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«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»

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4.4.2.1. Time In the context of SBSR, a lack of time becomes a problem when it results in a deficiency of “discretionary slack” – the latitude for managerial discretion to reduce internal or external pressures, resulting from excess time and resources (Sharfman, Wolf, Chase, & Tansik, 1988; Spence, 1999; Sharma, 2000). Discretionary slack has been identified as an important antecedent for innovative and environmental behaviour (Bourgeois, 1981; Sharma, 2000; Bowen, 2002b). Slack discretionary resources allow firms to look for information that is not necessarily problem related, may allow firms to innovate in projects that do not require an immediate pay-off, may allow experimentation with new innovations or simply to reflect and learn on current processes (Bowen, 2002b). Those owner-managers that are occupied with “firefighting” operational problems or are reluctant to delegate discretionary responsibilities to employees are most likely characterized by lower levels of discretionary slack, often with an incomplete understanding of social responsibilities and its opportunities as a result.

4.4.2.2. Knowledge Small business managers are often responsible for a wide variety of tasks in the company (from operational to strategic), with a lack of functional specialization and expertise as a result (Verhees & Meulenberg, 2004). Such knowledge, skills and experience are not only key to the performance of the firm in the short term (Barney, 1991), but they also have an impact on the absorptive capacity of the firm – the ability to recognize and exploit opportunities from outside the firm (Cohen & Levinthal, 1990). Many small business managers simply have no time to collect the large amounts of information that are available to them, scan the impact they might have on stakeholders or the environment in the long or the

Chapter 4

short run, interpret this information and find the necessary business solutions (Smeltzer, Fann, & Nikolaisen, 1988; Shrader et al., 1989). Moreover, knowledge in organizations exists in both explicit (transmittable in formal, systemic language) and implicit (personal, hard to communicate or formalize) forms (Nonaka, 1994). In small businesses, knowledge is predominantly present in implicit ways, based on experience (learning by doing) and often only in the head of the owner-manager (Nooteboom, 2004). For such knowledge it is much harder to formulate and accept criticism and engage in “higher order learning” – to deploy corrective action that changes the norms and the underlying principles that guide organizational behaviour (Argyris & Schön, 1978). Interestingly, the lack of knowledge often exists despite abundance in information (Gerstenfeld & Roberts, 2000; Hunt, 2000; Hitchens et al., 2005), suggesting that the lack of knowledge is not only a contextual consequence, but also a result of the cognitive limitations of the human brain. Indeed, small business ownermanagers are typified by increased bounded rationality problems (Simon, 1982; Nooteboom,

1994) in three dimensions: width (fewer functional areas in employees), depth (lower overall level of education) and variety (dominance of the personal perspective of the ownermanager). This variety dimension relates to the strong relationship that an owner-manager has with his or her business. Such commitment may either result in a persevering or a stubborn way of dealing with SBSR issues, limiting the variety of knowledge inputs that are addressed.

On the one hand, personal commitment gives the small business an advantage to deploy SBSR behaviour and act upon the knowledge and vision it stands for (Hannafey, 2003).

However, it may put the small business in a less favourable position, when such commitment results in stubborn and self-centred behaviour, not allowing anyone in the firm to disagree or to be included in decision-making (Baron, 1998; Petts et al., 1999) or to be blind from their stakeholders’ wishes or suggestions (Vandekerckhove & Dentchev, 2005).

However, businesses that are engaged in network structures increase their absorptive capacity (Meredith, 2000; Atherton, 2003). The mere effect of interacting with peers on production methods and business challenges is often a first step in externalizing implicit knowledge and organizational learning (Brown & Duguid, 1991). In addition, networks increase the availability of new information and knowledge to build the mental models that are potentially more in line with reality. As a result, networks have been cited as key media through which SMEs can learn on a wide variety of topics (Hoang & Antoncic, 2003), but also as the locus of new knowledge creation (Inkpen & Tsang, 2005).

We conclude that the specific position and personality characteristics of small business owner-managers do have an influence on SBSR behaviour. The effect and direction on SBSR

Chapter 4

behaviour, however, depends on the type of owner-manager. Small businesses owner managers characterized by low levels of discretionary slack, limited absorptive capacities and reduced network relationships will less likely recognize SBSR issues or act upon them.

Conversely, in the case that small business owner-managers can develop capabilities that create discretionary slack, allow organizational learning and build network relationships, then time and knowledge constraints will be greatly reduced. Also, small business owner-managers that have established intent for SBSR behaviour, will be more effective in the case they possess such entrepreneurial traits as need for achievement, internal locus of control and tolerance for ambiguity.





4.5. Organizational characteristics As was suggested by Dean et al. (1998), small and large firms possess fundamentally different resources and capabilities. Relative to their larger counterparts, management literature typically describe small businesses as having less access to resources and being less powerful (Welsh & White, 1981; Aldrich & Auster, 1986; Nooteboom, 1994; Carson et al., 1995; Chen & Hambrick, 1995; Dean et al., 1998). Although these characteristics have often lead researchers to conclude that small business would have a reduced possibility to engage in SBSR practices, our analysis will show that some caution is required. Again, contradictory evidence exists with regard to the relationship between the organizational characteristics of small businesses and SBSR.

