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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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Our findings indicate, however, that ornamental horticulture firms did not experience any stakeholder claims, and within-industry pressures normative pressures were certainly not in favor of PES. As such, PES were rather an act of institutional non-conformity than of conformity. Yet, since institutions grant a firm legitimacy and lead it to well accepted behaviors to deal with uncertainty (Meyer & Rowan, 1977; DiMaggio & Powell, 1983), institutional non-conformity represents an act of considerable risk. Successful institutional non-conformity has therefore been mostly associated with larger firms (Haveman, 1993b;

Miller & Chen, 1996; Sherer & Lee, 2002; Greenwood & Suddaby, 2006), that can use their clout to legitimize their deviant behavior. As a result, future research could further explore how the findings in this paper may help to explain institutional non-conformity in small businesses.

This article offers researchers and small business owner-managers alike a more refined understanding of realizing proactive environmental strategies when the odds are against having one. Given that a lack of time and market appreciation is the most common justification for not having a PES in small businesses, we can expect many small business owner managers will be familiar with this situation. Yet the remarkable results of the higher performing firms in our study show that firms can overcome these strategic hurdles. By recognizing that small businesses can change their environment too and create the conditions that are more conducive to having a PES, we hope that more small businesses will be able to go against all odds in realizing their proactive environmental intentions.

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Abstract This paper discusses how small businesses implement strategies that do not conform to established institutionalized practices. The institutional non-conformity examined is the adoption of proactive environmental practices in an industry where institutional pressures exist against these practices. Using a qualitative multi-case study approach, we find that (1) the interaction scope with the organizational field, (2) the cognitive approach towards institutional non-conformity, and (3) the organizational conduciveness to institutional nonconformity were associated with successful resistance to institutional practices. Furthermore, we identify underlying mechanisms that contribute to institutional theory, the resource-based view and the organizations and the natural environment literature.

This paper is the product of a collaborative effort of myself and Dr. Michael Valente. The authors wish to thank Aimé Heene, Erik Mathijs, Bart Nooteboom, Johan Lambrecht, Johan Bruneel, Marc Buelens, Seth Maenen, the participants of the Faculty of Economics and Business Administration Working Paper Series and three anonymous reviewers of the 2008 Academy of Management Conference for their helpful comments in improving this paper.

Chapter 7

Preface The current chapter presents a further exploration of chapter 6, yet it is particularly focused on exploring the small businesses PES from an institutional theory perspective. While going through the iterative cycle of analyzing the cases, enfolding insights from existing literature and then back to analyzing the data in chapter 6, one finding that emerged as particularly inconsistent with earlier literature was that the proactive environmental strategies of the investigated firms presented an act of institutional non-conformity. Furthermore, we found no conclusive explanations in the institutional theory literature about the abilities of small businesses to negate the very institutions that grant them legitimacy or that provide predictable guidelines in uncertain realities. The current chapter therefore further probes the findings of chapter 6 and explores how they can contribute to better understand small business institutional non-conformity.

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7. Fools Breaking Out: Explaining Successful Small Business Institutional Non-Conformity

7.1. Introduction In 2006, Muhammad Yunus, founder of Grameen Bank, was awarded the Nobel Peace Prize for a business model that revolutionized the financial services sector by providing loans to the poor in Bangladesh. Today, a flurry of microfinance banks has emerged in developing and emerging economies adopting a similar model to the point where micro-finance is considered a global phenomenon. Thousands of miles away in Egypt in 1977, Ibrahim Abouleish instituted biodynamic farming in the desert outside Cairo. The firm, SEKEM, has revolutionized farming practices in Egypt and is now one of the leading producers of organic cotton worldwide, supplying directly from hundreds of small Egyptian farmers now adopting a biodynamic farming model.

Stories like these have grown in number across a range of industries over the last decade. An important and rather prevalent characteristic common to these anecdotes is the entrepreneur’s ability to resist institutional forces that conflict with, or in some cases challenge, their strategic trajectory and personal ambitions. However, given that institutional theory predicts that firms deviating from institutional requirements will lose their legitimacy and may threaten the future survival of the firm (Meyer & Rowan, 1977; Baum & Oliver, 1991; Suchman, 1995), such risky non-conforming behaviors appear “foolish” (Aldrich & Fiol, 1994). This is especially so for small businesses who are typically not equipped to challenge the institutional pressures of their given sector (Haveman, 1993b; Miller & Chen, 1996; Dewald, Hall, Chrisman, & Kellermanns, 2007). Because of the many constraints inherited by small businesses, it would seem in their best interests to conform to existing practices (Lounsbury & Glynn, 2001; Zimmerman & Zeitz, 2002). Yet there is growing evidence that small businesses are resisting these institutional norms and subsequently cracking the institutional code of their sector by creating new routines and practices. The most heroic examples of disruptive institutional change are often the exponents of very small ventures. Michael Dell of Dell computers, Richard Branson of Virgin, Ben Cohen and Jerry Greenfield of Ben & Jerry’s Home Made Ice Cream and Muhammad Yunus’s Grameen Bank all started their ventures as small enterprises that went completely against normative expectations and cognitive habits of the service they were providing. Although this phenomenon has surfaced in a range of contexts, few researchers have examined how small businesses overcome the institutional constraints inhibiting the implementation of particular





