The concept of social responsibility in the business model of a company

Kurovs, Jevgenijs; Waściński, Tadeusz Article The concept of social responsibility in the business model of a company Foundations of Management Provided in Cooperation with: Faculty of Management, Warsaw University of Technology Suggested Citation: Kurovs, Jevgenijs; Waściński, Tadeusz (2016) : The concept of social responsibility in the business model of a company, Foundations of Management, ISSN 2300-5661, De Gruyter, Warsaw, Vol. 8, Iss. 1, pp. 189-202, https://doi.org/10.1515/fman-2016-0015 This Version is available at: https://hdl.handle.net/10419/184603 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0 Foundations of Management, Vol. 8 (2016), ISSN 2080-7279 DOI: 10.1515/fman-2016-0015 189 THE CONCEPT OF SOCIAL RESPONSIBILITY IN THE BUSINESS MODEL OF A COMPANY Jevgenijs KUROVS*, Tadeusz WAŚCIŃSKI** Warsaw University of Technology, Faculty of Management, Poland *e-mail: [email protected] **e-mail: t.wa[email protected].pl Abstract: The article presents a research topic focused on the issues relating to corporate social responsibility (CSR), which is a component of company’s business model. The fact that it is a relatively novel trend in the scope of economics inspired us to raise the aforementioned problem of social responsibility in business, since that area of study is still subject to systematization. The existing interpretation of the concept mainly refers to the questions connected with the commercial sector. CSR is said to be an idea, thanks to which enterprises freely take into account the need for social environmental protection and also relations with various groups of stakeholders at the stage of developing their strategy. Therefore, there is a demand for new scientific studies in that scope. Considering the methodological premises of the article, the author carried out an analysis and evaluation of heating companies in Poland and in Latvia between 2002 and 2014. The analysis was conducted in a dynamic perspective with the use of statistical and econometric tools in order to verify the research hypothesis and achieve the purpose of the thesis. It should be highlighted that a survey questionnaire was the main source of the research data. The study covers 212 out of 445 enterprises operating in the heating sector in Poland and 26 out of 45 operating in Latvia. Keywords: social responsibility, business models, factors: knowledge, macroeconomic, microeconomic, financial, factor analysis, modeling. 1 Introduction Rationale for the study Corporate social responsibility (CSR) is a relatively new area of interest in the field of economics since that area of study is still subject to systematization. The existing interpretation of the concept mainly refers to the questions connected with the commercial sector. CSR is said to be an idea, thanks to which enterprises freely take into account social interest and environmental protection, and also relations with various groups of stakeholders at the stage of developing their strategy. Not only does being responsible mean meeting all the formal and legal requirements, but also realizing increased investments in human resources, environmental protection, and relations with company’s surroundings; in other words, company’s engagement on a voluntary basis. Social responsibility is a process within which enterprises manage their relations with various stakeholders who may have an actual influence on the success of their business activity; therefore, such an activity should be treated as an investment, with a given rate of return and broad social benefits. Main purpose of the article The process of deriving a model of CSR supporting heating company management, which, according to the concept standing behind the idea, assumes that also the social interest, relations with the surroundings, and environmental protection are taken into account apart from the economic and financial interest. Research hypothesis A business model taking into account the social responsibility concept in heating company management should consider factors that enable an organisation’s sustainable development and create its positive image in the business environment. Research methods, techniques, and tools The presented research problem, the need for verifying the adopted research hypotheses, and the need for developing a business model of managing a heating company in the scope of social responsibility required dividing the research process into specific 190 Jevgenijs Kurovs, Tadeusz Waściński stages. The initial stage of work was predominated by the following methods: direct observation, document test methods, analysis and review of literature. The scientific research techniques used were: survey and interview. Information and knowledge obtained through questionnaires were processed with comparative methods (sample analyses, retrospective analyses, external and