Technical University of Crete

Department of Production Engineering

and Management

Mari Miil

How To Manage CSR, Innovation and Fuzzy Front EndProject in the course: Management Problem Solving

Tutor: prof. Moustakis

Hania 2005

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ContentINTRODUCTION..................................................................................................................31. CONCEPTS OF INNOVATION, FFE AND CSR..............................................................6

1.1 Innovation....................................................................................................................61.2. Fuzzy Front End .........................................................................................................91.3. Corporate Social Responsibility................................................................................11

2. CSR IN THE INNOVATION PROCESS........................................................................132.1. Integrating CSR Into Innovation Process..................................................................132.2. Description of the Environment for Business ..........................................................142.3. How the CSR Innovation is Supposed to Work? ....................................................152.4. CSR+Innovation=CSI...............................................................................................17

3. FUZZY FRONT END OF CSR INNOVATION.............................................................213.1. Concept Definition....................................................................................................223.2. Idea Generation.........................................................................................................243.3. Idea Selection............................................................................................................243.4. Testing the Ideas........................................................................................................25

4. CASES ............................................................................................................................264.1. Case study 1: PART – Credit for Viable but Unbankable.........................................26

4.1.1. Company profile................................................................................................264.1.2. Concept for the Innovation: Community Reinvestment Trusts.........................274.1.3. What Does the Project Do?...............................................................................284.1.4. Comments..........................................................................................................30

4.2. Case study 2: Reputation Driven CSR......................................................................324.2.1. Company Profile up to 90s................................................................................324.2.2. Concept for the Innovation: Proclaiming Social Values with Products and Campaigns...................................................................................................................334.2.3. Logical Gap Between Proclaimed Aims and Outcomes....................................344.2.4. Comments..........................................................................................................36

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INTRODUCTION

Corporate social responsibility (CSR) and organizational innovation are two key business

challenges for the 21st century. They are given increased attention for the important role

they can play in the effective management of risk, increase of social values, enhancement

of productivity as well as development of strategy and competitive advantage. The business

and research communities are getting more interested in these two important areas to

combine and put together in the practice. There are corporate social responsibility

innovation projects put into performance in collaboration with businesses, research centers

and public sector.

In this thesis I will have a look how to manage innovation and its fuzzy front end when the

innovation goes beyond new product development and comprise of renewal of the whole

philosophical background of the company leading to creating a organisation acting socially

responsibly in every possible stage of their activities. The importance of innovations under

this thesis is not in the new product, but the innovations which can propel the firm into a

self-renewal process, including the new quality thinking in the context of the whole

company.

Innovations are crucial for businesses to survive. Who is the leader of the market often

largely depends on who is the best in managing the innovation. The innovations are hard to

get through so the technical and procedural ideas how to do it are important. Innovation can

be best understood as an information process which is then concreted as a product that

meets demand.

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Innovation does not proceed through logical deduction, but rather is furthered by the use of

metaphors and analogies. The bureaucratic structures of a company can be challenged to

provide the space for innovations to emerge. If we want to determine the future as

accurately as possible, we eliminate the eureka-moments that may become very important

or even definite in the future innovation process. Therefore also the leader’s and manager’s

role in the innovating firm is as a catalyst and facilitator, not as an all knowing despot.

The most vague but important part of innovation is considered to be the first stage – fuzzy

front end. The front end includes all aspects that boost the exploration of a new way of

thinking for the company. The front end is the process phase that includes all aspects that

deal with new ideas for innovations. Therefore it is important also in this thesis to

investigate how to deal with this part of the innovation in order to create a successful

background for the future stages of innovation.

One possible outcome of innovation can be considered a preparation and putting into effect

of a corporate social responsibility management model. It means that the companies’

dedicate not to the quality of a product or service but to the quality of life. Therefore goals

of the socially and environmentally sound businesses have to be rethought in the context of

a socially responsible firm and as it can been put, corporate social responsibility is an

everlasting journey for a company to always move on and learn about their new

responsibilities in the changing world.

As the main concepts under this thesis – innovation, fuzzy front end and corporate social

responsibility are dealt differently by researchers and managers of the companies

depending on the context, I first give explanations of these terms under this project.

In the second chapter I integrate two notions – innovation and corporate social

responsibility – and see how a CSR innovation is supposed to work. I also give an

overview of environment for business, because innovation and the agents to take into

account depend on how the surrounding network behaves and what kind of cooperation is

needed in order for the CSR innovation to be successful. A new concept of corporate social

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innovation (CSI) has been introduced to merge the two concepts and in the second chapter I

also give an overview of the suggested shift from CSR to CSI.

In the third chapter I deal with structuring the fuzzy front end of the CSR innovation

process giving basic ideas how to define the innovation concept, what to bear in mind

while generating and selecting the ideas and how to test the chosen ideas before project

management and marketing stages.

In the fourth chapter I present two cases illustrating the innovation-projects carried out in

two companies. First of the cases illustrates a successful CSR innovation about establishing

a partnership between business, social care and research center aimed to offer financial

services to people normally turned down by mainstream banks. Secondly I analyze a case

where the innovation projects carried out through years almost led a company to

bankruptcy due to the fact that the business goals and social aims were not in balance and a

company was accused of misleading the consumers and other parts of society with its CSR-

oriented public relations activities which in reality had no benefits for the society but only

for the business's profit.

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1. CONCEPTS OF INNOVATION, FFE AND CSR

1.1 Innovation

Innovation is commonly defined as novelty leading to value creation on the market. The

Draft Innovation Action Plan of the Commission defines innovation as the commercial

application of existing knowledge in a new context. This gives innovation a wide scope.

The plan makes two practical distinctions: between innovation and research, which is

concerned with the creation of knowledge; and between innovation and entrepreneurship,

which is about identifying market openings which innovation can fill (Kemp, 2004 p.3).

Innovation is sometimes also understood as the act of producing or adopting. The

innovation that is being developed or adopted may be new to the world or new to the

company. It need not be based on R&D. The concept “invention” refers to discovery, for

example when a researcher makes an invention. A great deal of innovations are not based

on discovery. An example is the adoption of an environmental management system or

better waste management. The innovation concept covers the whole sequence from idea to

commercialization on the market and should be seen as closely related to competitiveness.

