The impact of dynamic capabilities on sustainable
performance : theory and evidence from Dutch SMEs.
Master Thesis
Manon Eikelenboom - S2356120 Supervisor – dr. G. de Jong
Research Master Economics and Business Global Economics and Management
University of Groningen
2 The impact of dynamic capabilities on sustainable performance : theory and evidence
from Dutch SMEs.
ABSTRACT
3 1. INTRODUCTION
The world economy is facing sustainability issues that offer challenges to balance the interests of people, planet and profit. The UN’s new mission offers a detailed overview of the challenges that need to be met in order to sustain planet earth for future generations (United Nations, 2015). In order to meet these challenges, businesses are increasingly required to consider not only economic performance but also new concerns about social and environmental issues (Bocken et al. 2014). This has increased complexity as companies are not only evaluated on their economic outcomes but also on the way these outcomes are realized whilst considering impacts on societies and the environment (Waddock & Graves, 1997). The implementation of sustainability in small and medium-sized enterprises (SMEs) means that firms integrate a combination of environmental, social and economic goals in their organizations in order to become sustainable entrepreneurs (Spence et al. 2011). Truly sustainable entrepreneurs are argued to simultaneously implement high levels of concern for people, planet and profit (Dyllick & Hockerts, 2002). These organizations challenge the traditional thought in the strategic management literature that contrasts social, environmental and economic goals and the alleged required trade-offs between these goals (Baron, 1995: York & Venkataraman, 2010: Belz & Binder, 2015). An example of a sustainable company is Innocent. Innocent is a small juice company which optimally combines a high level of social, environmental and economic goals in its organization.
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environmental management systems such as ISO 14001 or EMAS (Crals & Vereeck, 2005). Sustainability is traditionally seen as a privilege of large corporations which possess sufficient funds to invest in green and social initiatives. In contrast, SMEs are believed to adopt only reactive strategies towards social and environmental objectives (Bianchi & Noci, 1998). However, more recently scholars have argued that SMEs can not only be the main drivers for sustainable development as they are idealistic, flexible, innovative (Hockerts & Wüstenhagen, 2010) and able to deal with uncertainty (York & Ventkataraman, 2010) but also experts in sustainable entrepreneurship.
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combined in one business does not help us to understand how businesses can achieve this. Those SMEs that aim to adopt a high level of concern for people, planet and profit goals are often referred to as sustainable entrepreneurs. This research aims to increase theoretical and empirical insights concerning the implementation of sustainable entrepreneurship in SMEs by adopting a dynamic capabilities perspective.
Scholars have argued that especially firm internal factors or intra-organizational processes are important in order to understand the implementation of sustainability (Arnold & Hockerts, 2011). We therefore adopt the resource-based view and dynamic capabilities theory which argues that dynamic capabilities – the firm’s processes that use resources, specifically the processes to integrate, reconfigure, gain and release resources, to match and even create market change (Teece et al. 1997) – are a source of sustained competitive advantage in situations where the competitive landscape is shifting with rapid and unpredictable changes (Teece, 2007). The environment surrounding sustainability is highly unpredictable as clear guidelines for sustainability are unavailable and technologies, beliefs and institutions regarding sustainability are rapidly changing (O’Neil & Ucbasaran, 2016). Therefore, recent research suggests that dynamic capabilities can assist SMEs in implementing sustainability (Arend, 2013; Dangelico et al. 2016). However, there is no understanding on how exactly these internal firm processes are linked to the sustainable performance of SMEs. Furthermore, it is unclear which internal processes are important for sustainability in SMEs and how these internal processes can be developed. In order to increase our insights in the linkage between dynamic capabilities and sustainability in SMEs we will establish new hypotheses with the use of a comprehensive literature review and a case study. These hypotheses will be tested with the use of a survey study among 246 SMEs in the Netherlands.
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important for the sustainable performance of SMEs. SMEs often possess limited resources, which decreases their ability to develop unique capabilities for social and environmental goals next to economic goals (Hockerts & Wüstenhagen, 2010). Integration dynamic capabilities are particularly useful for the sustainable performance of SMEs as they can enable SMEs to effectively integrate internal and external sustainability knowledge and capabilities within the existing resource base (Ambrosini & Bowman, 2009). We propose that internal and external integration dynamic capabilities will assist SMEs in transferring sustainability knowledge across their organizations, avoid duplicative efforts and cooperate with external parties for sustainability. This is important for the social, environmental and economic performance of SMEs as we expect that firms with these dynamic capabilities possess several important advantages, including the ability to (1) effectively integrate sustainability into the organization, (2) recombine existing sustainability knowledge, and (3) reconfigure competencies in line with the changing sustainability environment and market.
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development of dynamic capabilities for sustainability in the organization and, in turn, the simultaneous achievement of social, environmental and economic goals. Our research questions are twofold. First, what is the effect of leadership cognitions and social capital on the implementation of dynamic capabilities for sustainability in SMEs? Second, what is the effect of dynamic capabilities for sustainability on the sustainable performance of SMEs?
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relate to sustainable performance, we help explain why some SMEs succeed in implementing sustainability while others do not.
This thesis will be developed as follows. We start with a literature review on sustainable entrepreneurship and dynamic capabilities. Thereafter, we present the results of an explorative case study as the literature on sustainable entrepreneurship is still in its infancy. Therefore, we were only able to identify limited information on the internal organizational factors that assist SMEs in implementing sustainability. Our exploratory case study helps to identify the factors that will be adopted in our model and empirical research. Thereafter, hypotheses are developed by combining the insights of the case study and literature review. These hypotheses were tested in a survey study among 246 SMEs in the Netherlands. We proceed by describing the methodology, data analysis and results of our survey study. Finally, we present a discussion of the findings, indicate limitations and give directions for future research.
2. LITERATURE REVIEW
2.1 Sustainability
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and fundamental to corporate financial success in the long run. Corporations cannot survive if expenditure exceeds income. Social sustainability refers to the humanitarian context of business and relates to issues of poverty and income inequality, for example disease, access to health care, clean water, sanitation, education, and broader problems associated with the impact of economic development. Environmental sustainability considers the impact of business on the quality and quantity of natural resources, including for example global warming, ecological concerns, waste management, reductions in energy and resource use, alternative energy production, and improved pollution and emissions management (Haugh & Talwar, 2010).
We investigate in this section what it means for SMEs to implement sustainability, what the definition of sustainable entrepreneurship is, and what a high sustainable performance means.