internal analyses, and others). The empirical data collected (quantitative and qualitative) were processed with the use of: statistical computation, for example, significance test, correlations between assessments, factor analysis, factor loadings, and so on. 2 Presentation of research results: business model of managing Adopted Business Models in the Scope of CSR for the Purpose of the Article: Table 1 shows the sequence of the developed business models with consideration of the analyzed factors affecting CSR. Fig. 1 present the main and specific economic factors, which in subsequent parts of the article have been used in the process of modeling the benefits of using the CSR concept. The process model of social business responsibility - macro, micro, and benefits of applying the CSR concept is shown in Table 2.  Table 1. Research areas within CSR business models (source: drawn on the basis of research results - own study) Research areas within CSR business models I Process model of social business responsibility (macro) II Process model of social business responsibility (micro) III Model advantages of adopting the CSR concept IV Formal and informal connections within the sector and outside it Figure 1. Process model of social business responsibility (macro) (source: drawn on the basis of research results - own study) The Concept of Social Responsibility in the Business Model of a Company 191 Table 2. Adopted dimensions for prospective factors in models 1, 2, and 3 (source: drawn on the basis of research results - own study) Government Fiscal policy tools: expenditure, taxes, and transfers. Functions of the government: allocation, distribution, stabilizing, and institutional. Monetary policy: interest rates, credit policy. Socio-economic factors Product price, usefulness, customer satisfaction index, and environmental protection Macro business Potential of the heating industry in 2002–2014, - Dynamics of profits and costs of heating companies in 2011-2013 (Energetyka cieplna w liczbach, 2013, Energy Regulatory Office, Warsaw 2014) Micro business Structure of balance sheet, ratio analysis: liquidity, profitability, productivity, and net profit/division Knowledge factors Organisational culture, intellectual capital, know-how, learning-by-doing, tacit knowledge, and crowdsourcing 3 Modeling benefits from applying the CSR concept: models for Poland and Latvia As a result of the analysis made in order to design the presented models, for the need of this article, a model has been defined as a simplified logical mental construction. In the literature on the subject, one can find that an economic model is, therefore, a collection of assumptions forming a simplified, schematic image of a part or the whole of the economy in which it is possible to study essential relations, disregarding accidental phenomena or phenomena believed to be of minor importance for the purpose of explaining the relevant aspect of economic reality (Klimczak, 1995, p.19). Having considered this, we adopt the following approach toward the development of business models that take into account the CSR concept. The modeling of the benefits from adopting the CSR concept has been based on the main factors described earlier. The differences in the approach toward business can be best illustrated with Poland as an example. The data file here is quite extensive, and in the group of companies subject to analysis, there is a sufficient number of enterprises representing a different attitude toward the CSR concept (companies that apply it, do not apply it, or do not know much about it). The main factors affecting the benefits of the concept (CSR) separated in the conducted analyses allowed to create the model shown in Fig. 2. Model I for Poland illustrates the influence of the main macroeconomic factors (Macro), socioeconomic factors (SE), microeconomic factors (Micro), knowledge factors (Knowledge), and relationships (PW) on the benefits deriving from applying the CSR concept. In the model, the values quoted in brackets sand for the standard structural parameter errors. In each case, the values of structural parameters are higher than their standard errors, which suggest that individual factors influence the CSR benefits significantly. In the case of macroeconomic, socio-economic, microeconomic, and knowledge factors, the relation between the value of the structural parameter and its standard error exceeds 2. Therefore, it can be said that the factors have powerful influence on the shaping of the benefits from the CSR concept. Only in the case of this factor, standing behind relationships was an insignificant influence observed (here, the relation between the structural parameter and its standard error fails to exceed 2, although it is close to that). The strongest influence on CSR benefits is given by the micro-economic factor. The impact of the socio-economic factor is also significant. Both, the influence of the macroeconomic factor and knowledge factor is clearly lower, but still they are statistically significant. 