(Kemp, 2004, p.6).

There are also other concepts of what is meant by innovation. For example, Green Paper on

Innovation of 1995 described innovation as the renewal and enlargement of the range of

products and services and the associated markets; the establishment of new methods of

production, supply and distribution; the introduction of changes in management, work

organization, and the working conditions and skills of the workforce. The UK government

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describes innovation as the successful exploitation of new ideas, incorporating new

technologies, design and best practice in the business process. The Netherlands’

government sees innovation as a renewal, which crystallises in products, processes or

organisational forms. For it, the essence of innovation in enterprises is the conversion of

knowledge into money. Innovation brings sustainable economic added value and uses

knowledge f or the solution of societal bottlenecks. Innovating has also been seen as a

learning and testing laboratory for unsolved problems and unmet needs – things that don't

fit or don't work (Kanter, 1999, p. 123-124).

The importance lies not so much in how we define the innovation but how successful is its

application in reality. A good test of any organization’s current ability to innovate would be

to ask such questions as:

● who is responsible for systematically collecting information on the external

business environment?

● how is it then distributed to those managers who can use it effectively in their work

(and modify their current assumptions)?

● how many departments besides R&D are judged on their ability to introduce

innovations in their policies and procedures?

● does the organization provide training programmes in both organizational

leadership and creativity? (Sharman, 1997, p.85),

but also:

● are the ideas closely linked to the strategic goals of the company?

● what are the obvious benefits for the customers and users?

● are the early stages of innovation process also structured on the necessary level?

(Borddrich, 2004, p.274)

There can be several types of innovation. Based on the nature of the outcome of he

innovation we can distinguish technological, service and institutional innovation (Postnote,

2004) as demonstrated on the figure 1.

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Figure 1. Different types of innovation

• Technological innovation involves the presentation of a new or improved product, or a

new process by which products are made. Innovation is often characterised as passing

through a line: research – demonstration - commercialisation - diffusion. However, these

stages do not necessarily occur sequentially, as knowledge, skills and ideas are moving

forward and back from one stage to another.

• Service innovation involves a shift from selling products to selling services. A company

may shift from selling large quantities of chemicals to selling the service the chemical is

used for, such as cleaning. Cost reductions, improved resource productivity, and ease of

monitoring the life-cycle of products are among the stated benefits.

• Institutional innovation involves the creation of new organisations, or new approaches

to the way organisations operate. It reflects new modes of thinking, changed organisational

priorities, and cultural or social changes. The theme in my thesis - corporate social

responsibility (CSR) - is one example of institutional innovation. It is suggested that CSR

benefits companies by enhancing their reputation, improving competitiveness, and

strengthening their management of corporate risks (Postnote, 2004).

However, the other kinds of innovation can also have sustainability aims and a company

continuing to act on the basis of the previous management system, can add some new

services, for example, to benefit the society or environment. Still, the real change to

applying CSR is considered to cover all the company. In reality the companies usually start

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with pilot project changing one or few elements of the whole business system (e.g. ordering

the waste-treatment from an environmentally sound firm), which might seem marginal,

before the changes towards applying CSR management system are introduced. The

important thing is that the engine driving this kind of changes have to do with values and

philosophical approach to doing business, not so much with raising the profit. This can also

be the key-point to recognize if the innovation activity of a company has CSR, NPD or

other kind of aims to achieve.

Several factors affect the innovation. Normally a companies prioritises the activities based

on the analysis of profit, but nowadays more often the social and environmental benefits of

products and services are overlooked because of competitive pressure, to avoid the risks or

because of other reasons. New projects are sometimes unpredictable at least to some extent

so it is hard to say the amount of investment, and it is also hard to find waterproof

expertise, knowledge about something that is supposed to be totally new. In case of CSR

we have a long-term innovation process and that requires more commitment and the

amount of uncertainty is bigger than of those with short term tangible benefits like NPD

can often be.

1.2. Fuzzy Front End

The innovation process is classically divided into three areas – the fuzzy front end, new

product development - including projects and results - and commercialization of the

tangible and approved results (diffusion). The term “fuzzy front end” first appeared 20

years ago in an article written by Reinertsen, Donald in Electronic Business (D.Reinertsen,

1999, p. 25) but became more popular in 1990s and focused mainly on the technical and

qualitative aspects of the term. Nowadays it has been realized by the companies that in

addition to this, speed is a crucial factor of the FFE to be a success.

The FFE is considered to be chaotic, experimental, unpredictable, but still the greatest

opportunity for improvement of the whole innovation process. As demonstrated on the

figure 2, two starting points for fuzzy front end can be ideas, which have to be selected, and

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opportunities, which have to be analyzed (Koen, p.8). Based on these two pillars a concept

for a change can be defined.

Figure 2. Activity elements of FFE

In this first stage of the innovation process successful innovative enterprises generate a

sustainable flow of ideas before starting innovation projects. It is believed that though the

FFE is a most creative stage of the whole innovating process, it still needs to be structured

and has to have some kind of order, sometimes even through computers (technocratic route

of innovation). It has also been said that in order for the managers to allocate the budget,

the vague and fuzzy ideas have to be formattable into more concrete project proposals and

therefore the fuzziness has to be eliminated from the front end. So there are managers and

theoretical approachers who try to take fuzziness out of the front end suggesting that in

order to be quick in innovation FFE process has to be well structured and well tuned to the

market (see, for example, D.Reinertsen, 1999). At the same time it has been argued that

FFE has to remain fuzzy, free and chaotic in order for the ideas to remain creative (fantasy

route of innovation). The truth lies somewhere between these two directions. As it is

suggested, FFE process should be balanced between creative scopes and well-structured (in

some cases computer-aided) idea pipelines (Borddrich, 2004, p.274).

