«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
In the context of the natural environment, strategies have been placed mostly on a continuum that varies in the way organizations deal with the natural environment relative to what is required by law. Table 2.1 provides an overview of the various typologies that have been defined in the literature on environmental strategies. In the continuum of environmental strategies, proactive is opposed to what the literature has referred to as “reactive” (Henriques & Sadorsky, 1999; Buysse & Verbeke, 2003; Aragon-Correa & Sharma, 2003), “beginner” (Hunt & Auster, 1990) or “non-compliance” (Roome, 1992) postures. Firms that are labelled with these latter postures towards the environment are unable or unwilling to take the impact of their practices on the natural environment into account, even if this would be required by coercive legal or normative stakeholder pressures. “Reactive” postures thus generally feature a response revolving around complying with legal regulations, but may even involve behavior that does not meet the legal standards set (either deliberate or not). Accounts of firms with reactive strategies mostly describe practices as end-of-pipe solutions that do not question the business-as-usual of the firm (Hunt & Auster, 1990; Russo & Fouts, 1997; Sharma & Vredenburg, 1998) or try to obstruct environmental regulation (Meznar & Nigh, 1995;
Newton & Harte, 1997; Cho, Patten, & Roberts, 2006). Proactive postures, on the other hand, demonstrate a voluntary adoption and development of practices that go beyond obeying the law in taking environmental issues into account. To the minimum, these practices comprise the willingness to prevent pollution at the source, but may go as far as completely redesigning products and processes (Hart, 1995), to redefining the business model (Sharma & Henriques,
2005) and engaging in active roles in the industry or society to change behavioral patterns
(Hunt & Auster, 1990; Hart, 1995). In addition to merely going beyond the law, Sharma and Vredenburg added an additional dimension to the term “proactive”. In their definition, proactive environmental strategies are strategies that involve practices not required to be undertaken“in fulfillment of environmental regulations or in response to isomorphic
pressures within the industry as standard business practice” (Sharma & Vredenburg, 1998:
776). In other words, proactive means that firms go beyond legal and within-industry norms.
Although Roome is generally cited with 5 strategies, including “Leading Edge” – the state of the art in environmental management as practiced by a firm in its sector of the economy, Roome himself described this strategy as a position that could be adopted both by non-compliance, as well as by excellence companies”.
Buysse and Environmental Reactive strategies are the equivalent of Hart’s end-of-pipe firms.
Verbeke, 2003 leadership vs. Pollution prevention firms have a limited adoption of environmental practices, a limited development Reactive of related competencies and a weak integration of environmental issues into corporate strategy.
strategy Environmental leadership firms are characterized mostly by the development of green competencies and environmental reporting, but excel in all perspectives in comparison to the other categories.
Following the overview as presented, I adopt a definition of proactive environmental
strategies (PES) as:
The continuous process of resource building, selection and deployment for value creation and distribution, by navigating through and interacting with the structural and social conditions that influence their value, with the purpose to prevent negative effects, or create positive impacts on the natural environment, beyond what is legally required or accepted as standard practice.
To strategy, proactiveness may yield both advantages, as well as considerable hurdles.
On the one hand, engaging in the active and anticipatory search for new opportunities may yield first mover advantages (Nehrt, 1996). In the event that environmental practices or technologies take time to learn or establish, first movers will simply have the benefit that comes with more experience or the time that lagging firms need to incorporate new technologies. Furthermore, first movers may be more able to capitalize on the market opportunities identified: “by exploiting asymmetries in the marketplace, the first mover can capture unusually high profits and can get a head start in establishing brand reputation.” (Lumpkin & Dess, 1996: 146). On the other hand, proactive firms may also bear the risks and costs of the uncertain and experimental endeavors that imitating firms may subsequently copy without having had to bear these risks and costs. Furthermore, establishing new practices may
also put firms “in an institutional vacuum of indifferent munificence and, at worst, in a hostile environment impervious to individual action.” (Aldrich & Fiol, 1994: 645) In other words, besides the particular complexities of environmental strategies as described above, the particular choice of choosing a proactive posture towards them adds additional complexity and uncertainty to it.
2.5. “Small business” Given the description of what will be meant by “proactive environmental strategies” in this dissertation, I now turn to the final and focal construct: the small business. As with proactiveness, “small” is not an isolated construct by itself. Rather, it is a qualitative category in the “organizational size” continuum that spans the extremes of various versions of “small” on the one hand, and various versions of “large” on the other (Curran & Blackburn, 2001).
The literature, however, is not consistent on how these categories are used. More specifically, firm sizes can be measured on either a relative or an absolute basis. Whereas relative measures take the entire spectrum of firms and then assigns the label “small” to the smallest firms in the spectrum and the label “large” to the largest firms, absolute measures assign labels based on predefined cut-off levels. In this dissertation, however, I take an absolute perspective on size. More specifically, I follow the definition as provided by the European Commision (European Commission, 2003a), which considers businesses to be “small” when they have
- Fewer than 50 employees
- A turnover and/or balance sheet total that that does not exceed € 10 million By defining small business as such, we include the micro-enterprises, which have been defined as those that have
- Fewer than 10 employees;
- A turnover and/or balance sheet total that does not exceed € 2 million.