192 Jevgenijs Kurovs, Tadeusz Waściński Figure 2. Main factors used in the model of social and business benefits deriving from the application of CSR concept in Models I, II, and III for Poland and Model I for Latvia (source: drawn on the basis of research results - own study) 3.1 Poland - Model I Benefits_ CSRi = -0.000 (0.038) + -0.297 (0.046) Macroi + -0.510 (0.071)SEi + 0.717 (0.056)Microi + - 0.336 (0.046)Knowledgei + 0.117 (0.069) PWi (the relations in the sector) + ei ~󰇛, .󰇛.󰇜 2∗  304󰇛212212󰇜 The next figure depicts a schematic image of the model with information about the factor loadings influencing individual main factors. Fig. 3 presents only those factor loadings that show a correlation with the main factor exceeding 0.5. Synthesis (theory) of model Poland - Model I is shown in Fig. 3 as following: regression coefficients have been quoted next to arrows; the red stands for statistical coefficients that are statistically significant. The spare square has been completed with an absolute term. Individual factors have been assigned variables characterized by factor loadings exceeding  0.5  . The level of error in Model I measured with a variance of random component amounts to 0.304, and in the case of IGLS statistics measuring the goodness of fit of the model - 348.906. In Model I, companies were not differentiated according to whether they apply the CSR model or not. The model was corrected by completing the right side with a zero-one variable representing the approach toward the use of CSR concept. Substituting variable “yes” with value “1,” and variable “no” with value “0” generates a model for companies employing the CSR concept. Substituting variable “yes” with value “0,” and variable “no” with value “1” generates a model for companies that do not employ the CSR concept. Substituting the variable “yes” and variable “no” with value “0” generates a model for companies, which have not expressed their opinion about the use of the CSR concept. In the relevant model, a correction was made according to the constant; companies were not differentiated on the basis of the regression coefficients. The Concept of Social Responsibility in the Business Model of a Company 193 Figure 3. Schematic presentation of Model I for Poland (source: drawn on the basis of research results) 3.2 Model - Poland II Benefits_ CSRi = -1.442 (0.108) + -0.395(0.033) Macroi +-0.258 (0.054)SEi + -0.044(0.064)Microi + - 0.373 (0.036)Knowledgei + 0.033 (0.049) PWi (the relations in the sector) + 2.386 (0.161) noi + 1.429(0.121) yesi + ei ~󰇛, .󰇛.󰇜 2∗  195.809󰇛212212󰇜 Synthesis (theory) of model Poland - Model II is shown in Fig. 4 as following: regression coefficients have been quoted next to arrows; the red stands for statistical coefficients that are statistically significant. The empty square has been completed with an absolute term; the first number refers to companies employing the CSR model, the second to companies that do not do that. Individual factors have been assigned variables characterized by factor loadings exceeding  0.5  . The correction made resulted in lowering the variance of the random component to 0.147, and the value of IGLS statistics to 195.809, which is statistically significant and substantially improves the model. 194 Jevgenijs Kurovs, Tadeusz Waściński Figure 4. Schematic presentation of Model II for Poland (source: drawn on the basis of research results) Worth noting is the fact that the division of the model into companies employing and those not employing the CSR concept resulted in the situation where the micro-economic factor became statistically insignificant. Moreover, the influence of the factor of relationships is also insignificant. It is the practical application of the CSR concept that decides about the informative value of those factors. The weakness of Model II is the fact the it assumes uniform translation of changes in macro-economic (Macro), socio-economic (SE), microeconomic (Micro), knowledge (Knowledge), and relationship (PW) factors into the benefits from using the CSR concept in companies employing and not employing the CSR model. The model discussed only assumes that the reaction level is different, but the increments are constant. The said fault is not found in the next model, Model III. There, the interactions between macroeconomic (Macro), socio-economic (SE), microeconomic (Micro), knowledge (Knowledge), and relationship (PW) factors, as well as the attitudes toward the use of the CSR model are taken into account. The variance of the random component in Model III is at 0.060, and IGLS statistics, at 6.368. The quoted values prove that it is necessary to consider various levels and various slopes of the CSR benefit model depending on the company’s attitude toward the practical application of the CSR concept. In order to obtain