Creating Ecological Value: An Evolutionary Approach to Business Strategies and the Natural Environment

Creating Ecological Value

For Daniel and Nestor

Creating Ecological Value An Evolutionary Approach to Business Strategies and the Natural Environment

Frank Boons Erasmus University Rotterdam, The Netherlands

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Frank Boons 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009933403

ISBN 978 1 84720 972 6 Printed and bound by MPG Books Group, UK

Contents List of tables List of boxes List of abbreviations Preface

vi vii viii x

1 2 3 4

How do firms create ecological value? Definitions of ecological value: patches of history Technological change and strategic perspectives Elements of strategic perspectives and the internal dynamics of firms 5 Shaping strategic perspectives through resource networks 6 The coffee PCS 7 The automobile PCS 8 An evolutionary approach towards the strategic perspectives of firms 9 The future of creating ecological value Bibliography Index

1 20 38 52 77 101 119 159 182 193 207

v

Tables 1.1 3.1 4.1 4.2 4.3 5.1 6.1 6.2 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8.1 8.2 8.3

Levels of analysis in different chapters Manifestations of three strategic perspectives in various production and consumption systems Organizational routines for three types of strategic perspectives Ecological strategies for three types of strategic perspectives Summary first level of analysis Summary of levels of analysis in Chapters 4 and 5 Strategic perspectives of Douwe Egberts and Peeze Strategic perspectives of traditional and organic farmers in Rincón region, Mexico Strategic perspectives of Volkswagen Group and PSA Strategic perspectives of Toyota and Honda Strategic perspectives of Ford and GM Strategic perspectives of DaimlerChrysler Percentage unit sales of automobile firms in three regions, 2005 Change in car fleet CO2 emissions per manufacturer on the US market Reductions in CO2 emissions by brand in the EU Evolutionary mechanisms in organizational fields Scenarios of system dynamics and related evolutionary mechanisms Summary of major elements of three levels of analysis

vi

18 48 59 62 72 98 108 112 124 131 138 140 141 143 144 166 172 180

Boxes 4.1 4.2 4.3 5.1 5.2 5.3 5.4 5.5 5.6 5.7

The stable perspective: Scanda Metal (1980–94) The dynamic perspective: Royal Philips, Consumer Electronics Division (1993–2006) The transformative perspective: Seventh Generation Greening the supply chain at OTTO Knowledge development on wind turbines in Denmark Managing the learning process with suppliers in the US automobile industry Regulating chemicals in the European Union ISO 14001: an international industry standard for environmental management The US mining industry and the natural environment, 1850–1950 Societal demands in action: the Brent Spar case

vii

64 65 68 83 84 86 89 91 93 94

Abbreviations ACC ACEA ASFE ASR BEV CAFE CARB CE CEFIC CEO CFCs CO2 CSR DDT DE EdF ELV EKC EU FCV GAP GM ICE ICO ICT IPCC ISO JAMA JEVA LCA MITI MNC NGO NTA PCS

Ahold Coffee Company European Automobile Manufacturers Association Alliance for Synthetic Fuels in Europe automobile shredding residue battery-powered electric vehicle corporate average fuel economy Californian Air Resources Board consumer electronics Conseil Européen des Federations de l’Industrie Chimique chief executive officer chlorofluorocarbons carbon dioxide corporate social responsibility dichloro-diphenyl-trichloroethane Douwe Egberts Électricité de France end of life vehicle Environmental Kuznets Curve European Union fuel cell vehicle good agricultural practices General Motors internal combustion engine International Coffee Organization information and communication technology Intergovernmental Panel on Climate Change International Standards Organization Japan Automobile Manufacturers Association Japan Electric Vehicle Association life cycle analysis Ministry for International Trade and Industry multinational company non-governmental organization nitrilotriacetic acid production and consumption system viii

Abbreviations

PNGV PSA PVC R&D REACH SUV UCIRI UK USA USABC VCR VDA VHS VW WEEE ZEV

Partnership for a New Generation of Vehicles Peugeot Société Anonyme polyvinylchloride research and development Registration, Evaluation and Authorization of CHemical substances sport utility vehicle Unión de Comunidades Indígenas de la Región del Istmo United Kingdom United States of America US Advanced Battery Consortium video cassette recorder German Association of Car Manufacturers video home system Volkswagen Group Waste Electrical and Electronic Equipment Directive zero emission vehicle

ix

Preface The ecology of ideas of which this book is a part started to emerge in my head a long time ago. As time passed new ideas were added, some of which flourished, while others were unable to secure a spot in the evolving landscape. The particular combination of insights that forms the main argument of this book started taking shape after 27 November 2004. On that day our twin sons Daniel and Nestor were born. For quite some time after that I spent a lot of time holding one of them asleep in my arms. The only thing I could do in parallel was reading. So I read a lot of papers and books on which I draw here. Although they have a life of their own, ideas cannot develop and flourish without people talking to other people. Over the years, Leo Baas, Céline Louche and Nigel Roome have been major influences by listening patiently and critically reflecting on my ideas. In the past few years I have found another fertile ground in the Governance & Networks group at Erasmus University where Geert Teisman and Lasse Gerrits have nurtured the emergence of a complexity-based view on governance. I was accepted into this group and found it an inspiring environment from which important parts of the argument originate. I also thank Lasse for his extra-patient support in the last phase of writing this book. Several peope read parts of the book or versions of the whole manuscript and provided much needed feedback. Many thanks to Kikki Baumann, Koen Frenken, again Lasse Gerrits, Nel Hofstra, Bart van Hooff, Jennifer Howard-Grenville, Karen Maas, Kathryn Pavlovich, Ab Stevels, Marcus Wagner and Ray Zamutto. I would also like to thank students of the Master of Industrial Ecology course from 2007–08, who willingly worked on assignments that helped by providing a testing ground for my theoretical ideas. Dirk Scheer and Frieder Rubik at IÖW Heidelberg provided useful feedback in a critical phase of the writing stage. Many others provided me with food for thought at various conferences where I presented preliminary parts of this work. I also thank Angelica Mendoza for her work on the bibliography that provided the basis for the coffee case. I want to express my gratitude to all the researchers who have studied in detail the way in which the ecological impact of firms, sectors of industry, and production and consumption systems is shaped. They made it possible for me to provide a wider empirical insight than would have been possible x

Preface

xi

had I relied only on my own research. Of course the work of these persons is referenced according to the accepted scientific rules, but I feel they deserve a special mention. And finally, Angela, thanks a lot for standing by me in writing this book and doing the many things that made it possible for me to finish this big project.

1.

How do firms create ecological value?

Is it better to use glass bottles instead of carton boxes as milk containers? Should we use biofuels instead of carbon-based fuels to drive our cars? Does the Toyota Prius hybrid car contribute more to global warming than a Hummer?1 These are some of the questions that have been posed over the years by people seeking to reduce their negative impact on the natural environment. These questions are not easy to answer conclusively. Ecological impact has many components, ranging from emissions to soil, air and water, to a decline of biodiversity. In the case of milk containers, glass milk bottles lead to higher ecological impact from transportation due to their weight. But as they can be used more often they are more resource efficient. An answer thus requires determining the relative value of these different impacts. Also, the ecological impact of any product depends on the human practices that accompany its production and consumption. The impact of biofuels depends to a great extent on the land on which they are grown. If existing agricultural land area is used the impact is different from when forests are cut to provide the land to grow them. To complicate things even more, human practices tend to differ substantially in different parts of the world. Despite efforts to deal with these complications in assessing ecological impact we lack a complete understanding of the way in which human activities intrude on natural ecologies. This book is about the consequences of this situation for the ecological strategies of firms, that is, the ways in which they deal with their ecological impact. Firms create economic value. Their products and services, the result of a transformation of material inputs and energy through labour and technological implements, fulfil needs of customers. Through selling products the firm acquires monetary benefits that flow back to its owners. However, this economic value comes at a price: these activities inevitably alter the natural ecologies in which they take place by using up natural resources, adding new materials and creating waste that influences ecological cycles. These ecological impacts affect not only the parties involved in the economic exchanges, they may affect those living nearby production facilities as well as people living in other parts of the world or even in future times. 1

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Creating ecological value

Given the wide range of possible ecological impacts and our incomplete ways of assessing that impact, the ecological strategy of a firm is based on an implicit or explicit assessment of what ecological impacts are to be considered. In this sense firms are involved in creating ecological value in two ways: through their activities they may reduce their ecological impact, but they also play a role in defining what is considered to be ecological impact. This book is dedicated to developing a theoretical framework that takes into account these two sides of ecological strategy. The framework will provide answers to two questions. The first one is: ‘How do firms define the impact of their activities on the natural environment, and what leads them to develop certain activities to deal with this impact?’ This question is necessarily broad as firms can display considerable variety in both their activities as well as in their definitions of what constitutes ecological impact. The theoretical framework needs to be able to account for this diversity. This requires an approach which does not look at firms in isolation but places them in their context. In the course of this chapter I will define that context as the production and consumption system in which the firm operates. The analysis of this context is guided by the second question: ‘In what way do the ecological strategies of individual firms interact to shape the dynamics at the level of production and consumption systems?’ In addition to bringing the context of firms into play, this second question posits that ecological impact at the level beyond individual firms is more than a simple aggregation of individual firm activities. There are thus several reasons for looking beyond the boundaries of the individual firm. To introduce the notions of diversity and the larger context, let me begin with two examples. Kyocera UK is part of a multinational producer of office equipment which has for a number of years sought to develop products with less ecological impact. On 5 July 2007 the company published the results of a survey held among large UK organizations concerning the environmental activities undertaken in their workplaces. Compared with a similar survey held in 1993 the results showed that the percentage of organizations with a clearly stated policy on decreasing the ecological impact of office activities had dropped in the preceding 14 years. Now only 20 per cent of them assessed suppliers for environmental credibility, compared to 54 per cent in 1993. Also, the percentage of organizations willing to pay a ‘modest premium’ for environmentally sound products went down from 60 per cent to 31 per cent. At the press release the marketing director of Kyocera stated that in her view the consumers of Kyocera expect them as suppliers to provide environmentally responsible products without wanting to pay a higher price for that: ‘Suppliers have to absorb any costs of going green.’2

How do firms create ecological value?

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Moving a considerable distance in space and time, we find ourselves in Chicago at the end of the nineteenth century. At that time industrial activity is growing, most of it fuelled through coal-based energy provision. While for some observers the smokestacks represent a sign of progress, many others consider them as problematic. In 1892 a group of industrialists seeks to address this problem.3 They establish the Society for the Prevention of Smoke with the goal to convince other businessmen4 in Chicago to install technologies to eliminate the smoke emitted by their boilers and furnaces. Most industries and transportation services at that time use an inexpensive type of bituminous coal that brings large amounts of hydrocarbons into the air, as well as smoke dust, ash and soot. As a result the streets and buildings become covered with residues, citizens develop respiratory problems and burning eyes and it is impossible to keep clothes clean. Some businessmen had already been active in helping to organize a public protest in 1881 which led to the enactment of a smoke ordinance. But partly due to lack of resources the local authority was unable to get polluters to comply. With the upcoming World’s Columbian Exposition in 1893 the Society for the Prevention of Smoke is established in order to ‘get rid of the smoke nuisance before the world’s fair opens’. The society seeks to achieve this by hiring a group of engineers that advises individual companies on how to diminish their emissions. Among firms there exists a general opinion that abatement technologies are not practical. It also turns out that different technologies and practices are required for different facilities. The engineers visit and advise hundreds of buildings in the central business district of Chicago. Within several months 40 per cent of the owners voluntarily follow the engineers’ advice and reduce their emissions substantially. Another 20 per cent take on the advice but encounter technological problems that have to do with specific problems of abatement technologies and the ways to operate them. The remaining owners are not so cooperative. According to the Societies’ secretary an often heard argument is that of not wanting to invest in a technology that will not bring in additional revenues. Refusal to adopt abatement technologies is also motivated simply by pointing the finger at other polluters. In order to get these owners to deal with their smoke emissions the society adopts a legal strategy and starts to bring individual owners to court, often repeatedly. In some instances this leads to success but in others it only increases the opposition. In both cases firms display diversity in the way they approach their ecological impact. Various firms in the Chicago smoke abatement discussion have different interpretations of their impact and the ways to deal with it. As a solution requires their combined efforts, cooperative and coercive structures are created to coordinate the activities. Although they

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Creating ecological value

are to some extent successful, some diversity is maintained. This is not the result of lack of willingness; there is clear evidence of a number of factors, including types of production technology or variance in related costs, that together explain why some firms reduce their smoke emissions and others do not. In addition, this case shows remarkable similarities to what many authors call ‘the modern environmental movement’.5 Apparently, disputes over ecological impact and diversity in the ways in which firms deal with that impact are not restricted to the decades after 1960. As industrialization starts to accelerate in Western societies in the second half of the nineteenth century, issues of health and ecological impact become a concern for governmental agencies and the public. And while some firms decide to take the lead in addressing these issues, others see them as inevitable side effects or try to evade measures to remedy them. The strategic issue with which Kyocera is confronted is based in diversity and change over time in the ecological strategies of its customers. The example shows some of the complexities of developing and maintaining a business strategy which aims at decreasing ecological impact. In the case of Kyocera it involves the development of new products with less ecological impact. This is a successful strategy only if a market can be created and maintained. The success of Kyocera thus depends on the ecological strategy of its customers. This explains the concern voiced by the company in reaction to the changes in attitudes since 1993: apparently its customers do want products with less ecological impact but only a minority is willing to pay the extra costs this involves. The change since 1993 is especially disturbing given the fact that the survey is held at a time when public concern over ecological issues is on the rise again. One can imagine the question for firms considering a similar strategy: what are the prospects for an ecological strategy involving product innovations if demand for such products is subject to severe fluctuations?

DIVERSITY: PROBLEM OR SOLUTION? As will become clear in this book, diversity in the ecological strategies of firms exists across and within sectors of industry and ranges from stubborn denial of the existence or severity of effects on the natural environment, all the way to seeking to derive competitive advantage from decreasing such effects. The examples show that such diversity has a number of practical implications. For regulators it poses the question of how to approach firms that are reluctant to conform to (proposed) legislation when other firms are cooperative. Drawing on theories of innovation, this has been described as an issue of leaders and laggards within industry, with the

How do firms create ecological value?

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consequent question of how lagging firms can be made to adopt the practices of leading firms. For firms the practical implication is that they are confronted with market uncertainty when they develop ‘green’ products as suppliers to other firms. Also, their willingness to decrease their ecological impact may lessen as they experience that their competitors are not doing the same thing. Theoretically the variety in ecological strategies poses an interesting challenge for explanation. At the level of individual firms, differences in factors such as organizational culture, commitment of top management and specific organizational competencies have been put forward as explanations for differences in the way in which firms deal with their ecological impact. Although these factors contribute to our understanding, in isolation they fall short of a satisfying explanation. If we look beyond the level of individual firms to industry sectors or business systems variety can be viewed in terms of its contribution to change. From an evolutionary perspective diversity is crucial for furthering change. In nature evolution occurs whenever genetic mutations lead to characteristics that increase the reproductive capacity of an organism in its environment. In practice, mutations occur relatively often, leading to variety. The selection mechanism then lets some of the mutations persist while others wither away. Applying this perspective to firms is not straightforward. The mutations that occur in nature are random, in the sense that they are not developed by the organism as an intentional response to its environment. Firms are different as they at least attempt to change their activities in order to adapt to changes in their business environment. Yet, with some modifications, the evolutionary perspective can be applied successfully to economic processes and as I will build on this in coming chapters, it is relevant to note the vital importance of diversity.6 In natural ecosystems variety is considered to be an important attribute that makes the system more resilient. In this respect it is important that several studies have found that firms converge in the way in which they approach ecological issues. One example is Hoffman’s inquiry into the US chemical industry.7 Based on an analysis of industry documents and liability cases over a period of 30 years, he finds that firms within the industry display considerable consistency in their dealings with environmental issues, and over time collectively adopt new approaches. Of course, whether we see diversity or convergence to some extent depends upon the level of detail in which we look at our topic of study. But Hoffman’s study suggests that firms within a branch of industry may develop more or less similar ecological strategies. This is also indicated by the way in which concepts such as eco-efficiency or industrial ecology

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Creating ecological value

become centrepieces of such strategies for firms in different countries and sectors of industries.

DIVERSITY AND CONVERGENCE IN THE LITERATURE: TYPOLOGIES, NORMATIVE STATEMENTS AND PARTIAL APPROACHES In the past two decades the study of ecological strategies, often referred to as environmental management, has developed into a substantial research field. Part of this research has focused on making sense of the diversity that was introduced above. In an overview from 2002 Kolk and Mauser list 50 classifications, typologies and taxonomies. It is worth looking at these more closely as they reveal a lot about the way in which researchers have approached the variety of ways in which business deals with its ecological impact. But to get a sense of what these models are about I will first present two of them in more detail. One of the first classifications was developed by Petulla in an empirical study of environmental protection in the US.8 Based on a survey among environmental managers she found three distinct categories of firms based on their level of compliance with governmental regulations and corporate interest in environmental affairs. A first category is ‘crisis-oriented environmental management’. These firms did not have any personnel or organizational unit devoted to environmental affairs and lacked a clear policy of complying with laws and regulations. When conflicts with regulators arose around emissions they dealt with these through denial, and if action was unavoidable, in a ‘fire-fighting’ way. A second category is ‘cost-oriented environmental management’. These firms accepted environmental regulations and perceived them mainly as a cost of doing business. Compliance was organized through establishing an organizational policy and dedicated staff positions that monitor regulations, negotiate with regulators and develop investment plans for pollution control technologies. Sometimes these firms would also engage in resource recovery through waste recycling. The third category of firms fell under the label of ‘enlightened environmental management’. These firms went beyond compliance to governmental regulations based on the idea that this would be their own long-term interest, avoiding liability suits and ensuring acceptance from local communities. In these firms environmental management was more embedded in the firms’ organization in terms of explicit commitment of top management and cooperation between environmental managers and production staff. Also, these firms actively looked for costeffective ways to reduce their ecological impact through energy saving and

How do firms create ecological value?

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resource recovery. Petulla’s classification is representative for a number of other models that have been proposed over the years in distinguishing the approach of firms to their ecological impact according to the way they position themselves towards governmental regulations. A second example is the more recent classification of competitive environmental business strategies by Orsato.9 He sets out to answer the question ‘When does it pay to be green?’ This goal reflects an important strand in research on ecological strategies which focuses on the relationship with competitive advantage. Depending on the firm’s competitive focus (on processes or products/services) and its competitive advantage depending on cost leadership or differentiation, he proposes four strategic types. ‘Eco-efficiency’ is a strategy that can be pursued by firms which focus on cost reduction and have an orientation on processes. It can bring financial as well as ecological benefits when firms succeed in producing more with less. A second type is ‘Beyond compliance leadership’ which consists of being an industry leader in going beyond the demands formulated by governments and other stakeholders. If this leadership position is made public it can be a source of competitive advantage. A third type is ‘Ecobranding’ Firms employing this strategy successfully market products based on ‘green’ characteristics, usually for a niche market. Finally, firms in the category of ‘Environmental cost leadership’ are able to innovate to bring onto the market products which conform to stringent environmental regulations at a low cost. Orsato provides examples for each of these strategy types, but otherwise his model is not based on empirical evidence. This brings us back to the multitude of classifications and typologies that have been proposed over the years. No dominant way of ordering the ecological strategies of firms has emerged. This is partially the result of the different purpose that authors have. Some focus on providing assistance to firms in selecting a viable ecological strategy that suits their specific situation. Orsato’s classification is an example of this. Others merely try to describe the diversity that they meet with in doing a study in a particular sector of industry or country. Still others present a classification as the backdrop of a prescriptive proposal for what a sustainable firm would look like. Few classifications are developed with the explicit purpose to uncover the mechanisms that are behind the diversity. Apart from differing in focus, the classifications and typologies also differ in terms of the variable(s) on which they focus. One variable that often returns is that of compliance with regulations. This reflects a focus on the position of an ecological strategy relative to existing regulation. Positions similar to those developed by Petulla can then be discerned. Compliance can be extended to include the position towards more general societal demands, as these are posed by other stakeholders and general

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Creating ecological value

public opinion. This leads to classifications in terms of reactive/defensive, active and proactive. Another variable that is used is the extent to which environmental management practices are present within the firm and are linked to the general business process. Yet another way of classifying ecological strategies is to distinguish different types of technologies, such as end-of-pipe versus pollution prevention. The situation of prolonged dissensus over the way to order the different approaches of firms towards their ecological impact indicates a lack of insight into the mechanisms that create these different approaches. This is a result of the fact that, although classifications and typologies are often based on some theoretical insight, they generally lack a thorough theoretical basis which helps to explain why firms employ one strategy rather than another. Also, 60 per cent of the contributions listed by Kolk and Mauser lack an empirical basis. In this respect the work of Petulla is relatively exceptional in the sense that it is based on thorough empirical research. This does not mean that there are no theories of ecological strategies of firms.10 Leaving aside the many contributions that in one way or another seek to develop a prescriptive approach to ecological strategies, two main strands can be discerned. One builds on a general theory explaining the competitive advantage of firms based on their differential unique capabilities. In his natural resource-based view of the firm Hart argues that proactive ecological strategies require capabilities that also contribute to competitiveness. Based on this he postulates that proactive firms outperform lagging firms. Another theoretical strand builds on institutional theory of which the work of Hoffman is an example.11 Although both strands provide valuable components for the framework that will be developed in this book, by themselves they are not sufficient to answer the central questions posed above. Instead, they focus on specific types of strategies or help to understand better the ways in which firms deal with societal demands. They thus focus on aspects of the central theme of the book but do not cover it in its entirety.

IS THERE A YARDSTICK FOR ECOLOGICAL STRATEGIES? A possible starting point for developing a theoretical framework might be to specify the aim of an ecological strategy. We might say that the aim of such strategies is to eliminate the negative ecological impact of the activities of the firm and its products. But ultimately, productive and consumptive activities conform to the laws of physics: they involve transformations of energy and physical matter. Using energy to transform raw materials

How do firms create ecological value?

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into products makes use of natural resources and inevitably generates some waste that in one form or another ends up in natural ecosystems. Especially since the Second World War this impact has multiplied.12 First of all, the industrialization of food production and forestry has resulted in more intensive exploitation of the productivity of certain ecosystems. Beyond a certain level this exploitation may drive the ecosystem out of balance, such as in the case of overfishing or soil erosion due to forestry. Second, human activities may increase the level of some element naturally occurring in ecosystems, such as the use of nitrogen fertilizer, again resulting in a disturbed balance. Finally, industrial innovations have created new substances that are not found naturally in ecosystems. These are not incorporated into natural cycles, such as plastics, nor they do enter such cycles, and may cause damage as they accumulate in living organisms. Together with the increased number of human beings inhabiting the world, productive and consumptive activities have considerable ecological impact. The ultimate aim of ‘zero waste’ is illusionary, given the second law of thermodynamics. We thus have to confront the question of what is an acceptable ecological impact for productive and consumptive activities. The concept of sustainable development has become one of the dominant definitions of what constitutes acceptable impact by linking it to the fulfilment of the needs of current generations without compromising the ability of future generations to meet their needs.13 The term ‘sustainability’ originates from forestry management where the question is how to harvest trees without destroying the forest. A sustainable yield then is one that keeps the reproductive capacity of the forest intact. In the influential definition of the Brundtland Commission, this term has been adopted to link the aim of decreasing ecological impact with that of combating social inequity, especially between the developed and developing world. In the 20 years since it was first put forward sustainability has become a central term in the dealings of industry, as well as other parts of society, with ecological issues. At the same time criticism has been voiced about the concept which challenges its anthropocentric focus and the intrinsic link it makes between social and ecological issues and economic growth.14 Nevertheless, sustainability has been adopted by many firms as the goal of their ecological and social endeavours. This has led to it being interpreted in manifold ways.15 Rather than providing a yardstick for ecological strategies the various uses of the term sustainability thus illustrate the diversity of ecological strategies of firms. As an alternative concept we can consider carrying capacity as the basis for specifying the aim of ecological strategies. When evaluating ecological impacts we can take into account the fact that they can be accommodated to some extent by the natural ecosystems on which they rely. This leads

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Creating ecological value

to the concept of carrying capacity or resilience of the earth’s ecosystem. Carrying capacity can be defined as the number of human beings whose life can be supported by nature without destroying it. This sets limits on the amount of resources that we can extract from nature to fulfil our needs, as well as to the quality and amount of wastes resulting from our activities that can be absorbed by the global ecosystem. Resilience refers to the ability of an ecosystem to absorb shocks from its environment and adapt in the face of changes in its environment. However, a further specification of these criteria leads into problems as the number of human beings that can be supported by the global ecosystem depends on both the level of needs that human beings aspire to and the technology and societal infrastructure they use to fulfil these needs. Simply put, if all human beings would have the living standards of the average US or European citizen there would be room for less human beings than if they all would conform to the average aspiration level of the members of Indian tribes living in the Amazon rainforest. It would therefore be more accurate to speak of cultural carrying capacity as an objective carrying capacity cannot be calculated.16 Metabolic consistency is another concept that could be used to substantiate the aim of ecological strategies.17 This term specifies that productive and consumptive activities need to be compatible with natural cycles in the ecosystems on which they exert influences. Alternatively, they should be managed within a closed loop before wastes are processed and fed back into ecosystems. This concept is helpful in not suggesting any direction towards human activities; it does not specify the necessity of economic growth or the fulfilment of specific human needs. It is thus open to interpretations in terms of sufficiency. But one problem remains: how to assess what activities conform to this criterion. This problem has two sides: not only does it call for a complete specification of all possible ecological impacts of an activity, it also demands that we have complete knowledge of the ecological cycles in the ecosystems of the earth at both global and local levels. At this moment, we do not have such complete knowledge. For some, these problems are temporal and are seen as defining the need for speeding up the research necessary to develop our understanding of ecosystems and the way in which human activities impact upon it. While this is a valuable enterprise, at this moment we need to act with incomplete knowledge in a world where cultural differences exist which infuse any specification of the aim of ecological strategies with some set of values. To illustrate the extent to which our knowledge currently is incomplete we can look at some theories that purport to explain the relationship between economic development and ecological impact. I present three of these which arrive at quite different conclusions. A first theory is summarized in the so-called environmental Kuznets curve (EKC). This curve

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shows the connection between national economic development as measured in per capita income on one axis, and ecological impact on the other axis. Based on empirical data from industrialized countries the resulting curve shows that initially national economies combine low ecological impact with low per capita income, then evolve towards an increase in both ecological impact and economic performance, and in a third stage continue to improve per capita income while reducing ecological impact.18 It has been argued that, due to technological development, economic growth may thus eventually lead to decreased ecological impact. Subsequent research shows that the general shape of the curve is not universally valid; depending on structural features of national economies an S-shaped rather than a bell-shaped curve or even a linear positive association may be seen.19 Also, the interpretation in terms of technological change leading to decreased ecological impact may not be valid. As the curve is calculated for national economies a decrease of impact in a later stage may be the result of pollution haven effects as continued industrial development leads to changes in exports and imports of energy-intensive goods.20 A second theory starts from the central sociological thesis that Western societies are subject to a process of modernization which involves increasing rationalization in all societal spheres. The central thesis of the ecological modernization perspective is that this process initially results in increasing ecological damage but that at some point, through further rationalization and industrialization, societies are able to counter this trend and decrease their level of ecological impact. While this leaves the basic capitalist structure of these societies intact it involves changes in its coordinative structures and a shift in the balance between state and market. This perspective has a distinct European bias as its main developers come from Germany and the Netherlands, where in the last decades of the twentieth century such a transformation seemed to be taking place. This theory underpins the general shape of the environmental Kuznets curve and provides an explanation in terms of changes in the institutional context of productive and consumptive activities.21 An alternative theory has been proposed by Schnaiberg.22 His perspective revolves around the question of why the ecological impact of industrial activities has increased dramatically since the Second World War. He postulates the existence of a ‘treadmill of production’ which refers to the mechanism in which the continuous demand for increased productivity in industrial systems is narrowed down to labour productivity. In order to increase the output per unit of labour force employers introduce more advanced production technologies which imply an increase in necessary resource inputs. Increased labour productivity results in increased output or in firing obsolete employees. As these need to find work elsewhere there

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Creating ecological value

is a need to develop more productive activities which can only be competitive if they adhere to the same logic of increasing labour productivity. This theory has the advantage that it takes into account the trend in which activities with substantial ecological impact are relocated in countries with lower wages as an alternative way of increasing labour productivity. It thus incorporates developments that characterize the process of globalization that has taken place in the past decades. The trend of substituting labour for resources is also visible in retailing, where the increased scale of shops leads to more opportunities for shoplifting. This is countered by developing larger packaging which contains electronic devices that activate a warning system when it is not deactivated at the counter. Although there is some evidence that supports the treadmill of production mechanism rather than ecological modernization, both theories exist side by side without conclusive evidence for one or the other. Lack of conclusiveness about correspondence of one of these theories with empirical data reiterates the point made earlier that there is no conclusive way of establishing the ecological impact of industrial activities and the way it develops over time. This makes it impossible to provide an overarching aim for the ecological strategy of a firm. But although such an ultimate yardstick cannot be developed, this exercise provides us with an important clue about ecological strategies: they are developed to deal with the ecological impact of a firm’s activities and products under conditions of incomplete knowledge of these impacts on natural ecosystems, and different value definitions of what constitutes an adequate strategy.

THE SOCIAL CONSTRUCTION OF ECOLOGICAL PROBLEMS: DEFINITIONS OF ECOLOGICAL VALUE As a result of these conditions a major issue for firms in developing their ecological strategy is this: what are the ecological impacts that should be considered? There is no easy answer to this question, which is part of the reason why ecological strategies, even among firms that use similar production processes, may display a large diversity. Any problem definition combines facts about the world with values, based on which the factual situation is judged to be unwanted.23 Consider the issue of acid rain. Sulphur dioxide and nitrogen oxide gases occur in natural ecosystems in tightly balanced cycles. Emissions of the same substances from coal burning power plants, industrial processes and automobiles may disturb these balances which results in acid rain. This rain then leads to acidification of lakes and streams, resulting in the collapse of local ecosystems as well as a decline in the growth of certain types of

How do firms create ecological value?

13

forests. In order for the disturbance of these ecological balances to become a societal ecological issue, it first needs to be identified, which in the case of acid rain was done already in 1852. Then, some actor needs to perceive it as problematic, in terms of valuing the freshwater and forest ecosystems that are negatively affected. This actor then needs to gain support for this problem definition to promote it beyond an individual nuisance. The first United Nations Conference on the Human Environment in Stockholm in 1972 provided the platform for a number of Swedish scientists to define acid rain as a public problem. Any problem definition implies someone or something to be responsible for it. Thus, problem definitions become contested when those who are made responsible by one definition seek to evade it by proposing another definition. As sulphur dioxide and nitrogen oxide occur naturally in ecosystems, several representatives of industry contested the need for them to take action, pointing to other sources such as volcano eruptions or forest fires as major causes of an increase in acid rain. Also, acid rain transcends judicial boundaries and often emissions in one region or country negatively affect ecosystems in other places This connects the ecological issue with the complexities of international governmental coordination. So even though ecological problems have a physical basis they also include value elements. It never is a purely objective statement about the state of ecosystems; instead, it combines such factual information with value statements which highlights certain linkages between the facts as well as values that serve to argue why a specific state is seen as problematic. As a result, some problems rise on the public, political and corporate agenda, and problem definitions change over time. Ecological problems are socially constructed in the sense that there are social processes which shape their definition as well as their importance in society at a given point in time. Part of these processes deal with the formulation of the problem. This involves the way in which the elements of the problem (facts, values) are brought together. Facts are often provided by scientists who find that some aspect of an ecosystem is changing. Even though we might wish that scientists can give us the ‘true facts’, the sometimes heated debates that surround specific issues show that this is often not possible. The controversy around Bjørn Lomborg’s The Skeptical Environmentalist in 2001 is a good illustration. This book, published by a respected scientific publisher, presents ‘the real state of the world’. The main message is to assess what the author calls ‘the litany’: the, in his view, overly pessimistic message about global environmental degradation that finds its way into media and policy debates. In more than 500 pages, using many graphs and statistics, problems such as climate change, poverty and hunger, and air pollution are described. Almost without exception

14

Creating ecological value

the conclusion is drawn that problems are becoming less severe. After its publication the book was welcomed by some, but at the same time heavily criticized by scientists and environmentalist groups. Much of the discussion centred on the way in which Lomborg presented data, allegedly constructing a picture that served the point he wished to make.24 Another part of the process of problem construction is that through which a specific problem gets attention and rises on public, political and corporate agendas. To some extent this depends upon incidents that cannot be predicted. But actors that for various reasons attach importance to the problem try to place and keep it upon the agenda of societal decision makers, who are restricted in terms of the number of problems with which they can deal. The social constructionist view on ecological problems has several implications regarding firms and their ecological impact. First, in developing their ecological strategies firms have to deal with ecological problems as they are defined within the society in which they operate. Their view may be different from that societal definition and this implies that they may try to influence societies’ definition in the direction of their own perspective. Up until now I have not provided a definition of an ecological strategy. Based on the preceding argument I define such strategies as the way in which firms deal with their ecological impact. ‘Dealing with’ should be understood in two ways: it refers to efforts to reduce that ecological impact as well as efforts to affect the way such impacts are defined at a certain place and time by relevant others – competing firms, governmental agencies, non-governmental organizations (NGOs) and public media. The socially constructed nature of ecological problems is also the basis for another central concept in this book: definitions of ecological value. This term refers to the way in which a firm perceives its ecological impact and the solutions it sees for dealing with these impacts. As will be argued in Chapter 4, a definition of ecological value is part of the strategic perspective of a firm. It contains the cognitive and evaluative elements of the managerial frame of reference that relates to ecological problems. Definitions of ecological value become established, are maintained and are subject to change through the activities of the firm. The framework developed in this book thus distinguishes patterns of actions (ecological strategies) and frames of reference (definitions of ecological value). Over time these become engrained into the organizational routines of the firm. While this combination of concepts will enable us to understand to some extent the way in which ecological strategies are formed and maintained, they only focus on the individual firm. As indicated by the socially constructed nature of definitions of value, as well as the general meaning of the concept of strategy (which deals with the positioning of a firm into

How do firms create ecological value?

