Frame of Reference
Having defined the key terms most relevant to this study, the theoretical groundwork can be laid. This is done both by putting the general elements of the study into relation to one another by highlighting their connections, but also by presenting a balanced view of what the current state of research is in each area. To aid an easier grasp of the complex concepts, the different sub-areas of the study, as set by the key terms, have been used to create the different catego-ries for this theoretical framework.
Sustainability as an Area of Modern Business
As sustainability as an area of business grows in popularity (Giosi, Zaccaro, & Testarmata, 2018) and finds application across different sectors and industries of the economy (Glavic & Lukman, 2007), its uses and how it is interpreted by the users can vary drastically, which has led to a huge number of different definitions of sustainability and concepts within the field (Glavic & Lukman, 2007). This might result in fundamentally diverging understandings and applications of the same concepts. However, there are a number of widely used and accepted notions and ideas that might be used by practitioners and policymakers as guiding lights and a basis on which to build their own sustainability strategy. One such cornerstone of corporate sustainability is the Brundtland definition of sustainable development, which, as introduced previously, stresses the need for economic development that does not jeopardise “the ability of the future generations to meet their own needs” while still catering to the requirements of the Earth’s present population (WCED, 1987). Another basic component of working with sus-tainability is the familiarity with the concept of the Triple Bottom Line (TBL), a framework that attempts to highlight the interconnectedness of the different dimensions of sustainability (Elkington, 1998). Economic, environmental and social aspects are given equal attention and are put into relation to one another, citing the importance of incorporating all three to become truly sustainable. In turn this means that a firm that intends to be fully sustainable needs to have a positive impact on its environment both in the traditional sense of nature but also in terms of people that it affects directly or indirectly, i.e. its wider network of stakeholders. At the same time the company needs to be built on a business idea that is economically viable to sustain its operation financially. These original three dimensions of sustainability have been extended at times to include a fourth component: governance (Elkington, 2006). This is done to account for the need for a governing structure to coordinate and drive the sustainability ef-forts cohesively and effectively.
As outlined by Elkington’s TBL, a business idea that a sustainable firm is built around, must be economically feasible for the firm to remain in the market and have the impact it desires to have. This means that tackling a sustainability issue must provide a financial incentive for a business for the problem to be solved through market mechanisms. Existing research appears to agree that there is in fact potential for business plans being constructed around solving a sustainability problem that is deemed relevant. Moore & Manring (2009) have concluded that identifying and solving a sustainability issue can be turned into sources of revenue and profit which strengthens the applicability of the TBL model, as fully sustainable businesses can be established and thrive under existing market conditions. However, more recent research, such as by Schaltegger, Lüdeke-Freund & Hansen (2012), suggests that traditional business models require innovations in order “to support a systematic, ongoing creation of business cases for sustainability”. Currently, sustainability work is often considered “a supplement to the core business”, rather than forming its basis (Schaltegger et al., 2012).
SMEs and Sustainability
As this study focuses on the small and medium-sized enterprises, highlighting their current relationship with sustainability is an important step to establish an understanding how the lat-ter is viewed, understood and worked with by this type of firm in particular. According to Bos-Brouwers (2009) SMEs are characterised by distinct features that are present in many, but not all, companies of this type which might benefit sustainability work carried out by SMEs in comparison to larger corporations. These features include a flat hierarchy, “flexible organisation capacities”, and “motivated and skilled employees” (Bos-Brouwers, 2009). Fur-ther features are named by Aragón-Correa et al.(2008), to be “closer interaction within the SMEs” and “the presence of a founder’s vision”. When working actively with sustainability, Moore & Manring (2009) have found that developing an SME is a balancing act between “re-silience and growth” with the goal to create economic, environmental and social abundance.
