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Unit 4:Embedding Sustainability into Strategy I
A source of business opportunity underpinning competitive advantage?
Dr. Miles Weaver, Lecturer, Edinburgh Napier University
[email protected] @DrMilesWeaver
#BSSD17
#BSSD17
Learning outcomesAfter this lecture and independent study you should be able to:-
Learning Outcomes Key Concept
LO 4.1Describe the context of why organisations are pursuing (or not) an agenda for sustainability Rationale for Resp.
Business Behaviour
LO 4.2
Explain the different perspectives on creating ‘value’; particularly the opportunities associated with pursuing a ‘sustainable value’ position and the risks associated with a ‘shareholder’ centric position
Sustainable Value
LO 4.3Discuss some of the significant contributions, issues and implications in strategy-making as a result of the emerging agenda for sustainability
Strategy Formulation
LO 4.4Critically appraise the relationship between ‘environmental sustainability’ and a traditional view on creating and sustaining a competitive advantage (the Hart proposition)
NRBV;Sustainable Value
Framework
RATIONALE FOR RESPONSIBLE BUSINESS BEHAVIOUR
LO 4.1 Describe the context of why organisations are pursuing (or not) an agenda for sustainability
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Recap: “Grand Challenges” business could address
Hart (2007)
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Opening discussion …
• Is being ‘green’ a source of competitive advantage?
• Or even being ‘socially responsible’ …. Both?
“To be the worlds most sustainable major retailer by 2015”
“But we can only make that happen with your continued support”
M&S Plan A
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Building ‘trust’?
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Strategic aspects in context (I)• Evidence that increasing number of firms
now accept that environmental protection and social responsibility is normal part of doing business (the ‘why’ – still a hot topic for debate and views vary widely)
• Research efforts are now moving towards seeking to address ‘what’ and ‘how’ organisations can embed sustainability into competitive advantage (i.e. incorporate the natural environment and deliver social aims)
• There are several ways of gathering information on environmental and social impact to facilitate business decision-making (i.e. Environmental assessments, audits and reviews, social accounting)
• There are various models of ‘corporate greening’ and ‘social responsibility’ - based on different types of firm-level response (next week)
• We shall look at the key aspects involved in developing environmental and social strategies/policies in detail (next week)
• At the core of our thinking is that environmental and social strategies or policies can be used ‘strategically’ (e.g. to gain competitive advantage and/or to compete on cost)
Strategic aspects in context (II)
• Welford and Gouldson (1993) argue that from the outset there needs to be real commitment on part of whole organisation (i.e. all departments involved)
• Management of organisation seen as critical in developing not only environmental objectives/policies/strategies but also appropriate corporate culture
To incorporate a ‘sustainable’ response from an organisational perspective:
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The Responsibilities of Business in a Scottish Context
Social Lab (2015) found:• Only 29% state that the
sole responsibility of a company is to maximise profits
• 89% of business leaders agree that responsible behaviour drives business success
• 52% of businesses say there is a clear business case for investing company resources in community, social and environmental issues
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The Responsibilities of Business in a Scottish Context – changing landscape
62% of companies expect community, social and environmental issues to increase in relevance over the next three years(Social Value Labs, 2015)
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Commitment to Corporate Responsibility in a Scottish Context
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Making the commitment (Scottish Context)
Drivers and facilitators for change
Laszlo and Zhexembayeva (2011) described three big trends:
• Declining resources• Radical transparency
– First: The power of numbers (civil society)
– Second: The magic of low-cost communication
– Third: The culture of connectivity
• Increasing expectations– The customer rising– The employee
engaging– The investor calling– The regulator acting
Threat or opportunity?
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Drivers of Responsible Behaviour in a Scottish Context
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The expectations of Stakeholders in a Scottish Context
LO 4.2 Explain the different perspectives on creating ‘value’; particularly the opportunities associated with pursuing a ‘sustainable value’ position and the risks associated with a ‘shareholder’ centric position
At the core of this debate is understanding what is meant by ‘value’
“the business of business is to create shareholder value”
• In terms of “solutions” – to solve internal or external client problems
• In terms of a set of “end benefits and outcomes” for customers, consumers, employees, and other key constituencies (i.e. airlines sell an ‘emotion’ such as opportunity to see family/friends as well as a ‘seat’)
