The authoritative solution

Baumrind's fourth prototype, "authoritative," offers organizations a valuable path between the traditional top-down, inside-the-tent corporate structure and unbridled license to suppliers to do as they want. Marked by high levels of direction and support, this approach offers children—and by extension corporate partners and associates—freedom within a well-defined structure.

The authoritative style is both demanding and responsive. It encourages in equal measure entrepreneurial action and healthy self-regulating behavior. Like authoritative parents, authoritative virtual corporations resist the temptation to micromanage relations with their associates. At the same time, they never leave responsibility for work conditions in the hands of their partners or cede decisions on quality control.

Implemented with care, this freedom within a framework sharpens and transforms value creation and innovation. It sets the rules that let outsourcing partners be more creative, efficient, and customer focused. It also enables faster response to shifts in the market—something especially important as innovation continues to flow globally, rapidly, and often from unknown sources.

Most important, this framework helps assure that virtual corporations will be anticipating crisis moments instead of responding to them. Stakeholders at either end of the spectrum, from seamstresses to stockholders, deserve no less.

How Local Events Shake Up Corporate Philanthropy

06 MAY 2013| by Carmen Nobel l Harvard Business School

http://hbswk.hbs.edu/item/6892.html

Large-scale events like the Olympics lead to a dramatic, albeit short-term increase in otherwise steady charitable-giving patterns among corporations headquartered near the event's host city, according to research by Andrбs Tilcsik and Christopher Marquis.

Planning to ask a big company for a charitable donation? You may be wise to time your request around a huge sporting event—specifically, an event that takes place in the firm's home city.

A recent research paper shows that enormous events like the Olympics lead to a dramatic, albeit relatively short-term increase in otherwise steady charitable-giving patterns among firms that are headquartered in the event's host city. Natural disasters also have a strong effect on firms' giving patterns, according to the study Punctuated Generosity: How Mega-events and Natural Disasters Affect Corporate Philanthropy in US Communities, which was published in the March issue of Administrative Science Quarterly.

The study adds to a growing line of academic research highlighting the importance of a firm's main location, even in an era of globalization.

"In the 1990s and early 2000s, the general thought was that globalization was making the world so similar that [location] didn't matter," says Christopher Marquis, an associate professor at Harvard Business School, who coauthored the paper with Andrбs Tilcsik (HBS PhDOB '12), an assistant professor of strategic management at the University of Toronto. "But more recent research shows how culture endures in spite of globalization. Networks and local regulations also significantly influence how companies react to their local environments."

Historically, though, such research has neglected to consider how firms are affected by major local events, whether they be planned (the Super Bowl or FIFA World Cup, for instance) or unplanned (an earthquake or hurricane). Marquis and Tilcsik set out to address that issue in the context of corporate philanthropy because even global companies tend to focus corporate giving on local nonprofits. Charitable behavior is a key area of interest for Marquis, whose research and teaching focuses on businesses' social strategies and activities.

Using data from the National Directory of Corporate Giving, the research team looked at how major events affected the philanthropic activity of 2,571 firms in 157 metropolitan areas, between 1980 and 2006.

In assessing the effects of natural disasters, the researchers anticipated two possibilities. On the one hand, communities tend to band together in the wake of tragedy—a phenomenon known as "post-crisis benevolence." Hence, it's logical to assume that a firm would go out of its way to contribute to local relief and rebuilding efforts. On the other hand, disasters may cause so much damage to a company's own operations that money originally earmarked for philanthropy ends up going toward efforts to rescue the firm itself. (Call it a case of securing your own oxygen mask first.)

As it turned out, the researchers' findings more or less split the difference. In cases of small- or medium-scale natural disasters (those that did less than $5 billion in damage to the local community), local corporate philanthropy did increase in the short term. But in cases of large disasters such as Hurricane Katrina, donations from local firms decreased in the aftermath. "After a threshold of $5 billion in damage, the effect actually reverses itself," Marquis says. "The devastation is so large that the economic impact of the disaster overwhelms the firm."

