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The Grass is Greener: A Qualitative Study Of The Effects Of
Drivers And Barriers To The Implementation Of Sustainable
Innovation In SME´S
By
Sanjay Ghosh S2372703 Eeldersingel 44 9726AS Groningen
s.ghosh.2@student.rug.nl
University of Groningen Faculty of Economics and Business MSC Strategic Innovation Management
January 2020
Supervisor: Dr. I. Estrada Vaquero Second Assessor: Prof. Dr. J. Oehmichen
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ABSTRACT
In this qualitative study, the researcher attempts to identify how the primary drivers and barriers to sustainable innovation affect SME’s. A qualitative research is done with a dataset consisting of 11 interviews. The dimensions identified are firm characteristics and business environment. The influencers identified under firm characteristics are firm size, personal sustainability perception and motivation. The influencers identified under business
environment are government, suppliers and peer behavior. In addition, the main contribution of the research is a distinction between born-sustainable and transitioning firms.
Acknowledgement: I would like to acknowledge Dr. I. Estrada Vaquero for providing me with support and feedback during the writing of this thesis. In addition, I would like to
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TABLE OF CONTENTS
1. Introduction………... 4
2. Literature review………... 9
2.1. Internal Characteristics Influencing Sustainable Innovation in Firms……... 10
2.2. Environmental Factors Influencing Sustainable Innovation in Firms ……... 13
3. Methodology………. 16 3.1. Research Design………. 16 3.2. Research Setting……… 17 3.3. Data Collection……….. 18 3.4. Data Analysis ……… 21 4. Findings………. 22 4.1. Firm Characteristics……… 22 4.2. Business Environment………... 32 5. Discussion………. 37
5.1. Sustainability Factors and SME’s……….. 38
5.2. Born-sustainable Firms and Transitioning Firms………... 41
6. Conclusion……….. 44
REFERENCES………. 47
APPENDIX A……….. 55
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1. INTRODUCTION
In 1712, Thomas Newcomen created the first steam engine (Morris,2012). With that, the industrial revolution had started. With this invention ushering in an era of unprecedented rise in the rate of production of consumer goods, the world of business was forever changed (Ashton,1997). The devastating effect on the environment, however, would only be felt years later.
Now, in modern times, it can be observed that the relationship businesses have with the environment has shifted considerably. Though the rise of industry has resulted in a rise in welfare, the consequences for the environment have been less positive. Over the past years, a sharp rise in carbon emissions has taken place, with 78% of them being related to industrial processes( IPCC,2014;Boden et al.,2017). The exact result of this rise in carbon emissions is uncertain, but almost always considered negative. Consequently, in many areas of business, attention to safeguarding of the environment and the practice of sustainable business practices has increased. Approaches such as those of Milton Friedman, which argue that the firms should serve only to maximize benefits for stockholders are becoming a thing of the past, while CSR approaches are gaining popularity quickly in the business environment (Friedman and Friedman, 2012;Emmot and Worman,2018).
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The subject of drivers and barriers to sustainable innovation has been a topic of research for a number of studies. In 2009, Pinkse et al. researched four Dutch building contractors to analyze why some of them easily adopted CO2 reducing measures while others lag behind. He found that the firms actively engage in information gathering and who build upon internal technical capacity are more likely to adopt sustainable innovation (Pinkse et al.,2009).
Furthermore, Walker et al. researched the concepts of drivers and barriers to green innovation in large firms, focusing on both internal and external barriers. She found that external barriers affect large firms more than internal ones and that they include government regulations, poor supplier commitment and industry specific barriers. The internal barriers discussed included costs and lack of legitimacy (Walker et al., 2008).
Though the external drivers and barriers to sustainable innovation have been researched before, most academic literature refers to data collected at large MNE’s. While in many ways there are similarities between MNE’s and SME’s, there are also differences to be found. SME’s possess less resources, but benefit from greater flexibility, which changes the way they should be approached (Gallo et al., 2001; Hahn et al., 2013). Furthermore, 95% of firms are SME’s, which indicates the seeming lack of literature concerning them, is not because of a lack of significance (OECD,2000). Notwithstanding, literature describing the link between SME’s and sustainability does exist, such as a 2009 paper by Tilley et al. However, this research focuses more on the question whether sustainability and competitiveness can be reconciled at all, rather than the factors that influence the successful implementation of sustainable innovation (Tilley et al.,2009). Therefore, the goal of this study is to understand how the factors that influence sustainable innovation in large firms relate to SME’s.
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it to be a complex subject (Lacy et al.,2012; Panapanaan et al,2002;Pinkse et al.,2009;Sancha et al.,2015). The plethora of different viewpoints on how sustainable innovation relates to different facets of business suggests that there is still much research to be done before theoretical saturation is reached. By considering SME’s, theory relating to sustainable innovation in firms can be expanded (Hörisch et al.,2014; Rezaee et al.,2018). In addition, during the process, factors influencing sustainable innovation in SME´s might arise that are novel to the literature. Consequently, this can open up new avenues of research.
Though this subject is interesting for the fundamental understanding of sustainable innovation in business, it is also of practical use. Since implementing sustainable measures is a relatively new responsibility for managers, there is still a lack of agreement as to what methods are most effective to maximize the positive effects and limit the negative effects. By building awareness about scientifically supported factors that influence the drivers and barriers of accepting sustainable innovation in SME´s, managers of SME´s can more effectively develop plans specific to their firms. In addition, for firms developing sustainable innovations, understanding acceptance factors can be an important part of the process of developing and marketing innovations (Kiron et al.,2013). Lastly, for policy makers wanting to support SME´s ability to be more sustainable, understanding the external drivers and barriers to accepting sustainable innovation is of paramount importance.
