Implementation of sustainability in
SMEs in the Netherlands
Master thesis by
Sonja Klemps
August, 2011
Supervisor
Dr. Rene van der Eijk
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ndsupervisor
Dr. Hendrik Snijders
University of Groningen
MSc Business Administration,
Strategy and Innovation
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Abstract
This thesis explores how SMEs in the Netherlands can implement sustainability through informal and formal application of instruments and aims to create tool box that SMEs can apply. The research is bounded to the tourism and the graphic industry which are represented by camping sites and printing companies.
The undertaken research approach is qualitative because of the complexity and vagueness of sustainability as a term and due to the intention to build theory and to refine an overview based on literature research.
A multiple case analysis is chosen to find out which instruments are used by SMEs to implement sustainability and subsequently in what ways the instruments can be implemented. Therefore, six companies, three from each industry, have been researched. Complementarily, an expert interview is executed to give his opinion on the application of chosen instruments and to verify the results of the cases. Additionally, web presentations of the researched companies are considered to challenge the outcomes.
It turns out that despite the vagueness of sustainability as a concept, both industries have an overlapping understanding of what sustainability contains and base their conception on the triple bottom line (people, planet profit).
However, the instruments proposed by academic researchers do not necessarily correspond with the instruments which SMEs apply. Primary research has refined the established overview based on literature and rejects code of conducts, provision of honest information and confidential persons as tools for implementing sustainability. Additionally, ways of implementation are researched, rejected or added to the overview.
Further research could be addressed on examining quantitatively the usage on a larger sample. Moreover, the effectiveness of the instruments and the interrelatedness of the instrument could be additionally examined.
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Executive summary
The Boston Consultancy Group, as being the self-appointed “World leading advisor on business strategy” urgently calls for more initiatives to progress sustainability and claims that concerning sustainability there is an extensive gap between intention and action. In particular, the situation of the implementation of sustainability at SMEs is severe. More than half of all SMEs in the Netherlands have realized that clients have developed higher demands regarding sustainability. To engage in sustainable behavior is indispensable because now more than ever SMEs need to meet the expectations of stakeholders to integrate sustainability in their business activities with the aim to receive the “license to operate”.
Therefore, this paper looks at how SMEs can implement sustainability through informal and formal application of instruments and aims to create tool box that SMEs can apply.
The term “sustainability” is based on the triple bottom line idea and includes the balance of economic, social and environmental objectives while offering lucrative opportunities for win-win solutions. Formal application means that something is carried out officially which is based on certain prescribed rules or procedures whereas informal is something that is not officially arranged and appears rather spontaneously and unintentionally.
To provide a comprehensive tool box, one service, the tourism industry, and one manufacturing industry, the graphic industry, are studied. It turns out that SMEs apply a variety of instruments in different ways. However, in contrast to large companies, they do not make use of a confidential person, a code of conduct is solely attributed to larger companies and the provision of honest information is perceived as self-evident.
Nevertheless, a lot of instruments can help SME managers to stimulate sustainability in their own company. Instruments that address the employees and the company itself are the empowerment of employees, the gratification of employees, the balanced work-private life, a social handbook, ethical trainings, health & safety measures and strategic management tools.
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Addressing the suppliers can be done by incorporating social and environmental values into purchasing decisions while negotiating with suppliers, developing new products together with the suppliers and choosing long-term partnerships to increase the negotiation power.
Concerning the customers, prompt complaint handling is essential which can be mediated by either creating a customer-oriented mindset of the employees informally or creating official standard operating procedures.
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Preface
The idea to write a research project on sustainability is not new to me. During my first study “Tourism Management”, during an Eramus Exchange in Budapest and also during my Pre-Master at the Rijksuniversiteit Groningen – I always wanted to research this interesting and controversial topic. Up to this point, I never had the “guts” to completely base my research around sustainability, probably due to the vagueness and the corresponding complexity of this term.
Now, finally for my Master thesis, I decided that I eventually stick with this wonderfully challenging subject and despite the struggle that every academic adventurer has to fight with, I am very satisfied that I could come with up with a practical toolbox SMEs can consider.
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Table of Content
Abstract 1 Executive summary 2 Preface 4 1. Introduction 71.1 Relevance and motive 7
1.2 Problem definition 9
1.3 Boundaries of the study 10
1.4 Structure of the thesis 10
2. Relational context 11
2.1 Industry& strategic group 11
2.1.1 Dutch graphic industry & printing companies 11
2.1.2 Dutch tourism industry & camping sites 12
3. Research framework 14
3.1 Defining SMEs 14
3.2 Defining sustainability 15
3.2.1 The triple bottom line vs. other approaches 16
3.2.2 Global sustainability vs. organizational sustainability 17 3.2.3 Sustainability vs. corporate social sustainability 17 3.2.4 Practical benefits & handicaps of sustainability 18
3.3 The instruments 19
3.3.1 Instruments addressed to employees/company 19
3.3.2 Instruments mainly addressed to suppliers and customers 23
3.3.3 Instruments mainly related to the society 25
3.4 The overview of sustainability instruments 28
3.4.1 What is an instrument - A definition 28
3.4.2 Selection of instruments 29
3.4.3 Informal vs. formal application of instruments 29
3.4.4 Addressing the stakeholders 30
3.4.5 Short explanation of overview 32
3.4.6 Overview of instruments SMEs can use to implement sustainability 33
3.5 Summary 34
4. Research methodology 35
4.1 Research design 35
4.1.1 Cases 35
4.1.2 Data collection 37
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4.1.4 Web presentations 39
4.1.5 Data limitations 39
4.2 Summary 40
5. Results & analysis 41
5.1 Printing companies 41
5.1.1 Defining sustainability 41
5.1.2 The instruments 43
5.1.3 Adaptations towards the refined overview 49
5.1.4 Summary of applied tools at printing companies 50
5.2 Camping sites 50
5.2.1 Defining sustainability 50
5.2.2 The instruments 52
5.2.3 Adaptations towards the refined overview 58
5.2.4 Summary of applied tools at camping sites 59
5.3 Cross-Industry analysis & refined overview 60
5.3.1 Defining sustainability 60
5.3.2 The instruments 61
5.3.3 Differences between the industries 65
5.3.4 Refined overview SMEs can use to implement sustainability 66
5.3.5 Limitations of the refined overview 67
5.4 Summary 67
6. Conclusion 71
7. Recommendations 75
7.1 Recommendations for further research 75
References 76
Appendix 87
1. Interview sketch for SMEs 87
2. Interview sketch for expert 90
3. Overview for SMEs based on literature review and primary research 92
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1. Introduction
„I think that the world has reached a tipping point now. We’re beyond the debates over whether (addressing sustainability) is something that needs to be done or not—it’s now mostly about how do we do it.”