TIMING REQUESTS AROUND PLANNED EVENTS

To assess the effect of planned events, focusing on national political conventions, the Olympics, and the Super Bowl, the researchers looked at giving patterns in the years leading up to the event, the year of the event, and the years after. All the events had definite effects on giving patterns, but the magnitude of the event determined the magnitude of the charity spike.

For instance, in years when the Olympics occurred, firms located in the host city increased their overall charitable donations by an average 30 percent. Super Bowls corresponded with a 10 percent increase in donations.

"If you're a philanthropic leader, the time to hit up a company is around these events," Marquis says. "We focused on only a few events in the paper, but there are tons of sporting events and other events that occur in cities. For philanthropic leaders, connecting to these things is a really good strategy."

The researchers did not find significant charitable-giving effect in years directly preceding Super Bowls or national political conventions, but firms based in Olympics host cities started ramping up the philanthropy up to four years before the Games actually took place. Marquis attributes this to a combination of goodwill and good public relations. "Because of the organization needed to put the event together, and because of the magnitude of the event, the whole community starts thinking early on, 'Hey, we're going to be highlighted, and we want to look good,' " Marquis says.

Firms headquartered in Olympics or convention host cities continued to give more than usual for a little while after the events were over, but the increased generosity tended to taper off and disappear after a few years. Thus, even the most majestic sporting events don't seem to have the power to change a locally-headquartered firm's philanthropic behavior everlastingly—something city planners should keep in mind when assessing the pros and cons of hosting a mega-event. "You'll hear city leaders making the pitch that something like the Olympics helps the community in the long term," Marquis says. "But here there's evidence that actually, no, it doesn't."

In addition to providing practical advice for nonprofit organizations and city planners, the researchers hope their study will provide a jumping-off point for broader discussion about the importance of location to organizational behavior.

"The English language is expressive in this regard," they write in the conclusion of the paper. "When an event occurs, it takes place—it prevails in a particular locale, introducing its own dynamics. We hope our study will stimulate more research into how such dynamics affect organizations."

The trouble with outsourcing

Jul 30th 2011| The Economist |

http://www.economist.com/node/21524822

Outsourcing is sometimes more hassle than it is worth

WHEN Ford's River Rouge Plant was completed in 1928 it boasted everything it needed to turn raw materials into finished cars: 100,000 workers, 16m square feet of factory floor, 100 miles of railway track and its own docks and furnaces. Today it is still Ford's largest plant, but only a shadow of its former glory. Most of the parts are made by sub-contractors and merely fitted together by the plant's 6,000 workers. The local steel mill is run by a Russian company, Severstal.

Outsourcing has transformed global business. Over the past few decades companies have contracted out everything from mopping the floors to spotting the flaws in their internet security. TPI, a company that specialises in the sector, estimates that $100 billion-worth of new contracts are signed every year. Oxford Economics reckons that in Britain, one of the world's most mature economies, 10% of workers toil away in “outsourced” jobs and companies spend $200 billion a year on outsourcing. Even war is being outsourced: America employs more contract workers in Afghanistan than regular troops.

Can the outsourcing boom go on indefinitely? And is the practice as useful as its advocates claim, or is the popular suspicion that it leads to cut corners and dismal service correct? There are signs that outsourcing often goes wrong, and that companies are rethinking their approach to it.

The latest TPI quarterly index of outsourcing (which measures commercial contracts of $25m or more) suggests that the total value of such contracts for the second quarter of 2011 fell by 18% compared with the second quarter of 2010. Dismal figures in the Americas (ie, mostly the United States) dragged down the average: the value of contracts there was 50% lower in the second quarter of 2011 than in the first half of 2010. This is partly explained by America's gloomy economy, but even more by the maturity of the market: TPI suspects that much of what can sensibly be outsourced already has been.

Miles Robinson of Mayer Brown, a law firm, notes that there has also been an uptick in legal disputes over outsourcing. In one case EDS, an IT company, had to pay BSkyB, a media company, £318m ($469m) in damages. The two firms spent an estimated £70m on legal fees and were tied up in court for five months. Such nightmares are worse in India, where the courts move with Dickensian speed, or in China, where the legal system is patchy. And since many disputes stay out of court, the well of discontent with outsourcing is surely deeper than the legal record shows.

