«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
Hillary, 2000a; Schaper, 2002; Vernon et al., 2003; Worthington & Patton, 2005; Elsayed, 2006). While the emerging literature on small business PES has mainly focused on the reasons why small businesses are unable to realize the positive intentions towards the natural environment, we found little research that looked at how small firms are able to realize PES, especially when the odds are against having one. In our empirical research, we exploited a unique data set that not only allowed capturing the proactive environmental intentions of a number of small businesses, but also showed whether these firms had been able to realize their intentions or not. Our findings show that those firms that had realized a PES, despite theoretical predictions, had been able to do so because they had developed and employed two interacting capabilities – munification and organicity – to create a micro-environment that mimicked the theoretical conditions fostering PES. Our data suggested that munification entailed a composite endeavor of building and attracting networks rich with existing complementary resources and capabilities, collaborating for the joint development of lacking market and institutional capital, and institutional agency to create an institutionally enabling context. This process was fostered and reinforced by the presence of organicity, the combined process of bootstrapping, focused adaptability and disciplined scrutiny.
Chapter 6 Figure 6.3 - A model of realizing proactive environmental strategies in constrained environments Our study confirms the necessary presence of internal resource capital, external resource capital and institutional capital for firms to realize PES. It was clear in our data that the firms who had not been able to realize their intended PES had surrendered to the pressures that came with a lack of internal and external resource capital and institutional capital. Slack resources and the cognitive and practical flexibility to use it are necessary 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). In particular, they give the firm the latitude to think longer term and to engage in the time-intensive search for resources and capital which are not readily available (Sharfman et al., 1988; Van der Stede, 2000) and to subsequently absorb the potential solutions derived from the environment (Volberda, 1997). Also, the abundance of resources in the environment is particularly important for small firms, since it enables them to compensate for the resources not possessed internally in the firm. Furthermore, munificent environments attract the investment of ever more organizations and supportive institutions with the objective of capturing some of the profit that is generated in such environments (Dess & Beard, 1984; Castrogiovanni, 1991; Tallman, Jenkins, Henry, & Pinch, 2004). Finally, institutional capital is needed to provide legitimacy to the firm’s endeavours (Suchman, 1995). Institutions are important because they infuse resources and strategies with particular symbolic value which are needed to acquire resources (Lounsbury & Glynn, 2001; Zott &
Huy, 2007) but also to maintain survival (Meyer & Rowan, 1977; Zimmerman & Zeitz, 2002).
6.7. Contributions and future research In this paper, we were concerned with extending theoretical predictions about proactive environmental strategies. More specifically, we identified a gap between the theoretical predictions that small businesses would be unable to realize proactive environmental strategies and the anecdotal findings that such phenomena are nevertheless taking place, including in our own data. By going through the interactive process of data gathering, data analysis and enfolding literature, we were able to identify the two composite dynamic capabilities of munificence and organicity. These findings contribute to a better understanding of resource-based perspectives on proactive environmental strategies and the understanding of entrepreneurial processes in constrained environments.
First, our findings invite researchers to question the current resource-based perspectives on proactive environmental strategies that assume and have found that firm size has a positive effect on the adoption of PES. Resource-based perspectives assume that a firm’s above average performance depends on the possession of resources and capabilities that are rare, valuable, nonsubstitutable, and difficult to imitate (Dierickx & Cool, 1989;
Barney, 1991; Amit & Schoemaker, 1993). In the literature to date, it has been assumed that small businesses lack such resources that allow it to successfully achieve environmental performance (Russo & Fouts, 1997; Sharma, 2000; Bansal, 2005). This assumption has even
led scholars to exclude small businesses from PES research:
“smaller companies, which were revealed in exploratory research to have neither the resources nor the motivation to go beyond minimum regulatory compliance, were excluded.” (Sharma, 2000: 686).
More importantly, our findings require reconsidering the assumption that small existing businesses will merely accept their situation and adapt to it as a result. Instead, our findings are in line with the critiques that the resource-based view “has focused only on those resources that are housed within the firm”, whereas “a firm’s critical resources may extend beyond firm boundaries” (Dyer & Singh, 1998: 660). Indeed, the firms in our study that were able to realize their proactive environmental strategies had a set of capabilities in place that allowed them to shape their environment in a way that they could derive the necessary external resources from it. The critical interplay between organicity and munification shows how these firms refused to enact the limitations of their environment and were able to exploit
the pockets of internal and external resources they created in this process. Taking this back to the theoretical predictions that small firm size inhibits the realization of proactive environmental strategies, our model suggest that the resource base of the firm, in terms of munification and organicity, is a better predictor of proactive environmental strategies than “firm size”, which may in fact cover up for a set of underlying processes.