2.1.1 Sustainability in SMEs
A small or medium-sized enterprise (SME) is a firm that is closely-held, privately owned and operated company usually operating within a single industry, having more than 5 employees but fewer than 500 employees, and that annually conducts some form of internal strategic or business planning (Bretherton & Chaston, 2005). Sustainability has often been argued to be a privilege of large corporations which have sufficient funds to invest in green and social initiatives. Furthermore, SMEs are largely believed to adopt solely reactive strategies towards social and economic objectives (Bianchi & Noci, 1998). More recently, interest has shifted towards sustainability in small and medium-sized enterprises, including very small entrepreneurial start-ups, some of which base their entire business rationale on sustainable principles (Rodgers, 2010).
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informal strategies, and flexible structures (Hudson et al. 2001; Qian & Li, 2003). Darcy et al. (2014) identify three core areas where SMEs differ including their approaches to strategy development and implementation, the role of the owner/manager and the absence of formalized HR policies and practices. With regard to strategy, SMEs often do not have a focused, deliberate strategic approach to strategy formulation, implementation and planning (Darcy et al. 2014). Furthermore, SMEs often haven little or no techno structure, few support staff, a loose division of labor, minimal differentiation among its units and a small managerial hierarchy (Mintzberg, 1979:306).
Due to the differences between SMEs and large firms, SMEs are expected to be most effective in executing the initial phases of sustainable development in society. This is mainly due to their ability to face entrepreneurial risks, flexibility and innovativeness (Hockerts & Wüstenhagen, 2010). SMEs are expected to be able to adopt sustainable entrepreneurship activities and in this way push the market towards becoming more sustainable (Horish, 2015). Current research recognizes that SMEs may face important difficulties when implementing sustainable entrepreneurship activities like their propensity to focus on one issue (either social or environmental) only, limited resources and limited communication capabilities (Hockerts & Wüstenhagen, 2010). Therefore, small and medium sized sustainable enterprises are argued to address sustainability via entrepreneurial activities regarding social and environmental issues of local application but of global relevance (Santos, 2012). However, little research focusses on how such sustainable entrepreneurship activities can be implemented within SMEs.
2.1.2 Sustainable entrepreneurship
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impossible to develop one unbiased definition (Berger & Luckmann, 1966). Sustainable entrepreneurship is a contested concept and has a broad range of interpretations (Choi & Majumdar, 2014). Therefore it is important that authors explicitly state their understanding of sustainable entrepreneurship in their papers. In order to develop a consistent understanding of sustainable entrepreneurship, we study the similarities and differences between the current definitions adopted by researchers. Appendix A includes a list of 31 distinct definitions of sustainable entrepreneurship. When examining these definitions we find that three topics are often mentioned in order to define sustainable entrepreneurship including (1) the enactor of sustainable entrepreneurship, (2) the goals of sustainable entrepreneurship (both direct and indirect goals), and (3) the processes by which sustainable entrepreneurship reaches its goals. This is in line with the research of Majid and Koe (2012) who also identify the importance of three topics in a definition of sustainable entrepreneurship: processes (what entrepreneurs do), behaviors (who are entrepreneurs) and outcomes (what entrepreneurs produced). This section investigates how these aspects are adopted in the current definitions of sustainable entrepreneurship.
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large, commercial or non-commercial firms or entrepreneurs.
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value.
Some definitions also include the indirect goals of sustainable entrepreneurship. With indirect goals we mean the overarching goals in society to which sustainable entrepreneurship can or should contribute. Several definitions state that sustainable entrepreneurship can assist in achieving sustainable development (e.g. Parra, 2013). Other definitions focus on the ability of sustainable entrepreneurship to bring sectors or institutions to a more sustainable state (Hockerts & Wustenhagen, 2010). However, it has to be noted that the majority of definitions do not include the indirect goals of sustainable entrepreneurship. To conclude, sustainable entrepreneurship can, but does not have to, achieve important indirect goals like sustainable development and sustainable institutional transformations.
Finally, most definitions include the processes by which sustainable entrepreneurship reaches its goals. Most definitions highlight the process of discovery, creation and exploitation of opportunities (e.g. Horisch, 2015). Opportunities can be economic in nature (Hockerts & Wustenhagen, 2010) or present in market failures (Dean & McMullen, 2007). However, most definitions do not address the specific nature of these opportunities. Multiple definitions also include the importance of innovation, often disruptive in nature, for the achievement of the goals of sustainable entrepreneurship (e.g. Hockerts & Wustenhagen, 2010: Wijker et al. 2015). The definitions highlight that the processes of opportunity discovery and innovation can lead to the creation of new goods and services (e.g. Patzelt & Shepherd, 2010), management systems, markets, business systems and organizational processes (e.g. Shepherd & Patzelt, 2011). To conclude, sustainable entrepreneurs use processes of discovery, creation and exploitation of opportunities and/or innovation to create new goods or systems in order to reach their goals.
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combing the conclusions of the three topics in the definitions we provide the following definition:
‘A sustainable entrepreneur is an organization – commercial, non-commercial, small or large– or entrepreneur whose direct goal is to provide a combination of environmental, social and/or economic value through a process of discovery, creation and exploitation of opportunities – economic, non-economic, market failures– and/or innovation to create new goods, services, management systems, markets, business systems and/or organizational processes. By doing this sustainable entrepreneurship can, but does not have to, assist sustainable development and institutional change.’
This definition is broad, which potentially makes specific operationalization difficult. However, the differences found in the definitions and the multiple concepts of sustainable entrepreneurship adopted in the articles highlight that different levels or types of sustainable entrepreneurship may exist.
2.1.3 Different levels of sustainable entrepreneurship
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that address social goals are social entrepreneurs, entrepreneurs that address environmental goals are environmental entrepreneurs and entrepreneurs that address both social and environmental goals are sustainable entrepreneurs.
It is interesting to note that there is a difference in the importance of economic goals in the definitions on social and environmental entrepreneurship. Commercial interests and economic goals are not frequently mentioned in the definitions on social entrepreneurship (Ghauri et al. 2014). Haugh’s (2007) definition even states that social entrepreneurs are mostly nonprofit organizations. However, a few definitions do stress the importance of economic goals for social entrepreneurs (e.g. Zahra et al. 2014). On the other hand, the definitions on environmental entrepreneurship almost all mention the importance of achieving commercial goals, having a market orientation (Horisch, 2015) and reaching mass markets (Schaltegger, 2002). It thus seems that social entrepreneurship focusses on social goals with a lower emphasis on economic goals, while environmental entrepreneurship focusses on the achievement of both environmental and economic goals.
16 Figure 1: Different types of entrepreneurship according to the focus on environmental and/or social goals and economic goals.