15

its context), we need to include in the framework an approach to look at the context in which firms develop their ecological strategy.

SYSTEMIC PERSPECTIVE Several approaches have been developed to help us understand the way in which the ecological strategies of firms are shaped. The most important ones will be discussed in detail in Chapter 4. Some of these focus on regulation as a primary shaping factor, as governmental laws and permitting systems define what is legally acceptable behaviour for a firm. Others look at the organizational competences of a firm and explain the ecological strategy as an outcome of the application of specific abilities such as lobbying or developing new products. Still others view the accepted practices within a sector of industry as a central explanatory factor. Each of these approaches helps us to see part of the picture. However, in my view a perspective is needed that allows us to address the interrelation between these, and other, factors. In other words, we need a systemic perspective if we want to increase our understanding of the ways in which ecological strategies of firms are shaped, as well as the way in which they combine to produce ecological impact at the societal level. In this book I will look at firms as part of a production and consumption system (PCS).25 Such a system consists of the economic actors (firms and consumers) involved in the production and consumption of a set of products and/or services and the material and energy flows they generate. The system encompasses the life cycle of a product from the extraction of necessary raw materials, the production of parts and assembled products, the use of the finished products, as well as the waste that results from it being discarded. In addition, NGOs and governmental agencies that try to influence the activities of these economic actors are part of the PCS. Any PCS links to natural ecosystems in numerous ways: at some locations the natural resources are extracted that provide the raw materials and energy; at other locations intermediate and end products are produced which result in various impacts on local and supralocal ecosystems; consumption of the product and the resulting waste again has impacts at still other locations. Also, the transportation of materials, intermediate products, end products and resulting waste imposes additional ecological impacts. A first reason for looking at a PCS has to do with the interrelatedness of these impacts. If we limit our view to an individual firm possible spill-over effects to other parts of the economic system are left aside. An example of this interrelatedness is when a dairy company chooses to replace reusable glass bottles with milk cartons. Through the weight reduction the

16

Creating ecological value

ecological impact of product transports is reduced while the ecological impact of materials used in packaging production is increased. Another example is the so-called rebound effect. This refers to the possibility that reducing, for instance, the amount of energy necessary to burn a light bulb has the effect that consumers choose to let it burn longer, thus offsetting the gain.26 In a systemic view it becomes visible how choices in one part of the system have consequences for the ecological impact in other parts of the system. Looking at larger socioeconomic systems allows the inclusion of such spill-over effects in the assessment of ecological impact. A second reason for taking a systemic perspective is that substantial innovations may be necessary for reducing the ecological impact of human industrial activities. Such innovations are the result of networks in which knowledge institutes, governmental agencies and economic actors interact.27 Such networks may display systemic lock-in, which refers to the fact that many activities and products depend on other products and services, such as mobile phones which require an infrastructure before they can be used. Changing one part of such a system is difficult without changing the other parts and as a result systemic lock-in can frustrate change. Understanding the ecological strategies of firms requires that such systemic linkages are taken into account. Finally, firms base their activities in part on specific sets of beliefs on the outside world. Such mindsets are not unique to individual firms. They are created and maintained across groups of firms, consumers and other organizations with whom they interact. Part of this mindset is their definition of ecological value. As will be shown in the chapters that follow such definitions are often shared by groups of firms and other actors within the PCS. An analysis of the evolution of these definitions thus requires an analysis of the way in which such collective mindsets develop and are maintained over time and the ways in which they can be challenged by alternative beliefs about the world.28 Within a PCS over time groups of actors collectively construct specific views on what are the ecological effects of production and consumption activities, and preferred ways of dealing with such effects. Shared definitions of value can emerge whenever a number of social actors interact and they can thus differ for social groups. Within a PCS firms and other organizations may interact mainly within geographical boundaries and create distinct definitions of ecological value. A systemic perspective allows us to analyse the way in which such groups come into existence and the way in which they interact to make one definition dominant or create new ones. A consequence of this systemic perspective is that I will draw on several research fields such as innovation studies and organization and management studies, and within them, on several theoretical approaches.

How do firms create ecological value?

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Throughout the book I will make clear how these fit together in a theoretical framework which builds on the social contructionist view.

A GLIMPSE OF THE ARGUMENT OF THE BOOK In the chapters that follow I present and apply a theoretical framework that builds on the social constructivist perspective introduced above. The framework aims to answer the following two questions: ‘how do firms define the impact of their activities on the natural environment, and what leads them to develop certain activities to deal with this impact?’ and ‘in what way do the ecological strategies of individual firms interact to shape the dynamics at the level of production and consumption systems?’ A first step is to develop a more precise understanding of production and consumption systems in terms of a set of actors around a set of technologies. Even though the argument focuses to a great extent on the consequences of human action being shaped by sets of beliefs and values, technological change is a key issue when considering ecological strategies. Such change is generally deemed necessary in order to bring our activities within the bounds of metabolic consistency. In Chapter 3 I will make clear that technological change is not an exogenous force but instead interacts with the social structure and culture of the actors that develop and bring to the market new ideas. In other words, technological change evolves along technological trajectories which are in part socially constructed. The existence of such trajectories can also be used as a basis for a typology of strategic perspectives: some firms are satisfied with defending their position at one point on this trajectory; others aim to move along the trajectory; while still others formulate their strategies in terms of constituting trajectories that compete with existing ones. In Chapters 4 to 8 three levels of analysis will be covered: the individual firm, the resource networks in which the firm engages to achieve its goals and the PCS in which the firm operates. Table 1.1 provides an overview of these levels. Chapter 4 deals with the individual firm and contains a further elaboration of the typology of stable, dynamic and transformative strategic perspectives. These are made up of four elements, of which two have already been introduced: the definition of ecological value and the set of activities of a firm regarding their ecological impact, that is, their ecological strategy. The other two elements are the more general strategic orientation of a firm, and the organizational routines employed by a firm. These elements are shaped and maintained by internal dynamics of firms that will be explored as well. Chapter 5 deals with the second level of analysis: the resource networks

18

Table 1.1

Creating ecological value

Levels of analysis in different chapters

Level of Analysis

Content

Firm

constituting elements of strategic perspectives as shaped by internal dynamics external linkages established by the firm to obtain resources evolutionary dynamics within and across organizational fields that make up a PCS

Resource networks PCS

Chapter 4

5 8

that consist of the direct linkages a firm establishes with other actors in order to obtain the resources it needs for achieving its aims. Four crucial resources are distinguished: materials and energy, knowledge, rules and societal demands. The chapter concludes with observations on how firms deal with the simultaneous acquisition of these resources. In Chapter 6 and 7 I analyse two production and consumption systems more extensively. In Chapter 6 the coffee PCS is presented. This is also a global system but I will focus on the Dutch market and how it connects to producing countries. Over the past decades various types of sustainable, organic and ecological coffee have been introduced on the market. This case thus shows an interesting diversity in terms of definitions of ecological value and provides insight into the way in which such diversity emerges and what are it consequences. Chapter 7 presents the automobile PCS. This systems is interesting as ecological strategies are increasingly having an impact on competitive positions. This case also shows the complexity of a PCS as a global industry where national markets remain important and several competing technologies/approaches to deal with ecological impact are currently under scrutiny. The extended case studies from Chapter 6 and 7 provide the background against which the third analytical level can be addressed: that of the PCS. The case studies show that a PCS is made up of various organizational fields. In Chapter 8 I draw on evolutionary theory to uncover the mechanisms that operate within and between such fields to create, maintain and eliminate diversity in the ecological strategies of firms. Chapter 9 serves to integrate the insights at the three levels of analysis and provides a summary of the theoretical framework including a list of propositions that can guide further empirical research. It also contains a discussion of theoretical and practical contributions. Before diving into all of this, Chapter 2 takes a step back by looking at

How do firms create ecological value?

19

the way in which definitions of ecological value have evolved since the late nineteenth century. While this is a highly generalized account it provides a sketch of the historical background against which we can analyse current ecological strategies.

NOTES 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28.

To people familiar with cars and their ecological impact, this question might seem a bit far out. Yet, in 2007 a study which received wide media attention concluded that the Hummer H3 SUV had a lower life-cycle energy cost than the Toyota Prius hybrid. See Gleick (2007) for a discussion of the study and its impact. Also, the label milk cartons is slightly misleading; the disposable boxes that are widely used in many countries as milk containers are made of carton coated with a thin plastic film. Kyocera (2007). For a full account, see Meisner-Rosen (1995). I use the word ‘businessmen’ to refer to both female and male persons involved in business activities. For instance Hoffman (1999). An extensive discussion of evolutionary theory and its applicability beyond natural organisms can be found in Dennett (1995). Overviews of evolutionary approaches to business/economics can be found in Murmann et al. (2003). Hoffman (1997, 1999). Petulla (1987). Orsato (2006). See Bansal and Gao (2006) for an overview. These approaches are more fully described in Chapter 4. The following is based on Commoner (1971, pp. 126–7, 1997). WCED (1987, p. 43). See, for instance, Escobar (1996). See Hopwood et al. (2005) for a classification of these. Hardin (1993). This concept has been developed by Huber (2004, pp. 29–36). Selden and Song (1994) and Shafik (1994). Azomahou et al. (2006) and Richmond and Kaufmann (2006). Suri and Chapman (1998). Buttel (2000) describes several strands within this theory. Central statements are from Mol (1995), Spaargaren and Mol (1992) and Huber (1985). Schnaiberg (1980). A good overview is provided by Gould et al. (2004). Gusfield (1981) presents a thoughtful perspective on the social construction of public problems. The remainder of this section draws on Hannigan (1995), who develops this perspective for environmental problems. Lomborg (2001). For an overview of criticism, see Pielke (2004) and Cole (2003). For a related approach, see Lebel and Lorek (2008). Hertwich (2005). Edquist (1997). Spender (1989) and Phillips (1994).

2.

Definitions of ecological value: patches of history

Most of the literature dealing with ecological strategies of firms takes as a starting point the late 1960s when the ‘modern environmental movement’ originated. But as the example of smoke abatement in Chicago in Chapter 1 shows, the ecological impact of industrial activities already was a much debated and acted upon topic in the second half of the nineteenth century. During this period, commonly known as the Second Industrial Revolution, monumental changes took place. Innovations such as electricity and the first chemical products reshaped society. Scientific knowledge, most notably chemical engineering, was more systematically applied to industrial production. Railroads were built that effectively enlarged the markets that a firm could serve. Perhaps most important from an ecological perspective this period marked a shift towards a carbon-based economy, as coal and later oil became major inputs as energy sources as well as raw materials for newly developed products.1 Another major innovation was not technical but organizational. Before 1850 production was predominantly organized in craft shops where craftsmen produced complete products singlehandedly, or through the putting out system in which home workers would produce products with raw materials provided by merchants who also sold the finished products. In the latter part of the nineteenth century businessmen2 increasingly brought workers together in factories in order to make use of larger technical equipment. This required the management of a concentrated workforce and as a result new organizational structures emerged which eventually resulted in the shape of the modern firm. This development is of considerable importance as the firm constituted an institutional form in which organizational and technological change interacted to produce new products and more efficient methods of production.3 In this chapter I present several definitions of ecological value as they emerged at different moments in time. The Second Industrial Revolution provides a useful starting point because it marks the birth of the modern firm which is central in the argument of this book. I will not attempt to provide a complete historical overview of the different ways in which firms in Western societies have dealt with ecological issues over time. As will 20

Definitions of ecological value: patches of history

21

become clear, definitions of ecological value emerge in distinct times and places as the result of interactions between owners and managers of firms and other involved parties such as scientists, government officials and the general public. This chapter contains patches of history: specific instances where ecological impact became defined in specific ways. Individually they illustrate the way in which such definitions of ecological value emerge. Together they provide insight into the differences and communalities in such definitions and the process through which they are established.

SMOKE: PROSPERITY OR WASTE?4 In the industrializing cities of the nineteenth century the smoke that was emitted as a result of burning coal to provide energy for machines was one of the most visible forms of pollution. Although the smoke also contained substances that we would now find problematic the attention at that moment focused on the coal particles that were emitted as a result of incomplete combustion. For a considerable period the problem was dealt with by building higher smoke stacks which led to dispersion of the particles over a longer distance. But the effects on human health and general quality of life became more and more unbearable. As mentioned in Chapter 1 in Chicago this led to protests and the subsequent establishment of a society by industrialists that sought to combat these effects. Economically the smoke problem is interesting because more complete combustion implies both an economic and an ecological gain. In countries such as Germany and the US this fact was not unknown to engineers. However, the knowledge and equipment through which the burning of coal could be made more efficient were not readily available nor did they constitute a generally applicable remedy. Also, coal was for most factories a relatively cheap resource and many businessmen did not seem to be too interested in that part of their production processes. As the negative consequences of smoke were visible to everyone, firms as well as governments and the public wrestled with this issue. Mosley describes the ways in which smoke pollution in the city of Manchester was perceived between 1850 and 1900. He traces two competing definitions of ecological value in local discussions of the issue. One describes the smokestacks and their clouds as a sign of progress, an inevitable correlate of economic prosperity. The other one ‘saw the columns of sulphurous black smoke as “barbarous” signs of waste and inefficiency’.5 At the core of the latter definition was the view that smoke signalled inefficient processes of coal burning and societies were instituted that saw it as their purpose to develop and disseminate among industries procedures for

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Creating ecological value

‘perfect combustion’. There were technological possibilities and possible improvements in operating procedures to increase the efficiency of coal burning and thus reducing smoke, but these were not generally adopted even though societies (including industrialists) were instituted to research and promote them. In Germany the Prussian Ministry of Commerce had established a ‘smoke clause’ in 1853 which became a national law after the German unification. The main reason for establishing this law was to prevent situations from occurring similar to those in London. The law mandated smokeless combustion and government officials could demand alterations if plants produced smoke nevertheless. There was less stringency in the enforcement of the law, however. Local officials had considerable leeway and in effect only acted when the public complained about a specific facility. In such cases businessmen were induced to make changes voluntarily, with the threat of prosecution if they failed to cooperate. This worked in most cases; prosecution was rare. The system was not without flaws. First of all, action was only undertaken when someone complained, which left many facilities unaffected. Also, animosity could arise as government officials had increasing knowledge on practical ways of increasing combustion efficiency but were reluctant to advise businessmen as they could be held liable if the measures would fail to produce results. In short, with some exceptions the issue of smoke nuisance was defined in Germany as a legal issue where businessmen and government held separate roles. The possible economic gains of more complete combustion never entered the discourse between the two. In the US a regulatory tradition as in Germany was lacking. There was, however, in industrializing cities a debate on the necessity of smoke abatement. Proponents may have had idealistic motives but they also based themselves on the considerable damage that smoke caused on property and (the value of) real estate; in fact, calculations of these ‘social costs’ were frequently made. These costs may have been instrumental in the important role that business associations played in establishing an approach to smoke abatement. Opponents argued that such measures would harm business and often referred to the symbolism of ‘smoke as prosperity’. Others did not oppose the purpose but rather the means by which they were advanced. Again, part of the animosity came from reluctant government officials that held back their knowledge on practical ways of increasing the efficiency of coal burning to avoid possible liabilities. Around 1905 a change took place with the establishment of ‘smoke inspectors’; engineers that were employed by municipalities and who acted as consultants towards businessmen. This made the exchange of information possible in combination with prosecution if a facility failed to

Definitions of ecological value: patches of history

23

apply measures. In their work the smoke inspectors proved their value to business as they showed that smoke means waste. The smoke issue provides evidence of the fact that similar problems become defined in different ways depending on the context, with consequences for the way in which governmental agencies, industrialists and the public become involved. The definitions of ecological value in Manchester and the US show common elements, notably in the connection between smoke and inefficiency. This led industrialists who perceived smoke as a sign of inefficient combustion and the deterioration of the local environment as damaging to their interests to support and actively diffuse the definition of smoke as waste. In Germany, where this link was not made, industrialists were opposed to the regulations that were formulated by governmental bodies. In all three countries government initiatives struggled to deal with issues that were totally new to them: industrialization brought not only new products but also new problems and they had to learn how to deal with these.

THE ALKALI INSPECTORATE: A SCIENTIFIC APPROACH TO POLLUTION6 During the nineteenth century the British chemical industry developed towards large-scale production. One of the consequences was an increase in its contribution to water and air pollution. The alkali industry, which produced soda as an input for the production of textiles, glass and soap, made use of the so-called Leblanc process which resulted in sulphur waste and hydrogen chloride (then called muriatic acid gas) as byproducts. Especially the gas raised public concern as it was seen to damage vegetation and threaten the health of neighbouring communities. Until the 1860s the conflict between manufacturers and landowners and the public was fought out at the local level, often in legal proceedings. In the many local battles that were fought a number of arguments were put forward that constitute alternative definitions of ecological value. One was to link the expansion of the industry to the economic prosperity of the local or national community. Also, the demands placed upon industry were argued to be beyond its technical and scientific capabilities. Another line of argument was that the contribution of the emissions of the industry would not reduce the total amount of pollution significantly. In terms of air pollution the domestic production of smoke (including its acidic components) was argued to be of more importance. A final argument was that the muriatic acid gas was actually beneficial to public health. In the amounts in which it was emitted it was argued to act as a therapeutic agent

24

Creating ecological value

and to have disinfectant properties that would prevent the occurrence of diseases such as smallpox and typhoid. This positive effect was difficult to prove but it was likewise difficult to dismiss. Consequently this definition of ecological value continued to be used until the 1890s. Based on these arguments local battles were sometimes won by industrialists. When they were lost manufacturers often relocated their facilities to places where local regulations were less strict. Not all businessmen were opposing the necessity of controlling emissions. In 1859 the Wilnis Alkali Association was formed, an interest group that sought to establish a system of self-regulation. Reacting to the high number of litigation suits with which the industry was confronted it tried to make the condensation of muriatic acid gas compulsory for its members. Although it ultimately failed it shows that there were also manufacturers that accepted the definition of ecological value in which muriatic gas was seen as a negative ecological impact that could be reduced. In 1863 continued public pressure (notably from landowning aristocracy) led the national government to establish the Alkali Works Act. In the meetings of a select committee in 1982 the alkali industry acknowledged the need for controlling the emissions of muriatric acid gas as well as the existence of a feasible method for reducing these emissions through condensation. One of the reasons for accepting the definition of muriatic gas as an avoidable ecological impact was that national legislation would result in equal governmental rules rather than the variety of local requirements that existed up until then. This led to equal opportunities for industry throughout the country. The Alkali Watts Act demanded the condensation of at least 95 per cent of the muriatic acid gas produced and established an inspector to oversee its enforcement. The inspectorate had to move with care as industry had opposed government leaving its previous policy of laissez-faire to intervene in the management of its facilities. By 1865 most facilities had adopted the condensation equipment. Partially this was helped by the low costs as compared to the rising fines that could be the result of legal procedures. Also, the inspectors acted as consultants. They did not confine themselves to the condensation of muriatic acid gas but also provided advice on other ways to improve the efficiency of production. The inspectors were trained chemists and applied chemical analysis in ways that industry saw as contributing to process improvements. When a more stringent Act was enacted in 1874 several members of the industry opposed this, but at the same time lauded the way in which the Alkali Inspectorate had enforced the initial Act. The inspectors had developed the practice of looking for cooperation with business, acting as advisors based on their chemical training. This was another advantage

Definitions of ecological value: patches of history

25

over local regulation which was often the work of officials who acted on public opinion rather than scientific analysis. In terms of definitions of ecological value the interaction of government and industry helped to establish what Wilmot calls a ‘redefinition of nuisance’.7 Where this was formerly defined mainly in terms of the way in which emissions were experienced by local neighbourhoods, it now became the province of chemical scientists to assess through tests whether emissions were deemed to be problematic or not. The acceptance of industry of the negative consequences of muriatric gas was also due to their preference for national legislation. The alkali case in Britain thus illustrates that definitions of ecological value contain a crucial link between an interpretation of the relevance and causes of an ecological impact, but also of specific ways of dealing with these.

WASTE AS INEFFICIENCY The former examples show that in the second half of the nineteenth century public concern over the ecological impact of increased industrial production led to actions of local and national governmental bodies and businessmen who defined these impacts and the possibilities for their reduction in various ways. Parallel to these efforts a discourse emerged in which the economic gains of waste reduction were central.8 More specifically the possibilities to use byproducts of one process as input for another were explored. Attention for the possible beneficial economic effects was substantial. In 1962 Simmonds published a first collection of such possibilities. On the 1873 World Fair in Vienna a special section of the exposition was devoted to this topic and Simmonds published an updated version of his handbook in the same year.9 The link between waste reduction and economic advantages was central, as becomes clear from the following lines: Philosophically, nothing should be lost. Commercially, much may be thrown away . . . There is no other argument but the commercial one that will keep shin-bones from the dust-bin and ash-heap . . . Dirt, which is cheap enough, is utilized as long as it gives us a clear profit . . . Philanthropic views, though often impracticable, are, doubtless, morally serviceable. But philanthropy has little chance of existence where it cannot afford to keep up an establishment.10

This specific definition of ecological value remained in use for several decades. In 1919 Talbot published Millions from Waste which was devoted to showing British industrialists that they were disregarding economic opportunities to utilize waste that were to some extent already implemented

26

Creating ecological value

by their international competitors. Talbot defines waste as ‘raw material in the wrong place’ and provides numerous examples of the possibilities for using waste to create valuable products. Examples include the creation of dye-stuffs from coal tar and the efficient utilization of the carcasses of slaughtered animals which were then a source of substantial gains in countries such as Germany and the US. Again, the ecological impacts of the waste streams discussed are hardly mentioned; the economic argument, in terms of saved costs, and the more efficient use of waste streams by competing firms and nations were the central concern for Talbot. Based on these sources it is difficult to judge the extent to which these kinds of publications led to the increased diffusion of using byproducts as inputs for new products. However, technological and organizational changes in this period were conducive to such practices. In this respect the organizational innovation of the modern firm had fundamental consequences. Productive activities were brought under one roof, which led to increased specialization and scale of production. As a result byproducts became more visible as they are produced in larger quantities and segregated during the production process. Consequently, ideas to search for the economic use of byproducts were more likely to emerge. Also, increased scale enabled firms to do the costly research and development (R&D) themselves, after which they could take the production of the byproduct into a commercial product into their own hands.11 However, the mere existence of such options does not guarantee their implementation as we already saw in the case of reducing acidic emissions from the British alkali industry. The slaughter of animals in Chicago in the same period has been mentioned by several historians as a clear case of the almost perfect adoption of the principle of waste as inefficiency.12 Indeed, around the 1860s a network of firms existed that together used several of the residues of the meat industry. But this usage was far from complete and many parts of slaughtered animals were dumped or treated as waste. The total activities (including the transport of animal parts to other facilities) led to substantial ecological problems and growing public concern. As a result local government proposed and later demanded the integration of these activities in one facility as a solution to these problems. In at least one of these cases the efficiency improvements that would result from integration were used by governmental actors as an argument to convince firms to adopt this solution. This case clarifies a number of points about this specific definition of value. First, although it was promoted and to some extent practiced, it is unclear to what extent byproducts were systematically assessed as potential raw materials for new products. Second, the definition of value disregards the ecological impacts from waste. Although using byproducts

Definitions of ecological value: patches of history

27

as inputs generally helps to diminish such impact it is by no means guaranteed that waste streams with the largest ecological impact will be addressed by adopting this particular way of looking at waste. Finally, the Chicago case shows that integration of production activities sometimes was a consequence of actions aimed at reducing waste rather than a cause of such practices. To the general perspective of waste as inefficiency the specific consequences of international wars can be added. The First and Second World Wars resulted in resource scarcity as international trade relationships were disrupted. In reaction national governments vigorously promoted the use of waste streams as an alternative for these foreign resources. The market mechanism helped to produce the same effect as prices of crucial commodities rose sharply.13 For this reason sources like Talbot mention the war as a period in which resource scarcity led to the increased adoption of waste reuse. Interestingly, he also notes the decline of such practices as soon as the war was over.

THE GOSPEL OF EFFICIENCY Defining ecological impacts in terms of inefficiency remained a dominant definition of value for much longer. In his history of the conservation movement in the US, Hays speaks of this movement as spreading ‘the gospel of efficiency’.14 Conservation policies were devised by engineers and scientists that sought to utilize national resources like land, water and forests in the most efficient way, including their economic use. The federal government installed several agencies to devise management methods for such efficient resource use. Also, training and research institutes were established. Only when President Roosevelt met the resistance of Congress over continuing to finance these activities did the promoters of conservation turn to the general public for support. In that process conservation became connected to values such as anti-materialism and a return to nature. These values conflicted with those of the policy makers whose conception of conservation continued to include the development of ways to put natural resources to economic use. Part of the intellectual background for conservation policies, as well as the more general approach to government advocated by Roosevelt, was the then rapidly diffusing body of ideas called scientific management. These were developed by Frederick Taylor, who sought to provide the emerging practice of management with a scientific basis.15 His ideas were also highly influential among firm owners. They started to employ managers and more generally looked at ways of increasing efficiency of

28

Creating ecological value

production. A strategy that was adopted by many firms was that of vertical or horizontal integration. By integrating different steps in the production process and increasing production volume, production processes could be made more efficient.16 This generic strive to increase efficiency has influenced firms also in their ways of dealing with specific waste streams, as can be seen in the way in which the US oil industry dealt with the problem of oil field brines: the salt water mixed in with the petroleum that oil producers extract from underground sources.17 Disposing of this salt water with a concentration that is sometimes several times higher than sea water is problematic as it can contaminate water streams and aquifers. Until 1950 the industry worked under an ‘efficiency-based ethic of self-regulation’ which held that pollution was perceived as a sign of further possibilities for optimizing an industrial process. The logic was strictly economic: pollution control efforts were implemented only if they led to ‘the recovery of valuable material or decreased the amount of money spent on damage and nuisance law suits’.18 The ethic found support in the more general atmosphere created by the conservationists and their gospel of efficiency. The ethic was also explicitly upheld by the US Bureau of Mines which was established in 1910 to ‘help firms increase the efficiency with which companies extracted, transported, and processed metallic ores, coal, and petroleum’.19 In the view of the Bureau of mines ignorance lay at the bottom of wasteful practices and therefore education and research were its main focus. Throughout the first decades of the twentieth century the efficiency ethic provided the basis for dealing with oil field brines, which as a result basically were discharged. In dealing with some other forms of pollution the approach turned out to be successful. But many problems were left unaddressed and the engineers at the Bureau of Mines saw as the main cause the ‘rule of capture’, under which anyone could subtract oil from the ground they owned, no matter what the underground consequences were. This led to a race to extract oil with many wasteful practices. During this period producers prevented damage suits by storing the brine or letting it evaporate in ponds. But these methods only further complicated the ecological problems. When the rule of capture was overturned firms became more interested in injecting the brine back into the ground, which increased the efficiency with which oil was extracted. This change in rules also provided the necessary basis for cooperation which up until then had not been possible. But even then, in for instance Texas, it took pressure from federal government to install a cooperative regime that made injection possible. Injection (an efficiency improvement) thus eventually was adopted after a regulation that constricted the market. However, injection led to other ecological problems and later on companies also started to use injection to get

Definitions of ecological value: patches of history

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rid of other, toxic, pollutants. In the 1950s government officials, the general public, as well as industrialists had come to the conclusion that regulation was a better way to deal with the polluting effects of the oil industry.

PLANNED OBSOLESCENCE AND THE THROWAWAY SOCIETY After the Second World War Western societies embarked upon a massive path of economic growth. In the US this growth was accompanied by a general cultural shift towards a perspective on consumption as a sign of further support of national economic prosperity.20 In effect, it led to the notion that disposing of products was a good thing. This was further enhanced through the linkage between disposability and household hygiene. An insightful study from Strasser makes clear that these ideas were already emerging around the turn of the century. Yet the ‘celebration of trashmaking’ emerged only after 1945 in the US.21 Throwing away packaging as well as complete products rather than reusing them became a sign of progress and prosperity and disposability became a value with which a product could be positively attributed. Disposability also became associated with freedom, the free market and democracy, an association that was not without consequence in the years of the Cold War. While Strasser’s study shows the complex interplay of factors that is responsible for such a cultural shift, it is clear that firms were partially responsible for establishing this particular definition of ecological value in which nature is implicitly viewed as an endless sink. Already before the Second World War there had been a general trend in which large companies increasingly adopted sophisticated marketing methods to ensure that consumers would buy their products. In several industries the creation of new markets through marketing emerged as a dominant strategy as existing markets became saturated.22 Marketing was based on the then new insight that demand for a product was not a given but could be actively shaped and created. This perspective can also be seen as a result of the strategy of integration which had other effects beside efficiency gains. As corporate structures grew and became more dominant they acquired market power, that is, the ability to create and shape markets. Such power not only subjected economic actors; it also extended to political power as politicians became increasingly dependent on the firms that were able to influence markets. In the US automobile industry the role of marketing can be seen through the strategy introduced by General Motors (GM) in competing with the then dominant Ford Company, as well as with its many smaller competitors. While Ford became famous with the phrase that customers

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Creating ecological value

could get a car in any colour they liked as long as it was black, GM started in 1923 to develop a market strategy in which a diversity of models were produced which were slightly changed every year. This strategy of annual model changes was feasible for GM and other firms that produced cars in high volumes. For smaller producers this strategy was too costly as they required changes in production tools. The annual models followed a three year cycle; after the introduction of a new model in year one, the models marketed in years two and three involved mainly stylistic changes. This approach aimed to make the car a consumer product subject to fashions rather than a durable good which was chosen by consumers based on its expected time of life. Rather than becoming obsolete as a result of the wear and tear of use or because of technological advances, the products’ obsolescence was planned by its producers. Within the US automobile industry the three main competitors employed this strategy until the early 1970s when increased competition as well as other factors made it less viable.23 In 1955 Business Week noted that planned obsolescence was moving into other industries as a marketing strategy and the bestselling book The Waste Makers by Vance Packard, an influential critic of US business, analysed this approach in detail. This gave rise to a discussion in general magazines as well as among engineers and marketeers.24 Planned obsolescence did not only lead to increased waste from consumption, it also had consequences for the ecological impact of production processes. When products are designed to be replaced after a period less than their technical lifespan the firm needs to come up with new products that can replace it. This requires the development of ‘new’ products and production tools at shorter intervals, which results in less time to improve efficiency of any production process. In addition to planned obsolescence the diffusion of disposability was further enhanced through the rapid proliferation of plastics. The chemical industry actively sought to replace traditional materials such as glass and paper as packaging materials and basic materials for other products. Plastics quickly gained ground because they were cheap and the chemical industry could provide them in large quantities. Their increased use led to the diffusion of materials that were more difficult to recycle over larger areas and introduced toxic substances into the environment.25

POLLUTION CONTROL: REGULATORY APPROACHES TO ENVIRONMENTAL EXTERNALITIES The definition of ecological value that posits ecological impacts as pollution that needs to be controlled through governmental regulation has been

Definitions of ecological value: patches of history

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described extensively and for this reason I will only briefly summarize it here. During the 1960s the critique on the practices of firms mounted in the USA as well as Europe. Part of this criticism was the contribution of the production processes of several industries to the pollution of air and water. Such pollution became more visible as it expanded, but also because biologists started to study the impact of human activities on ecological systems. A critical view on the practices of big business (such as expressed by Packard) and mounting ecological concern fused into a powerful movement which could not be left unanswered by governmental officials. Although the need for governmental regulation was also acknowledged by some industry representatives a conflictuous relationship emerged in which business opposed regulation whereas the public and government sought ways to effectively regulate pollution. Rachel Carson’s Silent Spring, generally regarded as initiating this movement with a critique of the use of insecticides, was answered by Monsanto, then a major producer of DDT, who published a parody entitled ‘The desolate year’, in which the consequences of a world without chemical pest control was described.26 In this context a definition of ecological value emerged which consisted of three elements. First, firms generally adhered to the dictum of Milton Friedman that ‘the social responsibility of business is to increase its profits’. The rules of the game within which they are supposed to do so are set by governmental agencies whose task it is to regulate the negative external effects of business activities, of which ecological impact is one. This perspective designates clear and opposing roles to governments and firms. As a consequence of this division of roles direct interference with operational and strategic business operations is questionable: they are the exclusive province of the firm’s managers. As a result external effects are mainly dealt with in terms of control rather than prevention, which leads to the application of end-of-pipe technologies rather than preventative measures. In addition the opposing roles in some sense legitimize strategies in which firms oppose the establishment of new or more stringent regulations. A second element is the central role of government in post-war Western societies. In different ways, both in the USA and in European states, the national government held a central position and expanded its bureaucratic control over an increasing scope of social and economic activities. National legislation in this period was viewed as an effective way of solving public problems. A final element is the general perspective that the external effects of industrial processes occur in separate environmental ‘media’: air, water and soil. Each of these is to be treated separately. During the 1970s separate bureaucracies developed around these environmental media. In line with the separation of business from environmental issues, within firms distinct staff bureaus were made responsible for dealing with regulators.