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Filling this research gap would have the benefit for managers of SME’s that they are able to utilize theory which is more appropriate to their type of company than theory pertaining to larger companies. Since managers of SME’s face different struggles than those of MNE’s, this could assist in formulating a more pointed approach. For scholars, the benefit is that it opens up new directions of research and describes how large companies and SME’s might differ concerning the acceptance of sustainable innovation. It also yields interesting considerations for future research, such as those about the nature of sustainable innovation, the nature of SME’s and how these relate. Conversely, ignoring this research gap could lead to managers of SME’s focusing on less optimal avenues for improvement, thereby wasting valuable time and resources and complicating the process of incorporating sustainable innovation in their businesses. For scholars, ignoring the research gap would lead to running the risk of assuming theoretical saturation is reached when enough research has been done on firms as a whole, while within firms of differing sizes, there might be salient nuances yet to be discovered.
Since the research gap this research will attempt to fill relates to the factors that influence innovation that relates to sustainability, specifically in SME’s, the research question should represent this. Therefore, the research question of the study is:
“How do the drivers and barriers that shape the adoption of sustainable innovation in firms, affect SME’s?”
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“To what extent do internal firm characteristics of the firm drive or impede sustainable innovation in SME’s?”
“To what extent does the business environment drive or impede sustainable innovation in SME’s?”
By filling this research gap, the pitfalls described earlier can be avoided. In addition, the understanding of sustainable innovation as a whole and the way different characteristics of the firm they take place in and the environment they exist in will be deepened by performing research in this avenue. For scholars, this means a better understanding of the way one of the most current problems of business at this moment relates to a category that includes 95% of the firms (OECD,2000). Furthermore, managers of SME’s, through this research, could develop sustainable innovation incorporation plans that are pointed toward aspects that are most relevant for their type of company.
The study will consist of an explorative research. The method of data collection will be 11 interviews, of which 7 are expert interviews aimed at acquiring information about the influencers of sustainable innovation, while 4 interviews take place within the same company and function as a case of a born-sustainable company.
The key findings of the study are that firm size, personal sustainability perception and motivation are influencers in the category firm characteristics. Additionally, government, suppliers and peers are important players in the business environment that influence firms’ propensity to engage in sustainable innovation. Additionally, the research proposes a distinction between born-sustainable SME’s and transitioning SME’s.
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the help of existing literature. Subsequently, the methodology used to structure the data collection process will be described. Furthermore, the findings section will present the findings of the research. The relevant drivers and barriers will then be discussed in relation to the expert interviews and case. Lastly, the conclusion will summarize the research and present limitations and directions for future research.
2. LITERATURE REVIEW
In this section, the relevant literature will be reviewed. A collection of literature concerning the way sustainable innovation relates to businesses will be used to form a theoretical background for the findings of this research. The purpose for this section is to set the background for the focal problem of the research, so that later in the research, the findings which might be novel to SME´s can be identified and appropriately placed within the general framework of sustainable innovation in firms. The added value of this section is that it provides an overview of existing literature and assists in distinguishing between novel findings and findings that have already been described in past research. The first segment will explore literature on internal characteristics influencing sustainability in firms. That is to say, it will explore which characteristics firms have that can be correlated with either a high or low propensity to engaging in sustainable innovation. The second segment will explore literature on the environmental business characteristics that influence sustainable innovation in firms.
2.1 Internal Characteristics Influencing Sustainable Innovation in Firms
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also means that larger firms are more likely to engage in higher levels of sustainability reporting (Gallo et al., 2001;Hahn et al., 2013). Since large firms usually have a more entrenched business model, the research concerning existing business models and sustainability is also interesting. However, since business model research and sustainability are both subjects that have primarily met a lot of attention recently, the literature on the combination of the two seems relatively sparse. Schaltegger, however, did write about incorporating sustainability in business processes. The paper concluded that accommodative and proactive strategies are needed to remedy the problem that arises, which is that sustainability related innovation often does not fit into the dominant strategy of an existing firm (Schaltegger et al.,2012). This indicates that the existing business model might play a role in determining firm size’s influence on sustainable innovation.
In SME´s the influence of the individual is logically larger than in large MNE´s. One of the aspects of the individual contribution to sustainable innovation is the knowledge of the manager. The assumption that managers all know what options are available to them is at the very least heavily debatable. In fact, research shows that managers often indicate that they do not have the time to research sustainable innovation, while simultaneously performing the day to day tasks involving their firm. (Sancha et al.,2015). Tilley at al. describe that among other factors, a lack of knowledge and expertise is one of the reasons their research shows SME’s are reluctant to incorporate a sustainability agenda into their company, even if research shows benefits (Tilley et al., 2003).
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The personal perception managers have when it comes to sustainability can be considered an influencer to the amount of confidence and interest they have in engaging in sustainable innovation. Lopez-Gamero et al. in 2009 describe that the environmental attitude that managers have is an instrumental part of their orientation towards sustainability in their business processes. Furthermore, in her 2010 paper, she describes that even managers in a field that is traditionally not considered sustainable, can be convinced of sustainability as a competitive opportunity (Lopez-Gamero et al.,2009;Lopez-Gamero et al.,2010).
Another aspect of the image of sustainability is whether firms believe they can profit from it or not (Giunipero et al., 2012). The concept of profit is instrumental for a firms continued existence. When firms do not profit, they will cease to exist over the long run. Though instinctively, firms sometimes believe that acting in a sustainable fashion is detrimental to profits, the opposite can also be true. Even in SME’s the long term positive effect of sustainable behavior on a firms profitability has received attention in academic research. Tilley et al. in 2003, concluded that though there is a so called win-win to corporate environmentalism, SME’s are often reluctant to exploit this.(Tilley et al., 2003; Funk,2003). Basic economic theory tells us that to continue existing a firm must at least break even, but there is leeway between breaking even and maximizing profits. Though some firms are averse to taking steps that might not maximize profit, but increase sustainability, than others, most firms would not be averse to those two being unified.
