Dr. Miles Weaver,School of Management,

Edinburgh Napier University

m.weaver@napier.ac.uk

@DrMilesWeaver

Embedding Sustainability into Strategy I:A source of business opportunity underpinning competitive advantage?

Learning outcomes

After this lecture and independent study you should

be able to:-

– Describe the context of why organisations are pursuing (or not) an agenda for sustainability

– Discuss some of the significant contributions, issues and implications for researching business strategy and the natural environment plus social responsibility

– Explain what is meant by the ‘natural resource-based view’ of the firm (one key emerging theoretical perspective)

– Evaluate the generic strategic responses to sustainability

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:

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?

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 relationship between business and the rest of society

An historical perspective requires:• Better understanding of

‘capitalism’ today (not explicitly in our scope)

• Forces currently driving the sustainability agenda in the private sector and indication of where this debate is going

Today’s starting point ….

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

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?

Las Meninas

Just a thought ….

Between August and December 1957, Pablo Picasso painted a series of 58 interpretations of Las Meninas. These paintings currently fill the Las Meninas room of the Picasso Museo in Barcelona, Spain. Though Picasso did not vary the characters during the series, and largely retained the naturalness of the scene, his works comprise, according to the Picasso Museo, an "exhaustive study of form, rhythm, colour and movement".

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 for the ‘design’ view on strategy: Where and what weight is placed on the natural and social environment in traditional strategy thinking?

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

Question for the ‘positioning’ view on strategy: Where and what weight is placed on the natural and social environment in traditional strategy thinking?

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)

Question for the ‘resource-based’ view on strategy: Where and what weight is placed on the natural and social environment in traditional strategy thinking?

• 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 cost

or• 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)

Just for fun ….Resource-based view of strategy (III)

Clear Differentiation

Add Value

Reduce Costs

Proprietary

Implications for research in business strategy and the natural environment (I)Generally:

• 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 research in business strategy and the natural environment (II)

For strategic management as a discipline:

• 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 what CSR includes and the level of firm response

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? – to be debated in next week tutorial)

It is the question of how the “level playing field” evolves in an industry and market that is very exciting for a researcher, policy-maker and practicing manager. In terms of strategic “fit” or “stretch” incrementally, or even far more radical?

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

• 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).

Generic strategy responses to sustainability – next week starting point(Laszlo and Zhexembayeva, 2011)

• Field of strategy offers advice and input into the best strategic response to the new market reality

• Value destruction: adding cost and making trade-offs

Since added:• Radical innovation

underpins all responses

(guest lecture to follow)

Summary of key points (II)• “doing well by being good” is increasingly being accepted as a normal part

of doing business (the ‘why’?). Debate has centred on an ever changing view of the role of business in society

• 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 by incorporating the ‘natural environment’ (i.e. Natural-based view of the firm)

• The debate in practice is evolving; the tools and academic discussion are advancing! A turtle only makes progress when it sticks it neck out! – few organisations do; many follow, perhaps slowly as competitive and external forces change over time? (debateable?)

Summary of key points (II)

‘fit’ or ‘stretch’ to external environment / effect of

‘strategic drift’Are we nearly there yet?

• Mañana?– Radical (!!!) vs. Incremental (???)

• Source of competitive advantage– All (umm but?) or some (but ‘how’?)?

• Normal part of doing business?– [Differentiation and/or cost advantage]

and/or level playing field leads to raising the standard

• Understanding our resources and competences critical– Unique / threshold– Barriers to imitation

Johnson, Scholes & Whittington (2012)