Effect of ecodesign practices on the financial performance of manufacturing f...
ENVS6500_MA1_Drunis
1. ENVS6500 –Business andthe Natural Environment
Lecturer: AdamTyndall
CRITIQUE 1
Critical Analysis on the adaptation and implementation of environmental policies
within organisations.
STUDENT: Aaren Drunis (3189437)
e-mail:c3189437@uon.edu.au
Due 17th
March 2014
Current Wordcount ~2528
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1 Introduction
Environmental proactivity within organisations, known as corporate environmental responsiveness (CER) has
been defined as “the voluntary implementation of practices and initiatives aimed at improving environmental
performance” (González-Benito & González-Benito 2006). In the past decades there has been a growing
change within organisational dynamics towards more sustainable and environmentally sound practices as
organisations seek to fulfil legislative requirements, achieve competitive advantage and provide a greater
commitment toward the natural environment and the services it provides.
The push by organisations to achieve a higher standard of environmental performance is driven by a number
of internal and external organisational dynamics which contribute to CER. The purpose of this report is to
present a critical evaluation of the variables influencing the implementation of environmental policies and
programs within organisations and how these influences contribute to the success of environmental policies
and programs within an organisation.
A broad range of literature has been examined, identifying the role of internal and external influences on CER
and drawing on a number of examples to establish the impact each dynamic has on the application of CER
within organisations. As variables which an organisation can control, the internal organisational dynamics are
often regarded as the main driver behind the development and implementation of environmental management
strategies and policy. Outlined by Askew & Lyth (2006), it is suggested four key dynamics form the core driving
forces central to the consideration of the environment within organisations driving CER. These four dynamics
will form the basis of this report with consideration for the influence of external dynamics and the relationship
which exists between both internal and external dynamics.
• Managerial attitude
• Organisational Culture
• Organisational Capabilities and Relationships
• Organisational Structure
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2 Critical Evaluation
2.1 Managerial Attitudes
A number of studies examining the motivations behind the adoption of CER within organisations identify the
role in which the managerial approach, attitudes, ethics and beliefs of management can influence successful
environmental management strategies within organisations (Petts, Herd & O’hEOCHA 1998; Fernandez,
Junquera & Ordiz 2006; Papagiannakis & Spyros 2012). As potential regulators of change and motivational
leaders within organisations, business managers have the discretionary ability to govern the direction and
degree to which an organisation develops greater CER, with the values, perceptions and beliefs of management
influencing the potential for change within an organisation (Papagiannakis & Spyros 2012).
The influence of managerial attitudes towards the development of CER is observed in a study conducted by
Sharma, Pablo and Vrendenburg (1999). The environmental strategies of seven oil & gas companies were
considered over a four stage period between 1985 and 1995. In the initial phase of the study (1980-1985), five
of the seven companies examined, only took the minimum required action in order to meet environmental
regulation, having perceived the inclusiveness of environmental issues as a potential threat/cost. The remaining
two companies, Buffalo and Sioux, were initially more responsive, choosing to institutionalise proactive
leadership stances in regards to environmental management.
The findings indicated a number of key advantages to the proactive implementation of environmental strategies
& the associated benefits of long term understanding of environmental management and successful strategies
by both of these organisations. It was importantly noted by Sharma, Pablo and Vrendenburg (1999) that due to
the unlikeness of environmental considerations affecting the decision by Buffalo and Sioux to adopt proactive
policy during the initial stages of the review, the environmental positions adopted by these companies were
indicative of the values and beliefs of management. While this particular study only examined organisations
within the oil & gas industry, the influence of managerial attitudes towards the development of proactive
environmental strategies is identified in a number of additional studies (Sangle 2010; Buysse & Verbeke 2003).
Yet, although managerial attitudes can contribute to the development of CER, this does not always translate
into effective action. As Fendandez, Junquera and Ordiz (2006) note from a review of relevant literature; the
efficacy, entrepreneurial ability, leadership capability and international awareness of management each impact
managerial capabilities. Furthermore, the ability for managers to successfully develop and adopt greater CER,
is also subject to a number of external and internal dynamics (Fendandez, Junquera & Ordiz 2006; González-
Benito & González-Benito 2006; Rivera-Camino 2012).
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2.2 Organisational Structure
Having examined the role in which management influences environmental strategy, it is important to consider
the role in which organisational structure influences CER within organisations. Robbins & Barnwell (2002)
describe organisational structure as four components; centralisation of decision making, organisational
complexity, organisational coordination and formalization.
