«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
For example, recent results in the Canadian forestry industry indicate how smaller firms were constrained by their size in the more technical PES, where scale seems to have a benefit, yet that firm size did not have an effect on the adoption of ecostewardship practices or the general alignment of environmental issues with the firm strategy (Sharma & Henriques, 2005). In addition, ample anecdotal evidence seems to indicate that PES do exist among small businesses and are sometimes even championed by smaller firms (UNIDO, 2002; European Commission, 2003c). Such contradictory evidence indicates that firm size may hide undercurrents that may be better explanatory factors for PES than only size (Bowen, 2002a; Lepoutre & Heene, 2006).
2. Strategic proactivity. Several studies have found that firms which have more proactive postures in general will more likely adopt a PES as well (Aragon-Correa, 1998;
Aragon-Correa et al., 2008). Often this proactivity was reflected in the prior presence of advanced capabilities such as R&D intensity developed by the firm (Arora &
Cason, 1995), total quality management capabilities (Klassen, 2000; Curkovic et al., 2000), or general knowledge and education about the environment (Schaper, 2002;
Fryxell & Lo, 2003) which have also been found to have a positive impact on PES adoption.
3. Discretionary slack. Although some correlation may exist with firm size, discretionary slack is another recurrent important facilitating factor for the adoption of PES.
Discretionary slack refers to the latitude one has over one’s decisions, due to an abundance of resources which function as a “cushion of actual or potential resources which allows an organization to adapt successfully to internal pressures for adjustment or to external pressures for change in policy as well as to initiate changes in strategy with respect to the external environment” (Bourgeois, 1981: 3). Several studies have found that slack resources facilitate the adoption of PES (Russo & Fouts, 1997; Sharma, 2000; Bowen, 2002b; Bansal, 2003; Aragon-Correa et al., 2004;
Bansal, 2005; Clemens & Douglas, 2006), yet that its mere presence is not enough:
“slack may facilitate strategic environmental behaviours, but will not necessarily initiate them” (Bowen, 2002b). Slack may provide the space for strategic change, innovation and experimentation, but hinges on the motivation of an individual to dedicate the slack to PES.
4. International experience. A number of studies indicate how the exposure of a firm to different national contexts increases the probability that it will adopt a PES (Buysse & Verbeke, 2003; Lefebvre et al., 2003; Bansal, 2005). International experience is related to an increased openness to stakeholders, which has been found as an important predictor of PES adoption (Klassen & Whybark, 1999a). However, not all international experience seems conducive to PES. King and Shaver (King & Shaver, 2001), for example, found that foreign firms investing in the US lagged their US counterparts in waste prevention. The complexity in regulatory differences was proposed as a possible explanation.
5. Ownership. Only three studies were found that discussed the ownership influences on the adoption of PES, unfortunately with contradictory results. Given that familyowned firms often have a longer strategic horizon, have a stronger attachment to the reputation of the firm and to the community to which it belongs (Sharma & Irving, 2005), it is hypothesized that family firms would be more inclined to adopt PES.
However, whereas Dyer and Whetten (2006) were able to conform this hypothesis, Craig and Dibrell (Craig & Dibrell, 2006) found opposing results. Hence, further
research awaits the impact of the ownership structures on firm PES. Besides ownership by family or not, differences between public (government-based) and private (market-based) ownership were also investigated. Darnall and Edwards (2006) hypothesized and confirmed that due to the lower prior presence of advanced capabilities in public companies (total quality management, inventory control and pollution prevention capabilities), they inherited higher costs of adopting an environmental management system.
The large variety in responses with regards to the identified influences highlight, again, that generalizing across firms is difficult. In addition to the internal drivers and facilitators, and the external drivers, studies have also focused on the impact of external contingencies on the adoption of PES. These are discussed next.
184.108.40.206. External facilitators: contingencies (d) In addition to the institutional forces that may push firms to adopt a PES, the literature has also identified a number of external contingencies that moderate the response organizations develop towards the natural environment. More specifically, these contingencies may pull firms towards or deter them from PES. In a recent article, AragonCorrea and Sharma (2003) modeled these influences in the most comprehensive framework to date, by looking at three important contingencies of the task environment: munificence, complexity and uncertainty. Munificence refers to “the scarcity or abundance of critical resources needed by (one or more) firms operating within an environment” (Castrogiovanni, 1991: 542), usually to accommodate growth in an industry (Dess & Beard, 1984). Complexity results from the number and diversity of factors that influence the general business environment (Smart & Vertinsky, 1984), increasing the difficulty to locate the levers that make the environment manageable or understandable. Uncertainty refers to the “perceived inability to predict something accurately” because one “perceives himself/herself to be lacking sufficient information to predict accurately or because he/she feels unable to discriminate between relevant data and irrelevant data” (Milliken, 1987: 186). Together, these three external factors can be used to capture the external contingencies of PES adoption.