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1.3. Corporate Social Responsibility

The past 20 years have seen a number of attempts to engage business in the provision of

public services. According to the rules of corporate social responsibility (CSR) and

sustainable development, a company has not only to meet the needs of customers but it also

has to find ways to diminish the malign influence of its activities to society and the

environment. This means that the companies’ dedicate not to the quality of a product or

service but to the quality of life. The companies’ contribution to the society in general can

be called CSR, which means “business commitment and contribution to the quality of life

of employees, their families and the local community and society overall to support

sustainable /…/ development” (Lockwood, 2004). Therefore goals of the businesses have

to be rethought in the context of a socially responsible firm and as it has been said, CSR –

like also TQM nowadays - is an everlasting journey for a company to always move on and

learn about their new responsibilities in the changing world.

However, it is not possible to come up with a common notion about CSR applicable in

practice to all businesses, because, as we see in chapter 3, every company has to focus on

what is relevant to that company and find its own way to construct the responsible business

practice. The important thing has said to be realization that CSR changes over time and

therefore also companies have to constantly “learn more about their responsibilities and

how to address them as they go along” (Olsen, 2004).

At first glance it might seem impossible to find a valid reason for a company’s management

or board to start an innovation which is going to lead not necessarily towards profit but

somehow to vague aims of creating a new let's say environmental-friendly way of

operation. From the point of view of a traditional company it doesn’t pay off to be socially

responsible because it is not in the interest of owners to refrain from profit maximization.

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Despite of that, as we can see in further chapters and in case studies, there is evidence of

businesses acting in a socially responsible way and trying to include sustainability issues

into their innovation processes.

In the next chapter I will discuss more in detail how and why businesses integrate CSR

issues into their innovation activities and what are the main agents that have to be noticed

and taken into account by the managers while planning the CSR innovation.

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2. CSR IN THE INNOVATION PROCESS

2.1. Integrating CSR Into Innovation Process

The innovation is seen as the development and successful exploitation of new ideas

(Postnote, 2004). Creating synergies between innovation policies and environmental

policies play a central part in integrating sustainability issues into the economic process. It

is not an easy task. The dichotomy between competitiveness and environmental-social

issues still exists and is embodied in policy regimes, economic and other social theories as

well as wider societal understandings (Andersen, 2004). Therefore the innovations

achieving CSR aims are differently built, have different influencing agents and different

outcome than traditional NPD innovations.

Fig.3. Influencing factors of CSR innovation process

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2.2. Description of the Environment for Business

Before starting the innovation process it is important to examine the situation of the

company – both the external (competitors, governmental rules, customers etc) and internal

(organizational capabilities, techniques and know-how available and used in the company

etc). We need to know the trends in the environment, requirements of the customer,

commitment of the managers and stuff, observe the competitors and now how to adjust to

the laws (Longo, 1997) in order to identify the influencing factors for the whole innovation

process (look fig.3).

Organizational capabilities determine whether an how the opportunities and identified

and analyzed, how ideas are selected and generated and how concepts and technologies are

developed. It also shows how a company is ready to deal with the external influences and

factors – for example, ability to close a joint agreement with other companies for

developing and supporting a local educational matters, efforts for gaining ISO 14000

certificate etc.

Science and technology changes become important at the point they are used permanently

or repeatedly, not as a exclusive pilot project that is probably never used again. When the

new technology is proved to be applicable in reality we can say it pays to take it into

account as an influencing factor for innovation planning.

Outside world - one reason for taking on CSR by companies is the pressure by different

interest groups – customers, competitors, governmental action, non-governmental

organizations - outside the company. Profit depends on customers, and customers

increasingly demand companies to take into account the needs of society and the

environment. The laws and other governmental activities are considered to be the quickest

and most powerful means of making companies meet the requirements for sustainable

development. Governments are also expected to function as negotiators between different

interest groups in sustainability-related discussions.

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When it comes to the CSR innovation, the last question is crucial and should be dealt with

extra care – how to cooperate with the outside world in order for the CSR innovation to

really happen. There is a strong argument that collaboration between sectors can help to

bring forth new perspectives on tackling social problems and a working culture that

prioritises effectiveness, citizen satisfaction and successful outcomes. The reality of these

partnerships has been much patchier than the rationale for them, and their ability to produce

better services at a reduced cost has been seriously challenged. This is partly because these

attempts at partnership have done very little to challenge the underlying concepts and ideas

that frame the kinds of services on offer and the settings in which they are delivered. Most

PPP contracts have simply transposed a standard service model into a different delivery

context. When the state relies on formal contracts to specify service levels and ensure

accountability, it reduces much of the scope for innovation and shared problem-solving that

it seeks in the private sector. The complexity, bureaucracy and uncertainty behind these

agreements have worked against creativity and innovation.

Government and the public sector may still be missing opportunities for innovation and

improvement through cross-sectoral partnerships. What the public sector may be able to

gain from business is not increased efficiency but new ideas and the capacity to learn and

renew. For this shared learning to occur, we need to create a space between the sectors, to

pool expertise and resources. Innovation can occur in environments that bring together

different working cultures and organisational resources to meet a common social challenge.

Government needs to play a role in creating and facilitating this space and to learn from

what emerges. Companies can take an opportunity to contribute, and to learn, by

committing resources and energy to innovating in the social spaces that already exist (Jupp,

2002, p. 22-27).

2.3. How the CSR Innovation is Supposed to Work?

Companies’ managers need to respond to a challenging question concerning the

interpreting of all influencing factors – what is the organization capable of in inventing and

fulfilling the innovation, what are the available tools for fulfilling the aims, what is the

society’s attitude, governmental rules and activities of NGOs etc. In case of developing a

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CSR model we deal with wide scope changes which we can call institutional innovation.

One way is to modify the existing management system, for example, a TQM model of the

company. In the TQM model it is necessary to ’map’ the environment surrounding a

company but we can also see the elements of a CSR model to be suitable here. AS the

outside environment has always been taken into account while developing the management

systems, in case of CSR innovation the importance of these influence groups in companies’

decision-making process has to be bigger. Society’s opinion, governmental rules and

customers needs have always been there but in applying the CSR operating model it is

crucial for a company to build a successful partnership with these interest groups.