Some of the worst business disasters of recent years have been caused or aggravated by outsourcing. Eight years ago Boeing, America's biggest aeroplane-maker, decided to follow the example of car firms and hire contractors to do most of the grunt work on its new 787 Dreamliner. The result was a nightmare. Some of the parts did not fit together. Some of the dozens of sub-contractors failed to deliver their components on time, despite having sub-contracted their work to sub-sub-contractors. Boeing had to take over some of the sub-contractors to prevent them from collapsing. If the Dreamliner starts rolling off the production line towards the end of this year, as Boeing promises, it will be billions over budget and three years behind schedule.

Outsourcing can go wrong in a colourful variety of ways. Sometimes companies squeeze their contractors so hard that they are forced to cut corners. (This is a big problem in the car industry, where a handful of global firms can bully the 80,000 parts-makers.) Sometimes vendors overpromise in order to win a contract and then fail to deliver. Sometimes both parties write sloppy contracts. And some companies undermine their overall strategies with injudicious outsourcing. Service companies, for example, contract out customer complaints to foreign call centres and then wonder why their customers hate them.

When outsourcing goes wrong, it is the devil to put right. When companies outsource a job, they typically eliminate the department that used to do it. They become entwined with their contractors, handing over sensitive material and inviting contractors to work alongside their own staff. Extricating themselves from this tangle can be tough. It is much easier to close a department than to rebuild it. Sacking a contractor can mean that factories grind to a halt, bills languish unpaid and chaos mounts.

So far and no further

None of this means that companies are going to re-embrace the River Rouge model any time soon. Some companies, such as Boeing, are bringing more work back in-house, in the jargon. But the business logic behind outsourcing remains compelling, so long as it is done right. Many tasks are peripheral to a firm's core business and can be done better and more cheaply by specialists. Cleaning is an obvious example; many back-office jobs also fit the bill. Outsourcing firms offer labour arbitrage, using cheap Indians to enter data rather than expensive Swedes. They can offer economies of scale, too. TPI points out that, for all the problems in America, outsourcing is continuing to grow in emerging markets and, more surprisingly, in Europe, where Germany and France are late converts to the idea.

Companies are rethinking outsourcing, rather than jettisoning it. They are dumping huge long-term deals in favour of smaller, less rigid ones. The annualised value of “mega-relationships” worth $100m or more a year fell by 62% this year compared with last. Companies are forming relationships with several outsourcers, rather than putting all their eggs in few baskets. They are signing shorter contracts, too. But still, they need to think harder about what is their core business, and what is peripheral. And above all, newspaper editors need to say no to the temptation to outsource business columns to cheaper, hungrier writers.

Outsourcing: Sold out

Jul 21st 2012 | The Economist |

http://www.economist.com/node/21559380

Despite the G4S fiasco, public-sector outsourcing is booming

T IS hardly a medal-winning performance by G4S, a private security group. The company has admitted that it will be unable to supply the 10,500 guards it promised to Olympic sites, although it insists that it will provide enough staff by the start of the games to earn its £57m ($89m) management fee. Soldiers and police officers have been drafted in to fill the gap. Abuse has been heaped not just on the firm but on the whole business of government outsourcing.

G4S, which has annual revenues of about £1 billion from public-service contracts, guards things as varied as banks and oilfields. The fast-growing firm is part of a contracting boom, described by one consultant as “a golden age in outsourcing”. In total, contracts worth at least £80 billion are currently farmed out to private providers by national and local government, with a rise to around £140 billion predicted by 2015.

Tight budgets are one reason for this growth. Local authorities, the armed forces and the NHS are also drawn by the expertise, economies of scale and (usually) better management that private firms offer. The coalition government, committed to reforming the state, has stressed that “any qualified provider” should be able to compete for public-service contracts.

Yet G4S, whose share price has slumped in the wake of the debacle, is not the only embarrassing failure in public-sector outsourcing. Parliament’s public-accounts committee wants more powers to investigate contracts.