Q. Shareholder value perspective been the most dominant view? Still?
Understanding value (II)
• Emerging view – the evolving relationship between business and the rest of society
An historical perspective requires:• Better understanding of ‘capitalism’
– which of course includes ‘consumerism’
• Forces currently driving the sustainability agenda in the private sector and indication of where this debate is going – Morale obligation to be more responsible
(doing good)– The magic of ‘capitalism’ (better
capitalism – what business does)– ‘conscious’ capitalism (doing well + doing
good)
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Revisiting Porter: The ’magic’ of capitalism
Sustainable Value = both + to shareholder & stakeholder(Laszlo and Zhexembayeva, 2011)
• Creating on-going value for an organisation shareholders and stakeholders
• This is a natural outcome of the new external environment
• Responding positively to a range of ‘stake’ holder needs
• Indispensable to future competitive advantage
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Laszlo and Zhexembayeva (2011) thesis:“doing well by doing good”
“no longer necessary to create a painful compromise between delivering value to shareholders and creating value for the
stakeholders”
• “Pursuing both – shareholder and stakeholder needs – creates sustainable value beyond the expected images of compromise, balance and trade-off”
If this is the new frontier, then the questions should include:1. How do you get this done?2. How do you respond to the new pressures of social and
environmental performance?3. What is business to do?
EMERGING THOUGHTS IN STRATEGY FORMULATION
LO 4.3 Discuss some of the significant contributions, issues and implications in strategy-making as a result of the emerging agenda for sustainability
Refresh: “What’s in a name? ……That which we call a ‘strategy’
Johnson, Scholes & Whittington (2012)
Core logic of strategy:• Strategy must be a trade-off
between internal strengths and weaknesses and external opportunities and threats.
• The purpose of strategy is to achieve a sustainable competitive advantage
• Strategy must emerge fully formulated before it can be implemented
• Strategy must be unique• A strategy will protect and utilise
unique resources• Strategies are long-term, and so
must use forecasting techniques
Question …
Where and what weight is placed on the natural and social environment in traditional strategy thinking?
#BSSD17Take the ‘design’ view school of thought …
Creation Of
Strategy
Implementation of Strategy
SocialResponsibility
ManagerialValues
Evaluation &Choice ofStrategy
ExternalAppraisal
Threats andOpportunitiesIn Environment
(identifies key success factors)
Strength &WeaknessOf Org.
(identifies distinctive competences)
InternalAppraisal
Mintzberg, (1990) p 174
Moving onto the ‘positioning’ school …
Porter (1990)
Competitive strategy• The bases for achieving
competitive advantage • The bases for providing best
value
L&Z (2011) provide insights into:• Sustainability as a source of
cost leadership• Sustainability as a source of
differentiation• Utilising sustainability for market
segmentation (focus)
Sustainability and strategic positioning
• L&Z (2011) argue that pursuing social and environmental performance can strengthen (or weaken if done inappropriately) strategic positioning
• Sustainability-driven initiatives to:– Reduce costs– Differentiate products– Enter new markets – Enhance reputation
(should be seen in the context of reinforcing the company’s existing strategy and business priorities)
And the ‘resource-based’ school of strategy …
• Competitive advantage derives from the distinctiveness of an organisation’s capabilities– Some businesses achieve
extraordinary profits compared with others in the same industry
– Their resources or competences permit
• production at lower costor
• generation of superior product or service at standard cost
• Value of resource-based view:– Search for strengths (and
weaknesses) and articulating these more effectively
– Understand how firms have resources that distinguish them from others
– Understand how firms do stuff (capabilities) differently
– Understand how firms have core activities (competencies) that drive their competitive advantage
See Prahalad and Hamel (1999)
Resource-based view of strategy (II)
Threshold resource capabilities: those essential to compete in a given market (Required to be “in the game”)
Threshold levels change over timechanges in critical success
factorsnew entrantscompetitor activity
• Unique resources critically underpin competitive advantage and cannot be imitated or obtained by others
• Core competences are activities and processes through which resources are deployed such as to achieve competitive advantages in ways which others cannot imitate or obtain
Source: Johnson, Scholes and Whittington (2011)
Testing your understanding of RBV
Clear Differentiation Add Value Reduce Costs Proprietary
Our thinking on strategic analysis needs to evolve …• In 1998, Aragon-Correa reported little attention
had been received in the literature on business strategy and the natural environment
• Even in ‘organisational theory’ concerning the needs for firms to adapt their contexts have consistently ignored the importance of the natural environment (e.g. Purser, Park & Montuori, 1995; 1962; Shirivastava, 1994)
• Traditional focus is a need to adjust organisational capabilities to the surrounding situation (e.g. Andrews, 1971; Hofer & Schendel, 1978)
Implications for strategy formulation• Traditional strategic management views have focused
upon a narrow concept of the environment that emphasises political, economic, social and technological to the virtual exclusion (Hart, 1995; Shirivastava, 1994; Shrivastava & Hart, 1992; Stead & Stead, 1992)
• RBV systematically ignores the constraints imposed by the natural environment (e.g. Brown et al., 1994; Hart, 1995; Meadows et al., 1992)
• CSR is an important element in strategic management; in terms of how ‘strategy formulation’ is shaped but this is no substitute, as there is much debate on how value is captured and for whom and the level of firm response (e.g. CSV, SV etc.,)
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Going forward …• RBV and the positioning school of strategy does provide sophisticated
language and concepts to explain how an organisation seeks to be different, the essence of ‘competitive strategy’
– This means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value (Porter, 1985)
– Posits that firms must raise “barriers to imitation” (Rumelt, 1984) by underpinning capabilities with resources that are not easily duplicated by competitors
– Explicitly highlights the threshold resources and competences that offer “the level playing field” (e.g. Is ‘Being Green’ a normal part of doing business, or part of? How is this shaped by external and competitive forces?)
