«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
The existence of these institutions indicates that the business academics community considers the natural environment a legitimate separate stream of research. But why would this be the case? What is the difference between a proactive environmental strategy and any other strategy (e.g. innovation, growth, cost leadership, differentiation, or internationalization) that has been researched? In order to present an answer to this question, we will explore each of the semantic building blocks of “proactive environmental strategy in small businesses”. In this overview, my goal is to delineate the conversation to which this dissertation wishes to contribute, and to present my understanding of the boundaries of the literature on proactive environmental strategies. I will do so by first presenting “strategy”, as it has been defined in several streams of the literature. I will then continue by summarizing a number of arguments that justify a specific inquiry of the strategy domain into issues related to the natural environment. Next, I will discuss the different postures that the literature has identified with regards to environmental strategies. I conclude with a delineation of “small businesses” and highlight the most important characteristics that justify small businesses as a separate domain of research.
2.2. “Strategy” The fundamental interest of strategic management research and theory is the question how a firm (or any other organization) achieves sustained superior performance (Powell, 2001). Over time, researchers in “Business Policy and Strategy”, “Organization Theory” and the more fundamental sciences that feed into Business Administration research (economics, psychology, sociology and ecology) have formulated theories that provide different perspectives on the antecedents and consequences of strategy, the process moderators and mediators between the constructs involved and “sustained superior performance” (Agarwal & Hoetker, 2007). In addition, each of these constructs has been parameterized for theoretical
and empirical purposes in different ways, increasing the perspectives that exist in strategic management research. Mintzberg and Lampel find such eclecticism in the definitions of strategy welcoming and attribute it to the various attempts of strategy scholars to capture a part of the whole ‘beast’: “each of us, in trying to cope with the mysteries of the beast, grabs hold of some part or other”, yet “much of this writing and advising has been decidedly dysfunctional, simply because managers have no choice but to cope with the entire beast.” (1999: 21).
In order to cope with such diverse theories, a number of scholars have provided synthesizing meta-frameworks to make sense of the respective assumptions these theories rely on, what part of strategy they are focused on, and what their main conclusions are (Whittington, 1993; Mintzberg & Lampel, 1999; Hoskisson, Hitt, Wan, & Yiu, 1999).
Whittington (1993) distinguished between four approaches to strategy, in which each approach was characterized by a different conception of the human potential to think rationally and act effectively. Whittington conceived the evolution of strategy approaches as one that moved from a ‘homo economicus’ planning perspective with success the result of internal decisions and visions, to a more systemic perspective that viewed strategy as an organic process that included interaction with the external social and market environment.
Hoskisson et al. (1999) presented a classification of strategy theories along a set of ‘swings of a pendulum’ over time. In their view, theories have swung back and forth between a focus on the internal characteristics of the firm on the one hand (especially the resource-based view of the firm), and attention directed externally towards the industry and societal structures on the other (especially the industrial organization literature). In the middle, they position the ‘organizational economics’ literature, which has been more concerned with “devising appropriate governance mechanisms or contracts to help reduce transaction or agency costs” (Hoskisson et al., 1999: 444), the internal and external positions have been mostly interested with the performance of the firm. Mintzberg and Lampel (1999) distinguished ten ‘schools’ of strategy formation. Portrayed as a tree, they saw the roots as the basic disciplines (economics, psychology, sociology, anthropology, etc), and the stem ramifying into a branch of prescriptive schools on the one hand, and the descriptive schools on the other. The ten schools differed, among other things, in the way they occupied a position on two dimensions: (1) whether they viewed the external world as comprehensive and controllable versus unpredictable and confusing, and (2) whether they saw internal processes as rational versus natural.
Throughout these classifications, the internal versus external focus, and the ongoing quest to bridge them, is a recurring distinguishing feature between strategy theories.
Following these common perspectives, I choose to present a short overview of the different perspectives on strategy using this internal vs. external dichotomy and the attempts to bridge both perspectives. In the following subsections, I briefly summarize the prevailing perspectives in each of these threads.
2.2.1. Outside-In Perspectives of Strategic Management The Outside-In Perspectives of Strategic Management share a recurring focus on the external environment as the dominant factor in explaining sustained superior performance.