1. Munificence. Munificent business environments, as opposed to hostile environments, are characterized by an abundant supply of resources and capabilities (private or public) that feed in the industry. Aragon-Correa and Sharma (2003) hypothesized that munificent environments are conducive to the adoption of PES, because they allow
extra support, resources and learning abilities to aid in the uncertain and novel practices that may be associated with their introduction. The empirical literature seems to agree with this hypothesis. Halme (2002), for example, found that more munificent business environments allowed for more experimentation and learning that is needed for the sometimes novel practices associated with PES. McEvily and Zaheer (1999) found that small firms’ embeddness in a munificent network of ties facilitated the acquisition of pollution prevention capabilities. Finally, industry growth rates (Russo & Fouts, 1997) and subsidies (Russo, 2003) have been found to foster the development of PES.
2. Complexity. Given that PESs are dealing with issues that have effects both in the social and economic realm, the number of factors and sometimes diverging interests are large. Matos and Hall argue that the complexity of strategies inclusive of natural and social issues had “increased complexities and presented ambiguous challenges that many current environmental management techniques cannot adequately address.” (2007: 1083) As a result, Aragon-Correa and Sharma (2003) argue that the likelihood firms will want to take up this additional complexity in already complex environments is small. The higher the complexity in the general environment, the lower the probability firms will adopt a PES.
3. Uncertainty. The impact of uncertainty plays out both (1) on the general business environment, as well as (2) on the uncertainty on how environmental issues or strategies will affect the firm. First, when the general business environment has high levels of uncertainty altogether, firms will be accustomed to the need to innovate and scan the environment for information and would thus be more inclined to adopt PES.
Sharma and colleagues (2007), for example, demonstrated how the likelihood that ski resort organizations had a PES increased with their higher perception of general environmental uncertainty. In contrast, Baker and Sinkula (2005) did not find the environmental turbulence to have an effect (neither positive or negative) on the presence of enviropreneurial marketing strategies in the firm. As it seems, the effect of uncertainty in the general environment on PES adoption has not yielded conclusive results. Second, when uncertainty exists about how issues related to the natural environment will affect either the firm (effect uncertainty) or its decision effects (response uncertainty), the likelihood that firms will engage in PES will be lower. In general, the natural environment embodies high levels of unpredictability, given the ongoing substantive uncertainty (Lepoutre et al., 2007) on the environmental effects of
certain practices (biodiversity risks in genetically modified organisms, human impact on climate change, etc) and the complexity of ecosystems – “everything is connected with everything else” (Lewis & Harvey, 2001: 202). Lewis and Harvey (2001), for example, found that executive perception of the general environment in the textile industry significantly increased when the natural environment was included in the uncertainty analysis. Firms would therefore mostly adopt a wait-and-see approach to proactive environmental investments or technologies (Rugman & Verbeke, 1998).
Empirical evidence comes mostly from the impact of issue salience. The more visible and traceable a firm’s impact on the environment is and the more emotions it elicits among its constituents, the higher the likelihood firms will adopt a PES. This is reflected in the findings of several studies that especially the most visibly polluting sectors adopt PES in response to the high levels of scrutiny they get (King & Lenox, 2000; Bansal & Roth, 2000; Banerjee et al., 2003). Also, Jiang and Bansal (2003) and Potoski and Prakash (2005) for example, found that issue salience increased the likelihood of firms adopting an ISO 14001 environmental management system in response to institutional pressures.
The description of these three contingencies shows how the external environment, in addition to the influence that it exerts as a driving force, also sketches the background against which firms make their decisions and which facilitate or inhibit the adoption of PES. The variety of studies that confirm this influence further assert that studies investigating proactive environmental strategies benefit from insights in these external conditions.
220.127.116.11. Summary The picture that emerges from the different factors that influence the adoption of PES is one of complexity: whether a firm goes beyond legal requirements to integrate environmental concerns in its strategy is a result of both internal and external drivers and facilitating factors. As a consequence, the likelihood that overarching predictions can be made about the adoption of PES is low. In fact, this has led some authors to link the existence of “myths” and “misunderstandings” that exist about PES to the sometimes “evangelic” and normative exclamations that exist about PES (Newton & Harte, 1997; Prasad & Elmes, 2005;
Aragon-Correa & Rubio-Lopez, 2007):
“We strongly advise avoiding the temptation to apply general prescriptions to the analysis of environmental strategies, and recommend using a contingent lens instead.
Improving corporate environmental performance is urgent for a sustainable world, but environmental management demands a specific analysis of each firm and its business and general context.” (Aragon-Correa & Rubio-Lopez, 2007: 375) 3.4.2. Consequences As with many studies in strategy and management, the dependent variable that attracts the most attention of researchers is the question whether there are competitive benefits associated with PES. In addition, a natural interest would also be to investigate whether PES actually result in better environmental performance. This second section is dedicated to both effects of PES and the factors that influence their impact.