Some leading figures in the industry privately concede that the tendering model encourages buyers to choose the cheapest offer, rather than securing the best quality for the price. Companies that get into trouble providing what they have promised have an incentive to hide problems, as G4S did, because they fear forfeiting payment if they admit they are struggling.

Still, few believe outsourcing will dwindle. Most of it has benefited the public sector. Despite having to pick up the pieces from the G4S shortfall, the Ministry of Defence is pressing ahead with its own outsourcing plans, privatising the highly sensitive but notoriously inefficient procurement branch of the armed forces.

Coincidentally, as furious MPs questioned Nick Buckles, G4S’s chief executive, the BBC aired the final episode of a drama about a mayor blackmailed by Danto Global, a rapacious outsourcing outfit, into handing over the running of an entire city. Virtue eventually triumphs and Danto Global’s ambitions are thwarted. Off-screen, outsourcing’s benefits are many and varied. But not even defenders could deny that it has an acute image problem.

Idea: Outsourcing

Sep 29th 2008| The Economist |

http://www.economist.com/node/12323287

Outsourcing is a term used to describe almost any corporate activity that is managed by an outside vendor, from the running of the company's cafeteria to the provision of courier services. It is most commonly used, however, to apply to the transfer of the management of an organisation's computer facilities to an outside agent. This transfer of management responsibility is frequently accompanied by a transfer (from the buyer of the outsourcing service to the vendor) of the specialist internal staff who are already carrying out that activity.

Outsourcing has three main advantages:

• The greater economies of scale that can be gained by a third party that is able to pool the activity of a large number of firms. It is thus frequently cheaper for a firm to outsource specialist activities (where it cannot hope to gain economies of scale on its own) than it is to carry them out itself. Some firms gain the economies of scale by taking on the activity of others, becoming an outsourcer themselves.

• The ability of a specialist outsourcing firm to keep abreast of the latest developments in its field. This has been a particularly significant factor in the area of information technology, where technological change has been so rapid that companies' in-house capabilities are hard pressed to keep up with it.

• The way that it enables small firms to do things for which they could not justify hiring full-time employees.

The most commonly cited disadvantage of outsourcing is the loss of control involved in derogating responsibility for particular processes to others.

Outsourcing is not a new phenomenon. Companies have outsourced their advertising, for instance, for almost as long as advertising has been in existence (and J. Walter Thompson has been in business since the 1880s). Financial services such as factoring and leasing, the outsourcing respectively of the accounts receivable function and of capital funding, have also been available from outside providers for many years.

But it has grown exceptionally fast in recent years. According to one estimate, in 1946 only 20% of a typical American manufacturing company's value-added in production and operations came from outside sources; 50 years later the proportion had tripled to 60%.

Much of the increase came from the outsourcing of IT functions. This was bolstered later by the outsourcing of other functions (such as logistics) that were in areas that themselves had a high degree of it content. Banks, for instance, began to outsource the IT-intensive processing of financial instruments such as loans or mortgage-backed securities. The savings from such moves could be dramatic. By deciding to outsource the origination, packaging and servicing of all its personal loans, both old and new, one British bank cut the average cost of processing by over 75%. In the car industry in the 1990s, firms with the biggest profit per car, such as Toyota, Honda and Chrysler, were also the biggest outsourcers (sourcing around 70% to various suppliers). Those that outsourced the least (General Motors, for example, which outsourced only 30% of its value-added) were the least profitable.

The nature of outsourcing contracts has changed over time. What started off as a straightforward arm's-length agreement between a buyer and a supplier moved on to become structured more like a partnership agreement. In this, not only is any increase in the clients' volume of business reflected in the outsourcer's scale of charges, but both parties in some way share the risks and rewards of the outsourced activity.

Relationships like this vary over time and require firms to learn how to work together in entirely new ways. In the early 1990s, in a groundbreaking five-year outsourcing agreement with BP, Accenture (then called Andersen Consulting) took over responsibility for running the day-to-day operation of BP's accounting systems. BP retained control of accounting policy and the interpretation of data for business decision-making. In return, Accenture guaranteed BP that it would reduce the cost of running the service by 20%.