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Different motivations have been given in literature for firms´ desire to be sustainable. Broadly, types of motivation can be classified as internal and external motivation (Bronn et al,2008; Graafland et al.,2006).
External motivation refers to reasons outside of sustainability for the sake of sustainability itself causing the firm to act in a sustainable matter. Bronn et al. in 2008, state that one of the reasons firms engage in sustainable behavior is because of institutional pressures to do so. This pressure can come from different types of stakeholders. In this description, the motivation isn´t to do the so called ¨right thing¨ for the sake of it, but to do it because it is linked to profitability, growth or another business outcome (Bronn et al,2008)
Internal motivation refers to a feeling of moral obligation to engage in sustainable behavior. In a 2016 paper, Graafland et al. describe that even though managers did believe the link between sustainability and profit existed, they would sometimes engage in sustainability so much they would sacrifice some profits for it. This however, did not deter them, leading the authors to hypothesize it the deeper reason might have been an intrinsic motivation to be sustainable (Graafland et al.,2006)
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companies can be divided into four distinct categories, depending both on whether they perform sustainable innovation and if they are perceived as sustainable company. In it, they conclude that the public perception of a firms dedication to sustainability is a vital part of their ability to capture rents from it (Baldesarre et al., 2016) .
While a positive perception of a firms sustainable behavior can be helpful, a negative perception can cause reputational damage that has financial effects as repercussions. In 2015, De Vries found, for instance, that when energy companies would announce sustainable measures, the belief that they were simply engaging in greenwashing led to the public meeting the announcement with heavy criticism. In the long run, this led to negative publicity which led to reputational costs (Schultz et al.,2005; Pinkse et al.,2009; De Vries et al,2015). For firms, reputation can be very important and when these occurrences happen it can negatively influence a firms willingness to engage in sustainable innovation.
2.2 Environmental Factors Influencing Sustainable Innovation in Firms
In addition to the internal characteristics that influence sustainability in firms, the environment in which firms are placed can also influence to what extent they engage in sustainable innovation. The following section will describe the perspectives existing literature gives on the subject of the influence of different aspects of the business environment on sustainable innovation.
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The literature on external barriers lists the existence of legislation and government policies as an important factor in deciding whether firms are driven to be sustainable. When faced with regulation deeming it necessary, firms are often driven to engage in sustainable innovation out of necessity, risking heavy fines if they fail to comply. The avoidance of these punitive measures can serve as an important trigger for the engagement in sustainable innovation. (Beamon et al, 1999; Green et al,1996;Walton et al.,1998, Giunipero et al., 2012).
In addition the concept of subsidies and their role was explored by Frey et al. in 2016. Their paper proposes that subsidies have an expressive function, since they show what the desired behavior is. However, this can backfire if the subsidy is seen as a form of “”bribing”. The notion is also explored that it can crowd out intrinsic motivation (Frey at al.2016).
For many companies it can be said that they are only as sustainable as the least sustainable part of the supply chain (Haugh et al.,2010). In fact, research points out that weaving sustainability into the supply chain is not simply a process of adding it into the existing framework, but that it often involves a complete overhaul of the existing business processes of the firm in question (Carter,2008). It comes as no surprise then, that this often takes a significant amount of time. Due to firms depending to varying degrees on their suppliers, the variable of supplier presence can be seen as a potential barrier to the process of engaging in sustainable innovation, especially when there are not any sustainable suppliers or if they charge higher prices.(Busse et al., 2016). However, in recent years the rise in popularity of sustainability might have changed the scarcity of sustainable suppliers. The 1996 study by Green et al. describe that there has been an uptick in attention to sustainable supply which has resulted in a change in the status quo concerning sustainable supply being scarce (Green et al,1996).
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countries where the cultural views on sustainability differ from the country were the purchaser is based (Busse et al.,2016).
Literature has described that managers are more likely to engage in sustainable behavior when they feel that the institutional framework their firm operates in is welcoming to sustainability. (Roxas et al., 2012). In other words, when the environment the firm operates in values sustainability, the firm will be more likely to engage in it as well. In addition, the pressure exerted by stakeholders onto the firm and the collaboration stakeholders engage in with the firm are both hypothesized to positively relate to the firm´s sustainable behavior (Lopez-Gamero et al.,2010). The values and norms of society also reflect what is expected of the firm and in turn how the firm behaves. A sense of responsibility can be fostered in a firm if society holds them accountable to the amount of sustainable behavior they show (Schrettle et al., 2014).
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Additionally, the key insights from literature concerning environmental characteristics that influence sustainable innovation in firms are as follows. Government legislation plays a part in two distinct ways. The government can act in a punitive way or in an encouraging way (Green et al,1996;Walton et al.,1998;Frey at al.2016). Furthermore, Busse et al. describe how communicating with suppliers about sustainability can often be observed to be a barrier (Busse et al., 2016). Lastly, Lopez-Gamero emphasized the importance of stakeholders in the firm and their perception of both the importance of sustainability itself and the credibility the firm in question has with regards to sustainability. These insights will be compared to the findings from the research to discover how they relate to SME’s.
3. METHODOLOGY
3.1 Research Design
The purpose of this study was to inductively build a framework in which the factors that influence sustainable innovation in SME’s can be set against the background of factors that influence sustainable innovation in firms as a whole.
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To increase the validity of the research, the data collected was primary data in the form of interviews. Though this required more time and effort spent in the data collection phase, it was invaluable for ensuring the data was current and relevant to the research question (Hox et al.,2015). In addition, secondary data was used when the findings related to public perception to further ground the findings provided by the primary data. The secondary data in question consisted of press releases or website statements related to the findings. These helped as a means of triangulation to increase the validity of the quotations from the interviews (Eisenhardt, 1989). To increase the reliability of the data, an interview guide was used which can be found in Appendix A. In addition, 5 meetings with the thesis supervisor were strategically spread over the timeline of the project. This ensured the proper procedures were followed with regards to data handling and provided the researcher with guidance on how to structure the research and extract valuable insights from the data.
