PROACTIVE STRATEGIC RESPONSES TO CORPORATE SUSTAINABILITY PRESSURES: A SUSTAINABILITY CONTROL SYSTEM FRAMEWORK
Chaminda Wijethilake and Athula Ekanayake
ABSTRACT
Purpose â The purpose of this paper is to develop a framework which sheds new light on how sustainability control systems (SCS) can be used in proactive strategic responses to corporate sustainability pressures.
Design/Methodology/Approach â Corporate sustainability pressures are identified using insights from institutional theory and the resource-based view of the firm.
Findings â The paper presents an integrated framework showing the corporate sustainability pressures, proactive strategic responses to these pressures, and how organizations might use SCS in their responses to the corporate sustainability pressures they face.
Practical Implications â The proposed framework shows how organizations can use SCS in proactive strategic responses to corporate sustainability pressures.
Originality/Value â The paper suggests that instead of using traditional financial-oriented management control systems, organizations need more focus on emerging SCS as a means of achieving sustainability objectives. In particular, the paper proposes different SCS tools that can be used in proactive strategic responses to sustainability pressures in terms of (i) specifying and communicating sustainability objectives, (ii) monitoring sustainability performance, and (iii) providing motivation by linking sustainability rewards to performance.
Keywords: Corporate sustainability pressures; proactive strategic responses; sustainability control systems, management control systems, institutional theory, resource-based view
The magnitude of unsustainable growth of economies and organizations has increased environmental, social, and economic challenges, such as increasing greenhouse gas emissions, social inequality, the depletion of the ecology, declining natural resources, and increasing demand for transparent business practices. As a result, organizations need to reassess their sustainability strategies as a way of responding to these sustainability pressures1 (AragĂłn-Correa & Rubio-Lopez, 2007; Epstein & Buhovac, 2014; Porter & Kramer, 2006; Sharma & Vredenburg, 1998; Wijethilake, Munir, & Appuhamy, 2017a, 2017b). Empirical evidence shows âhowâ organizations respond to corporate sustainability pressures influences their sustainability performance (e.g., Klassen & Whybark, 1999; Sharma & Vredenburg, 1998; Torugsa, OâDonohue, & Hecker, 2013; Wijethilake et al., 2017a, 2017b). However, despite the significance of âhowâ organizations should respond to sustainability pressures, many prior studies examining sustainability management have focused on questions of âwhyâ or âwhatâ motivates organizations to become involved in sustainability practices (e.g., Bansal, 2005; Bansal & Roth, 2000; GonzĂĄlez-Benito & GonzĂĄlez-Benito, 2006). This may be partly due to the dominant focus on sustainability reporting practices instead of organizational practices in the literature (see Jollands, Akroyd, & Sawabe, 2018; Neumann, Cauvin, & Roberts, 2012).
Organizations may become involved in sustainability practices for different reasons due to internal or external factors, such as reconstructing eroded legitimacy and gaining a sustained competitive advantage (Bansal, 2005; Gond, Grubnic, Herzig, & Moon, 2012; Lueg & Radlach, 2015). Appropriately recognizing different sustainability pressures, whether they are related to social legitimacy or operational efficiency, and whether they are internal to the organization or external, may help organizations to choose a response. Failure to do so has the potential to result in negative consequences, such as wasting valuable resources, increasing rather than solving sustainability issues, loss of competitive position, and damage an organizations reputation.
Organizational responses to sustainability pressures can be classified on a continuum ranging from reactive to proactive strategic responses (AragĂłn-Correa & Sharma, 2003; GonzĂĄlez-Benito & GonzĂĄlez-Benito, 2006; Perego & Hartmann, 2009). Reactive organizations merely comply with compulsory and minimum requirements of sustainability regulations and stakeholder demands through defensive lobbying and by taking action at the end of the process (e.g., AragĂłn-Correa & Sharma, 2003; Haque, Deegan, & Inglis, 2016). Perego and Hartmann (2009, p. 400) argue that âin reactive organizations, environmental objectives have not (yet) been developed explicitly, or have not been integrated in the overall business strategy.â Organizations following reactive responses to sustainability pressures would expect to meet the minimum requirements to operate a business, but are less likely to gain improved performance (e.g., AragĂłn-Correa & Sharma, 2003; Haque et al., 2016; Hunt & Auster, 1990; Winsemius & Guntram, 1992).
