Capturing Value from Green Offers - slides PhD thesis defense

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  • This is my thesis summary, as I gave it when I defended my PhD thesis as Chalmers University of Technology, October 4th 2013. I prepared this presentation as a written speech, rather than as an improvised lecture, because some of my favourite lectures were done that way. That turns out to be kinda neat for putting it online. Although it comes in at some hefty 20-25 minutes, I suppose that it also covers quite a lot of ground. I have structured my presentation in five parts.
  • First, I will tell you about why I think my topic is relevant to society and businesses. Second, I will present my research aim and questions. I will then summarize some important methodological aspects. About half of my presentation will consist of a summary of the papers and the type of contributions I attempt to make to the environmental strategy literature. Finally, I will close with some remarks on the practical implications of my findings for decision makers in industry and public policy.
  • I am probably like most people. I have always been inspired by the idea that human civilization will continue to prosper and develop till we expand beyond the stars. I want to help buy future generations the time required to achieve that. One barrier to getting there, at least quickly, is that we might be living beyond our means at the moment. In other words, the current operation of the economy is not sustainable.
  • Here are some famous predictions about that, which you might recognize from the news. [IPCC; Rockström picture] Projections from the 5th IPCC assessment report about sea-level rise. And Rockström in Nature claiming that climate change is not even the worst problem. I admit that I am not competent as a scientist to assess the validity of these claims, but I personally do believe them to deserve to be taken seriously. For those of you who are critical of such assessments, maybe there are other environmental problems, such as inner city air quality and noise levels, that you do care about.
  • The profit motive is behind many of these problems [Pic of big car]
  • But the profit motive is also behind some of the most innovative problem solving that at least I know of. [Tesla, Solar Edison]If I can help firms align profit with environmental problem solving, I believe that our path towards a state of sustainable development will be accelerated and our children’s chances of reaching the stars will have been improved.
  • Firms profit by creating value and capturing part of that value [simple graph/pillar]. They create value by solving problems. Solving really costly problems create really a lot of value.
  • Environmental problems can be quite costly. I have always liked the language of the so called Stern review [Stern review], which estimates that mitigating climate change will cost about 2% of World GDP, while not acting might cost the world economy up to 20% of World GDP.
  • Many firms have realized this [slogans from big firms], but many are also struggling. I believe, and argue that, this is because many firms struggle to capture a good chunk of the value that they create when addressing environmental problems.
  • In other words, I believe that many firms are more than capable of addressing environmental problems, but struggle to do so profitably [simple graph/pillar: now green, capture part animated to become smaller]It is therefore important to both society and to businesses to increase our knowledge about how firms can successfully commercialize and capture value from environmentally differentiated offers.
  • My aim is thus [aimslide] “to contribute to the environmental strategy literature by providing new theoretical viewpoints, methodological approaches and empirical data on the commercialization and economic performance of environmentally differentiated offers.” (Cover paper, p.1)I present my contributions to this field in five papers and a cover paper that tries to synthesize the five papers’ common elements. In the cover paper, I point toward three knowledge domains which I think summarize the specific areas to which I attempt to contribute. I refer to these as research questions. [3 RQs]. These are:
  • Research question 1: To what extent are firms appropriating economic value from environmentally differentiated offers, and what situations facilitate value appropriation?Research question 2: How can the development of environmentally differentiated offers be managed effectively?Research question 3: What are the risks and opportunities associated with service-based offers designed for closed-loop material flows? I will point back to these as I soon describe the five papers.
  • First, a comment about the concept of environmental differentiation. [slide] I define an environmentally differentiated offer as “an offer that is justifiably claimed to be superior on the environmental impact performance dimension, to the typical alternatives that the customer is choosing between.” However, I consider a thorough assessment of the environmental sustainability of the offers to be beyond the scope of this thesis.I focus on environmental differentiation as a social construct; that is: a justifiable claim of superior environmental performance. I use the term justifiable to imply that for the casual sceptic this claim would be considered reinforced by supporting evidence upon closer inspection. I do spend quite a number of pages discussing this definition in the cover paper, but it may be a bit to complicated for me to properly explain right now. I want to mention now however, that I have not chosen a social constructivist approach for my research, but rather an instrumentalist approach.
