. This study uses two models for assessing the culture and orientation of the organisation. The first model based on the Competing Values Framework (CVF) designed and implemented by Cameron and Quinn (1999), and uses the Organisational Culture Assessment Instrument (OCAI), which is. This model distinguishes four culture types (clan, adhocracy, market, hierarchy) using four dimensions: internal focus and integration; external focus and differentiation; stability and control; and flexibility and discretion. This may be explained using the table below, which is referred to as the ‘competing values map’ (Cameron & Quinn, 1999): Flexibility / Discretion Internal focus and integration

Clan

Adhocracy

Hierarchy

Market

External focus and differentiation

Stability / Control Figure 2. The common dimensions of the four cultural types

The second model is that of Hemsley-Brown and Opatka (2010), which divides market orientation in a higher educational setting into three areas: student, cooperation and competition orientation. This instrument was used as a means of detecting perceptions of subcultures with regard to the organisation’s orientation and comparing this to their values. Since the quantitative study two years have passed during which funding and enrolments have dropped and a large proportion of the teaching staff has been forced to retire. The aim of the qualitative study was to examine the subcultures after these many changes and compare the findings to those of the quantitative study in relation to values and market-orientation. When conducting the qualitative interviews purposeful sampling was employed in an attempt to obtain representatives from all five subcultures according to the results from the previous quantitative study. The group interviews were semi-structured and adapted from those used by Hofstede et al. (1990), but if other issues were raised, those were also addressed. The questions can be seen in the summary of findings for the qualitative study. A total of five approximately 50-minute group interviews took place with 4-6 members per group.To ensure the understanding of participant responses the researcher summarized and reiterated

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responses immediately after they were stated for each group.Interviews were conducted in a private onsite room as a means of maintaining confidentiality and trust with the participants. Findings (quantitative) From a total possible 959 employees from all levels of the organisation, 369 completed questionnaires were received (38.5%), from which 3.5% were either incomplete or invalid, giving a final sample of 35% (334 employees). The distribution and characteristics of the participants into clusters can be seen in the following table: Table 1. A summary of the most common characteristics by subculture Subculture Dominant characteristic 1 2 3 Size (number of 140 84 34 persons) Dominant culture Market Clan Hierarchy type Perceived dominant culture Hierarchy Hierarchy Hierarchy type

4

5

30

44

Strong Hierarchy

Strong Clan

Hierarchy

Clan

Position

Lecturer

Lecturer

Office staff

Office staff

Lecturer

Function (Teaching/admin./ unskilled/mgt.)

Teaching

Teaching

Admin

Admin

Admin

< 5 and 10-20 years (two groups)

10-20

10-20