It is suggested by Epstein and Roy (2007) that of these four components, the level of centralisation within an
organisation is the most critical organisational structural factor influencing CER, due to the potential
relationships existing between of the complexity of an organisation and the level of centralisation in
environmental decisions. Secondly it is noted that the level of centralisation within an organisation influences
the establishment of coordination and control mechanisms within an organisation (Epstein & Roy 2007). One
line of thought considers that increased decentralisation provides greater flexibility and increased
responsiveness allowing for a more collaborative environment, which in turn can lead to greater innovation and
efficiencies (Goold 1991). This may be particularly prevalent in larger organisations operating in multiple
industries and/or geographic locations which may experience more challenging issues. Proponents for a more
centralised approach have identified that strong leadership based on a centralised model of governance is an
important element of environmental responsiveness (Takahashi & Nakamura 2005), influencing the strategic
nature of decision making and allowing for a more rapid and assertive response to environmental concerns and
issues (Mitroff, 1994).
The ownership structure of an organisation provides an additional structural factor not considered by Robbins
& Barnwell (2002). As stated by RSM International (2011), a 2009 study by McKinsey Quarterly identified
greater integration of environmental factors in decision making processes within publicly owned companies in
comparison to privately owned companies. This indicates greater sensitivity within publicly owned companies
towards the impact of CER on equity values and corporate earnings. RSM International (2011), observed a
strong correlation between the Dow Jones sustainability index ranking of publicly listed organisations and their
financial performance. This correlation suggests that the potential for financial profitability through the adoption
of greater corporate environmental responsiveness is potentially a key motivator for publicly listed companies.
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2.3 Organisational Capabilities
The organisational capabilities of an organisation as considered by González-Benito & González-Benito (2006)
are an organisations size, resource availability, internationalization and position in the value chain. González-
Benito & González-Benito (2006) indicate a strong relationship between organisational size and the ability to
adopt greater CER with emphasis given towards the importance of size and resource availability. It is an
expectation that larger organisations have greater access to financial and human resources in order to
implement environmental management strategies, as well as a greater ability to manage a wider scale of
environmental issues (Darnall, Henriques & Sadorsky 2010). While it is additionally commented that larger
organisations experience greater social and economic pressures in regards to environmental management as
a consequence of having a greater environmental and socio-economic impact than small and medium
enterprises (SME’s). Elements such as stakeholder perceptions and the focus larger organisations receive from
governments and NGO’s provide pressures on larger organisations, as a consequence of greater environmental
exposure, potential environmental impacts, increased consumer demand and the presence of wider
organisational networks providing greater support for proactive environmental responsiveness (Ervin et al.
2013). These pressures are reflected within the internationalisation of organisations and their position on the
value chain (González-Benito & González-Benito, 2006).
The positive influence of multinational ownership on environmental compliance is identified within the literature,
in particular the adoption of the internationally recognised ISO14001 environmental management system
standard (Christmann & Taylor 2001; Epstien & Roy 2007). In regards to an organisations position on the value
chain, the proximity of an organisation to consumers can act an intuitive driver whereby greater consumer
pressure is placed on manufactures and retailers providing an end product due to their inherent
market/consumer exposure. However it is observed that the effects of this pressure on manufacturers and
service providers also has a degree of influence on CER further down supply chains as end-product
organisations seek greater environmental commitment from their suppliers and manufacturers/supplied seek
out competitive advantage (Darnall, Henriques & Sadorsky 2010). For example, the car manufacturer Ford now
requires all of its suppliers to be in, or actively working towards compliance with environmental standards. In
Australia this is also the case for many organisations which are part of multinational companies (Parker, 2010).
In the case of SME’s, access to fewer resources, perceived lesser environmental impacts and the perception
that environmental management is not cost effective potentially act as a barriers towards more proactive CER.
Indeed it has been often noted within literature that in the case of SME’s, the perceived barriers of adopting a
more proactive CER may often outweigh the potential benefits (Lawrence et al. 2006; Simpson Taylor & Barker
2004). However, notwithstanding these barriers, SME’s can benefit from internationalisation, whereby inclusion
within a multinational organisation provides greater access to resources. Additionally, within SME’s, the
entrepreneurial nature of management and the necessity to develop a positive relationship with external
stakeholders present key driving forces towards greater CER (Darnall, Henriques & Sadorsky 2010).
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2.4 Organisational Culture
The understanding, values and beliefs shared within an organisation act to provide a broad basis for support
and learning towards environmental issues, while also fostering cultural change within organisations. Systems
thinking, considered essential to CER, facilitates a shared responsibility for problems, fosters equality between
management and employees and encourages a corporate structure which facilitates learning (Petts, Herd &
O’hEOCHA 1998). Such learning, may occur over time through the testing and implementation of environmental
policies and projects providing stimulation for greater innovation towards future actions and a fundamental shift
in personal behaviors and actions that can result in a more environmentally responsive organisation.