  • I have used both quantitative and qualitative data in my analysis. Because the topic is wide and varied, I needed to approach the three areas in quite different ways. For research question 1, I have relied primarily on quantitative data. Specifically, accounting data for all small Swedish firms [Bolagsinfo logo], a environmental technology firm register produced by a Swedish government project [Swentec logo] and a survey I sent out to the CEOs of these environmental technology firms [survey pic]. Particularly in this endeavour I have been quite inspired by the ideas of this guy [Milton Friedman], who said that prediction is the ultimate goal of social science, and if not prediction, then at least concept development: what I refer to as terminology.In contrast, to investigate research questions 2 and 3, I relied on qualitative data. My main inspiration for these studies was this guy [Ronald Coase], who said that to understand businesses we must primarily visit and understand the businessmen in their work. For RQ2, I conducted interviews and got to look at internal documents over 4 years at a large multinational manufacturing firm commercializing what they called the green product line. For RQ3 I was part of an interventionist study of a small manufacturing firm that we helped develop a circular business model. This was a longitudinal study, consisting of a series of snapshots of the challenges perceived by various stakeholders during the project, complemented by internal documents such as cash flow estimations and design sketches.
  • I will now try to summarize the contributions to the environmental strategy literature I claim to make in my thesis. Because my thesis consists of a compilation of five papers [Papers slide], each with a different focus, I will structure this part according to the papers.
  • The first paper outlines a theoretical framework of strategies for capturing economic value from environmental differentiation. It is thus part of an answer to RQ1. These appropriation strategies are fairly abstractly defined, but a summary of what they mean in practice can be found chapter 7 of the cover paper. In Paper 1, I have labelled these appropriation strategies eco-lean, eco-branding, eco-lobbyism and eco-transaction design. In terms of my meta-theoretical perspective, they are a contribution of the type terminology. The contribution is novel and valuable, I believe, because I show [CLICK] why environmental differentiation is a business model challenge, because I show that [CLICK] many of the drivers and topics of prior environmental strategy literature can be understood as dealing with one of these appropriation strategies. I also connect the field of environmental strategy to perhaps more established literature [CLICK] by deriving these strategies by synthesizing the work of 2009’s economics Nobel laureates (Elinor Ostrom and Oliver Williamson), the so-called problem-solving perspective and, of course, prior work in the environmental strategy literature.
  • The second paper examines the role of corporate sustainability visions for the commercialization of environmentally differentiated offers. It illustrates how such visions or goals can lead to new and broader market opportunities for already developed, customized solutions. It thus presents an answer to RQ2. I believe I contribute [CLICK] to the literature about environmental strategy implementation in an established organization by introducing the problem-solving perspective to that literature, and providing an illustration and conceptualization of the organizational events that may create a causal link between sustainability visions and environmental innovation. It thus adds nuance to some previously broad and quite general predictive statements about sustainability visions in the environmental strategy literature, for example the notion of ‘shared visions’ by Stuart Hart of Cornell University.
  • Paper 3 is a quantitative estimation of the relationship between environmental differentiation and economic performance. The estimate is based on a design that allows construction of a counterfactual control group of non-environmentally differentiated firms that are very similar to their environmentally differentiated counterparts by statistical means. The paper uses two measures of environmental differentiation; a third party assessment and self reported assessment by the CEOs. It estimates economic performance by profit margin. My finding is that of a negative relation between economic performance and environmental differentiation for small Swedish firms. It thus provides part of the answer to RQ1. The paper contributes to the environmental strategy literature in part by providing a study of a novel data set, small Swedish firms and in part by use of a statistical analysis technique that is novel to the field. I believe that small firms are valuable to study [CLICK] because 1) they’re understudied but important to the economy, and 2) the relation may be easier to study because the firms typically do not also have a bunch of non-environmentally differentiated activities affecting the economic performance. The analysis is useful [CLICK] because it provides comparatively better, but of course not conclusive, basis for teasing out the existence of a regularity in the link between the two concepts.
  • Paper 4 builds on approximately the same data as paper 3, and the conceptual framework presented in paper 1. This paper investigates the association between economic performance of environmentally differentiated offers and various ways the offers can be marketed towards customers based on their environmental differentiation. The analysis is based on various regression techniques, primarily OLS regression. Because of other limits in the data and analysis technique, it made sense to use two separate measures of economic performance in this paper. First, the profit margin of the firms, as in Paper 3. Second, a subjective assessment of the CEOs of the firms. The results indicate that eco-efficiency related to decreased total cost of ownership is significantly positively associated with the economic performance of the offer. This finding is robust to both the choice of economic performance measure and the choice of regression models. It is also part of the answer to RQ1. I think the finding constitutes a contribution to the environmental strategy literature by: first, a novel data set [CLICK], again with the benefits of studying small firms, and second, [CLICK] by simultaneously controlling for several suspected co-variates: such as supporting regulation, branding benefits etc.
