International Strategic Management - Literature review Example

Business sustainability Table of Contents Introduction 3 Triple bottom line approach (TBL) 3 Markets 4 Values 4 Transparency 5 Life-cycle technology 5 Partners 5 Time 6 Corporate governance 6 Importance of TBL approach with organisational framework 7 Issues in measurement of business contribution towards Corporate Social Responsibility (CSR) 8 Recommendations regarding measurement of CSR 9 Conclusion 10 Reference list 12 Bibliography 14 Introduction In recent years, corporate or business sustainability has gained significant importance owing to the rising environmental footprint and its consequences such as climate change, green house effect, destruction of marine lives and so on. As a result, government, non-profit organizations as well as private organization are expressing interest towards practices corporate social responsibility. Sustainability is being incorporated within corporate objectives of firms. However, definition of corporate sustainability and its role in organizations is highly subjective in nature and unclear. Therefore, the primary aim of this paper is to discuss CSR as a corporate objective and also indicate measures that organisations have adopted to align CSR in their primary business goals (UNIDO, 2014). CSR can be defined as a management oriented notion which requires firms to incorporate a number of environmental and social factors in their corporate activities and business transactions. It has been further gathered that the actual manifestation of corporate sustainability can assume different forms such as social equity, education, health, local and rural development, women empowerment and responsible sourcing (UNIDO, 2014). In this regard, Authors such as Tavitiyaman, Qu and Zhang (2011) contributed by adding that CSR is essential from business perspective as well because it result in cost and competitive advantage, sustainable supply chain management, innovation and stakeholder engagement. With respect to CSR, different authors have presented their view points, some of which oppose the integration of CSR in business practices. In this regard, Elkington have proposed the Triple bottom line approach, which has been adopted largely by several business organisations. The paper discusses the theoretical perspective of the TBL approach elaborately. Alongside, the paper also highlights difficulties associated with measurement of social and environmental cost and benefits and recommendations have been provided in this regard. Triple bottom line approach (TBL) The triple bottom line approach was essentially concocted by Elkington in 1987 and since then, it has been used by numerous scholars for establishing sustainability in different fields of business. Since its coinage, the concept has only grown broader accommodating different aspects of sustainability even through it was conceived only to express environmental aspect of sustainability. TBL was developed by the author in order to provide an integrated solution for addressing socio-economic dimensions with respect to environmental progress. The TBL approach was developed on the notion that corporations and their actions not only add economic value but they are also responsible for addition and/or destruction of environmental and social values. Considering increasing societal pressure on businesses, Elkington recognised seven broad drivers of TBL. These drivers are strongly interlinked and are responsible for global cultural revolution and transition to sustainable capitalism. These seven elements are: market, value, transparency, life-cycle technologies, partnership, time and corporate governance (Elkington, 2004; 1998). Markets The key drivers of TBL are also referred as sustainability revolutions and one of the prominent revolutions is markets. The revolutionary efforts in this regard will be chiefly competition driven by means of market. Market competition from market compliance has been regarded as a significant paradigm shift which is necessary for accommodating the broadness of business sustainability. Elkington emphasised that the transition will result in businesses expressing greater willingness to operate in various domestic and international market that are more open to competitiveness. This approach was referred as economic earthquake by the author. He further explained that the economic earthquake will engulf the traditional existing business model and thereby will create avenues for sustainable business models. TBL commitments have become an essential source of survival for business as they are consistently being challenged by consumers and financial markets. Consequently, firms are shift towards a new paradigm that incorporates TBL in economic, accounting and social practices (Elkington, 2004; 1998). Values Elkington articulated that the second revolution will be driven by significant modifications in humanistic and societal values occurring worldwide. Values, even as are considered inherited, can be nurtured through greater exposure to different experiences. Values, as and when change with succeeding generations, can have a thixotropic impact on the societies. In this regard, the author cited Philippines 1986 People Power Revolution as an appropriate example. Elkington evidently stressed on value and culture as an essential contributor in organisational survival. He also discussed the downfall of organisations