In terms of the current state of the research covering the sustainability efforts made by com-panies it becomes apparent that CSR has received substantial attention (Jenkins, 2006) but also that these investigations are usually targeting the bigger corporations (Jansson, Nilsson, Modig&HedVall, 2015). This results in the sustainability efforts of SMEs in particular re-maining under-researched (Aragón-Correa et al., 2008), especially in connection with sus-tainability frameworks more complex than CSR. However, because of the combined impact of the SMEs on the modern economy, due to their large collective market share and despite the relatively small size of the individual firm, this area warrants further academic attention. This is underlined by Jansson et al. (2015) concluding that SMEs “are lagging behind” in terms of sustainable efforts made. Sustainability work by SMEs could have a total impact that rivals that of the more thoroughly researched larger corporations as “they constitute a signifi-cant part” or the EU market and “their aggregate achievements have a major effect world-wide” even though as single firms they “may not have a significant impact individually” (Jen-kins, 2006). Considering the potential of SMEs collectively shifting business as a whole into a more sustainable direction, the lack of real-world action and accompanying research gives this study an even higher degree of urgency.
Integrative Sustainability Frameworks
As the term “integrative sustainability frameworks” has been coined particularly for this study to synthesise different elements of existing sustainability frameworks, a deeper explanation is required to clearly trace the emergence of these models and how they interlink. The starting point for this is the established concept of Corporate Social Responsibility (CSR) which has seen a wider usage in recent years by firms (Alves, 2009) and has also been covered promi-nently in academic research. The topic of social responsibility in business was discussed as early as the 1930s but came to the stage of literature during the 1950s and has since under-gone a continuous evolution (Carroll, 1999). In 1953, Bowen presented a definition of “social responsibility of businessmen” according to which decision-makers in business should pursue policies and actions “which are desirable in terms of the objectives and values of our society”. This description created a connection between business operations and the responsibility of the firm for the community in which it operates. In the year 1960 social responsibility in busi-ness was confirmed to be “at least partially beyond the firm’s direct economic or technical interest” (Davis, 1960). This meant that the commitments by the firm to the wider society should not be entirely driven by financial motives. These elements of contributing to the community in ways that are beyond economic gain are present even in modern definitions of CSR such as by Khan, Khan, Ahmed & Ali (2012) who regard CSR as a voluntary sacrifice of profits in the name of “social interest” which leads to business practices that are “employee friendly, environment friendly” and “mindful of ethics”.
Despite the identified potential positive contribution that CSR could have on the sustainability of a single firm and the wider business and natural environment, there have been criticisms of the model. Osuji (2011) claim that “CSR is underdeveloped with respect to its precise mean-ing, content and practice” and that the concept has an unclear legal basis. This highlights that the framework itself is rather vague and can be applied and adapted in many different ways to fit a particular purpose. Referred to as being no more than an “empty shell” (Mark-Ungericht& Weiskopf, 2007) it can even be used “to advance particular political agendas” (Sheehy, 2015). Due to the ability to manipulate CSR to fit one’s own needs, the concept has also been linked to greenwashing, as green marketing which has been found to be “deceptive” in many cases is “rooted” in CSR (Alves, 2009).
As a response to the shortcomings of CSR, more integrated approaches to sustainability have appeared. A prominent example of this is the concept of Creation of Shared Value brought forward by Porter & Kramer in 2006. The authors perceived current CSR practises to be “disconnected from business” and saw them “obscure many of the greatest opportunities for companies to benefit society”. Instead they proposed a perspective in which companies seek to create shared value, meaning that decisions made by the firm “must benefit both sides” due to the “interdependence between a company and society” (Porter & Kramer, 2006). In this case, the firm is seen as an integral member of its social surrounding and hence needs to take responsibility for its actions that should create win-win scenarios. In their 2011 follow-up, the authors stress that under the Creation of Shared Value (CSV) “businesses must reconnect company success with social progress” (Porter & Kramer, 2011). This view sees the firm as a value creator that competes successfully in the market while having a positive impact and giv-ing back to society. At the same time, by “putting social and community needs before profit” (Pavlovich & Corner, 2014), CSV heads into a direction away from pure profit maximisation.