Some firms have been so taken with the idea of outsourcing that they have left themselves with little to do. An American company called Monorail Computers outsourced the manufacture of its computers as well as the ordering, delivery and the accounts receivable. Only the design was left to be handled in-house.

How ethical are our food companies?

February 26, 2014| By Ivana Kottasova|CNN

http://edition.cnn.com/2014/02/26/business/oxfam-ethical-brands/

Love that chocolate Haagen-Dazs ice-cream? But what about the way its makers treat their farmers? How about KitKat and the way its production impacts the environment?

In a campaign to push big companies towards more ethical sourcing, international development group Oxfam is asking people to think about food producers' attitudes towards issues such as climate change and workers' rights the next time they dig into their favorite treat.

Oxfam's "Behind the Brands" scorecard compares the way the 10 largest global food and drink companies do business.

The report, first compiled last year, looks at transparency, women's rights, farmers' rights and land, water and climate sustainability.

It relies on a "naming and shaming" strategy which asks people to share their concerns about the industry on social networks.

According to Oxfam, users asked companies to change their practices nearly 400,000 times since the campaign was first launched last February -- making their requests by sharing information on social media or printing out an information poster.

A year after its launch, the campaign is now looking at how these companies have improved their business practices.

Of the 10 biggest food and drink companies, nine made improvements to their policies in the last 12 months and improved their scores, Oxfam says.

General Mills, the seller of Haagen-Dazs and Yoplait, was the only one to see their score drop.

Oxfam's assessment is not favorable. "General Mills doesn't recognize key issues like the right to earn a living wage," the report said about the company that sells Betty Crocker, Cheerios, Haagen-Dazs or Old El Paso.

General Mills, like other low-performing companies, blames Oxfam's methodology for its poor scores.

"We do feel our efforts merit a stronger score," the company's spokesperson said.

"General Mills is strongly focused on sustainability," a spokesperson for the company said in a statement to CNN.

"We regularly report our progress in our annual Global Responsibility Report. Our report tends not to mirror the Oxfam scorecard, and because the scorecard is based only on publicly available information, that may be a key factor in their ranking," the statement said.

Oxfam's brands ranking:

1 Nestle: 45/70

2 Unilever: 44/70

3 Coca-Cola: 38/70

4 Mondelez: 23/70

4 PepsiCo: 23/70

6 Danone: 22/70

6 Mars: 22/70

8 Kellogg's: 20/70

9 Associated British Foods: 19/70

10 General Mills: 15/70

Associated British Food, the brand behind Jordans cereals and global tea business Twinings, improved its score slightly compared to last year when it finished last -- but in this year's report, Oxfam still highlights its lack of ethical sourcing policies.

"In reality, the group's policies are much, much more effective than Oxfam gives it credit for," a spokesperson for ABF, which finished second to last, told CNN.

"At ABF, we believe we have policies and practices in place to deliver a genuinely effective corporate responsibility strategy," ABF said in a statement.

At the other end of the spectrum are the companies Oxfam praises for their drive to change their sourcing attitudes.

"Nestle, Unilever and Coca-Cola have joined a race to the top on policies that help address issues like hunger, poverty, women's rights, land grabs and climate change in their supply chains," the report said.

Nestle scored the highest marks on the issues of climate change and water usage, while Coca-Cola came top of the table at supporting women's rights.

Unilever, the owner of Ben & Jerry's and Lipton got thumbs up from Oxfam for their support of small-scale farmers.

But Oxfam says even the top-ranking companies still have a long way to go.

"It will take time for them to reverse a 100-year history of relying on cheap land and labor to make mass products at huge profits but at high social and environmental costs. The race to the top is under way and there are clear leaders and laggards," Byanyima added.