  • Paper 5 investigates the reasons why firms operating traditional linear business models are reluctant to shift to service-based circular business models. This relates to RQ3. The was recently a call for papers in the Journal of Cleaner Production asking a similar question: given that the academic literature is often quite positive about the economic prospects of such a business model: why aren’t firms acting? I reviewed the disadvantages of service-based circular business models relative to linear business models discussed in prior research papers, but found in the case I studied that many of these potential disadvantages can be mitigated in various ways. However, there did remain one important challenge that persisted over the project. Proactive testing of certain key business model assumptions requires more time within a service-based circular business model context compared to a linear business model context [CLICK]. Since a service-based circular business model involves significantly more tied up capital during stages of high uncertainty, the shift carries significant risk. I believe that the identification and conceptualization of this challenge constitutes the main contribution of paper 5. Other potential contributions are the illustration [CLICK]of the business development process as it happened, as well as the introduction [CLICK] of the notion of systematic assumption testing in the product-service systems literature.
  • I believe that there have been some implicit implications for practice in my summary of the intended academic contributions of the thesis. However, I will try to provide an explicit summary the practical implications now [slide]My findings provide cause for caution for managers and investors considering investing in environmental differentiation. At least for the average small Swedish firm, there is a negative relation between environmental differentiation and economic performance.Among the same firms, firms with environmentally differentiated offers distinguished by their low total cost of ownership are on average the most profitable. Thus, simple natural resource efficiency, not requiring any fancy appropriation strategies seems the safest route to profitable environmental differentiation. At least today.Circular business models remain a big, but risky opportunity for firms. There is nothing in my findings that suggests that the potential rewards from successful remanufacturing and servicizing aren’t as big as many previous researchers have suggested. But I do provide reason to believe that the process of finding a profitable business model might be unusually difficult for these types of offers.Explicit sustainability visions or goals by top management are likely to often accelerate commercialization of already developed, put possibly dormant, technical solutions in many established manufacturing firms. But the visions must be formulated cleverly, to match the core competences of the firm and address a valuable environmental problem. They must also, of course and as many have pointed out prior to me, be successfully disseminated and shared by the lower levels of the organization.For law makers and other policy makers, I believe that the main implications are that if more environmental technology firms are desired, they might require additional support. This support can take many forms, and while I discuss some of these in the cover paper, they are mostly outside the scope of my research. The same goes for circular business models; if policy makers see these as desirable, some sort of compensation for the initial risk may need to be devised. One possible approach, which might be palatable independently of opinions of the proper size of the public sector, might be to shift the tax outtake from labour towards use of raw materials.
  • And that is, I believe, in a nutshell what I have come up with after five years as a PhD student. It will not take us all the way to the stars, but maybe it will help us along the way. [what is a phd slide]
  • Capturing Value from Green Offers - slides PhD thesis defense

    1. 1. Capturing Value from Green Offers An Examination of Environmental Differentiation and Economic Performance Marcus Linder 2013-10-18 1
    2. 2. 5 years in 25 minutes 1. 2. 3. 4. 5. So what? Research aim Method Contributions Implications 2013-10-18 2
    3. 3. So what: Society 2013-10-18 3
    4. 4. So what: Society Working Group I Contribution to the IPCC Fifth Assessment Report Climate Change 2013: The Physical Science Basis Summary for Policymakers Page 35 2013-10-18 Rockström et al (2009) „A safe operating space for humanity‟, Nature, Vol. 461, No. 7263, pp.472–475. Page 472 4
    5. 5. So what: Society 2013-10-18 5
    6. 6. So what: Society 2013-10-18 6
    7. 7. So what: Businesses 2013-10-18 7
    8. 8. So what: Businesses 2013-10-18 8
    9. 9. So what: Businesses 2013-10-18 9
    10. 10. So what: Businesses 2013-10-18 10
    11. 11. Research aim  “…to contribute to the environmental strategy literature by providing new theoretical viewpoints on, methodological approaches to and empirical data on the development, commercialization and economic performance of environmentally differentiated offers.” (Cover paper, p. 1) 2013-10-18 11