Steve Fludder
Ecomagination (General Electric)
With his statement, Steve Fludder declares that even though sustainability has generally received high legitimization, it still remains unclear how to actually implement sustainability. Furthermore, several academics and business professionals (e.g. Hofstra, 2007; Lawrence, 1997; Elkington, 1998; Dyllick & Hockerts, 2002) doubt the uniform understanding of this term; thus more attention towards sustainability is needed. In the following, the relevance and motive of this prevailing topic are further highlighted.
1.1 Relevance and motive
As it is commonly acknowledged that natural resources are scarce and that the human welfare is dependent on those resources (Hall et al., 2010) the term “sustainable development” established which can be referred to as the “development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs” (WCED, 1987, p. 43).
Hansen et al. (2009) add from that time onwards, discussions have emerged how this concept could be implemented from an economic perspective. Various researchers (for instance Hall et al., 2010; Gibbs, 2007; Elktington, 1998) have identified this as “triple bottom line” encapsulating a range of values and criteria in order to determine the success of organizations in the long-run while incorporating not only economic aspects but also ecological and social ones.
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that, in 2002 the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (hereinafter referred to as Schaltegger et al., (2002)) wrote a report named “Sustainability management in business enterprises” underscoring that the status of sustainability has “evolved from a theoretical abstract project to an increasingly tangible and concrete task.”
Nonetheless, in the official report “business of sustainability” of the Boston Consultancy Group as being the self-appointed “World leading advisor on business strategy” (BCG, 2009) finds that concerning sustainability there is an extensive gap between intent and action. Many companies seem not to act determinedly when dealing with opportunities and threats related to sustainability. Therefore, the BCG (2009) calls for more meaningful initiatives to progress sustainability.
Graafland et al. (2003) draw attention to the fact that small and large businesses follow diverse ways and make use of different instruments in order to implement CSR and therefore also sustainable behavior. In addition to that, Jenkins (2004) indicates that the conventional theory of responsible and sustainable behavior related to the myth that large companies are the norm and that current initiatives and instruments have been primarily developed in and for large enterprises.
That is why especially for SMEs it makes sense to stimulate familiarity with instruments for organizing CSR among entrepreneurs and managers as the previously mentioned study of Graafland et al. (2003) demonstrates that many SMEs are not yet very familiar with such instruments or incorporate sustainability elements informally without adopting a formal approach (Fisher et al., 2009). Therefore, an overview of instruments and the possibilities how to apply those instruments to further sustainability is indispensable.
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Generally spoken, sustainability is developing on a global scale and takes its toll in many different industries (BCG, 2009). For the purpose of this research, two different industries are chosen which claim to actively engage in sustainability: the tourism industry and the graphic industry. Both industries though very difficult as one is service oriented, one product oriented, are known for their strong impact on the environment and their efforts to reduce their impact to a minimum (Febelgra, 2010; UNWTO, n.d.).
Recapitulating, I would like to refer to Jenkins (2006) once again who states that an integrated approach is needed to assist SMEs clarifying CSR and therefore also the concept of sustainability and above that, to provide insight how to integrate sustainability into their core business practices by means of a theoretical framework. With Jenkins’s (2006) advice as a backbone, the research of this Master thesis focused on the graphic and tourism industry is justified. In the following paragraph, the above elucidated problem will be specified.
1.2 Problem definition
This research tries to synthesize existing theories about current practices regarding the implementation of sustainability of SMEs into one consistent theoretical framework.
The framework depicts tools SMEs can apply to implement sustainability. More concretely, it shows in what way SMEs can make use of these tools and distinguishes between informal and formal instruments. In addition that, in order to consider the stakeholders of SMEs, the instruments are categorized according to different stakeholders.
Research question
Based on the mentioned explanation and objective above, the following research question arises: How can SMEs implement sustainability in the Dutch market through formal and informal applications of instruments?
Related questions
1. What does the concept of sustainability entail?
2. Which instruments can SMEs use to implement sustainability?
3. In what ways can these instruments applied to implement sustainability?
In the chapter of the research framework, preliminary answers to the questions are given. In the result section, those answers are enriched by means of the results of the primary research activities.
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1.3 Boundaries of the study
The research is based on the Netherlands because first, due to its size, the Netherlands are relatively easy to overlook. Additionally, there are a variety of enterprises (for examples, see appendix) of that claim to be sustainable, either because they really are or because of image benefits. Moreover, external bodies such as governmental institutions and associations in the Netherlands increasingly value a responsible attitude towards more sustainability.
The research is bounded to small and medium sized companies. As mentioned above, the amount of empirical research about sustainable entrepreneurship related to SMEs is limited (see e.g. Fuller & Tian, 2006; Perrini, 2006; Spence & Schmidpeter, 2003). Second, referring to Schaper (2002), it reveals that even if the individual SME can certainly only create a minor impact, their collective power is considerable as SMEs normally represent ca. 95% of all private sector firms in most modern nations and therefore make up an essential percentage of the overall economic activity. And third, a rather practical reason, it seems easier as a Master student to get access to interviews with SMEs than with e.g. large MNEs.
As mentioned previously, the research is focused on sustainable entrepreneurship encompassing the triple bottom line. This means that focus lies on enterprises that want to combine their financial success with reducing negative environmental impacts and stimulating positive social impacts. Again, this means that ecopreneurship or social entrepreneurship is not part of this study since they only represent one fact of sustainable entrepreneurship.
Another boundary is set by focusing on two industries and subsequent strategic groups. The graphic industry, represented by the printing companies, and the tourism industry, represented by camping sites, is chosen as frame for the research as they represent rather contrasting industries which both have shown that they are actively engaging in sustainable activities.