such as Enron that was engineered from value based crises thereof. By means of value, the author not only emphasised on organisational ethics but also on humanistic practices (Elkington, 2004; 1998). Transparency The transparency based revolution is on the process of gaining momentum as the increasing need of transparency in business practices is growing internationally. Consequently, organisations are expected to witness strong scrutinising pressure with respect to its business philosophy, objectives, priorities, activities and commitments. Most of the disclosures are expected to evolve by means of limited direct involvement of other companies while only a few of them are expected to remain voluntary. Elkington appended that the transparency oriented revolution is growing out of control in many aspect s and having strong impact not only on developed economies but also in emerging economies such as China. Prominent examples of growing transparency can be observed by means of collapsing of traditional authoritative hierarchies, growing information need among stakeholders, development in technologies and development of global reporting initiatives by the United Nations (Elkington, 2004; 1998). Life-cycle technology Transparency and life-cycle technology are intertwined and significantly dependent on each other. Broadly speaking, this revolution is driving transparency and is also being driven by the same. The implications of TBL approach is continuously challenging companies that are either agricultural or industrial in nature in terms of their activities, supply chain, product management and implication of the products once their useful lives has depreciated to zero. Therefore, a continuous shift can be observed from product development to its functionality. In other words, companies’ concern is no more limited to acceptability of their offerings at the point of sales. Instead, they are increasingly focussing on product performance from the point of development (raw material, technological processing and so on) to end of its utility (disposal). Elkington established that under TBL approach, 21st-century business organisations will be more aggressive about management of overall product lifecycle and technology lifecycle including supply chain management (Elkington, 2004; 1998). Partners Revolution based on partnership will result in shift of organisation subversion to integration and symbiosis. Consequently, innovation and acceleration can be witnessed in the process of partnership development within firms, among firm and between firms and other external organisational groups. The author appended that companies that earlier competed with each other and vied for market share, expected to come under one umbrella and develop new form of partnership for an integrated approach to profitability and sustainability. The author emphasised that growing partnership will ensure that compactness is brought in businesses and survivability is enhanced. However, the author does not vouch for elimination of interest conflict but added that the revolution will increase tolerance of different interest groups and enable them to work with each other within the same industry (Elkington, 2004; 1998). Time An age-old notion regarding time suggests that it is limited and very precious in monetary terms. However, the TBL approach presents an altogether different overview of the same. Time based revolution, according to Elkington, will result in significant paradigm shift in the way time is generally managed and understood. Wider usage of real time factor can be witnessed among various activities and business practices. Real time practices include availability of instant news with respect to occurrence of an event and large scale capital trading based on current information. As multiple events are unfolding every minute, opening up of the time dimension has become an essential aspect of TBL. However, TBL does not emphasise on ‘shortness’ of time, instead it is more inclined towards time as a ‘lengthy’ factor. The author highlighted that long term dimension of time is essential for supporting practices such as short term competition and just-in-time business practices. He further emphasised that long term approach to time based revolution can be conveniently executed by means of scenario analysis, development of alternative course of action and creativity (Elkington, 2004; 1998). Corporate governance Corporate governance is the last yet most important aspect of TBL agenda as its key focus is on establishment of responsibility within a firm’s corporate board. The notion of corporate governance under TBL is driven by the other six revolutionary factors. Presently, organisational interests are no more limited to compensation of various directors. Instead, organisations are increasingly becoming concern regarding primary and secondary objectives of a business, greater involvement of stakeholders, balance between stakeholders and shareholders and balancing TBL. Elkington underlined that increase in corporate governance result in enhancement of scope of sustainable capitalism. It was however observed that so far role of board members had been neglected with respect to corporate governance. The author expressed that role of board is very essential for incorporating corporate governance practices in the organisation and for developing business ecosystem and value chain thereof (Elkington, 2004; 