Sustainable Development - a special strategic management issue

Content

Abbreviations

1. The Papers structure

2. What is “Sustainable Development”
2.1 A definition of sustainable development
2.2 The roots of sustainable development
2.3 The importance of sustainable development - why now?

3. Bringing sustainable development to business
3.1 The typical business approach to sustainable development
3.2 three drivers why business has to act
3.2.1 changes in law are tightening the business framework
3.2.2 peoples choice and customer demand
3.2.3 OEM’s require certificated suppliers
3.3 New business and business models through sustainability
3.4 “Eco-Efficiency” - a first step to change business
3.5 A green industrial revolution is needed
3.6 Environmental Management as a (top) management issue

4. Integrate of sustainability into strategic management
4.1 Strategy formulating
4.1.1 sustainable development as one aspect of strategic management
4.1.2 analysis: environment is a stakeholder
4.1.3 strategy forming - integration of sustainable development
4.2 Strategy implementing
4.2.1 change management - the critical factor during the shift of strategies
4.2.2 greening corporate philosophy and principles
4.2.3 adjusting the organizational structure
4.3 Strategy evaluating

5. Outlook

Literature and references

Abbreviations

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1. The Papers structure

This paper is divided in three major parts. In the first one a definition of “sustainable development” and an overview about it’s history and importance will be given before part two (chapter 3) will follow with the consequences and importance sustainable development has for business. In the third part (chapter 4) the author will give an idea how sustainable development and strategic management can be linked. Finally the author will draw a brief conclusion.

2. What is “Sustainable Development”

2.1 A definition of sustainable development

To have a common understanding throughout the text one of the most popular definition will be given. It’s taken from the report “Our Common Future” published 1987 by the WCED better known as the “Brundtland-Commision”:

“ <Sustainable development> is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within two key concepts: the concept of <needs>, in particular the es- sential needs of the world ’ s poor, to which overriding priority should be given; and the idea of limitations imposed by the state of technology and social organi- zation on the environment ’ s ability to meet present and future needs ” ^[1]

The idea itself is not new and can be found in a lot of cultures e.g. the Indians say “Treat earth well - it is brought from your grandchildren.” The important aspect of having this rather vague definition is that for the first time a definition on an in- ternational level was found and widely discussed by governments, NGOs, and the industry.^[2]

2.2 The roots of sustainable development

The first and massive concerns about environmental issues where probably in- spired by Meadows Book “The limits of growth” published in the 1970ies as a report to the Club of Rome. The progress in developing concepts of sustainable development have been rapid since than. The issue was enforced in the 1980ies and in the 1990ies environmental problems where discussed on an international basis with governmental, NGO and industry participation.^[3]

What changed was the historical approach of people, business and industry that regarded nature, extracted natural resources and the environmental system as a given system with non ending resources that are gratis. As a matter of system this lead to a dislocation of goods as the price is the key factor for an economical effi- cient allocation. And even though resources have a price - it still does not mean that it reflects the harm done to nature and the price for (future) consequences of environmental damage. People nowadays have got a more sensible approach to- wards the usage of nature. They do have a stronger sense for the environment and do care for it. Their ideas often reflect in their action as citizens, customers, em- ployees or managers.

This change lead to changes on markets and business: In the 1970ies the first “green products” appeared.^[4] In the 2000ies the US SEC guidelines first required corporations to disclose future environmental liabilities. The importance of avoiding bad environmental outcomes became a question for the stock market and the rating and evaluation of companies.^[5] Companies start to implement environmental management programs like EMS or ISO 14000.

On the political side the green parties -mostly founded in the 1970ies- brought new impulses into legislation and brought changes in law: e.g. recycling regulations or expanded product liability regulations.

In 1992 world leaders even developed a framework for an action plan that deals with the environment and development issues for the coming decades - the AGENDA 21. The discussion spread from government and NGO’s to business and the natural environment become an accepted stakeholder in daily life. Unfor- tunately the progress on implementation of sustainable development has been rather slow.^[6]

2.3 The importance of sustainable development - why now?

It is evident that the current consumption and production of business and industry are not sustainable as more is taken from than given back to natural system. Be- sides it’s the format that matters. It’s about what you take from and how you give back into the system . The natural environment itself is a closed system with the ability to reuse it’s own waste. In nature waste equals food - waste that stays waste does not exist. So the problem that occurs is that the waste mankind gives back to earth is in a format that nature can’t cope with - or have you ever seen biodegradable TV sets? So the harm to the system is done thrice: by taking to much, polluting in production and dumping the waste. The system is more and more dragged away from an equilibrium or a stage in which it can still work in and acceptable way. The path we are on today is more a path of accelerating the process till the system will collapse. In other words: if we don’t act soon by changing towards a more qualitative form of economic growth it might be to late and the point of no return might be passed. Aspects will look even more dramatic with the background of developing countries and a rapid growth of the global population.

Daily news and science show how important and urgent this issue is. Action today is required to avoid further environmental damage with the consequences of ex- hausted natural resources, extensive loss of biodiversity, loss of ozone layer, global warming etc. It’s not “only” the planet that is endangered it’s although life on it. Bangladesh and the Netherlands for example are directly endangered through the melting poles and rising sea level. But as often the consequences are not only carried by the causing nations. So the issue is a global one and acting is although a question of moral and ethics.