Corporate Social Responsibility in a Downturn

03 AUG 2009| by Martha Lagace| Harvard Business School

http://hbswk.hbs.edu/item/6179.html

Financial turmoil is not a reason to scale back on CSR programs—quite the opposite, says HBS professor V. Kasturi "Kash" Rangan. As a marketing scholar Rangan is optimistic about strategic CSR efforts that provide value in communities and society.

Is the economic downturn affecting the willingness and readiness of companies to look at the economic, social, and environmental impact of their business practices? Or is this a perfect time to reassess current programs and adapt them to changing—and in many cases increasing—needs in society?

V. Kasturi "Kash" Rangan, the Malcolm P. McNair Professor of Marketing at Harvard Business School, argues that corporate social responsibility (CSR) initiatives are more necessary than ever. Rangan says that when carefully planned and managed, such efforts can strategically tackle important societal issues and at the same time enhance business success, yielding a "double bottom line."

And there's no time like the present, he adds. "Effective programs that serve the community in a compelling way, and that also demonstrate a strong potential to influence the business, must be retained and grown."

At HBS, Rangan serves as cochair of the Social Enterprise Initiative (with Herman B. "Dutch" Leonard) and as faculty chair of the Executive Education program Corporate Social Responsibility: Strategies to Create Business and Social Value (to be held November 4-7, 2009). He has taught a variety of MBA courses, including the second-year electives Business at the Base of the Pyramid and Customers, Commerce and Society: Business Value and the Private Creation of Social Value.

Rangan agreed to take part in an e-mail Q&A with HBS Working Knowledge to describe the value of corporate social responsibility to businesses in economically uncertain times.

Martha Lagace: What is corporate social responsibility as you define it?

Kash Rangan: Activities undertaken by businesses that enhance their value in the community and society and thus benefit their reputation and brand. In general these activities create a win-win for the company and its larger group of stakeholders.

Q: Many nonprofits from museums to food banks are worried about the dwindling number of donors and their future in the midst of our market turmoil. Is the role and importance of corporate social responsibility evolving during the current recession?

A: There is no doubt that corporations are engaging in less philanthropy, but that is not necessarily bad as long as they cut the ineffective ones and consolidate those that are synergistic to their business.

Here is where the problem might arise: I believe the tendency is to make across-the-board cuts, without reflecting on the company's business strategy and its relationship to the larger environment. Some companies will end up making very poor decisions that will hamper their ability to leverage their reputations when the recession turns around.

Q: How would you advise that executives best communicate their CSR efforts to stakeholders when the economy is in such turmoil?

A: This is the time for executives to undertake a CSR audit and classify the programs according to their ability to enhance, and in some cases transform, the firm's business practices. We have built a simple classification system that when combined with an "assessment" model could yield powerful diagnostics on how to migrate and manage a company's portfolio of CSR programs.

Effective programs that serve the community in a compelling way, and that also demonstrate a strong potential to influence the business, must be retained and grown. This is also the best time to be pruning initiatives that have lost their relevance and leverage.

Q: What constitutes effective CSR? Can it always be measured or otherwise justified in a strategic business sense?

A: PNC [a financial services organization based in Pittsburgh] is an excellent example of how a business has focused on a cause that the company, its employees, and its customers deeply care about: early childhood literacy. Not only is support for the program continuing at the projected pace, there already are signs of how the program has started to impact PNC's business initiatives. The leading indicators are there; as for business impact, it is still too early to call.

There are other programs as well, some of which directly address opportunities in a firm's supply chain or demand chain (i.e., the customer-facing side of the business), which are easier to quantify because of their direct impact on the top or bottom line.

Q: Assuming that organizations value their CSR initiatives, how do you think they could best craft a strategy to prepare for future storms, not just the current one?

A: As I mentioned earlier, CSR should be viewed as a business discipline and practiced with the same rigor as other aspects of a firm's strategy. Remember, however, that rigor does not always equate to short-term financial profits. It means that a company should aim to manage the broader environment for the business to be engaged to its stakeholders in creating value for itself and the community in which it operates.

But the assessment of what that value is should be undertaken rigorously. While there might not be a neat quantitative metric, at the least there should be a robust logic model that is able to connect the dots and make a credible projection.

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