By contrast, organizations that follow proactive strategic responses to sustainability pressures engage in voluntary activities that exceed minimum regulatory compliances so as to support the sustainable economic growth, and social and environmental development in a positive manner (AragĂłn-Correa & Rubio-Lopez, 2007; Torugsa et al., 2013). Examples of proactive strategic responses to sustainability pressures include reduction of waste and prevention of pollution. Lueg and Radlach (2015, p. 1), stress that âSD [sustainable development] remains only a good intention, unless organizations make serious efforts to enforce it.â A review of the literature suggests that organizations following proactive strategic responses are more likely to gain improved sustainability performance in terms of enhancing social reputation, fulfilling customer preferences, and generating unique organizational capabilities (AragĂłn-Correa & Rubio-Lopez, 2007; AragĂłn-Correa & Sharma, 2003; Fowler & Hope, 2007; Hart, 1995; Klassen & Whybark, 1999; Russo & Fouts, 1997; Sharma & Vredenburg, 1998; Torugsa et al., 2013).
This paper examines two different rationales that have been used to explain the factors that determine corporate sustainability responses: (1) institutional pressures; and (2) resource-based view pressures. Lueg and Radlach (2015, p. 2) indicate that âorganizations often engage in SD [sustainable development] to pursue a resource-based strategy and to respond to institutional demands.â Institutional theory suggests that organizations operate in a social context and are subject to institutional pressures from a wide range of stakeholders (DiMaggio & Powell, 1983). According to Lueg and Radlach (2015, p. 2):
organizations act in a social context and experience pressure from stakeholders. In order to keep access to resources and to uphold legitimacy, organizations attempt to comply with stakeholdersâ norms and beliefs. For this, organizations adopt SD [sustainable development] that becomes institutionalized through regulations and agreements.
Conceptually, institutional theory proposes three isomorphic pressures, namely coercive, mimetic, and normative pressures that influence organizations when operating in a particular social context (DiMaggio & Powell, 1983). Institutional pressures for sustainability include, for instance, government and regulatory bodies (coercive pressure), competitors (mimetic pressure), and professional bodies (normative pressures) (Bansal, 2005; Wijethilake et al., 2017a).
On the other hand, the resource-based view of the firm considers sustainability as a strategic intangible asset that helps to generate unique capabilities and competencies that could eventually lead to sustainable competitive advantage (Bansal, 2005). Lueg and Radlach (2015, p. 2) note that under the resource-based view, sustainability âis considered as a strategic intangible asset which is adopted to improve performance and to create opportunities from innovations and internal changes.â Resource-based sustainability pressures come from organizational slack, internationalization, position in the value chain, managerial attitude and motivations, and strategic priorities (Bansal, 2005). How an organization should respond to both institutional and resource-based sustainability pressures has become an important issue among various internal and external stakeholders.
The notions of the two theories discussed above can be used in examining the possible proactive strategic responses to sustainability pressures. Following institutional theory, Oliver (1991) argues that organizations do not always blindly comply with institutional pressures; however, their active organizational resistance varies from passive conformity to proactive manipulation. According to Oliver (1991), organizations may use five strategic responses to institutional pressures: (i) acquiescence, (ii) compromise, (iii) avoidance, (iv) defiance, and (v) manipulation. Perego and Hartmann (2009, p. 399), in this context, highlight that âin response to such [environmental] institutional pressures, companies are increasingly adopting voluntary environmental strategy in order to effectively manage the environmental impacts of their processes, products and services.â
Further, following the resource-based view of the firm Hart (1995) argues that organizations may implement proactive sustainability strategies2 and sustainability dynamic capabilities (e.g., sustainability innovation capabilities) in response to resource-based sustainability pressures. More specifically, Hart (1995) proposes three proactive sustainability strategies, namely, pollution prevention, product stewardship, and a sustainable development strategy, that organizations may use in proactive strategic responses to resource-based sustainability pressures. Hart (1995) also develops a sustainability embedded resource-based view of the firm as the resource-based view of the firm alone has limited capacity to explain how organizations achieve competitive advantage when they interact with the natural environment.
Despite the significance of proactive strategic responses to institutional- and resource-based sustainability pressures, the extant literature is relatively silent as to the internal managerial processes that support an organizationâs response (Arjaliès & Mundy, 2013; Ditillo &a...