1.4 Structure of the thesis
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2. Relational context
“In the perfect world, the word sustainability would be redundant.” Wouter Kersten
(During an interview for the Master Thesis; Project Manager at Enviu)
This paragraphs aims at a short presentation of the both industries which are chosen as exemplary industries for this research. Therefore, some industry characteristics are depicted and the features of the strategic groups are elaborated.
2.1 Industry& strategic group
When a group of companies offers products with the same characteristics while being in competition for the same buyer, the group can be identified as an industry (European Legislation, n.d).Completive to this, the definition of an industry is classically based on two different markets: the product and the geographic market. Following the definition of the EU (European Legislation, n.d.), a relevant product market entails all those products and services which are recognized as identical by the consumer referring to the characteristics such as product, price and intended use. The geographic market comprises the fields companies are “involved in the supply of products or services and in which the conditions of competition are sufficiently homogenous” (European Legislation, n.d.).
On the contrary, a strategic group can be defined as a group of companies which follow the same strategy based on the same strategic dimensions (Porter, 1980).
2.1.1 Dutch graphic industry & printing companies
Based on the Rabobank branch information (n.d.), the key players of the graphic industry are printing companies and thus also companies which are capable of producing parts of the products printing companies can create. Consequently, these are pre-press companies, finishing companies, companies that offer IT solutions and thus formulating the product market.
Concerning the geographical market, one can say that the raw materials are acquired on a global scale. However as mentioned previously this research is bounded to the Dutch market. The reasons for that can be found in 1.3. “Boundaries of the research”. Following the branch information of the Rabobank (n.d.), the Dutch graphic industry perceives a growing importance of sustainable prints. Environment and security, particularly of the employees, play an increasingly significant role. This pressure is assumed to derive from the stakeholders who demand stricter guidelines which in turn demands high investments in sustainability.
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sensitive. It is further stated that the number of printing companies is currently decreasing (Mercken, n.d.). Furthermore, this industry seems fitting the research objective as the graphic industry mainly consists of small and medium-sized companies. According to the Ministerie van Volkshuisvestiging, Ruimtelijke Ordening en Milieubeheer (2010), 2/3 of all companies in the graphic sector employ 10 persons or less and only 55 companies employ more than 100 people. In total, around 44.000 people are employed in this branch. What is further interesting is the fact that the Dutch government forms one of the biggest clients as it contributes to 10% of the total turnover within this industry.
Following Febelgra (2010) the graphic industry is not only perceived as innovative in terms of technological developments but also the industry is striving for continuous development in terms of environment and sustainable enterprising.
As mentioned above, the research is concentrated on a strategic group. Based on Porter’s (1980) definition, the chosen strategic group is micro, small and medium-sized printing companies in the Netherlands. Despite the change in the supply chain, the printing companies in total still make up 6.9 Billion Euro, which is 92% of the turnover of the whole industry. This makes the strategic group very appealing for the research.
2.1.2 Dutch tourism industry & camping sites
According to the UNWTO (n.d.) tourism includes the activities of persons travelling and staying to places which are not within their useful environment and which can be either for leisure, business or other purposes. This research concentrates on the leisure part of the industry. The industry definition in this case specially comprises the different types of accommodations. Consequently, hotels, B&Bs, farm stays and camping sites belong to this industry representing the product market.
The geographic market is also bounded to the Netherlands. In 2009, only the Dutch habitants alone spent 2.8 billion Euros on Dutch holidays and spent 1.5 billion Euro of domestic tourism was spent on accommodation (CBS, 2011). Even if domestic tourism contributes the major part to the total amount of guests (19.1 million), in total the Netherlands have ca. 30 Million guests every year.
Due to the size of the industry and its strong dependence on nature on culture, it is necessary to reduce the negative impacts on its environment as much as possible by living in harmony with the environment. Additionally, many industries are dependent on the tourism industry reinforcing the need of sustainability (MVO Nederland, 2011).
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3. Research framework
“Sustainability is not a problem to be solved. It is a future to be created.”
Peter Senge
(Scientist and director at the MIT Sloan School of Management)
In the following, the relevant literature related to SMEs, sustainability and stakeholder management and the relation between these subjects is elucidated. Therefore, the literature review is divided in the subsequent paragraphs. As a first step, SMEs are defined with particular focus on what SMEs distinguishes from large corporations. Afterwards, the concept of sustainability is introduced and the different views on sustainability are furthered by a proposed definition. Consequently, the theory of corporate social responsibility (CSR) is delineated taking stakeholder management into account. Moreover, the current instruments of how SMEs implement sustainability are challenged resulting in a theoretical framework for this research.
3.1 Defining SMEs
In general, the Oxford English Dictionary‘s definition of a corporation “a number of persons united in one body, a body of persons’ and a body corporate legally authorized to act as a single individual as artificial person crated by royal charter, prescription, or act of the legislature and having authority to preserve certain rights in perpetual succession” also applies to SMEs. However, amongst others Jenkins (2004) and Hamann (2009) argue that the differences between large corporations and SMEs are that significant that those have to be separated.
At first sight, compared to large corporations, the power of SMEs seems considerably low. Conversely, according to different sources (e.g. European Comission, 2002; Rabbe et al. 2006; Morsing & Perrini, 2009; Fisher et al., 2009) their collective power and “the grand scale of small business” is surprisingly high. As mentioned in the introduction, this research will be bounded to SMEs. According to Morsing and Perrini (2009) based on the definition of the European Commission (2001) SMEs employ less than 250 people, thus 99% of all companies in Europe are SMEs. Furthermore, enterprises count as medium sized companies when their annual turnover is below/equal to 50 million Euros or the total amount is below/equal to 43 million (European Commission, 2011). It is additionally stated that SMEs are dominant in contributing to GDP and supply 76 million jobs in the EU.
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lie in the same hands. In addition to that, small business managers are usually strongly integrated in their communities heavily relying on the stability and wealth of the local communities in which they operate. Moreover, the European Commission (2002) illustrates that SMEs are often deficient in personnel, financial and time resources. Further, SMEs are commonly difficult to regulate since they are not only hesitant to adapt to voluntary regulation on the one side but also are skeptical when it comes to bureaucracy on the other side (Tilley & Jones, 2003). Moreover, on the whole SMEs are less reactive to external stakeholders such as for example legal institutions, competitor benchmarking, and government agencies as well as public and private interest groups. Besides, small businesses usually operating in only one market, perceive it as difficult to spread business risk and are highly sensitive to the loss of customer (Burns, 2001). Simultaneously, Keasey and Watson (2006) find that SMEs are designated with few formal internal systems and processes.
