«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
6.1. Introduction The natural environment is high on the public and corporate agenda. A recent study reported that “environmental issues, including climate change” have soared to the top of the agenda of CEOs (McKinsey, 2007). Almost 50% of the surveyed CEOs believe that the natural environment will be the most important issue to impact shareholder value over the next 5 years. The same study, however, also sheds light on a gap between what CEOs think should be done and what they actually do. Whereas CEOs indicate that they should be investing in the development and implementation of corporate social responsibility policies and increasing the transparency of a firm’s impact on the environment, they reported that public relations and media campaigns, along with lobbying regulators and governments are still the most commonly used tactics instead. Although environmental concerns have been on the radar screen of CEOs for some time, studies as these indicate that many constraints remain in place that inhibit good intentions from turning into noble achievements.
One context where the problem of unrealized environmental intentions seems particularly pervasive is among small businesses. A plethora of studies have demonstrated that although small business owner-managers have positive attitudes towards the natural environment, their good intentions are lost somewhere along the way and do not result in actual practice (Merritt, 1998; Tilley, 1999; Petts et al., 1999; Tilley, 2000; Schaper, 2002;
Hitchens et al., 2005; Worthington & Patton, 2005; McKeiver & Gadenne, 2005). Despite concerns with the natural environment, small business owner-managers refer to a lack of internal resources and external support that constrain them to realize their environmental intentions (Merritt, 1998; Tilley, 2000; Ludevid Anglada, 2000; Gerstenfeld & Roberts, 2000;
Schaper, 2002; Vernon et al., 2003; Lepoutre & Heene, 2006; Elsayed, 2006; Revell & Blackburn, 2007). As a result, research grounded in the resource-based view of the firm (Dierickx & Cool, 1989; Barney, 1991; Amit & Schoemaker, 1993) has consistently found that the smaller the firm, the lower the likelihood of it having a proactive environmental strategy (e.g., Russo & Fouts, 1997; Aragon-Correa, 1998; Judge & Douglas, 1998; Sharma, 2000; King & Lenox, 2002; Chan, 2005; Bansal, 2005; Elsayed, 2006). Such a finding is perplexing, since it is often argued that the likelihood of finding realized strategies that reflect the intentions of the firm can be particularly found among small ventures (Mintzberg &
Waters, 1982; Mintzberg & Waters, 1985). Given that firms build on the visions of their owner-managers and that these same owner-managers are fully in control of their firm and highly committed to the implementation of that vision, it is argued that small businesses are especially equipped to realize their intended strategies. As it seems, the internal and external constraining factors seem to inhibit owner-managers to realize their intentions, even though there are theoretical reasons to believe that the small business context would be particularly suited to this purpose. Although anecdotal evidence exists that shows that some firms seem to overcome these constraints and are able to realize proactive environmental strategies (BITC, 2002; UNIDO, 2002; European Commission, 2003c), it remains unexplored how small ventures can overcome internal and external inhibiting factors and realize their intended proactive environmental strategies.
This paper takes a descriptive view of proactive environmental strategies in the tradition that realized strategies do not always reflect intended strategies (Mintzberg, 1979;
Mintzberg & Waters, 1985). Proactive environmental strategies are systematic patterns of voluntary environmental 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). The current literature on proactive environmental strategies (PES) has been mainly focused on the antecedents (Sharma, 2000; Bansal & Roth, 2000; Aragon-Correa & Sharma, 2003) and economic consequences of PES (Russo & Fouts, 1997; Sharma & Vredenburg, 1998; Aragon-Correa & Sharma, 2003). Few studies, however, have examined how intended PES are enacted and how firms with intended PES actually realize their objectives. Acquiring such knowledge is important, since it would provide insight into how businesses can be prevented from deviating from their well intended objectives and end-up with often pragmatic yet ineffective solutions.
This paper addresses the research question how small businesses are able to realize their intended PES when the odds are set against having one. In particular, we are interested in the capabilities that enable them to deal with the constraining factors and realize their intentions. We drew on a qualitative study of a unique sample of small firms in the Belgian ornamental horticulture that signal both their proactive environmental intentions and their actually realized strategies in a setting that constrained firms to realize PES. By exploring the differences between a group of firms with unrealized PES and a group with realized PES, we found that firms with realized PES possessed two composite and interacting dynamic capabilities, munification and organicity, which enabled them to change the odds in their favor.
We structured our paper as follows. We first review theories on intended and realized strategies and the current knowledge on proactive environmental strategies in small firms.
After discussing the methods used in this paper, we then move to present our findings. We conclude the paper with a discussion of these findings and indicate the implications for theory.