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Although national legislation and its enforcement through local administrators eventually proved to be less effective than had been thought, regulatory control of pollution has been, and to some extent still is, a dominant definition of ecological value.

SUSTAINABILITY, ECO-EFFICIENCY AND INDUSTRIAL ECOLOGY During the 1980s the regulatory approach to ecological impact gradually became less dominant in countries such as the USA and several member states of the European Union (EU). A number of developments contributed to the emergence of alternative or parallel definitions of ecological value. One of these was that the national regulatory control of environmental media became to be viewed as a less effective way to deal with ecological impact. Scientists brought to the public awareness several ecological problems that transcended national boundaries. In addition the separate approach of water, air and soil often resulted in replacing problems from one medium to another. Each of these insights implied that a nationally based bureaucracy dealing with different environmental media was not the optimal way to deal with ecological issues such as ozone depletion, soil contamination and acid rain. In response governmental agencies developed alternative policy instruments which often involved business as a partner and built on market mechanisms, such as taxation schemes.27 At the same time the legitimacy of the national state as a central agency solving public problems was questioned due to the increasing global linkage of economic and financial markets and the costs that were associated with keeping in place large bureaucracies. 28 In the US the Reagan administration actively pursued a strategy of deregulation which substantially affected governmental agencies such as the Environmental Protection Agency (EPA). In several European countries deregulation and cutting the costs of government became instituted as central principles. Over time this led to a reconsideration of the roles of ‘business’ and ‘government’ as adversaries. New definitions of ecological value emerged which emphasized the own responsibility of firms and the necessity of approaching ecological issues through the involvement of various stakeholders. Within this context the concept of sustainable development was introduced and quickly became an influential way of perceiving the interlinked issues of poverty, ecological impact and global economic growth among governments and business alike. Part of its success may be attributed to it being the right idea at the right time: its argument for the possibility of merging economic growth with solving ecological and social problems

Definitions of ecological value: patches of history

33

through institutional change coincided with a situation in which governments, firms and NGOs were establishing new positions within the changing governance structure of a more global society. One of the phenomena that characterized changing governance structures was the increased fluidity of the boundaries of firms. For most of the period that is covered in this chapter, firms are relatively easily identifiable and are relatively stable in terms of the activities they perform. Mergers and acquisitions did take place and during a period of diversification firms moved into related and sometimes unrelated activities. But since the end of the 1980s the acquisition of new activities and the shedding of old activities has increased substantially and transformed many firms completely. During this period the management of large firms became more and more based on delivering shareholder value regardless of the products and services through which this was accomplished. The focus on shareholder value, which has an economic basis but is also substantially affected by perceptions of those active in the trade of shares, led managers to become increasingly concerned about the reputation of their firm.29 Sustainable development and corporate social responsibility, two concepts that are now widely used by firms to denote the way in which they deal with ecological impact and social issues, in many firms became the responsibility of public affairs departments. In marked contrast with Friedman’s words many firms started actively adopting their responsibility for society at least in speech. In looking for ways to combine economic and ecological goals managers developed definitions of ecological value that are remarkably similar to those that were in use during the latter half of the nineteenth century: pollution prevention, industrial ecology and eco-efficiency. The main argumentative line that links these concepts is that economic gains can be aligned with the reduction of ecological impact. Pollution prevention is a good example. This approach advocates that waste should be prevented from occuring rather than cleaned up after it has been created. Its current formulation originates from a waste reduction programme at the 3M company with the adage ‘pollution prevention pays’ but in essence it is identical to the waste is inefficiency conception that we found in the discussion on smoke abatement. The modern pollution prevention concept has diffused globally, not least through the activities of the United Nations Environmental Programme.30 Slightly different is the concept of eco-efficiency, which also builds on the link between ecological improvements and economic gains but aims more specifically at increased resource efficiency. Another concept that has attracted considerable attention is that of industrial ecology, which promotes the exchange of waste streams in ways that resemble the examples collected by Simmonds and Talbot.

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A major difference between these modern definitions and their predecessors is the acknowledgement that the adverse ecological effects of resource use and the production of waste need to be considered explicitly. Nevertheless, the link between ecological and economic gain (often termed ‘win–win’) is a central characteristic of these concepts and as soon as the ecological advantage is not accompanied by economic gain it becomes much more difficult to realize.31

CONCLUSION Since 1850 several distinct ways have developed of perceiving the ecological impact of industrial practices and ways to deal with them. One of the advantages of looking at these patches of history is that it becomes possible to see what factors influence the shaping of such definitions. A first element in the equation is technology. Some ecological issues are related to inefficient production processes and for that reason there is a possibility to relate economic gain to reducing ecological impact. This was the case in the issue of smoke abatement as well as in several other waste streams that firms were producing. Also, the availability of technologies to remedy emissions is relevant; without those any wish to deal with them is futile. However, such technological opportunities and potential economic gains do not by themselves explain what course of action will be adopted by firms. New technologies and the possibility of improving resource efficiency are beset with the uncertainty as to whether they will work in a specific context. This uncertainty creates the stage for competing perspectives on their ecological impact and its remedies. The increased usage of carbon-based energy sources has extended this uncertainty in an important way. When energy is drawn from renewable resources from local ecosystems overexploitation quickly becomes visible to the people responsible for it. The switch to coal and later oil and gas as energy sources decoupled production and consumption activities from local ecosystems and led to an ecological impact in a global context which will continue much further into the future. At the time when global ecological impacts, such as depletion of carbon resources and global warming, were discovered economic activities and technology had developed for decades without considering these consequences.32 The employment of new technologies in industrial production has also introduced new substances and materials into natural ecologies. These have been created to improve existing materials, and through that to develop and serve new markets. Some of their ecological impacts have become known only after they started being used in production processes and products; and many more may be waiting to be discovered.

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Uncertainty about the effects of technology and human activities translates into a space where different actors can define ecological value in distinct ways. Governments, firms, as well as scientists, the media and the general public interact to shape these definitions. These interactions are mediated through the organizational structures that these actors employ. In the late nineteenth century issues relating to ecological impact were to a great extent the province of local authorities who struggled to deal with the effects of industrialization that brought prosperity as well as polluted rivers and air. These authorities also needed to build up the enforcement capabilities to monitor and sanction the actions of industrial facilities. Combined with increased activity from national governments, monitoring and sanctioning structures became more effective. As we have seen this often took place in terms of collaboration with industry in order to gain their trust and to exchange information. Especially with regard to the chemical industry it involved scientists in the regulatory process. The development of such regulatory structures culminated in the national regulatory programmes of the 1970s which for various reasons became less dominant after the 1980s. Parallel to the evolution of government other definitions of ecological value developed within firms and industries. From before 1900 we have some insight into these through the work of scientists and journalists; from more recent times we have more extensive documentation. Despite their idiosyncrasies a common thread among several definitions is the linkage between economic gain and reduction of ecological impact. The concept of efficiency is central here. Even though efficiency can be defined in many ways, it has in various ways served to develop a focus on more prudent use of resources and byproducts.33 This approach fitted well with a general drive to increase production efficiency which characterized the establishment and further development of the business firm as an organizational form. The growth of business firms also had an impact as it increased the power of businessmen to shape markets. This refers both to the shaping of consumer demands as well as to limiting competition from other firms. The marketing approach of planned obsolescence is connected to oligopolistic markets where firms have the power to keep newcomers with new technologies out.34 This power can translate into political power and thus influences the way in which governments regulate markets. Also, market power involves an increasing dependent position of consumers, who have increasingly little information about what they consume, and citizens, who have little chance of knowing what is going on in plants near their residence, let alone of influencing these activities. The patches of history that have been presented in this chapter do not

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constitute an overall history of definitions of ecological value. Even the examples described have a level of generality that warrants a cautionary remark. We will have to take a closer look at specific firms and production and consumption systems to see the mechanisms through which such definitions are established, maintained and changed. Nevertheless, taking this bird’s eye view is instructive in several ways. First, it shows that there are indeed distinct definitions of ecological value which are shaped through interaction among businessmen, managers, governmental officials and other parties. Second, at different periods in time, and in different places, we find different approaches to ecological impacts, which shows that the social construction of ecological impact is a process bound to specific times and places. Third, even though the rhetoric surrounding these concepts always suggests an innovation, something new, this historical perspective uncovers some surprising recurring elements. Contrary to what many people believe, the ecological impact of industrial activities was already considered in the early stages of industrialization and some of the cases show that business owners played different roles, including those of self-regulation and collaboration with regulators. In that respect the examples do not differ that much from contemporary analyses of business– government interactions in Western societies. Also, several of the definitions of ecological value that are now being advocated as manifestations of sustainable development, such as eco-efficiency and industrial ecology, have ancestors in times much earlier than is commonly acknowledged. In the first two chapters we have looked predominantly from a social constructivist perspective, focusing on definitions of ecological value. Yet we have also seen that the technologies (both material and organizational) employed by human beings are central to their ecological impact. In Chapter 3 we look at the way in which both views can be connected.

NOTES 1. 2. 3.

4. 5. 6. 7.

Norgaard (1994, pp. 44–6). In the business history literature it is common to refer to businessmen. The gender neutral ‘manager’ cannot be used as this is a later invention. As in the rest of this chapter, I present the main development lines. The development of modern organizational forms took a long time, connected to changes in the social structure of society. See, for instance, the description of the new ways of organizing production as developed by Josiah Wedgewood during the late eighteenth century (Langton, 1984). The description of Manchester is based on Mosley (2001). The description of the US and German developments is based on Uekoetter (1999). Mosley (2001, p. 89). This section is based on Reed (1998), Wilmot (1998) and Dingle (1982). Catton (1980).

Definitions of ecological value: patches of history 8. 9. 10. 11. 12. 13. 14. 15. 16.

17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

37

Desrochers (2005) has brought several of these sources to light. For a critical reflection on the conclusions he draws from them, see Boons (2008). Desrochers (2005). Simmonds (1873, p. 11) See Marshall (1920, p. 161). See Desrochers (2002). The following account is based on Meisner-Rosen (2007). See Durr (2006) on corporate recycling in US firms during the Second World War. Hays (1959). Taylor (1911). About the development and reception of these ideas, see Kanigel (1997). This effect can generally be assumed to occur. Whether it is also the only or even dominant motivation for a strategy of integration is subject to debate. Chandler’s (1977) influential theory builds mainly on the efficiency argument while Fligstein (1990) is a major proponent of the view that integration is a way of increasing market power, and thus allows firms to influence competitors, suppliers and consumers. This case is based on Gorman (1999). Ibid. (pp. 602–3). Ibid. (p. 608). Strasser (1999) and Packard (1963). Strasser (1999, p. 266). Fligstein (1990). Scherer (1996) and Lee (1998). Strasser (1999). Smith (2000). Hoffman (1997, p. 51). See Jordan et al. (2003). Castells (1996). Fligstein and Shin (2005) analyse the emergence of shareholder value as a dominant concern of firms. For the argument that share values are at least partially determined by psychological processes, see Zajac and Westphal (2004). Baas (2005). Ibid. Norgaard (1994) and Catton (1980). See Princen (2005) for a well documented historical discussion of efficiency. Orbach (1999).

3.

Technological change and strategic perspectives

In order to understand the ecological impact of production and consumption activities we need to address the role of technology. Technology comprises the tools and instruments used by human beings to effect changes in their social and natural environment. Firms use technology to transform raw materials into finished products and consumers use these products as tools to satisfy their needs. Each of these activities impacts upon nature and changes in the technologies employed affect this ecological impact. This fundamental relationship has been interpreted in different ways. Barry Commoner is a major exponent of the view that technological change has led to increasingly severe damage to local and global natural ecologies.1 Crucial cycles in nature have been broken by the application of new technologies in industrial processes. New substances have been introduced that are foreign to nature and these tend to interfere in dangerous ways, such as toxic substances which accumulate in food chains and affect the health of living organisms. Technology has also enabled us to extract materials from inert positions under the earth’s surface and our utilization causes them to disperse into the atmosphere. Furthermore, new materials have been invented that cannot be broken down when they are deposited in natural systems. It could be argued that continuous technological change enables us to limit such ecological impacts. But in many cases attempts to do so have only shifted the problem elsewhere or made it worse as in the case of detergents. In the 1950s the chemical industry developed detergents that replaced soap as a cleaning agent for clothes in Western societies. Together with washing machines they provided an alternative to the demanding manual practice that prevailed up until then. Originally detergents contained phosphates, a substance that occurs naturally in freshwater systems where it acts as a nutrient. As the use of detergents spread the phosphates ended up in water systems through sewage systems. As a result the nutrient balance in many surface waters was disturbed which led to eutrophication. Eventually firms started to look for alternatives for phosphates and one of the early contenders was nitrilotriacetic acid (NTA). But this substance was suspected to be carcinogenic and itself became contested.2 According 38

Technological change and strategic perspectives

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to Commoner such inadequate ways of dealing with ecological impact are a result of seeing the relationship between technology and ecological impact as a linear cause and effect chain whereas nature consists of ecological cycles. By neglecting these cycles in improving technological change often results in new problems rather than a reduction of ecological impact. As a counterpoint to this line of reasoning there are others who equate technological change more or less directly with innovations that will help societies to reduce their ecological impact. In an aptly titled book, The Economics of Hope, Chris Freeman argues that the pessimism of people who fear the exhaustion of resources is misplaced. His argument rests on the recognition of successive ‘long waves’ of technological development. The arguments about the exhaustion of resources are based on the long wave of carbon-based economic development. But since the 1970s this cycle is gradually being replaced by a cycle based upon information and communication technology (ICT). This technology holds promises to reduce the ecological impact.3 First of all, ICT enables more accurate monitoring and control of industrial processes which makes them more resource efficient. Combined with management routines, such as total quality management and just in time management, such monitoring eliminates the production of defective products and raises their quality. Third, ICT makes miniaturization possible which results in less use of energy and materials. Freeman and Commoner focus on slightly different aspects of ecological impact: the exhaustability of resources and the disruption of ecological cycles, respectively. Their perspectives are complementary in the sense that the ecological impact of technological change depends to a great extent on the way in which its fruits are being used. Miniaturization may lead to decreased resource use but it may also allow the development of different types of devices that individuals can carry with them and derive status from, which results in an increase in material and energy use. A popular way to summarize the causes of ecological impact is the so-called IPAT formula. It states that impact (I) is the result of the level of human population (P), the affluence (A) in which they live, and the technology (T) they employ to fulfil their needs. Ecological impact may be decreased by manipulating any of these three factors. Changing the level of affluence requires the adoption of a sufficiency perspective which seems far removed from the aspirations of members of developed as well as developing societies.4 And while population control is possible to some extent, current levels of population growth cannot be expected to fall in the short term. As a result technology is seen by many as the factor which is most susceptible to manipulation. This conclusion is flawed for two reasons. First, there is no place for naïve technological optimism. It is an empirical question whether a specific

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Creating ecological value

innovation leads to reduced or increased ecological impact. Second, technology cannot be easily separated from other factors. Technological change is not an asocial process: new technologies are developed and applied in specific contexts and the direction of technological change is the result of choices of individuals and organizations within those contexts. These choices may lead to increasing as well as decreasing ecological impacts. In this chapter I present technological change as a socially embedded process. This view has been elaborated under the heading of ‘technological trajectories’. In the next section I will describe this as a useful way of looking at innovations. Understanding the way in which technology and the social context interact provides a basis for a typology of strategic perspectives of firms that is a building block for the theoretical framework that will be developed in this book.

TECHNOLOGICAL TRAJECTORIES Technological innovations affect our activities in numerous ways and can be the source of fundamental changes in society, as is shown by the effects of the increased use of mobile telephones and personal computers. Yet technological change is the result of human activities. At some point in time a person has to have an idea which is then further refined and developed into a working prototype of a product or production process. The idea becomes an innovation as soon as it is put on the market and accepted by consumers. In other words, technological change is the result of a social process in which many individuals and organizations participate.5 We can start with the observation that technological change generally takes place as a process where periods of incremental improvement of existing products and production processes are interspersed by technological discontinuities; innovations that depart more radically from existing products or processes.6 Examples of such discontinuities are the replacement of mechanical by electronic typing or digital imaging which has almost completely replaced chemical photo imaging.7 Such discontinuities involve a change in the value that is produced by the new products. Incremental innovations improve functionality as it is defined at that moment, for instance, by making the keyboard of a mechanical typewriter lighter to operate. The shift to electronic typewriters or to word-processing computers redefines the functionality of the product itself, in this case by introducing the possibility to save texts and provide possibilities for editing them. This general evolutionary process of a succession of punctuated

Technological change and strategic perspectives

41

equilibria can be seen as processes in which several alternative technologies which are the result of more radical innovations compete for market share. After some time a dominant design emerges which becomes the standard technology. Innovation then becomes incremental, involving small changes in this dominant design. Researchers have been interested in this process because the technology that eventually becomes dominant is not necessarily the one that is deemed to be superior among the competing options. A famous example is the keyboard on which I now type these words and which is named after the first six letters on the top left side: QWERTY.8 This keyboard emerged as the dominant design at the end of the nineteenth century even though there were orderings of the keys which allowed faster typing. A more recent example is that of the Video Home System (VHS) video recorder which became a standard even though alternatives were available with better image quality. In part winners are determined by a first mover advantage because many technologies have the characteristic that they will diffuse more rapidly as more people are using them. Also, a larger market position brings economies of scale which makes a more competitive price possible. In addition, firms that follow a technology will increase their knowledge of its production and possibilities for improvement. Increased adoption also reduces uncertainty for consumers, producers and suppliers: they can build on increasingly stable expectations of what the technology delivers. Finally, new technologies often need to link to other technologies and practices: in the case of video recorders, the production of video tapes, and the marketing, rental and sales of movies. When these linked systems adopt a certain version of the new technology, afterwards it becomes difficult to shift to an alternative standard. As such increasing returns materialize, the way in which producers and consumers organize themselves into a production and consumption system changes.9 Initially there is a loosely coupled set of actors, often individuals, who try to develop an idea into some marketable product. These individuals may work for themselves or in small firms to develop parts of the product that are complementary, but may also be the basis for competing designs. These individuals may work in close geographical proximity and share a common fate as in the case of the invention of the personal computer in Silicon Valley during the 1980s. The level of trust is high and competition is low: they work together to develop a new technology, share information and their basic goal is ‘to make it work’. From such networks alternative technologies emerge and some of these will compete to become a dominant design. During this competition an informal network emerges around a distinct set of products and technologies. As a result the bonding to a limited geographical area is less important, allowing geographical

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distribution. Firms specialize themselves in specific steps of the production process which leads to a separation between producers of end products and suppliers. When the production and consumption system matures this network becomes more formal, competition increases and some firms become more dominant than others. As a result of the establishment of a dominant design firms that have focused on non-winning technologies are forced to leave or have to adopt the dominant technology. This usually leaves them at a peripheral position in the network. The last stage of this life cycle sets in when the technology is challenged by societal demands, competing technologies or a decrease in market demand. In this phase firms within a PCS have difficulties in adapting to changes due to engrained ways of perceiving and acting. This results in defensive behaviour which is coupled to a social structure that resembles a club with exclusive membership. In this phase firms in the PCS may be challenged by others that are in the course of establishing an alternative technological paradigm. Some of them may be able to overcome the inertia that is part of the end of the life cycle of a technology. They may then become part of the new PCS. If not, they are eliminated as the competing paradigm and the products related to it replace the old ones. The changes in the structure of the PCS that accompany the establishment of a dominant design suggest that technology and the social context in which it is produced and used develop together. This notion is captured in the concept of a technological paradigm. As interaction among engineers, scientists and other involved parties around a new technology increases they define a set of technological problems and a pattern for solving these. This pattern is based on selected principles derived from natural sciences and on selected material technologies.10 This paradigm includes a set of criteria by which progress is defined, based on specific technological and economic trade-offs. A technological trajectory is ‘the pattern of “normal” problem solving activity (that is, of “progress”) on the ground of a technological paradigm’. In other words, the paradigm embodies strong prescriptions on the directions of technological change to pursue and those to neglect.11 As a result of this paradigm, exemplified by the dominant design, further development of the technology proceeds within specific boundaries: the technological trajectory. These boundaries also limit the general definitions of value that producers and consumers can develop. As definitions of value are central to my argument, it is worth exploring an example in more detail.12 If we look at the early development of the automobile several definitions of value have succeeded one another. At the end of the nineteenth century the automobile was a luxury item that was produced in craft shops. The physical and organizational technology for

Technological change and strategic perspectives

43

mass production had yet to be developed. Instead each car was produced individually, which allowed for meeting idiosyncratic demands in design for the customers who were able to afford such a product. At that time speed was deemed to be a central feature of this new mode of transportation; contests served as a way of establishing the credentials of the many competing firms in the USA.13 Ease of operation and maintenance were not of prime importance. Buyers usually employed a driver and a mechanic. At that time automobiles were a rarity and the knowledge necessary to operate and repair them had not yet diffused. In this phase the lack of a dominant design allowed variety in terms of the attributes that cars could have; however, reliability and low prices were not possible. The application (and development) of mass production techniques by Henry Ford introduced a new technological trajectory. For mass production to be viable the parts of an automobile needed to be exactly identical; otherwise assembly requires the fitting of each part to the others. These interchangeable parts also contributed to the other aim of Ford: to produce a car that was easy to repair and maintain. Apart from changes in design and providing each owner with a manual on how to repair the vehicle, interchangeable parts sold at Ford dealers could be fitted into an existing model. So ease of repairing the car as well as price were the major aspects of the definition of value that accompanied this dominant design. As mass production became a dominant mode of production, firms sought to enlarge their market share to sell their increased output. As described in Chapter 2 over time US firms adopted a marketing approach based on annual model changes. This again led to a shift in the definition of value which became more and more centred on the car as a status symbol with associated fashion considerations. Firms also introduced a multitude of ‘extras’ that the customer could choose to their personal liking. Both the annual model change and providing such options were made possible by the large volume of production that only a few firms could attain. This case shows that whenever a firm states that it seeks to create value this is never an objective statement. It always refers to more or less collectively established sets of criteria that are part of the technological paradigm, which at a certain moment is in place in a production and consumption system. Such criteria are not formulated solely by firms; consumers play an active part, as do organizations involved in maintenance, suppliers of parts, and agencies limiting the ways in which these actors strive for economic benefits. The case also shows that a technological paradigm does not determine in detail definitions of value. Within the boundaries of the paradigm firms can compete based on different definitions of value. A technological paradigm sets the boundaries on what are acceptable (or maybe ‘thinkable’ is

44

Creating ecological value

a better word) value definitions much like a scientific paradigm still allows competing theories to be formulated. The extent to which more than one definition of value becomes established has to do with the extent to which interaction among members of the PCS is integrated into a single network, or consists of a number of more separated networks. As we will see in coming chapters, such sub-networks may exist among distinct stages of the product’s life cycle, or have a geographical logic.14 Although a technological paradigm can be distinguished and analysed in its own right it is constructed and maintained through the action of many individuals and organizations. Through their interactions these actors create a certain direction in technological change. To the extent that this direction becomes engrained into a firm’s tradition, set of values, and existing set of resources and routines it will tend to act in ways that maintain the existing trajectory. Its innovations will stay within the bounds of the existing trajectory. For this reason innovations which establish new trajectories are often produced by new firms or by firms collaborating with other firms that do not share the myopia of the current paradigm.15

ECOLOGICAL IMPACT AND TRANSFORMATION OF TECHNOLOGICAL TRAJECTORIES This view on technological change holds a number of implications for the ecological impact of production and consumption activities. Some of these can be identified at the level of production and consumption systems, others relate directly to the ecological strategies of firms. At a general level the lock-in which characterizes technological change includes the range of available options for reducing ecological impact. When we look at the production and consumption of energy, the current technological paradigm is built on carbon-based resources such as oil, coal and natural gas. The predominant technology for energy production consists of large-scale facilities and the energy produced is distributed as electricity through a fixed infrastructure. The energy necessary for transportation is contained in fuels that are also centrally produced and distributed through a network of fuel stations. Systemic links between current technologies and the actors that employ them define the lock-in of this technological paradigm. Local electricity production (for instance, through solar panels or wind turbines) is possible but the surplus of energy is fed back into the existing infrastructure only to a limited extent. With regard to transportation, complex systems of production and consumption have evolved around cars and airplanes and these are built around the use of carbon-based fuels. Although electric cars are technologically

Technological change and strategic perspectives

45

feasible they require alternative networks of production which involve firms with different technological competencies. Substitution of current cars by electric vehicles would also require additional use of the electricity grid and displace the current system of fuel distribution. So the alternatives for the current paradigm are well known: they include renewable resources such as geothermal, wind and solar energy as well as decentralized ways of producing energy close to where it is used. But due to systemic links our societies are locked into the continued use of carbon-based resources. As a result the reduction of ecological impact often revolves around incrementally improving these technologies, such as improving the fuel efficiency of cars or decreasing the emission of greenhouse gases from energy-producing facilities. To the extent that such improvements are deemed insufficient we need to look at the possibilities for changing into different technological paradigms, that is, establishing new dominant designs and associated networks of production and consumption.16 Generally, the following factors may contribute to the establishment of a new technological trajectory.17 First, new scientific insights may provide engineers with ideas for products that replace existing technologies and the technological paradigm they are part of, as in the case of the personal computer substituting the typewriter. Second, further progression along a technological trajectory may be economically unfeasible due to rising marginal costs. A third factor is similar to the anomalies that lead to paradigm change in the case of scientific theories. Drawbacks of technologies developed within a specific technological paradigm or failures of these technologies to meet consumer demands act as anomalies which point out limits of the paradigm that need to be addressed. The ecological impact of the products and production processes associated with an existing paradigm can act as such an anomaly. An anomaly provides a specific direction to the search for an alternative paradigm which translates into the complex issue of how paradigm shifting innovations can be directed. When reducing ecological impact is the aim of an alternative paradigm we are moreover confronted with the issue raised in Chapter 1: the difficulty of establishing what constitutes a more ecologically benign direction. The uncertainty over this compounds the already considerable complexity of guiding technological change in a certain direction. Although the theoretical framework developed in this book does not purport to provide a solution to this problem, it does deal with the various approaches that policy makers, consultants and firms have developed to facilitate shifts to more ‘sustainable’ technological paradigms.18 This brings us to the implications for the ecological strategies of firms. Firms are part of production and consumption systems which operate

46

Creating ecological value

within the limits of a specific technological paradigm. On the one hand, this makes them subject to the limitations set out by the technological paradigm in terms of available options for reducing ecological impact. In that sense firms through their actions help to maintain a specific trajectory over time. Systemic lock-in thus gives credence to statements that firms cannot change in radical ways because it requires simultaneous change from a host of other actors. At the same time it should be noted that the technological trajectory does not determine the activities of firms in any direct way. Each individual firm (as well as consumer) can explore alternatives to the existing technology and its associated set of values. Such explorations provide the variation through which change is possible. For this to be successful the firm must be willing and able not only to develop the new technology, but also engage itself in shaping the market and enter scientific and public policy debates to obtain legitimacy for the new product and define property rights.19 However, whether a variation is selected to become a new dominant design is difficult to predict. The associated risk may induce firms to stay within the bounds of the existing paradigm. This choice on how to operate towards the existing technological regime provides the basis for a typology of ecological strategies of firms.

A TYPOLOGY OF STRATEGIC PERSPECTIVES Even if they cannot completely control the activities of their employees managers exert considerable influence on their behaviour and thus on the activities of a firm. This implies that the ways in which managers perceive their organization, its direct environment, as well as the larger world has some impact on those activities. Research has shown that the strategic behaviour of firms depends crucially on the set of values and beliefs from which managers act.20 In the Canadian gas and oil industry firms in which managers perceived ecological impacts as a threat developed different strategies from firms in which managers perceived these impacts as opportunities.21 Managerial perceptions differ as a result of three biases: selectivity in the information chosen for further consideration, closure as information is transformed into a meaningful whole and interpretation of information in light of previous experiences.22 Of course such perceptions do not provide a complete explanation of a firm’s strategy; additional internal as well as external variables need to be taken into account. But in a social constructivist approach such perceptions are a crucial starting point. As only individual human beings

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47

have perceptions I will use the label ‘strategic perspective’ to denote the dominant set of perceptions within a firm including the way in which these translate into organizational routines and activities. I will develop this in more detail in the next chapter. Here I propose that specific strategic perspectives exist which position the firm in distinct ways towards the existing technological trajectory. To some extent reference to technology is made by managers when talking or writing about ecological strategies. The World Business Council on Sustainable Development which was founded in 1991 states in its Declaration that ‘New technologies will be needed to permit growth while using energy and other resources more efficiently and producing less pollution.’23 Along a different line, the more traditional argument that dealing with ecological impacts results in increased business costs is based on the idea that decreasing such impact involves process modifications or the addition of end-of-pipe technologies to production processes which involve investments which do not bring in extra revenues. In my view three distinct types of strategic perspectives can be distinguished. A first perspective is defined by perceiving the position of the firm as being at a certain place on the technological trajectory. This I call the ‘stable perspective’ and it entails that the firm seeks to maintain this position and derive profit from that. From this perspective a confrontation with ecological impacts is one with external effects. Whenever a stakeholder demands that the firm deals with these it will oppose this given the perceived negative effect on its profitability. When demands need to be met a stable firm will strive for regulations that do not call for much change and apply to other firms with which it is competing. A second perspective is that in which the firm perceives itself as moving along the technological trajectory. When dealing with ecological impacts it focuses on innovation through which such impact can be diminished and explores possibilities to generate profit from improvements. In this ‘dynamic perspective’ the firm includes the reduction of ecological impacts into its R&D activities. It will stay within the bounds of the existing technological trajectory and will develop products that meet the established criteria of value. Finally, a firm can act based upon a ‘transformative perspective’. Such a perspective builds on the idea that the firm is in the business of establishing a new technological trajectory in order to provide a product or service with reduced ecological impact. This usually implies that it needs to compete with firms in an existing trajectory. Table 3.1. summarizes manifestations of the three types of perspectives as they can be found in various systems of production and consumption. In the PCS of automobiles some firms operate mainly from a stable

48

Table 3.1

Creating ecological value

Manifestations of three strategic perspectives in various production and consumption systems

Automobiles

Food production Energy production

Stable

Dynamic

Transformative

increase material efficiency; reduce emissions from production plants traditional agriculture end-of-pipe measures on largescale production: sulphur capture, CO2 capture

hybrid car; improve fuel efficiency

electric car; fuel cell cars; new mobility systems

industrial food production biomass added as feedstock

organic food production wind energy; solar energy; local energy production

perspective. Their production processes and products remain more or less the same and revolve around the mass production of automobiles which are propelled by internal combustion engines. When confronted with societal demands to reduce their ecological impact they will first challenge them based on the perspective that it is not necessary or too costly to do so. They will act to reduce their ecological impact only when they feel forced to do so, for instance, because of (the threat of) regulation. These firms may also engage in efforts to increase the energy and material efficiency of production. But the main motive for that will be economic savings rather than the reduction of ecological impact. Firms operating from a dynamic perspective can also be found. Several firms engage in R&D to improve the fuel efficiency of the internal combustion engine which lowers CO2 emissions during use. Some firms have introduced hybrid cars that combine a traditional engine with an electric engine. This combination, which can take various shapes, still builds on the traditional concept of the car fuelled by oil-based fuels but makes more efficient use of the energy that it provides. These innovations stay within the bounds of the existing technological trajectory. Then there are firms which explore the possibilities of electric and fuel cell cars. These are alternative propulsion systems based on electrical or chemical technology. Substituting these for the international combustion engine would amount to establishing a new technological paradigm and firms pursuing this path as their main strategy base themselves on a transformative perspective. Some firms go even further and explore alternative

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mobility systems where different modes of individual and collective transportation are combined in new ways. In the PCS of food we can also find firms that are based on one of the three perspectives. The stable perspective is still present in many societies and is characterized by subsistence farming. Food products are grown for local use based on traditional methods that reflect the local culture. The dynamic perspective can be found among firms active in the industrialized production of food. Here economies of scale are exploited and production efficiency is increased through the addition of chemical substances to provide additional nutrients and to eliminate insects and diseases. Innovations occur mainly with respect to these substances and to the seeds that are used. The transformative perspective can be found among firms that seek to develop ‘organic food’, a tautology that is used to distinguish it from the products of industrial food production. These firms seek to develop an alternative to such products based on the perceived negative ecological impact of the use of genetically modified seeds and chemical substances. The technological paradigm which underlies this perspective draws on biological means to control pests and enhance productivity and product quality. In the energy production and consumption system the stable perspective is exemplified by firms that produce energy in large power plants from fossil fuel sources. To the extent that they are forced to deal with ecological impacts through legislation they will deal with these as externalities by using end-of-pipe measures to capture substances such as sulphur or CO2. Other firms use biomass in addition to fossil fuels as a feedstock or develop process modifications that lead to more efficient conversion of resources into energy. Such activities are based on a dynamic perspective. The transformative perspective is the basis for firms that seek to develop alternative ways of producing energy based on renewable resources. This can include decentralized structures for production and consumption of energy. The entries in the cells of the Table 3.1 are realistic options that are currently practiced by at least one firm. It shows that within each PCS firms exist that act upon different strategic perspectives. In the chapters that follow the nature and background of this diversity will be explored. Ordering the activities of firms in terms of the typology requires some interpretation. As with any typology the boundaries between the types are somewhat fuzzy. The grey area between stable and dynamic perspectives exists because dealing with ecological impacts as externalities may require substantial innovations, such as in the case of CO2 capture. The interpretation focuses on whether an innovation is part of moving along the technological trajectory, which makes it a manifestation of the dynamic perspective, or whether the innovation enables a firm to continue its

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Creating ecological value

existing production technologies. The latter innovation is typical end-ofpipe, and its use is a manifestation of the stable perspective. The grey area between the dynamic and transformative types exists because both deal in different degrees with alternative definitions of value. A transformative perspective involves an alternative technological paradigm, which provides a definition of value that differs from the existing one. But the innovations that are part of the dynamic perspective also require some redefinition of value. One way of dealing with the second grey area is to look at technologies in terms of components that make up subsystems, which together form complete technological systems. Moving up in this hierarchy from components to complete technological systems indicates a more radical alternative definition of value.24 In the case of the automobile PCS the introduction of hybrid cars involves the transformation of a component while leaving the larger system more or less intact, whereas alternative mobility systems require a redefinition at the level of the total system. In subsequent chapters these grey areas will be further explored.