3.2 Research Setting
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SME’s, it resulted in valuable data with regards to the distinction between aforementioned born-sustainable firms and transitioning firms. For this reason, it was not removed from the dataset. The company which in this research will be referred to as Suncase agreed to feature as a case for this research. The company is a born-sustainable SME that helps schools with the process of installing solar panels on their roof, by contacting them and discussing the benefits of installing these sustainable innovations. It has 12 employees and is located in Groningen. Details on the role of the different employees of the firms can be found in Table 2.
TABLE 1
Description of Firms
Name of Firm Type Description
(Born-one) Born-sustainable SME Provides firms with advice on reducing energy consumption
(Transit-one) Transitioning MNE Multinational energy producer
(Suncase) Born-sustainable SME Provides schools with solar panels on their roof. (Transit-two) Transitioning SME Connects firms seeking technology solutions to
independent R&D centres
(Born-two) Born-sustainable SME Guides firms through the process of increasing sustainability
(Born-three) Born-sustainable SME Develops sustainable technology for B2B purposes
3.3 Data Collection
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semi-structured approach. This left room to deviate from the interview when the researcher deemed it useful to increase the quality of the data gained from them (Myers et al.
2012). The interview guide in Appendix A was used to loosely structure the interviews, though due to the nature of interviews and the answers received there was no case where it was followed exactly. Instead, it was helpful as a supplementary tool to ensure the gaps in data collection about the concepts were limited (Turner III, 2010). The attempt was always made to perform the interviews face to face, but due to various constraints this was not always possible. A voice recorder was used to record the interviews for future processing. The
interviews all took between 45 minutes and 1 hour 15 minutes, depending on the time granted and the depth of the extrapolation on the concepts. The interviews were done in the
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TABLE 2
Interview Details
Respondent Interview Method Type of Interview Language Length (min) (CEO of Born- one) In person interview Semi-structured Dutch 45 (Employee of Sustainability
Department Transit-One)
In person interview Semi-structured Dutch 60
(Employee of Core Operations Transit-One)
Phone interview Semi-structured Dutch 50
(CEO of Suncase) In person interview Semi-structured Dutch 60 (Project Leader 1 at Suncase) In person interview Semi-structured Dutch 60 (Project Leader 2 at Suncase) In person interview Semi-structured Dutch 60 (Head of Acquisitions at
Suncase)
In person interview Semi-structured Dutch 60
(CEO of Transit-Two) In person interview Semi-structured Dutch 45 (CEO of Born-Two) In person interview Semi-structured Dutch 70 (CFO of Born-Three) Phone Interview Semi-structured Dutch 80 (PHD Student Sustainable
Business)
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3.4 Data Analysis
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4. FINDINGS
4.1 Firm Characteristics
In the following segment, the findings on the main internal firm factors that influence the extent to which SME´s engage in sustainable innovation will be described. The firm characteristics that will be explored are firm size, personal sustainability perception and motivation.
4.1.1 Firm Size. In the interviews, the concept of firms size as influencer of engaging
in sustainable behavior surfaced. It plays a role in different ways. Firstly, large firms are less flexible than smaller firms.
“There´s a difference between companies. Big firms have a lot of shareholders to take into account, while in a small firm only one sustainable minded person in the right position can make a huge difference ”(CEO of Born-One).
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“Companies try to elongate their existing business model. Look at the Gasunie. There are alternatives to hydrogen that have a much higher energetic value and are more sustainable, but those can´t be transported using the tubes they already put into the ground. ” (CFO of Born-Three).
The case of company (Suncase) shed light upon a counterpoint. According to the employees in this company, small firms have the disadvantage that they have less resources to spare.
“Large boards have much more time and people to put on developing sustainability. In a small board, everybody has their hands full all the time, so sustainability doesn´t fit into the set of tasks they already have. ” (Suncase). The same is true for entrepreneurs:¨
Entrepreneurs often do not have the time to invest in learning about all the different options and how to implement these into the organisation next to the activities they already have to perform for the company itself¨(CEO of Born-Two). These quotes highlights the downside of smaller enterprises, which is that even with the best of intentions, they can find themselves without the resources needed to transform those intentions into actions. Combining the two, the conclusion can be drawn that though fostering the intent to change might be easier for SME´s, freeing up the resources to act upon the intent is more difficult for them.
4.1.2 Personal Sustainability Perception. In addition to the former, the interviews
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¨We had a case a few weeks ago, where the director was a young guy who was full of energy. He organized a whole day dedicated to the installation of the solar panels. There were festivities and the whole municipality was invited. He really pulled out all the stops to make a great spectacle out of it. On the other hand, there are also people that don´t do that at all.¨(IF,CC).
The quote not only illustrates that the personal ideas of an individual in a managerial position can increase the attention to sustainability, but additionally that age can be an indicator of this personality characteristics. In fact, the idea of younger people being more interested in sustainability surfaced again when (Project Leader 2 at Suncase) was asked if there were any cases where they could remember the implementation of their sustainable innovation going particularly smooth.
¨I think the main characteristic is that young people work there, who see things on the news about climate change and want to do something about it¨(Project Leader 2 at Suncase).
This creates the notion that younger individuals might be more likely to have a personal interest in sustainability, while if this individual is in a leadership position, they are able to translate that into the implementation of the innovation easier.
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¨An interesting reason for firms to come to us is that the director himself wants to increase his reputation. So that he wants to show others how sustainable he is being.¨(Project Leader 2 at Suncase).
