nw - Aspen Business & Society International MBA Case

Report
The Tata Way
A Mutually Reinforcing Cycle of Profitability and Sustainability
Jose Ochoa, Rajiv Rammohan, Ram Sangireddy, Christopher Shields
Executive Summary
Our strategy will propel Tata to the top of global CSR leadership by:
• Maximizing its initiatives by localizing them
• Allowing realistic CSR comparisons across all of Tata’s companies
• Considering the lifecycle impact of its products and services
• Developing a groundbreaking buy-in and incentive tool
• Creating measurable value for Tata and for society
The strategy relies on our Three Pillars of Sustainability:
Adapting to new
markets
New Markets
Multiplier Factor
Stepping it up a
notch
Product Lifecycle
Impact Metric
Aligning purpose
with profit
Internal CSR
credit market
CSR investments have realized a 32% return to Tata’s brand equity,
creating value for each Tata Group company.
Value Gained on Tata Brand Equity Due to CSR
$US BN
Value of the Tata Brand
$9.92
Estimated 2008 Tata CSR Contributions
$0.603
Cost of CSR Contribution in Perpetuity
$6.03
Value of Brand Equity – CSR Investment
$3.89
Value of Brand Equity Due to CSR
$1.94
ROI of CSR Investment
32%
Tata’s CSR initiatives align the interests of each of its
stakeholders and strengthen its overall competitive advantage
Stakeholders
Interests
Leverage over
Tata
Benefits of CSR
Initiatives
Workers
Safety, fair wages,
etc…
Strikes, decreased
productivity
A firm ‘people
want to work for’
Local
communities
Investments in
local needs
Oppose and hinder
expansion plans
Low interference,
overall support
Investors
Financial return
Access to capital
markets
More stable
financial returns
With global expansion, Tata must adapt its CSR efforts to
match the diverse needs of local communities.
One-size-fits-all CSR strategy is neither efficient
nor sustainable
Localize
Metric
Germany
Vietnam
GDP (PPP) per capita
$34,100
$2,900
% population below poverty line
11%
22%
Adult literacy rate
99%
90.3%
HIV/AIDS prevalence rate
0.1%
0.5%
Unemployment rate
8.2%
2.9%
• Employment
• Environment
• Education
• Health
Tata CSR focus (proposed)
Source: CIA World Fact Book
New Markets
2
3
NMMF enables the Tata Group to fairly compare the CSR
performance of each of its companies
Normalize
Original
Tata
Index
New Markets Multiplier Factor (NMMF) normalizes
sustainability initiatives of different Tata Group
companies to facilitate comparison of CSR performance
New
Tata
Index
NMMF
New Markets
2
Use to compare
Tata Group
companies’ CSR
performance
3
Incorporating PLIM in the Tata Index will put the group at the
forefront of CSR
Measure
Product Lifecycle Impact Metric (PLIM) measures the
lifecycle impact of Tata Group companies’ products
Product
Impact
CSR
Synergies
1
Profit
Synergies
PLIM
PLIM
3
The modified Tata Index will be tied to performance against
annual CSR targets.
Total
Points
Tata
Chemicals
2010 CSR Performance Target
600
560
Total points (before suggested
modifications)
1000
534.15
Product Response – Level IV (PLIM)
100
10
(0 to 100)
30
20
30
20
40
(-100 to 0)
-30
-20
-30
-20
-30
1100
544.15
Target
Assessment
Levels
(1) Value addition to society in perpetuity
a) Human standard of living and purchase
capacity
b) Enhanced ease of mutual existence
c) Enhanced health and safety conditions
d) Other considerations
(2) Lifetime Ecological Impact
a) Environmental pollution
b) Material waste
c) Human health and safety
d) Other considerations
Total Points (including PLIM)
1
PLIM
3
Target
Index
Score
Original
Index
Score
PLIM
Score
Modified
Index
Score
Internal CSR market will align each company’s financial incentives
with the double bottom line of responsibility and profitability
Allowed to trade
CSR credits
Firm
meet
profit
target?
YES
NO
Sell CSR credits?
• Eligible for incentives
• Maximize profitability
YES
Firm
meet
CSR
target?
TATA Group
Internal CSR
Market
Eligible for
incentives
YES
Firm
meet
CSR
target?
NO
Buy CSR credits?
• Not eligible for incentives
• Not allowed CSR trading
NO
Not eligible
for incentives
1
2
CSR Market
Phased in rollout will enable flexible and scalable
implementation of a strategy sustainable in the long term
Task
Create Local
Task Force
Revise Internal
Sustainability
System
Increase
Coordination
with all
Stakeholders
2011
2012
2013
2014
2015
2016
2017
2018
2019
Early : Anticipated
leadership change
Year Three: Group
wide rollout
Rollout PLIM
Commence CSR
internal trading
Implement and
Revise CSR
internal market
Year Six: CSR market
is fully operational
2020
An annual investment in CSR Trading Market bonus pool will generate
an additional profit margin of 0.829%.
Intangible resources*
Innovation
Human Capital
Reputation
Culture
Corporate Social Responsibility
Performance
PV of Perpetual Investment = $1B
PV of Perpetual Profit Generated = $8.29M
CSR Profit Margin = 0.829%
Corporate Financial Performance
Intangible resources*
Innovation
Human Capital
Reputation
Culture
Figure adapted from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance:
The Role of Intangible Resources." Strategic Management Journal, 2010: 463-490.