However, Hamann et al. (2009) add that SMEs are mainly considered from an economic perspective and that their social and psychological characteristics are frequently overlooked. Besides the above mentioned traits, in SMEs freedom of decision making is prevailing. At the same time, the owner/manager of the SME accounts for the failure or success of the enterprises; consequently, the entrepreneur is reflected in the company. Jenkins (2004) also highlights the culture in small businesses, characterized as informal, trusting, intuitive, holistic and ambiguous.
Posing the question whether SMEs should be differentiated from large companies when concerned with sustainability and corporate social responsibility, Grayson (2004, p.1) answers it by denoting: “Yes and no seems to be the collective conclusion. No: because the same basis principles apply whether you are “Bob the builder or Microsoft, minimizing your negative environmental and social impacts, and maximizing your positive impacts. Yes: there are differences since SMEs rarely use the languages of CSR to describe what they are doing. The drivers usually start with the personal beliefs and values of the people running the SME who are usually the owners.” Due to these reasons, the research is bounded to SMEs while also taking instruments that apply to large corporations in account. In this paper, the definition is based on the European Commission (2002) the micro companies hold for companies with less than 10 employees, small companies employ less than 50 people and medium-sized companies have less than 250 employees.
3.2 Defining sustainability
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following, those most important terms are elucidated in order to shed light on the multiplicity of definitions.
3.2.1 The triple bottom line vs. other approaches
Hansen et al. (2009) add from the moment the above mentioned definition had been formulated onwards, discussions have emerged how this concept could be implemented from an economic perspective. Amongst others, Elkington (1995) Cohen and Winn (2007) as well as Hall et al. (2010) associate sustainability with the triple bottom line comprising the balance of economic, social and environmental objectives in the long-term while offering opportunities for win-win solutions. Porter and Kramer (2006) illustrate the triple bottom line approach by stating that companies should operate in ways that make economic performance in the long-run possible by minimizing short-term actions that are socially detrimental or environmentally careless.
Before the triple bottom approach came into being, environment and economy were always seen as separate entities (Hall et al., 2010). Haugh and Talwar (2010) delineate that ensuring a company survives and that the income of this company succeeds the expenditures in the long-run is the economic objective. The social component comprises the humanitarian context and includes issues such as poverty and income inequality, diseases, access to health care, education and other issues related to globalization. Environmental sustainability objectives include the influences of business activities on the quality and quantity of natural resources, reductions in resource use and improved pollution and emissions management (Haugh &Talwar, 2010).
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3.2.2 Global sustainability vs. organizational sustainability
In relation to the concept of sustainability, Garvare and Johansson (2010) differentiate between global and organizational sustainability. Garvare and Johansson (2010) refer to the triple bottom line and the WCED definition (see above) as global sustainability entailing a timeframe measure in centuries while the idea of organizational sustainability is based on the assumption that companies tend to mainly concentrate on activities in near future. Satisfying or exceeding the demand of a company’s stakeholders is referred to as achieving organizational sustainability.
It is remarkable that in a study of the Boston Consultancy Group (2009) it is indicated that 64% of experts apply either the WCED definition or the triple bottom line definition when defining sustainability (only 40% define simply define sustainability as “maintaining business viability” which is not the definition applied in this research) demonstrates the general acceptance of these definitions.
3.2.3 Sustainability vs. corporate social sustainability
Regarding ethical behavior, long-term success, responsible business practices and stakeholder expectations, the terms “corporate social responsibility” and “sustainability” are both frequently used. To what extent those terms can be used interchangeably often remains unclear. According to Fisher et al. (2009), the term corporate social responsibility refers to why and how corporations aim to achieve responsible business practices. It is further described as how enterprises reduce negative impacts while simultaneously increasing the positive consequences their operations have on society, the environment and the financial result of their own companies and their communities of influence (Fisher et al., 2009).
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Haugh and Talwar (2010) argue that the benefits of sustainability for corporations are many-sided. The benefits are explained in order to underscore not only the necessity of implementing sustainability but also its attractiveness. In addition, handicaps of sustainability are also presented.
To begin with, one should note that many of the benefits associated with sustainability are often soft or intangible because they lack the possibility to be measured or they cannot be absolutely proven (Jenkins, 2004). Firstly and most obviously, implementing sustainability leads to an improved image and reputation (Jenkins, 2004; Crals & Vereeck, 2009; Bos-Brouwers 2009). Additionally, once companies are engaged in sustainability, it is easier for them to deal to deal with legislation changes because they are likely to have implemented what the legislation requirement due to their proactiveness.
Bos-Brouwers (2009) adds that companies can also create a competitive advantage, achieve a better market position and thus attract more business (Jenkins, 2004). Additionally, sustainability can also increase the employee motivation and makes the company attractive to potential recruits (Jenkins, 2004; Crals & Vereeck, 2009). Another not to be underestimated benefit is the risk control companies can exert because they are better able to manage risks such as environmental accidents and can therefore prevent scandals and bad publicity (Crals & Vereeck, 2009).
Moreover, for SMES looking for private equity or capital, commitment to sustainability might improve the growth potential rate in the long-run and therewith would increase the attractiveness to possible investors. Generally spoken, in the long-term sustainability within a company should save cost on the one hand and increase efficiency on the other hand due to advanced technologies and better trained staff (Jenkins, 2004).
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3.3 The instruments
As mentioned above, the focus of the research lies on the sustainability of SMEs. The thesis hypothesizes that when companies want to implement sustainability, a positive impact on employees, customers, the society and the suppliers of the company is created.
In general, the range of instruments that can be used for realizing sustainability is very broad and diverse (Lawrence, 1997.). In the following, a framework of the most significant instruments valid for SMEs is portrayed in a table. The evaluation of the significance is based upon extensive literature review. Based on the instrument catalogue designed by Schaltegger et al. (2003), there might be more than 50 instruments that facilitate organizational sustainability.