This broadens the discourse, since now the sustainability of the individual isn´t the focus, but the amount of value that individual think they can capture from being perceived as sustainable. An important part of firm characteristics that influence the engagement in sustainable innovation is the image managers have of sustainability in their company. The concepts of knowledge about sustainability and perception of it as a problem area are intertwined here. Firms that have more knowledge about sustainability issues are more likely to perceive it as an important agenda. In reverse, firms that start out believing sustainability issues are important are more likely to dedicate time and resources to learning about it.
The perception of sustainability related problems can go as far back as a lack of clarity on what sustainability means.
¨(It…) really depends on a lot of factors. So one, of course, on their own perception of sustainability as well. Do they really see double bottom line or triple bottom line?¨(PHD Student Sustainable Business).
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An additional side to this issue that was suggested, was that companies often don´t possess the knowledge to feel confident in engaging in sustainable behavior. This concept has multiple facets, all of which play a role to a certain degree. Firstly, firms sometimes don´t feel they know what is possible. In fact, out of the sample, a number of companies interviewed positioned themselves as companies that could add value to other firms by virtue of having this knowledge. (Born-one, Born-two, Born-three, Suncase).
¨I would say our primary mission is to de-stress. Boards usually have a lot on their plate and they can´t spend time on finding out which solar panels to get or what they can do. So we come in and say: Hey, we can do that for you.¨(Project Leader 2 at Suncase).
This shows that the barrier is widespread enough that it is feasible for firms to build their entire business model on the basis of solving it. Additionally, during the research it seemed at first glance that the complexity of sustainable innovation would be a barrier. However, upon closer investigation it seemed that the issue was not the actual complexity of the innovation, but the fact that firms couldn´t accurately estimate the complexity due to a lack of knowledge about.
¨ I think the most people don´t even know how time it costs and how complex it is. They don´t have a way to estimate that properly. (Project Leader 2 at Suncase)¨
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¨the lack of knowledge had more to do with the entrepreneurial side of the business side. Like how to run a business, how to make partnerships, file patents and those kind of procedures.¨(PHD Student Sustainable Business).
This shows the puzzle piece that is missing for born-sustainable firm, might be the opposite of the puzzle piece that is missing for firms that are trying to become more sustainable.
The presence of a considerable lack of knowledge, however, wasn´t the same in every company. One interview suggested that the lack of knowledge was found much less in companies that were somehow impacted more by sustainability related issues. This suggests that a lack of knowledge happens primarily when firms don´t consider sustainability as an influencer on their business processes. In this regard, perception plays a large role too, since in some cases, it could be that there is a case to be made for sustainability being an influencer even if the firms doesn´t see it that way.
4.1.3 Motivation. The motivation of the leadership in the firm can also influence the
ease with which firms can incorporate sustainable innovation measures in their business processes. The main motivations of firms identified in the research were profitability, legislation, example function, priorities and reputation. The data showed that there was a difference between born-sustainable firms and firms that were trying to become sustainable. The latter would claim that external motivators were more effective, while firms that
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effective tools were external motivation tools, such as fines for failing to adhere to standards set by the government or an increase in profitability.
¨ Profitability is the most important for these companies. If a company can not profit off of it, they will not do it. The bottom line is a deciding factor in whether an innovation will be accepted or not. I mean we´re Dutch, so in the end it is all about money.¨ (CEO of Transit-Two).
When asked about the most important driver, interviewee IC also named profitability as the main driver.
The role profitability plays for firms again varies whether they are a born-sustainable firm or a transitioning firm. Two quotes, the former from a transitioning firm and the latter from a born-sustainable firm, can serve to illustrate an interesting difference.
¨The company always chooses the project that performs the best financially. They have a long term view on profitability, so even if it gives losses in the short term it´s alright, but in the long term it really has to be profitable.¨ (Employee at Sustainability Department Transit-One).
In contrast with this, the quote from a born-sustainable company describes a different mindset.
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This could imply that the former sees sustainability as another avenue to the goal of maximizing profits, while the latter sees profit as a way to maximize sustainability.
Apart from the profitability aspect, the concept of legislation influencing sustainable innovation also arose. While the different forms legislation can take will be expounded upon later in this research, it is interesting to make a preliminary note on how it factors into the motivation of firms.
¨ The government policies involving sustainability are the biggest reason firms come to us. The reason most of these firms want to become more sustainable in the first place is because they don´t want to face the consequences for failing to meet these requirements.¨ (CEO of Transit-Two).
From these excerpts, it is possible to interpret the view of sustainability for transitioning firms as more of a means to an end, as opposed to an end in itself. When looking at born-sustainable firms, however, the data suggests a different picture of the view these firms have on sustainability.
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This statement appears to insinuate that while the transitioning firms are more sensitive to punitive measures the government can levy, the born-sustainable firms benefit more from the financial support the government can give while they try to start their business.
In the case this research studies, the concept of the firms as an example to society arose. The example function of schools. All four of the employees at the company (Suncase) independently named the need to be an example to surrounding society as a reason the schools they helped wanted to invest in sustainable innovation. ¨They always say they want to be an example to the neighbourhood and the children.¨ (Project Leader 2 at Suncase).
The extent to which firms prioritize sustainability in their business also appears to influence the extent to which they incorporate sustainable innovation into their business.
When looking at the company (Suncase), which functioned as the case for this thesis, one of the influencers identified was that the schools they helped had too much on their plate to prioritize sustainability, even if it was beneficial for them in many ways. This wasn´t considered as an unwarranted situation either.
¨In Utrecht, for instance, there is a huge shortage of schools. There they are spending all their time on building new schools. Nobody has time to put solar panels onto the existing ones.¨ (Head of Acquisitions at Suncase).
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Finally, the reputation of the firm was identified to play a role in their motivation to invest in sustainable innovation. This influenced both firms that had the reputation of being sustainable and those that had the reputation of not being sustainable. On account of the effect of a positive reputation concerning sustainability, the following quote illustrates the findings.