1998). Importance of TBL approach with organisational framework From organisational perspective, TBL approach has gained significant importance in recent years due to its three essential components, namely, planet (environmental responsibility), people and society (social responsibility) and profit (bottom line). Business profitability and sustainability is presently running parallel and for continuous survival and growth, organisations are increasingly adopting TBL agenda. Business innovation and increased level of inter and intra organisational communication has increased considerably, as a result of the revolutionary developments. As economic condition worldwide is changing, consumers are becoming more concerned about price they are paying and products they are purchasing (Reimers-Hild, 2010). Consequently, strong brand presence has become an inevitable step for companies. However, one important aspect in this regard is eco-friendliness. Present generation consumers are relatively more aware about environment safety and its importance in future sustainability. As a result, organisations have to address environmental sustainability issues covered within TBL theory. Additionally, organisations ethics come within the purview of social responsibilities of a firm which must be pursued for enhancing goodwill and brand image of the company. As TBL approach covers all the aspects or responsibilities a firm need to obligate towards its stakeholders and shareholders, hence, it was considered essential for the 21st century business organisation (Reimers-Hild, 2010). However, it is noteworthy that implication of TBL in an existing organisational framework can prove to be difficult since often it require adopting major fundamental changes in terms of organisational culture and behaviours. Furthermore, organisations face issues regarding measurement of social and environmental responsibilities as well resulting to dilemma regarding implementation of the process. The issues regarding measurement of corporate sustainability has been discussed in the following section and requisite recommendations have been made in this regard (Reimers-Hild, 2010). Issues in measurement of business contribution towards Corporate Social Responsibility (CSR) Compliance with various standard requirements of CSR requires certain capacity that differs among organisations and industries. Consequently, underlying difficulties vary largely in this regard. With respect to CSR, a new term has been developed: Socially Responsible Investment (SRI). SRI is gaining rapid recognition across various industrialised nations and has been incorporated in their practices extensively. The Social Investment Forum estimated that approximately 12.2% of total assets in the United States have been invested in SRI in 2010. Academic literatures also supported that strong link can be established between financial performance and CSR (Nicolosi, Grassi and Stanghellini, 2011). However, the notion faced storm of stark criticism when conflicting evidences were established by Bauer, Koedijk and Otten, (2005). The authors determined in their research that no noteworthy difference was observed in risk adjusted returns with respect to SRI or ethical fund and conventional fund. Abbott and Monsen (1979) reported a peculiar paradox with respect to the firms in the United States. The authors highlighted organizations that are essential for the country’s economic progress, has often been criticized for poor social and environmental accountability. In their research, they established that CSR is enjoying substantial presence in the history of academic literature yet academic research regarding measurement of CSR is in its nascent stage compared to measurement of other economic and growth indicators. The authors recognised two major difficulties in this regard. Measurement of corporate social involvement is often deterred by lack of sufficient quantitative information (monetary expenses and other) with respect to social activities undertaken by a firm. Abbott and Monsen (1979) appended that all these activities need to be reported and measured consistently across a set of homogenous number of firms for conducting statistical analysis and comparison. The other difficulty that the authors have highlighted is development of a formal procedure for measuring complete impact of known business activities on the society. Essentially, the first issue is relatively broad as it requires achieving complete cooperation of various firms for having full access to CSR activities thereof. However, the second issue is equally critical as extensive analytical knowledge is required for developing procedure and conducting analysis (Abbott and Monsen, 1979). Moving on, development of yardstick for CSR is not only affected by quantity of information available but also by existing complexities. One such complexity is transparency; transparency was identified as a complex issue because there may exist a number of method for measuring the same, one can rarely determine the most effective method (Garralda, 2003). Abbott and Monsen (1979) highlighted three methods that can be used for measuring SRI, namely, social accounting, reputational scales, and content analysis. However, the authors also noted certain flaws in these methods that prevent them from being appropriate solution to the issue. Social accounting is only possible when reliable data regarding social cost and