Documente Academic
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Keywords:
business strategy
eco-cognition
environmental strategy
industrial ecology
organizational theory
strategic management
Summary
Organizations cognitive of the strategic risk and opportunities associated with environmental challenges may employ industrial ecology (IE) concepts, methods, and tools to develop
capabilities that both enhance environmental performance and provide competitive benefits. We introduce a typology of strategic benefits related to competitive advantage that are
enabled by improved environmental performance. Industry examples illustrate how organizations embed IE concepts and methods into systems to generate capabilities that deliver
these benefits and configure them for competitive advantage. The examples demonstrate
the idiosyncratic, path-dependent nature of capability development that helps sustain advantage, especially when competitors lack cognition of the global scope of the challenge,
and the risks and benefits involved.
Introduction
When planning for environmental improvement, decision
makers aspire to recognize and generate mission-central benefits. This article illustrates a typology of benefits leading organizations pursue when employing industrial ecology (IE) concepts and techniques to seek competitive advantage. Decision
makers, and those who influence them, become more effective
at mustering resources to improve environmental performance
when they recognize the full spectrum of potential benefits
(Eggers and Kaplan 2013; Hart and Dowell 2011). Conversely,
insufficient cognition of potential benefits may lead to failure
in both environmental improvement and competitive position.
We use eco-cognition to refer to the capabilities by which organizations recognize benefits that source from improvement of environmental performance. For example, Toyota initially priced
its Prius at a premium so much higher than equivalent products from competitors, that purchasers could not capture net
economic gains from fuel savings. However, sales exceeded expectations because early purchasers bought the hybrid to make a
lifestyle statement that they cared deeply about people and their
Benefit Typology
To effectively seek competitive advantage, decision makers,
and those who influence them, must consider a broad array
of potential organizational benefits when planning environmental improvement activities. The benefit typology presented
in figure 1 includes seven traditional domains where IE improves competitive delivery of benefits: markets and products;
Address correspondence to: Mark P. Finster, Wisconsin School of Business, 975 University Avenue, Madison, WI 53706, USA. Email: mfinster@wisc.edu
2014 by Yale University
DOI: 10.1111/jiec.12106
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www.wileyonlinelibrary.com/journal/jie
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Stra
Strategic
Opportuniess Competencies
Miss
Mission
Domains
Vision
Strategic
Direcon
Markets &
Sourcing
Products
Opportunies
Innovaon
Learning
Cost/Supply Volality
Vercal Integraon
Availabilityy
Security
Cost Reducon
Risk Reducon
Quality of Work Life
Health & Safety
Producvity
Movaon
Costs to Aract
& Retain Talent
Collaboraon
Hu
Human
Res
Resources
Risk
Migaon
Reputaon
Sourcing Risk
Market Risk
Investor Risk
Regulatory Risk
Compeve Risk
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responses of companies, regions, and nations, including company publication of carbon performance and targets for reduction, leadership responsibility, and assessment of their financial
impacts. Their data analysis demonstrates the meaningful relationships carbon efficiency has to company valuation in carbonintensive industries by calculating the explanatory power of
carbon efficiency (carbon dioxide [CO2 ]-equivalents/assets in
U.S. dollars [US$]) as a determinant of valuation multiples
(EV/EBITDA).1
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each stage of the life cycle. They measure LCA resource use
through a footprint assessment, square meters of land required
to produce resources employed. For example, in wood cabinet
making, they assess the resource impact of electronics in the
equipment used to process wood as well as the years subtracted
from human life resulting from employment of that technology
(TSC 2013). Walmarts vision is to acquire this information for
all products it sells and display it prominently for consumers to
help them make better choices. They seek differentiation from
competitors through supply-chain information.