Small businesses present a specific domain of inquiry within business and strategy research, because they possess certain idiosyncratic attributes that make certain models designed for larger firms inappropriate for smaller firms (Dandridge, 1979; Welsh & White, 1981; d'Amboise & Muldowney, 1988). As such, firm size is presented as an internal contingency factor that needs to be taken into account, both when interpreting or generalizing
study results (therefore it is very often used as a control variable), as well as when designing managerial activities and responses to the external environment (Merz & Sauber, 1995).
Although one of the characteristics of small business is their large heterogeneity, which makes it virtually impossible to make overarching and generic propositions about them (d'Amboise & Muldowney, 1988; Curran & Blackburn, 2001), general agreement exists about the following three idiosyncrasies of small businesses.
1. Importance of the owner-manager. One of the most important characteristics of small firms is that in many small firms, the manager of the firm is also the principal owner
of the firm:
“the importance of the owner-manager in the small business cannot be overemphasized. Because of his or her central function a greater comprehension of the role of the owner-manager will enhance the understanding of small business itself” (d'Amboise & Muldowney, 1988: 227).
Although ownership is mostly financial – which means that some personal assets may be at risk, it will most often be more than that. Besides financial assets, large investments of personal time and effort make the ownership as much psychological as financial (Gibb, 2000). Associated with ownership is the advantage that the ownermanager does not have other owners or stockholders to report to as in many large corporations, leaving strategic decision-making in the firm entirely based on his own independent discretion. Although the small firm may be under great pressure and dependent relationships with key customers, suppliers, banks, regulatory officials, and many more stakeholders, their independence still grants them the free possibility to decide who they deal with and who not (Gibb, 2000). Given the large personal investments in the company, and the fact that very few small business ownermanagers rely on extensive information searches or formal strategic planning (Shrader, Mulford, & Blackburn, 1989), decision-making in the firm results mostly in a process that involves and reflects the vision and values of the owner-manager (Carson, Cromie, McGowan, & Hill, 1995). Such a vision is most often “an intuitively experienced image of what is to be achieved and how” and is “often hidden even from the entrepreneur himself”, but “helps the entrepreneur realize and enact his environment and rationalize his behavior” (Johannisson, 1987: 51). Such an intertwined relationship between personal and business life has been shown to result in
higher levels of commitment of the owner-manager to the firm than organizational employees (Thompson, Kopelman, & Schriesheim, 1992; Cooper & Artz, 1995).
2. Organizational configuration. Next to the importance of the owner-manager, probably the second most cited characteristic of smaller firms is its limited access to resources and limited power to modify environmental forces to their advantage (Woo & Cooper, 1982; Carson et al., 1995; Lee, Lim, & Tan, 1999; Gibb, 2000). Due to their smaller size, smaller firms face disadvantages compared to their larger counterparts in terms of managerial expertise, experience curves, knowledge, R&D capabilities and general slack resources (Bourgeois, 1984; Nooteboom, 1993; Dean, Brown, & Bamford, 1998;
Atherton, 2003). The owner-manager and his employees are often responsible for a wide variety of tasks, which results in lower functional expertise and a constant process of ‘firefighting’ problems with ad-hoc solutions (Nooteboom, 1993). In addition to the short-term effects in terms of available knowledge, this also inhibits the potential to absorb new knowledge in the future (Cohen & Levinthal, 1990). In addition, small businesses cannot use scale advantages as bargaining power with suppliers (including capital suppliers) and buyers to negotiate better prices (Porter,
1980) or use their clout in direct influences on political decision-makers (Hillman & Hitt, 1999). In contrast, smaller firms have been attributed the advantage of being more flexible to adapt to changing to external changes in the environment (Woo & Cooper, 1982; Fiegenbaum & Karnani, 1991; Chen & Hambrick, 1995; Ebben & Johnson, 2005). Whereas larger firms often have formalized and rigid decision structures that give them structural inertia in the event of environmental change (Hannan & Freeman, 1984), smaller firms are able to respond more swiftly because of their short communication lines and informal type of management (Mintzberg, 1979).
In addition, larger firms are, due to their generally larger size, more prone to the scrutiny of external stakeholders, while smaller firms may remain invisible on the radar screen and exploit their “stealth” (Chen & Hambrick, 1995) to exploit small niches and market pockets that are too small for larger firms (Porter, 1980; Chen & Hambrick, 1995; Dean et al., 1998).
3. Task environment. Finally, as a result of the limited resources and the reduced influence on the environment, smaller firms will be more vulnerable to uncertainty and complexity in their environment (d'Amboise & Muldowney, 1988; Storey, 1994;