Therefore the importance of mapping different expectations and demands from outside has

also a more significant role to play in initiating the CSR innovation.

Another example of CSR innovation is for example modifying the term ‘quality’. If a

customer defines quality as something being important from society’s and the

environment’s point of view, a company has to take it into account in management

decisions. Therefore, the term ‘quality’ includes the way to action and philosophy of

existence determined not only by customers, but also by society in a broader sense.

Moreover, as for sustainability the term ‘quality’ is defined as something that a customer

needs in a long perspective, not what he or she wants right now. Here lies a clear message

for companies to concentrate on sustainable ways of production and therefore focus on

needs rather than clearly stated demands of a customer, which are sometimes not oriented

to sustainable activities.

What are the possible interests of an owner of a company to create a CSR management

system? Is it really profitable to give in to the pressure groups of society? The answer is

partly linked to the expectations of these pressure groups, namely, public opinion and

therefore reputation of a company. Public opinion means nowadays a lot to a company’s

success. So if a good reputation means taking socially responsible action, then companies

put some efforts there even if it means (temporary) money loss. But furthermore, socially

responsible procedures can help a company to manage risks and prevent losses, attract and

maintain more skilled labour force, gain competitive advantage through innovation etc.

(Little, 2003). In other words, if it means success and it is therefore profitable to be ethical,

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then businesses will be, and if it is needed to add ethical values to the existing BSC or

TQM models in order to, in a long perspective, improve financial results then businesses

will do it. Therefore, although there is no clear linkage between CSR and abnormal positive

stock return, companies have financial reasons for taking CSR ideas seriously.

In reality it is sometimes questionable if the outcome of institutional innovation is really

CSR as a new management system that businesses are applying in order to meet the

expectations of society and the environment, or is it merely an application of some seldom

marginal elements of CSR in order to win popularity in society. To answer this question it

takes an empirical investigation to examine how, for what reason and to what extent the

companies take into account the above-mentioned influence groups and what are the other

possible reasons for managers to include the ideas of sustainability into the framework of

management systems. From companies’ point of view to start a CSR innovation it is

important to find a way to measure the success of ethical behaviour in the terms of profits.

In order to really prove the profitability of ethical and socially responsible behaviour, it has

to be studied what kind of influence a company’s activities have on the environment and

society and what kind on financial or other influence taking on CSR models have on a

company and its profits.

2.4. CSR+Innovation=CSI

As CSR-theme got popular, the question about whether CSR pays off arose and there was a

need for a business case to prove that CSR is worth investing in. Then also a discussion

arose whether the business world should at all be responsible for meeting the social need,

or is it the responsibility of governments. Nowadays the theme of the discussion is a bit

changed. The challenge for this decade is to innovate towards creation of social value. As

C. Jupp puts it, “We need a new wave of ‘corporate social innovation’, which will require a

radical reconceptualisation of what CSR means, how it is delivered and where it lies in a

company’s priorities.” it means that e have to change from thinking of responsibilities

towards thinking of applying innovation in the corporate social agenda (Jupp, 2002, p.19).

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The public-private partnership in engaging business-people into governmental work has not

proved to be the most successful and for many reasons there is a hostile climate to large

companies among public sector workers. Attempts to tap into private sector know-how is

treated with extreme suspicion and “attempts to pump money into CSR projects run the risk

of being dismissed as a cynical reputation management exercise.” (Bentley, 2002)

Therefore the suggested successful partnership model sees that businesses do in this

partnership what they know best – innovate. Companies have the freedom to test new ideas

on the fringes of mainstream public provision, partly because they are not subject to the

same level of constant expectation and accountability as public service providers. The key

is a shift in emphasis from corporate social responsibility, which implies an ongoing

obligation with no exit strategy, to corporate social innovation. Innovation within the public

sector is constrained by several factors, including the lack of competitive pressure, the need

to maintain constant levels of service and the difficulty of meeting many statutory

requirements simultaneously. Perhaps most influential is the dominance of a public

accountability framework, which seeks to minimise risk and to justify every pound spent

through vertical chains of audit and approval (Bentley, 2002).

Therefore corporate social innovation involves companies “using their organisational,

financial and human resources to produce effective, innovative responses to intractable

social problems in ways that allow the solutions to be taken up and spread more widely”

(Jupp, 2002, p. 22).

How to achieve this task? C.Jupp gives 5 points to describe the shift:

1) Company-wide involvement in CSR integrated across the organisation and linked to the

heart of the business.

This point was highlighted soon after CSR got popular among businesses and it was also

said that in oder to apply CSR, you have to apply a complete program, similar to TQM

(Carribean business, 2004).

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2) High-level leadership, supported by significant resources, including respected, skilled

and creative employees.

This means that CSI needs investment – finances, skills, attention and dedication of

employees concerned, the like any other undertaking of a business and shouldn't be

underestimated.

3) A proactive, rather than reactive, approach to social issues in an environment that

encourages learning, risk-taking and long-term thinking.

In order to successfully deal with social problems that occur in society, have to be

predictable and the effort should be put on dealing with the reasons, not the results.

Therefore applying CSR and CSI need patience and time to see the outcomes and evaluate

the success of one or another sustainability undertaking.

4) An emphasis on performance and achieving sustainable social change in specific local

contexts rather than on concentrating on process and general message at the expense of

outcome.

Although social innovation has potential at every level of CSR, it is arguable that really

effective problem-solving is achievable mainly at the local level, even where its results

should be spread more widely. Since quite recently traditional corporate philanthropy

focused merely on community work, but now the local activities raken by the businesses

are expected to deliver global change.

5) A willingness to work in partnership, to learn across sectors and to move from a

hascompetitive to a cooperative model.

It is quite clear that a company claiming to be socially responsible and using creativity and

innovation skills on behalf of society has to be more open and ready to cooperate not only

between businesses, but in order for the CSR and CSI ideas to work effectively, there has to

be a reasonable dialog between businesses and other parts of society.

