- Article
- Industry, Business, Technology
Social Responsibility in the B2B Sector: Denso
August 1, 2016
The simplest way for a company to gain public recognition for the value it add s to society is through marketing efforts directed at consumers , but this is a platform that is often un available to B2B firms . The Denso Group, a maker of automotive parts and components, has come up with unique approaches to overcom ing the CSR challenges in the B2B sector to ensur e the sustainable growth of the business while contributing to the sustainable development of society .
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Case studies in corporate social responsibility tend to focus on companies that have succeeded in boosting sales, profits, or other clear indicators of corporate value in the process of implementing socially responsible policies—“strategic CSR,” as it is sometimes called. But linking CSR to corporate value is a special challenge for “business-to-business” (B2B) firms that provide goods or services almost exclusively for other companies.
The starting point for any company’s CSR policy is its affirmation, internally and outwardly, of its social raison d’être. A company’s raison d’être can be understood in terms of its net social value added—meaning its sum total of positive and negative contributions to society at every stage of the value chain—as judged by the stakeholders that make up society (not by the company itself).
The most obvious way in which a company can gain public recognition for the value it adds to society is through its marketing and provision of products or services to consumers. This is a platform unavailable to B2B firms. For such businesses, the focus is on minimizing the negatives in the value chain, as by reducing the environmental load or addressing human rights issues at the development, production, or distribution phase. Of course, the quality of a B2B manufacturer’s intermediate goods affects the quality of the finished product and is therefore a key to its competitiveness. But once the parts are integrated into the final product, judging the value of the supplier’s contribution is often difficult.
When one considers how many Japanese manufacturers are suppliers of intermediate goods, one realizes the extent to which this issue affects Japanese industry. [1] In the following, I describe the efforts of the Denso Group, a major manufacturer of automotive parts and components, to grapple with and overcome the CSR challenges facing manufacturers in the B2B sector.
Denso’s CSR Approach
Let us begin with a brief survey of Denso’s CSR program. Despite the challenges explained above, Denso has placed great emphasis on contributing social value through its products, particularly in respect to the environment. At the same time, it has worked continuously to minimize negative value across the supply chain.
Denso embraces economically, environmentally, and socially responsible business conduct, viewing CSR as a means of ensuring the sustainable growth of the business while contributing to the sustainable development of society. In business terms, Denso divides its CSR activities broadly between stakeholder satisfaction and risk management.
The first category encompasses policies for creating value vis-à-vis each of five stakeholder groups: customers, employees, shareholders and investors, business partners, and the international and local communities. Risk management pertains to such nonemergency areas of risk as compliance and information security. The characterization of routine risk management as an aspect of CSR is one of the distinctive features of Denso’s CSR policy (Figure 1). [2]
The organizational structure Denso has developed for its CSR efforts is worthy of attention. At one point the company had six separate committees for the environment, safety, corporate ethics, social philanthropy, risk management (routine), and risk management (emergency). Over time it streamlined the organization. Currently, there remain only committees on the environment, safety, and emergency risk management—groupwide priorities that involve regulatory compliance. CSR policy as a whole is under the jurisdiction of the Corporate Strategy Planning Center within the Corporate Planning Division. This reflects Denso’s view of CSR as an integral aspect of business management and strategy.
Figure 1. Elements of Stakeholder Satisfaction and Risk Management
On the surface, it might seem more efficient to establish separate units to address different themes. But when people are grouped and segregated according to theme, they have a tendency to focus narrowly on the clearly visible, easily anticipated, and quantifiable problems in their designated field and become less aware of society’s changing needs.
Denso has refined its CSR system with a view to streamlining the organization while clarifying its functional division of labor. The result is an organizational structure that directly addresses various management issues integral to CSR, including the creation and maintenance of corporate value, the integration of social initiatives into business activities, and risk management.
Key Performance Indicators and Concrete Action
Denso has received especially high marks for its environmental policies. It is the area in which the company has made the most progress integrating action on social issues into its products and business processes. Characteristic of Denso’s approach is the adoption of key performance indicators and action measures for each area of environmental concern (climate change, resource recycling, toxic substances, biodiversity, etc.), broken down by stakeholder group.
In terms of research and development, Denso’s commitment to the environment has yielded concrete results in the form of lighter and smaller parts as well as advanced hybrid and idle-stop (stop-start) technology. Denso believes it has a responsibility to actively suggest improvements in this area. In terms of production, Denso has developed and adopted low-impact manufacturing processes, including energy-efficient production lines, and is actively collaborating with other companies on such matters as green procurement.
Underpinning these efforts is the company’s basic environmental plan, Denso EcoVision. The long-term plan sets 10-year goals and lays the basis for five-year action plans. Denso EcoVision 2015, adopted in November 2005, was revised in November 2010 and again in March 2013 (see Figure 2).
