B2 Potential drawbacks from adopting a corporate socially responsible approach to business
Opportunity cost of implementing policies. The opportunity cost refers to the next best alternative of a decision made. In this case, the opportunity cost is what the business could have spent money on instead of socially responsible activities. To look at environmentally friendly packaging as an example, this type of packaging is more expensive. The opportunity cost could be spending that money on an improved advertising campaign and sticking with cheaper, traditional packaging. Another example might be purchasing Fairtrade materials instead of improving the efficiency of the equipment. Managers may also consider opportunity cost in relationship to time. Can they produce and get their products on sale faster if they use traditional methods over socially responsible ones?
Distraction from core business objectives and lowering of operating profits. Ensuring business activities are socially responsible can be costly and time-consuming. Using environmentally friendly practices may require expensive capital investment or staff training. Fairtrade purchases are more expensive per unit. Improving working conditions for workers may include reducing working hours and in turn reduced productivity per worker. Having strong CSR strategies requires a lot of planning time to devise and implement. Some may view this as time wasted that could be spent on activities focused on the core business objectives such as product development or marketing.
Smaller businesses may find CSR more challenging. Small businesses do not benefit from economies of scale in the way that larger businesses do which means that they have higher average costs per unit. When making decisions between the most socially responsible action or the cheaper action, they may have to decide on the cheaper in order to cover costs. This may allow them to compete on price but can make them less appealing to socially conscious customers.
Perceived as a ‘green washing’ exercise with little actual substance. Greenwashing refers to the practice of heavily marketing ‘green’ aspects of a product, service or organisation that distract from the bigger picture of socially irresponsible behaviour by the same business. This form of advertising is deceitful and is in response to consumers showing favour for organisations who engage in socially responsible behaviour. Public awareness of greenwashing practices has created distrust and damaged the cause for CSR (Robinson, 2021).
Cost versus benefit analysis of CSR. Implementing CSR strategies has both benefits and drawbacks. When deciding whether to implement CSR or which CSR strategies to use, managers will weigh up the outcomes using a cost-benefit analysis. There are many benefits to successful CSR strategies including increased sales and productivity. One study found that sales can be increased by up to 20%, productivity by 13% and turnover reduced by half (Impactree, 2021). However, these benefits are only enjoyed by successful campaigns which involve time and financial resources.