However, CSV has also faced critiques by academics responding to the model. Described as “naive” by Crane, Palazzo, Spence, & Matten (2014), the concept is criticised for ignoring the potential “trade-offs between economic and social value creation”. Different stakeholder groups might at times have conflicting interests that the CSV framework is deemed unable to deal with effectively, due to the model’s goal of always creating mutually beneficial out-comes. “The complexity of social and environmental issues” (Crane et al., 2014) is said to not be accounted for in the CSV model, making it difficult for the framework to address the three dimensions of the TBL properly. Further criticisms are provided by Pirson (2012) who through case studies concluded that in a practical context, firms using a social entrepreneur-ship approach will not address the three dimensions of the TBL in a balanced manner but in-stead focus on one or two dimensions primarily. In the provided cases, the firm either chose economic or social value as its main target and worked towards it in favour of the other di-mensions. This is said to undermine Porter & Kramer’s model at least partially while Pirson (2012) also stresses the need for “new structures” rather than “new strategies” in order “to solve the massive problems of the twenty-first century”. It needs to be noted however that the provided cases were few and picked solely from the country of Bangladesh, which might open the door for similar studies to produce different results in other cultures and locations.
The next stage of evolution of the integrative sustainability models is represented by the Inte-grated Value Creation (IVC) model by Visser & Kymal (2015). It incorporates elements of both CSR and CSV “but signals some important shifts” as it focuses on “integration and value creation” intending to help businesses “to become part of the solution to our global challeng-es” (Visser & Kymal, 2015). Similarly, to the previous models, the role of firms in driving sustainable change is recognised and highlighted. By using standard business language, the IVC approach aims to provide a “how-to” guide for integrating sustainability dimensions into core business operations. This reflects the CSV’s reconnection of firms with society and the IVC internalises sustainability efforts into the main activities of the company. The latter is done by allowing the needs of the stakeholders to be incorporated into a firm’s responses “without undermining the viability of the business”, which builds a bridge to the concept of the TBL (Elkington, 1998), as environmental and social value of a company can only be pro-vided if the business is economically feasible. The IVC framework is built around a defined seven-step process that requires a firm to assess and analyse its own context, stakeholders, leadership, risks and opportunities before moving on to redesign its processes and integrate value-creating elements such as policies and procedures (Visser & Kymal, 2015). This ap-proach requires a good understanding of the internal and external environment of the compa-ny to which it then delivers value according to stakeholder expectations. In 2018, Visser pro-vided deeper theoretical insights into integrated value by defining it as “building of multiple capitals […] through synergistic innovation across the resilience, exponential, access, circular and wellbeing economies” which will then contribute to “a world that is more secure, smart, shared, sustainable and satisfying” (Visser, 2018). This clarification underlines the require-ment for innovation and sustainable change to utilise synergies while making companies more resilient so that they can have positive impacts on society in the long-term.
The element of resilience is also an essential part of another value creation model: the Real Value framework by Sternad et al. (2016). In an analogy comparing the setup of businesses to that of trees, sustainable firms are catering to “the deepest human needs” rather than “short-term profits for shareholders” (Sternad et al., 2016) which corresponds to the CSV’s shift away from profit maximisation (Pavlovich & Corner, 2014). The tree analogy focuses on the importance of roots for businesses to thrive, similar to the plant. A money-oriented firm is said to have very shallow roots while those of a value-creating firm grow much deeper and hence enhance the resilience of the company in the marketplace while helping it to be profita-ble, not necessarily profit maximising, in the long run (Sternad et al., 2016). The real value in this model is created as the sustainable firm through its operations aims to offer “a higher quality of life” for all stakeholder groups while also restoring the planet (Sternad et al., 2016). This ties in with the last model to be introduced as part of the theoretical background, the Concentric Circles (Thatcher, 2014), which relates the wellbeing of people and the planet with the area of business. Demonstrating parallels with the TBL dimensions, the Concentric Circles approach is represented by three circles, the largest of which is the natural ecosystem. Fully encapsulated in this the next smaller circle, the human society which in turn hosts the smallest circle, the economy (Thatcher, 2014). This is meant to symbolise how the environ-ment allows humans to flourish which then enables a working economy. Similar to the TBL, there is an element of “interdependence”, however in this case the dimensions are subsystems and for any level to function, the previous must be “achieved” (Thatcher, 2014). For a busi-ness this implies that to be economically sustainable, the operations must first be in line with the ecosystem and then socially beneficial. This hierarchy distinguishes the model from the TBL and underlines the requirement for sustainable living standards for nature and people in order for business to do well, relating it to the creation of value to further the quality of life.