But Economic Value Added is only a portion of the Global Value
Added by CSR……….
Global Value Added* = Social Value Added + Economic Value Added
Where:
Social Value Added = Economic Value of Social Saving + Tax Revenues +
Non-Economic Benefits
Adapted from Hughes, Greg, Sonali Rammohan, and Linda Emanuel. "Corporate Citizenship: Managing Relationships with
Professionals and Government." Aids & Public Policy Journal, 2003: 61-76.
Local application of Tata Index, PLIM, and CSR Credit Trading
Market are key to Tata’s corporate strategy.
This CSR Strategy is Key to Corporate Strategy:
•
•
•
•
•
•
Aligns profitability with sustainability
Enhances brand equity
Erects barriers to entry for competitors
Anticipates future regulatory changes
Further enables a smooth leadership transfer
Further institutionalizes Tata’s culture for future generations
Next Steps:
• Create leadership task force composed of Group Corporate Sustainability VP, Group
CFO, Group COF, CMO, and other relevant executives to solidify strategy
• Commence the creation of local task forces
• Work with governments, NGO’s, the UN, and local residents to identify CSR needs
within each target market
• Further investigate how to maximize both profits and social performance*
• Move forward with this strategy!
* Husted, Bryan, and Jose de Jesus Salazar. "Taking Friedman Seriously: Maximizing Profits and Social
Performance." Journal of Management Studies, 2006: 75-91. We suggest this merely as a starting point, the Tata
group must optimize profits and social performance according to the needs of all Tata stakeholders.
Thank You
Questions?
Appendix A
Value Gained on Tata Brand Equity Due to CSR ($US BN)
Value of Tata brand
$9.92
2008 Tata CSR contributions*
Cost of CSR contribution in perpetuity**
$0.603
$6.03
Value of Tata brand over CSR investment
Value of Brand equity due to CSR***
% return on CSR for Brand Equity****
$3.89
$1.94
32%
Annualized value of Tata brand
Annualized value of Tata brand over CSR investment
Annualized value gained on brand equity due to CSR
$0.99
$0.39
$0.19
% Return on CSR for Brand Equity
32%
* Tata Steel contributed $31.58M to CSR in 2008. Given that Tata Steel comprises 20.95% of the Tata group's public market cap of $60B,
we estimate the total CSR contributions of Tata's 24 public companies to be $151M. Given that the Tata group consists of 96 companies,
we then multiply this value by 4 and obtain a Tata Group grand total contribution of $603M. ; Source: Prasad,Dr V.V.S.K, Professor in
MBA, The Hindu College, February 2009, http://www.indianmba.com/Faculty_Column/FC955/fc955.html, accessed April 11, 2010
** Given lack of financial data and our understanding of Tata's operations, we estimate Tata's discount rate to be 10%.
***Though much of Tata's brand equity is due to its CSR policies, we recognize that a large portion of its brand equity is also due to
factors such as product quality & reliability, operational effectiveness, internal sustainability investments, and other intangibles. We
therefore estimate that only 50% of Tata's brand equity over CSR investment is due to the Group's CSR strategy.
***We recognize that 32% is a conservative estimate, as given the relative size of the varous Tata companies, we believe the Tata
Group's total CSR 2008 contributions to be less than $603M.
Appendix B
CSR Investment Profit Margin ($US M)
Initial CSR Investment
Discount rate
Value of CSR Investment in Perpetuity
$100
10%
$1,000
Δ in innovation due to CFP
860.00
Δ in Human capital due to CFP
530.00
Δ in Repuation due to CFP
640.00
Δ in Culture due to CFP
89.00
Δ in CSR rating in perpetuity
423.55
Δ in innovation due to CSR
59.30
Δ in Human captial due to CSR
127.07
Δ in Reputation due to CSR
160.95
Δ in Culture due to CSR
173.66
Additional Profit due to CSR in perpetuity
Annual Additional Profits due to CSR
Profit margin
$8.29
$0.83
0.829%
Appendix C
Relationship between CSR and Financial Performance
Effects of CSR on Intangible Resources
β Innovation
β Human Capital
β Reputation
β Culture
0.140
0.300
0.380
0.410
Effects of Intangible Resources on CFP
β Innovation
β Human Capital
β Reputation
β Culture
0.031
0.021
0.008
0.014
Effects of CFP on Intangible Resources
β Innovation
β Human Capital
β Reputation
β Culture
0.860
0.530
0.640
0.089
Effects of Intangible Resources on CSR
β Innovation
β Human Capital
β Reputation
β Culture
0.220
0.318
0.087
0.121
Obtained from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance: The
Role of Intangible Resources." Strategic Management Journal, 2010: 463-490.
NMMF enables the Tata Group to fairly compare the CSR
performance of each of its companies
Tata
Index
Compare Tata
Group
companies’ CSR
performance
NMMF
Germany
Tata
Index
NMMF
Vietnam
1
2
3
Incorporating the Product Lifecycle Impact Metric (PLIM) in the
Tata Index will put the group at the forefront of CSR
Product
Impact
PLIM
Synergies
Positive Externalities:
Tata Chemicals
• Benefits rural farmers
• Reduces malnutrition by
increasing crop yields
• Gains exposure to
working with low
income farmers
Company
Group
Tata Kissan Sansar
Negative Externalities:
Global
CSR
• Can utilize this
knowledge in selling
XXX in similar markets
• Leads to soil and water
pollution
1
2
3

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