Brief background of the company:
New Balance was founded in Boston in 1906 by William J. Riley. He had begun the company by making arch support to alleviate pain for people who spent all day on their feet. In 1925, Riley created his first running shoe for the Boston Brown Bag Harriers. Then in the 1940s, because of the success of his shoes, New Balance began making custom shoes for running which lead to mass production of his shoes in the 1960s. In 1972, New Balance was purchased by James Davis for $100,000, and James stayed owner with his wife (Veleva 4). Then in 2009, James became chairmen of the company. In 2006, New Balance implemented a lean production system in all domestic operations, which led to significant productivity improvements and reduced waste, worker exposer, and cost. A year later, a new CEO named Rob DeMartini came from the consumer product industry was brought on board to lead the company to becoming a true global brand. In 2009, New Balance was becoming global with 4,100 employees worldwide and sales of 1.61 billion in 2008 (Veleva 4). New Balance was the second-largest manufacturer of athletic footwear in the United States after Nike and the fourth largest in the world.
Issues the Firm Encounters:
The start of New Balance problems began when domestic manufacturing of shoes rapidly declined and was estimated at less than 3 billion annual revenue, which lead footwear manufacturing companies to move overseas to countries such as China because of how much money they would save in labor cost (Veleva 4). With the result of moving operations to developing countries with known human and labor rights violations, footwear and apparel companies like New Balance faced significant social and environmental challenges. These challenges made having an integrated CSR strategy essential. With the lack of a CRS department in the New Balance Company, four major issues were created that had a high potential to affect New Balance. The first major issue is human and labor rights issues in the supply chain. Ever since the boycott of Nike products in the 90s, this area still remains top focus in 2009. The nongovernment organization, also known as “NGO”, campaigns work on developing codes of conduct and implementing supplier monitoring maximum work hours, health and safety in overseas factories, use of temporary workers, transparency, responsible purchasing practices and exit strategies. The second issues is the increasing demands for transparency, although privately held companies like New Balance did not face the same disclosure pressures as public company did like Nike.
A greater transparency could build trust and mitigate unexpected reputation risks from recalls or problems in supply chain. Having a greater transparency could build an emotional bond with ethical consumers and gain greater customer loyalty. It is in New Balance’s interest in developing a greater transparency. The third issues that have arisen for New Balance was the introduction of mandatory greenhouse gas emission regulation reporting by companies effective January 2009. The U.S Senate and House of Representatives were drafting a federal climate change regulation. Other Footwear company’s like Timberland and Patagonia already had begun preparing for the regulations which already attracted ethical consumers by measuring and reporting their GHG emissions and carbon footprint. The fourth issue was health, safety, and product stewardship. The adoption of Registration, Evaluation, Authorization and Restriction of Chemical substances also known as REACH by European Union in 2006 changed the way chemicals were regulated. REACH created more responsibility on businesses to assess the environmental impact, health, and safety of their products ingredients and to find safe alternatives. The liability from using dangerous chemicals or materials had greatly increased. Since there is growing pressures to reduce waste, regulatory changes were expected at the end of the product life cycle. With the four social and environmental issues we had explain for New Balance and other footwear and apparel businesses, it is imperative to create a process in the companies to be able to address challenges and identify new opportunities to expand their business and meet social and environmental responsibilities. Overall Governance:
One of New Balance’s strengths in the company is that people are proud to work for them. The employees at New Balance would state that “the management is responsive and takes things very seriously.” Also the supervisor from one the factories stated that the company focuses on their people and domestic company. Keeping their employees happy establishes a comfortable work environment and improves employee retention. With less people wanting to quit, the company can save extra money on not having to hire and train new people. Though New Balances revealed a strong basic support for CSR, it did not provide enough guidance for the managers to follow. The managers didn’t know how to identify problems with business risks and opportunities. New Balance lacked a clear process on setting up CSR goals that were linked to the core business strategy. The business had six basic strategic business priorities that linked them to responsible leadership. Have a inspired and committed workforce
Make New Balance a global brand
Have bonds with its athletic consumers
Continue to have improvement
These are 4 of their strategies that linked to leadership.
New Balance has already started good CSR practices on an operational standpoint. In 2009, they reduced number of suppliers from 400 to 200. This allowed for New Balance to have an increased transparency over their supplier’s operations as well as having better overall controls of the supply chain. Benefits that arise are reduced cost and less overall risk of miscommunication. Since New Balance reduced suppliers, their relationships have grown closer and closer. A great example includes one of New Balance’s chemical supplier Henkel. Through the innovation of Heckel’s new chemical process that eliminates the use of solvent cements, New Balance was able save cost up to 5%. This is about 6 million in savings. Because of this new process, New Balance increased productivity as well as greatly reducing emission and waste. Productivity increased from 9.5 pairs per team per hour to 19.3 pairs. Emissions all greatly decreased from 14 grams of volatile organic compounds all the way down to .33 per pair.