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2.5. Main Stages and Techniques in CSR Innovation Process

As in case of CSR we deal mostly with the institutional innovation, we can suggest that it

consists of new models of thinking, changed organisational philosophy, cultural and social

changes of the workplace. These sometimes intangible changes need special planning in

order not to get lost before the innovation process is over. Another important thing is that it

has to be made very clear how to measure the intangible outcomes in order for the

beneficiaries to evaluate the CSR innovation. However, the core classical scheme of

innovation can be taken as basis also here (fig.5).

Fig. 5. Processes of innovation

Generally in the beginning of the innovation process more flexibility is tolerated and as we

get through the process from idea generation and collection towards decisions on projects

the process gets more structured.

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3. FUZZY FRONT END OF CSR INNOVATION

There is no one waterproof example to be used by every business, as it has been said by

M.Hammer, “business innovation is not a potion that can be bought in a store – it must be

brewed at home “(Boeddrich, 2004, p.277). As said above, the FFE is considered to be

crucial part of the whole innovation process and there is no common view if this part of the

innovation process should be more or less structured and predictable. It is believed that to

some extent the FFE has to be organized in order to get the expected result of innovation. A

scheme how to structure the FFE has been introduced by Boeddrich which will be used also

here, adjusted as required by the specific theme of the thesis - CSR. Boeddrich suggests

that the first step is to settle the strategic guidelines for the innovation, then there is a flow

of ideas, which are generated, adopted, together with opportunity identification and

analysis. After this the best ideas are selected out developed further and formed into pilot

projects (see fig.6).

Figure 6. A proposal for structuring fuzzy front end (based on Boeddrich, 2004)

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3.1. Concept Definition

The problem with identifying the main concept of the future changes has to do with

identifying the need for moving towards CSR-model, how to concretize the outcome and

consequences of the process – in order for it to be measurable later. As it was said above, in

a successful innovation process the concept can be defined in structured way without

jeopardizing the creativity aspect. It is a question about how to initiate and organize a flow

of ideas in order to carry out CSI process and reach the change. First of all, it is necessary

to identify, which kind of requirements exist for all companies (general requirements),

which are specific to the certain company (company-specific requirements) and what is

different in organizing the flow of ideas in CSI process (CSI-specific requirements).

Generally it is required that there have to be:

● general guidelines for the innovation

● idea-collection point

● criteria and skilled stuff for selecting the ideas for further improvement,

● keep the system simple!

The company-specific requirements are:

● commitment to company-specific idea-types, evaluation-criteria

● commitment to the innovation-managers, idea-generators and -promoters inside the

company

● special attention of the management to the FFE

● identification of the influencing stakeholders in the FFE and ensuring their

partnership in the process (Boeddrich, 2004, pp.276-7).

In order to be effective the application of innovation process has to be based on these

criteria and it would be useful if it would be also a part of a company's general

management system - developed and adjusted specially for this company to use.

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In the CSI process it is extra important to:

● keep in mind that the beneficiaries are members of the whole society

In case of CSI the expected outcome of innovation is even more vague and wide than in a

classical innovation. It is easier for the employees to focus on improving the micro-level

(i.e. their own company) than of the whole society. Therefore management has to decide if

they want a wide flow of ideas without aiming at any concrete point or goal or they identify

the main concept of the possible change they want to achieve.

● identify the partners in the public sector, establish their partnership

In many cases the CSI-projects are based on the partnership with government or NGO, who

take part in the innovation process and also in identification of the main output of the

innovation. The CSI process is therefore much more open to the public and on the other

hand under surveillance of the beneficiaries – society. The public eye is there partly also to

guard that the emphasis maintains on the real social benefits of innovation projects, rather

than on public relations of the company. Initializing the CSR innovation needs

governments together with companies' managements to agree upon the standards for

evaluating the impact of CSI. Therefore the whole innovation process in case of CSI has to

take into account much more interests and influencing factors.

● the planned changes are slow and focused on the distant future

In NPD or other type of classical innovation process the FFE has problems of being too

slow and sometimes wasting time is considered to be worse than wasting time. The

managements spend a lot of effort in order to make the FFE more optimal and more fast in

order not to loose valuable time in managing the flow of ideas. In CSI time has a little

different value, the money loss is not necessarily so obvious, because there is no clear link

proved between delay of putting CSR into action and consequent money loss. More

important is to focus on the aspect of prevention in the innovation process and outcomes in

the future.

23

3.2. Idea Generation

There are different ways to generate ideas on the workplace. In some companies an idea

database is used, where ideas are automatically worked on, in others a meetings with

employees are held in order for them to let their fantasy fly. This is also the case in CSI

processes. The reason why social issues are brought from governmental level to company

level to innovate is the more free environment to experiment with ideas in private sector.

Therefore also CSI needs more flexible and creative approach that a public sector is able to

perform. At the same time, as CSR innovations have to take into account many complex

agents in society in order to gain success in distant future, the planning of change towards

more sustainable action needs also a strong theoretical background and researches.

3.3. Idea Selection

The major challenges are how to scale up the best ideas so that we can make the required

transformation in social outcomes and community life for so many in our nation. This will

require a skill in widespread, joined-up execution. What is still not well developed yet is

the managerial expertise and the incentive frameworks to encourage innovation.

As mentioned above, the too long and slow FFE process is jeopardizing the success of the

innovation and the whole process can fall apart. The selection of ideas has to be done at

right time and not to wast time on the projects and ideas that have no perspective. The other

most frequent problem is that there is no clear rules how to evaluate the ideas, how to

screen them. Quite often the automatic system “first in-first out” is used, which is proved to

be not that useful sometimes. These remarks are useful to take into account also in selecting

the ideas in CSI processes.

24

3.4. Testing the Ideas

When the ideas are selected the next step can be to test the applicability of them in reality.

This can include simulations in workplace involving the employers, but also experiments

including the test-groups outside the workplace. In order for the simulation to give accurate

and reality-close results it is important for the test group to be chosen among the

beneficiaries of the innovation project. Testing of the ideas has to include also the analysis

of the outcome of the testing. Testing can also contain of making a survey among

beneficiaries and all other parts of the society concerned to get the picture of the influence

of the future project.