    12. 12. Research questions 1. To what extent are firms appropriating economic value from environmentally differentiated offers, and what situations facilitate value appropriation? 2. How can the development of environmentally differentiated offers be managed effectively? 3. What are the risks and opportunities associated with service-based offers designed for closed-loop material flows? 2013-10-18 12
    13. 13. Phenomenon  “environmentally differentiated offers” – “an offer that is justifiably claimed to be superior on the environmental impact performance dimension, to the typical alternatives that the customer is choosing between.” (Cover paper, p. 1)  Operationalization: – 1) Claim by firm towards me as researcher – 2) Independent assessment • Government evaluation of “environmental technology” (EU definition) • My evaluation according to TNS four system conditions 2013-10-18 13
    14. 14. Mixed methods 2013-10-18 14
    15. 15. Papers      Paper I: Linder, M. (International Journal of Innovation & Sustainable Development) – 'A problem-solving perspective on strategies for appropriating environmental value – some implications from considering institutional solutions to social dilemmas‟ Paper II: Björkdahl, J. and Linder, M. (Under review, 3rd) – „Formulating Problems for Commercializing New Technologies: The Case of Environmental Innovation‟. Paper III: Linder, M., Björkdahl, J. Ljungberg, D. (Business Strategy & The Environment) – „Environmental Orientation and Economic Performance: A quasi-experimental study of small Swedish firms‟. Paper IV: Linder, M. (Under review, 1st) – „Determinants of economic performance for environmental technology-based offers – A cross sectional study of small Swedish firms‟. Paper V: Linder, M. and Williander, M. (Under review, 2nd) – „Examining the challenges of implementing closed-loop service-based business models from an entrepreneurial perspective‟. 2013-10-18 15
    16. 16. Paper I  Linder, M. (2012) – 'A problem-solving perspective on strategies for appropriating environmental value – some implications from considering institutional solutions to social dilemmas‟  Finding: Generic appropriation strategies for environmental differentiation: – Eco-lean, Eco-branding, Eco-lobbyism and Eco-transaction design. Why contribution? – Conceptual: Showing why environmental differentiation is a business model challenge. – Conceptual: Showing how much of previous literature on drivers and strategies for environmental differentiation can be understood as special cases of these four appropriation strategies. – Conceptual: Derivation of generic appropriation strategies from Ostrom (1990) and Williamson (2000).  2013-10-18 16
    17. 17. Paper II  Björkdahl, J. and Linder, M. – „Formulating Problems for Commercializing New Technologies: The Case of Environmental Innovation‟.  Finding: Explicit top management commitment, e.g. „sustainability visions‟, enable opportunities based on existing solutions.  Why contribution? – Conceptual: Introducing problem-solving perspective to literature on implementing an environmental differentiation strategy. 2013-10-18 17
    18. 18. Paper III  Linder, M., Björkdahl, J. Ljungberg, D. (forthcoming) – „Environmental Orientation and Economic Performance: A quasi-experimental study of small Swedish firms‟.  Finding: Negative association between environmental differentiation and economic performance  Why contribution? – Method: Data set (small firms) • Understudied • Less “noise” – Method: Nearest neighbour matching (uses information on 80000 firms) 2013-10-18 18
    19. 19. Paper IV  Linder, M. – „Determinants of economic performance for environmental technology-based offers – A cross sectional study of small Swedish firms‟.  Finding: Out of several examined advantages of environmental differentiation, only resource efficiency leading to low total cost of ownership is associated with economic performance.  Why contribution? – Method: Data set (small firms) • Understudied • Less “noise” – Method: Controls for suspected covariates • • • • Branding benefits Supporting regulation Improved quality due to environmental control Customers valuing provision of environmental information 2013-10-18 19
    20. 20. Paper V  Linder, M. and Williander, M. – „Examining the challenges of implementing closed-loop service-based business models from an entrepreneurial perspective‟.  Finding: Service-based circular business models imply more risk than only-product-based linear business models with the same product  Why contribution? – Conceptual: Explains PSS literature conundrum: why lack of adoption – Method: Intervention enabled longitudinal study of rare phenomenon – Conceptual: Brings in business assumption testing idea into PSS literature 2013-10-18 20
    21. 21. Implications for practice 1. Cause for caution 2. Cost efficiency seems safest route 3. Circular business models big but risky opportunity 4. Explicit sustainability goals / accelerate dormant business opportunities 5. If small env. tech. firms are desirable, further support is needed; consider tax shift. 2013-10-18 21
    22. 22. Capturing Value from Green Offers An Examination of Environmental Differentiation and Economic Performance Marcus Linder 2013-10-18 22

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