Overseas New Balance has collaborated with their Chinese supplies to require that their employees don’t work more the 60 hours per week, instead of the original 70+ hours a week. Just this simple change has increased the supplier’s productivity by 35 percent. Once New Balance realized these benefits they collaborated with Maquila Solidarity Network so that this performance could be publicized and show to the public. They wanted other companies in their industry to be aware of these supply chain techniques so these benefits can be gained as an industry overall. New Balance has a good head on their shoulders when concerning good CSR practices; they just need a way to measure and report these good practices to the public.
Above includes just a few examples on how New Balance has been implementing good CSR practices in their supply chain. With a better way of communication and collaboration, like creating a CSR department within the company, they will be able to better report as well as network with suppliers and peers to make continuous improvement of internal operations as well overall sustainability. Ethics and Sustainability:
New Balance’s mission statement reads “Demonstrating responsible leadership, we build global brands that athletes are proud to wear, associates are proud to create and communities are proud to host”. The first part states “Demonstrating responsible leadership”. What does that mean? New Balance has always done a good job of keeping out of the news and not getting publicity, but all publicity isn’t a bad thing. Until recently New Balance had done a poor job conveying to the public just how environmentally friendly they have been. The case study talks about “numerous impressive CSR initiatives” (e.g. worker conditions in supplier factories, greening of U.S. facilities and significant reductions in volatile organic compounds emissions domestically), however New Balance did a less than stellar job tracking these important sustainability issues. There was no way for New Balance to measure their carbon footprint and other environmental friendly innovations they had been developing throughout the life of the company. Because of this they missed out on a big opportunity to showcase what they had been able to achieve to the public.
Most of the blame was put on the senior leadership for not having the proper vision and not getting the proper exposure that would have made New Balance an even stronger and more competitive company. Eventually in 2008 New Balance developed new systems of tracking carbon footprint and other environmental issues, however most other companies had already been moving that direction and it was kind of expected of all companies. Not only did New Balance show strong environmental responsibility, but also did a good job giving back to the community. In 2007 New Balance employees recorded 3,847 volunteer hours in local communities; they also donated $6,494,388 to charities. There is now a much higher level of awareness with how much New Balance gives back to the community, however most of the employees felt that there was still not enough exposure for all the good that New Balance does. If New Balance could have showed their high level of CSR with environmental issues much earlier, they would have had a competitive advantage on their competitors. This hurt them in the long run; however they have still flourished and have the fourth largest market share in their respective industry.
New balance should continue their campaign on targeting the “made in America” type consumers. My own personal observations are that the older generation seems to really like New Balance shoes, and being made in America is typically very appealing to them. New balance has also taken large steps with the ethical side of human resources. One way they took initiative was to adopt a human friendly policy was to enforce a 60 hour work week limit in its Chinese production facility. The previous limit had been set at 70 hours a week. While New Balance seemed to be doing the right thing I believe they should have handled this policy differently. To the average American they will see this stat and automatically think “sweatshop”. To the average Chinese they may look at it and think less opportunity for the worker to make money. New Balance could have tried to implement a strategy that appealed to both cultures.
For example, if they would have put a minimum hours worked at 45 with the option to work up to 70 it may have appealed to both sides. A positive change that took place in New Balance facilities in the U.S. was the adoption of green cleaners. In what was deemed a “win win” situation, New Balance saved $240,000 by changing cleaning chemicals that were used to clean the manufacturing facilities. The result of this action not only saved a great deal of money, but created improved worker safety and health, as well as a morale boost for the employees. Small innovations like this are great for the company. Constantly improving where they can will keep the company fresh and great ideas flowing which is crucial for today’s business world.
After conducting research, New Balance has identified their strengths and weaknesses in corporate social responsibility (CSR). Some of their strengths where they have a strong commitment to corporate social responsibility as their corporation’s central piece of values and missions. They are also ready to support an integrated CSR strategy. Another strength that they gave is a practical knowledge about CSR. New Balance has a lot of weakness that were identified. One of those weaknesses is that they lack of clear and effective leadership and lack of a framework identifying the CSR risks. They also lack a strategy for CSR. New balance has to create an action plan to try and improve their CSR. For New Balance to effectively engage in in good CSR practices, they built the Responsible Leadership Steering Committee. The RLSC had five areas of responsible leadership which included “Philanthropy and Community Investment”, “Environmental Sustainability”, “Social Responsibility Compliance”, “Product Life Cycle” and “Domestic Manufacturing”. This Committee was chaired by Shepard along with executives from various functional areas. For each area of responsible leadership there is a sub team that would pursue specific issues pertaining to expertise. Much important work was done in each area for CSR improvement, but there was a problem with New Balance’s CSR information transparency and access.
