Dr. Miles Weaver,School of Management,

Edinburgh Napier University

m.weaver@napier.ac.uk

@DrMilesWeaver

Embedding sustainability into strategy II:Out on the sustainability safari

Before we begin, back to last week canvas: Picasso ….

You are a consultant

You are addressing the Chair of the university court (what do they need to know, know already?)

You are paid to offer an interpretation (findings) and offer some recommendations

Clarity of line argument

Credibility of evidence (research)

Rigour underpinning argument (application of theory / analysis)

Learning outcomes

After this lecture and independent study

you should be able to:-

• Evaluate the generic strategic responses to sustainability (getting deeper and towards the ‘how’)

• Discuss the difference between a ‘bolt-on’ and ‘embed’ sustainability strategy

• Understand how corporate and business-level strategies are devised for the environment

Sketching today’s canvas:To begin …

• We are off on a safari, get your binoculars ready.

• Write down three animals and what they may represent on the sustainability debate

We are making tracks ….But where?

On those tracks … (I)

• Discussed the different levels of response to environmentalism– A normal part of doing business ….

Or?

• Suggested that environmental policies can be used ‘strategically’ (e.g. to gain competitive advantage)

• Noted that competitive advantage derives from the distinctiveness of an organisation’s capabilities– Their resources or competences

permit• production at lower cost

or• generation of superior

product or service at standard cost

Discussed ‘value’ from a sustainability perspective

6

Sustainable Value = both + to shareholder & stakeholder

(Laszlo and Zhexembayeva, 2011)

Pre-departure checks (I):On the natural based view of the firm(Hart, 2005)

Strategic capability

Environmentaldriving force

Key resource

Competitive advantage

Pollution prevention

Minimise emissions, effluents & waste

Continuous improvement

Lower costs

Product stewardship

Minimise life-cycle cost of products

Stakeholder integration

Pre-empt competitors

Sustainable development

Minimise environmental burden of firm growth and development

Shared vision Future position

• 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 (NB. greening debate)

• Competitive advantage, is to be rooted in capabilities that facilitate environmentally sustainable activity

Pre-departure checks (II): Safari begins with a pair of binoculars, wide panorama & need to focus!

• Mañana?– Radical (!!!) vs. Incremental (???) Johnson, Scholes & Whittington (2010)

Some stops at crossings points:The not so ‘black’ and ‘white’ (a bit ‘grey’)

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

(i.e. grey = ‘bolt-on’ to improve positioning

Dark green = embed to be environmental leader)

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

and/or level playing field leads to raising the standard

Neutral green = underpin strategic capability

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

Ask Kermit:Is being ‘green’ a source of competitive advantage?

Deep side tracks (I):Is being ‘green’ a source of competitive advantage?

• Sustainability as a source of cost leadership

• Sustainability as a source of differentiation

• Utilising sustainability for market segmentation (focus)

Porter (1990)

Deep side tracks (II):Is being ‘green’ a source of competitive advantage?• 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) Laszlo (2008)

In this weeks tutorial:Is being ‘green’ a source of competitive advantage?

• This will lead into a general discussion on assignment 1 for the HE sector (for different types of customer)

• List the ‘yes - totally’, ‘yes, if but, no but …’ and ‘don’t bother’ arguments for at least three organisations. Pursuing a competitive advantage based on:– lower costs (e.g. Asda) with a strategic capability in

pollution prevention (a form of ‘waste’)– Differentiation (e.g. M&S, Lush, Bodyshop,

Edinburgh organic food supermarket)• To pre-empt competitors - with a strategic

capability in product stewardship• Future position – with a strategic capability in

sustainable development

The ‘blind men and the elephant’ problem

…. ‘Bolt on’…. ‘embed’

‘Bolt-on’ or ‘embed sustainability (I)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainability

Goal Pursue shareholder value Pursue sustainable value

Scope Add symbolic wins at the margins

Transform core business activities

Customer Offer “green” and “socially responsible” products at premium prices or with diminished quality

Offer “smarter” solutions with no trade-off in quality and no social or green premium

Value capture

Focus on risk mitigation and improved efficiencies

Reach across all seven levels of sustainable value creation

Value chain

Manage company’s own activities

Manage across the product or service life cycle value chain

‘Bolt-on’ or ‘embed sustainability (II)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainability

Relationships Leverage transactional relationship. Stakeholders such as customers, employees, and suppliers are resources to be managed and sources of input

Build transformative relationships. Co-develop solutions with all key stakeholders including NGOs and regulators to build system-level change

Competitor Operate only in win-lose mode in which any gain is competitor’s loss

Add cooperation with competitors as potential sources of gain

Organisation Create a “scapegoat” department of sustainability

Make sustainability everyone’s job

‘Bolt-on’ or ‘embed sustainability (III)(Laszlo and Zhexembayeva, 2011)

Bolt-on sustainability Embedded sustainability

Competencies Focus on data analysis, planning, and project management skills

Add new competencies in design, inquiry, appreciation, and wholeness

Visibility Make green and social responsibility highly visible and try to manage the resulting scepticism and confusion

Make sustainability performance largely invisible but capable of aligning and motivating everyone

Addressing environmental issues

• Organisations can develop and implement a range of strategies to address environmental issues (e.g. complying with regulations; pro-activity to gain competitive advantage)

Three important questions:

– How might an organisation turn the key global social and environmental issues into strategic business opportunities…?