SMEs and Integrative Sustainability Framework Application
In this final section of the theoretical framework the integrative sustainability frameworks will be related directly with the SMEs and their efforts to transition to more sustainable business practices. As described by Moore & Manring (2009) the sustainability-oriented SME targets both “resilience and growth” in their development efforts towards operations that are in line with the three TBL dimensions. Frameworks such as Real Value and CSV target this resili-ence factor actively while showcasing that growth does not necessarily need to be driven by financial objectives alone, making the models not only relevant to the SMEs but also offering alternative approaches to business compared to profit maximisation. The need for sustainable change is recognised and strongly highlighted by all the models in question and SMEs with their combined presence on the European and global market are identified as a significant prospective contributor to this sustainable development movement despite the untapped po-tential in terms of knowledge and application of sustainability frameworks by SMEs.
As the models are tied in closely with the core business model of the firm, their implementa-tion would likely become the responsibility of top management members and executives. The frameworks are strategic tools that alter how the firm is set-up and how it operates, and there-fore it needs to be approved and implemented top-down within the firm. Benn et al. (2006) outline that an organisation working towards sustainability requires “both top-down and bot-tom-up approaches” to successfully develop more sustainable business practices. However, “appropriate direction and control” needs to be provided by the board (Benn et al., 2006). While innovations and new ideas might find their way into the firm through bottom-up chan-nels, the responsibility of making the ultimate decision falls on the higher levels of the busi-ness. Yet, the enthusiasm for sustainability needs to be present throughout the firm to ensure effective implementation of sustainable measures. In this regard, SMEs benefit from their tendency to have a flat hierarchy, a very engaged workforce and a higher degree of flexibility (Bos-Brouwers, 2009). These characteristics might contribute to an efficient implementation of these models as new strategies and innovations can be communicated more easily through-out the firm and in both directions between top-level management and the individual employ-ee.
One important part to be considered in terms of the reach and impact of SMEs on a bigger scale is the element of cooperation and connectivity of SMEs among each other. As the net-work of stakeholders and their individual needs and inputs play an important role in the inte-grative sustainability frameworks, other SMEs might be viewed from this angle as well from the perspective of the individual SME. In other words, the single SME might utilise the capa-bilities, knowledge and skills of other firms to complement their own operation. Porter & Kramer (2011) relate the success of a firm directly to its “supporting companies and infra-structure” and stress the importance of clusters as a facilitating element of a value-creating business. Clusters play an important role for SMEs as they not only boost productivity (Cres-pi, Fernández-Arias & Stein, 2014) but also allow the firms to overcome “size limitations” (Karaevet al., 2007). Firms can specialise in particular fields, while “innovation and knowledge” are transferred and shared between SMEs which reduces costs for the individual firm and increases the competitiveness of the overall cluster and its wider setting (Karaevet al., 2007). Enhancing knowledge “through networking is a significant way for SMEs to achieve both positional and performance advantages” (Moore & Manring, 2009) and clusters are a cost-efficient way for SMEs to do so. Sharing information and other competencies in a mutually beneficial way can help members of networks and clusters deliver the value they create on a larger scale and therefore the impact by the SMEs together is “more than the sum of its parts” (Crespiet al., 2014). This relates back to the large potential of SMEs as actors of change despite their relatively small individual size and supports Visser (2018) stated the re-quirement to search for synergies. Within the plethora of stakeholders of a sustainability-oriented SME firm, other SMEs with complementary knowledge and capabilities play an im-portant role as potential partners for reciprocally beneficial development.
Table of Contents
1.1. The Problem at Hand
1.2. Purpose and Research Questions
4. Relevant Definitions
5. Frame of Reference
5.1. Sustainability as an Area of Modern Business
5.2. SMEs and Sustainability
5.3. Integrative Sustainability Frameworks
5.4. SMEs and Integrative Sustainability Framework Application
6. Methodology and Method
6.3. Ethical Considerations
7. Empirical Findings
8. Analysis and Implications
8.1. Analysis of Trends and Contrasts
8.2. Implications: Answering the Research Questions
8.3. Discussion and Suggestions for Further Research
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The Application and Implementation of Integrative Sustainability within Swedish SMEs – a Practical Perspective