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Is this enough? … mixed messages on how value is captured and for whom?• Radical new business models
– The ‘magic’ of capitalism– By reconceiving products & markets when consumers demand
solutions for their environmental & social problems (e.g. create demand?)
– Competitive forces: clean technology (disruptive innovation) + product stewardship (inc. stakeholder collaboration)
• Incremental change– Approach: Integral to strategy making– Perception: Fast becoming the ‘norm’– CSR Agenda: determined by external reporting and personal
preferences– CSV Agenda: company specific and internally generated– Competitive forces: “Raising the Standard” (e.g. fairtrade, pollution
prevention)BUT ... changing goal posts: population, poverty & inequality
NATURAL-BASED VIEW OF THE FIRM
LO 4.4 Critically appraise the relationship between ‘environmental sustainability’ and a traditional view on creating and
sustaining a competitive advantage (the Hart proposition)
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“one of the most important drivers of new resources and capability development for firms will be the constraints and challenges posed by the natural environment”
Hart (2005)
Can we agree on one thing?
Natural-based view of the firm(Hart, 2005)
• Hart (2005) proposed a basis for integrating firms’ relationship to the natural environment into resource-based theory (a dominant view) and indirectly into strategic management
• Central to Hart’s proposition is that one of the most important drivers of new resources and capability development for firms will be the constraints and challenges posed by the natural environment
Natural-based view of the firm (II)(Hart, 2005)
• Competitive advantage, is to be rooted in capabilities that facilitate environmentally sustainable activity
• It appears inevitable that business (markets) will be constrained by and dependent upon ecosystems (nature)
Strategic capability
Environmentaldriving force Key resource Competitive
advantagePollution prevention
Minimise emissions, effluents & waste
Continuous improvement Lower costs
Product stewardship Minimise life-cycle cost of products Stakeholder
integrationPre-empt
competitorsSustainable development
Minimise environmental burden of firm growth and development Shared vision Future
position
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Summary of key points (I)• “doing well by being good” is increasingly being accepted as a normal part
of doing business. Debate has centred on an ever changing view of the role of business in society – Central question: How value is captured and for whom? – To answer this question we need to fully tackle our understanding of the ‘capitalistic
model’ today and how this might evolve in the future– Dr. Tan will raise the issues & challenges of ‘Sustainable Consumption and
Production’ later in the module
• A review of different strategy schools of thought offer some insight into strategic responses on sustainability. New thinking emerging, to address the limitations in organisational theory and strategic management e.g.– by incorporating the ‘natural environment’ (i.e. Natural-based view of the firm)
into RBV – Role of Responsible leadership shaping strategic choice– Developing Sustainable Development as a strategic capability to underpin future
positioning
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“Meeting the needs of generations to come”– will our existing way of thinking & business models get us there?
• Sustainability as a competitive advantage? – For a ‘few’ (true leadership positions) but not ‘all’– But ‘all’ will build sources of business opportunity that underpin
competitive advantage by:• Lowering costs (pollution prevention)• Pre-empt competitors (product stewardship)• Future position (sustainable development)
– Above, leads to a ever changing “level playing field” (incrementally)
– Also influenced by new ”de facto standards” emerging in industry/markets
• Public perception, national legal requirements, industry norms (e.g. Fairtrade)
… and more ‘radical innovations’ to come ….?