Benefits to Reputation
Reputation gains with stakeholders, such as customers, investors, employees, and communities, can contribute to competitive advantage through improved sales, market share,
customer retention, and loyalty, lower cost of capital, better
employee retention and lowered costs for human resource management activities, such as recruitment and promotion, and
increased legitimacy (Chiu and Sharfman 2011; Delmas and
Montiel 2009). Organizations seek reputation gains through
venues such as Web communication, participation in industry
alliances, adoption of environmental principles and measurement systems, development of charters, and promotion through
carbon and sustainability/responsibility reports (Haanes et al.
2011). For example, the portion of the largest 250 global corporations that deliver corporate responsibility reports increased
from 35% in 1999 to more than 95% in 2011 (KPMG 2011).
Similarly, CDP (2012) reports that more than 75% of the G500
now disclose their GHG emissions.
The meta-analysis of Orlitzky and colleagues (2003) concluded that organizations undertake environmental management, in part, to improve their reputation with stakeholders,
such as retailers, consumers, employees, investors, communities,
governments, regulators, suppliers, and partners. Godfrey and
colleagues (2009) reasoned that environmental improvement
activities afford the organization a positive moral capital with
stakeholders that can act as insurance against negative environmental acts. BCGs 2011 survey lists reputation gains as the
most reported benefit (Haanes et al. 2011). The Grohe example
cited above also illustrates how reputation gains support acquisition of benefits in other domains, such as access to strategic
partnerships, legitimacy, and access to markets.
658
Benefits to Collaboration
During major paradigm shifts, organizations lack the knowledge and technologies necessary to innovate by themselves. For
example, Johnson and Johnson (J&J) has a strategic objective to
strengthen collaboration around environmental improvement.
Walmart built their Sustainable Value Networks (Lubin and
Esty 2010; Walmart 2012) to collaborate with external stakeholders, such as academics, NGOs, and government agencies,
who spawn innovations related to environmental performance.
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Walmart then crafts strategies that reduce material and energy flows and cost to improve their low-cost competitive position. Illustrations above of competitive gains from collaboration include Grohe, Unilever, P&G, GE, Nestle, Interface, and
IBM.
A variety of partnerships, such as company/NGO, company/company, single industry, and multiindustry coalitions,
provide valuable, cost-effective knowledge and skills for both
improving environmental performance and creating economic
value by strengthening corporate credibility and reputation,
providing independent validation, and helping achieve a longterm vision (GEMI and EDF 2008; Globescan 2012). When
collaborating to improve the environment, businesses report
benefits through access to expertise and competencies, reduced
risk, strengthened reputation and leadership credentials, firstmover advantages, reduced costs, employee engagement, new
products and services, innovative business models, value-chain
practices, establishing and maintaining standards, engaging citizens and consumers, and advocating public policy (Globescan
2012).
For example, biodiversity serves as a key indicator for the
health of natural capital (UNEP 2012). As organizations recognize the importance of biodiversity, some, such as J&J (2006,
2010, 2011) collaborate with outsiders to develop training and
plans that address biodiversity. Others participate in collaborations, such as the Rio+20 (UN 2012), the Gaborone Declaration (Conservation International 2012), and the World
Business Council for Sustainable Development (WBCSD 2011,
2012, 2013) that seek the creation of accounting systems capable of considering biodiversity in organizational decision
making.
Conclusion
This article illustrates the importance of recognizing and pursuing mission-central benefits when improving environmental
performance. Pursuit of those benefits allows environmental
improvement to drive competitive advantage. The typology of
benefits informs managers of potential mission-central benefits
that leading organizations engage. Organizations may gain competitive advantage by developing capabilities to address environmental challenges because those challenges touch everyone
and because the level of innovation needed far surpasses current
capabilities of competitors. Eco-cognition delivers insights that
competitors often lack, leading to blue-ocean strategies (Kim
and Mauborgne 2005). The capabilities are usually idiosyncratic
and path dependent and thus are difficult to copy, leading to
sustained advantage, especially when competitors lack the ecocognition to understand the global scope of the challenge and
the benefits available.
Note
1. EV = enterprise value; EBITDA = earnings before interest, taxes,
depreciation, and amortization, an often-used measure of the value
of a business.
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