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There are also three forms of entrepreneurship in which economic goals are included, being less or equally important to social and/or environmental goals. Social entrepreneurs are entrepreneurs that simultaneously create social and economic value. They pursue social goals by adopting business models and market-based solutions (Acs et al. 2013). Social entrepreneurs can also partly rely on volunteers and donations (Haugh, 2007) and can be called hybrid entrepreneurs as they adopt both market-based and social logics (Lepoutre et al. 2013). Ecopreneurs are entrepreneurs that realize market success and economic opportunities through the achievement of environmental goals only. These entrepreneurs search for business ideas that are created by environmental problems while simultaneously providing economic gains (Schaltegger & Wagner, 2011). Sustainable entrepreneurs are entrepreneurs that simultaneously create economic, social and environmental value. According to Dyllick and Hockerts (2002) a truly sustainable entrepreneur should recognize the business case, the natural case and the societal case of sustainability. These three types of entrepreneurship challenge the idea that there is a trade-off between environmental, social and economic goals (York & Venkataraman, 2010). Jolink and Niesten (2015) argue that it is possible to be completely sustainable and profitable at the same time.
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economic sustainability by paying attention to social and environmental issues, is not enough to become a sustainable entrepreneur.
This typology of entrepreneurship could also be viewed as a continuum instead of a strict typology. For example, entrepreneurs may focus mainly on social goals but also slightly include environmental goals, leaving them in between a social and sustainable entrepreneur. Entrepreneurs may also switch between the types of entrepreneurship. For example, a company may start out as a bioneer but later on increase its market focus and business approach and evolve into an ecopreneur. Furthermore, an entrepreneur may start out as a sustainable entrepreneur however lose track of his or her social and environmental goals and transform into a social and environmental responsible entrepreneur.
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creation. This means thus that economic goals are important for sustainable entrepreneurs, but they do not exceed the goals of the firm to provide social and environmental value.
To conclude, a sustainable entrepreneur is ‘an organization or entrepreneur whose direct goal is to provide environmental, social and economic value - in which the goals of economic value creation do not exceed the goals of social and environmental value creation - through a process of discovery, creation and exploitation of opportunities and/or innovation to create new goods, services, management systems, markets, business systems and/or organizational processes.’
2.1.4 Sustainable performance
Researchers have been debating about the meaning of a high performance for sustainable entrepreneurs. Parrish (2008) argued that success in entrepreneurship means the ability of the enterprise to outlive failures and accumulate success over time. However, is merely surviving also enough for sustainable enterprises? We feel that this is not the case as also important environmental and social goals play a role next to mere survival. In line with this Dees (1998) argues that survival or growth of the social enterprise is no proof of its efficiency or effectiveness in improving social goals. In this section we focus on defining success for sustainable entrepreneurs. We have seen that these entrepreneurs have to reach social, environmental and economic goals simultaneously. What does the achievement of important social, environmental and economic goals mean?
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for society has to be created, however the authors do not indicate what this mutual benefit entails. What the authors do mention is that social value creation is highly firm specific, meaning that each firm has to identify his or her own social goals that fit to the organization. Other researchers argue that also the creation of some benefit for society and the environment is not enough as sustainable entrepreneurs should significantly contribute to sustainable development in order to reach their goals. For example, Iygun (2015) proposes that only when reaching mass markets sustainable entrepreneurs can make a difference, transform institutional environments and make a real contribution to social and economic development. Finally, some scholars argue that reaching environmental and social goals means establishing effective and sustainable solutions for social and environmental problems. Santos (2012) even argues that sustainable entrepreneurs should formulate solutions for social and environmental problems that internalize market failures for the benefit of society, deeming the work of the sustainable entrepreneur redundant.
Next to social and environmental goals, sustainable entrepreneurs have to reach economic goals. York and Venkataraman (2010) argue that sustainable entrepreneurs are only successful when they can survive financially without relying on donations and volunteers. In line with this Katre and Salipante (2012) define successful sustainable entrepreneurs as those that have conceptualized social and economic opportunities, developed market-driven products/services, and are fully launched with a functional social-business track record for at least three years. Dyllick and Hockerts (2002) argue that the economic goals of the firm not only include firm survival but a broad range of aspects including all monetary flows, financial debt, tangible assets, intangible capital, the creation of employment, fair trade principles and investments in research and development.
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total wealth created by a social entrepreneur is its economic value creation plus its social value creation minus the sum of economic costs, opportunity costs and social costs. This total wealth should be positive in order for social entrepreneurs to be successful. This implies that economic gains may offset the social costs of the company. However, other researchers do not agree with this and argue that a threshold value of all goals should be achieved where different goals cannot offset each other (Dees, 1998). Furthermore, some scholars argue that all goals should be equally important (Majid & Koe, 2012). In line with this research, we argue that social, environmental and economic goals should all be achieved simultaneously and cannot offset each other.
Multiple researchers argue that social, environmental and economic goals do not have to be achieved immediately. For example, Miller and Wesley (2010) argue that effective social entrepreneurs are those that have stablished a venture, become autonomous and deliver social value within 10 years. Furthermore, multiple scholars argue that sustainable entrepreneurs may often be not profitable in their early stages. This has to be taken into account when the performance of sustainable entrepreneurs is addressed.
22 2.2 Dynamic Capabilities
This section addresses the dynamic capabilities theory including definitions and different types of dynamic capabilities. Thereafter, we will explore how the dynamic capabilities perspective can be applied to sustainable entrepreneurship.
2.2.1 What are dynamic capabilities?
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The propositions of the RBV have been criticized for being static and neglecting the influence of market dynamism (Eisenhardt & Martin, 2000). The theory of dynamic capabilities emerged to enhance the RBV. The dynamic capability perspective extends the resource-based view argument by addressing how valuable, rare, difficult to imitate and imperfectly substitutable resources can be created and how the current stock of valuable resources can be refreshed in changing environments (Ambrosini & Bowman, 2009). The theory states that the changing nature of the environment suggests that resources cannot remain static and still be valuable. In order to gain a persistent competitive advantage, firms must continually evolve and develop their resources otherwise firms may only be able to be competitive in the short term. Dynamic capabilities assist firms in achieving this constant change and development of resources (Ambrosini & Bowman, 2009).
Originally dynamic capabilities were defined as ‘the firm’s processes that use resources, specifically the processes to integrate, reconfigure, gain and release resources to match and even create market change’ (Teece et al. 1997, p.516). According to this definition dynamic capabilities are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die. For example, absorptive capacity can be seen as a dynamic capability as it influences the firm’s ability to create and deploy the knowledge necessary to build other organizational capabilities: it allows firms to create and exploit new knowledge and gives them the flexibility to change and compete in dynamic and changing markets (Zahra & George, 2002).