¨I think my opinion (a positive reputation) can also have a sort of a reinforcing effect. You like to see that this is important and then you see that society is agreeing with you on that.(PHD Student Sustainable Business)¨ This suggests that reputation can be a catalyst for firms and can increase motivation to act in a sustainable manner. The results from a firm that had a negative reputation concerning sustainability were very different. ¨
The reputation often hurts the motivation within the company to make an effort.
“No matter what we do, the company (Transit-one) will always be seen as an unsustainable one. So even when we do something people think we´re only doing it as a marketing stunt.¨(Employee at Sustainability Department Transit-One).
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“The most recent attempt at greenwashing wasn’t appreciated. “This is corporate dystopia” wrote a man who named himself Incognito Burrito beneath one of the clips. A twitter user summarized the general atmosphere: “First they’re destroying the planet for 100 years and now they’re supposedly sustainable? Get out of here.(News website)1”
This suggests that for companies with a negative reputation, the motivation to invest in sustainable innovation might suffer. The way firms perceive these regulations can also differ according to their personal views on sustainability.
¨For some people they don’t accept why they have to do it (follow the regulations). They see there’s just some more red tape, so to say. Another one sees it as more something that energizes them because I think this is something I like doing¨(PHD Student Sustainable Business).
This quote gives the possible suggestion that for companies that are motivated by extrinsic motivation the regulations are a negative influence on motivation, while for the ones that are intrinsically motivated it can be a catalyst.
4.2 Business Environment
The research focused not only on firm characteristics internal to the firm, but also on the environment in which the firm is placed. These can influence the firm´s ability to engage in sustainable innovation in diverse ways. In the following segment, the business environment and
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its effect on sustainable innovation will be explored. The topics this thesis will focus on are government, supplier availability and peer behavior.
4.2.1 Government. The role of the government and its legislations vis-à-vis
sustainable innovation was noted by all interviewees. A distinction can be made between acts of legislation focused on punishing firms that do not adhere to a certain standard of
sustainable behavior and acts of subsidy that encourage and assist firms that are attempting to engage in sustainable behavior. These will be called punitive measures and encouraging measures respectively.
In the interviews, a number of government initiatives concerning sustainability were identified. According to (CEO of Transit-Two), the reason why any of the firms that his company worked with were interested in becoming sustainable in the first place, was because of the EER. These so called energy efficiency regulations levy a number of mandates for firms. The most mentioned one among the interviews is one that mandates firms to engage in any CO2 reduction measure that can be recuperated within 5 years (CEO of Born-One)(CEO of Transit-Two). The following quote relates to said measures.
¨The Dutch government made a list per industry what those measures are. There is another law that dictates that firms of a certain size have to be aware of ways they can save on the use of gas.¨(CEO of Born-One).
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motivation, these regulations, especially in extrinsically motivated firms, can garner resentment. This was repeated in the case, where (Head of Acquisitions at Suncase) stated the schools she worked with found the regulations bothersome and disliked them.
The government regulations also perform the function of equalizing the playing field for firms and their competitors. The following quote can shed some light on this concept.
¨When in a transition, everybody looks at the companies, but we have to be profitable too. So the government can be a real help by for instance making it more expensive to produce more CO2 or regulations like that.¨(Employee at Core Operations Transit-One).
This emphasizes that government regulations also make it easier for firms to engage in sustainable innovation by making it more difficult for their competition not to do so.
Policies such as the EER were also said to have a signaling effect. ¨Government policies, such as the EER are important since they signal that these are issues that play on a country level. That makes it easier to talk about it and take action.¨(Employee at Sustainability Department Transit-One). This could mean that government actions have the wider implication of bringing sustainable innovation to the forefront of firms´ collective mind.
The most effective way to use encouraging measures in driving sustainable innovation, according to the a number of interviewees, is to reduce the amount of organizational inertia by focusing on motivating firms to take the first steps (CB,IE). In fact, according to (Project Leader 1 at Suncase), almost all of the boards the company (Transit-one) was working with, were companies that had been subsidised by the municipality in the first steps leading to sustainability.
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goal should be subsidised. You can see that that is needed for many of the boards to come into action.¨(Project Leader 1 at Suncase).
4.2.2 Supplier Availability. Another aspect of the business environment the firm might
find themselves interacting with is the collection of suppliers in their supply chain. In this regard, the amount of suppliers for the sustainable innovation a firm wants to incorporate, can influence whether it is feasible or not. When comparing the amount of suppliers of solar panels in particular, there seems to have been a shift over the past years.
¨Solar panels are more common now and cheaper. Some schools still have an old price statement in a drawer that shows the price of 5 years ago and it´s completely inaccurate. So that´s good because the concept becomes more common. If you don´t have to explain to someone what a solar panel is or they have some on their roof, it´s a great help.¨(Head of Acquisitions at Suncase).
This was later connected to the increase in suppliers of solar panel manufacturers, driving the price down. This sentiment describes a number of things. First of all, the lower price simply makes it a more attractive option. Secondly, the concept of using solar panels could become more common, thereby potentially removing some of the mental barriers. It could indicate that the existence of suppliers has become somewhat more of a certainty now that sustainable innovation has become more commonplace.
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¨With us you can see that if we need a certain part we sit down with the supplier first. It´s definitely possible to talk about needs and such.¨(Employee at Core Operations Transit-One).
This was echoed by (CEO of Born-Two) who declared the following. ¨When their own client finds it important, suppliers are more likely to listen to pressure to become more sustainable¨(CEO of Born-Two). This implies that firms that have trouble finding suppliers in their supply chain could potentially influence the processes of their current suppliers by exercising their power as a client.
4.2.3 Peer Behavior. A third component to the business environment a firm operates in
is the behavior of its peers. There are two sides to peer behavior. On one side it was said to foster a feeling of mutual accountability. The following quote can illustrate this sentiment.