benefit can be gathered, however, given transparency issues, its outcomes cannot be appropriately implemented for decision making. The result obtained from reputational scale is susceptible to certain difficulties such as: participants of survey may have limited actual knowledge of the organization which is generally masked by firm’s market reputation and positive media exposure. The third method is content analysis of various organizational publications such as annual report, press release and online and offline advertisements. The authors did not refer this method as faulty in its process has already been established. One such example is when Bowman and Haire (1975) assessed corporate report of 80 food processing companies for measuring their corporate social contribution; the outcome deviated significantly from the actual result. Consequently, it can be agreed upon that significant issues do exist in the process of measurement of CSR. However, different authors have proposed certain remedies in this regard through research and development. Recommendations regarding measurement of CSR Since the paper discussed extensively the issues that have been recognised by Abbott and Monsen (1979), it is important to highlight the solution that the authors have proposed in this regard. Self-Reported Disclosures was proposed by the authors as a measurement technique of CSR involvement. However, the authors also depended on content analysis for developing self-reported disclosure index hence, its credibility are subject to certain questions (Waddock and Graves, 1997). Chen and Delmas (2011) emphasised on linear aggregation methods for measurement of corporate social performance. Zahra, Oviatt and Minyard (1993), Aupperle (1991) and Bowman and Haire (1975) emphasized on methods such as expert evaluation, questionnaire survey, content analysis of annual report and analysis of regulatory compliance dataset. Additionally, different profit making organizations has also made effort regarding measurement of corporate social performance in recent time. These organizations are KLD, Riskmetrics Group and SAM Group Inc. corporate social performance is evaluated and measured by means of gathering information on board composition and structure, risk management ability and environmental reporting initiatives by SAM Group Inc. The Riskmetrics Group determines corporate social involvement by means of evaluation of corporate governance, stakeholder management, employee management and environmental performance. KLD develop its rating based on assessment of factors such as community relationship, organizational diversity, employee relations, environment issues and governance issues (Chen and Delmas, 2011). Chen and Delmas (2011) took in consideration multiple dimensions of CSR and proposed an alternative method for calculation corporate social performance index. The authors developed the index using Data Envelopment Analysis (DEA). They argued that DEA method has several advantages and is useful in addressing flaws existing in other methods. The DEA provides outcome in the form of ratio index which encompasses good as well as bad performance metrics of CSR. Secondly, this method is not dependent on a-priori weight specification regarding different performance criteria. Lastly, the authors emphasised that DEA is a relatively more useful method due to robustness and ease of interpretation. In this regard, the Conference Board proposed the AGREE model for measuring as well as balancing effect of CSR activities to different stakeholders. AGREE stands for Audience of CSR activities, Goals of stakeholders, Resources employed to achieve stakeholders’ goals, Effectiveness of goal realisation strategy and Efficiency of resource utilisation. The model integrate various organisational stakeholders such as consumers, suppliers, environment, corroborators, supply channel, shareholders, employees and management and government in the model in a effective manner so as to achieve reliable outcome (The Conference Board, 2011). Conclusion Environmental footprint and its consequences have drawn significant attention towards implementation of corporate sustainability practices within organisational framework. CSR has gained tremendous importance as a result of growing conscious among consumers and other stakeholders of any firm worldwide. The paper discusses one of the important CSR oriented theory proposed by Elkington. The approach is referred as Triple Bottom Line and is very essential from corporate perspective because it focuses on social aspect, environmental aspect and profit motive of the firm and its shareholders. An elaborate description of TBL has been present while highlighting its key drivers and essential components thereof. Additionally, the paper discussed importance of TBL with respect to business organisations and its benefits. However, it was determined that the implementation process or TBL or any other CSR approach is not as smooth as it seems theoretically. Consequently, various issues associated with measurement of environmental and social cost and benefit associated with CSR has been discussed and on the basis of scholarly discussions have been incorporated. Reference list Abbott, W. F. and Monsen, R. J., 1979. 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Building Corporate Accountability: Emerging Practice in Social and Ethical Accounting and Auditing. London: Routledge. Read More