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advantage’. The multiple different definitions and contradictory arguments in the literature complicate the definitional issue of dynamic capabilities. For example, Zollo and Winter (2002) argue that dynamic capabilities are structured and persistent, while Rindova and Kotha (2001) conclude that dynamic capabilities are emergent and evolving. In a review of the literature Ambrosini and Bowman (2009) define several overlapping notions in the different definitions on dynamic capabilities. Firstly, dynamic capabilities are organizational processes in the most general sense and their role is to change the firm's resource base. Thus dynamic capabilities can be seen as processes that impact upon resources. Secondly, dynamic capabilities are built rather than bought in the market, are path dependent, and embedded in the firm. Finally, the authors conclude that dynamic capabilities are intentional efforts to change the firm’s resource base, so the dynamism of the capabilities refers to their ability to change the resource base and the renewal of resources. In line with these overlapping notions we will define dynamic capabilities as ‘built organizational processes that intentionally modify, change and renew a firm’s resource base by integrating, reconfiguring, renewing and recreating resources’.
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Other researchers have also included sensing (the ability to spot, interpret and pursue opportunities in the environment) and coordinating (the ability to orchestrate and deploy tasks, resources and activities in the new operational capabilities) dynamic capabilities (Pavlou & Sawy, 2011). However, other research has argued that sensing and searching are not dynamic capabilities but the managerial and organizational processes that underpin and enable the deployment of dynamic capabilities (Ambrosini & Bowman, 2009). In line with Ambrosini and Bowman (2009) and Teece et al. (1997), we will adopt four general types of dynamic capabilities in this research: reconfiguration of resources, leveraging of resources, integration of resources, and learning.
It is important to note that some researchers argue that small or entrepreneurial ventures do not possess dynamic capabilities. For example, Teece and Pisano (1994) argue that it takes years or even decades to establish dynamic capabilities, which cannot be met by new entrepreneurial firms. However, other authors argue that entrepreneurial firms can possess dynamic capabilities. For example, Newbert et al. (2008) argue that small ventures possess different dynamic capabilities. Arend (2014) found in a survey among US SMEs that entrepreneurial ventures self-reported the existence of dynamic capabilities in their organizations. These levels were similar to the levels of dynamic capabilities in the large, traditionally studied, corporations. In line with these findings, we argue that entrepreneurial and small enterprises can possess dynamic capabilities.
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organizations (Augier & Teece, 2009). Managers direct operations and decide how resources are to be orchestrated and allocated. Especially in SMEs, where managers are often also the owners of the corporation, managers have considerable strategic discretion over the allocation of resources (Matzler et al. 2008; Spence et al. 2011). These managers/owners are essential for enterprise success as they decide where to put resources, realize opportunities and defend and/or move when competition arises (Augier & Teece, 2009). Especially entrepreneurs are argued to sense opportunities ahead of others and be able, through various means, to get others to share their vision and help them execute upon it. It is the job of the manager to decide what investments are to be made, what assets are to be purchased, and how complementarities are to be achieved (Zahra et al. 2006).
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managerial decisions. Finally, managerial cognitions refer to managerial beliefs and mental models that serve as a basis for decision making (Adner & Helfat, 2003). Cognitions can include knowledge or assumptions about future events, knowledge of alternatives and knowledge of the consequences of alternatives. A manager's limited field of vision, selective perceptions, and interpretations filtered by the cognitive base and value system combine to produce managerial perceptions of a situation. These perceptions in turn form the basis for managerial decisions (Schwenk, 1984). Differences in managerial cognitions are expected to lead to different strategic decisions and outcomes.
To conclude, the strategic management perspective on dynamic capabilities argues that managers drive the establishment and development of dynamic capabilities in their organizations. The choices of managers about the devotion of resources to specific dynamic capabilities depend on their cognitions, social capital and human capital.
2.2.3 Dynamic capabilities and sustainability
In the general theory, dynamic capabilities are considered to be a source of sustained competitive advantage in situations where the competitive landscape is shifting and there is rapid and unpredictable change (Teece, 2007). According to Zahra et al. (2006) three elements regarding the presence of dynamic capabilities have come to be confounded in the literature: (1) the ability to solve a problem (a substantive capability), (2) the presence of rapidly changing problems (an environmental characteristic), and (3) the ability to change the way the firm solves its problems (a higher-order dynamic capability to alter capabilities). To date the dynamic capabilities literature has focused mainly on the application of dynamic capabilities to the economic goals of firms (Wu et al. 2012).
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These studies are both exploratory in nature and future research is necessary to investigate the impact of dynamic capabilities on sustainability in firms. The first steps are included in this thesis.
More recently, authors have focused on dynamic capabilities that are specifically related to sustainability. These ‘sustainability dynamic capabilities’ can be seen as a specific subset of the general dynamic capabilities (Strauss et al. 2016). Table 1 gives an overview of the different concepts of sustainability dynamic capabilities adopted in the literature, their definitions, and, if present, the different dimensions identified.
Table 1: Concepts of sustainability dynamic capabilities adopted in the literature
Authors Concept Definition Dimensions
Wu et al. (2012) Dynamic capabilities for corporate sustainability
The firms’ ability to address the rapidly evolving sustainable expectations of stakeholders by purposefully modifying functional capabilities for the simultaneous pursuit of economic, environmental and social competences Scanning, reconfiguration & identification Strauss et al. (2017) Sustainability dynamic capabilities
Those capabilities that enable an organization to reconfigure its resource base to deal with the changes in the context that are the result of its sustainability strategy, requiring it to balance business objectives and environmental externalities
- Dangelico et al. (2016) Sustainability-oriented dynamic capabilities
The firm’s ability to integrate, build and reconfigure competences and resources to embed environmental sustainability into new product development to respond to changes in the market
External resource integration, internal resource integration & resource building and reconfiguration Chen and
Chang (2013)
Green dynamic capabilities
The ability of a company to exploit its existing resources and knowledge to renew and develop its green organizational capabilities to react to the dynamic market
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Arend (2014) Ethics-focused dynamic capability
The skills and resources a firm needs in order to obtain the synergies between ethics and performance over time.