a model for a given type of an enterprise, values “0” and “1” need to substitute the right variable, in the same way as it was done in Model II, for example, in order to generate a regression coefficient of the Macro factor for companies applying the CSR model, it is necessary to replace Macro variable “no” with “0” and Macro variable “yes” with “1.” The model is much more complicated than Models I and II, but it explains the analyzed phenomenon much better. The Concept of Social Responsibility in the Business Model of a Company 195 3.3 Model - Poland III Benefits_ CSRi = -0.588(0.591) + 0.089(0.178) Macroi -0.495(0.244)SEi + 0.319(0.431)Microi + - 0.080 (0.168)Knowledgei + 0.040 (0.222) PWi (the relations in the sector) + 2.006(0.649) noi + 0.796(0592) yesi + - 0.45(0.229) Macro.noi + -0.732(0.185) Macro. yesi + 0.453(0.287) SE. noi +0.127(0.259)SE. yesi + - 0.884(0.521) Micro. noi + -0.670(0.435) Micro. yesi + -0.075(0.194) Knowledge noi +- 0.711(0.187) Knowledge yesi + 0.016(0.232) PW.(the relations in the sector) noi + 0.257(0.243) PW(the relations in the sector). yesi + ei ~󰇛, .󰇛.󰇜 2∗  6.368󰇛212212󰇜 Figure 5. Schematic presentation of Model III for Poland (source: drawn on the basis of research results) Synthesis (theory) of the Model - Poland III is shown in Fig. 5 as following: regression coefficients have been quoted next to arrows; the red stands for statistical coefficients that are statistically significant; the first number refers to companies employing the CSR model, the second to companies that do not do that. The empty square has been completed with an absolute term; the first number refers to companies employing the CSR model, the second to companies that do not do that. Individ- 196 Jevgenijs Kurovs, Tadeusz Waściński ual factors have been assigned variables characterized by factor loadings exceeding  0.5  . Separating the structural regression coefficients according to the company type, the type differentiated on the basis of practical application of the CSR, makes it possible to say that the benefits from the CSR concept in undertakings employing the CSR model are strongly influenced by macro-economic factors and knowledge factors. In companies that refuse to use the CSR model, there are no factors significantly impacting the CSR benefits. Macroeconomic, socio-economic, and micro-economic factors are very close to be deemed significant, though. The model clearly shows that the opinion held by companies that do not apply CSR about the CSR is different from its real influence when it is in fact employed. In the case of Latvia, owing to the one-sided approach presented by companies subject to analysis toward the CSR, only one model was estimated. It is a model for companies employing the CSR concept. 3.4 Model - Latvia I Benefits_ CSRi = 0.138(0.107) + -0.112(0.142) Macroi + -0.382(0.196)SEi + 0.714(0.170)Microi + - 0.355(0132)Knowledgei + 0.230(0.211) PWi (the relations in the sector) + ei ~󰇛, .󰇛.󰇜 2∗loglikelihood  39.512󰇛25of25casesinuse󰇜 Synthesis (theory) of Model - Latvia I is shown in Fig. 6 as following: regression coefficients have been quoted next to arrows; the red stands for statistical coefficients that are statistically significant. The spare square has been completed with an absolute term. Individual factors have been assigned variables characterized by factor loadings exceeding  0.5  . The presented model is equivalent to Model – Poland III in the situation when “yes” is replaced with “1” and “no” with “0”  in other words, in the case of companies using the CSR model in practice. Due to a smaller sample of companies in the study in Latvia, there is no point in comparing the variance of the random component and the value of IGLS statistics between those models. It is necessary to recognize the model adopted for Latvia as the appropriate one. When comparing Model - Poland III where yes = 1 and no = 0 with the Model - Latvia I, one can notice that the sign of the absolute term, structural parameters of the macro-economic, socio-economic, knowledge, and relationship factors is the same in both of them. Only the sign of the micro-economic factor is opposite. Naturally, other elements shaping individual factors in those countries may be responsible in such a situation, as well. The aforementioned models comprise only the main factors. In Latvia, micro-economic factors and knowledge factors strongly influence the development of benefits from the CSR concept. The common feature of Polish and Latvian companies employing the CSR model is nothing else by the substantial influence of the knowledge factor on the attaining of benefits from the CSR concept. It is relatively interesting that the Model - Latvia I is closer to Model – Poland I. The observation mainly refers to the structural parameters. The differences that appear between the two are found in factor loadings. The said discrepancies have been studied in previous parts of the thesis.