CONCLUSION The typology introduced in this chapter will be used throughout this book. Given its central character I believe I have to be explicit about the normative nature of the distinction into these three perspectives. Any typology reflects the interest of the researcher in the sense that it is based on a criterion deemed relevant for research. At the same time the typology needs to reflect in some way observable differences between firms that fall under different types. By using this typology I place technological change at the heart of the analysis of ecological strategies. There are two reasons for doing this. One is that I believe that the types of strategic perspectives that follow from this show distinct definitions of values, organizational routines and ecological strategies. They also tend to go together with the more general strategic orientation of a firm. This empirical argument will be explored in Chapter 4. The normative argument for this typology is that technological change of a more transformative nature will be necessary to bring our productive and consumptive activities within the bounds of metabolic consistency. This may not be the case in every PCS, but in most of the systems where ecological impact is a topic of discussion I believe that a transformation of some kind is called for. This normative aspect will be further discussed in the final chapter. In the next chapter we dive into the question what characteristics of firms link to each of these three strategic perspectives. As dominant ways

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51

of perceiving the world, strategic perspectives translate into specific organizational routines and activities. They also exemplify specific definitions of ecological value as well as a more general strategic orientation. In addition attention will be given to the internal dynamics of firms that connect these different elements.

NOTES 1. 2. 3. 4. 5. 6. 7.

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

Commoner (1971, 1997). Commoner (1971). Freeman (1992, pp. 199–202). See Princen (2005) for an exploration of the sufficiency principle. There is a rich literature on what is known as the economics of innovation. This section is based on a summary by Unruh (2000). Anderson and Tushman (1990). See Christensen (1997) for a discussion of disruptive innovation and their relationship to definitions of value. There is continuing discussion about various ways of classifying (ecological) innovations (for instance Huber, 2004). The typology developed later is my contribution to this discussion. David (1985). Here I build on Shearman and Burrell (1987), Nooteboom (1999) and Boons and Berends (2001). Dosi (1982, p. 152). Ibid. This description is based on Womack et al. (1990), Scherer (1996) and Lipartito (1995). Rao (1994). This idea will be further developed in coming chapters. It builds on the work of Spender (1989) and Philips (1994). Kemp (1994, pp. 1040–42). This topic has been the central focus of an approach called transition management. See Loorbach (2008) for an overview. Kemp (1994, p. 1034). For a discussion of so-called environmental innovation systems, see Weber and Hemmelskamp (2005). Kemp (1994, p. 1037). Anderson and Paine (1975). This cognitive approach to strategy builds on the work of Karl Weick (1969) and claims that differential responses of firms to the same environment result from variation in these perceptions. Sharma (2000). Anderson and Paine (1975, p. 814). Schmidheiny (1992, p. xi). See Huber (2004) and Hekkert and Van der Hoed (2004).

4.

Elements of strategic perspectives and the internal dynamics of firms

In the preceding chapter we have seen that the changes in technology necessary to reduce ecological impact develop in interaction with networks of production and consumption. Firms play a central role in such networks and for this reason I will conceptualize their ecological strategies in terms that are compatible with this view. I will first present two dominant theoretical approaches to ecological strategies which together provide a basis for analysing such strategies. I then discuss four constituting elements of the strategic perspectives defined at the end of the last chapter. I will also discuss the internal dynamics of firms and the way they shape these elements. The chapter closes with core ideas and case studies illustrating each of the strategic perspectives.

DOMINANT THEORETICAL APPROACHES DEALING WITH ECOLOGICAL STRATEGIES In Chapter 1 the themes of diversity and convergence in the ecological strategies of firms have been introduced. The two theoretical approaches to ecological strategies that are currently dominant in the literature tend to focus on either divergence or convergence. The first view of ecological strategies is based on a more generic theory of business strategy: the resource-based view. This theory builds on the seminal work of Edith Penrose who sought to find an explanation for the way in which firms expanded after the Second World War. In her theory the formation and further development of capabilities plays a central role. Each firm has a set of routines that is more or less unique and its development is shaped by these capabilities and the learning processes through which they are further developed. The resource-based view argues that difficult to imitate, valuable capabilities give some firms a competitive advantage over others.1 The tacit knowledge that firms develop on consumers and channels of distribution when they operate on a national market can be such a capability. Such knowledge is acquired through practice and foreign firms that enter the market do not possess this capability and 52

Elements of strategic perspectives and the internal dynamics of firms

53

therefore will have a disadvantage over local firms. Capabilities can also reside in the experience that operators gain through working with a certain production technology, which translates in a more efficient production process that cannot easily be imitated. Stuart Hart has extended the resource-based view to include the sustainability strategies of firms. In his view the capabilities that are necessary for reducing the negative ecological and social impact of business activities also contribute to competitive advantage. Such capabilities can be grouped under three headings: pollution prevention, product stewardship and sustainability. Subsequent research has shown a moderate positive relationship between such capabilities and the financial performance of firms that possess them. This is taken as supporting evidence for this theory.2 The resource-based view is useful for assessing ecological strategies because it helps to focus on firm-specific characteristics and thus contributes to insight into the diversity among firms. There are two problems with the way in which this theory has been developed up to date. First, the theory builds specifically on a link between ecological strategy and competitive advantage. Building on the win–win ideology which flourished during the 1990s, this link has been explored almost exclusively for so-called proactive ecological strategies, that is, strategies that go beyond what is called for by legislators.3 Thus the theory only covers a part of the spectrum of ecological strategies that can be found among firms. A second problem is one that plagues the resource-based view more generally. In the definition of relevant capabilities the adjective ‘valuable’ is used. The preceding chapters have already shown that this adjective is not selfexplanatory: what is deemed valuable by a firm can differ over time, across industries and even within markets. Without an understanding of how this definition of value is constructed the whole theory becomes problematic.4 An alternative theory of ecological strategies starts from the view that firms, if they are to survive, need to be accepted as legitimate by the society in which they operate. As ecological problems often translate in demands to firms that question their legitimacy in more or less urgent forms, institutional theory has been used to provide insight into ecological strategies. Institutional approaches to organizational behaviour explore the ways in which such legitimacy is obtained and preserved by organizations and how this affects the convergence of organizational characteristics. In an influential article DiMaggio and Powell have presented three mechanisms that operate in groups of organizations which interact frequently, such as firms within an industry. These isomorphistic mechanisms are coercion, mimicry and normative pressures, and each of them results in organizations adopting similar practices and organizational structures.5 Coercion reflects the ability of one organization to impose specific organizational

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Creating ecological value

routines on other organizations. The state is an actor which has this power to some extent, but coercion can also be applied by firms upon other firms, for instance, to force suppliers to adopt specific practices or production methods. Mimicry occurs in situations of uncertainty, where organizations have incomplete knowledge about what action could be adequate to lead to desired goals. In such situations organizations may look among each other and adopt the practices that are developed by what is considered to be a leading organization. Mimicry is a viable strategy, for if the leading organization chooses the right course of action others will do so too, and if the leading organization chooses a wrong path the others will not be worse off because they did not chose a path with even more negative consequences. Finally, normative pressure is associated mainly with professionalization and leads to isomorphism as new organizational members infuse organizations within the group with similar practices they picked up in their professional training. Each of these mechanisms can be found to be operative in relation to the way in which firms deal with their ecological impact. An additional insight from institutional theory is that of decoupling.6 As organizations seek to obtain and maintain legitimacy they react to their institutional environment, that is, the set of actors that places demands on them which contest this legitimacy. Such demands may run counter to what the organization perceives to be necessary in relation to its operations. As a result organizational practices that develop in order to meet institutional demands may be disconnected from the practices that guide the day to day operations. In terms of ecological strategies the idea of ‘greenwashing’ is a prime example of such decoupling. Interestingly, these two theoretical strands represent opposing focal points. Whereas the resource-based view explores diversity among firms, institutional theory tends to look at processes through which the responses of firms to institutional demands converge. Of course both tendencies are present with respect to ecological strategies: to some extent firms converge in their activities, while in other aspects they display unique characteristics. The starting point for connecting both theories lies in addressing the major problem of the resource-based view, that is, its lack of attention to the definition of value of capabilities. From a social constructivist position this value is seen as the result of interaction among the actors involved. Thus, resource selection and development is not the rational act of managers choosing among an unlimited set of options but instead a process which is shaped by institutional factors.7 The following section builds on this insight as it provides a further specification of the three strategic perspectives derived in Chapter 3.

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55

THE FOUR ELEMENTS OF STRATEGIC PERSPECTIVES In further developing the three strategic perspectives, I distinguish four elements.8 The first element is the set of ecological strategies: the actual activities a firm performs to deal with the ecological impact of its activities. These activities stem to some extent from its set of organizational routines, which as a whole is more or less unique to the firm and which constitutes the second element.9 These routines reflect the definition of ecological value that is enacted by the firm, and this definition is the third element. Finally, it is relevant to consider the way in which ecological strategies, organizational routines and definition of ecological value are related to the general strategic orientation of the firm. Ecological strategies of firms have often been analysed separately from the generic strategy of a firm. In my view, even if the analytical focus is on such strategies, it is important to understand how ecological strategies fit into its wider strategic orientation. Strategic Orientation The first element to consider is the general strategic orientation of a firm. A firm’s strategy deals with three issues.10 First of all, a strategy defines an organizational domain: the products and services the firm seeks to produce and the market for which these outputs are destined. Second, a strategy involves choices on the technologies that will be used for operating in that domain. These include production processes, channels for distribution and communication. Third, a strategy includes major choices on how to coordinate activities in such a way that the choice for a domain and the technology chosen to operate in that domain become stabilized and rationalized within the organization. This third issue includes the organization of the strategy process itself, that is, the coordination of activities to make adjustments in the current strategy. It is tempting to view strategy formation as a deliberate, planned activity. Much of the literature shows that this is not a realistic view. The strategies of firms are the result of power struggles, external influences, mistakes and the sometimes autonomous activity of discrete units that make up the firm. But even if we view strategy as the pattern in decisions and activities of a firm we can distinguish in this pattern an answer to the three issues outlined above.11 Firms that operate from the stable perspective view their domain as stable and their activities aim at securing a portion of the market, preventing competitors from entering. Improving efficiency in operations is their main approach to technology, which helps in defending their market

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Creating ecological value

position. Their organizational approach is likewise aimed at providing stability. Through close monitoring and setting up mechanistic sets of organizational routines efficient production can be ensured and costs can be controlled. Firms that operate from a dynamic perspective seek to maintain their current market position while at the same time locating and exploiting new product and market opportunities within the bounds of the existing technological trajectory. This combination requires the balancing of two opposing demands which can be seen as an attempt to minimize risk. At the same time it can be argued that the two activities are complementary: existing product-market combinations serve to generate resources that are required for developing new combinations. Firms that employ a transformative perspective have to deal with the fact that the domain in which they operate is still under construction. In fact, the firm itself may be a prime mover in defining that domain. Its technology is likewise in development and the organization is geared towards flexibility as well as the ability to construct new markets.12 Definition of Ecological Value The second element focuses specifically on the set of beliefs and values which provides the basis for activities towards the ecological impact of a firm’s activities and products.13 A definition of ecological value is the way in which a firm perceives the ecological effects of its activities and products and the way in which such effects should be dealt with. Thus, the definition of ecological value is a collectively shared perception of the ecological impact created by the firm and the possibilities for dealing with this impact.14 The three strategic types can be illustrated with general paradigms concerning the relationship between human productive and consumptive activities and nature.15 The stable perspective fits well with a paradigm that can be labelled as ‘Frontier economics’. In this view nature is treated as an infinite supply of physical resources as well as a bottomless sink for disposing wastes. Economic activity is limited not by natural constraints but by a supply of human labour and capital goods. This view often is combined with faith in technological progress which enables human beings to exploit nature with ever increasing efficiency and manipulate resources to fulfil human needs. Nature is viewed thus primarily as an input factor and interestingly its value, defined in monetary terms, rises as it becomes more scarce. Another paradigm that fits the stable perspective is that of ‘Environmental protection’. Based on the increased awareness of the ecological impact that results from production and consumption activities the

Elements of strategic perspectives and the internal dynamics of firms

57

central aim of this paradigm is the improvement of these practices in order to repair the damage that has been done. This poses constraints to such activities and ecological impact is framed as an economic externality which requires some form of governmental intervention. Governmental agencies are responsible for limiting ecological impact or repairing damage done and they regulate and tax firms in order to fulfil that responsibility. Firms that operate from the dynamic perspective have definitions of ecological value that resonate with the paradigm of ‘Resource management’. This paradigm corresponds with the sustainable development concept. It is based in the influential work done by Meadows and others for the Club of Rome in which models were developed to estimate the depletion of resources due to population growth and human activities. A central concern that comes from this work is that of limited resources, where resources can be defined in a broad way to include, for instance, the global climate. Some resources need to be conserved (such as rainforests); for other resources the main issue is that of increasing the efficiency of their use. The definitions of ecological value employed by firms with a transformative perspective may resemble paradigms such as ‘deep ecology’ or ‘eco-development’. The former poses the centrality of nature instead of an anthropocentric view. According to this view human beings should live in harmony with nature by adopting a modest approach in which human needs are fulfilled on the basis of sufficiency. Eco-development views the relationship between human activities and nature as one where synergies between the two are explored. It views economic activities as part of ecological cycles and seeks to model production and consumption activities on the ways in which ecological systems operate, such as through the concept of industrial ecology. This paradigm is also sensitive to local variations in knowledge about ecosystems, making use of that rather than trying to objectify knowledge. The paradigms used here to illustrate the three types are phrased in very general terms. In contrast, firms will define their ecological impact in close reference to their products and processes. Nevertheless, in analysing the strategic perspectives of firms similar coherent views of perceiving the relationship between their activities and nature can be discerned. Organizational Routines The third element of a strategic perspective consists of the organizational routines a firm employs to combine resources in order to materialize the goals that are implied in its general strategic orientation. Routines are established procedures within a firm that have evolved to prove their

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Creating ecological value

usefulness at least in a number of previous occasions.16 As such they combine knowledge that has been acquired with some form of organizational embedding which can be the organization’s structure, culture or processes. Routines are propensities to act in a certain way. A firm possessing a certain routine is able to do something, which does not mean that it is actually performing that activity in a specific situation. It is useful to distinguish organizational routines into the following dimensions:17 ●

●

●

Operative routines – the knowledge and organizational abilities to combine human labour and material resources in an effective and efficient way. This includes the learning process accompanying the introduction and use of new technologies. These organizational routines relate directly to activities of the firm which have an impact on its natural environment. Coordinative routines – the knowledge and organizational abilities to effectively and efficiently coordinate activities with those of other firms to enable desired operative actions. Such organizational routines enable firms to form partnerships with suppliers or competitors, which makes it possible to design and perform operative activities that would otherwise not be possible. Formative routines – the knowledge and organizational abilities to shape the value context in which operative activities are taking place. These organizational routines are related to marketing, public relations and public affairs activities. Such activities are intended to influence in some way actors in a PCS in such a way that the (intended) operative activities of a firm are considered legitimate.

Table 4.1 provides an overview of the organizational routines that are linked to the three strategic perspectives.18 Organizational routines that relate to a stable perspective reflect the ability to perform the basic functional activities of the firm, securing its current market base and ensuring the efficiency of its operative activities. Operative routines are those that enable the firm to exploit its resources efficiently and maintain the quality of the products and services it delivers. Coordinative routines are relevant in negotiating contracts with suppliers that ensure low input costs as well as monitoring input quality. These also include the ability to collaborate with competitors, for instance, in the course of pursuing lobbying strategies towards governmental agencies. Formative routines directed at the market are relevant to ensure the acceptability of the product even when confronted with demands to reduce its ecological impact. Advertising, branding and reputation management enable the firm to keep its current market position and maybe expand its market share. In relation to the

Elements of strategic perspectives and the internal dynamics of firms

Table 4.1

Organizational routines for three types of strategic perspectives

Operative

Coordinative

Formative

59

Stable

Dynamic

Transformative

maintaining efficiency of production; maintaining quality of products/services managing supplier contacts to ensure low costs and quality; collaborating with competitors

flexibility in production processes; R&D, including assessment of ecological impact establishing new links with suppliers and customers; communicating ecological goals to suppliers and/or customers; collaborative R&D

systemic thinking; developing system vision

securing market base through advertising, branding; reputation management; monitoring and influencing regulations

creating market acceptance for incremental improvements; helping to create supportive standards and regulations

developing collaborative learning networks; upscaling local experiences to enlarge markets; creating new supply and distribution chains involving government to legitimize a new trajectory and create infrastructure; gaining acceptance from the general public

public and political domain formative routines may be required to fence off demands to change operational activities because of their ecological impacts. Such routines include the ability to monitor and influence legislation, as this is viewed as a major manifestation of what is deemed to be legitimate. Organizational routines that relate to the dynamic perspective consist of the knowledge and organizational abilities that are necessary to move along the technological trajectory.19 The organization of R&D is a major set of operative routines. In dealing with ecological impacts it involves the assessment of such impacts in the early stages of the design process. Another operative routine is flexibility in production as the firm must be able to shift between ‘old’ and ‘new’ products. Coordinative routines are relevant as the new products or production processes involve the creation

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of new linkages with customers and suppliers. The firm also needs to be able to communicate its aims concerning the reduction of ecological impact. Based on shared goals, partners for collaborative R&D need to be selected and the problem of sharing competitively relevant knowledge needs to be solved. Formative routines are relevant as the new product or production process differs from the existing one, which may result in questions about legitimacy. Formative routines include the establishment of standards and the ability to act in regulatory contexts. The transformative perspective requires the creation of a new PCS. This requires the ability to shape a vision of what an alternative system may look like, what are major constituting elements and how they should relate.20 Operative routines include the ability of organizational members to think in system terms and develop a future vision of the new PCS based on a conceptualization of minimized ecological impact.21 Coordinative routines involve the ability to build up a network of relationships around this vision that constitutes a supply and distribution chain. Often this will involve the creation of local networks of collaborative learning and the subsequent ability to translate the experience of these local networks to larger markets.22 Formative routines associated with the transformative perspective are essential as new markets as well as more general rules and political and public acceptance need to be forged. The ability to involve governments is often crucial as a change towards an alternative technological trajectory calls for infrastructural and regulatory changes that cannot be brought about by market actors alone. Table 4.1 shows that there is some overlap in the organizational routines assigned to each of the strategic perspectives. This indicates a misdirection in the resource-based view of ecological strategies. In this view routines are used as the main indicator to distinguish different types of ecological strategies. But, as becomes clear from the above, different strategic types employ similar routines, such as being able to influence governmental regulation, to develop new markets or to connect to suppliers. In my view this illustrates the central position that definitions of ecological value have in the strategic perspective. Routines are best seen as tools and they can be used for different purposes. Through their connection with specific definitions of ecological value routines lead to distinct ecological strategies. Ecological Strategies Based on their routines firms will develop activities that in the end determine their ecological impact. An ecological strategy is the pattern in the activities of a firm to deal with its impact upon the natural environment. These activities can be divided into the same categories used to classify routines:

Elements of strategic perspectives and the internal dynamics of firms ●

●

●

61

Operative ecological strategies – activities which deal directly with transformation of material and energy, both of production processes and of products. Coordinative ecological strategies – activities geared towards coordinating activities with those of other firms and actors in the PCS in order to deal with ecological impact. Formative ecological strategies – activities that aim to maintain or establish legitimacy in terms of dealing with ecological impact. Such activities can be directed at governmental agencies, politicians, NGOs and the general public. The general aim is to align legitimacy demands with the definition of ecological value that is employed by the firm.

Ecological strategies will often combine different categories of activities. To take a simple example: installing a water treatment facility is an operative activity which involves coordination with a supplying firm to make sure it is specified for the waste stream generated by the production facility. The requirements for the output of the facility, that is, the quality of effluent, will usually be negotiated with a governmental agency and thus involve formative activities. Table 4.2. summarizes ecological strategies for each of the strategic types. The stable perspective is characterized by operative activities to deal with ecological impact that keep the production process as it is. End-ofpipe technology fits that requirement as it treats emissions to air and water through separate equipment. Operative activities may include improving the efficiency of resource use to the extent that it leads to cost savings. For this reason good housekeeping and pollution prevention are activities that fit with the stable perspective. Coordinative ecological strategies include the joint development of end-of-pipe technology with suppliers, but also the coordination of activities with other firms to engage in collective lobbying efforts. Formative activities include reputation management and concrete activities to influence (the implementation of) regulation as it is envisioned by governmental agencies and seeks to limit its effects on the activities of the firm. The stable perspective may also be the basis for moving a production activity that is criticized in one country to another country where it is considered to be legitimate. Ecological strategies that are related to the dynamic perspective share the characteristic that they seek to reduce ecological impact through innovations: the successful marketing of new products and services within the existing technological trajectory. Operative activities include practices such as green product development or eco-design which integrate the reduction of ecological impact as an aim in the R&D process. Ecological

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Table 4.2

Creating ecological value

Ecological strategies for three types of strategic perspectives

Operative

Coordinative

Formative

Stable

Dynamic

Transformative

end-of-pipe technologies efficiency; improvements/ pollution prevention; good housekeeping collective lobbying; joint development with end-of-pipe technology suppliers reputation management; monitoring upcoming regulation; lobbying for weak regulation; move to pollution haven

green product development; eco-design; process redesign

green system design and implementation through pilots and experiments; developing product service systems collaborative systems creation

product stewardship; joint green product development; screening/delisting suppliers

green marketing; lobby governments and standardsetting agencies for arrangements; establishing legitimacy and stimulating introduction

transition management; creating legitimacy

impacts of production processes are dealt with through redesigning them. Coordinative strategies involve the alignment of suppliers in such a way as to ensure that they contribute to the reduction of ecological impact as envisioned by the firm. This may involve activities such as product stewardship and joint green product development. It may also involve screening and monitoring the ecological performance of suppliers which can result in delisting them when they do not conform to the requirements posed by the firm. Formative activities are those that seek to establish a market for the newly developed product or service. Towards consumers this may take the form of green marketing. It may also require action towards governments and standard-setting bodies to ensure the legitimacy of the product and possibly to install incentive programmes that induce consumers to buy the new product. Based on the transformative perspective firms will develop operative

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activities to design and implement a new system of production and consumption. This involves experimentation and pilot projects to assess the technical feasibility of the vision from which the firm works. It may also involve the development of product-service systems.23 The boundary between the production process of the firm and technologies employed by other actors in the emerging system may not be clear. As a result these activities are necessarily connected to coordinative actions directed at these partners. Formative activities involve attempts to direct societal changes that are needed to make the new system legitimate. When Tables 4.1 and 4.2 are compared, some overlap between the description of routines and activities becomes visible. The reason for this is the close relationship between routines and activities. A routine is an ability to perform a certain activity and in the end the main indicator for establishing whether the firm has this ability comes from seeing that it is actually doing so. The major difference is that routines do not guarantee that the activity will be performed. For this reason routines and activities need to be distinguished.

EXTENDED EXAMPLES OF THE THREE STRATEGIC PERSPECTIVES In order to gain better insight into the strategic types and the way in which their constituting elements are connected, I present examples for the stable (Box 4.1), dynamic (Box 4.2) and transformative (Box 4.3) perspectives below.

THE INTERNAL DYNAMICS OF FIRMS Writing in terms of the strategic perspective and activities of a firm suggests that we are dealing with a unitary actor. Although I will make this assumption in some of the analyses that follow in this book, I want to be clear about this being an assumption rather than a reality.24 A firm consists of groups of individuals with distinct motives, interests, knowledge and power. The internal dynamics that produce a strategic perspective and which contribute to change in that perspective over time can be understood by conceptualizing the firm as a political arena. The firm can be viewed as a set of actors with inconsistent preferences who reach decisions through forming coalitions. In this view the subunits that make up a firm are not linked together through a hierarchy that establishes central control

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BOX 4.1

THE STABLE PERSPECTIVE: SCANDA METAL (1980–94)25

Scanda Metal is a subsidiary of a Swedish/Finnish metal working company which manufactures brass strips that are used as parts for radiators in the automobile industry. During the period 1980–94 demand for this product declined. The strips are made by melting copper scrap and mixing it with various substances such as zinc. The production process results in several ecological impacts, such as emissions of copper, zinc oxide and polluted cooling emulsion. Some of the ecological impacts are dealt with through on-site waste water treatment. In 1983 a check up from a governmental agency reveals that the firm on several occasions has exceeded established norms for waste water discharge. Also, a large area of contaminated soil is discovered that is a result of incidental overflow of the emulsion treatment installation. These discoveries lead to a deterioration of the relationship with governmental agencies enforcing environmental permits. The intensive interactions that follow lead the firm to manage relationships with governmental agencies through a dedicated employee rather than through the management board. Within Scanda Metal there is an internal struggle in which concerned employees voice their concern about the ‘loose’ way in which waste and emissions are managed without results. When one of the employees makes these concerns known to the authorities an unannounced inspection follows which reveals several instances of severe non-compliance with regulations. The inspection and a subsequent lawsuit produce a shockwave throughout the firm. A new environmental manager develops technical assessments, plans for improvement and training courses for employees. When the general manager decides not to pursue this direction the environmental manager leaves the firm. This is followed by a rapid succession of persons responsible for environmental affairs and relationships with governmental agencies. These two functions are eventually combined and given to a technical project manager whose workload is increased with these tasks. As governmental demands continue to increase several activities that are required by external parties (such as developing an environmental plan) are outsourced to consultants. Throughout this period ecological impact and the need to deal with it are perceived by firm managers as connected to governmental regulations. They are considered to be topics of external demands and governmental agencies have the task of enforcing them. Reflecting this perspective, environmental issues are relegated to staff workers with titles such as ‘environmental coordinator’ and combined with the function of dealing with governmental agencies. These staff members have advisory roles to line managers and are involved only in the later stages of developing new products or production processes where choices are made based on economic criteria. In connecting the need to deal with its ecological impact primarily to

Elements of strategic perspectives and the internal dynamics of firms demands made by various governmental agencies Scanda Metal operates from a definition of ecological value which fits the stable perspective. Over the years it keeps its production processes intact and places add-on technology and performs remediation activities only when they are demanded by government. The case is interesting because it shows the impact of coalitional struggle. Individual employees seek to build up routines that are based in another definition of ecological value but these are not implemented by decision of the firm’s general manager. As a result individuals leave the firm and learning which might lead to change is obstructed. As a result the organizational routines that exist serve mainly to deal with governmental agencies in a defensive way. Source:

This case description is based on Neumann (1995).

BOX 4.2 THE DYNAMIC PERSPECTIVE: ROYAL PHILIPS, CONSUMER ELECTRONICS DIVISION (1993–2006) Royal Philips started out as a producer of light bulbs but quickly expanded the scope of its activities on a strong technology base. From the late 1920s these activities included the production of radio receivers, which formed the basis for its consumer electronics (CE) division, which will be further explored here. I will focus on the period since 1993 when CE intensified its efforts to deal with the ecological impact of its products. These activities have been quite successful, at least in terms of the recognition the company has received from external constituencies: Philips has been number 1 in DJSE for several years in its market sector. The general strategic orientation of Royal Philips is not easy to determine. Consecutive Chief Executive Officers (CEOs) have different ideas about what the core activities of the firm should be and the position of the CE Division is never secure. The increased competition hits exactly on these activities and the cyclical market on which CE operates is something of which top management is not too fond. At the same time there are synergies with activities that Philips does want to keep such as the production of electronic components. Also, consumer products are seen as the prime carriers of the Philips brand and therefore are difficult to do without. In 2001 the new CEO Kleisterlee announced ambitious goals of 15 per cent profit growth and 10 per cent turnover growth. An important part of the new strategy was to outsource production activities in order to cut costs and reduce the risks associated with cyclical markets. Throughout its history Philips as a whole has been technology driven. It has a highly acclaimed R&D department which has produced several innovations in the CE market. At the end of the 1980s increased competition

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Creating ecological value made it clear that the company lacked sensitivity to its consumers and the creation of markets: its video cassette recorder (VCR) format lost out to Sony’s VHS, and it failed to identify the potential of portable devices such as the Walkman. The strategic reorientation that started with the appointment of Kleisterlee also consisted of increased market responsiveness. Combined with the outsourcing of production activities Philips increasingly became a product development and marketing company. The general definition of the ecological value of Royal Philips is captured in the following two statements taken from its 2002 corporate sustainability report: We are committed to being the world’s leading eco-efficient company in the electronics industry. Seeing environmental improvement as an opportunity for innovation, we work continuously to minimize the impacts of products, processes and services. To meet this challenge we establish solid action programs to drive progress in this important area. We view sustainable development as an opportunity for innovation, enhanced brand reputation and wealth generation, while enriching people’s lives and continuing to earn our license to operate. This is a clear statement of a dynamic perspective in which diminishing the ecological impact of activities (including products) through innovation is central. The reports from 2002–06 also consistently state three issues to be of central importance in relation to the ecological impact of the firm and the industries in which it operates: global warming, the chemical content of products, and take-back and recycling of products. During the period 1994–2006 the definition of the ecological value of Philips as a whole was to a great extent shaped by the way it was handled by the CE Division. The firm had been active in dealing with the ecological impact of production activities, but during the 1990s the managers of CE perceived the need to deal with the ecological impact of products. Increased societal awareness of the impact of polyvinylchloride (PVC) and chlorofluorocarbons (CFCs) was the basis for this decision. Other Philips divisions made a different assessment and consequently CE became a frontrunner within Philips. Throughout this period ecological impact was defined in three categories. The first was the use in products of materials and substances that were perceived to be detrimental to the natural environment. Rather than becoming involved in discussions about establishing their exact ecological impact CE acted mainly on societal perception as they became established in public discussions and governmental attention. The perceived solution was to eliminate such materials and substances from products as soon as possible; being earlier than competitors could provide a competitive advantage. A second category was to design products in such a way that it would bring both ecological and economic benefits. Throughout the period the CE Division developed and elaborated organizational routines such as its

Elements of strategic perspectives and the internal dynamics of firms eco-design approach which focused on so-called ‘green focal areas’: energy use, packaging, hazardous substances, weight, and recycling and disposal. Most notable was the consistent integration of ecological issues into the product creation process. This resulted in specific routines, including the benchmarking of ecological performance of products towards competitors, and ways of identifying areas where reductions of ecological impact could best be made. A third category was to reduce the ecological impact of production facilities such as water use and production waste. Given the strategy of outsourcing during this period this category became less and less relevant for CE. In 1998 designers at CE developed what they called a ‘green TV-set’. While they did not succeed in convincing marketeers and production managers to take this into production, the set ended up on the table of the CEO. While not considered to be sensitive to environmental issues he called the product a green flagship and decided that every product group needed to develop one such product every year. To achieve this status, products must first of all meet general eco-design criteria. Then they would have to be investigated in at least three Green Focal Areas and have to offer better performance in two of these categories as compared with their predecessors and closest commercial competitors. Green flagships are also referred to as ‘examples of Philips’ meaningful technology’. Thus, the definition of ecological value at Philips CE centres around eco-design, connecting technological innovation to improved ecological performance relative to previous products and those of competitors. It also actively connects ecological improvement to market opportunities. The increased outsourcing of production activities necessitated the involvement of suppliers. For this purpose Philips developed coordinative routines for involving its suppliers in reducing ecological impact and auditing them on their environmental management routines. Formative activities were employed when Philips engaged in discussions at the level of the EU to disseminate practices of eco-design. CE also played an active role in shaping the Waste Electrical and Electronic Equipment (WEEE) Directive of the EU. The CE Division of Philips is a clear case of a firm operating from the dynamic perspective. Its definition of ecological value links the reduction of ecological impact to resource efficiency, technical innovation and market opportunities. Over the years it has actively developed routines for incorporating ecological impact into product design and its marketing oriented management has shaped these efforts into an approach that increasingly brings products to the market which perform better than its competitors on ecological criteria. Although radical in its organizational approach its technological improvements have stayed firmly within the bounds of the existing technological trajectory. Source: This case description is based on Stevels (2006), annual and sustainability reports of Philips over the period 2000–06, and an interview with Ab Stevels.