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We can infer from Table 1 that multiple different definitions exist of sustainability dynamic capabilities. Most of these definitions seem not be consistent with the developed knowledge on general dynamic capabilities. All definitions refer to a certain ability, capability or skill of the corporation, while the general theory suggests that dynamic capabilities are not skills but processes that impact upon resources. In line with the general theory on dynamic capabilities we argue that sustainability dynamic capabilities are processes that impact upon existing resources. All definitions argue that sustainability dynamic capabilities assist firms in embedding sustainability in existing processes or resources. For example, Wu et al. (2012) argue that dynamic capabilities for corporate sustainability are specific organizational capabilities that enable firms to systematically incorporate the rapidly evolving stakeholder expectations of business, environmental, and social performance into their strategic change toward sustainability. In line with these findings and the definition of general dynamic capabilities we will define sustainability dynamic capabilities as ‘built organizational processes that intentionally modify, change and renew a firm’s resources to embed sustainability in the organization and respond to the changing sustainability environment’.
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between sustainability-oriented dynamic capabilities, eco-design capabilities and green innovation capabilities.
The empirical evidence thus suggests that sustainability dynamic capabilities assist firms in enhancing their environmental and social performance. However, empirical evidence is mixed and insignificant effects as well as significant effects of dynamic capabilities on social and environmental performance are found. We argue that this might be caused by the fact that the authors focus on different types of dynamic capabilities. Whereas some authors focus on one specific dimension, others focus on all dimensions (Marcus and Anderson, 2006), create their own dimensions (Dangelico et al. 2016: Wu et al. 2012) or do not specify which dimensions they investigate (Strauss et al. 2017). We argue that not all types of dynamic capabilities may be important for the implementation of sustainability in SMEs and that some may by more important than others. While Dangelico et al. (2016) create three dimensions they deem important for environmental innovation, it is not explained why these dimensions will be more important than others. Therefore, it is still unclear which dynamic capabilities are most important for sustainability. Furthermore, the current research does not address the impact of sustainability dynamic capabilities on all aspects of sustainability – people, planet and profit– simultaneously. Furthermore, the existing research does not address how these sustainability dynamic capabilities are established. In order to answer these questions we will conduct an exploratory case study.
3. CASE STUDY OF SUSTAINABLE ENTREPRENEURSHIP
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dynamic capabilities on sustainable performance. Furthermore, it is not clear which internal processes are most important for sustainability in SMEs and how these internal processes are developed. Therefore, we will collect both qualitative and quantitative data in order to answer the research questions raised in the introduction. Integrating both quantitative and qualitative data within a single study will assist us in gaining a better understanding of the research issue at hand. In our research the collection of qualitative data is important in order to identify important internal organizational characteristics in the implementation and execution of sustainability in SMEs. We feel that a mixed methods approach is necessary as only adopting quantitative or qualitative data is not sufficient to answer our research questions.
We adopt an exploratory case study (Welch et al. 2011) in order to identify internal organizational variables that are important in the implementation and execution of sustainable entrepreneurship in SMEs. This method is specified as an exploratory sequential mixed methods design which has as a purpose to first gather qualitative data to explore a phenomenon and then collecting quantitative data to explain relationships found (Creswell, 2005). This approach often involves a first phase of qualitative data collection with a small number of individuals, followed by quantitative data collection from a large, randomly selected, number of participants (Creswell, 2005). We will follow this approach and conduct in our first phase an exploratory case study among two organizations that involve different levels of sustainability.
3.1 Case Study Method
34 Case selection. For this research, two cases were selected of corporations that were involved in sustainable entrepreneurship activities. We adopted a purposeful sampling strategy, with cases deliberately chosen for their ability to reveal important information about the phenomenon of interest (Eisenhardt, 1989; Eisenhardt & Graebner, 2007: 27). As the purpose of this case study is to develop theory, not to test it, theoretical (not random or stratified) sampling is appropriate (Eisenhardt & Graebner, 2007). Being involved in sustainable entrepreneurial actions means that firms engage in environmental, social and economic activities. We aimed to make sure that variety in the cases in the level of engagement in sustainable entrepreneurship activities existed. This variety will enable us to observe the resemblance and differences in the sustainable activities of the firms, how these activities are implemented and executed, and how internal characteristics assist these activities. Furthermore, selecting cases with differences in their levels of involvement in sustainability helps us to identify those factors that may contribute to the level of involvement in sustainability.
Pettigrew (1990) suggests that in order to gain a broad understanding, studies using a limited number of cases should focus on extreme exemplars. In line with this argument, we decided to focus on two cases, one in which economic, social and environmental goals are highly incorporated in the organization and one in which economic goals are incorporated and social and environmental goals are aimed to be incorporated but not yet incorporated throughout the organization. This enables us to explore differences between organizations with different levels of involvement in sustainability (Eisenhardt & Graebner, 2007).
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corporate websites of several companies. We adopted one case that highly reported social and environmental activities on its corporate website, company A, and one case that did report some activity towards social and environmental goals, but only limitedly, company B.
The first case adopted in this thesis is company A. company A is a family business and has adopted sustainability in its corporation since its foundation in 1967. The company is specialized in the development and production of ecologically responsible products for soil, plants and animals for both private and corporate users. Taking care of the environment, sustainability and the diffusion of knowledge are core goals at company A. While the company can be classified as an SME, it has grown in the recent years and has established international operations in Belgium, Denmark and Austria.
The second case adopted is company B. Company B is specialized in the development and production of high quality cultures and dairy ingredients for the food industry. The company provides high quality products in terms of flavor, texture, conditioning and bio preservation, which is enabled by its market-focused research team. Company B has grown into an international supplier, however the corporation can still be classified as an SME with 180 employees. Sustainability is less integrated in Company B however the corporate website states that safety, traceability, reliability and sustainability are important aspects of their production processes. Furthermore, since two years the company has a QESH department which is responsible for all things related to the assurance of quality, safety and health of employees and consumers, the environment, compliance and corporate social responsibility.
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1.5 hours and were conducted in Dutch. Most attention was paid to understanding how sustainable entrepreneurship activities were adopted in the organization, including questions like ‘What does sustainable entrepreneurship mean for the organization?’ and ‘How is sustainability implemented in the strategy of the organization?’. A complete overview of the translated questions is provided in Appendix D. Next to these pre-specified questions, follow-up questions and probes were used during the interviews to clarify the explanations of the interviewees. The interviews were not recorded as this could affect the motivation of the interviewees to speak freely about sustainability, which may be a sensitive issue to the organization. Notes were taken during the interviews and they were transcribed by the interviewer immediately after the interviews. For the case study of company A we conducted two interviews with the CEO and CTO of the company. For the case study of company B we conducted one interview with the QESH (quality assurance, environment, safety and health) manager.
