Research Insights 17.2 The competitive Advantage of Corporate Philanthropy

Not-for-Profit and Social Marketing

Source: Porter, M.E. and Kramer, M.R. (2002), ‘The competitive advantage of corporate philanthropy’, Harvard Business Review, 80, 12, 56–68.

Abstract: When it comes to philanthropy, executives increasingly see themselves as caught between critics demanding ever higher levels of "corporate social responsibility" and investors applying pressure to maximize short-term profits. In response, many companies have sought to make their giving more strategic, but what passes for strategic philanthropy is almost never truly strategic, and often isn't particularly effective as philanthropy. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image through high-profile sponsorships. But there is a more truly strategic way to think about philanthropy. Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company to not only give money but also leverage its capabilities and relationships in support of charitable causes. That produces social benefits far exceeding those provided by individual donors, foundations, or even governments. Taking this new direction requires fundamental changes in the way companies approach their contribution programs. For example, philanthropic investments can improve education and local quality of life in ways that will benefit the company. Such investments can also improve the company's competitiveness by contributing to expanding the local market and helping to reduce corruption in the local business environment. Adopting a context-focused approach goes against the grain of current philanthropic practice, and it requires a far more disciplined approach than is prevalent today. But it can make a company's philanthropic activities far more effective. INSETS: The Myth of Strategic Philanthropy; The Cisco Networking Academy.

Insight: In this highly cited article, the authors argue that firms must look beyond the public relations value of their social contributions. The key to successful philanthropy is to focus giving on the context in which the firm operates. They explain how Cisco Systems set up the Cisco Networking Academy to train computer network administrators to alleviate a potential constraint on the company’s growth, i.e. lack of available trained employees. Interestingly, the authors argue that philanthropy can be the most cost-effective way for a company to improve its competitive context, given that under these circumstances companies can leverage the efforts and resources of not-for-profit organizations and other institutions to make systemic