Managing the Transition to a Sustainable Enterprise

Lessons from Frontrunner Companies

Rob van Tulder, Rob Tilburg, Mara Francken, Andrea Rosa

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134749652
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

In combining practice and theory, this textbook provides a management perspective on the 'business case' for sustainability. Drawing on examples from 20 frontrunner companies located in the Netherlands, it builds upon a unique research project in which CEOs and middle-managers gave access not only to their decision-making process, but also revealed how their perceptions shaped the transition process.

This book identifies four different archetypes of business cases and related business models that business students and managers can use to identify phases and related attitudes towards sustainability. The book provides in-depth analysis and insight into:

• theoretical concepts and an overview of the relevant literature

• the different business cases for sustainability

• behavioural characteristics of each phase and the typical barriers between them

• more than 70 tipping points

• approaches to shaping stakeholder dialogue

• effective engagement of stakeholders in each phase of transition

• how companies move through the phases towards higher levels of sustainability

• insights of employees of the 20 companies whether the business case was really achieved

• summary of the interventions which have proved successful in these companies.

This book offers students as well as managers of vocational and academic institutions at undergraduate and postgraduate level insight into real-life transition processes towards sustainability.

Part I

Setting the stage

1 Introduction

The logic of sustainable enterprise

Box 1.1 This chapter in two minutes

The essentials

• Sustainable enterprise is moving from a luxury to a necessity. The societal need is increasingly clear as is the business case. Great challenges demand far-reaching solutions. Companies have a central role to play.

• This book is about how sustainability within organisations can be shaped.

• The book uses a study of 20 large and leading companies based in the Netherlands, spread over 20 different sectors, to find out how they dealt with this process. The book also draws on our own experiences as scientists and consultants.

• The sample of 20 frontrunner companies provide useful instructions for comparable companies around the world, not only because of their sector spread, but also because many of these companies are also global leaders in sustainability.

• This does not imply, however, that these companies have actually achieved sustainability and thus can be considered ‘best practice’. Rather they provide ‘relevant practice’ because of their frontrunner status (and their willingness to share their experience at all levels within the organisation with the researchers).

• This approach offers insights useful to managers in other industries contemplating a transition towards sustainability in their own companies.

• In this chapter we introduce a phases model. The focus is the attitude of companies and their employees towards societal issues and sustainability.

• Later in the book we give examples of successful interventions in the researched companies, taking sustainability to the next level.

• We identify tipping points, transitions after which regression to a lower level of action or thinking on sustainability becomes more difficult, developments that have resulted in lasting change.

1.1 Introduction

There are bookshelves full of the societal role of enterprise, analyses on how companies should behave, how they actually behave and why things are the way they are. It is a daunting task to add another book to these ranks. We have nevertheless chosen to take up this challenge. After all, rarely has the societal role of business been considered as important as it is today. Societal challenges are more pressing than ever before, and these challenges will clearly affect business continuity. This in turn affects the core processes of the business. How can products and services be profitable and meet societal needs at the same time? This is a challenge for managers: What is expected of me and how is our company perceived in the societal debate and the challenges facing society? What can I do about this as a manager? This is what societally responsible or sustainable business practice is about. What can the private sector contribute to the quality of society as a whole? How can companies’ core competencies be applied responsibly to deliver an economically, societally and environmentally optimal contribution? What are reasonable expectations when it comes to minimising the undesirable side effects of business operations, such as pollution and depletion of natural resources?

The threat to privacy as an undesirable side effect of the increasing opportunities of the digital world provides another example of a societal issue on which companies must make decisions: it is part of Google’s and Facebook’s daily routine and a core element of their business model. What should we make of the credit crisis of 2008, which has been traced back to losing sight of realistic, legitimate societal expectations? Spurred on by short-term financial incentives, some financial service providers invented creative but opaque loans, mortgages and other risky financial products which in the end shook the walls of the economic system. Seen from this perspective, societal responsible enterprise must be trustworthy, dependable and above all decent.

Fortunately corporate responsibility entails far more than this. It is also the quest by companies to use their core competencies to contribute to persistent societal problems. Think of employment agencies recruiting in mosques, teahouses and community centres to improve the position of immigrant youths in the labour market, as well as finding qualified personnel; or an IT service provider that introduces flexible working to reduce unnecessary travel, at the same time improving the position of its service provision; or a financial service provider that takes the initiative in simplifying mortgages and investing in financial literacy of their clients, making products safer for both clients and banks. When it comes to sustainable enterprise, the knife often slices both ways, as long as managers are willing and capable of looking at problems from a dual perspective.

This double orientation, simultaneously optimising added societal value and minimising undesirable side effects, is what we call sustainable or societal responsible enterprise. It relates to the core business processes: how can a company use targeted portfolio management, smart innovations and groundbreaking chain initiatives to offer products that are both worthwhile and profitable, which contribute to difficult societal problems? This is often only marginally a moral problem. It is, above all, a question that touches on the concept of continuity. The urgent call for sustainability is a call for change, for innovation towards new products and services, which touches on the essence of a company’s economic and entrepreneurial activities. The sustainability movement is therefore in no way exceptional. It represents a very ordinary phenomenon, the essence of business enterprise and the reason why companies in the past have been allowed a high degree of managerial freedom: in order to produce added (societal) value.