4.5.1. Resource poverty Besides the time and knowledge constraints that were mentioned before, small business owner-managers cite a lack of financial resources as one of the most important barriers for engaging in SBSR (Ludevid Anglada, 2000; Hillary, 2000b; Observatory of European SMEs, 2002; Hitchens et al., 2005; Vives et al., 2005). However, firms demonstrating a higher environmental performance were not always found with more internal financial resources (Schaper, 2002; Hitchens et al., 2005) or to experience financial constraints (BITC, 2002). Several reasons exist to explain these conflicting streams of evidence.

Evidence that confirms the financial resources barrier uses arguments related to cost considerations, investment prioritization and the burden of systemic innovations. First, in the minds of most small business owner-managers, SBSR activities are perceived as costs that will result in competitive disadvantage (Tilley, 1999; Ludevid Anglada, 2000; Gerstenfeld & Roberts, 2000). In addition, relative to their larger counterparts, small businesses have fewer

Chapter 4

opportunities to reap the benefits of economies of scale, scope and learning (Nooteboom, 1994), increasing the relative burden of these costs. Second, small businesses often experience immediate cash needs that do not allow them to build up large financial reserves, with a lack of slack financial resources as a result. A small business owner-manager may want to invest in employee training, community development or environmental technologies, but postpone such investments because of other investments or business needs which pose a more important and immediate need in the strategic or operational activities of the firm (Ludevid Anglada, 2000). “Business is not bad, it is just difficult – and in difficult times, the first goal of a business is to survive” (Fassin, 2005). Larger firms, on the contrary, often possess slack financial resources or easier access to external resources to finance such investments, allow workflow buffers or to employ teams specialized in CSR issues (Bourgeois, 1981; Nohria & Gulati, 1996; Bowen, 2002b). Third, social or environmental problems sometimes require a systemic change either within a company or across a number of organizations to solve them.

The costs and the risk for investing in solutions may consequently be too large for one firm to carry (Tilley, 1999; Fountain, 1999) and it might not be able to get loans or support from financial institutions because of this.

By contrast, several explanations exist that challenge the financial arguments used by small businesses to defend their low SBSR activity. First, cash limitations are only experienced when SBSR actions would require financial resources. Increased SBSR is not necessarily associated with higher costs. Higher financial performance has been found in association with green performance (Schaltegger & Synnestvedt, 2002; Clemens, 2006).

Second, companies that integrate SBSR in their overall strategy may not experience SBSR as an “add-on” and therefore not perceive SBSR as an extra cost (Vives et al., 2005), but rather as a cost advantage (Christmann, 2000). This is in line with the small business management literature indicating that a single-minded focus in strategy and resilience positively influences performance (Nicholson, 1998; Ebben & Johnson, 2005). Finally, slack resources may also result in satisficing behaviour (Bourgeois, 1981; Simon, 1982), preferring for example existing routines above environmental and more cost-efficient strategies (Bowen, 2002b).

Although these streams of evidence present different opinions, they can nevertheless be integrated into one argument. Just as larger businesses, small business will experience limited financial constraints with those SBSR actions that have immediate returns or are strategically integrated in the management of the firm. However, due to a lack of (slack) financial resources, small businesses will experience more difficulty than larger firms to engage in SBSR actions that have no immediate return, require systemic changes or are

–  –  –

boundary spanning. As a result, even proactive small firms experience a lack of financial resources as a constraining factor (Palmer, 2000).

4.5.2. Power Smaller size often results in lower negotiation power and leverage to modify environmental forces in the market, with their suppliers and in politics (Porter, 1980). In the context of SBSR, this lack of power is a problem when the small business depends on other actors to engage in SBSR activity itself.

First, besides the effect of peer pressure on the recognition of responsibility issues, the small size of a business may also hamper it to actively go against generally accepted norms in an industry. Small business owner-managers generally perceive themselves to be more ethical than their peers (Tilley, 2000; Vitell et al., 2000; Ludevid Anglada, 2000). In the situation that SBSR action would increase production costs, then going against this dominant culture in a sector, with the danger of free-riding behaviour by their competitors, might be a considerable hindrance in taking socially responsible action (Vyakarnam et al., 1997).

Similarly, the CSR behaviour of a small business’s partners in the supply chain has a major impact on small business behaviour itself (Arbuthnot, 1997; Dawson, Breen, & Satyen, 2002). Clearly, this depends on the size and power of such constituents and whether they adopt a CSR strategy. The stimulating effect of large customers setting responsibility targets for their smaller suppliers has been widely acknowledged (Noci & Verganti, 1999;

Gerstenfeld & Roberts, 2000; Hunt, 2000; BITC, 2002). Conversely, irresponsible behaviour

by larger customers impedes small businesses to engage in SBSR practices themselves:



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