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BOX 4.3

THE TRANSFORMATIVE PERSPECTIVE: SEVENTH GENERATION

Household hygiene has been a basis for the development and marketing of consumer products from the early twentieth century onwards. With the discovery of bacteria as the source of human illness and the development of governmental structures for household disposal, hygiene became one of the core issues in the education of housewives.26 These cultural values were strengthened by firms that developed special products for improving household hygiene including cleaning agents, detergents and disposable wipes. This market is currently dominated by global companies such as Unilever and Procter and Gamble whose products contain chemical substances to deliver on the central values of cleaning potential and convenience. Competition in this market is based on a price or product differentiation strategy and by obtaining prominent shelf space in retail outlets. Seventh Generation originated as a US wholesale natural products catalogue in the late 1980s and is currently one of the most successful firms selling over 50 household hygiene products, such as toilet paper, detergents and household cleaners, that for the most part do not contain chemical substances. In this respect the company adheres to an alternative technological paradigm when compared with the major players mentioned above. The strategic orientation of Seventh Generation is based on strong values about the natural environment as a basis for doing business. This is reflected in its name, derived from The Great Law of the Iroquois Confederacy, which states that ‘In our every deliberation, we must consider the impact of our decisions on the next seven generations’. Its initial vision statement further underpins the centrality of ecological concerns: ‘The Company will seek to successfully combine what it believes to be a variety of interrelated and mutually supportive goals. Financially, the Company will strive to achieve an above-average return for its shareholders… while [seeking] to spread its principles of social and environmental responsibility to other businesses with which it deals.’ The firm claims to be one of the first US firms to declare itself socially responsible, building on a different set of principles to connect economic profit making with ecological and social values and actively promoting this approach to suppliers, shareholders and customers. Its vision centres on providing leadership and inspiration in changing towards sustainability, social justice and compassion. Seventh Generation, which in 2006 had 52 employees, or team members as it calls them, does not produce the products it sells: it is responsible for the design, marketing and distribution of products supplied by other firms. Originally working as a catalogue business firm, eventually it was decided that this vision could only be achieved by selling through retail channels. This caused a repositioning of the company and required the development of new routines. Ecological value is at the heart of the general strategic orientation of

Elements of strategic perspectives and the internal dynamics of firms Seventh Generation. Such value is defined predominantly in terms of marketing products with a low ecological impact. Given the fact that the firm does not operate production facilities, it views its greatest ecological impacts in its supply chain and in the transportation, use and disposal of products. The ecological impact of products is defined first of all in terms of the absence of certain chemical substances such as chlorine and volatile organic compounds. But product standards include a number of other criteria, such as biodegradability, and not contributing to known environmental hazards. The goal is to sell products made totally from natural ingredients which come from sustainably managed ecosystems. The perspective on ecological impacts thus focuses mainly on products: replacing the chemical substances that are found in the product lines of mainstream competitors. For its market, the firm first focused on the ‘green’ customer; later on it became part of its strategy to educate general customers and induce them to buy its products. In this sense, the solution of ecological products is seen not only in terms of producers, but also in changing the behaviour of consumers, which requires the development of formative routines. The link with mainstream consumers became even more apparent in 1999 when the company changed its brand positioning from ‘Products for a healthier planet’ into ‘Healthier for you and the environment’. The reason for this change was that the company found that customers are not so much worried about pollution as they are about the possible negative health effects of the chemical substances in the products they use. A crucial organizational routine for Seventh Generation is its ability to design products that are made of natural ingredients and find alternatives for specific chemical substances. This is connected to the ability to find suppliers that are able to produce such products, given the fact that Seventh Generation does not produce any of the products it sells. The basis of the supplier relationship is given by the stipulation of the raw material ingredients that may enter into products as well as a review of the environmental compliance of suppliers. Most suppliers produce for other firms as well and the share of production volume demanded by Seventh Generation limits its ability to influence practices of these suppliers. As a result the firm may need to resort to other suppliers, but it also seeks to increase its influence by seeking collaboration with suppliers and communicating to them the values and principles of the company. Another organizational routine of Seventh Generation is its ability to maintain a strong internal culture. To achieve this, possible ‘team members’ are selected not only on their skills but also on the extent to which they adhere to the central values of the company. In addition there are internal groups that continually develop activities to ensure that members exhibit ‘green’ behaviour and make conscious choices in their lives. Finally, and crucially for a firm which has the marketing and distribution of products at the core of its activities, Seventh Generation has a strong ability in corporate communications. Its values of openness and transparency can be found in the way it discusses its successes as well

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Creating ecological value as unaccomplished goals in its corporate responsibility reports and on its website. In terms of activities the firm has been able to deliver on its goals by marketing products that do not contain chemical substances and reducing the amount of chemical substances that are present in its products. Examples include the introduction of chlorine free diapers in 2003, which involved convincing a European factory to switch to manufacturing totally chlorine free pulp. A second group of activities relates to the use of renewable and recycled materials, most importantly paper (both in products and packaging). Source: This description is based on a case developed by Mike Russo and Daniel Goldstein, University of Oregon in Hamschmidt (2007). In addition, the annual corporate responsibility reports (2003–06) of Seventh Generation were used.

through executive leaders. Instead, units engage in political processes around specific issues and form coalitions that may include actors outside the firm. As a result of these political struggles a dominant coalition emerges: the set of actors that at a certain point in time is most powerful in dealing with the critical issues with which the firm is confronted.27 Coalitions will favour specific routines, definitions of ecological value and ecological strategies, as well as a general strategic orientation and thus the coalitional struggle produces the strategic perspective of the firm. Changes in the dominant coalition will lead to changes in that perspective. Based on this conceptualization of internal dynamics, we can distinguish four central processes that are linked to each of the elements of a strategic perspective. The process of positioning entails the development of a general strategic orientation. The dominant coalition will formulate this orientation in line with its interests, such as focusing on specific product/market combinations that best fit its interests. Here leadership may play a role: when the strategic orientation is reformulated this sends a signal to other organizational members. The decision of the CEO of Philips to require green flagships from various product groups in the company is an example of this. Through this decision the ecological strategy of CE was further infused with a marketing orientation. The definition of ecological value is the result of the process of framing.28 Frames are interpretative schemes that help individuals to make sense of the world around them. They infuse events with a specific meaning and thus help to organize experiences and guide actions. Framing is the process by which such schemes are constructed and this process may involve intentionality in the sense that actors seek to advance schemes that inspire

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other actors and legitimates their activities. Within a firm subunits may have different definitions of ecological value: the public relations department tends to view ecological impact mainly in terms of potential risks associated with public pressure, while the legal department views them in terms of regulations and dealing with governmental agencies. As part of the coalitional struggle groups within the firm may actively try to shape the firm’s definition of ecological value more in terms of its own frame. In the case of Scanda Metal, efforts to reframe the definition of ecological value were unsuccessful as they were not approved by the general manager. Within Seventh Generation the importance of the process of framing is shown by the efforts to maintain a strong culture among its team members. The organizational routines of a firm are the result of a process of learning and routinizing. Although these might appear to be opposite processes, in fact they are two sides of the same coin when dealing with organizations.29 Routines are the more or less stable patterns of action within a firm and they include both formal procedures, such as ways of arriving at investment decisions and systems of quality management, as well as informal rules about how to operate specific equipment. Routines are the codification into the organization of things learned in the past about how to operate, and thus they embody things learned. Learning can be viewed as the codification of new experiences into routines. In this way, past experiences become accessible to new organizational members. The Philips case shows how members of the design department learn to include ecological aspects into the design process and their subsequent formulation of routines such as eco-design and benchmarking makes this experience accessible to others within the firm. Routines guide the activities performed by the firm. They serve well in stable situations and as long as the dominant coalition stays in place. Also, they are sticky, meaning that once in place, they are difficult to change.30 This contributes to organizational inertia. However, when confronted with new situations, or as a result of changes in the dominant coalition, organizational members may deviate from these routines. They then engage in the process of problem solving: the active dealing with a new situation. Such problem solving may lead to new patterns of behaviour and thus feeds back into the process of learning, resulting in new routines. Alternatively, it may lead to the adoption of routines that are found in the firm’s environment, for instance, through the input from consultancies or via networks of informal exchange among professionals. Seventh Generation shows this process of problem solving in developing its way to reach customers. Its mission provides a clear aim, and when it cannot be achieved through catalogue sales it seeks to develop alternative channels to customers.

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Table 4.3

Creating ecological value

Summary first level of analysis

Level of analysis

Building blocks

firm

elements of strategic perspectives: ● general strategic orientation ● definition of ecological value ● organizational routines ● ecological strategies

dynamics processes of: positioning ● framing ● learning/routinizing ● problem solving mediated through coalitional struggle ●

CONCLUDING REFLECTIONS This chapter contains the first level of analysis of the theoretical framework as identified in Chapter 1. Its main characteristics are summarized in Table 4.3. In the following chapter the external context of firms will be added as the second level of analysis. Before moving towards that I want to share a number of reflections on the ideas presented in this chapter. Strategic Perspectives are Ideal Types As is common in the social sciences the three strategic perspectives should be viewed as ideal types. Firms often will not fit neatly into the stable, dynamic or transformative type. It will be common for firms to exhibit a combination of characteristics of two of these types. This is related to the point raised in Chapter 3 about the grey areas between strategic types. In Chapter 9 this issue will be discussed further, based on the analysis of empirical material. Also, in the discussion of general strategic orientations in this chapter we have seen that the dynamic perspective is based on an orientation that combines existing activities with the development and introduction of new products. Firms will use revenues from existing activities to finance the innovations they develop in order to move along the technological trajectory. As a result the timing of introducing new products is a strategic issue with which such firms are confronted, a point that will also recur in later chapters. Also, the possibility of serving one or more niche markets along a mass market may result in firms displaying a combination of characteristics in terms of the typology.

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What Constitutes a Firm? A second issue concerns the definition of a firm. Generally, it denotes an organization which transforms inputs into marketable outputs with the aim of generating profit. Such organizations range from single entrepreneurs that focus on one product in a single market all the way to multinational conglomerates with a diversity of products. In the latter case such activities are typically organized into distinct business units. This organizational separation corresponds to these activities being part of different production and consumption systems. The strategies of these business units will reflect that specific context. For this reason, in the theoretical framework developed here a firm is defined as a separate organizational unit that operates within one PCS. This implies that in larger companies the constituting business units may develop distinct strategic perspectives. This is corroborated by empirical research.31 Still, in such companies corporate headquarters may seek to centralize certain elements of these perspectives. In the theoretical framework this will be considered as external influence. A special case in this respect is constituted by multinational companies that are organized around geographical business units rather than product-based organizational entities. Such firms can be found in the oil and gas and mining industry. The rationale behind this way of organizing lies in the fact that these activities necessarily need to take place in certain geographical spaces where resources are located. As a consequence they need to be sensitive to local demands in order to ensure stable access to resources. In order to do so they make use of routines that have been summarized in the international business literature under the heading of local responsiveness.32 In terms of strategic perspectives this local responsiveness may translate into divergent approaches to ecological impact: business units that are faced with strong governmental and societal demands develop more dynamic perspectives, while units may build on a stable perspective where such demands are less strong, and the bargaining position of the firm is stronger. The nature and consequences of diversity within organizational boundaries will be further discussed in Chapter 9. Is Stable Bad and Transformative Good? A firm which builds on a stable perspective does not necessarily have a high ecological impact. It may even be that firms working from a dynamic perspective may introduce a product or process that eventually turns out to have a larger ecological impact such as when chemical firms developed detergents to substitute soap in the middle of the twentieth century. In this chapter I have developed the basic typology to include definitions of

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ecological value and ecological strategies which link the stable perspective to greater ecological impact and dynamic and transformative perspectives resulting in lesser or minimal negative ecological effects. Due to this linkage, the dynamic and transformative perspective relates to an explicit attempt to reduce ecological impact, compared with existing products and processes. Calling this ‘good’ or ‘bad’ is of course dependent on the definition of ecological value that is employed by the observer. While a transformative firm may perceive its aims to be aligned with reducing ecological impact, judged from another definition of ecological value it may be considered to disregard crucial impacts. Greenwashing A final remark is in order regarding the often mentioned theme of abstaining from adequately (in the perception of stakeholders or researchers) dealing with ecological impacts combined with continuous references made by the firm to its deeply held values on sustainable development. So-called greenwashing indicates a lack of congruence between the definition of ecological value, on the one hand, and routines and ecological strategies, on the other hand. Here a distinction used in the theory of organizational learning is useful, that is, between theory-in-use and espoused theory.33 The espoused theory is the definition of value as communicated to the public whereas the theory-inuse is the one actually guiding ecological strategies. In this interpretation the espoused theory becomes part of a formative ecological strategy: a communicative attempt to increase the legitimacy of the firm and its activities. Competitive Advantage The elaboration of strategic perspectives also provides an alternative view of the relationship between ecological strategies and competitive advantage. As developed by Hart the natural resource-based view posits that organizational routines related to proactive strategies (dynamic and transformative in the typology developed here) bring competitive advantage. By including general strategic orientation, definitions of ecological value and activities in the strategic perspective the typology suggests that if there is any relationship to competitive advantage, it resides in the interplay between these elements rather than in specific organizational routines only. Furthermore, the formative routines and ecological strategies point out that firms actively shape their competitive context by influencing the definitions of value of consumers and societal stakeholders. Such routines and activities have been found to be an important source of competitive advantage.34 When a firm operating from a stable perspective is able to

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shape this competitive context in such a way that it can continue to operate its current processes and raise barriers to entry it may compete successfully with other firms. Thus, there is no a priori relationship between a specific strategic perspective and competitiveness.

NOTES 1. 2. 3. 4.

5. 6. 7. 8.

9. 10. 11. 12. 13. 14.

15. 16. 17. 18. 19. 20.

Penrose (1995 [1959]). Central publications on the resource-based view are Amit and Schoemaker (1993), Barney (1991) and Wernerfelt (1984). Hart (1995). Empirical studies that build on this theory include Sharma and Vredenburg (1998), Russo and Fouts (1997) and Christmann (2000). For an overview, see Sharma and Aragón-Corea (2005). See Hoffman and Ventresca (1999) for this link with the win–win ideology, which poses more generally that reductions in ecological impact go hand in hand with economic gains. See also Chapter 2 for the historical background of this perspective. The definition of what actually is deemed valuable has been relatively neglected in the resource-based view (Priem and Butler, 2001; Barney, 2001, p. 43). For the natural resource-based view Aragón-Corea and Sharma (2003) propose a contingency approach to deal with this issue. DiMaggio and Powell (1983). These mechanisms play an important role in the evolutionary approach developed in Chapter 8. Meyer and Rowan (1977). Oliver (1997, pp. 697–8). Distinguishing these elements follows an approach within organization studies that seeks to understand organizations as interrelated wholes, rather than as collections of properties that can be studied independently. Several authors have taken an underlying interpretive scheme (labelled in various terms; I use the label ‘strategic perspective’) to be the basis for an organization’s structure and processes. For an overview, see Greenwood and Hinings (1993, pp. 1055–6). I choose not to use the concept of capabilities, with its connection to competitive advantage as made by the resource-based view. While the complete set of routines is more or less unique for a firm, individual routines may be widely shared. Miles et al. (1978, pp. 548–50). Mintzberg (1987). The description of strategic orientations for the stable, dynamic and transformative types is based on Miles and Snow (1978). Their defender, analyzer and prospector types relate to my types quite closely. For other research on the cognitive dimension of firms dealing with their ecological impact, see Heiskanen (2000), Sharma (2000), Bansal (2003) and Hopwood et al. (2005). Of course managerial perspectives need not be congruent for each manager within the firm (see Prakash, 2000; also Halme, 1997 and Johnson and Macy, 2000). In the framework I adopt here I assume that there is such a thing as a dominant definition of ecological value. Later in the chapter I will present the dynamics that lead to such a dominant perception, as well as the ways in which it can become challenged and replaced. Colby (1991). Nelson and Winter (1982). This categorization is inspired by Huber (2004). See Collis (1994) for a related classification of capabilities. Dynamic capabilities have received considerable attention; see Eisenhardt and Martin (2000) and Teece et al. (1997). Prencipe (2003, p. 121).

76 21. 22. 23. 24.

25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Creating ecological value Dierkes et al. (2001) and Sweet et al. (2003). Christiansen and Buen (2002). See Reiskin et al. (2000) and Mont and Tukker (2006). A note on the appropriateness of doing this in developing a framework aimed at understanding higher level processes. March (1962) contains a discussion of this methodological issue. There is a small number of high quality studies that analyse internal dynamics of firms in relation to their ecological strategies: Howard-Grenville (2007), Prakash (2000), Halme (1997) and Strannegård (1998) are good examples. Scanda Metal is a pseudonym. Strasser (1999). March (1962), Cyert and March (1963) and Tushman (1977). Benford and Snow (2000). Levitt and March (1988). See Leonard-Barton (1992), Nelson and Winter (1982) and Teece et al. (1997, p. 515) for an argument about the ‘stickyness’ of capabilities and their relationship to organizational culture and tradition. See Cramer (2000) and Dooley and Fryxell (1999). Prahalad and Doz (1987) and Stopford and Strange (1991). Argyris and Schön (1978). See Boddewyn and Brewer (1994), Baron (1995), Russo and Fouts (1997), Shaffer and Hillman (2000), Dahan (2005) and Salorio et al. (2005).

5.

Shaping strategic perspectives through resource networks

The strategic perspective of a firm is not solely the product of internal dynamics. It is also shaped by the context within which the firm operates: the dynamics in production and consumption systems. Moreover, the strategies that firms execute influence that context. This interactive relationship is at the heart of any definition of strategy. It is especially true for ecological strategies as they concern the interaction between a firm and the natural environment. But such strategies also deal with the ‘social’ environment of the firm: the consumers that populate the markets on which they operate, the regulating authorities that set limits to their products and processes, and societal groups that question their activities. Establishing the link between the firm and its context is a crucial part of the systemic approach outlined in Chapter 1 and covers two levels of analysis: that of resource networks and of the PCS as a whole. The latter will be taken up in Chapter 8; in this chapter the networks of direct relationships between the firm and external actors are explored. But nature as the wider context cannot be ignored.

NATURAL AND PHYSICAL ENVIRONMENT AS WIDER CONTEXT Every firm exists within a physical and natural environment. It needs to be located at a specific place, draws on material and energy resources to be used in its production processes, exports its products and waste streams into that environment, and depends on the operation of ecological cycles. Natural ecologies as well as man-made physical structures thus restrict and shape the operations of any firm. In an organic economy energy and material resources are drawn from the production of materials that result mainly from short- or mediumterm ecological cycles, such as wood, wind, water and plants. Much of our current economic activities make use of energy sources and materials that are derived from organic material that have transformed into oil, coal and gas over long periods of time. These carbon resources can be seen as 77

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a stock that has built up over millions of years and which we are depleting in a time span measured in centuries at most. By using this stock the direct dependency of productive activities on the natural environment is less visible than in an organic economy. On the other side, the dependency on carbon-based resources has allowed us to develop activities at a scale which cannot easily be sustained with organic sources. Our current predicament is that carbon usage may disturb balances in global ecological cycles and for that reason is not metabolically consistent. This issue has gained widespread attention under the label of global warming. In addition, when carbon resources are depleted we face a situation in which the level of activities must be scaled down unless alternative energy sources are developed that enable us to continue our current lifestyles.1 Apart from the link to the long-term carbon cycle, the influence of the natural and physical environment on the activities of firms is evident. The location choices of firms are influenced by the availability and geographic location of natural resources that are used as an input for industrial production, as well as the availability of natural transportation channels, such as waterways and access to open sea. Large industrial complexes have emerged in proximity to places where coal was mined. The depletion of oil resources that can be easily extracted has led firms to develop new technologies in order to extract oil from oil sands. Increased production of waste and population growth has led to alternative waste handling strategies as the space provided by nature is used for other purposes, especially in densely populated countries. I will come back to the direct influence of the natural environment on strategic perspectives in Chapters 8 and 9. In this chapter the focus is on the way in which the social context of the firm connects to its strategic perspective. This includes the influence of the natural and physical environment as it is mediated through social actors. Firms need material resources and technology to achieve their goals, and most of these resources and their uses are controlled by social actors.

RESOURCE NETWORKS AS IMMEDIATE CONTEXT Currently the natural and physical environment influences the firm mainly via the actors that control these resources and specify ways in which they may be used. This set of actors forms the more immediate context in which the firm finds itself. In Chapter 1 I have defined these actors as a PCS: the economic actors (firms and consumers) involved in the production and consumption of a set of products and/or services, as well as the NGOs and governmental agencies that try to influence the activities of these economic actors.

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Of course no firm has direct relationships with all the actors in the PCS. Rather, each firm has a unique position in terms of being connected to a specific set of other organizations in the PCS. These constitute the resource networks of which the firm is part. Such networks are crucial as it is through interaction that other actors exert their influence upon the firm and the elements of its strategic perspective. Resource networks are a consequence of the fact that firms do not control all the resources necessary for their survival.2 They need to draw resources such as labour, finances and materials from their environment. These resources are controlled by other organizations, which translates into power that these organizations hold over the firm. Such power is a function of the centrality of the resource to the firm, the amount of discretion it can exert over employing the resource, and the extent to which the resource is concentrated in the hands of a few outside organizations.3 For an electricity company, a critical resource is the input to its production process such as coal or gas. As its production plant is specialized for one of such energy sources it is a central resource, making the company dependent on the firms that can supply it. This dependency is larger when it can acquire this resource from only a few suppliers as opposed to a large supplier base. Once it has bought the coal or gas, it is not completely free to do with it what it wants; regulations may specify the production process and rules for dealing with resulting waste and emissions. Dependencies reduce the leverage room of the firm and thus its ability to achieve its goals. As a result it may search for ways to reduce dependency. This can be done by reducing the relevancy of the resource, which in the example amounts to develop the means to produce electricity with another input. Another option is to extend control over the actor that controls the resource, for instance, through vertical integration. The example refers to a tangible resource, but the same logic applies to intangible resources such as knowledge and legitimacy. An organization is effective to the extent that it is able to create acceptable outcomes and actions. Apart from the judgement exerted by members of the firm, ‘acceptable’ also refers to other members of the PCS. A crucial resource when dealing with ecological strategies is legitimacy, which is often called the firm’s ‘license to operate’. More formally legitimacy can be defined as a situation in which the activities of a firm ‘are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions’.4 A firm may achieve legitimacy in several ways.5 One way is to adapt its goals and practices to conform to prevailing definitions of legitimacy, that is, to change its activities along the lines suggested by (implicit or explicit) external demands. This may lead to the adoption of specific ecological strategies and/or routines, such as a reduction of an

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emission or the adoption of some environmental management system. Another option is to alter the definition of legitimacy through employing formative strategies. The firm then engages in attempts to change the definition of what is considered to be legitimate. Third, a firm may develop formative and coordinative activities in order to link itself and its activities to become identified with symbols, values and institutions that are generally considered to be legitimate. To the extent that this identification does not go beyond the symbols this constitutes decoupling or ‘greenwashing’ (see Chapter 4). Yet another option for the firm is to end its activities in the society where specific demands are made and move them to another place where legitimacy is defined in a way that is consistent with its activities. A move to a pollution haven is an example of such a strategy. Of course the choice for one of these strategies depends in part upon the organizational routines that are part of the strategic perspective of the firm. No firm is able to respond to all the demands imposed upon it by different actors. As a result dependency relations are managed through ignoring some of these demands and selecting those which are associated with strong dependency relationships. These general insights relate to the formation of strategic perspectives in three major ways. First, in order to implement ecological strategies firms need to acquire resources from organizations in their environment and as a result become dependent on other organizations. These dependencies result in influence on the firm’s strategic orientation, its definition of ecological value, the ecological strategies it pursues and the routines it utilizes. A second implication refers to the situation where a firm supplies resources that are central or difficult to replace to other organizations. This provides leverage that the firm may use to force them to behave in ways advantageous to them. As a result, the firm is able to shape the strategic perspectives of other firms. Third, dependencies have effect only when they are acted upon. This ability cannot be presupposed; it requires coordinative routines that need to be developed. In the following sections I will look separately at dependencies around four resources: material and financial resources, knowledge and legitimacy, which is divided into governmental rules and societal demands. This is an analytical distinction; in reality firms acquire these resources simultaneously through their activities. The implications of the interrelatedness of these four resource networks is discussed in the concluding section. Constructing Economic Relationships/Material Exchanges At the core of a firm’s activities is the exchange of material and financial resources. In pursuing its goals each firm needs to obtain material and

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financial resources that are controlled by producers, trading companies, retailers and financial institutions. Through the production process these resources are modified into products which are sold to other firms and/ or end customers. As a result of these exchanges a firm operates in a web of relationships with various levels of dependency. If an input resource is scarce and can only be obtained from a limited number of suppliers then the firm is highly dependent on them. At the output side firms are more dependent on their customers if their number is smaller and the number of competitors supplying similar products is higher. As a general rule low levels of dependency can be mediated through market transactions whereas relationships of high dependency are managed through more close coordinative structures, such as partnerships, joint ventures or even acquisitions resulting in vertical integration.6 Each of these relationships offers possibilities to exert pressure that may influence the strategic perspective of a firm. Consumers may choose to boycott specific products or producers and thus pressure a firm to change its activities. Firms may use their power over suppliers to adopt specific procedures and threaten to ‘delist’ them from their list of potential suppliers when they do not comply.7 And financial institutions may threaten to withhold their loans or supply them at a higher interest rate if the firm does not conform to demands to deal with the risks associated with their ecological impact. Operative ecological strategies (see Table 4.2) connect directly to the production process and as a result they are subject to considerations of dependency.8 Increased resource efficiency in production, for instance, through using less material per product, has the effect of reducing the dependency on the supplier of that material. Material substitution, as in the case of replacing CFCs, often leads to connecting to a different supplier which may include a shift in the level of dependency. Strategies of material and product recycling usually have as a consequence the establishment of several additional dependency relationships. As they connect the post-consumer phase of the product life cycle to the firm’s operations, these strategies involve relationships with firms collecting discarded products as well as with firms treating the waste and products and modifying them to a state in which they can again be used and sold by the firm. In addition, these strategies involve the end consumer more directly, both in terms of a buyer of products which are recycled or contain recycled parts/ materials, as well as an active player in the process of recollecting used products. The even more transformative strategy of developing product– service systems establishes a different relationship between the firm and its customers. Rather than the firm selling the customer a product, the customer buys a service from the firm, acknowledging that a consumer is

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not interested primarily in a product like a photocopier but rather attaches value to the service it delivers (that is, producing documents). Such a strategy alters the dependency relationship between the two parties, connects them over a longer period in time and involves more aspects than the oneshot exchange of a product.9 The considerable dependency that results from strategies such as recycling needs to be managed. As a result such operative strategies need to be complemented with coordinative strategies and their success depends on the extent to which the firm has the related organizational routines to perform these successfully. In addition, a powerful position towards the new exchange partners is often crucial.10 These general principles may lead to complex dynamics in the chain of economic actors that constitutes the core of a production and consumption system, as is illustrated by the case of OTTO (Box 5.1). This firm used its powerful position towards suppliers to reduce the ecological impacts of its supply chain and thus offer to its customers a ‘green’ product. To achieve this OTTO had to establish new linkages among its suppliers, cotton growers and traders and make them work with routines that minimized the use of chemicals in growing cotton and producing finished clothes. The case shows that coordinative routines are crucial when implementing an ecological strategy of reducing the ecological impact of products. Placing demands on suppliers may provide an incentive for them to translate demands to their suppliers, thus creating a rippling effect throughout the supply chain (the so-called multiplier effect).11 Also, placing environmental demands can increase the dependencies between two firms. In the case of OTTO, its suppliers change their practices to conform to rules defined by this large retailer. This may limit their options to sell products to other retailers, making them more dependent on OTTO. In this sense, power breeds power. In terms of organizational routines, coordinative routines are most relevant here. As the OTTO case shows, the strategy of greening the product and thus conforming to the labelling organization’s requirement involves extensive coordination of the firm with actors along its entire supply chain. Constructing Knowledge12 The importance of innovation for reducing ecological impact has been identified in Chapter 3. Consequently knowledge is a critical resource in analysing ecological strategies and the strategic perspectives of which they are part. Innovations are based on developing knowledge about new ways to alter production processes, products and services in such a way

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BOX 5.1 GREENING THE SUPPLY CHAIN AT OTTO OTTO GmbH is a large German mail order firm which is part of an international company with trade companies in 23 countries. Among the products it sells are clothes made of cotton. From the early 1990s onwards OTTO sought to limit the amount of harmful substances in the clothes it sold as these could have human toxicological effects. They developed an internal standard for suppliers which was close to the general German standard as defined by Ökotex-100. Suppliers were admitted to the pool of suppliers if they could meet these criteria. The demands that were placed concerned the use of harmful chemicals in the production processes of these firms. Deliberations about these criteria were part of the normal communication between OTTO and its direct suppliers. This strategy was based on the power OTTO could exert over these suppliers. With its substantial customer base and given the number of producers of cotton clothes it had no problems in substituting non-complying suppliers with new ones that could adhere to the criteria. In 1997 OTTO decided that it would go beyond this effort and provide organic cotton clothing to its customers. Such clothes were not to cost significantly more than conventional ones and should conform to social and ecological criteria in all phases of the product life cycle, from the growing of cotton to the production of clothes. At that time no supply chain existed that could deliver products that met the demands of OTTO. The firm thus decided to convince a small number of suppliers to join in this effort to become sustainable and built up long-term relationships with them which included support for building the necessary know-how. Also, OTTO took on the responsibility to find and select firms in earlier stages of the supply chain that already had the ability to produce sustainable cotton. It then acted as a coordinator to establish linkages among these and its direct suppliers. For some time OTTO was thus coordinating transactions along all steps of its supply chain. After some time the new relationships were established and OTTO could stop its role as central coordinator. Source:

Based on Goldbach et al. (2003), and Goldbach (2003).

that ecological impact is diminished. Such knowledge can result from the process of problem solving as discussed in Chapter 4, where a firm seeks to reduce a specific ecological impact beyond a level previously achieved. Also, learning processes that result in new organizational routines constitute the development of knowledge. Although firms may develop new knowledge in isolation it is common for them to depend at least partially on knowledge exchange with other firms as well as actors such as knowledge institutes. This is a consequence

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BOX 5.2

KNOWLEDGE DEVELOPMENT ON WIND TURBINES IN DENMARK

In the late 1970s a national programme was established to determine in what way wind energy could become a part of the Danish energy system. Originally it was envisioned that utilities would own and operate large-scale wind turbine parks and a university and a research centre were to develop the necessary knowledge. At the time several alternative technologies existed which were thought to be viable options. During the 1980s several large turbines were built and tested in partnership between utility firms, the Danish government and research institutes. However, by the early 1990s technological problems were still serious and no large company was interested in bringing them to the market. More or less independent from this national programme a network emerged which consisted of grassroots movements and small entrepreneurs. They worked from the vision of small, locally owned and governed electricity generation through wind turbines as an alternative to the fossil fuel and nuclear energy-based plants that were planned by the large utility companies. By the end of the 1970s about ten small companies had developed which were competent mainly in manufacturing machines. They developed the necessary knowledge through trial and error learning and exchanged experiences with users individually or through collective meetings. The Danish Windmill Owners Association, which organized users of this new technology, regularly published comparisons of different turbine types and thus provided an incentive for improvement. Around the same time the research centre needed to prove its usefulness to manufacturers in order to obtain future funding. As a result it focused on developing the wind turbine industry, building on the small-scale initiatives that had developed. As most manufacturers in this network used a similar technology the exchange of experiences was facilitated. Source:

Based on Kamp et al. (2004) and Karnøe (1999).

of the fact that many innovations involve the activities of more than one firm and consequently each of these needs to develop its knowledge base. Also, learning is facilitated when a firm is confronted with others that have different experiences and worldviews: it requires some cognitive distance. This distance should not be too large however; some proximity is required in order for partners in knowledge development to understand one another. In other words, both partners need to speak the same language which allows them to exchange and discuss new ideas. An example of such exchanges in the development of renewable energy is the development of knowledge around wind turbines in Denmark (Box 5.2). It shows that even if firms are competing to develop a market for their products

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they still develop networks which facilitate joint knowledge development and exchange. The case furthermore indicates the relevance of other actors that may have an interest in facilitating the exchange of knowledge. Several researchers have pointed out the relevance of creating knowledge networks for firms in developing their ecological strategies.13 In their work the consequences of such relationships in terms of dependency are not discussed. Knowledge development creates dependencies in part because it requires an investment into a relationship with a specific partner in order to achieve such proximity as well as the creation of a basic level of trust. In the course of such a partnership information that is competitively sensitive may become known to the partner, who can threaten to leak such information to competitors or use it for its own benefit. These considerations point out the relevance of specific organizational routines that enable firms to shape resource networks around knowledge. Apart from general coordinative routines that are needed to create and maintain such relationships a firm needs to be able to manage the appropriation of knowledge. In some cases this means transmitting knowledge to other actors in an effort to create an industry standard based on the technology developed by the firm. In other cases it means the prevention of knowledge spill-over to others that may harm the position of the firm. Also, firms need to be able to absorb knowledge that has been developed in partnerships.14 The cases of three US-based automotive assembly plants given in Box 5.3 illustrate the diverse ways in which firms can manage their relationship with suppliers, involving them in developing knowledge to reduce the ecological impact of their production process. The degree to which a partnership is developed has consequences for the extent to which such a reduction is accomplished. The description of the more intensive partnership of plant A also indicates the dependency side of this success; by becoming an in-house supplier, the mutual dependency increases substantially. Constructing Rules Commonly agreed upon rules are the explicit and formal manifestations of legitimacy. They describe what is deemed appropriate and what is not and thus communicate limitations to the behavioural options of firms. Rules may originate from governmental agencies or legal proceedings but they can also be instituted by industry associations or other arrangements to which actors submit themselves. Rules deal with resources in the sense that most of the time they specify the usage of material/physical resources (including air, soil and water into which pollutants are emitted) and knowledge (for instance, through

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BOX 5.3

MANAGING THE LEARNING PROCESS WITH SUPPLIERS IN THE US AUTOMOBILE INDUSTRY

Most of the emissions to air associated with automobile production occur in the paint shop where new cars receive their various layers of coating materials. Emissions of so-called volatile organic compounds (VOCs) are regulated in the US, which has led firms to look for alternatives. Geffen and Rothenberg compared the way in which three of such facilities, each of them adopting water-based paint, managed their supplier relationship over the period 1989–95. Plant A had gained positive experiences with an in-house supplier for solvents. When the plant was remodelled in 1993 for the production of a new vehicle type, it was decided to move to water-based paint and again work with an in-house supplier. The partnership gave the supplier responsibility over parts of the paint process and also committed them to the environmental goals of the facility. A percentage of savings that would result from improvements would go to the supplier. After one year it was already clear that the supplier contributed substantially to the improvement of operations and the realization of environmental goals, based on the on-site presence and resulting knowledge of the production process. The supplier was also connected to the plant’s management structure through reporting to the environmental manager. In this relationship the supplier was motivated to solve problems that occurred at the facility rather than sell existing products to it. The production process at plant B was designed for a water-based painting process. The facility is organized into distinct business units that have specific tasks. Suppliers entered into contracts with separate business units whose focus was on costs, productivity and product quality. Several suppliers supplied the materials for the painting process and were paid based on product sales. In 1992 the plant commissioned one supplier of cleaning materials and solvents to look at the operations and develop ways of reducing VOC emissions. As a result the supplier developed a reclamation programme for solvents which recovered 70 per cent of the solvents used at the plant. Plant C had an established production process and in 1990 introduced water-based paint to reduce VOC emissions which it purchased from several suppliers. The plant had typical arms-length relationships with these competing suppliers; although they were invited to suggest improvement options the relationship mainly consisted of a monetary exchange for materials, based on quality and volume. The different relationships that plants had with their suppliers correlate with their achievements in reducing VOC emissions, with plant A showing the highest reduction, plant C the lowest and plant B scoring in between. After plants A and B developed collaborative relationships with their suppliers their emissions were reduced. The in-house relationship at plant A gave employees direct access to the knowledge of its supplier while the supplier could develop insight into the details of the painting

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process. This allowed the supplier to make tailored suggestions and develop its products based on that knowledge. While relationships with suppliers were less close at plant B, commissioning the solvent supplier to develop options for VOC reductions still led to a substantial reduction of emissions. Source:

Based on Geffen and Rothenberg (2000).

patent laws). But rules can also be seen as a resource in themselves as they may offer barriers to competitors.15 Even though rules apply generally, as a result of differences among firms they may have different consequences for individual firms. Larger firms may profit from stricter regulations when the cost of compliance is a small percentage of their budget while smaller firms need to invest a large percentage of their financial resources. Also, firms operating in different geographical markets may suffer from rules that give advantage to firms that are based in what is for them a foreign market. These examples illustrate that the ability to control the formulation of rules can affect firms’ strategies in important ways.16 For this reason formative strategies and organizational routines have been included as part of a firm’s strategic perspective. Governmental regulation has a definite influence on the ecological strategies of firms. Surveys of influence on dealing with ecological impact consistently rank governmental agencies among the most important stakeholders.17 Due to their legal ability to enforce rules their demands need to be considered. However, enforcement through agencies is a complicated process and the interaction between enforcement officials and managers from production plants shapes to a considerable extent the actual application of rules in concrete situations.18 Thus, rules do not directly limit the behavioural options of firms. Depending on the characteristics of the process of formulating and enforcing rules they are known to firms and provide incentives to follow, influence or ignore them. Given the difficulties of enforcement, governments may seek to influence the activities of firms through other policy instruments, such as the use of taxes and subsidies as a way of altering the incentive structure of firms and communicative instruments to change the definition of ecological value employed by firms.19 One example of such alternative instruments are disclosure programmes in which firms submit information about their emissions into a publicly accessible database.20 As a consequence of the potential of (governmental) rules to influence the activities of firms an important aspect of ecological strategies is the attempt to influence their formulation and actual implementation. As governmental agencies and politicians have the ability to control the use

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of resources by firms their choices are subject to individual and collective attempts from firms to influence decisions on the application of environmental policy instruments. A recent example is the process through which the EU developed new legislation to regulate the introduction of new chemicals. As rules on this topic have large implications for the strategy of chemical firms as well as for possible protection of ecosystems and human health this process was subject to substantial lobbying activities of both firms and environmentalist groups (Box 5.4). This case shows how lobbying involves a combination of formative and coordinative organizational routines and strategies. Formative routines are important as they relate directly to the ability to influence the shaping of definitions of what is considered to be legitimate through strategies of lobbying and influencing public opinion. In order for these activities to be successful it is usually required that the firm engages in collective action with others to build a coalition that is strong enough to put pressure on agencies formulating or implementing rules. As a result business associations are important for firms in providing a platform for such coalitions. Membership of such associations also establishes a dependency relationship which varies in the extent to which the firm can dominate the association. This links to coordinative strategies and organizational routines. The case of REACH also shows that firms, especially when acting in concert, can have considerable influence over the eventual shape that governmental regulation takes. This is partially based on their ability to engage in formative and coordinative strategies, but it also reflects the value that is attached to the position of these firms in the national economy. In addition to rules established by governmental agencies, interacting private actors may develop rules to govern their own activities: codes of conduct and standards that specify acceptable ways of acting. The international standard on environmental management issued in 1996 is an example of such self-governance (Box 5.5). The standard has been developed to a great extent by representatives of industry but also by consultants. The latter play an important role as they are instrumental in the implementation process of the standard at individual firm sites. In several cases separate units of consultancy firms also operate as independent auditors and are thus involved in the monitoring of the standard. Self-governance is often related to governmental regulation in the sense that private actors develop rules under the threat of regulation.21 In this way the ability of government to control the use of resources by firms is translated into an incentive to firms and their associations to develop their own set of rules and ways of enforcing them. This mechanism blurs the distinction between governmental and private rules. Every firm is connected to various other actors in a resource network

Shaping strategic perspectives through resource networks

BOX 5.4 REGULATING CHEMICALS IN THE EUROPEAN UNION The production and marketing of new chemicals has long been a focus of governmental regulation. Given their potential to disrupt ecological cycles new chemical substances are surrounded by substantial uncertainty. Within Europe several national governments have sought to develop procedures for reducing this uncertainty and thus regulate the entrance of newly developed substances by chemical firms. As various national regulations on this issue might result in market barriers, firms, and also the EU, have entered this discussion. During the 1970s extensive lobbying took place at the European level to influence the intention of the European Commission to develop common procedures for its member states. This resulted in a formal decision in 1979 which left considerable freedom for individual member states to develop national legislation. In 1998 the European Commission decided to start the development of a new chemicals policy which would be more coherent and would be based on the precautionary principle and sustainable development. In 2001 a White Paper was presented which stated the objectives of this policy. These related partly to preventing ecological harm but also reflected economic and trade requirements. The policy was named Registration, Evaluation and Authorization of CHemical substances (REACH) and the key element was that no chemical could be marketed within the EU without the supply of certain data on its characteristics, including ecological impact. This increased the responsibility of industry to provide data concerning its products prior to marketing them as compared with the existing situation where many chemical substances were introduced without information on their impact. Representatives of individual firms as well as industry associations voiced their concern against the White Paper. According to industry the data requirements would entail excessive costs and loss of competitive position towards companies outside the EU. These concerns were summarized in press releases and media reports in order to influence public opinion. Industry associations also used several scientific conferences to discuss the implications of the proposed regulations. However, industry was in favour of replacing existing regulations which were seen as excessively bureaucratic. In 1998 CEFIC, the European chemical interest association with national associations as well as large multinational companies (MNCs) as its members, proposed a voluntary programme to provide information on a thousand chemicals with a large production volume. In several cases national industry associations formed coalitions with national governments and trade unions to strengthen their position in this process of influencing new European rules. An illustration of such a successful coalition is the fact that in the official stakeholder consultation process the German chemical industry association delivered a position paper together with its national government. National ministers have a

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Creating ecological value crucial role in the EU decision-making process and in countries with a strong chemical industry there are close relationships between economics ministries and industry. This provides an important route of influence in addition to lobbying members and civil servants of the European Commission and members of the European Parliament. NGOs such as Greenpeace and the European Environmental Bureau supported the proposed legislation and tried to counter the arguments of industry through an awareness-raising media campaign. They also built a coalition with several members of the European Parliament as well as some national Environmental Ministers. Opposition from industry as well as some individual member states led to the need for additional consultation by the European Commission. In 2003 industry associations as well as several member states were able to get substantial media coverage of several studies stating that REACH, in its proposed form, would lead to excessive costs for industry. Later that year the European Commission provided amendments to its original proposal that were generally seen as giving in to the arguments of industry. Source: Based on Pesendorfer (2006) Boons (1992) and Corporate Europe Observatory (2005).

which deals with the construction and enforcement of governmental or private rules. Even if the firm complies to these rules, it needs to engage with these actors in the process of enforcement, where the specific consequences of the rules for the firm are made clear. If a firm seeks to influence the formation of rules, it becomes engaged in relationships with rulesetting actors, as well as with other firms with which it can form coalitions to strengthen its position. Constructing Collective Perceptions and Societal Demands While rules constitute a concrete manifestation of what is considered legitimate action for a firm, they also need to deal with the more diffuse process through which collective perceptions of legitimacy are shaped within the PCS and society in general. Public perceptions of what constitutes legitimate action can be seen as the external corollary of the definition of the ecological value of a firm. They consist of specific ways of looking at the ecological impact of the firm and acceptable ways of dealing with this impact. While the definition of the ecological value of a firm is shaped through the internal dynamics of framing, such framing processes are influenced by the perceptions of organizations on which the firm depends as well as those of the general public acting as consumers and constituents of political actors. Two basic mechanisms connect the internal framing process with that

Shaping strategic perspectives through resource networks

BOX 5.5 ISO 14001: AN INTERNATIONAL INDUSTRY STANDARD FOR ENVIRONMENTAL MANAGEMENT The International Standards Organization (ISO) was established in 1946 to set technical standards for industry to facilitate international trade. Its members are national standard setting bodies, which in developed countries tend to be dominated by industry associations. In response to the development of national standards for environmental management which might impede international trade, ISO decided in the early 1990s to establish an international standard: ISO 14001. In 1996 a technical committee issued the results of its deliberations. Rather than setting performance criteria and emission levels this standard comprises guidelines for environmental management. Besides a general set of guidelines specific criteria are set for practices such as ecolabelling and life cycle assessment. The general guidelines include criteria on an environmental policy statement, compliance with all applicable regulations, a commitment to continuous improvement and pollution prevention, and encouragement of suppliers and contractors to conform to ISO 14001. Firms can claim to conform to the standard based on their own auditing procedures but ISO strongly encourages them to be certified and audited by an independent third party. In December 2007 154 572 certificates had been issued in 148 countries. Confirming to ISO 14001 is costly. Firms have to acquire a certification for each of the sites where they are active, which involves substantial implementation costs. In addition, annual recertification based on auditing is required. There are several reasons for firms to submit to ISO 14001. One is that it provides a reputational good: an ISO certificate communicates to external parties that the environmental management of a site conforms to a set of well-known criteria. This seems to be especially valuable in the relationship between a firm and governmental agencies. Firms may also be induced by their business customers to conform to ISO 14001. This mechanism is built into the guidelines. Note: ISO 14001 is not a perfect example of self governance, as governmental agencies have played a role in their inception, and some national governments use ISO 14001 as a basis for national standards. But as their formulation has been dominated by industry (mostly from developed countries) and auditing is done through private organizations, it can be taken as an example of selfgovernance. Source: Based on Potoski and Prakash (2005), Clapp (1998), Poksinska et al. (2003) and ISO (2008).

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of the formation of external collective perceptions. First, through continuous interaction with the organizations on which the firm depends, as well as interaction with other firms in the same PCS, perceptions of problems and appropriate solutions converge to create shared points of view and values. This is the process of institutionalization.22 To some extent this is an ‘unconscious’ process which is not intentionally directed by the actors involved. As noted in Chapter 1, the firm faces uncertainty concerning the ecological impacts of its activities and the way these are perceived by others. To reduce this uncertainty managers look for information and confirmation of their views and judgements at similar firms and other organizations whose views they consider to be of importance.23 Through this process of interaction shared definitions of ecological value emerge. As a result we may find consistency in the way in which managers of firms within a sector of industry perceive ecological impact. Such perceptions are ‘taken for granted’ in the sense that they are unquestioned mindsets.24 The persistent way in which the vast majority of firms in the US mining industry looked at their ecological impact shows the way in which such collective perceptions originate and are maintained over time (Box 5.6). A second process is driven by intention. Existing definitions of ecological value and the actions that are based on them may be challenged by organizations that seek to alter the firm’s strategic perspective.25 They may do so directly by placing demands on the firm, or do so indirectly through influencing public opinion and policy makers. When, for instance, environmentalist groups or consumer initiatives succeed in contesting existing definitions of ecological value the firm becomes dependent on them. The Brent Spar case with which Shell UK was confronted in 1995 (Box 5.7) is one of the most well known examples of the interaction between a firm and other organizations in which the legitimacy of its activities was defined. But dependency can also tilt to the other side as firms may employ their formative organizational routines and strategies to try and influence what is considered legitimate. They thus try to transmit their definition of ecological value to other organizations by moving the collective perception of legitimacy into the direction of that of the firm. Such strategies are especially relevant from a transformative perspective, where a new product system is introduced, and needs to acquire legitimacy from consumers, the public and governments. The construction of definitions of value does not imply that firms will necessarily converge through interaction to become more similar in terms of the frames they employ. As organizations within a PCS interact with one another they may also find that they hold to definitions of ecological value that cannot be reconciled. Continued interaction may then result in the development of two or more conflicting sets of collective perceptions.26

Shaping strategic perspectives through resource networks

BOX 5.6 THE US MINING INDUSTRY AND THE NATURAL ENVIRONMENT, 1850–1950 Extracting mineral resources, such as coal, metals and uranium, from the earth has traditionally led to a wide range of ecological impacts. Apart from the sometimes devastating disruption of landscapes, mining activities have led to the pollution of waterways as tailings and other waste were discarded and hydraulic force was used to separate the minerals from the soil. Drainage water from mines, during their productive period as well as after their abandonment, has contributed to streams being polluted to such an extent that ecosystems were completely destroyed. Treating the extracted ore often led to substantial air pollution and large areas in the vicinities of mines were deforested to make prospecting easier and to supply fuel and wood for mining operations. By 1900 the industry was highly industrialized but technological advances were geared almost exclusively to increasing the efficiency of extraction rather than dealing with ecological impacts. These activities were supported by a definition of ecological value that can be considered as an elaboration of the ‘frontier economy’ paradigm presented in Chapter 4. While this collective frame became firmly established among the firms that made up the industry it was also the frame of reference for the general public and governmental agencies that were confronted with mining activities. This definition became established in the second half of the nineteenth century and basically was maintained unaltered until the late 1950. The definition of ecological value was based first of all on the individualism of the first explorers. Their collective ‘fever’ was admired as part of the frontier economy of the West and nothing but the success of discovering new sources was valuable for them. In these early activities the transitory nature of mining was another essential characteristic. As soon as an area was exhausted miners left to discover the next one, leaving behind their waste and discarded buildings without considering the future of the land. For a long time it was assumed that new finds would continue forever. Any idea of a limit to mineral resources was discarded. Second, minerals were viewed as a major source for progress and prosperity on which a rapidly industrializing US society depended. This was accompanied by an acceptance of the negative side effects of mining which were often presented as negligible, for instance, by pointing to the limited land area that was affected as compared to the whole size of the US. An additional argument was that after mining for minerals, the remaining landscape was more suitable for activities such as agriculture than it had been before. During the early decades of the twentieth century criticism was sometimes raised and individual owners of mining companies sought to remedy the ecological impact of their activities, for instance, through reclamation. But such alternative approaches were few and far between. This was first of all a result of general support for the definition of ecological value by the public as well as governmental agencies. To the extent

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Creating ecological value that mining became subject to regulations they were geared mainly towards establishing clear property rights. Local governments also did not develop regulations to reduce ecological impact. Their main concern was the economic gains that could be made. Within the judicial system judgements often leaned towards the business perspective. A second reason for the prolonged existence of this definition of ecological value is the lack of attention that was given to the ecological impact of mining in the educational programmes for mining engineers. For a long time these impacts remained poorly understood by most of the professionals working within the industry. Source: Based on Smith (1993).

BOX 5.7

SOCIETAL DEMANDS IN ACTION: THE BRENT SPAR CASE

Perhaps the best-known case of contested views and values is the conflict between Shell UK and Greenpeace International over the Brent Spar. This large oil storage buoy was used by Shell UK from 1976 onwards to store the oil that was extracted from its Brent fields in the North Sea. In 1991 the Brent Spar was taken out of operation as Shell found renovation not to be economical. Shell then performed a number of studies to assess the economic and ecological impact of several options which included various ways of dismantling, on-shore disposal and deepwater disposal. Based on these studies formal consultations took place with the UK government, conservation bodies and fishing interests. These led to the establishment of a best practical environmental option: deepwater disposal. In February 1995 the UK government announced that it would approve this option. Initially this did not lead to objections from the EU and its member states. Although it had been campaigning for many years against dumping at sea Greenpeace was not involved in the consultations regarding the various options for dealing with the Brent Spar. Greenpeace, an independent international NGO with 3 million members worldwide and a reputation for attention-raising public actions, opposed deep sea disposal. It disputed the environmental assessments made by Shell and stated that ecological impact would be substantially larger than presented by Shell. It also viewed this case as a potential precedent which could open the door to more of such practices. In addition the symbolic value of allowing Shell to dump this large construction into the sea was a major motivation. In an interview one Greenpeace member stated: ‘if one of the largest and richest multinationals in the world can get away with dumping at sea something as big as the Brent Spar, what is the message that it sends to the rest of the world?’ On 5 May 1995 members of Greenpeace occupied the Brent Spar, unleashing an enormous amount of publicity. As a result politicians,

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consumers and governments declared that they were against the dumping of the Brent Spar. Greenpeace also successfully advocated a boycott of Shell throughout continental Europe. In some cases public concern translated in people causing physical damage to Shell petrol stations. On 20 June Shell UK decided not to sink the Brent Spar. It continued to express its view that disposal was the best practical environmental option but admitted a victory of ‘the heart over the head’. Following this decision there were new rounds of discussions and consultations among an enlarged set of stakeholders. Eventually, the Norwegian government allowed Shell to station the Brent Spar in its territories and parts of it were used to construct a new quay at Mekjarvik. The conflict had wider implications. First of all, it led to the adoption in 1998 of a ban on the dumping of steel off-shore installations in the North-East Atlantic and the North Sea by OSPAR, a commission for international cooperation on the protection of the marine environment of the North-East Atlantic. Second, the conflict was instrumental in leading Shell to reconsider the way in which it dealt with societal demands. Finally, despite being successful in preventing the dumping of the Brent Spar, the conflict had a backlash on Greenpeace as well. During the occupation members had taken samples from the storage tanks and estimated that they contained over 5000 tonnes of oil. It turned out that the estimate was incorrect. When Greenpeace announced this mistake it undermined its position as it allowed some of the participants to conclude that Greenpeace did not have its facts on the Brent Spar right. Source: Based on: Zyglidopoulos (2002), Livesey (2001) and http://www.green peace.org/international/about/history/the-brent-spar (accessed 19 July 2008).

CONNECTING RESOURCE NETWORKS: ORGANIZATIONAL FIELDS The four types of resource networks cover the various direct relationships in which the firm engages. Through these relationships the strategic perspective of the firm is influenced and the firm may try to diffuse elements of its strategic perspective to other organizations. The direction of influence and its effect is mitigated through the level of dependency between the organizations involved. The specific type of perspective a firm enacts (stable, dynamic or transformative) cannot be linked in any simple way to specific sets of resource dependencies. For each perspective the firm will need to draw on material and financial resources, knowledge, rules and collective perceptions. There is a modest relationship with the various kinds of organizational routines and strategies though. Operational strategies and routines connect directly to material resources while formative strategies and their related routines

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link primarily to the rules and collective perceptions. Coordinative organizational routines are relevant in all resource networks as they are crucial in shaping the way in which the firm manages its dependency relationships across the range of resources. These excursions into networks of knowledge, rules, collective perceptions, and material and financial resources show the interactions that result from the need of a firm to draw resources from its natural and social context. For that purpose it has been useful to focus on one resource type at a time. In reality, however, firms are engaged in multiple transactions which cover a large set of resources. This means that these networks can overlap considerably as the same organizations exercise control over more than one resource central to the firm. For instance, a firm obtains material resources from suppliers, but at the same time needs to connect with the supplier to develop knowledge on process improvements, such as in the case of the automotive paint process. Similarly, networks of societal demands and networks of rules often overlap as rules are the more formal manifestations of such demands. Moreover, knowledge development is connected to both rule formulation and the construction of collective perceptions in providing information. This is shown in the case of REACH where networks of rule construction are interconnected with those on developing (scientific) knowledge on the exact effects of these substances and their proposed alternatives. Conceptualizing the firm as embedded in a number of such overlapping networks allows us to draw conclusions on two issues: (1) the way in which firms deal strategically with overlapping networks and (2) how interactions around resources over time result in the creation of organizational fields. 1.

Due to its dependency on resources outside its control the firm has to react to demands made by the actors that control these resources. This reaction is shaped by the extent to which these actors have power over the firm. Conversely, if the firm has power over the actors from which it draws resources it may be able to shape its resource networks in ways favourable to itself. In that respect the diversity in demands placed upon the firm is of relevance.27 Demands from different actors may be surprisingly consistent as in the case of environmental management systems. Such organizational routines have developed over the past two decades as systematic approaches to planning and monitoring the ecological impacts of production processes. Environmental management systems have become subject to self-regulatory standardization processes through EMAS and ISO. General standards are further specified

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2.

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for sectors of industry to include dominant definitions of ecological value. Suppliers and consumers may demand a firm to adopt such a standard, but governments in several countries have also made it part of their demands. In such situations the firm can satisfy the demands from several organizations relatively easily. In other cases multiple resource dependencies may result in conflicting opportunities and constraints on the firm’s activities. Firms can deal with this situation in different ways. One is connected to the earlier observation that a firm is not a unitary actor but can be viewed as consisting of subunits with some autonomy. This opens up the possibility of dealing with competing demands by various subunits, where each unit deals with a specific demand. This may result in what has been identified in Chapter 4 as decoupling or greenwashing.28 This is a specific instance where the firm operates according to the demands that govern material and financial exchanges while it communicates a different image of its activities to satisfy actors in order to obtain legitimacy. Another possibility is that the firm uses demands from one organization as an argument not to be able to conform to the demands of another organization.29 The theoretical framework thus allows us to analyse the strategic perspective of a firm as a result of the interplay among the internal dynamics discussed in Chapter 4 and the complex manoeuvring in overlapping resource networks. Depending on its relative power position towards other organizations (which is based on its resource position compared with others), as well as its operative, coordinative and formative routines, it will be more successful in shaping rather than being shaped by external influences. Each firm in a PCS connects to other organizations through resource networks. As a result the PCS consists of a myriad of relationships. These relationships form distinct patterns in the sense that they constitute identifiable organizational fields. Such fields consist of a set of actors that, through increased interaction, establish a shared awareness that they are related to one another.30 The actors within the field see themselves as involved directly or indirectly in the production of certain products and services, agree more or less on who is considered to be part of the field, and share basic values on appropriate ways of acting within the field as well as ideas about how the system is structured.31 A PCS as defined in Chapter 1 is usually too large to fit within this definition. Instead, it is made up of several organizational fields. Within a PCS the boundaries of organizational fields will often adhere to geographical boundaries as markets and legal jurisdictions

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Table 5.1

Summary of levels of analysis in Chapters 4 and 5

Level of Analysis

Building Blocks

Dynamics

Firm

elements of strategic perspectives: ● general strategic orientation ● definition of ecological value ● organizational routines ● ecological strategies networks of exchange around: ● materials/energy ● knowledge ● rules ● societal demands

processes of: ● positioning ● framing ● learning/routinizing ● problem solving mediated through coalitional struggle

Resource networks

shaped by differential dependencies between the firm and external actors; mediated by the firms’ coordinative abilities

within such boundaries are relatively consistent. As a result, looking at a global PCS like that of electronic consumer goods will reveal that geographical boundaries divide the system into identifiable organizational fields with their own specific consumption patterns, public discourse, systems of rules and patterns of knowledge creation. But as a result of interaction among firms within international supply chains organizational fields may emerge that cross geographical boundaries. Thus, the specific way in which a PCS is structured into organizational fields is an empirical question. An important indicator is the way in which actors within the PCS themselves view the larger system.

CONCLUSION In this chapter I have presented a way of looking at the intermediate level of analysis explored in this book: the direct relationships in which a firm engages when dealing with its ecological impact (Table 5.1). Through connecting with external actors in resource networks the firm enters into relationships that may influence elements of the strategic perspective of the firm; alternatively these relationships may serve the firm to achieve its goals by influencing external actors. The direction of influence is determined by the relative dependency position of the firm towards external

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parties as well as developed coordinative routines and strategies that enable it to exploit favourable dependency relationships. The intermediate level of resource networks links to the macro level of the PCS in the following way. As each firm in a PCS interacts with firms and other actors in resource networks they collectively create patterns of interaction that can be viewed as organizational fields with distinct boundaries. In Chapter 8 an evolutionary approach will be presented which defines the mechanisms that operate at the level of such fields. These mechanisms explain convergence and divergence of such perspectives and their constituting elements at the level of the PCS. This brings us full circle to the questions posed at the outset of Chapter 1. To facilitate understanding of the interplay of these levels of analysis, the next two chapters present two larger case studies of firms within the context of a PCS. They show the viability of the ideas put forward up until now and also serve as a source of questions to be taken up in Chapter 8.

NOTES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

Catton (1980). The perspective developed here draws on resource dependency theory as originally formulated by Pfeffer and Salancik (1978). Pfeffer and Salancik (1978). Suchman (1995, p. 574). Dowling and Pfeffer (1975) and Oliver (1991). Look at Meisner-Rosen et al. (2000) for a transaction cost perspective on such relationships. Green et al. (1996, 1998, 2000). This section builds on Boons (2002). See Reiskin et al. (2000) and Mont and Tukker (2006) for an elaboration of this strategy. See Hall (2000, 2001). Preuss (2001). This section draws on the work of Nooteboom (2000a, 2000b), which connects learning with a dependency perspective. Clarke and Roome (1999), Weber and Hemmelskamp (2005), Roome and Wijen (2006) and Hart (1995). See Cohen and Levinthal (1990). Baron (1995). Mahon and McGowan (1996). See, for instance, Henriques and Sadorsky (1996) and Johnstone (2007). Fineman (1998). See Jordan et al. (2003) for an overview. Tietenberg (1998). Cawson (1985). Zucker (1977) and Oliver (1997). Spender (1989). Ibid. Galvin et al. (2004).

100 26. 27. 28. 29. 30.

31.

Creating ecological value Alford and Friedland (1991). Oliver (1991). Meyer and Rowan 1977. Oliver (1991). DiMaggio and Powell (1983, p. 148) define such fields as ‘those organizations that, in the aggregate, consitute a recognized area of social life: key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products’. See Scott (2008, chapter 8) for an overview of research using this concept, as well as its antecedents. Galvin et al. (2004).

6.

The coffee PCS

The preceding chapters contain building blocks of the theoretical framework that enable an analysis of the strategic perspectives of firms in the context of resource networks and organizational fields that make up a PCS. So far, concepts have been illustrated by examples drawn from a diverse selection of firms, industries and countries. But the value of the framework lies in its comprehensive application to larger segments of production and consumption systems. To underpin this claim, this chapter and the next contain two larger case studies in which the connection between the strategic perspectives of firms and the context in which they take shape are analysed. These cases also provide insights that will be used in Chapter 8 to complete the theoretical framework by specifying the mechanisms that operate at the level of the PCS. The two cases are the coffee and automobile PCS. While each of them is unique in many ways they share a few important characteristics that led me to choose them. First, the ecological impact of the production and consumption of both coffee and automobiles has been a topic of discussion among scientists, policy makers and practitioners. This led to a lot of published material that provided a basis for case development. Second, in several countries ecological impact has in recent years become a competitive issue for the firms that sell coffee and automobiles to end consumers. Given the ongoing discussion about the extent to which ecological impact can be reduced through markets and competitive selection this is an interesting feature.1 A PCS is too large to study in its entirety; it is not possible to cover in sufficient detail all the geographically dispersed phases of a product life cycle. Thus, as a researcher one needs to draw a boundary around a part of the system which can be considered to be relevant and which proves in the course of the research to contain the elements necessary for understanding the phenomena that one seeks to address.2 Both cases are presented in the following way. I first introduce the PCS and describe the boundary I have drawn within it to delimit my analysis. Second, I describe the elements of the strategic perspective of a number of firms, relevant resource networks in which they are engaged and changes in these over time. These are then put into context by describing the relevant organizational fields in which these firms operate. Finally, I analyse 101

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the connections between firm perspectives, resource networks and organizational fields. In Chapter 8 the third level of analysis will be specified, and will be used to provide a further analysis of both cases in terms of evolutionary dynamics.