3. Bringing sustainable development to business

3.1 The typical business approach to sustainable development

The major effort has to be done by the firms. The way business works and is done needs a change. But firms typical question is “why should we care - if we don’t have to”. Thus it is a question of moral and of ethics it can although be defined as a question of management style: proactive vs. reactive. As a matter of fact busi- ness is changing and if companies don’t act proactive they can’t expect to generate competitive advantages through environmental management instead if the just react on this change their existence on the long could also be doubted. “ Companies won't wholeheartedly pursue environmental strategies until they are confident of a payoff. The bottom-line impact of environmental strategies must be empirically tested before most firms will jump on this bandwagon. ” ^[7] But once everybody does it - where is the advantage?

The historical (and often still typical) approach to environmental problems by business and industry has been a regulatory driven rather reactive one. It could be characterized by "end-of-the-pipe" efforts. Success is very limited. The problems root stay untouched just consequences are mitigated and the time till the system collapse get prolonged

Today business and industry start to understand that a company can do many things to be environmentally sound and more profitable at the same time often they can only be more profitable because of environmental soundness. For exam- ple cleaner methods of production can lead to savings due to the reduced need for expensive raw materials and waste-charge. Many measures for pollution preven- tion are even easy to take and have a rather short amortization time and pay off after a short term or bring immediate savings. Companies that have incorporated environmental objectives into their present operations are realizing long-term cost savings and reduce the threat of law suits by reducing possible environmental li- ability claims.^[8] But apart from the long-term view there are reasons today already that demand or force companies to change their strategy concerning environ- mental issues.

3.2 three drivers why business has to act

3.2.1 changes in law are tightening the business framework

Rules and regulations set by the government together with moral and ethics set the main part for business’ framework. On the Rio Conference in 1992 that has been continued in Kyoto in 1997 many governments committed to the developed pro- tocol. The major aim of the conference was to reduce the world wide emission of green house gases -meaning gases that accelerate the green house and thereby global warming. Even though the U.S.A. did not sign the protocol the remaining countries are very eager to overcompensate the U.S. part in the reduction an thereby make the protocols reduction reality. As countries efforts are tough this means that limiting values for the industries will be tightened and regulations en- forced.^[9] A further expanded liability regulation already took place in some coun- tries e.g. Germany others will follow.^[10] There is also positive promotion of envi- ronmental strategies by subsidizing projects and alternative energy. For firms this means a higher threat through liability claims, rising manufacturing costs e.g. through higher energy prices or raised charges for waste deposit.

3.2.2 peoples choice and customer demand

Polls made in the USA have shown that 80% of the American public claim for themselves to be "environmentalists", 71% said that the government does not do enough to enforce environmental law, still 59% believe that companies don’t put enough effort on developing environmental sound products.^[11] Today in publics mind the environment is very important and environmental issues gain more at- tention.^[12] This observation is not US specific instead it represents most of the de- velopment nations of the world.

Customer reaction can seriously hit a company especially if it is in form of an or- ganized protest or boycott. Shell encountered this during their Brent Spar activi- ties - years later Shell’s numbers still did not reach the level they had before the protest.

Shell’s approach was rather reactive but there is ways to have an active approach and benefit from greening business. Even though a lot of people claim to be “en- vironmentalists” and want to buy green products most of these people are not willing to pay extra for them. But if they have to decide between products in a same price range they’d choose the green one or if the green product will offer an additional value - such as healthier food they’d even spend more.^[13]

[...]

^[1] Wagner, G.R. 1997, S.35

^[2] compare Matten, D.; Wagner, G.R. (1998), pp. 55-56.

^[3] http://sdgateway.net/introsd/definitions.htm 04/02/02 at 12.31

^[4] Ottman, Jacquelyn A. (2002), Ottman, Jacquelyn A. (2002), http://www.sustainablebusiness.com/features/feature_template.cfm?ID=1791 03/29/02 at 11.37

^[5] http://www.vanderbilt.edu/VCEMS/papers/insight.html - Owen Graduate School of Management - Martin S. Geisel, Dean - 03/29/02 at 15.13

^[6] http://sdgateway.net/introsd/definitions.htm

^[7] http://www.vanderbilt.edu/VCEMS/papers/insight.html - Owen Graduate School of Management - Martin S. Geisel, Dean - 03/29/02 at 15.13

^[8] http://www.vanderbilt.edu/VCEMS/papers/insight.html - Owen Graduate School of Management - Martin S. Geisel, Dean - 03/29/02 at 15.13

^[9] David (2001) P. 256

^[10] David (2001) P. 257

^[11] http://www.vanderbilt.edu/VCEMS/papers/insight.html - Owen Graduate School of Manage- ment - Martin S. Geisel, Dean - 03/29/02 at 15.13

^[12] David (2001) P. 255

^[13] http://www.vanderbilt.edu/VCEMS/papers/insight.html - Owen Graduate School of Manage- ment - Martin S. Geisel, Dean - 03/29/02 at 15.13