However, due to the fact that the focus of the research is SMEs, many instruments could be segregated. Subsequently, the most noted instruments are chosen for the research. The amount of instruments subject to the research still seems to be relatively high. However, as can be seen in other researches (e.g. Graafland et al., 2003; Hammann et al., 2003; Crals & Vereeck, 2003) the amount of the chosen instrument s is a common quantity of variables justifying the research focus of this thesis. The reason for the multiplicity of instruments in this research derives from the fact that companies do indeed apply a high amount of instruments and it can be relatively conveniently researched to what extent those tools are implemented.
3.3.1 Instruments addressed to employees/company
The following tools are regarded as formal instruments how to implement sustainability. They are mainly related to the stakeholder group “employees”.
Empowerment of employees
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conclude that the extent to which employees are empowered should be mediocre since SMEs need managerial action and structure in order to be successful in the long-term.
Balanced work/ private life
Kofodimos (1993, p.8)’s definition of work/private life balance is described from an employees’ point of view and identifies the work/private life balance as follows: “Finding the allocation of time and energy that fits your values and needs, making conscious choices about how to structure your life and integrating inner needs and outer demands and involves honoring and living by your deepest personal qualities, values, and goals.” According to the Kenexa Research Institute (2007) companies have started realizing that a good work/life balance increases the productivity and creativity of employees which is clearly related to the social component of the triple bottom line. Other benefits are that employees are less likely to leave the company and that they are more proud of their workplace and furthermore generally higher satisfied with their job. Concerning the activities that employers can undertake in order to make this instrument work, it is explained that flexible working hours, casual dress codes and home offices are indicators for a balanced work/private life. Additionally, more formal sub-instruments would be compulsory leave or a strict limit of working hours. However, Harris et al. (2005) argue that the problem associated with the concept work/life balance is that it is mainly grounded in models of large bureaucratic companies. They find that at SMEs the traditional boundaries of work and private life are often blurry which makes it interesting for further in-depth research.
The following tools are regarded as informal instruments how to implement sustainability. They are mainly related to the stakeholder group “employees”.
Gratification of employees
21 Social handbook
In the article about SMEs and large companies about CSR in the Netherlands, Graafland et al. (2003) point out that both large companies as well as SMEs develop and social handbooks which are internally used by the employees. Within this book, the position of the employees is elucidated and rules are defined that refer to the labor conditions of the employees. What is also interesting is that when companies work with a social handbook, they often also have a confidential person for the employees (Graafland et al., 2003). By means of the social handbook, the firm aims to communicate how sustainable or more concretely, social behavior should be executed. Having a closer look in academic literature as well as on the internet on arbitrary homepage, it reveals that the term “social handbook” and what it entails is often misleading. Occasionally the term “social handbooks” is used in relation with social media and if social handbooks are connected to the topic of sustainability, it seems that only large companies apply this term. That is why more insights are desirable regarding this instrument.
Confidential person
A confidential person is a person that employees can trust and helps to implement the social element of sustainability (Moore et al., 2009; Kaptein &Buiter, 2001; Graafland et al., 2003). In case of abuse, if it is either between colleagues or when the direct boss is involved, employees can turn to that person. In these kinds of situations, first help is provided. Examples are advising about possibilities for further action, guiding the problematic process and acting as intermediary between victim and offender in order to prevent possible legal procedures. Above that, a confidential person also encourages employees and managers to value sustainability. Graafland et al. (2003) further argue that companies which take sustainability standards seriously have appointed at least a confidential person or an ethical committee. Additionally, in the Netherlands, it seems that large as well small companies use confidential persons as a tool to contribute to sustainability. This is why this tool is highly relevant. Moreover, one should add that even if the term “confidential person” is used a lot, it seems that only Graafland et al. (2003) apply it in connection to CSR. Therefore, more research is necessary in order to find out whether the right terminology is used and to what extent a confidential person contributes to the successful implementation of sustainability.
Ethical Training
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and there are no new numbers available. Furthermore, in connection to sustainability or CSR, there is not much information about the incorporation of ethic units in training units recognizable.
Health/Safety efforts
Investing in health and safety issues is an important tool how companies can successfully implement sustainability and is clearly related to the “people” component of the triple bottom line.
According to Bos-Brouwers (2010), health and safety regulations mainly deal with accident prevention measures. Concrete measurements are also given such as a regular health-check up for personnel. This could be supplemented by external presentations on health and safety issues. Moreover, when concerned with companies focused on productions, circulation systems should be installed. It should be pointed out that investing in health and safety efforts does not only refer to complying with regulations. In order to be really sustainable, one has to take it one step further than just complying with the minimum standards set by governmental regulations (Bos-Brouwers, 2010). One could also argue that complying with the ISO codes automatically encompasses health and safety efforts. As a matter of fact, they do indeed relate to each other. However, companies can also choose to invest in health and safety but do not consider the other guidelines of the codes. Besides, ISO codes and health and safety efforts are chosen as separate entities in this research because they are also partly relate to different stakeholders. Complying with ISO codes can be seen as approach towards world improvement (thus society related) whereas health and safety efforts predominantly refer to employees. Taking the interrelations between the concepts into account, more in-depth research should be undertaken in order to clarify the connections.
Strategic management tools: sustainability balanced scorecard
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how useful SMEs perceive such a strategic tool and if SMEs maybe use it under another name or approach still remains open. However, this instrument is one of the few instruments meeting all three aspects of the triple bottom line aiming at strategic integration which makes it relevant for this thesis.
(Eco) Checklist
According to Schaltegger et al. (2002), checklists serve the purpose of creating a first inventory of environmental features of companies and are apparently often used by SMEs in order to detect weaknesses and opportunities. It is further argued that checklists are often developed by external bodies like e.g. business consultants as they are better able to set up the inventory independently. If referring to the triple bottom line, checklists usually meet the planet challenge, e.g. making out potential of how to save resources. Concerning limitations, one should note that checklists not bring to light complex relationships. Nevertheless, due to the fact that there are not many tools recognizable that serve as inventory tool for sustainability and simultaneously which is applicable for SMEs, checklists are an important instrument for this research.