• … through igniting innovation into new processes and products• To open new, unexpected markets

– how to incorporate environmental concerns into strategy?

– level at which environmental strategies should be integrated?

Miles Weaver 1-21

A good starting question …

• How might an organisation turn the key global social and environmental issues into strategic business opportunities …?

– …through igniting innovation into new processes and products

– To open new, unexpected markets

• To create consumer passion and loyalty

• To energise the workforce and build its loyalty

• To build sustainable supply chains

• To radically bring down energy costs and waste production …

… and, at the same time, build a safer, more secure, better world ?

Takes us more towards the ‘How’ and a single track

Operationalising these strategic questions means addressing them in the following ways:

• What is our sustainable value vision?

• How can we address these social and environmental issues while advancing existing business priorities?

• How do we identify and manage emerging stakeholder issues ?

• What are the new sources of sustainable value (i.e. those in which shareholder value is not created at the expense of other stakeholders)?

• What capabilities do we need to realise the sustainability vision?

• How do we measure the success of our sustainability?

(Adapted from Laszlo, 2008, p.182)

Levels of strategic response (I)

Banerjee (2001) differentiates between four levels of strategic response:

• Enterprise strategy - concerned with the role a firm plays in society; its fundamental mission. Suggests not much evidence of this except in environmental organisations

• Corporate strategy - the kinds of businesses a firm should enter to meet its enterprise strategy. Includes decisions on business portfolios, markets, technologies

• Business strategy - allocating organisational resources to achieve competitive advantage and integrating different business functions

• Functional strategy -planning operations for different functions (e.g. marketing, purchasing, distribution)

Above figure relates strategy level to strategy type and desired outcome

Devising corporate strategies for the environment• Firms seeking to improve their environmental performance ideally need a

corporate strategy for the environment

• Roberts (1995) argues that process of strategy formulation in this area is basically same as standard approach except for weight given to ecological environment relative to competitive environment

Devising corporate strategies for the environment (II)

Roberts (1995) suggests a number of key issues need to be considered prior to building an environmental strategy:

• Time horizon - especially for investment decisions and ‘payback’ requirements; current and future requirements?

• Priorities - what are most significant factors to take into account both now and in future?

• Autonomy - how far should the various branches of an enterprise have discretion over behaviour/decisions?

• Internal culture - to what extent is this conducive to change?

Devising corporate strategies for the environment (II)

• Roberts (1995) goes on to outline a basic linear model of the corporate strategy process

• Suggests it should begin with a ‘scoping report’ (e.g. initial environmental review) to provide baseline upon which policy can be constructed, supported by appraisal of external factors

• Subsequent steps could involve scenario building for alternative futures, development of a mission statement, setting priorities, identification of resources, action plans, communication, implementation, monitoring and review

• Wide range of policies and actions possible - tend to vary from firm to firm, industry to industry (detail next week)

Creating sustainable value I:The six levels of strategic focus

• Laszlo considers “The six levels of strategic focus” to be an important tool for identifying value creation

• “Many companies have made great strides in mitigating risk and process cost reduction through minimising waste and improving energy efficiencies …

• few(er) have focussed on top-line growth through product or brand differentiation.

• Even fewer have used stakeholder value creation (levels 4 and 6) to drive new sustainable strategies” (Laszlo, 2008, p. 155)

Laszlo (2008)

Creating sustainable value II:Across the supply, process and demand chains (more next week)

Laszlo (2008)

M&S: The story in 2009 …Take a look at their website to see progress to date

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Are managerial attitudes changing?

Banerjee (2001) Cross-sector/industry study assessed managerial attitudes (250 firms) towards environmental strategies. Findings suggested:

– recycling was most commonly performed activity

– most actions focused around manufacturing ( especially where cost advantage possible)

– evidence of focus at other levels including corporate strategy level (e.g. R&D)

– variations in environmental activity according to industry (e.g. chemical, pharmaceutical, and utilities firms had wider range of environmental activities - higher impact businesses - and greater corporate focus)

– regulatory forces appeared to be major factor influencing company environmental strategy

– evidence of perception that link existed between environmental action and competitive gains - (especially in high environmental impact industries)

– today?

Key influencers: the levers for change I

Study by Ghobadian et al (1995) of environmental strategy among top UK corporations suggests that key influences on adoption of corporate environmental policies were:

– legal compliance

– public perception of organisation

With regard to the latter point, study points to three emergent themes amongst managers:

– environmental issues were a source of business opportunity and could lead to competitive advantage

– both market and non-market forces important in shaping environmental strategies (e.g. customers, regulatory agencies)

– link between concepts of ‘quality’ and environmental action

Key influencers: the levers for change II

Authors argue that motivations tend to be largely reactive and dependent on expected development of environmental legislation. Not much evidence of seeking environmental leadership positions

Moreover while competitive advantage was a concern, primacy given to questions of waste reduction and resource utilisation

The Laszlo sustainability model

To be cont ..Next week

Next week …

• Getting more stuck into the ‘how’

• Next week we will detail the Laszlo sustainability model by considering design for sustainability

• We shall focus on the organisation but also propose that the “supply chain is the new value chain” recognising Christopher (2011) claim that it is:

“Supply chain’s that COMPETE

NOT companies”

Thus, our safari continues …. But we will need to follow those elephants on their journey