A 2010 review by the Network for Business Sustainability (Bertels et al. 2010), a Canadian non for profit
organisation comprising of a network of international academic experts and business leaders, examined these
principles and the way in which sustainability can be embedded in organisational culture, providing several
examples of organisations which have successfully developed greater CER through the adoption of several key
practices. It is identified that the practices employed to create a more sustainably focused culture can be
categorised into four groups;
Fostering commitment towards sustainability through support, leverage, recognition, commitment and
education;
Clarifying expectations through the development of policy and the setting of achievable goals;
Building momentum for change though the recognition of individual ‘champions’ within an organisation,
increased awareness, collaboration and engagement;
Instilling the capacity to achieve this change through systems learning, seeking out opportunities and
threats and setting appropriate benchmarks.
Through the application of a combination of these four practices and the presence within an organisation of a
systems thinking environment, organisations are able to develop an increased familiarity and understanding of
environmental concerns, shaping environmental responsiveness within an organisation (Bertels et al. 2010).
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2.5 External influences
While internal variables such as organisational structure, capabilities and culture may also influence strategy
outcomes, organisations are also subject to a number of external variables Of particular interest, it was
observed in the study conducted by Sharma, Pablo and Vrendenburg (1999) that environmental legislation and
external pressure from stakeholders are particularly essential in driving environmental strategies within
organisations that were not proactive and resistant to change. The importance of external pressures is also
examined by González-Benito & González-Benito (2006) with specific emphasis placed on stakeholder
pressure as the central driving force for environmental proactivity, while also considering a number of internal
and external variables as influencing managerial decisions (Fig. 2.5).
Figure 2.5: Stakeholder Pressure as a central driver for environmental proactivity (Benito & Benito (2006)
The level of stakeholder pressure on the environmental proactivity of organisations is itself influenced by the
industry in which an organisation resides, the organisation location and the proactiveness of companies in
response to market changes. Organisations within manufacturing and those which present a greater
environmental risk and/or greater volumes of waste output as well as those in close proximity to ecologically
important regions and settlements are identified as having greater stakeholder pressures (González-Benito &
González-Benito 2006).
A 2011 study by the MIT Sloan Management review supports this case, identifying from a broad range review
of organisations the highest commitment to sustainability was evident in highly regulated industries and
resource intensive manufacturing organisations as well as organisations within brand sensitive industries (RSM
International, 2011). Furthermore to these findings, Rivera-Camino (2012) examines psychological and
organisational drivers, identifying managerial behavior as being largely determined by social judgments and
perceptions. As Rivera-Camino (2012) observes, this appears to support the principle of institutional theory
whereby “organisations tend to conform to the social influences that exist in their environment”.
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3 Conclusion
It is evident from the findings that a wide range of views and opinions exist on the dynamics which can
successfully influence CER, with some authors suggesting external variables form the key drivers for CER
(González-Benito & González-Benito 2006), while others suggest a more intrinsic role for internal organisational
dynamics (Petts, Herd & O’hEOCHA 1998). It is evident that irrespective of these opinions, it is not just one
factor alone which governs the development and success of CER within an organisation.
Within an organisation, managerial attitudes and the structure, capabilities and culture of an organisation each
exert influence over the development of CER, with varying degrees of success based on the ability of an
organisation to effectively utilise these components towards achieving greater CER. Furthermore, these
dynamics are also influenced by external dynamics with organisations responding to environmental legislation
as well as stakeholder and socioeconomic pressures. The literature reviewed identified the positive role of
managerial attitudes on CER (Papagiannakis & Spyros 2012), considering the need for appropriate skills and
qualities such as efficacy and leadership capabilities in order to translate these attitudes into positive action
(Fendandez, Junquera and Ordiz 2006). It was identified that the effectiveness of a decentralised management
approach over a more centralised approach varies within organisations, with findings indicating a greater
effectiveness for decentralisation in multi-national companies and those operating over industries and/or
geographic locations. Capabilities of an organisation such as size and resource availability were shown to have
a positive relationship with larger organisations benefitting from greater access to both human and financial
resources. And the culture of an organisation was found to influence understanding and learning within an
organisation, providing opportunities to enhance the ability for organisations to respond to environmental
challenges.
In summary, this review has identified the potential benefits of organisations in adopting a more proactive
approach towards CER in order to enhance leadership capabilities and develop a suitable structure and culture
to successfully manage to environmental challenges. Each of the influences considered provide unique
opportunities to develop CER by providing means for organisations to respond to economic, legislative,
stakeholder and social pressures. Yet, there is no one-fit model, given the diverse nature of the environmental
challenges organisations face in a constantly evolving corporate environment. Perhaps then it is necessary to
consider that the greatest influence leading to success in the development of CER is an understanding of these
dynamics and a willingness to change.
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