25

4. CASES

4.1. Case study 1: PART – Credit for Viable but Unbankable

Innovator: Lloyds-TSB Group

This case is mainly based on Jupp, 2004 presented case study. It shows how the next phase

of CSR agenda has to apply innovation experience and expertise (held by the company

workers) to the creation of social value. It shows the successful attempt of a company

combining one of its score skills – innovation – with a commitment to social responsibility.

4.1.1. Company profileThe Lloyds-TSB Group is one of the four biggest banks in the United Kingdom employing

more than 78000 people worldwide (Lloyds TSB 2001). Therefore they operate in a sector

which is by the publicity not considered to be socially responsible. Usually international

debt and excessive profits are held to be the responsibility of banks, making them the target

for consumer campaigns and CSR consultancies alike. In spite of the public opinion and

attitude the Lloyds-TSB Group has invested a lot in corporate social responsibility, which

is coordinated at director level, including:

● two ethical funds investing money only in companies judged ethically sound,

26

● basic bank accounts for people who do not get it from other banks because of a bad

credit rating or social security dependence,

● producing social and environmental reports each year expressing therefore its

openness and transparency,

● invests one per cent of annual pre-tax profits into its charitable foundation –

donations equal to £34.48 million in 2001 – making it the biggest corporate cash-

giver in the United Kingdom.

This commitment has made Lloyds-TSB a member of FTSE4Good, and in 2001 won the

Business in the Community ‘Award for Excellence’. Still, the work has not been in the

centre of the core business meaning that it doesn't include the operation of the whole

company. These undertakings mentioned above can be part of sustainability and

responsibility movement, but have no evidence of being the real CSI.

4.1.2. Concept for the Innovation: Community Reinvestment TrustsBob Patterson's idea was to create a service for ‘the viable but unbankable’. As Chief

Executive of the Portsmouth Housing Association (PHA), he had seen how a lack of

financial services and denial of sources of credit for the most vulnerable - unemployed, the

benefit-dependent, single-parent families and people with disabilities within Portsmouth -

had created a reinforcing cycle of exclusion and poverty. There are over 6,000 people

unemployed and over 25% of households are low paid. Without access to mainstream

sources of finance, these people turn to alternative sources like cheque cashing shops and

pawn brokers with interest rates as high as 500% which logically more deepens the cycle of

poverty (Business in the Community). Despite this desperate need for financial service

support, the mainstream financial institutions saw no incentive for being involved.

Based on extensive research, and having moved to the University of Salford to develop the

project, Bob developed the concept of the not-for-profit community-based financial

institution. This is a local-level partnership between a commercial bank (Lloyd's TSB),

housing association (PHA) and the research center (Uniersity of Salford) but als other

27

smaller local partner were included like Citizen's Advice Bureau (Lloyd's TSB 2002). The

ideas was to provide access to credit and opportunities for financial independence for those

most in need. What has emerged is a business case to meet social aims. Portsmouth was to

be the pilot, which would lead to the establishment of six similar projects across the

country. Lloyds-TSB was approached as the commercial partner for the initial project, the

Portsmouth Area Regeneration Trust (PART).

This idea challenged Lloyds-TSB’s existing model of community work. It appeared that it

was not the money that was required but the skills and commitment of the core business.

Partly because the then chairman of Lloyds-TSB had once managed the bank in

Portsmouth, and because at that time there were damaging news stories about local branch

closures, the bank agreed. The project was not passed to the foundation; it was kept within

the main organisation. Lloyds-TSB has been central body in developing and delivering the

project through the provision of secondees – initially a senior manager for two years,

supported by expert advice on the legal and technical aspects of setting up a trust. Expertise

and support was applied to the development of a comprehensive instruction manual for the

day-to-day running of PART, which took two years to develop.

4.1.3. What Does the Project Do?The project was set up in July 2000, employing seven staff plus volunteers (Brown, 2003,

p.18) The aim was to lend £4 million at 15 per cent interest over five years. PART is

managed at a local level, supported by a board of directors made up of housing association

and banking professionals, debt counsellors and local residents. This is supported by

numerous formal and informal local partnerships. It offers loans so that customers can meet

basic social needs for training, employment and home improvements, start small businesses

and micro-enterprises or refinance renegotiated debt. Clients would all normally fall

outside the selection criteria used by mainstream financial services. In its first two years,

PART has exceeded all expectations. It has an average of 117 enquiries per month and has

granted in first two years approximately 600 loans, worth £375,000 (Brown, 2003). The

proportion of ‘loans of concern’ (those at risk of not being paid back) is at six per cent,

rather than at the forecast nine per cent. Aside from the individuals, the knowledge and the

28

financial support, Lloyds-TSB has brought PART other advantages. Being associated with

the bank has also given the project credibility in a notoriously conservative operating

environment. Clients also appreciate the association with a trusted brand that represents

independence from the state. Richard Harrington, who has set up his own business with a

PART micro-enterprise loan, felt confident of the support and advice he got. In contrast to

social security support ‘they’re much more flexible and the teams are more responsive’. A

willingness to take risks has become more apparent as PART has become more established

within the community and grown in self-confidence. For example, it now lends to more

‘risky’ client groups. For Godfrey, it is exciting to ‘have gone through the evolutionary

period. . . and now to do five small loans of £200 (to ex-offenders and ex-drug addicts) and

see what happens’.

Although PART is following a model of the community-based financial institution, there is

a belief that an unwillingness to try new things, to be constrained by the model, will

inevitably lead to stagnation. Within Lloyds-TSB, Geron Walker recognises this need to

experiment: ‘If you are successful, you are only going to stay successful by changing, so

you need to keep experimenting, keep trying new things out.’ Operating an active, equal

and challenging partnership PART operates as a partnership, and is heavily dependent on

its supporting networks. Informal networks run throughout Portsmouth, and are vital for

marketing the services and bringing in new clients. Reaching the most deprived

communities relies on word of mouth, personal recommendation and individual support.