In order to analyze our data we adopted thematic coding approaches often adopted in case studies to define conceptually relevant categories and facilitate comparison between and within the cases (Parrish, 2010). This coding was inductive, from the data, rather than form prior theory. We aimed to code themes that have an importance in implementing and executing sustainable entrepreneurship activities in the organizations. Furthermore, we made sure to identify common patterns and differences across the transcribed interviews (Hennink, et al., 2011; Strauss & Corbin, 1998). As our case study is explorative in nature we identified several common themes in the interviews.
3.2 Case Study Findings
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these themes. Identified themes are: the initial adoption of sustainability, reasons for adopting sustainability, tradeoffs in sustainability, the role of leadership, the diffusion of sustainability throughout the organization and the role of sustainability in the success of the corporation.
The initial adoption of sustainability. The most striking difference between the cases is their initial adoption of sustainability. Sustainability has been a core part of company A since its foundation. The corporation initially started with a concept of sustainability based on family values and experiences, and developed an economic opportunity fitting these sustainability values. Like the CEO of company A stressed: ‘Sustainability is present in our DNA’. On the other hand, in company B sustainability is only implemented quite recently and gained importance with the establishment of the QESH department two years ago. Company B started with an economic opportunity and later on explored how sustainability could be implemented within this basis. This implementation is still in progress as the QESH manager mentioned: ‘What sustainability is for us? Actually we still don’t know that precisely’.
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implementing sustainability: ‘You have to believe in sustainability in order to make it work, solely adopting sustainability for profit and compliance reasons is not sufficient for its success’. This belief mainly resulted from the difficulties the company had with sustainability coaching, which made company B realize that people can give you advice regarding sustainability, however in the end the corporation has to believe in sustainability in order to make a difference.
Interviewees from both corporations mentioned that a lack of technology and standards regarding sustainability could provide reasons not to adopt sustainability practices. For example, the CEO of company A mentioned that it was difficult for the corporation to establish environmentally friendly packaging as technologies and requirements regarding packaging were not sufficiently developed. In order to improve their packaging, company A cooperates with external parties to evolve technologies. On the other hand, the QESH manager of company B mentioned that sustainability will be implemented in the organization when the technology is ready for it. The company is thus not actively cooperating with other parties to develop these technologies.
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choosing sustainability activities often the ‘low hanging fruit’ options were chosen, indicating those activities that are cheap and easy to implement.
The role of leadership. All interviewees mentioned the importance of leadership in implementing and executing sustainability. The QESH manager of company B noted that in order to implement sustainability throughout the organization, management has to believe in it. This is due to the fact that sustainability is according to the interviewee unlikely to be introduced through bottom-up approaches. However, the QESH manager mentioned that it was difficult to reach management for sustainability projects, making the implementation of sustainability difficult. Both interviewees of company A also indicated that leadership has an important role in the implementation of sustainability in their organization. They argued that leaders need a long-term focus, a daring attitude and should like to be involved in sustainability. Furthermore, leader values may be important as the CEO of company A mentioned that sustainability is about personal values due to its socially constructed nature and the necessary tradeoffs that have to be made: ‘You can decide to buy tablets for all your employees to decrease printing and waste of paper, however these tablets are made in polluting processes in China. What you chose in terms of sustainability depends on personal values as clear guidelines are often absent’. We may argue that these leadership values towards sustainability are holistic values as the CEO of company A mentioned that his vision towards sustainability did not differ in his personal and professional live. Finally, the CTO of company A mentioned that the leader has an important role in shaping the culture of the organization which can enable the implementation of sustainability.
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mainly top down approaches were adopted in order to diffuse and prepare employees for sustainability. However, the QESH manager also mentioned that a mind-set change is necessary involving more bottom-up approaches towards sustainability: ‘Employees seem to understand the notion of sustainability but do not yet do anything about it’. Furthermore, it seems that in company B no coherent image and strategy for sustainability is present. The QESH manager mentioned for example that the R&D department decided to relocate to a sustainable office, without discussing this with the QESH department. For company A, the diffusion of sustainability throughout the organization seems almost automatically as employees with sustainability values are self-selected. The CTO of company A argues that this may be due to the culture of the corporation which is about openness and discussion about sustainability. This does not mean that everyone inside the organization has a similar attitude towards sustainability: ‘The visions towards sustainability are not 100% but about 80% shared, this is important as different visions can assist the implementation and execution of sustainability’. The notion of sustainability in company A is even extended to the direct environment of the corporation by initiatives like the establishment of an area for cultural events and education of local inhabitants.
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economic goals the company achieves some, especially social, value. Contrastingly, the interviewees of company A did both not mention the achievement of some economic, social and environmental value for success. Instead both interviewees mentioned that success for company A indicates the ability of the corporation to assist in solving major societal issues and substitute un-sustainable products with their own sustainable alternatives.
3.3 Discussion Case Study Results
This case study aimed to understand how sustainability is implemented and executed in corporations and compared these processes in a corporation with a high involvement in social and environmental activities and a corporation with a lower involvement in these activities. Furthermore, we aimed to identify internal firm characteristics that are important in the implementation and execution of sustainability inside corporations. Several topics were addressed by the interviewees of both corporations, however the content of these topics differed significantly among the interviewees. We found that the corporations with low and high implementation and execution of social and environmental goals differ in their initial adoption of sustainability, their reasons for adopting sustainability, the importance of and trade-offs in sustainability, the role occupied by leadership in sustainability, the way sustainability is diffused throughout the organization and the success of the corporation in terms of sustainability.
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Secondly, in our case study the company that was highly involved in sustainability mentioned mostly intrinsic reasons for adopting sustainability and saw sustainability as a core goal in itself, while the company that had low involvement in sustainability mentioned mostly extrinsic reasons for adopting sustainability and saw sustainability mainly as a way to limit negative consequences for the corporation. Previous literature already addressed the differences in the motivations for the adoption of sustainability. Pinder (1998) identifies external motivations which include motivations regarding the potential rewards of sustainable entrepreneurship that the sustainable practices do not directly provide, for example reputational benefits. Extrinsic motivations can result from the institutional pressures from the environment in which the corporation is operating, which can force the organization to adopt sustainability practices (Bansal & Roth, 2000). Extrinsic motivations may also result from the idea that sustainability can increase the competitiveness of the corporation and can provide unique advantages. On the other hand, intrinsic motivations are related to the belief that sustainability is valuable, the right thing to do and an important goal on its own (Bansal & Roth, 2000). This intrinsic motivation can be a result of a sense of moral obligation or the pleasure the organization experiences when it enacts sustainable practices (Zollo et al, 2013). Generally, this research has proposed that sustainable performance will be higher in those organizations that are intrinsically motivated for sustainability.