6.2. Theoretical background
6.2.1. Between intended and realized strategies Opposing the assumption that strategies are solely the result of the cognitive exercises of CEOs planning and formulating the future trajectory of steps to be implemented by the firm, the descriptive work of Mintzberg and colleagues offered a more nuanced perspective (Mintzberg, 1978; Mintzberg & Waters, 1982; Mintzberg & Mchugh, 1985; Mintzberg & Waters, 1985). These studies endorsed a perspective of strategy where there may be a disconnect between the strategic intentions of a firm – the intended strategy – and what the firm actually does – the realized strategy. In the event that the intended objectives actually result in the desired pattern of actions, strategies are called deliberate, as opposed to unrealized strategies where the firm is unable to enact its intentions in the desired way.
Realized strategies, however, may also be emergent, meaning that they reflect a pattern of actions that deviates from the intentions or has emerged as a result of a lack of intentions (Mintzberg & Waters, 1985). Figure 6.1 shows a summary of these different types of strategies.
The notion of emergent strategies was important to the field of strategy, since it questioned the usefulness of strategic planning in the firm and advocated for strategists to be
more careful “readers of the environment” and to adapt to the demands that emerge from it (Sarasvathy, 2001; Farjoun, 2002). In addition, it also raised the question when and how firms can be successful in achieving their intended objectives. Mintzberg and Waters (1985) argued that in order for strategies to be deliberate, three conditions have to be met: (1) clear and precise definition of intentions; (2) a shared acceptance or conception of the intentions among all members of the organization; and (3) no intervening factors that hinder the implementation of the intentions. Although they argued that occasions where these three conditions would be met are rare, one type of organization stood out in its potential for deliberate strategies: small and new entrepreneurial ventures under the tight control of their owners.
The main argument in support of the hypothesis that deliberate strategies will be found more frequently among small and new firms can be brought back to two of the earlier mentioned conditions for deliberate strategies. First, although the intentions of the firm may not always be articulated or formalized – in fact, more often than not, they remain concealed in the mind of the owner-manager – and that they may or may not be shared by the employees, the vision of the owner-manager and his or her control over the organization makes the likelihood of deliberate strategies in small organizations particularly high. Second, since he or she is the owner of the firm, the owner-manager has “a strong, long term commitment to his organization (knowing that, barring a natural disaster, it is he who will be there in the long run)” (Mintzberg & Waters, 1982: 496). As a result, the owner-manager is
more likely to engage his employees in realizing the strategy he has envisioned for the firm:
“so long as the business is simple and concentrated enough to be comprehended in one brain, (…) no other mode of strategy making can provide the degree of deliberateness and of integration of strategies with each other and with the environment.” (Mintzberg & Waters, 1982: 496) These assertions by Mintzberg and Waters were made, however, on a third condition: the environment needs to “cooperate” and should not intervene with the strategy. In other words, as long as the environmental conditions are in favor of the firm’s particular intentions, the likelihood of deliberate strategies in small firms is high. As soon as the firm is faced with changing environmental circumstances, it may have to adapt to these new circumstances.
Furthermore, the previous studies have all assumed that the firm was able to draw on a resource base that enabled the firm to implement its intended strategy. Firms that encounter constraining internal or external conditions to implement their intended strategies, however, may also give up their intentions and adopt an alternative emergent strategy instead, even in Chapter 6 small entrepreneurial ventures. One field where this seems to be the case is the field of proactive environmental strategies.
6.3. Proactive environmental strategies and small businesses Studies have found a number of factors that “cooperate” well with realizing proactive environmental strategies. More specifically, the likelihood that firms realize proactive environmental strategies increases with the presence of abundant organizational capital (Russo & Fouts, 1997; Sharma, 2000; Bowen, 2000; Bansal, 2005), a resource-abundant, predictable and simple external resource environment (Russo & Fouts, 1997; Aragon-Correa & Sharma, 2003; Sharma et al., 2007) and institutional pressures that foster organizational attention to the environment (Henriques & Sadorsky, 1996; Henriques & Sadorsky, 1999;
Buysse & Verbeke, 2003; Bansal, 2005). Figure 6.2 provides a schematic overview of these theoretical predictions.
Figure 6.2 - Theoretical predictions on proactive environmental strategies
Although a number of studies indicate that small firms have a positive attitude towards the natural environment (Holland & Gibbon, 1997; Merritt, 1998; Tilley, 1999; Petts et al., 1999; Tilley, 2000; Schaper, 2002; Hitchens et al., 2005; Worthington & Patton, 2005;
McKeiver & Gadenne, 2005), the most common finding is nevertheless that smaller firms rarely have a proactive environmental strategy in place (Russo & Fouts, 1997; Aragon
Correa, 1998; Merritt, 1998; Tilley, 1999; Petts et al., 1999; Tilley, 2000; Sharma, 2000;