The work they are doing for their community and the planet are not getting reported, or made known to the public. To increase information transparency of CSR, New Balance should create a CSR department. Even though the RLSC has done a fantastic job in doing the right thing, it’s time for New Balance to start bragging a little bit. With a CSR department they will be able to produce an annual CSR report which could be a great first step in becoming an industry leader in CSR. Once a CSR department has been created and fully functional, goals, areas of focus and missions will have to be defined. Areas that the company thrives in, as well areas of CSR embarrassment will be decided on which will need the most focus and resources. With a young CSR department, it would be smart to show off their strong areas of responsible leadership so they can develop a strong CSR foundation. Once they will be able to sustain their strong areas, next realizing goals to improve weak areas can entrust the public of the company.
A CSR department is not only a great move now, but will be a crucial function in New Balance as they continue to grow in scale as a global competitor and scope as a global collaborator in CSR. With continuous growth in the company could prove difficult to insure the customers of the values and culture for which they became New Balance customers in the first place. The first phrase in New Balance’s mission statement is “Demonstrating responsible leadership”. That is exactly what the company will do because of the support and work done by the CSR department. The customers will not forget why they choose New Balance as their shoe of choice because the CSR department will prioritize issues to insure their values will not be mistaken when promote CSR, but will promote growth of the company in the long term. For New Balance to grow as an industry leader in shoe manufacturing, they will have to be able to compare and collaborate with current industry leaders such as Nike or Adidas. With this New Balance can emulate some of Nike’s best qualities concerning CSR. This doesn’t mean that New Balance has to become Nike to have great CSR, but through collaboration and learning of better practices can help everyone in their mission of highest CSR. New Balance could also partner with their peers to tackle issues that are just too big to do by their self. Issues like reducing carbon emissions and more efficient recycling. For a company to have great corporate social responsibility, it has to start internally. It starts from the owners, CEO, and senior management who care about how the company is perceived. That is why people such as James and Anne Davis play such an important role in a successful CSR strategy; the role of supporting, inspiring, and guiding the program within various functional areas of the company. By insuring safety and labor rights in operational activities, supporting and appearing at local and global events, as well sustaining and collaborating with suppliers that provide superior material quality and company trust. Every employee, manager, and owner of New Balance shoes plays a specific role that will indefinitely decide the outcome of a high CSR performance.
The strategy though starts with senior management and owners having active role in the CSR function of the business by supporting, brainstorming, and collaborating so that the CSR will be able to make the best decisions possible One Strategy that new balance can take is to become greener. Being green means that a company or a person is more environmentally friendly. There is many ways that New Balance can go green. For example, they can replace all appliances in their office with more environmentally friendly. They can change all light bulbs with the energy saver ones which would save the company in the long run and would make them greener. Another way that New Balance could become greener is by helping their factories develops green and innovative business models by teaching their factories how to deposit their waste properly or use recycled material. New Balance can also find a way to make their products greener by being made from recycle goods. When a company becomes greener, consumers will appreciate them more. The consumers will assume that the company is not contributing to the pollution and global warming. Also if New Balance creates an ad campaign stating that they are becoming greener then they will attract new group of customers.
Being green is a great action plan for corporate social responsibility. Another action plan that New Balance can do is to create awareness of corporate social responsibility. The company can create awards to factories or stores that promoting the best practice of CSR. This can connect to a company being greener. They can award the store and factories that have the most effective green strategies. The purpose of the awards to is to promote and create awareness of corporate social responsibilities and share. This will show to the world that New Balance is very concerned about its CSR and wants to be aware of its company. New balance wants people to know that they are being more responsible by being greener, so by providing awards will show they are concerned about this. Also by providing rewards with the awards than this will motivate its workers to become greener.
New Balance has consistently shown that having good corporate social responsibility is a priority. They have took initiatives to do countless greener processes, suppliers and an overall supply chain. As they continue to grow as a leading company in the shoe manufacturing industry, their internal structure needs to grow too. With the creation of a CSR department, all internal and external function of the company will realize benefits. Information will be more easily viewable to the consumer as well peers in the industry. Not only will this be a great step for a sustainable
future of the company, but with continuing collaboration, a sustainable future for the shoe manufacturing industry.
Source: Vesela Veleva, “Managing Corporate Citizenship: A New Tool for Companies,” Corporate Social Responsibility and Environmental Management, 2009, DOI: 10.1002/csr.206, www3.interscience.wiley.com/cgi-bin/fulltext/122456956/PDFSTART, accessed January 13, 2010.