The following tools are regarded as instruments how to implement sustainability which have informal as well as formal components. They are mainly related to the stakeholder group “employees.
3.3.2 Instruments mainly addressed to suppliers and customers Provision of honest information
(- towards all stakeholder groups and mainly towards employees and customers)
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honest information” seems straight forward and easily understandable. Nevertheless this instrument is rather informal and implicit, it is likely to be difficult to measure and above that, it relates to every group of stakeholders. This means that it should be examined rather qualitatively. Nevertheless, it is mostly relevant for employees and customers because if employees and managers are open to each other and to the customers, this might simplify the implementation of other instruments for sustainability thus this instrument is highly significant for this research.
As can be seen in the table of the instruments there could no formal instruments been identified yet which are related to the stakeholder group “suppliers”. Hence, more in-depth research is eligible. The following tools are regarded as instruments with informal and formal components how to implement sustainability related to the group “suppliers.”
Prompt complaint handling (towards employees and customers)
Generally spoken, complaints and their corresponding handling form significant challenges for companies to maintain the relationship between the stakeholder being the complaint holder and the company the complaint is addressed to (Gruber et al., 2009).
Referring back to Hammann et al. (2009) once again, the emphasis of complaint handling often lies on customer complaint handling. According to Homburg and Fürst (2005) ineffective complaint handling can lead to losing a previously satisfied customer thus earlier satisfaction does not result in a buffer. The benefits of effective complaint handling towards customers are many-sided. Besides increased satisfaction, customers are also likely willing to pay more and companies might also get the opportunity to receive valuable feedback (Hammann et al., 2009).
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Incorporation of social & environmental values into purchasing decisions
According to the editorial “Sustainability and supply chain management - An introduction to the special issue” of the Journal of Cleaner Production in 2008, it is quintessential to integrate whole supply chains and networks in the movement of sustainability. Following Cox (1999), the typical supply chain includes all parties are that a necessary to fulfill a customer requests such as the suppliers, transporters, warehouses, retailers and the customers themselves. As customers are addressed as another group of stakeholders in this research, for the purpose of this paper, they are excluded from the supply chain.
In their report of “European SMEs and social and environmental sustainability”, the European Commission (2002) highlights the importance of incorporating social and environmental values into purchasing decisions and therefore all of the three dimensions of the triple bottom line are represented. In his blog Berglund (n.d.) states that “the supply chain is the common denominator in all businesses.” Within the supply chain, decisions can be made leading to successful business operations. However, Koplin et al. (2007) claims that nowadays companies face an increasing complexity of purchasing based on the fact that globalization simplifies working with a multiplicity of different suppliers. It is further mentioned that every business, which thus also includes SMEs, purchases services and products, starting from cleaning, catering, office suppliers, fuel to the raw products companies eventually sell. The rather vague and intangible tool “incorporating social and environmental values” therefore means that organizations decide to acknowledge procurement not only as cost decision but also consider the corresponding multiplying effects of their purchasing decisions having a direct impact on employment growth, local economies, the environment and their community (enterprisingnonprofits, n.d.). The above mentioned characteristics of the instrument call for qualitative research.
3.3.3 Instruments mainly related to the society
The following tools are regarded as formal instruments how to implement sustainability. They are mainly related to the stakeholder group “society”.
Compliance with quality standards
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standards. The EMAS regulation is valid within the EU whereas the ISO standard is applied worldwide (Schaltegger et al., 2002).
Both procedures are moderately overlapping (as EMAS must be structured as in ISO), are practically oriented open to all kinds of organizations. In order to obtain the certificate, companies have to set up an ecological scheme each year including formulated goals of how to advance the environmental situation, the costs per operation, which employee is in charge of what and until when it should be reached.
The following tools are regarded as formal instruments how to implement sustainability. They are mainly related to the stakeholder group “society”.
Waste & energy reduction/prevention
As per Bos-Brouwers (2010), concerning environmental activities the measures waste reduction and prevention are the instruments that are most regularly applied by SMEs. Reasons for that might be found in the idea of industrial ecology which indicates that the by-products, which are usually waste, generated by one company are processed by another company (Posch, 2010). This is grounded in the intention to reduce the industry’s impact on the environment by establishing loops of material and energy use within one industry. However, Hillary (1995) demonstrates that regardless of savings that can be reached by investing in waste reduction and preventions, the lion’s share of SMEs still doubts that investing in those instruments would benefit their companies. To what extent this is still valid today is therefore worth researching.
Referring back to Bos-Brouwers (2010) it reveals that for SMEs waste production and prevention is mainly reached by supply is also attributed to the instrument “waste reduction/prevention” because by saving energy redundancy is minimized and if using green energy, it is also assumed that negative environmental impacts are reduced so as for the other activities undertaken for waste reduction/prevention.
In his results, Bos-Brouwers (2010) asserts that whereas packaging and recycled resources are regularly undertaken actions, emissions, transport and biodiversity issues often remain under-represented. Following Bos-Brouwers (2010) the reasons for that lie in the fact that SMEs habitually claim that they have no or little emission and consequently do not feel obliged to install reduction measures. This might be based on the idea of SMES that they perceive their impact on the environment as marginal (Lee, 2000).
27 Codes of conducts
Following Erwin (2010) codes of conducts are established by a company to direct business practices and to form a responsible organizational culture by empowering the moral consciousness of the employees. Graafland et al. (2003) amend that codes of conducts indicate what a company expects from its management and employees and thus represents values, norms and the policy of a firm. The reflection on those values is aimed at minimizing the inconsistencies in the policy of the firm. Erwin (2010) further theorizes that in an ideal case codes of conduct affect the organizational culture by directing the actions of employees by means of promotion of ethical business practices while avoiding legal consequences. It is further stated that the benefits of codes of conducts are multifaceted. First, the reputation of a company might increase while contributing to the legitimization of the company. Second, following the codes of conducts might increase product differentiation and includes risk management as well as fewer negative consumer actions such as boycotts and better customer. The research of Graafland et al. (2003) reveals that large companies apply these instruments more often than SMEs and that some SMEs do not recognize the usefulness of the instruments. However, a significant amount already does implement this instrument and another relevant portion does not know about the instrument. The lack of knowledge about this instrument might therefore also reduce the acceptance and applicability of codes of conducts.