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successful. Sustainability activities that are closely related to the company’s core processes may help the corporation to implement sustainability more and effectively integrate economic, social and environmental goals compared to those activities that are ‘cheap and easy’. This finding has been implied by other researchers (Crals & Vereeck, 2005; Katre & Salipante, 2012), however it has until now not been adopted in empirical research. Fourthly, in our case study leadership seemed to be important for corporations with both a high and low involvement in sustainability. However, in the corporation with a high involvement in sustainability leaders exhibited personal values supporting sustainability, while in the corporation with low a involvement in sustainability, leaders did not believe in the importance and value of sustainability. This indicates that the personal values of leaders may assist companies in implementing and executing sustainability. This is interesting as the current research has mostly neglected the position of leaders in the implementation of sustainability in SMEs (Waldman et al. 2006). Current research has investigated the drivers for individuals to engage in sustainable entrepreneurship. Among these drivers are personal values related to sustainability, like altruistic and biospheric values, which have been argued to increase the ability of individuals to recognize opportunities in market failures (Arnold & Hockerts, 2011; Kuckertz & Wagner, 2010). However, to the best of our knowledge personal values of leaders and their effects on organizational level sustainability outcomes have not been addressed in the current research.
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role of employees. For example, Spitzeck et al. (2013) point in a case study at the importance of encouraging HR practices and top management support. Furthermore, Arnold and Hockerts (2011) highlight the enabling forces of intra-organizational education programs and internal platforms and networks for sustainable entrepreneurship. However, until now these employee factors have not been incorporated in large scale empirical analyses.
Finally, we found that in the corporation with a high involvement in sustainability, success was viewed as a larger concept of contributing to a better society. On the other hand, in the corporation with a low involvement in sustainability, success was viewed as providing some social and environmental value next to economic value. This finding may be related to the intrinsic and extrinsic motivations of the organizations.
To conclude, our case study implies that the initial adoption of sustainability and the motivation to adopt sustainability can result in differences in the implementation and execution of sustainability in SMEs. These principles are already recognized in the current literature. More interestingly, our case study implies that people play a highly important role in the implementation of sustainability in SMEs. First of all, personal values and behaviors of leaders seem highly important in driving sustainability in SMEs. Furthermore, employees may play an important role in the execution of sustainability in the organization by cooperating on different levels. Therefore, we conclude that the people inside the organization may be highly important for the implementation of sustainability in SMEs. Furthermore, we found that it may be important for the SMEs to adopt sustainability principles that are closely related to its core processes. We will adopt these findings in the development of our hypotheses.
4. HYPOTHESES
4.1 Dynamic Capabilities for Sustainability
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as sustainability is a highly complex, unpredictable and constantly changing phenomenon which causes an uncertain environment for firms. This requires firms to possess flexible and dynamic processes that can constantly transform and modify the existing resource base to fit this unpredictable and changing environment. The current literature that links dynamic capabilities to sustainability focusses on a wide variety of dynamic capabilities ranging from ‘general dynamic capabilities’ (Arend, 2013) to ‘green dynamic capabilities’ (Chen & Chang, 2013). It is likely that for the implementation of sustainability in SMEs some dynamic capabilities are more important than others. Ambrosini and Bowman (2009) indicate that there are only few studies that explore which dynamic capabilities might be more suitable, depending on each firm’s situation. In line with this, we argue that some dynamic capabilities may be more efficient in helping SMEs to adopt sustainable entrepreneurship activities than others.
In our literature review we identified four general types of dynamic capabilities: reconfiguration of resources, leveraging of resources, integration of resources, and learning. We argue in this thesis that for the implementation of sustainability in SMEs especially integration dynamic capabilities are of major importance. Integration dynamic capabilities are those processes that enable the firm to integrate its assets and resources, resulting in new resource configurations (Ambrosini & Bowman, 2009). It relates to the ‘ways in which resources are integrated and linked together into a coherent whole’ (Henderson and Clark, 1990). For example, integration dynamic capabilities can be processes in which managers form multifunctional teams combining various skills, expertise and assets to combine resources in new ways, modify existing resources and create new resources (Bowman & Ambrosini, 2003).
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develop new capabilities for sustainability (Hockerts & Wüstenhagen, 2010). Therefore, it is highly important for SMEs to integrate sustainability in the existing resource base. This limits the requirement for SMEs to create new resources and the time and resources spend on duplicative efforts. Secondly, research in the sustainable entrepreneurship field has indicated that implementing sustainability is most effective when the sustainable activities match the primary activities and values of the cooperation (Crals & Vereeck, 2005; Katre & Salipante, 2012). Also our case study indicated that the corporation with a high sustainable performance focused on those sustainable activities that highly matched its corporate activities. A strong integration of sustainability into the existing resource base may assist SMEs in developing those sustainable activities that are closely matched to their existing resources. Finally, research in the sustainable entrepreneurship field argues that corporations should adhere to sustainability on a long-term and daily basis, instead of making one-time efforts (Crals & Vereeck, 2005). The integration of sustainability within the existing resources of the firm may be highly important to make such a long-term change towards sustainability. As seen in our case study, a low level of integration may result in ‘simple’ one-time sustainability efforts. Research has distinguished between internal and external integration dynamic capabilities. Bowman and Ambrosini (2003) argue that integration dynamic capabilities can be about integrating resources from internal sources like employees or external sources such as suppliers and customers. We will address the effects of both of these dimensions below.
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combine their knowledge in new ways.
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and accomplishing multiple tasks simultaneously (Daily & Huang, 2001). It will thus integrate the knowledge and capabilities of employees, eliminating the needs to develop similar capabilities multiple times. This is important as it saves valuable time and resources for SMEs. Also in our case study we found that in the SME with a high level of sustainable performance, cross-functional integration was high. The CTO of the company mentioned that it was not distinguishable which department came up with ideas on sustainability as integration was high: ‘I do not know who came up with it, it is a collective effort. Sometimes the sales department initiates it, however this idea is often immediately adopted by the R&D department, or the process is the other way around’. In contrast, in the corporation struggling with sustainability, there was a separate ‘sustainability department’ which had low communication, even on sustainability efforts, with other departments.