But there is a high degree of formality in some of these partnerships, for example at the

board level. In the highly bureaucratic and legalistic atmosphere of the financial sector,

formal structures are expected, which has led to some difficulties among those used to

operating more informally. Drawing on the skills of the public, private and voluntary

sectors has required compromise and understanding from all sides, and has been the source

of some tension, simply because individuals have different expectations and experiences of

working culture.

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4.1.4. CommentsThe process of establishing PART has revealed important lessons, one of which is the need

for responsiveness to local conditions. This illustrates that starting the innovation also in

CSR areas require space and flexibility in order to be able to cope with specific problems

and to develop appropriate solutions. We can see from the case that the idea come from an

employee not through specially developed channels here. The initial idea occurred because

of the information got outside. This is quite typical for the CSI, because the need for this

kind of innovation comes not from the company but from the rest of the society.

As mentioned above, the CSI needs sometimes a bit more scientifically sound background

and therefore the improvement of the idea needed an extensive research in order to be

developed into more concrete concept. Another CSI-specific agent is that the innovation

inevitably needed a cooperation with other parts of community – in this case housing

association in order to provide access to credit and opportunities for financial independence

for those most in need.

Choosing this idea to put into operation was made by the bank and one of the suggested

reasons was not the will to do social responsibility but as it appeared from the case, was

connected to the public relations' question and reputation. As we also saw above, this is

quite often the case that selected ideas for CSI are based not purely on social values but

most strongly have to do with reputation of the company and as in the case of NPD

innovation the main question is how to gain profit, in the case of CSI one of the factors to

choose the idea is reputation – how will public see my socially sound action.

Another important thing that happened was that the project was not passed to the

foundation; it was kept within the main organization. This suggests that there was a

business case for involvement and that there was a requirement for skills rather than a

demand for cash, which is attractive and interesting for the business and can be one of the

agents influencing the choice of a CSI project. It is suggested that ‘what’s wanted from

banks and other commercial organizations is not their money; it’s their expertise, their

experience, their bit as a partner’(Jupp, 2004, p.34). This case presents a proactive

30

experiment in a inflexible, risk-averse environment. This shows that in addition to the

mainstream business considerations this company was ready to go beyond traditional

banking habits - the nature of lending money to those considered too ‘risky’ by mainstream

financial institutions indicates a willingness to experiment without a fear to loose money.

This kind of thinking is also something that distinguishes the CSI from other types of

innovations in companies.

The elements of corporate social innovation – core business involvement, significant

investment, experimentation and partnership Meeting core business themes by committing

senior-level involvement PART have been presented in this case. It was an opportunity for

Lloyd's-TSB to engage in social problems that relate to core business by drawing on core

business skills. This has relied on top-level support, initially from the chairman but now

from the board of directors. The technical expertise used to establish the project has been

lifted from the bank, as have the set of skills involved in supporting clients.

Success has resulted from strong leadership, shared commitment and mutual respect across

the partnerships. The initial research meant that the project had strong leadership from Bob

Patterson, as an external guiding influence. This continuity in personnel has been vital in

negotiating problems and building partnerships. There is a high degree of shared

commitment across the partnerships, partly because of personal attachment to Portsmouth.

Finally, there has been a willingness to learn between partners, as described by Godfrey:

‘There’s a space for learning on both sides . . . it challenged (the housing associations’) way

of thinking and (the banks’) way of looking’.

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4.2. Case study 2: Reputation Driven CSR

Innovator: The Body Shop International PLC

This is an example of a company to break through among the CSR-renomeed companies

with a strong PR-campaign. The problem was that CSR was exercised in public relations

and although the leader of the company Anita Roddick claimed to have a serious attempt to

achieve social change, these announcements at least for a while seemed to be not so sincere

and the reputation of the company was in danger for a while.

4.2.1. Company Profile up to 90sThe Body Shop is a British-based cosmetics company which name is mainly connected to

its environmental friendly products and activities supporting social values. This is quite a

good background for a business to be seen in the eyes of the publicity as socially

responsible as the sector the company acts gives many possibilities for that – natural

products, no animal testing etc.

Body Shop was founded in 1976 by Anita Roddick who started retailing homemade

naturally inspired products in Brighton. The production includes mainly skin and hair care

products. Franchising was the key word for a rapid growth of the company and nowadays

there are shops all over the world approximately in 50 countries selling a product every 0,4

seconds. This success has been celebrated also publicly – in 1999 the Body Shop brand was

32

voted the second most trusted brand in the UK by the Consumers association, a year earlier

the Body Shop was ranked by the Financial Times the 27th most respected companies in

the world (the Body Shop).

Approximately two decades the business was successful. Thanks to the franchising-formula

the Body Shop was adding sometimes hundreds of new shops annually. Franchisees had to

buy products from the Body Shop and pay royalties of 5% of sales (Entine, 2002). In the

middle of nineties the financial problems occurred, Body Shop stock peaked in 1992 at

£3.72 on the London Stock Exchange and then near 95 pence. In 1994 the publicity

attacked Roddick and the Body Shop while an article in Business Ethics was exposed.

According to that article ideal picture of a environmentally sound company turned out to be

a big scheme. It was revealed that less than 1% of the raw materials used in the products of

Body Shop were in point of fact supplied by native people and that many of the ingredients

were tested on animals, just not directly by Body Shop. The article also indicated that the

well-publicized social improvement was motivated as much by greed as by conscience and

values (Entine, 1994).

4.2.2. Concept for the Innovation: Proclaiming Social Values with Products and CampaignsTen years after opening The Body Shop started to promote its environmental and social

initiatives. The CSR innovation started therefore as early as in 1980s and included not only

seldom charity actions but the whole philosophy of existing was connected to social and

environmental values. On their Internet home page the introduction of the company:

“Where We Come From” includes almost only the landmarks that have to do with different

kind of campaigns about collaboration with Greenpeace, saving the rainforests, establishing

the Body Shop Foundation etc (the Body Shop). The signs introducing the values of the

company can be seen on the windows of the Body Shop stores, on their web-page and in

commercials introducing new products (see fig. 7).