Figure 2. Denso EcoVision 2015
On the basis of this EcoVision, Denso draws up an Environmental Action Plan every five years. It is currently implementing its fifth five-year plan, which articulates concrete targets under four approaches, dubbed “eco-management,” “eco-products,” “eco-factory,” and “eco-friendly” (Figure 3).
Here I would like to focus particularly on products and production (“eco-products” and “eco-factory”), the areas in which Denso has achieved a high degree of integration. Through its action plan, Denso has publicly committed itself to quantitative targets and concrete actions in both areas. In so doing, it provides clear goals and guidelines for management, which doubtless contribute to the workplace environment.
Figure 3. Excerpts from Denso’s Fifth Environmental Action Plan (ending 2015)
2. Environment- and Performance-Oriented Design and Development (Eco-Products)
3. Steady Reduction in Environmental Load of Production Worldwide (Eco-Factory)
According to the results of the Tokyo Foundation’s 2014 CSR corporate survey, the preservation of ecosystems is an area in which many companies’ environmental efforts have lagged, probably owing to the difficulty of setting clear objectives and drafting concrete measures. Denso has approached this challenge by drawing up a Philosophy on Biodiversity. In addition, it has outlined a three-pronged approach to its own engagement with ecosystems: avoid causing damage (plant operations), optimally utilize (technology development), and protect (employee actions). On the basis of these shared principles and a respect for the autonomy of local operations, the companies of the Denso Group are working actively to preserve biodiversity in partnership with local communities.
Figure 4. Denso’s Biodiversity Initiatives
Taking the Long View
A key factor underlying Denso’s remarkable CSR performance is the company’s long-range approach to the creation of social value. In April 2013, the Denso Group adopted its Long-Term Policy 2020. To arrive at the plan, corporate leaders pictured the world in the year 2025 and deliberated at length on how their company could help surmount the social challenges of the future. Keeping in mind the nature of Denso’s business as a supplier of auto parts, the company embraced two basic goals for the ideal automotive society of the future.
The first was environmentally sustainable growth, which means minimizing the environmental load. The second was individual safety, security, and happiness, which involves accident prevention. In this way Denso, as a member of the automotive industry, has made a commitment to address these social challenges as part of its mission and raison d’être.
This twin focus is reflected in Denso’s global CSR policies. Environmental protection and safety are the shared priorities of Denso Group companies and subsidiaries worldwide.
Last year’s Tokyo Foundation CSR White Paper stressed the vital importance of a long-range perspective for the integration of socially responsible policies into a company’s business strategy. Denso’s business strategy begins with its Long-Term Policy, a kind of management “compass” that sets the basic direction for the next 5-10 years. This forms the basis for the concrete objectives and measures laid out in the Mid-Term Policy/Mid-Term Plan, a 3-5-year strategy.
The existence of a document guiding management policy from a long-range perspective and a corporate culture that continually asks how the company can deliver added value to society have enabled Denso to accelerate the integration of CSR into corporate management.
Denso also merits mention for its willingness to publicize negative as well as positive information. Since fiscal 2009, Denso’s CSR Report has included a section titled “Highlights & Lowlights,” in which it lists not only its achievements but also problems and areas in which more work needs to be done. Objectively disclosing the negative as well as the positive is a vital step toward winning public trust. It may not seem that difficult, but in fact it takes great courage. This section of the CSR Report also exemplifies Denso’s practice of approaching CSR in terms of objective, concrete indicators and actions and making the company's progress (or lack thereof) clearly visible.
Even as a supplier of parts and components, Denso has worked hard to build its credentials as a company that creates social value through low-cost, high-quality products and cutting-edge technology. At the same time, it has worked to improve and refine its business processes through benchmarking with an eye to the latest business trends and changes in the social environment. These efforts at continuous improvement are predicated on the understanding that the expectations of society—comprising the entire spectrum of stakeholders—are constantly changing.
The use of a long-range management policy as the starting point for business strategy and planning is a matter of common sense in the business world. Yet surprisingly few Japanese companies have been able to put it into practice, particularly in relation to CSR. Denso’s approach may offer a simple solution to the CSR challenges that continue to confront so many Japanese businesses.
Creating Windows to Society
Denso has secured a position as one of Japan’s most socially responsible companies, particularly in the environmental field, thanks to its willingness to respond to social change, its long-range perspective—so essential to the integration of CSR and business strategy—and its commitment to quantifying and visualizing its progress or lack thereof. That said, Denso is by no means exempt from the CSR dilemmas facing many B2B companies. True, it has made impressive gains in CSR integration in the environmental realm, where it is relatively easy to set quantitative targets and draw up concrete plans for meeting them. But Denso is aware that other areas pose more of a challenge.
Viewing CSR as an integral aspect of business management, Denso has long focused its CSR efforts on improving its products and business processes. In recent years, however, it has also come to the realization that CSR has an even more fundamental role to play: that of creating the kind of corporate culture from which quality products and sound business processes can emerge. It has come to see that CSR has the power to transform the corporate culture and, by extension, the thinking and behavior of each employee.