THE COFFEE PRODUCTION AND CONSUMPTION SYSTEM During the sixteenth century the coffee plant and a beverage extracted from the beans of its cherries spread through the Arab world, where it was discovered by Western travellers.3 It spread to cities such as Venice, Marseille and Lyon before arriving in Paris. There it became a success, spawning the establishment of a large number of cafés where the new beverage could be consumed. For some consumers coffee was a drink with medicinal qualities. For others drinking coffee was a social gathering. Still others drank it to prolong their working day. During the eighteenth century consumption spread throughout large parts of Europe, made possible by increased production as coffee plantations were established in the colonies. Around 1900 a disease destroyed many of the plants in Ceylon and other countries in the East Indies. As a result Brazil became the world’s major producer, growing 70 per cent of the world demand for coffee. During the twentieth century other major producing countries emerged, such as Colombia, El Salvador and Guatemala in Latin America, Kenya, Ivory Coast and Uganda in Africa, and later Vietnam in Asia. In terms of trade value coffee is one of the most valuable commodities exported from tropical countries. In some of these countries, like Brazil, production is organized in large plantations. But in many other countries coffee is grown and harvested by small subsistence farms which are sometimes organized into collectives. Through a trade chain that involves several steps green beans are bought by roasters. This step in the product chain is dominated globally by four firms: Sara Lee, Nestlé, Kraft and Procter & Gamble. These firms roast the green beans and process the coffee into marketable products which are sold through retailers, contracts with restaurants and business customers, and coffee shops. Consumption patterns and related structures of coffee sales differ considerably per country. Amounts vary from small cups of espresso to large mugs, and while in many countries it is associated with refreshment and a stimulant to work, for others it is an accompaniment to social gatherings or individual moments of rest.4 For producing countries coffee has often been a major, or even the only, source of foreign currency. As a result national governments

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have traditionally been involved in attempts to set prices. For a considerable period this was successful, most recently until 1990 through the International Coffee Organization (ICO). After 1990 the agreement monitored by ICO collapsed, which resulted in dramatic price drops that brought producers into problems. This situation provided a stimulus for several actors in the PCS to look for novel ways to increase economic revenue. The general trend has been one of breaking away from coffee as a commodity, trying to increase prices by developing ‘specialty’ products.5 Given the size of this PCS I have made the following choices in terms of setting a boundary. My starting point has been to look at the Dutch market. As it has been the source of several initiatives to promote organic and so-called Fair Trade coffee it is interesting to see how this market has developed over time. As ecological impact is often defined mainly in terms of the first stage of the product life cycle, that is, the growing of coffee, a description of farmers is included. Selection of these is based on the availability of studies done by others. There is no attempt to be comprehensive in any way in terms of the number and variety of firms that are described. The aim is to show how the strategic perspectives of the firms described here can be understood as a result of the interplay with the context in which they find themselves.

ROASTERS ON THE DUTCH MARKET The Dutch coffee market is dominated by Douwe Egberts (DE) which holds a slowly decreasing market share that nevertheless still amounts to more than 50 per cent. The remaining market is populated by a large number of small roasters such as Peeze. Some of these operate on specific market segments like roasting coffee for own–brand retailers or institutional customers. The latter constitute a slowly increasing segment of the market as an increasing percentage of coffee consumption takes place away from the home.6 The strategic perspectives of DE and Peeze are described below. Their activities to deal with their ecological impact are intertwined with the proliferation of several standards on the Dutch market which will be presented first.

STANDARDS Since 1995 a large number of codes of conduct have been developed within the coffee sector.7 Their origin varies from individual MNCs stating principles governing the activities of their subsidiaries to NGO initiatives that

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have evolved into standards and certification initiatives. In several cases these initiatives combine resource networks of rules, material exchanges and knowledge as they connect producers adhering to specific norms with roasters that want to use the labels linked to specific standards. These standards are also relevant as they provide insight into specific definitions of ecological value that are put forward. Their membership indicates the extent to which such definitions are adopted by firms within the PCS. A specific characteristic of the coffee PCS rests in the linkage between definitions of ecological value and social issues. Given the more or less structural situation of overproduction in the PCS, the socioeconomic position of coffee farmers becomes a concern for groups of Western consumers and NGOs during the 1970s. Several standards originate in attempts to provide better prices to small-scale farmers in coffee producing countries. Building on concepts such as corporate social responsibility (CSR) and sustainable development these concerns are combined with setting standards for the ecological impact of the coffee chain, mainly in the first phase of coffee growing and initial processing. But various standards strike a different balance. Some focus mainly on ecological issues while others take social concerns as a starting point and add ecological impact as it relates to the long-term viability of producers to be able to continue to grow coffee. Economic, ecological and social aspects are perceived to be linked in two important ways. A first link is that negative ecological impacts which result from the use of pesticides and other harmful substances have a social impact through health effects and destruction of farmlands that are required for survival. A second link is made by acknowledging the substantial investments that farmers need to make to join a certification scheme and adopt required activities and technologies. Such investments are dependent on getting a good price for the coffee beans. In the Netherlands four standards are important.8 The first one is Max Havelaar which originated in the 1970s as a result of the joint efforts of Solidaridad and small roasters, including Peeze Coffee. In 1989 the first certification was issued and in subsequent years Max Havelaar developed into an international standard under the name Fair Trade Labelling Organization (FLO). The aim of the Max Havelaar standard is to improve the socioeconomic conditions of farmers in coffee producing countries by providing a stable income that is higher than that paid through the world market. To achieve this it makes use of a fixed minimum floor price and a fixed price premium. In addition to paying a higher price, a roaster who wants to use the label must enter into a long-term contract with the farmer cooperative from which it buys and pay part of the price in advance. When the Max Havelaar standard was established ecological considerations were subservient to social improvements, based on the idea that the

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investment required to produce with less ecological impact can only be asked from farmers if they have a reasonable income. But over the years, the ecological impact has started to receive more attention and crop management and a ban on most toxic pesticides is part of the criteria to which a farmer must conform. Organic coffee can be certified in the Netherlands under the EKO label which is administrated by the Foundation SKAL. Its mission is to develop a sustainable agricultural system where food is produced in harmony with nature and supports biodiversity and enhances soil health. Main requirements for coffee farmers are the use of non-synthetic nutrients and plant protection methods as well as practices for soil conservation. The EKO label embodies the strictest criteria in terms of organic coffee. Like Max Havelaar, it uses a fixed minimum floor price and a fixed price premium. A third standard was founded in 1997 by the Ahold Coffee Company (ACC), a coffee roaster which is part of the company which includes the leading food retailer in the Netherlands. The standard, called Utz Certified, was developed in contacts between ACC and one of its suppliers in Guatemala. Its mission is to implement a global decency standard in the coffee chain. While initially working solely for ACC, in 2002 Utz Certified became an independent organization and started to attract other roasters and expand its network of producers. Its standards are based on good agricultural practices (GAP), which include ecological criteria and build on the principle of continuous improvement. Utz also is active in developing practices that increase the transparency of the coffee chain. The Utz Certified standard is less strict than Max Havelaar and EKO and uses a negotiable rather than a fixed premium. The final standard under which coffee is sold in the Netherlands is that of the Rainforest Alliance. It seeks to integrate human development, biodiversity conservation and productive agriculture. This standard was developed in 1992 in coalition with Latin American NGOs and certified coffee from 1996 onwards. On the Dutch market it has a small position but it is strong in the US and UK markets. The standard requires farmers to adopt integrated pest management and sustainable farming management practices and specifically seeks to conserve biodiversity through stimulating so-called shade-grown coffee. Like the Utz Certified standard it works with a negotiable rather than a fixed premium price for farmers.

DOUWE EGBERTS Douwe Egberts is a Dutch coffee roasting company founded in 1753 which established collaboration with the international food company Sara Lee

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in 1974. This resulted in a full ownership by Sara Lee in 2005. DE is the market leader in the Netherlands. Its general strategic orientation can be described as marketing and sales driven. A successful example of that orientation was the introduction of Senseo, a coffee machine made by Philips which uses special coffee pads exclusively made by DE to make one or two cups of coffee. This machine has been a huge success and has led to increased sales of coffee which has necessitated the intensification of production. DE further works from the principle of ‘flexible buying, flexible blending’, which results in it having 60 different recipes (combining green beans from different origins) for making its best-selling product. This allows the firm to be flexible in its purchase of coffee on the international market. Decotrade, a separate organizational unit of Sara Lee, purchases all the green coffee processed by DE.9 In order to understand its changing approach to ecological impact it is necessary to look at the way in which DE has dealt with social issues in the coffee chain over the years. Being the market leader in the Netherlands, DE has been a target for NGOs because of what they perceived to be a lack of attention to the poor socioeconomic status of coffee farmers. In the 1970s the firm came under pressure from various activist groups and withdrew from the coffee market in Angola.10 When activists started to develop initiatives with the aim of improving the position of farmers, DE decided not to become involved. It perceived what later was to become Max Havelaar coffee as occupying a small market niche that was too small to be of interest.11 This position was maintained until 2003. In that year DE celebrated its 250th anniversary which stimulated several NGOs to increase pressure on DE. When OXFAM compared the four major (worldwide) roasting companies on their sustainability DE came out lowest, mainly because of the low prices paid to producers. Within the firm a shift then took place. The pressure was perceived as increasingly hostile and the manager then responsible for the Dutch activities of DE was an advocate of sustainable entrepreneurship. At that time the attention of Dutch firms for CSR was increasing which led to increased demand for sustainable coffee on the institutional market. Throughout the years DE has been an advocate of the market mechanism as the preferred way of coordinating demand and supply of coffee beans and for this reason the firm is against paying a fixed minimum price. It argues that paying higher prices will result in creating even more overproduction and thus is not a solution to the problems in the international PCS. Given the increased pressure DE looked for criteria for sustainable coffee that fit with this principle and in 2004 it chose to start working with the Utz Certified label. This label advocates the principle of a ‘better

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price for a better product’, which means that a higher price is a result of improved quality of the coffee beans.12 Also, unlike some other standards, Utz works with large plantations as well as small farmers. Given the large volume necessary to make the shift DE requires supply from plantations. Based on this collaboration DE announced that it wanted to play a leading role in making the mainstream market more sustainable. In steps it will increase its purchase of Utz Certified coffee to 100 per cent of its supply. DE has collaborated intensively with the Utz Certified organization to learn about the process of certification and the selection of suppliers to expand the supply base on which DE can draw. In addition DE established a foundation in 2002, which aims to provide access for coffee farmers to the world market by stimulating improvements in quality and sustainability of the growth and production of coffee. For each project, the foundation selects partners, finances activities and provides coordination. Certification of these activities is an important target. While relying mainly on market relationships for its supply of certified coffee (which is now possible as this is traded alongside non-certified coffee) the shift has led DE to develop more knowledge of the supply side of the PCS of which it is part. Decotrade buyers now visit coffee farms and plantations. These developments center mainly on the social aspect of sustainable development. But by adopting the Utz Certified standard DE also commited itself to decreasing the ecological impact of coffee production. Until 2002 DE defined ecological impact mainly in terms of the negative effects of its production processes and energy consumption of the coffee machines which it placed in the out-of-home market. Under the heading of sustainability the firm thus started to adopt a definition of ecological value which is related to the Utz Certified standard. The current definition of ecological value of DE thus focuses on the phase of coffee production. This is underpinned by the results of life cycle analysis (LCA) studies which show that this phase contributes substantially to the ecological impact of the total life cycle of coffee. In addition DE pays attention to the ecological impact (especially energy consumption) of coffee machines. This has gained increased importance with the success of the Senseo machine. This new product has also led to a substantial increase in the energy used in production per pound of coffee as well as increased use of packaging material. In its only published annual social report the firm cites this development as an example of the dilemma posed by continuous innovation which is demanded by consumers who want increased quality, comfort and individual choice.13 The strategic perspective of DE is summarized in Table 6.1.

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Organizational routines

Definition of ecological value

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DE Foundation: projects in producing countries (2002) coordination with Utz Certified organization to expand supply base (2003 onwards) gradual transformation of total supply by Utz Certified producers (2003 onwards) legal/lobbying strategy to allow DE products to compete for sustainable purchase (2007)

emissions from production and energy consumption of coffee machines (until 2003) reducing ecological impact of the mainstream coffee PCS as a part of general sustainability framework (after 2003) emphasis on ecological impact in growing stage (after 2003) ‘better price for a better product’ (after 2003) use of market mechanism as a way of accessing supply flexibility in purchasing and production

producing and marketing consumer coffee products strongly marketing and sales driven reliance on market mechanism to establish price and regulate demand and supply

Douwe Egberts/Sara Lee

Strategic perspectives of Douwe Egberts and Peeze

Generic strategic orientation

Table 6.1

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R&D ability coordinative routines to develop networks required for innovations routines facilitating continuous improvement on KAM ability to help shape standards as self-set rules greening supply base (1970s onwards) process modifications (1990s) various product innovations that reduce ecological impact

producing and marketing coffee products mainly for high-end institutional market emphasis on product quality organic coffee with a minimum price for farmers is basis of high quality product minimization of ecological impact throughout the product chain in combination with improving social conditions and quality of product (1970s onwards) reduction of impact on ecological cycles in all phases of the product life cycle (1970s)

Peeze

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PEEZE KOFFIE Peeze was founded as a family business in 1879, combining coffee roasting with a grocery shop. Focusing on coffee products, the owners established the firm as an innovative player on the Dutch coffee market. Peeze serves higher end customers, such as the more expensive hotels and restaurants, as well as institutional customers that are looking for high quality coffee. In 2007 the firm had 50 employees and processed 750 tons of green coffee. Compared to DE it is a small producer. Since the 1970s the firm has sought to combine its focus on quality products with addressing ecological and social issues within and beyond the firm’s boundaries. For this approach Peeze uses the acronym KAM which stands for quality, social issues and ecological aspects. Over a longer period it has been able to develop innovations which combine simultaneous improvements on these three aspects. One of the core principles behind this has been that sustainability, which is perceived to be equivalent to the KAM approach, includes all phases of the product chain. During the 1970s the firm contacted farmers in producing countries through its traders. Together with two other small Dutch roasters the firm developed a network of farmers in several countries and taught them to produce coffee without using chemical fertilizers and pesticides. The knowledge for these and other new routines came from a collaboration with Wageningen Agricultural University, which also helped develop recycling practices for the fermentation process. Later on it became involved in the development of standards such as Max Havelaar and EKO. Thus, Peeze has developed close links in its material, knowledge and rule making resource networks as a part of its KAM strategy. Around 1985 Peeze was approached by the municipal government in relation to olfactory problems surrounding the production plant, which was located within the city centre. The agency wanted Peeze to move to a peripheral industrial zone but Peeze resisted and asked for time to develop improvements to its process so that emissions could be reduced. This led to the development (in collaboration with a longtime equipment supplier) of alternative process steps which reduced water and energy use by 80–90 per cent. In addition Peeze has innovated its products and services, for instance, through developing new ways of packaging, reducing the use of aluminium and disposing of the need to package coffee in vacuum. Also, for customers who make use of coffee machines serviced by Peeze, a modem interface has been developed which allows them to make modifications in settings at a distance which reduces the amount of travel and related ecological impact of service engineers.

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PRODUCERS14 Throughout the world some 25 million families depend more or less completely on coffee farming for a monetary income. Major coffee producing countries are found in Latin America, Africa and Asia. Each of these countries has a specific structure underlying the growing of coffee.15 In this case study I will focus on farmers in Mexico which currently is the world’s largest producer of organic coffee. For the poor inhabitants of the region of Rincón in the state of Oaxaca growing coffee is one of the few ways of obtaining a monetary income. These farmers are primarily oriented towards self-sufficiency. Given the diversity of the local ecosystems they have the opportunity to grow various crops, but agriculture revolves around corn and coffee. The farmers described here live in small villages where agricultural land is held in collective tenure and traditional institutions regulate the contribution of villagers to communal work and leadership functions. There is also a system of reciprocal work based on family and kinship networks. The coffee crisis has led to four responses among farmers: further poverty/move into subsistence, migration, substitution with other crops and organization into cooperatives that facilitate a connection with Western initiatives that pay premium prices. While the latter response increases income it also implies substantially more labour to build stone terraces and create vegetative barriers to prevent erosion, to haul and spread compost, to prune coffee plants, as well as careful wet processing and selecting beans after harvest by hand. Traditional coffee farmers are connected to the world market through a long chain of middlemen which in Mexico start with ‘coyotes’, individual men who visit remote villages and buy up parchment coffee. They are treated with suspicion as coffee farmers have no information with which they can negotiate the price offered by a coyote. But these merchants are only the first part in the trading chain and may themselves not have an overview of market prices. Traditional farmers typically grow coffee as a means of getting some cash income, or if prices are low to trade for other commodities with a coyote. Most of their coffee plots are grown according to traditional polyculture which provides a family with fruits and vegetables as well as medicinal and ritual plants. Traditional farmers make choices on whether to harvest their coffee plants or focus on other crops. When they decide for the latter, they often cut down forest areas as the coffee plots may be harvested next year if prices promise to be higher. Some farmers have organized themselves into a cooperative called Michiza. Modelled after the cooperative UCIRI that was established by a Dutch priest and which was the foundation of the Max Havelaar coffee

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chain, Michiza offers its members access to that part of the world market where premium prices are paid for organic coffee. The cooperative is built around indigenous values and traditional practices of governance and seeks to maintain its autonomy from outside influences as much as possible. In the first years of its existence it sold its coffee through the Unión de Comunidades Indígenas de la Región del Istmo (UCIRI). During the beginning of the 1990s Michiza members became interested in organic production as a way to respond to the price crash of 1989 and decided to obtain organic certification and develop training programmes for its members to implement organic practices and increase quality to meet European standards. Obtaining organic certification is a process that takes a farmer at least two years. It requires additional labour in growing and harvesting coffee, such as fertilizing with compost, sorting coffee and depulping it on the day it is harvested. Also, extensive administration is required and membership of the cooperative involves participation in many meetings. The additional labour is increasingly done by hired labourers who often are traditional farmers who seek additional cash income because of low prices for their own coffee. In this way the price premium paid by Western consumers has an effect not for individual organic farmers but rather in supporting the community from which labour is obtained. Organic farmers are better off in monetary terms than their traditional counterparts whenever they can obtain a labour force from their family network. Another factor which influences the choice of farmers to ‘go organic’ is related to the fact that traditional coffee growing and harvesting does not interfere with the work cycle of corn, the other major crop, while the organic growing of coffee does. Organic coffee thus requires specialization and the adoption of a production system that does not fit with the traditional orientation towards diversified subsistence agriculture. The additional investments involved in adhering to the criteria set for certification pose a barrier to farmers to shift to organic production. This is shown most clearly in periods when world market prices rise. At such times membership of the cooperative declines as farmers can sell their coffee to coyotes for similar prices without the additional labour. Of course, when world market prices drop they need to start anew with the certification process. On the positive side, membership of a cooperative like Michiza brings benefits such as access to governmental support programmes and technical advice from a network of experienced producers. A major difference between traditional and organic farmers is in terms of yield. Organic production involves practices that increase soil fertility, reduce erosion and make coffee plants more productive and, as a result, the yield is higher than that of traditional farmers. These differences in

112

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agriculture based on traditional values and practices dumping acidic coffee pulp at times of low coffee prices: move to other crops, cutting forested areas leaving coffee production

coffee as insurance, a way of obtaining cash income coffee production is substituted with subsistence farming and hired labour in period of low prices coffee plot as family orchard which provides food, medicinal and ritual plants through polyculture

Traditional Farmer

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growing coffee without chemical additives using specific practices in harvesting and processing as specified by Western standards organic coffee means additional work operational routines and coordinative routines required by Western organic standards building terraces to prevent soil erosion using compost as fertilizer pruning coffee plants weeding coffee plants participation in training and administrative routines of cooperative

coffee as a way of obtaining cash income; certified production as a way of accessing premium prices conformation to specialized production system

Organic Farmer

Strategic perspectives of traditional and organic farmers in Rincón region, Mexico

Generic strategic orientation

Table 6.2

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yield are visible as traditional and organic farmers live closely together. As a result there is some diffusion of organic practices not only from organic coffee farmers who apply these principles to their other crops, but also from organic farmers to traditional farmers who are attracted by the increased yield that organic farmers are able to realize. Certification of organic coffee is based on Western standards and initially was performed by US and European inspectors. As this resulted in cultural miscommunication there is now a Mexican organization which performs the actual inspections. It necessarily implements Western standards which are becoming increasingly stringent over time. Pressure is also exerted on cooperatives like Michiza as certification can be lost not only by individual members but also by the cooperative as a whole. Given the dependence of farmers on certification the power asymmetry in this resource network is substantial.

DEVELOPMENT OF THE DUTCH MARKET From the early 1970s onwards public concerns over the social aspects of coffee production in producing countries rose in the Netherlands, sometimes forcing retailers and roasting companies to stop selling coffee from countries with dictatorial regimes, such as Angola. At that time smallscale initiatives were set up which enabled so-called ‘world shops’ to sell coffee which was produced in circumstances that were considered more reasonable. At the same time the international organic movement developed which promoted agricultural practices in harmony with nature. During the 1980s the Max Havelaar and EKO standards were introduced. Over the years small-scale roasters such as Peeze worked under these standards and obtained a marginal market share. Together with initiatives in other countries this led to the establishment of an alternative system based on Western initiatives to increase the revenue of coffee producers and promote organic coffee production. This movement established its own supply chains and initially sold products through distribution channels aimed at ‘alternative’ consumers who are motivated by the values upheld by both standards.16 As a result of the market trend for developing specialties, products with labels such as Fair Trade were able to penetrate the regular distribution channels. This included a proliferation of initiatives which focus more explicitly on what is called ‘organic’ coffee. For several years large roasters like DE and major retailers remained uninterested as the initiatives, at that time, did not affect their market share in a serious way. In 1998 the largest Dutch retailer, Albert Heijn, decided to include

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biological products in its shops. Although it had been under pressure to do so earlier it argued this had only now become possible as more consumers were interested and the availability of biological products was substantial enough to supply all outlets. According to some, Albert Heijn tried out a few products and was surprised by the consumer response.17 These experiences also led ACC, the coffee company that was part of the same holding company Ahold, to search for ways of making its products more sustainable. This led to the development of another standard, Utz Certified, in 2002. Its subsequent adoption by DE led to a rapid increase in the amount of certified coffee sold on the Dutch market. In percentages, sales of certified coffee in the Netherlands show the following development. During the period 1989–2001 the combined market share of the EKO and Max Havelaar increased slowly to 2.9 per cent. When ACC entered the market with its Utz Certified coffee the percentage of certified coffee started to rise rapidly and further increased after 2004 when DE started its programme to make its supply certified. In 2006 the market share of combined standards stood at 27.8 per cent. In coming years this can be expected to increase as not only will DE increase its amount of Utz Certified coffee but also major retailers will adopt one of these standards.18 These numbers show a substantial market development because they take the four standards together. This hides the fact that currently there is considerable competition among these standards in the Netherlands. Max Havelaar and EKO certified coffee are considered to be better in terms of adhering to more strict criteria for reducing ecological impact and improving social conditions in countries of origin, as well as working with a fixed floor price and price premium. The Utz Certified label is sometimes dismissed as focusing mainly on already existing local requirements and questions are raised about the extent to which farmers really receive a higher price. This discussion has proliferated in two important ways. First, the Dutch national government has announced that it wants to have all its agencies follow sustainability guidelines in its procurements in 2010. Coffee is one of the products for which criteria will be set and industry associations together with other interested parties are currently negotiating with government the content of these criteria. A second proliferation took place after the Province of Groningen decided to put out a tender for a contract to roasters. In the tender, strict criteria were formulated and DE found that they resembled the Max Havelaar criteria and could not be met by products sold under the Utz Certified label. The firm filed a lawsuit for market discrimination but the judge ruled that the Province of Groningen was allowed to set the criteria at this level. These developments show that competition among standards may to a great extent be fought out in the institutional

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market rather than that of individual consumers. This is also reflected in the trend in which coffee is increasingly consumed away from the home.

ANALYSIS AND CONCLUSIONS A first question is how the strategic perspectives of the roasters and producers can be characterized. Beginning with roasters, the strategic perspective of Peeze is clearly transformative, especially with regard to the greening of its supply base. Based on the strong vision of its owner/ manager it has been an initiator of organic ways of growing and processing coffee cherries and has supported through formative strategies the diffusion of these practices through the development of standards. In addition the firm has developed innovative ways to deal with the ecological impact of its production activities, which have substantially reduced water and energy use. The strategic perspective of DE has for a long time been stable as the firm operated from the point of view of defending its existing position on the technological trajectory and defined the social and ecological issues related to other stages of the coffee PCS as outside its responsibility. Since 2002 the perspective has shifted towards a dynamic position. The firm has picked up on the maturing development of standards, mainly because of customer pressure. Although it defines its role as ‘making the mainstream market more sustainable’, it chooses to do so with a standard that minimizes rather than eliminates the chemical additives used in coffee production. It acts largely through its established routines and it builds on the efforts of others that have led to a steady supply of more sustainable coffee. In addition it has remained more or less at the same point in terms of production technology. For DE, market pressure (mainly from the institutional market) and continued societal demands are a major driving force. In responding to these it seeks a standard that lets it remain as close as possible to its general strategic orientation. A supporting role is played by a coalitional shift in the firm as a general manager who has some affinity with sustainability and is able to translate the demands into a dynamic response. Farmers who choose to ‘go organic’ and become a member of Michiza also operate from a transformative perspective as it requires them to adopt a completely different set of routines in growing and harvesting coffee. On top of that it requires them to engage in laborious administrative practices in order to obtain and keep their certification. Traditional farmers operate from a stable perspective as they do not seek to implement any novelties in their practices regarding ecological impact; it is the continuation of a traditional form of cultivation.

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For organic farmers the adoption of organic standards is a viable way of getting a higher price for their product. The reduction of ecological impact does not seem to be a prime motivational force. As this move also requires extra labour and intensive involvement in the cooperatives’ administration the net financial gain is marginal, except when they have access to labour through their family network. In addition they need to be willing to conform to a different production system which diverges from their traditional culture. In terms of resource networks Peeze and DE have almost opposite approaches to positioning themselves. DE seeks autonomy and flexibility and conducts its material transactions through market relationships. Peeze has consistently sought to develop closer relationships as a means to innovate. In terms of power over producers (through traders) both firms are similar in the sense that they have the ability to pose demands successfully. But based on their different definitions of ecological value and related definitions concerning the social issues in producing countries they have developed different ecological strategies through these relationships. This manifests itself not only in the timing of their strategy to make their products more sustainable but also in the way in which sustainability is defined. For Peeze the definition is built on the close relationship between improving the social conditions and ecological impact in producing countries. For DE the definition is derived from a standard that allows it to continue its basic principles of flexibility, and it outsources many of the coordinative and formative activities that Peeze has developed itself to the Utz Certified organization. In the current market definitions of ecological value are, to a great extent, shaped by the criteria posed by the various standards. Also, their increased relevance in the institutional market makes the adoption of some sort of standard imperative. As a consequence, ecological impacts in producing countries are a main focus with a relative neglect of impacts in roasting and consumption. While Peeze has included the production impacts in its definition of ecological value, this remains a relatively isolated example. Through the development and increased competitive importance of standards these definitions also become important as definitions of value for coffee farmers. For producers, a major issue is to get access to the global market through channels that ensure a reasonable price. One way is to grow high quality coffee, which is only possible if local ecosystems are permitting this. An alternative is to grow organic coffee but this involves a choice for one standard or another. Adopting a standard requires substantial additional fieldwork as well as administrative responsibilities, as well as up to three years of operating under more strict principles before

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a certificate can be obtained. Such standards, which constitute distinct definitions of ecological value, are determined as much by forces beyond their control as the price they receive for their harvest. Farmers can thus not specify their own definition of ecological value; they have to adopt the practices associated with a given definition of ecological value transmitted by Western actors. The choices of individual farmers are based to a great extent on access to initiatives that enable them to make the investments necessary to adhere to criteria posed by standards. The cooperative Michiza is an example of a resource network that combines material and knowledge exchanges. Through this network farmers are linked with Western buyers as well as the rule-making networks of standard setting and monitoring organizations. While the cooperative provides more or less equal exchanges, the position of such organizations in the Western networks is weak as they have little influence on the definition of criteria. The competition among standards in the Dutch market shows that the PCS is still evolving. It may be questioned to what extent household consumers actually compare products on the criteria of various standards. Competition in that market seems to be mainly about having or not having a sustainability label. But institutional consumers do compare criteria. The lawsuit of DE against the Province of Groningen is a testimony to the relevance that roasters attach to this development.

NOTES 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Another reason has been pragmatic. I have selected cases based on the availability of research reports in published books and articles in scientific journals. The cases are based first on my own analysis of relevant documents from firms, governmental agencies and other actors involved. Second, I have interviewed relevant actors in the Dutch coffee market. Third, I have used secondary analysis methodology (Stewart and Kamins, 1993; Dale et al., 1988) on data reported by other researchers to build the case descriptions. On system boundaries and their role in research see Flood (1999), Stewart (2001) and Vayda (1983). For this early Europan history I draw on Braudel (1973, pp. 183–8). The description of the period after 1900, including that of ICO, is based on Bates (1997). Bates (1997, p. xiii). Bacon et al. (2008). Bettendorf and Verboven (2000) and Coffee Coalition (2006). Kolk (2005). Coffee Coalition (2006). Kolk (2005). Hofstede (1980). Roozen and Van der Hoff (2001). Douwe Egberts (2005). Ibid.

118 14.

15. 16. 17. 18.

Creating ecological value This description is based on a longitudinal case study which is contained in Jaffee (2007). Martinez-Torres (2006) provides an overview of traditional and organic growing methods. A third option, intensive chemical cultivation, is not discussed here. It involves the use of chemical fertilizers and pesticides and reduction of shade vegetation, and connects farmers into resource networks of chemical firms. In the region studied by Jaffee this cultivation method was not found. Lewin et al. (2004). Raynolds (2002). de Volkskrant (1998). Coffee Coalition (2006); see also Giovannuci (2003).

7.

The automobile PCS

The automobile is in several respects the shining icon of developed industrial societies. It epitomizes the individuality that accompanies prolonged economic growth. For many consumers it is more than a means of transportation; it is considered to be a status object which shows the possibilities for the emancipation of the workforce. Moreover, its systems of production have been at the heart of two waves of innovations in modern management with Fordism in the 1930s and lean production in the 1980s.1 At the end of the nineteenth century the automobile started to replace the horse and carriage. In the decades that followed it became a dominant form of transportation. Originally it was a luxury product that was produced in craft shops which made unique automobiles built to specifications. During this period car makers experimented with different technological options for propelling their cars. For some time electric cars were a serious alternative2 but eventually the internal combustion engine (ICE) emerged as the dominant design, powered by oil-based fuel and backed up by a stable supporting infrastructure of filling stations and repair shops. From the many producers of automobiles in Europe and the US a small number developed into mass producers. Henry Ford was a major innovator in terms of developing a product and associated production technologies that enabled the mass production of cars. After the Second World War three firms dominated the US market: Chrysler, Ford and General Motors. In Europe many countries had their national car manufacturing firms. As described in Chapter 2, US manufacturers were innovative in the sense that they developed elaborate marketing strategies that allowed them to sell new models to customers even if their existing car still functioned well. The growth of the industry that resulted from further economic development also resulted in an increasing contribution to national economic growth. In Europe the industry in 2008 employed 2.2 million people directly while 10 million people were involved in supplying and other related industries and services. The automotive industry is also the largest private R&D investor in Europe.3 In Japan and the US, around 8 per cent of the working population is directly or indirectly employed by the automobile industry.4 During the 1970s the PCS was subject to two major developments. First, ecological issues rose on the public and political agendas. 119

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Combined with two oil crises the viability of the dominant design of automobiles was seriously questioned. Second, Japanese firms started to enter the markets of Europe and the US. Their production methods quickly made them into difficult-to-beat competitors. As a result competition among producers increased which led to further concentration so that now approximately ten firms may be said to dominate the global market for automobiles. The complete PCS is too large to cover in this case study. In what follows I concentrate on the firms that are responsible for designing and assembling cars for the consumer market and look at other parts of the PCS mainly in terms of the resource networks around these firms. I also leave aside the developments in major emerging economies like India and China. I will also focus on characteristics that deal with three major issues that are recognized by actors in the PCS as central to the ecological impact of these firms: the reduction of CO2 emissions of vehicles, the development of alternatives to the dominant design of the ICE and the way in which post-consumer waste should be dealt with. As a result I disregard other characteristics such as those which deal with the ecological impact of production activities. The resulting description, which deals with events in the period 1990–2006, provides ample room for exploring the usefulness of the theoretical framework that has been presented in Chapters 4 and 5. Most importantly it provides an opportunity for exploring the consequences of distinct regions within a PCS.