¨When these firms see what the other firms are doing, it´s inspiring in a way for them. You can see them discussing amongst each other what new sustainable measures they implement.¨(CEO of Born-Two).
This interviewee’s primary business model is based on this concept. As a result, (CEO of Born-Two) creates groups of firms that all inform and support each other in the process of increasing their sustainability. The following is a quote from the website of this company.
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lowers the barrier to talk about sustainability with employees, who then incorporate it in their private lives.” (company website2)
Here the positive side of collectively working on sustainability is emphasized. It can be hypothesized that through peers being sustainable, firms might feel like they need to match or surpass that type of behavior.
However, the other side to collective action also came forward in the interviews. In this case, the company that functions as a case in this thesis had a different perspective to offer.
¨When these boards enter a covenant, you´d hope they would be more motivated to work towards their sustainable goal together, but the opposite happens. It´s like when they sign this contract they just lean back and think: Someone else will take care of this for us. A sort of bystander effect. (Head of Acquisitions at Suncase).¨
This shows what could be the other side of the coin. It is possible that when a collective effort is verbally agreed, the enactment of it might be halted through the psychological effect that the mere act of agreeing already feels like and action or because all the individual members feel the responsibility doesn´t lie with themselves but with the group as a whole.
5. DISCUSSION
Following the findings, the research will now make a link between the existing literature as laid out in the literature review and the findings of this research. The way the concepts from academic literature relate to the aggregate dimensions firm characteristics and business environment will be explored so that the academic value of them is increased. In addition,
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those findings that might be novel, will be highlighted. First, the factors influencing
sustainable innovation in SME’s will be discussed. After this, the category of SME’s will be further divided into born-sustainable firms and transitioning firms and their respective differences will be discussed.
5.1 Sustainability Factors and SME’s
When reconciling existing literature on firm size with the findings of this research, a number of things stand out. Firstly, the observation was made in the findings that large firms and small firms differ in flexibility. This is to say that smaller firms can react and adapt more quickly than large firms. This seems to be a novel elaboration on literature that describes that large firms attract attention from more stakeholders, meaning they have more stakeholders to consider before they restructure (Gallo et al., 2001). It would suggest that SME’s benefit from their small size with regards to adaptability, partly because they have fewer stakeholders to consider. However, a finding concerning small firms is that even though the ability to restructure the business processes comes easier to smaller firms, the ability to follow through on these intents might be hampered, because smaller firms have less resources that they can afford to divert from the existing business operations. This further strengthens the notion of Hahn et al., who also found in their research that a lack of slack in resources can create difficulty for SME’s within the process of incorporating sustainability in their processes (Hahn et al., 2013), and it expand on it by adding that this not only applies to sustainability reporting which is and outcome, but also to sustainable inputs, such as sustainable innovation.
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to sustainable innovation also supports the notion that individuals with a high openness are more likely to involve themselves with sustainable innovation (Nga et al.,2010).
Furthermore, the age of the individual as influencer of their propensity towards sustainability also arose in both the literature and the findings. Interestingly, the results of the findings contradict the literature on this front. The literature suggests that age is either negligible or positively related to sustainability in a way that a higher age correlates with higher propensity for sustainability (Wiernik et al.,2013). However, the findings suggest that the reverse is true and that younger people are more likely to value sustainability. It is possible, that this is related to sustainability becoming more of a talking point in recent years than it used to be, whereas in the years before the frugality associated with old age surpassed the amount of sustainable behavior of young, at that time, uninformed about sustainability individuals. However, more research would need to be done to ascertain the nature of this contradiction between literature and findings. Notwithstanding, it could be hypothesized that this might give SME’s an advantage over MNE’s, owing to the proportion of young individuals in a leadership position being higher in SME’s than in MNE’s (James et al.,2019).
The findings on subsidies are that for companies that receive them they have a dual function. Firstly, they help with the first steps of incorporating sustainability into the firm. Firms indicated that this was particularly important for smaller firms that did not have much excess capital. This could indicate that for SME’s, the importance of subsidies in the early stages is larger than for MNE’s. Secondly, they signal to the firms that sustainability is desired by society. The latter coincides with Frey et al. and the description their paper gives of subsidies as an expression of desired behavior (Frey et al.,2006). However, instead of subsidies
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from further research, namely this encouraging aspect. Interviewees reported that the most efficient way subsidies were used was when they were given to firms at the beginning of the sustainable innovation process. In this way they gave support to firms during the first steps, which were claimed to be the most difficult. Though the importance of subsidies is not novel, the insight that the most effective timing for them is at the very start of the operational process might be a novel and useful insight.
The notion of purchaser influence was also explored. Interviewees reported that suppliers were often open to requests of purchasers about sourcing products more sustainably. While this negotiation power can be expected of MNE’s, interestingly SME’s also seem to have this power. Additionally, this seems to contradict Busse et al., who stated that even large firms often find it difficult to convince suppliers to deliver a more sustainable supply. A possible explanation is that the article by Busse et al. relates solely to suppliers in third world countries. However, the location of the suppliers in the sample used in this study was not disclosed and for SME’s, might be closer to the firm geographically (Busse et al.,2016).
The findings on peer behavior were twofold. On one hand the idea was put forth that through collective effort, a feeling of mutual accountability is fostered and that the pressure of peers can positively influence the intention to follow through on the ideas. However, other findings suggested that a collective agreement might be detrimental, due to the act of creating a
collective already feeling like a step in the process and the transfer of individual responsibility to group responsibility.
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literature concerning the second notion is notably scarce and could not be found during the literature review. It could indicate that this notion is novel to the existing literature.
5.2 Born-sustainable Firms and Transitioning Firms
In what appears to be a novel finding, even within the larger category of SME’s an important distinction can be made when considering the factors that drive sustainable innovation. Through the findings, it is suggested that the drivers and barriers for born-sustainable SME’s are different than those for transitioning SME’s.