33

Figure 7. Body Shop’s self proclaimed values (the Body Shop)

It has been suggested that thanks to the charismatic leader of the company – Anita Roddick

and her marketing and PR-skills the Body Shop was made a symbol of business based on

values and standards and that the company was becoming increasingly popular and

profitable mostly due to its reputation as a sustainable business. Media was helping to

create a figure who was the opposite of greedy capitalistic mammoth companies.

4.2.3. Logical Gap Between Proclaimed Aims and OutcomesThe CSR action was mainly connected to the reputation management and the emphasis on

innovations was on different kind of campaigns among others promoting natural products,

campaigns: Save the Whale, Trade Not Aid, against animal testing etc (look fig.8).

Figure 8. The Body Shop Campaigns (The Body Shop)

1. Innovation idea: Promoting products “Inspired by Nature”. As the Body Shop presents

itself, they are “famous for creating a niche market sector for naturally inspired skin and

hair care products” (The Body Shop). To promote this idea was really innovative in 70s

when the Body Shop started business. Although the idea is argued not to be originated from

34

Roddick, it's breakthrough to masses all over the world was made thanks to Roddick and

the Body Shop.

Drawback: Many of Body Shop products include bright colors and thick fragrances which

are no doubt produced in the laboratories. There have been instances of product

contamination over the years, according to Food and Drug Administration inspection

reports, interviews and documents from quality control managers, and statements from

disgruntled franchisees. In the early '90s, various guides, including Consumer Reports,

criticized Body Shop products on overall quality or for liberal use of synthetics.

2. Innovation idea: a campaign “Save the Whale” in 1986 in collaboration with Greenpeace

U.K. It was the first big campaign for the Body Shop managed by the special unit in the

company – Environmental Projects Department. This campaign was about selling jojoba oil

in a "save-the-whale" promotion. The oil was marketed as a substitute for whale

spermaceti, which had not been used in mass-market cosmetics for years.

Drawback: Bolstered by the publicity, Body Shop attracted waves of new customers and

media sceptically suggested that the real outcomes of the campaign – to save the whale -

are far from becoming reality and all that the campaign did was to win new customers.

Ironically the partner of the Body Shop at the time – Greenpeace – 2 years after the

campaign criticized this kind of projects and declared that “nobody can make the world a

better place by shopping” and that “the company has put itself on a pedestal in order to

exploit people's idealism for profit” (London Greenpeace, 1998)

3. Innovation idea: a project “Trade Not Aid” was the most famous initiatives sourcing

Brazil nuts for hair conditioner from an Amazon tribe.

Drawback: The face of its promotion, a grinning Kayapo chief, filed suit over the use of his

image. A Kayapo expert from the University of Chicago ridiculed the fair-trade initiative as

"Aid Not Trade"-aid from developing peoples to Body Shop. According to a U.K. fair-trade

research group, Body Shop's 1993 payments to Third World producers amounted to 0.165%

of its retail sales (Entine 2002).

35

4.2.4. CommentsIt can been said that Anita Roddick and the Body Shop are pioneers of social and

environmental accounting creating and developing strongly the idea all through the years of

activities since 1980s and adding the concept of naturality and environmental-friendly

image to every product they have and every activity they attend or initiate.

Still there is sometimes a gap between Body Shop's assertions that it "campaigns for human

rights all over the world," and company practices. The campaigns didn't clearly show the

improvements in the area the Body Shop was trying to save or help, but quite visible was

the profit on the company's side.

All the innovating projects mentioned above were good in short term from PR point of

view but in order to be CSR-innovation projects, missed some important points to be

successful. Forming the concept of innovation was not well done. As from the business

point of view the innovations were successful – in short term perspective the sales went up

and the company won many new customers – then we can say that probably the general

and company-specific requirements were chosen correctly in order to start an innovation.

As we saw above, in order for the CSR-innovation to be considered successful, the

innovation has to really benefit the society, be carried out with a close cooperation with the

partners in public sector and NGOs. In the Body Shop projects we can say that this was not

the case. As pointed out in by J. Entine (Entine, 2002) and London Greenpeace it is

doubtful that persuading people to buy more the nature can be saved, also, the profit from

selling the products with the slogan, for example, save-the-whale was not to be given to

really saving these animals. According to J. Entine, an average 0,4% of the pre-tax profit

goes to charity (Entine, 2002). Also the home page of the Body Shop doesn't reveal exactly

who and how benefited from these projects. Therefore it is more than vague how actually

the society is to benefit from the projects and therefore the innovative ideas miss one

important point in order to be called CSR innovations.

36

As can be seen from the web-page of the company the Body Shop liked more “solo-

projects” and no severe researches or close partnerships are mentioned (except their first

project save-the-whale with Greenpeace). As we could see in the case of Lloyd's-TSB, a lot

of emphasis was put to the cooperation with the university in order to develop the concept

of the innovation project and build a cooperation network between the company, authorities

and association. We could say that this severe preparation in the FFE phase was the key to

success for the PART. What the Body Shop could learn from this is that the CSR projects

have to be analyzed in the phase of drawing the innovation concept not only from the

business and profit side but specially carefully if they in reality bring along the expected

changes in society or not. Otherwise – as we could see above, the once loyal and dedicated

customers will react; sales nose-dive and the stock price will follow.

This case clearly shows the emphasis customers put on social responsibility; the correlation

between sales and public image is obvious. The reason publicity, sales and therefore stock-

price reacted so dramatically was that the Body Shop put itself to a pedestal of CSR

pioneers and it makes particularly strong ethical claims. During Body Shops’ golden days

the company successfully imaged itself as a socially conscience company, but as soon as

their social image crashed, financial situation worsened to the degree of near bankruptcy. A

good social image what the Body Shop seemed to be after, got them far in short perspective

in terms of winning the customers and sales and stock rates but as soon as it got suspicious

that any real benefit comes from it to the society or environment, it influenced severely the

whole success of the company.

37

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