In the international corporate world, the concept of sustainability is here to stay. More and more companies aim for societal influence more broadly conceived than the supply of products and services suited to their clients. Companies actively study how their operations relate to societal and environmental challenges. They are guided not by what they legally must do with respect to society, but rather by the expectations of various interested parties (stakeholders), by what they can do. Within the economic framework of enterprise, companies help form a society in which the fulfilment of the needs of the current generations needs does not infringe on the fulfilment of the needs of future generation’s. This can be achieved in all kinds of different ways, such as energy-saving products, codes of conduct prohibiting child labour, partnerships with non-governmental organisations to pool resources for societal causes, or initiatives aimed at promoting animal wellbeing.

The shaping of sustainable enterprise is also known as Corporate Social/societal Responsibility (CSR). It cannot be taken for granted. Not long ago societal issues such as working conditions, environment and poverty were seen primarily as areas for government regulation, issues of public interest, controlled by public, democratically designed organisations. If a company fulfilled these legal standards, it could expect societal acceptance. In the 1960s, influential economists proposed that the only responsibility of a company was to deliver shareholder value and profit (Friedman, 1962). This was taught at many universities right into the 1990s.

In today’s society, however, companies are expected to have their own vision for these societal issues. Consumers are more empowered and attach greater value to sustainability, investors recognise its risks and opportunities, and companies come under scrutiny from societal organisations. Rapid exchange of information over the Internet and social media completes the conditions needed for real change.

The attitude of consumers to sustainability is ambivalent and paradoxical. Various companies offer recognisable and prominently positioned sustainable alternatives, trying ever harder to make it easy for their clients to choose sustainability. Purchasing behaviour, however, still lags behind. While we expect companies to prioritise sustainability, consumers still choose the ‘cheapest’ product instead of more sustainable alternatives (Van Hilten, 2011). This is paradoxical because sustainable products need not be more expensive, but are often perceived as such by the consumer. Studies show that consumer awareness of sustainability has grown, but action lags behind (ibid., 2011). Nevertheless, thanks to the transparency of the Internet and speed of news, consumers observe business behaviour. A negative attitude to sustainability can be expected to result in negative consumer attitudes and behaviour.

Similar patterns are detectable in the business-to-business (B2B) market. Companies demand more from one another when it comes to sustainability of products and services. In some cases this is associated with financial rewards. Earning societal appreciation for much further-reaching societal and environmental initiatives is more crucial than ever to an organisation’s continuity. Where in the past people spoke of a ‘licence to operate’, this concept is increasingly seen as the minimum standard. After all, permission to proceed with operations is a pretty meagre step in the direction of sustainable enterprise. Sustainability is about societal contribution and reaping the benefits of societal value. It therefore goes beyond compliance.

A series of crises, from food safety to climate change to human rights violations, have hit society hard, making the societal responsibilities of businesses painfully visible. They emphasise the fact that a company’s first responsibility is providing products and services which benefit the continuity and stability of both the company itself and society. This is also referred to as the ‘value proposition’ of companies, while related to its so-called ‘fiduciary duty’. Society must be able to trust that promises to clients will be fulfilled, without small print or snakes in the grass. A company with a progressive climate programme for reduction of carbon dioxide emissions sells itself and society short if accounting regulations are violated and fraud rears its head in the same head office. This is a question of the full scope of sustainability and integrity: People, Planet and Profit (Elkington, 1999).

Growing numbers of business leaders understand this situation. Such leaders decide the societal aspects of their activities based on dialogue with stakeholders, reflect on their roles, formulate goals for issues such as transparency and institute implementation programmes to shape the sustainability of their enterprises. They make product and service innovations, and adjust processes and initiatives targeting their suppliers.

The movement of these companies towards sustainability is often a well-considered strategic choice. Nevertheless the path of transition is not necessarily obvious; it is often full of bumps and pitfalls. Sometimes the trail seems to run cold and it is necessary to take a step back and find a different route. Eventually it often turns out to be possible, and indeed necessary, to pick up speed. One of the problems in effectively managing this transition is that the academic literature often lags behind societal reality. A clear and unambiguous business case for sustainable enterprise has not yet been formulated. There are no magic formulae; sustainability is context dependent and difficult to replicate from one situation to another.

Box 1.2 Critical perspectives on CSR

The much publicised embrace of CSR and sustainability by many companies has not always been received with applause. Media and NGOs have often expressed scepticism of the real intentions of companies. The question whether CSR reports, public statements in support of responsibility and...

Table of contents

• Cover Page
• Half Title page
• Full Endorsements
• Title Page
• Copyright Page
• Contents
• Tables
• Figures
• Boxes
• Acknowledgements
• Foreword
• Summary
• I Setting the stage
• II Theory and concepts
• III Practices
• IV The future
• Appendix 1 Golden tips
• Appendix 2 Partners in dialogue for the companies studied
• Bibliography
• Index