Second, our findings also contribute to the emerging literature on entrepreneurial processes in resource constrained environments (Thong, 2001; Kodithuwakku & Rosa, 2002;
Baker & Nelson, 2005; Zott & Huy, 2007). Although we found fragments of our model reflected in the findings of each of these studies, we have found no model that has articulated the interactive process of both munification and organicity. For example, the study of Baker and Nelson (2005) among 29 small resource constrained firms showed how the process of bricolage – “making do by applying combinations of the resources at hand to new problems and opportunities” (Baker & Nelson, 2005: 333) – helps to “create something from nothing”.
Resonating with “focused adaptability” in our study, they developed the notion that bricoleurs are able to do so, because they question institutionalized conceptions of the resource environment and came up with alternative perspectives for the resources at hand. However, while they make a short reference to the processes that bricolage may set in motion in terms of “social and network skills” (Baker & Nelson, 2005: 354), Baker and Nelson did not consider how the development of external resource capital may enable firms to create something from nothing as well. Furthermore, the study by Kodithuwakku and Rosa (2002) of resource constrained Sri Lankan small farmers found other explanatory factors for firm success in resource constrained environments. More specifically, a combination of prudent consumption and managerial functions, which would speak to “disciplined scrutiny”, and the mobilization of resources and social value through social networks, which would speak to “building and attracting networks”, were the main differentiating factors between successful and unsuccessful farms. Despite their very rich accounts, no reference is made of how these separate constructs are related and how they influence each other in explaining the performance of the firm. With our model, we contribute to a more comprehensive understanding of how firms are able to achieve their objectives in situations where the odds are against them.
Although we were careful to ensure a rigorous collection and analysis of the data, our research is limited in some ways. While confining our research setting to the Belgian ornamental horticulture industry allowed us to control for external sources of variation, this may have concealed other influences impacting the realization of proactive environmental
strategies in small businesses. For example, whereas the environmental problems most of the ornamental horticulture firms were struggling with were related to the production process, the environmental value of ornamental plant products is generally considered very positive.
Ornamental plants contribute to the health and visual pleasure in work environments, help in fixing greenhouse gases from the air and have an important social function in signaling gratitude, joy or contempt (Brethour et al., 2007). As such, it was difficult for the growers to create a market that valued their proactive environmental efforts. Things might be different for firms that produce cleaning products, cosmetics, furniture, food or other products where markets have been shown to be more sensitive to environmental issues. For such firms, munification may require the typical processes required for gaining legitimacy in the market (Teece, 1986; Aldrich & Fiol, 1994; Zimmerman & Zeitz, 2002).
The specific context also raises new questions related to the debate between commitment and flexibility (Ghemawat & Del Sol, 1998). Our model suggests a dynamic interplay between the obstinate commitment to certain objectives and the flexible adaptability to emerging solutions. This resonates with Mintzberg and Waters’ contention that “strategy formation walks on two feet, one deliberate, the other emergent” (1985: 271). In this study we have found examples where some were able to remain on both feet, absorbing emergent solutions to realize deliberate intentions. Yet the question emerges when commitment can be too obstinate and require too much flexibility from the firm to the point that no choices are made anymore. In such a situation, the firm may lose track of its ability to stay in the market and to survive in the first place. Given that environmental strategies are still embedded in a context of market failures (Dean & McMullen, 2007; Cohen & Winn, 2007), with many incentives for other firms too free-ride the benevolent moral strategies of proactive firms, the risk of losing the firm’s rent generating possibilities remains imminent. A question that could be addressed in further research is therefore: how far can the firm go in being committed to its proactive environmental intentions? In other words, how proactive can a firm be given its particular circumstances? One potential answer may lie in the value that both organicity and munification can bring in terms of competitive advantage. Although our research design did not allow making inferences about the competitive value of either construct or its subconstructs, it was mentioned several times in the interviews that the higher scoring firms were also among the top performing firms in their industry. In line with the insights from the natural resource-based view of the firm (Hart, 1995), future research could therefore address how the abilities identified in our data helped to increase the competitive position of the firm.
A final thought relates to the institutional position of PES. To date, the literature has mostly assumed that the adoption of PES would bring a firm more in line with stakeholder and general institutional expectations (Henriques & Sadorsky, 1996; Fineman & Clarke, 1996; Sharma & Vredenburg, 1998; Henriques & Sadorsky, 1999; Buysse & Verbeke, 2003).