Secondly, internal integration among employees is an important driver of a collective focus and a ‘helping culture’ inside the organization. Sustainability is not an individual effort, it is an effort accomplished by teamwork. In order to solve major sustainability challenges employees inside firms need to have a collective focus (Daily & Huang, 2001). This means that employees do not focus on their individual accomplishments but on the accomplishment of the organization as a whole. This is important as sustainability requires collective organizational efforts (Kitazawa & Sarkis, 2000). Furthermore, internal integration processes that facilitate helping behaviors are highly important as they facilitate trust among employees (Choi, 2006). A high level of trust among employees is important for sustainability as it grants individual employees the confidence to invest in collective sustainability activities, knowing that others will do so too (Pretty, 2003).
49 suppliers or customers, to the existing resource base, with the intention of changing this resource base (Bowman & Ambrosini, 2003). It thus relates to the communication and integration between the corporation and its key stakeholders.
Multiple researchers have proposed that collaboration between firms and key stakeholders is of major importance for sustainable entrepreneurship (Bocken et al. 2014). Networks and support structures, like supply chain partners, consumers, governments, venture capitalists and other entrepreneurs, are proposed to enable sustainable entrepreneurs to achieve social, environmental and economic value (Boons & Ludeke-Freund, 2013: Pachecco et al. 2010). For example, Ayuso et al. (2006) find in a case study among two highly sustainable companies that both companies were involved in an active dialogue with customers. It is important to note that these researchers do not focus on ‘normal’ interactions with main stakeholders, but interactions that specifically focus on sustainability issues. Therefore we will focus on external integration sustainability dynamic capabilities, which we define as processes that allow the integration of sustainability-related resources and capabilities from parties outside the organization, for example suppliers or customers, to the existing resource base, with the intention of changing this resource base. Dangelico et al. (2016) focus on these external integration sustainability dynamic capabilities. The authors include the integration of knowledge on the environmental impact of products during customers' use, the integration of suppliers' knowledge and competencies regarding the environmental impact of components, materials or production processes, and collaborations with channel members to reduce the environmental impact of products. We expect that these processes will increase the sustainable performance of the firm due to two reasons.
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partners without the need of developing this knowledge on their own. This may limit the resources and time needed to be devoted to sustainability. Secondly, in order to be sustainable firms must have knowledge about their own social and environmental impact and the social and environmental impact of their suppliers (Jamali, 2010). Processes that facilitate external integration with key stakeholders enable firms to assess their impact on and impact of these stakeholders. Furthermore, it enables SMEs to indicate the needs and desires regarding sustainability of their customers, which may in turn increase market success (Dangelico et al. 2016).
51 H1: Internal integration dynamic capabilities are positively related to the sustainable performance of the SME.
H2: External integration sustainability dynamic capabilities are positively related to the sustainable performance of the SME.
4.2 Drivers of Dynamic Capabilities for Sustainability: leadership
The strategic management perspective on dynamic capabilities argues that managers drive the establishment and development of dynamic capabilities in their organizations as they decide where to put resources, which opportunities to grasp, and which capabilities to develop (Augier & Teece, 2009: Zahra et al. 2006). Managers can thus decide to direct more resources to the development of certain dynamic capabilities than others. This is important in SMEs as, due to their limited time and resources, complex decisions have to be made about which dynamic capabilities to develop. Also for the development of integration dynamic capabilities, managers are of major importance. For example, Gruman and Saks (2011) indicate that leaders play a crucial role in fostering the integration of employees.
52 Managerial social capital. Managerial social capital refers to social relationships and can include influence, control, and power (Adner & Helfat, 2003). Social capital can be defined as the sum of resources, actual or virtual, that accrue to an individual or an organization as a result of the development of personal and social networking relationships (Adner & Helfat, 2003). Top managers of an organization are proposed to develop social capital through a variety of personal, social and economic relationships with their constituencies that can be used for the benefit of their organization (Acquaah, 2007). Most empirical studies have focused on the impact of social capital resulting from external relationships, for example relations between top managers and executives from other firms (Acquaah, 2007). However, in this study we will focus on the internal relationships: the social relations between manager/owners and employees. Managers can have different relationships with their employees. One of the factors that influences the relationship between managers and their employees is the leadership style of the manager. Scholars have often linked transformational leadership styles to employee integration and engagement behaviors (e.g. Gruman & Saks, 2011). Therefore, we will focus in this section on transformational leadership styles as a form of social capital of the leader.
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interrelated aspects. Firstly, idealized influence refers to the ability of the leader to provide vision, pride, value and trust to the employees. Secondly, inspiration refers to the extent to which the leader articulates high expectations for achievement, uses symbols to focus effort and expresses important purposes in simple ways to employees. Thirdly, intellectual stimulation refers to the way a leader stimulates his employees to think in creative ways, promotes intelligence, rationality and careful problem solving. Finally, individualized consideration is the degree to which a leader treats his employees individually, and provides personal attention, coaches and advises (Seltzer & Bass, 1990).
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owner/managers who exhibit transformational leadership styles will drive and devote more resources towards internal integration dynamic capabilities. Hence, we arrive at:
H3: Transformational leadership is positively related to internal integration dynamic capabilities.
Managerial cognitions. Managerial cognitions refer to the managerial beliefs and mental models that serve as a basis for decision making (Adner & Helfat, 2003). Research has argued that the generation of dynamic capabilities depends on the managers’ ability to identify new strategic opportunities, which is strongly influenced by managerial beliefs and mental modes as managers have limited information and selectively perceive their environment (Barrales-Molina et al. 2010). This view argues that managers, who perceive certain dynamic capabilities as opportunities, will devote more resources towards these capabilities. Research has emphasized the importance of managerial beliefs and cognitions for the implementation of social and environmental values in organizations (Patzelt & Shepherd, 2010). Responding to stakeholder concerns for sustainability is a relatively new requirement for leaders. Therefore, these issues are typically assumed to face a great deal of ambiguity in how to understand them, the implications that result from them and the ways how organizations can respond to them (Jennings & Zandbergen, 1995). Such ambiguous concepts require interpretative categorization by managers (Dutton & Jackson, 1987). Research has proposed that managers reduce ambiguity and unpredictability by interpreting issues as opportunities or threats (Jackson & Dutton, 1988). In line with this research, leaders are expected to interpret social or environmental issues as opportunities or threats (Sharma, 2000).
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issue as a threat means that individuals attribute loss, uncontrollable and constraining characteristics to the issue (Jackson & Dutton, 1988). In line with this research Sharma (2000) adopted the concept of ‘managerial interpretations of environmental issues’ by measuring the self-reported interpretations of managers of environmental issues as threats or opportunities. As we want to investigate a related concept, sustainability, we adopt the concept of the leader’s interpretation of sustainability and define it as the attribution of the leader of opportunity (positive, controllable and gain) characteristics or threat (negative/constraining, uncontrollable and loss) characteristics to sustainability.