A rather interesting finding for transitioning firms was that the existing business model of a firm can have a great impact on the type of sustainable innovation. As Schaltegger et al. partly predicted in their paper, there is in practice a barrier for firms concerning sustainable innovation, which is that they have an existing business model and infrastructure that they have invested in (Schaltegger et al.,2012). Though accommodative and proactive techniques could help to reduce the problem, the findings suggest that sometimes, the most sustainable technology is simply irreconcilable with existing technology in the firm, leading to the innovations that gain acceptance to not be the most sustainable, but the least disruptive to existing business processes.
The findings on motivators for firms to act sustainably differ between born-sustainable firms and transitioning firms. Transitioning firms, according to the findings, might respond better to external motivation (Bronn et al.,2008).
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supplements to their internal motivation, which was to practice sustainability for the sake of sustainability. (Graafland et al., 2016).
The importance of profitability, in particular for transitioning companies, came forward in the findings. The idea that profitability is the main driver for these firms, can be reconciled with the literature describing the usefulness of convincing managers that sustainability is a competitive advantage (Lopez-Gamero et al.,2009;Lopez-Gamero et al.,2010). Using the profitability focus of managers can then prove a way to encourage sustainable innovation. The findings on profitability for born-sustainable firms, however, often suggested that they cared about profit only in so far as it allowed them to continue operating. The possible novelty here is that though profitability is a motivator for both, the importance of it varies between born-sustainable firms and transitioning firms.
Government legislation’s effect on motivation also differed between transitioning and born-sustainable firms. While transitioning firms were often motivated by the avoidance of punitive measures such as fines, born-sustainable firms indicated that they felt the government enabled them to be more sustainable with encouraging measures. The former coincides more with external motivation while the latter seems to indicate internal motivation (Bronn et al.,2008;Graafland et al., 2016). This further strengthens the notion that transitioning firms use sustainability to increase their other firm outcomes, while born-sustainable firms use the same motivators as firm inputs to increase their sustainability.
A motivator that only arose with born-sustainable companies was the motivation to be an example for society. This societal function was found to be a sense of duty towards the environment, which can indicate that it is a form of internal motivation.
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more difficult to be successful in implementing these processes, since by design the external motivator is then the priority instead of sustainability itself. This is supported by research, which describes that firms need to focus on prioritizing and incorporating sustainability throughout the firm processes as opposed to using it as an ad hoc goal outside the core processes (Thompson et al., 2005).
The firm’s reputation concerning sustainability also influenced different firms in different ways. Here a distinction was made between a positive reputation and a negative reputation. In the findings, the firms that described that their reputation as negative not only found it more difficult to engage in sustainable innovation, but also found that sustainable initiatives were met with considerable skepticism. This supports the research by de Vries, which shows that indeed when firms with a negative environmental reputation engage in sustainability, it can be seen by the public as greenwashing (De Vries et al,2015). The findings also indicated that when this happens it has a strong negative effect on the motivation to be sustainable in the firm. It could be reasoned, that transitioning firms might suffer more from their past
reputation, because born-sustainable firms take sustainability into account from the moment they start operating.
The effects of the government as an influencer of sustainable innovation seem to have two aspects. On one hand the government can act as enforcer of punitive measures, while on the other they can encourage firms through the use of subsidies. The findings described that the punitive aspect was important primarily for transitioning firms. Some even went so far as to say that the only reason firms try to engage in sustainable innovation is because of
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The perception of sustainability was also found to be linked to individual knowledge about sustainability. Since the findings point towards the notion that informed managers tend to find sustainability more important, the research of Lacy et al. is supported (Lacey et al.,2012). It was also identified that managers of transitioning firms usually lack knowledge about sustainability and consequently are less likely to find it intrinsically important. However, a possibly novel reverse relationship was also identified in the findings, which relates in particular to born-sustainable firms. In this case, there exists a different type of relationship, because there can also be a lack of business knowledge in individuals with a high amount of sustainability knowledge.
6. CONCLUSION
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Furthermore, a distinction was made between born-sustainable firms and transitioning firms with regards to the way sustainable innovation influencers relate to them. The conclusion was drawn that a problem which concerns only transitioning firms, is that transitioning firms are driven to avoid significant switching costs from adapting the business model to the sustainable innovation. On the subject of motivation, born-sustainable firms seem to be more intrinsically motivated, while transitioning firms appear more extrinsically motivated. The reputational aspect played a role in the proceedings of both born-sustainable and transitioning firms. However, transitioning firms more often suffered from a negative reputation. This is because transitioning firms, unlike born-sustainable firms, did not build up a sustainable reputation from the start of their business operations. Lastly, the role of knowledge played a different role in born-sustainable firms compared to transitioning firms. In the latter, business knowledge was often there while sustainability related knowledge was lacking. With regards to the later, this division was at times reversed, with knowledge being high when related to sustainability, but not with regards to business knowledge.
A number of interesting avenues of future research were also identified. The main finding that could be interesting to explore is the difference between born-sustainable firms and
transitioning firms. As this distinction revealed itself over the course of this research, it would be valuable to construct research aimed specifically at this phenomenon. Additionally, the contradictions to existing literature found in this research might be indicative of a shift in the environment of business with regards to sustainability, but more research is needed before such a bold claim can be made with any certainty.
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in general, it nevertheless poses a limitation in this study. Additionally, due to the time constraints, most firms were not able to provide more than one interview. This made it more difficult to verify whether the data from the interviews was interpreted correctly. Furthermore, one of the transitioning parties interviewed was an MNE and not an SME, which reduces the value of that data for certain parts of the research. Finally, all the firms that were interviewed are situated in Groningen. This might limit the generalizability of the results.
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