They share the assumption that “the existing internal structure, strategy, and success of an organization is heavily influenced by the environmental forces in which it operates and with which it interacts and competes” (Jaffee, 2001: 209). As a result, outside-in perspectives are sometimes criticized for their overemphasis on the external environment in shaping and molding of organizations and their behaviors. It is interesting to observe that the constructs in these theories are often defined using a very aggressive language: “competitive advantage”, “rivals”, “power” or “pressure”. The perspectives differ, however, in their interpretation of both the context and the content of sustained superior performance, reflecting the different assumptions on which they are founded. Rather than seeing this diversity in assumptions as a “battle of truths”, the combination of perspectives offers a rich literature one can draw from to be informed about achieving particular states of excellence.
18.104.22.168. Industrial organization economics In the “industrial organization economics” (I/O) literature, the performance of a firm follows a “structure-conduct-performance” logic (Mason, 1939; Bain, 1956; Porter, 1980;
Porter, 1985). Essentially, the structural properties of the industry define what the appropriate conduct of the firm should be, and how this will result in firm performance. Michael Porter synthesized the structural properties of the industry in his “five forces model” (Porter, 1980;
Porter, 2008). Depending on (1) the competitive rivalry in the market, (2) the bargaining power of suppliers and (3) the bargaining power of customers, (4) the threat of new entrants and (5) the threat of substitutes, firms must find a unique position in the market. Strategy is thus a choice: “the essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals” (Porter, 1996: 64). According to Porter, this choice generally has to be made between three generic strategies: cost leadership
(being the cheapest in the market as a result of structural cost advantages over competition), differentiation (creating superior value for customers) or focus strategy (cater to a specific segment in the market by offering a customized value proposition). These strategies determine the conduct the firm has to follow, in terms of price, advertising, capacity and quality decisions (Porter, 1981). In the I/O literature, strategy is thus essentially determined by the industry in which the firm operates, leaving the manager a set of options to choose from to respond to the challenges of the industry.
Although the influence of the industrial organization literature is enormous, Porter’s view on the importance of industry in explaining organizational performance has not been without criticism. Whereas the importance of industry on organizational performance has been confirmed by Schmalensee (1985) and McGahan and Porter (1997), other studies by Rumelt (1991) and Roquebert et al. (1996) found that business specificities are more important than industry as explanatory factors of firm profitability. These studies have further spurred the debate on whether the perspective of the industrial organization literature was not too deterministic in its formulation (Bourgeois, 1984) and left an invitation for further research. Another critique on the industrial organization literature is in its normative conception of competitive advantage. In I/O, the source of competitive advantage can be found in the monopolistic, above normal returns that the firm is able to capture through its unique and protected product/market position (Mason, 1939). Interestingly, whereas the early I/O literature warned for the detrimental social welfare implications of monopolistic rents, the later literature turned this analysis around to a normative theory of organizational strategy in which above normal organizational rents could be achieved at the expense of social welfare, which was left out of the model (Barney, 1986; Barney, 1991). In other words, such a view implies that competitive advantage can only be achieved at the detriment of social welfare.
Taken together, the I/O literature has informed the strategy literature especially in the way strategists must analyze and deal with their external market environment. In this perspective, Porter has reaffirmed his belief that the role of strategy is to find, and maintain, an immaculate position relative to the structural forces in its industry: “a company can outperform rivals only if it can establish a difference that it can preserve.” (Porter, 1996: 62).
22.214.171.124. Contingency Theory Although it has been criticized for lacking clarity, ambiguous statements and essentially not conveying a theoretical message (Schoonhoven, 1981), the basic premise of contingency theory is one of the most prevailing and recurrent messages in strategic
management research. In contingency theory, organizational performance is a result of the proper alignment of internal organizational design in response to external context variables (Burns & Stalker, 1961; Lawrence & Lorsch, 1967; Thompson, 1967). The call for theoretical statements that take the impact of environmental contingencies into account is still present today (Oliver, 1997; Priem & Butler, 2001; Zahra, 2007; Tsui, 2007).
In its most condensed form, contingency theory states that there is no universal, onesize-fits-all, best way to manage. Rather a strategist must seek to “fit” the design of his organization and its subsystems with the environment in which it operates. In other words, the right response of the organization, in terms of design variables, culture, objectives, etc, to the particular state of the context in which the organization operates will yield superior performance. Determinants of the circumstances in which the firm operates include munificence (the abundance of resources in the environment that facilitate growth), dynamism (the turbulence and instability of the environment) and complexity (the number and variety of factors that influence the environment) (Dess & Beard, 1984). Depending on the variance of these influences, firms must maintain either mechanistic or organic organization types (Burns & Stalker, 1961), and formal or informal organizational structures (Lawrence & Lorsch, 1967).