Donation/Sponsoring
Different scientific researchers (e.g. Cornwell, 2008; Prendergast & Poon, 2010) have acknowledged the importance of sponsoring as an effective marketing tool for companies in general. Hammann et al. (2009, p. 42) even go one step further by approving sponsoring as “philanthropic engagement (that) can be understood as a goal-oriented management activity”. Hammann et al. (2009) and Schaltegger et al. (2002) add that SMEs also frequently donate or sponsor in terms of providing cash or noncash resources or services for ecological or social purposes identifying sponsoring activities as valuable ways of implementing sustainability. This instrument can be applied by means of e.g. environmental activities such as supporting existing nature conservation organizations or projects which have been initiated by the company itself. However, it is also attention drawn to the fact that sponsorship usually requires cooperation from different kinds of companies with different values. As can be seen in the management study of the Schaltegger et al. (2002) this can lead to misunderstandings which hamper the effectiveness as sustainability tool. Another drawback related to this could be that sponsorship will be perceived as attempt to buy a positive image.
(Social) partnerships
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demonstrate responsible commitment for society. In 1988 Waddock created the term “social partnerships” for the phenomenon that a company cooperates with another organization which is public or non-profit and therewith acts in another economic sector with the purpose to solve problems having an effect on the society and subsequently also on the two companies that are cooperating. Waddock (1998) further demands that social partnerships necessitate active engagement and resource commitment of all parties which excels monetary involvement
Recapitulating, it seems that (social) partnerships are a straight forward tool for the implementation of sustainability which can, according to Graafland (2003) and Gibb (1998) also be applied by SMEs. Gibbs (1998), for instance, points out those partnerships for SMEs can also be created for promotion purposes taking the SME’s stakeholder development into consideration. It is however striking that, when conducting a short literature review to identify previous studies on this topic by means of research through databases (such as EBSCO complete) with the keywords sustainability/CSR, partnerships and SMEs the results are only limited which shows that further research on the implementation is desirable.
As can be seen in the table of the instruments there could no informal or instruments that comprise formal and informal instruments be identified yet which are related to the stakeholder group “society”. Hence, more in-depth research is eligible.
3.4 The overview of sustainability instruments
Simultaneously to the segregation of the instruments as can be seen in 3.4.6, different kinds of categorizations of instruments are feasible. Due the earlier elucidated importance of stakeholders, the overview of the instruments is based on this categorization. Besides, the classification is based on Graafland et al. (2003) who distinguish between informal and formal instruments. Moreover, the instruments are further categorized according to a group of different stakeholders.
In the following, the reasons for the chosen categorization of the overview are explained.
Summarizing the categorization of the instruments is based on - implementation and/or communication instrument - whether it is applied in an informal or formal way
- whether the instrument refers to employees, customers, society and suppliers
3.4.1 What is an instrument - A definition
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Instruments can be seen as tools which usually contribute to solving a problem and achieving objectives. Furthermore, instruments are implemented on different levels of intensity. Additionally, when concerned with a certain issue or policy, the use of one instrument is often not enough to tackle the problem. Therefore, one should apply a multiplicity of instruments in order to receive the desired result (Konsult Leeds, n.d.).
When speaking of the implementation of sustainability, one can easily see that the term “instruments” is justified and well-chosen due to the fact that different researchers have frequently applied this term (see for example Lawrence, n.d.; Graafland et al., 2003; BMU, 2002; Crals & Vereeck).
3.4.2 Selection of instruments
As pointed out in the introduction, even though the research on instruments how to implement is worth exploring, there are obstacles to the selection of sustainability instruments that should not be underestimated (Lawrence, 1997). The lack of resources is prevailing and above that, sustainability oriented firms often have to deal with a substantial amount of uncertainty (Brooks, 1992). Beyond that, other restraining issues encompass geographic and cultural barriers (Grant, 1994), self-interest, mistrust, divergent perceptions as well as the to some extent weak reputation of planning when it comes to change (Carley & Christie, 1993).
That is why the implementation instruments have to be carefully examined and selected. Schaltegger et al. (2002) find that implementation instruments should be based on the premise that the instruments are already applied by a considerable amount of companies. Furthermore, the instruments should be able to satisfy the emerging need of at least one stakeholder group.
To ensure the completeness of relevant instruments, the selection of the instruments is further controlled by comparing it with the list “sustainability items, sustainability issues, aspects and dimension” by Dommerholt (2011).
In the table, all instruments facilitate the implementation of sustainability.
3.4.3 Informal vs. formal application of instruments
According to Graafland et al. (2003) in order to organize a company’s ethics and therefore also its attitude towards sustainability, a company necessitates instruments which is mainly distinguished between formal and informal instruments. They conclude that compared to large companies, SMEs primarily apply informal instruments. The reasons for that are multi-faceted. First, SMEs do usually not have the (financial) resources to use instruments in a formal way but secondly and this is even more of importance for this paper, they seem not to know much about formal applications of sustainability instruments.
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efficiently done as it could be. Additionally, occasionally it expected one tool can have formal and informal ways of application.
However, an explicit distinction between informal and formal lacks in the research of Graafland et al. (2003). This might be due to the fact that the researchers consider this division as self-explanatory. Tracing back the original meaning of the words in the dictionary, it appears that “formal” has two meanings. Foremost, it is something that is done or carried out based on established or prescribed rules (MSN Encarta, 2011). Informal on the contrary, is perceived as something that is not officially arranged or organized (MSN Encarta, 2011).
For the purpose of the research, instruments that are implemented formally relate to informal as emerged change relates to planned change (Mintzberg et al., 1988). Planned change is described as a product of conscious analysis and action and thus relates to more formal instruments. Emergent change, however, develops in a spontaneous and unintentional way where informal instruments are often predominant. In addition to that, one could also say that informal is more non-verbal and culturally oriented and might lack strategic planning whereas the formal implementation is based on the organizational nature thus strategy formulation plays a significant role.This is important for SMEs to recognize and therefore another reason why this division of formal and informal instruments is vital. Nevertheless, the approaches towards “informal/formal” divulge that the boundaries between formal and informal are not carved in stone. That is why in this research it is not chosen for a strict separation of the way of implementation.