Chapter 7

strategies that isolate them from the rest of the sector. How these seemingly powerless small entrepreneurs have been able to accomplish this feat is presently understudied, yet represents an important area of study related to the role of small business in the early stages of institutional change (Aldrich & Fiol, 1994; Rao, Monin, & Durand, 2005; Cliff, Jennings, & Greenwood, 2006). Therefore, the research question guiding this paper is as follows: “How do small businesses successfully implement strategies that do not conform to seemingly insurmountable institutional forces?” This paper explores small business institutional non-conformity using a qualitative study of 8 small businesses in the ornamental horticulture industry in Belgium, all of which have committed to proactive environmental strategies that are clearly at odds with the predominant institutional norm of the ornamental horticulture sector. 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). Proactive environmental strategies act as an effective medium through which we can examine small business institutional non-conformity, because of the well-recognized inertial forces associated with an economic paradigm that discourage this approach to business (Gladwin et al., 1995; Newton & Harte, 1997; Margolis & Walsh, 2003; Prasad & Elmes, 2005), and more specifically in the highly institutionalized context of the ornamental horticulture industry. As environmental issues are increasingly finding their way onto public policy agendas, understanding how small businesses, as agents of social change, can disrupt institutional surroundings not favorable to the incorporation of environmental issues in business practice represents an important research agenda.

The results reported here are a set of propositions that contribute to a better understanding of small business institutional non-conformity in a mature setting. The evidence suggests that small businesses are successful in such endeavors of institutional nonconformity as a result of (1) their multiple roles in the organizational field and alternative institutional logic exposure, (2) their cognitive framing of the institutional non-conformity as an envisioned future and the resulting goal inflexibility and means flexibility, and (3) their non-conformity-conducive business model and multiple experiences with institutional nonconformity. In addition, we find that these factors feed into a number of facilitating mechanisms which have implications for institutional theory, the resource-based view and the organizations and the natural environment literature.

Chapter 7

This paper is structured as follows. We first review institutional theory and its implications for small business non-conformity and explain how we conducted our research.

We then present our findings and conclude with a discussion on the implications for current and future theoretical and practical work.

7.2. The problem of institutional non-conformity One central research question of institutional theory is to explain how organizational behaviors are institutionalized and how organizations and actors behave in response to the institutional environment in which they are embedded. Institutions are rules, norms, values, beliefs, and taken-for-granted assumptions surrounding economic activity that define or enforce socially acceptable economic behaviour (DiMaggio & Powell, 1983; Jepperson, 1991;

Scott, 2001). The basic assumption of institutional theory is that organizations need to conform to institutional pressures because "organizations that (…) lack acceptable legitimated accounts of their activities (…) are more vulnerable to claims that they are negligent, irrational or unnecessary" (Meyer & Rowan, 1977: 349 – 350). Without legitimacy, organizations will have difficulty gaining access to resources, making profits or even maintaining survival (Scott, 1987; Baum & Oliver, 1991; Suchman, 1995; Miller & Chen, 1996). Consequently, institutional theorists argue that organizational forms and behaviour will tend to converge to common standards, following the strong pressures for isomorphism (Meyer & Rowan, 1977; DiMaggio & Powell, 1983; Scott, 1987), even when this leads to suboptimal behaviour from a purely economic point of view (DiMaggio & Powell, 1983; Oliver, 1991). Although some variation in organizational practices and forms is admitted, especially in the initial stages of organizational fields when there are hardly any dominant patterns or leaders to mimic (Haveman, 1993a; Maguire et al., 2004), this variation will be lost as the organizational field grows to more mature and established stages (DiMaggio & Powell, 1983; Scott, 2001).

Institutional theory has been criticized, however, for being overly deterministic and static in its conception of institutions. Specifically, it has been oblivious in the past to the impact of managerial discretion and self-interest in explaining organizational behavior and the way economic agents can also influence their institutional contexts, even in mature fields (DiMaggio, 1988; Oliver, 1991; Leblebici et al., 1991; Barley & Tolbert, 1997). In response, a number of scholars have developed theoretical explanations and empirical accounts of organizational strategies that involve non-conforming behavior. For example, organizations may resist institutional pressures because of pressures for competitive diversification (Miller

Chapter 7



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