One of the most salient “personality traits” of Denso as a business is its enduring commitment to establishing close ties with the local community and standing by that community over the long run. This emphasis on nurturing strong community ties is most obvious in its longstanding relationship with the city of Kariya in Aichi Prefecture, where the company was founded and has its headquarters, but it is also apparent wherever Denso has established operations, both in Japan and overseas.
Paradoxically, this in itself can become a problem. Denso has ties with so many members of the community that it can sometimes be difficult to incorporate an outsider’s perspective. True, Denso employees work in a corporate culture that emphasizes continuous efforts to innovate, improve, and cut costs, and most of them strive hard to meet those challenges. They also benefit from working alongside other highly motivated and talented employees. Still, in such a self-sufficient environment, a tendency toward insularity is hard to avoid.
In our ever-changing society, problems can emerge unexpectedly in areas with no obvious relationship to the development and production of automotive parts. Insularity could leave the organization vulnerable to such problems. To maintain CSR policies that deliver on Denso’s commitments to stakeholder satisfaction and risk management, the company needs employees trained to respond to social change of all sorts. Nurturing that sort of social awareness and responsiveness among each member of the organization is therefore a crucial goal of Denso’s CSR program.
This is the rationale behind what Denso refers to as “employee enlightenment.” As Denso sees it, employee involvement in CSR activities provides the company with windows to society. The more employees interact with and listen to the broader community, the greater their opportunities for independent thinking, initiative, and growth. In this sense, CSR can be an important tool for rethinking the company from an outsider’s perspective. By changing the company’s corporate culture in this manner, Denso hopes to make the organization more adaptive, responsive, and resilient.
With this in mind, the Denso Group has called on each of its companies, in Japan and overseas, to draw up and implement plans for leveraging their own technical and organizational resources to contribute to the local community’s environmental health or human safety (the group’s shared priority commitments). It also compiles an abridged CSR report for employee consumption.
In Kariya, Aichi Prefecture, Denso launched a project to compile local traffic safety maps with employee participation. It used sudden-braking data gathered from event data recorders installed in company-owned vehicles, together with police accident reports, to pinpoint locations on the map where drivers and pedestrians need to be particularly on their guard. The company has distributed the maps to local schools and elsewhere for display and use in traffic safety campaigns.
In 2013, moreover, the company moved to “open the window to society wider” by expanding the initiative via an employee volunteer program to “make the community safer each time you drive.” Employee volunteers downloaded Denso’s own data-recording application onto their smartphones, which they placed in their private cars to collect traffic hazard data, including sudden braking events, while driving to and from work. Over a period of three months, some 120 employees provided about 120,000 kilometers worth of data on traffic conditions. The result was the identification of some 20 locations, primarily in Aichi Prefecture, that were prone to sudden braking. Judging from the feedback, many of the volunteers regarded the project as a valuable opportunity to take a fresh look at their community and their own driving habits from the standpoint of traffic safety.
Kariya Municipal Traffic Safety Map
Denso Group companies around the globe have also been undertaking their own traffic safety initiatives geared to their communities. After identifying the sources of local traffic hazards and fatalities, they consult with local government agencies and nonprofit groups to come up with measures to mitigate those hazards and work together to solve the problems.
The factors contributing to traffic hazards vary from locale to locale. In Thailand, a major factor behind traffic fatalities is the fact that children so rarely wear bicycle helmets. The need for such helmets is not widely understood, and as a result, only about 7% of Thai children wear them. Having identified the issue, Denso set to work in collaboration with local nonprofit groups on a campaign to promote the wearing of bike helmets.
It is easy to view such programs merely as charitable projects, but the real point of these initiatives is to make managers and employers more aware of and responsive to the local community. By attuning their eyes and ears to the outside world, company personnel can transcend the insular in-house viewpoint and gain the perspective needed to pursue meaningful innovation with society’s ever-changing needs in mind.
For Denso, this is an ongoing effort. Through concrete CSR activities, the company is actively opening windows to society and creating opportunities for its employees to ponder the kind of value that Denso as a company—and they themselves as individuals—can offer the world.
[1] According to the 2011 White Paper on International Economy and Trade published by the Ministry of Economy, Trade, and Industry, the share of intermediate goods (parts and semi-finished goods) in Japanese export volume has grown substantially since 1990, reaching 58.7% in 2009. In that year, intermediate goods and capital goods (used in production) together accounted for 81.4% of Japanese exports, while consumer goods accounted for only 17.3%. See http://www.meti.go.jp/english/report/downloadfiles/2011WhitePaper/2-1.pdf.
[2] For emergency management, Denso has established a Risk Management Meeting with a limited number of members to facilitate a rapid initial response in the event of an emergency.