Additionally, it might be the case that general informal instruments might be part of formal instruments which might not necessarily constitute a problem. A “strict boarder” however seems to be inappropriate in this case.
3.4.4 Addressing the stakeholders
As mentioned in the introduction, stakeholders highly influence the long-term success of a company and are therefore exceptionally relevant. As per Freeman (1984, p.46) a stakeholder can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”.
Referring to the above, a significant component of sustainability is about morals and values of a firm pertaining to the interests of the company’s stakeholders. It is indispensable to classify those parties in order to recommend ways of how to deal with them. Lepoutre and Heene (2006) accentuate that due to the fact that a good reputation is vitally important for the competitiveness of SMEs, SMEs are naturally interested to behave in a sustainable way in order to meet the expectations of the stakeholders. Bianci and Noci (1998) however state that it is often difficult for SMEs to publicize their efforts concerning sustainability to external stakeholders.
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shareholders, community and the environment. As a logical consequence, the multiplicity of stakeholders calls for different actions to be taken because the expectations of the different stakeholders might vary.
With the intention to narrow the wide range of potential stakeholders of SME firms, four different groups of stakeholders were chosen namely employees, customers, the society and suppliers. Here, prominence should be given to the fact that whereas employees, customers and the society formulate expectations towards SMEs, it is the SMEs which are interested in a sustainable supply chain. Hence, it is the SMEs having a stake in the suppliers. This stake in turn is based on the expectations stakeholders of the above mentioned three groups (customer, employees and society). From another point of view, one could also argue that SMEs could also function as supplier themselves. To be clear, this is not the viewpoint of the study. According to Harrison and Freeman (1999) those stakeholders perceive the social performance and responsibility of companies as increasingly important.
Those stakeholders are chosen due to the following reasons:
Customers
Different sources claim that customers are the most relevant stakeholder group for companies in general). Greenley and Oktemgil (1996) emphasize that companies with customer orientation are more successful than firms without and that profitable companies highly value the interests of their customers relative to their other stakeholders.
Customer orientation seems to be a critical rationale of performance due to the typical characteristics of SMEs such as the danger of missing out on long-term planning and systematic decision-making (Hammann et al, 2009). On the other hand, different sources (e.g. Lepoutre & Heene, 2006) claim that sustainable actions of SMEs are not particularly valued yet by the customers because customers tend to think that the impact that SMEs individually create is rather limited. However, as it is also indicated that SMEs are more and more seen as a collective rather than a separate entity, this is subject to change and therefore sustainability with regard to the customers’ needs to receive further attention.
Employees
32 Society
Following Nightingale and Rhodes (2004), the society is also an important stakeholder having the stake that the company preserves the environments, offers job opportunities and positively contributes to the community. This is confirmed by Hammann et al. (2009) who pinpoint that SMEs are often more integrated in local communities than large firms and therewith forming the backbones for their communities. Normally, the workforce of a SME consists of many local employees. This means that the standing of the company in its immediate surrounding is of high importance for SMEs (Hammann et al., 2009). Additionally, one should also bear in mind that the “society” is a very broad stakeholder and indirectly including other stakeholders.
Suppliers
Another relevant stakeholder is the suppliers. According to Wagner and Kaufmann (2004), in the last years companies changed their way of procurements. Instead of “making” all the products/services completely on their own, they tend to outsource many parts of the production. That is why purchasing is an important contributor to a firm’s competitive position. Wagner and Kaufmann (2004) add that the supply chain management serves as source of competitive advantage that can be gained from purchasing practices. As previously stated, the lion’s share of SMEs follows a differentiation strategy rather than a low cost strategy (Bruins, 2006). This means that even if the normal bargaining power of SMEs tends to be quite low due to the lack of (financial) resources, SMEs usually value sustainable business practices of their suppliers because they reinforce the differentiated end-products of the SMEs. Recapitulating, compared to large firms, the calling for sustainable actions is probably mostly valid for internal stakeholders.
3.4.5 Short explanation of overview
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3.4.6 Overview of instruments SMEs can use to implement sustainability STAKE
HOLDER
Instruments and its formal and/or informal application INFORMAL FORMAL Mainly addressed to Employees & Company
Provision of honest information (Hammann et al., 2009; Graafland et al., 2003)
Empowerment of employees (Hammann et al., 2009)
• Including decision making into daily tasks of employees
Gratification of employees (Hammann et al., 2009) • Company newsletter
Balanced work-private life (European Commission, 2002) • Flexible working hours • Casual dress codes • Home offices
• Strict limit of working hours Gratification of employees (Hammann et al., 2009) • Quarterly bonuses • Non-lay-off policy • Promotions Social handbook (Graafland et al., 2003) Confidential person (Graafland et al., 2003) Ethical training (Bos-Brouwers, 2010)
• Training by expert/trainer about sustainability/ethics
Health & Safety efforts (Bos-Brouwers, 2010; European Commission, 2002)
• Regular health-check ups • External presentations • Circulation systems Strategic management tools (Schaltegger et al., 2002) • Sustainability balanced scorecard Check list (Schaltegger et al., 2002) Mainly addressed to Suppliers Incorporation of social/ environmental values into purchasing decisions
(European Commission, 2002) • Negotiating with suppliers Mainly
addressed to Customers
Provision of honest information (Hammann et al., 2009; Graafland et al., 2003)
Prompt complaint handling (Hammann et al., 2009) • Creating the
customer-oriented mindset of the employees
Prompt complaint handling (Hammann et al., 2009)) • Creating standard operating
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addressed to Society
Compliance with quality standards such as ISO codes/audits
(Hammann et al., 2009; Graafland et al., 2003; European Commission, 2002)
• Internal standards • External certifications Waste & energy reduction/ prevention
(Bos-Brouwers, 2010) • Waste separation systems • Intake systems for used products
from customers • Reduction of resources • Replacing chemical substances • Green Energy • Solar panels Codes of conducts (Graafland et al., 2003) Donations/Sponsoring (Bos-Brouwers, 2010; Hammann et al., 2009)
• Providing cash resources for sustainable purposes • Providing non-cash resources
(Social) partnerships (European Commission 2002)
Figure 1: Overview of instruments SMEs can use to implement sustainability