AUTOMOBILE FIRMS Volkswagen Group5 Volkswagen Group (VW) emerged after the Second World War as a state-owned company from which the federal government withdrew only in 1988. VW produces seven brands: Volkswagen, Audi, SEAT, Skoda, Bentley, Bugatti and Lamborghini. During its growth in the 1960s VW basically relied on one model, the Beetle, which was the basis for its success in the European and US markets. This strategy continued with the popular Golf model. Although during the 1980s the model range of passenger cars was extended, VW has a long tradition of continually improving existing models, thus reaping the benefits of standardized production. Europe (and within that Germany) remains its main market although in recent years increasing sales revenue has been drawn from the US market, where VW follows the trend of higher value vehicles. In 2001 VW decided to further develop its model range which mainly meant that it would

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develop and strengthen its position in the luxury cars and sport utility vehicle (SUV) market segments. At the beginning of the 1990s a new chief executive of the Volkswagen brand made clear that he wanted to redirect the product line towards ‘green’ products and traffic systems. This marked a period where VW became active in developing car recycling systems (see Table 7.1). Based on a voluntary agreement with the German government it built up a dismantling and recycling network with Preussag. It also researched new technologies such as hybrid cars and improved diesel technology to reduce fuel consumption. At this time VW was an active sponsor of the Rio summit on sustainable development and a founding member of the World Business Council for Sustainable Development (WBCSD). For some time, the manager was considered to be the next CEO of VW but a few years later another CEO was appointed who focused more on restoring profitability and traditional products. In 1995 VW released its first environmental report. A strategic dilemma that would recur over the years was presented as the firm’s intention to remain at the forefront of environmental protection worldwide while at the same time providing people with products for their mobility needs. VW highlights the balance that it must seek between improving the ecological performance of its products and decreasing the performance on criteria considered to be central to its consumers. Throughout the years the firm has cited technological competence as the way to resolve this dilemma. In doing so the firm takes a life cycle perspective on ecological impact. During these years VW built up its environmental management systems and became involved in the development of international certification standards for these. It also started to use LCAs for assessing the impact of products and production processes. Together with demands from regulators, these provide the basis for setting environmental targets. In 2001 VW reformulated its seven environmental policy goals to reflect changes in regulation and the voluntary agreement that it had entered into with the EU (see below). So-called environmental goals are now formulated around specific issues such as materials used, CO2 reduction, noise reduction, recycling and exhaust emissions. Each of the goals was formulated in terms of meeting and outperforming voluntary agreements and regulation. From 2002 onwards the firm incorporated its definition of ecological value in the broader concept of sustainability and built on the three aspects of people, planet and profit. The planet component was defined as the continuous improvement of the environmental acceptability of its products and the reduction of the consumption of natural resources. Technological

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competence was again mentioned as a cornerstone; this time as a basis for achieving the integration of the three aspects of sustainability. To address the main ecological impacts of its products VW sought to improve diesel and gasoline engines. During the 1990s the firm displayed modest efforts in exploring alternatives to the ICE. Its main project, however, was the ‘3-litre car’, a car that runs 100 km on 3 litres of fuel. The possibility of such a car had become a topic of discussion in Germany and in 1991 the CEO of VW stated that the firm would bring such a car to the market by the turn of the millennium. The idea was to combine incremental improvements in ICE diesel technology, aerodynamics, tyres and vehicle weight. The 3-litre car was not intended as a niche product but aimed at a broad-based market which implied that there could not be great sacrifices in other functionalities. In 1999 VW launched the Lupo 3L TDI, the first production 3-litre car. The model combined innovative ways of reaching this target without sacrificing too much on comfort, performance and safety standards as demanded by consumers. An important contribution was made by a supplier who developed a new fuel injection system which was responsible for 60 per cent of the increased fuel efficiency of the Lupo. While VW initially was confident about sales, in 2005 it discontinued production because of lack of consumer demand and support from German public authorities. The technologies developed in this project spilled over to other models in the following years, but the experience of insufficient demand further strengthened the frame of having to strike a difficult balance between reducing ecological impact and meeting the needs of consumers. An alternative solution to that dilemma resulted in the launch in 2006 of the Polo Bluemotion. This model is the first in a series of special versions of existing models which are more fuel efficient (by approximately ½ litre per 100 km) than the standard production models. In 1997 the German Association of Car Manufacturers (VDA), of which VW is an important member, reached a voluntary commitment with the national government to reduce the CO2 emissions of new vehicles by 25 per cent in 2008. This agreement formed the basis for a EU-wide commitment by the industry. While VW was initially on course to reach this goal through the implementation of fuel stratified injection (FSI) technology, in later years it has had to acknowledge that it will not be able to meet this goal. It cites the lack of effort of other necessary stakeholders as a major cause for this. VW also is actively involved in lobbying efforts in shaping these agreements with the German and EU governments. VW has a cautionary strategy towards the development of alternatives to the ICE and expects alternatives like fuel cell vehicles (FCV) not to enter the market before 2020. It was briefly involved with electric cars during the 1990s. But from 2000 onwards the firm focused on what it

The automobile PCS

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viewed as the transitional period before the marketing of such new technologies. Consequently it sought to further improve the diesel ICE. VW also focused on alternative fuels. These were seen as forming the basis for a transition phase towards vehicles running on hydrogen. VW viewed synthetic fuels as an intermediate step and collaborated with Shell and DaimlerChrysler as well as with Chevron/Sasoil and Renault through the Alliance for Synthetic Fuels in Europe (ASFE). Synthetic fuels can be derived from natural gas and biomass and their main advantage is that they can be used in existing ICEs and distributed through the existing fuel infrastructure. VW’s involvement also built on the idea that fuel efficiency and lower CO2 emissions can be achieved by integrating R&D on fuels and engines. In 2006 the firm announced a prototype of the Combined Combustion Engine which ran on synthetic fuel and combined elements of diesel and petrol engines. PSA Peugeot Citroën6 Peugeot Société Anonyme (PSA) is the result of the takeover by Peugeot of Citroën and the European part of Chrysler in 1978. Both acquisitions were done to allow PSA to remain an independent firm within an increasingly competitive international market. PSA produces automobiles across the entire model range but focuses on volume production in the smaller car segment. PSA is mainly active on the European market where it is the second largest car maker and realizes 90 per cent of its profits, but it also has a strong position on the Latin American market. The mission of PSA is to ‘continue to innovate in the fields of environmental protection and safety while designing Peugeot and Citroën cars that meet customers’ expectations around the world’. Its two brands are kept separate and to some extent compete on the market. In terms of technology, production and organization they have been integrated to create greater efficiency and economies of scale. PSA actively pursues a strategy in which all models are built on a limited number of platforms. To further generate growth it has established several partnerships with other car makers such as Toyota in sharing platforms, Fiat on commercial vehicles and Ford in the further development of diesel technology. Both strategies are aimed at reducing development and production costs. The definition of ecological value of PSA is based on the principle of sustainable development and is linked to the aim of selling cars which simultaneously satisfy customer needs for safety and driving pleasure as well as conforming to environmental protection needs (see Table 7.1). PSA’s main focus is on reducing CO2 emissions because of its perceived

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Definition of ecological value

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striking a balance between ecological improvement of products and consumer needs technological improvements are the basis for dealing with ecological impact sustainability as encompassing concept (2002 onwards) ecological impact is CO2 emission, local emissions, end-of-life vehicles and traffic noise a long transition period towards alternatives to ICE for transition improved diesel technology is central

to sell automobiles in all market segments a focus on the European market but seeking growth in the US

Volkswagen Group

Strategic perspectives of Volkswagen Group and PSA

Generic strategic orientation

Table 7.1

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committed to organic growth based on a strategy of innovation and competitive pricing focus on European market and smaller automobile segment reducing costs through cooperation with other firms (Ford, Toyota, Fiat, BMW) ecological impact concerns three key issues: greenhouse gases, road safety and urban mobility provide solutions through technological improvements that are applied across model range

PSA

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Organizational routines

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R&D ability in continuous improvement of the ICE, especially diesel engines strong connections in national and European policy networks development and marketing of 3-litre car (1991–2005) fuel efficiency through advanced small diesels and conventional measures alternative fuels strategy combined with CCS engine (prototype 2006) developed network for post-consumer waste lobbying to weaken EU demands on CO2 reduction ●

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technological and marketing expertise in electric vehicles innovation in collaboration with core suppliers strong links in national policy network first mover in new diesel technologies stop and start system developing and marketing electric vehicles developing full hybrid French alliance in fuel cell R&D developed network for post-consumer waste

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responsibility to limit the greenhouse effect. Other issues that are deemed relevant relate to local air quality and dealing with the ecological impact of products through the entire life cycle, including the dismantling and recycling of discarded cars. In reducing CO2 emissions the firm sees further technological improvements in diesel technology as the major short-term goal. The general approach is to seek technological improvements of the ICE and make these available in as many models as possible. This requires such technologies to be cost-effective. The firm has been a first mover in developing particulate filter and direct injection technology. Combined with the fact that its sales are predominantly in the smaller car segment, PSA is one of the few firms that has been able to come close to realize the goal set in the voluntary agreement of the European industry. With respect to developing alternatives for the ICE, PSA was active in the development of electric vehicles during the 1990s through a partnership which was initiated by the French government (see below). As a result the firm became actively involved in city programmes where fleets of electric cars are made available for subscribing customers. Since 1993 it has sold over 10 000 EVs, making it the world leader in this technology. Compared with other firms PSA has been relatively late to move into hybrid and fuel cell technology. Regarding hybrid technology its strategy is based on developing technologies that can be implemented across a larger part of the model range. PSA in 2004 introduced a first stage hybrid system which used a low-power electrical device to shut the engine down automatically when the vehicle was standing still and started it up again when reactivated by the driver. In 2005 PSA announced a development programme to bring full hybrid diesel models to the market by 2010 with a specific aim to reduce the extra cost of a hybrid vehicle compared with a vehicle with a diesel ICE. It did not consider gasoline hybrid models as they were seen to bring little gain to direct injection diesel engines. In 2001 the firm introduced its fuel cell demonstrators and its alternative energy strategy. In 2005 PSA stepped up its efforts in the development of FCVs. It presented this technology as a solution to CO2 emissions and local air pollution and stressed that this technology requires further development and can be expected to arrive on the market around 2020. The firm established a dedicated R&D unit to further develop its GENEPAC fuel cell in partnership with CEA, the French Atomic Energy Commission. It also collaborated with the French national centre for scientific research. Another partnership with the UK-based firm Intelligent Energy aims to integrate a low-power fuel cell into a vehicle as a range extender. Finally, through a national agreement signed in 1993, PSA became active in developing an infrastructure for dealing with discarded cars. It has moved beyond that agreement’s goal as 90 per cent of discarded

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vehicles are recyclable. It has further dealt with this issue by increasing the recyclability of its vehicles and increasing the use of recycled material in new models. It has also enforced specific criteria that increase recyclability on its suppliers. Toyota Motor Company7 Toyota became autonomous from the larger Toyoda Company in 1937. After the Second World War it started to develop ideas of quality control introduced by the American War Department’s industry training programme during the post-war occupation and developed these into a distinct system of production. During the 1960s Toyota rapidly grew to become one of the major automobile firms in the world. While initially the firm exported its products made at Toyota City, Japan, it has steadily increased the number of production plants in Europe, the US and Asia. Currently, it is the largest automobile producer in the world, replacing GM. It sells vehicles under the brand names Toyota, Lexus, Daihatsu and Hino. Consistent high profits have provided Toyota with the resources for continued growth and R&D. To a great extent Toyota’s success is based on its system of lean production which includes the involvement of suppliers. Over the years Toyota has built up a reputation among consumers for the reliability of its products, an important reputational asset. Also, the production system allows great flexibility, and as a consequence Toyota is able to produce 60 different models for the Japanese market alone and many more for its overseas markets (see Table 7.2). The first oil crisis in the 1970s occurred at the same time as increased concern over air pollution in Japan. Toyota was slow to respond to Japanese legislation to reduce exhaust emissions, which led to a decreased market share. Toyota subsequently modified its production and sales strategies and during the 1980s it started to design more fuel efficient cars, using fewer and lighter materials. In 1992 Toyota formulated its Earth Charter which was built on the recognition that ‘the manufacture of automobiles is deeply related to the earth’s environment’. For this reason, Toyota adopted the general principle of employing its resources on relationships with suppliers and distributors to reduce the ecological impact in all stages of the life cycle of its products. Technological development was a core focus of this approach. In 2000 the charter was reformulated and in 2002 it was made part of the general strategic vision for 2010. The general aim was for growth that is in harmony with the environment by achieving zero emissions in all its business activities. The concept of harmonious growth was further developed through the company logo of interlocking circles which depict the interrelatedness of industry cycles and ecological cycles.

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According to the concept, harmonious growth results as the natural cycles within which human activities take place are balanced with industry, creating new value. Toyota seeks to be a driving force behind the development of sustainable industries. In a 2006 document Toyota outlined its vision on the development towards what it called the ‘ultimate eco-car’. It took the geographical diversity of car usage and energy supply situation as a starting point and sought to introduce the right vehicle at the right time in the right place. This diversity was to be found in alternative fuels, diesel engines, gasoline engines, and electrical energy. Each of these can be enhanced through hybrid technology. At least since 1992 Toyota had distinguished four main categories of ecological issues to consider: global warming, recycling of resources, substances of concern and local air emissions. Under these headings more specific issues and related goals were specified, with an increasing emphasis on global warming as a major issue. As a result of these and other global themes, the president of Toyota stated in 2007 that achieving harmony with society and the environment was also a top priority for automakers, leading the various automakers to become engaged in fierce competition with a focus on the development of environmental technologies. Toyota has organized its efforts on ecological issues in an elaborate organizational structure around three themes: product design, production and recycling. Furthermore, Toyota has worked with environmental action plans according to the Earth Charter since 1993; on these, yearly action policies are based. Toyota also develops LCAs to accumulate ‘objective’ data on environmental impact. These data are used in design and development and in efforts to create an industry-wide LCA standard and to involve suppliers in the use of this tool. Throughout the years Toyota achieved improvements in the fuel economy of its models through incremental improvements in ICE gasoline and diesel technology and weight reduction. These were sufficient for reaching the goals set by the Japanese government. In terms of alternative technologies, Toyota has introduced an electric vehicle on the Californian market where it was targeted by regulations. More importantly, it has led the introduction of hybrid vehicles in the world market through its Prius model. This model is the result of an internal project initiated in 1993 which aimed at developing new production methods and producing a small fuel efficient car for the next century. A more specific goal was to improve the fuel efficiency of then current models by 100 per cent, and come up with a marketable model in 1997. Company engineers saw possibilities for achieving this and

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marketing managers dropped their sceptical attitude as regulatory pressure in California increased. When the Prius hybrid car was introduced in Japan in 1997 its success surprised Toyota executives. After modification the Prius was introduced to the US market where it became a huge success. Managers explain that, both technologically and organizationally, the project has meant a departure from existing routines. Toyota has long been described as deriving competitiveness from its advanced production methods. Before the Prius it was a ‘fast follower’ when it came to new technology, based on a cautious approach involving extensive (consumer) research and in-house deliberation. The Prius has also played a role in Toyota’s strategy of expanding its global market share and installing the image of dealing with ecological issues in an innovative way. This image is not uncontested because the firm also has joined US firms in lobbying efforts to prevent more restrictive CAFE standards. Criticism has also proliferated as Toyota combines its hybrid strategy with entering the US market for SUVs. In subsequent years Toyota extended its model range of hybrid vehicles and now aims to develop hybrid versions of each of it models. In addition, it licences its hybrid technology to other producers such as Ford in order to help the proliferation of this technology. Toyota has also already explored fuel cell technology for several years in various partnerships with energy firms as well as its competitor GM. The success of its hybrid vehicles make the latter a core around which it seeks to build such technologies. In dealing with the post-consumer waste of its products Toyota acts to improve recoverability in the design stage in response to initiatives from the Japanese and EU governments on post-consumer waste. In Europe the firm collaborates with VW and in Japan it has developed a voluntary recycling plan, aiming at developing relevant technology and establishing an infrastructure. In order to comply with the Japanese Automobile Recycling Law of 2005 Toyota established a national system for automobile shredding residue (ASR) recycling/recovery and involves suppliers and dealers in the process of design for recovery and the recovery infrastructure. Honda8 Starting out as a motorcycle producer Honda entered the automobile PCS in the 1960s and grew quickly to become one of the major Japanese automobile firms. Over the years it established a reputation as a ‘different’ company with a strong focus on innovation which is reflected in its organizational culture and many of its routines. One of the early innovative achievements was the compound vortex controlled combustion engine which made Honda the first firm able to meet the emission standards on

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the US and Japanese market in the 1970s. Throughout the years Honda focused on developing fuel efficient low emission vehicles. By the early 1980s more than 50 per cent of its sales were in the US while its position on the European market was modest. Honda’s strategic orientation was firmly rooted in its innovative abilities and its ambition to be globally active in bringing high quality products to the market at low prices (see Table 7.2). Honda issued an environmental statement in 1992 in which environmental conservation was defined as one of the important themes of its total range of activities. The statement specified principles which included the aims to recycle materials and use resources, to use energy efficiently throughout the product life cycle, and to minimize ‘contaminants’ and waste. Based on these principles Honda formulated specific targets to reduce the ecological impacts of products, purchasing and production, logistic activities, and disposal and recycling. For each of these areas Honda had a ‘green’ plan which, for production for instance, aimed to develop production facilities that would fit in a recycling-based society. In terms of organizational routines Honda developed a company-wide environmental committee. It also made employees themselves responsible for the planning and execution of activities to achieve targets. Since 1997 Honda has explored the use of LCA tools, and starting in 2000 these were beginning to be used to set targets for further product improvements. Honda acknowledges the increasing social concern around the issue of global warming and defines it as a top priority for the firm. It seeks to lead the world in solving this problem. In 2005 it announced that it was seeking to become a firm that manufactured products with the lowest CO2 emissions at manufacturing plants. While previously Honda had dealt with governmental demands on a regional basis, it decided to set reduction targets globally for each product line. For Honda this reflected the recognition that global warming requires an integrated global solution. Over the years it introduced several improvements to the ICE that contributed to a decrease in the CO2 emissions of its products. It reached standards set by the Japanese government well before time and in 2005 set more ambitious voluntary goals for itself, aiming for a reduction of 10 per cent in 2010 compared with the year 2000. In terms of alternatives to the ICE, Honda introduced a hybrid vehicle to the market in 1999. The technology employed was different from that of Toyota and was continuously developed. The firm also introduced an electric vehicle for the California market in 1997 but terminated this activity two years later. Honda was already involved in R&D concerning FCV in 1989, and in 1998 it announced that it expected to bring a FCV to the market by 2003. The firm participated in the California Fuel Cell

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Ecological strategies

Organizational routines

Definition of ecological value

Generic strategic orientation

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main issues are global warming, recycling of resources, substances of concern, local air emissions growth in harmony with the environment (2002) technological improvement basis for solutions the ultimate eco-car is based on various technologies enhanced with hybrid technology (2006) lean production system involve suppliers in LCA and design for recyclability experience in hybrid technology development and marketing fuel efficiency through continuous improvement first mover in marketing a hybrid vehicle; extension to other models partnership in fuel cell technology lobbying to weaken US CAFE standards establishing network for dealing with postconsumer waste

achieve a leading position on the global market across all market segments lean production model

Toyota Motor Company

Table 7.2 Strategic perspectives of Toyota and Honda

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R&D and innovation strongly rooted in organizational culture employee responsibility for reducing ecological impact global targets for CO2 reduction of products (2005) reduction of CO2 emissions through improvements of ICE hybrid vehicle introduced in 1999 early involvement in fuel cell technology

being active on the global market with innovative products; major position on Japanese and US markets focus on fuel efficient automobiles minimize ecological impact through recycling, efficient resource and energy use throughout the product life cycle, and minimizing ‘contaminants’ and waste global warming is a major challenge to the industry

Honda

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Creating ecological value

Partnership which was established in 1999. Around 2002 the firm made it clear that the 2003 target would not be met; it now expects that FCVs will not be marketed in large numbers before 2020. In these R&D activities Honda displays a reluctance to enter into partnerships and prefers to develop technology in-house. Ford Motor Company9 Ford has been the second largest car manufacturer for most of the life time of the PCS. Moreover, its founder Henry Ford developed principles of mass production and management that have for decades dominated industrial production. For a long time the firm has been active in the European market. Since the late 1990s Ford brands have included Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. With these Ford covered all market segments and was active in all global markets. It has substantial operations in the US and European market but for profitability it relies more than any other firm on the sales of SUVs and related vehicles in the US market. In various statements Ford stresses that the customer is the foremost concern which is also interpreted in terms of taking market differences as a starting point. Its mission statement emphasizes continuous improvement of products and services to meet the needs of customers, and providing a reasonable return to stockholders (see Table 7.3). Over the years the firm experienced several severe crises which forced it to restructure its activities. In a revitalization plan of 2002 Ford focused on the further introduction of flexible production and increased efficiency through platform and architecture sharing which was intended to result in decreased product development time. In its 1999 environmental report Ford stated its dedication to providing ‘ingenious’ solutions to reduce the ecological impact that would position it as a leader of the industry. Technological progress was seen as a central avenue to striking a balance between providing the means for personal mobility and environmental concern about products and production processes. In addition Ford explicitly stated that part of its environmental policy was to make sure that ‘responsible, effective and sound’ regulations and policies were adopted. This included participation in networks of rule construction. Ford’s position on climate change has shifted considerably over the years. It described its own position in the early 1990s as ‘skeptical’, which was reflected in its participation in the Global Climate Coalition, an industry association which expressed doubts about the scientific underpinnings of climate change. In its 1999 environmental report it referred to the

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greenhouse effect as ‘one of the most talked-about environmental issues’, and went on to explain the general principles of this ‘naturally occurring phenomenon’. It stated that further research was necessary as there was incomplete knowledge about the precise way in which the climate system functions. In 2000 this position shifted as a result of ‘emerging consensus around climate change and the human contribution to it’, as well as a stakeholder dialogue that Ford held with organizations such as the Coalition for Environmentally Responsible Economics (CERES), the Union of Concerned Scientists and Greenpeace. While uncertainties remain the firm now believes it is time to take appropriate action. This is framed as an opportunity to play a significant role in building solutions and creating markets. Throughout, Ford stresses that solutions should be market based. By 2003 climate change had been linked to rising customer concern about environmental issues and fuel economy. But Ford found that customers wanted improved environmental performance at little additional cost. In 2000 the firm announced that it would develop and implement a strategic action plan. In subsequent years Ford was challenged by some of its shareholders, led by the Sisters of St Dominic, to actually issue such a plan. Ford eventually released a plan based on stakeholder consultation in December 2005. In the report, climate change was presented as the central environmental issue related to the system of driver, fuel provider and car producer. Ford stressed the uncertainty about what technology will actually come to dominate the future of the industry. The revitalization plan of 2002 was geared towards improving environmental performance and worldwide alignment of organizational routines such as Design for Environment and LCA. In addition Ford also seemed to rely to a great extent on acquiring knowledge on new technologies through partnerships such as that with PSA on direct injection diesel technology and with Daimler–Ballard on fuel cell technology. There were considerable formative routines which enabled Ford to participate in ruleconstructing networks. Consistent with its initial definition of climate change as a process about which more knowledge needs to be developed, Ford had pursued and funded scientific research projects on greenhouse gases. In later years its shifted position was a basis for further technological development. In terms of improving fuel economy a major issue has been Ford’s reliance on SUV sales in the US market. In 1999 Ford introduced the Ford Excursion, a 19-feet-long SUV which weighed almost three tons and had a fuel economy of 12 miles per gallon. Given its weight it was not classified as a light vehicle and therefore did not affect Ford’s fleet average for CAFE regulations. The Sierra Club, an environmental advocacy group,

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dubbed it the ‘Ford Valdez’, one example of the criticism that Ford received. Such a critique sat uncomfortably with the announcement of Ford’s new chairman, Bill Ford, who stated in 1999 that he wanted to place environmental concerns at the heart of the company. He spoke of striking a balance between what consumers want and being completely environmentally driven. Rather than making a very efficient car that is not sold, this required making all vehicles cleaner and cleaner every year. While Ford claimed that its SUVs were as clean as its cars, this referred to exhaust emissions rather than fuel efficiency. Reacting to the criticism Ford announced in 2000 plans to improve the fuel economy of its US SUV fleet by 25 per cent by 2005. In 2003 it made public that this target would not be met; up until then, it had achieved an improvement of only 5 per cent. More fuel efficient SUVs were to be introduced and the Excursion was phased out in 2004. But the target had been set too high because new technologies had been stalled and financial difficulties plagued the firm. In combination with continued high demand for SUVs this explained the lack of goal attainment. Regarding its average fleet fuel economy, Ford’s European sales are markedly better than those in the US; for the year 2000 models the difference was 33.1 mpg for Europe and 23.9 mpg for the US. In the European market Ford was able to achieve reductions as a result of direct injection diesel technology developed in partnership with PSA. In the US market it employed formative strategies to lobby against the imposition of stricter CAFE standards as demanded in Congress. According to Ford the proposed increased standards did not reflect the complexity of issues (meaning economic consequences). For Ford, market-based initiatives and not mandated increases are the preferred way to improve fuel economy. In the development of alternatives to the ICE Ford initially followed the US trend with electric vehicles. These were discontinued in 2003 as a result of a lack in market demand, performance limitations and a strategic shift towards other high-volume technologies. However, the knowledge gained in this area helped in developing hybrid vehicles. Ford had long been critical of this technology based on experiences in the Partnership for a New Generation of Vehicles (PNGV). Around 2000 it recognized the need to develop hybrid vehicles. Ford started out with a SUV hybrid model as this was the segment where it needed most improvement. By 2004 expanding the model range of hybrid vehicles was a top priority. In developing fuel cell technology Ford participated in various partnerships such as with DaimlerBallard and the California Fuel Cell Partnership. Again displaying its formative strike, Ford led a coalition of organizations (NGOs, Toyota Honda) to support performance-based

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federal tax credits for consumers purchasing advanced technology vehicles like hybrids. With regard to post-consumer waste Ford developed a network in Europe where it has a substantial market share. Some of the experiences spilled over to the US in programmes to recycle specific automobile parts. General Motors10 For several decades after the Second World War General Motors (GM) was a general model of corporate success, combining mass production with a divisional structure and advanced marketing strategies developed by Alfred Sloan. By segmenting the organization into divisions based on a diversified product palette GM was able to serve all segments of the market. For a long time GM was the largest global automobile producer. The firm was able to exploit its economies of scale and successfully respond to the demand for fuel efficient cars during the 1970s. Increased competition on the US market from Japanese firms as well as from Ford and Chrysler weakened the position of GM from the mid 1980s onwards. In the European market GM has been active mainly through its subsidiary Opel, but recently European activities have not been successful. Activities in the US and Europe remain strongly separated (see Table 7.3). In 1992 and 1993 the firm experienced major losses and implemented a restructuring programme. In subsequent years profitability was regained mainly by responding to the increased demand for SUVs. During the 1990s GM also played a significant role in the development of electric cars after its CEO announced in 1990 that GM would bring such vehicles to the market before 1998. Its overall position on the US market continued to erode and recently Toyota replaced GM as the largest car manufacturer. GM’s general strategic orientation is based on the ultimate aim of being the world leader in transportation products and related services. It seeks to do so through leveraging its resources worldwide and providing customers with the products and services they want. GM seeks to operate on all global markets in all segments, with a variety of brands: Buick, Cadillac, Chevrolet, GMC, Holden, Hummer, Isuzu, Oldsmobile (phased out in 2004), Opel, Pontiac, Saab, Saturn and Vauxhall. GM builds on the principle that diversity in the marketplace is a key priority. Also, its future success is seen to depend on technology, innovation and partnerships. While active worldwide its main focus remains the US market and within that on the market segment of larger vehicles. It derives over 50 per cent of its profits from the sale of SUVs and like vehicles. GM formulated its environmental principles in 1991. These called for

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Creating ecological value

performance beyond compliance with law. The principles committed the firm to restore and preserve the environment through reducing waste and pollutants, efficient resource use and the development and implementation of technologies for minimizing pollutant emissions. GM declared it would strive for continuous improvement in reducing the ecological impacts of processes and products. In addition, the firm sought to work with governmental agencies in order to develop ‘technically sound and financially responsible environmental laws and regulations’. In its 2000–01 sustainability report GM framed its attention for ecological impact in terms of sustainability. Technological improvement was seen as the most efficient way in which issues such as fuel efficiency and climate change could be addressed. GM’s products rather than its production processes were identified as the major source of ecological impact. It sought to deal with these by speeding up the development and marketing of new technologies while at the same time improving existing technology. Climate change was perceived as a challenge to develop a broad portfolio of advanced technology vehicles which need to balance concerns about climate change with consumer demands for performance, safety, convenience and affordability. In terms of new technologies, GM sought to introduce hybrid technology mainly in larger commercial vehicles, based on the principle that technologies should be deployed where they can provide the maximum benefit. For the long term, fuel cell technology was considered to be the best solution to reduce vehicle emissions, initially powered by fossil fuels, and ultimately by hydrogen. At the same time as describing these solutions, GM explicitly opposed binding targets and regulations set by governments and instead argued for market-based mechanisms to deal with global warming. This market-based logic extended to its product development strategy: GM stressed the balance that must be struck between ecological and consumer demand. GM coordinates its activities towards ecological impact globally through a public policy committee that monitors policy developments worldwide and aims to develop and execute coordinated public policy strategies. An Energy and Environmental Strategy Board sets global goals related to energy and the environment. It also employs routines for Design for Environment and LCA use. Regarding its products GM develops strategies that are framed in terms of a time scale. In the short run it seeks to improve existing ICE technology and car design to improve the fuel efficiency of its models. At the same time it seeks to prevent governmental agencies from setting more stringent standards in this respect. The US standards apply to the average fuel efficiency of cars sold by GM and the firm continually

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argues that the technological improvements it achieves on a model to model basis are not appreciated because consumer demand for larger vehicles with improved performance and features negatively affects its corporate average. In the longer run GM has an interesting profile in terms of developing alternatives to the ICE. During the 1990s the firm had been a leader in the industry regarding the development of electric vehicles. In the late 1980s the idea arose for developing such a vehicle as a radical response to increasingly stringent emission standards. A prototype was shown at the Detroit Motor Show in 1990 and GM’s CEO announced that it would bring an electric vehicle to the market before 1998. Over the ensuing years GM succeeded in developing the technology and production methods necessary to achieve this target. Interestingly, this strategy was combined with fierce opposition to the mandated marketing of so-called zero emission vehicles by Californian legislators. After its introduction in 1996, the so-called EV-1 showed only moderate consumer appreciation; less than one thousand of them were on the roads by the year 2000. As most of them were leased to customers, GM eventually called them back and ended its activities in electric vehicles. In 1998 GM speeded up its R&D in fuel cell vehicles and set up a dedicated organizational unit which aimed to have a fuel cell car ready for production by 2004. It built on earlier efforts. In subsequent years it developed its position in the R&D of this technology quickly to become one of the leaders in the exploration of this alternative technology. In the development of hybrid vehicles and fuel cell vehicles, GM engaged in several partnerships, such as with Exxon and Toyota, the California Fuel Cell Partnership and FreedomCAR. Such partnerships were also instrumental in creating the technology on which GM eventually focused to become an industry standard. Also, its aim was not to be the first on the market with this technology, but rather the first firm to sell 1 million such vehicles. The initial date of 2004 was altered to 2010. GM long remained reluctant to engage in hybrid vehicles but given the success of other firms on the US market it introduced its first hybrid model in 2004 and additional models in subsequent years. Like Ford it applied this technology to SUVs first. In 2005 GM announced a partnership with DaimlerChrysler and BMW to develop a more sophisticated hybrid technology. To the surprise of many industry observers, GM in 2006 revealed the Volt, a concept car which is a battery-powered electric vehicle that uses a gasoline engine to create additional electricity, thereby extending its range. Although no date is set for bringing it to the market, in its perspective on how technology will develop within the industry over time, GM’s electric

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Organizational routines

Definition of ecological value

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leading global player (USA, Europe) focus on customer and stockholder major dependency on US SUV market for revenues since 2000 continued financial problems have led to successive restructuring operations climate change as unproven (until 2000) climate change as the major issue related to products (after 2000) solutions should be market based to make sure that ‘responsible, effective and sound’ regulations and policies are adopted improving the fuel efficiency of SUVs is first priority ability to gain access to knowledge through partnerships strong ability to engage in rule-making networks research on causes of climate change (until 2000) formative strategies to prevent more stringent CAFE standards involvement in R&D partnerships for hybrid and fuel cell technology hybrid SUVs (2004 onwards)

Ford Motor Company

Strategic perspectives of Ford and GM

Generic strategic orientation

Table 7.3

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explicit multiple options in technology development; focus on larger vehicles hybrid technology in SUVs (2004 onwards) involved in leading partnership with Toyota on fuel cell technology partnerships also aim at setting industry standards

experience in electric vehicle technology strong ability to engage in rule-making networks

restore and preserve the environment through reducing waste and pollutants and efficient resource use technological improvement as a basis for solutions help to develop technically sound and financially responsible environmental laws and regulations

global leader reaping benefits of economies of scale seeks to provide customers with mobility solutions they want from 1990 onwards increased dependency on US SUV market segment

General Motors

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vehicles are positioned as an intermediate step between hybrid vehicles and fuel cell vehicles. In dealing with post-consumer waste GM is mainly active in Europe through its subsidiary Opel, where it has developed an infrastructure for dismantling and recycling. As with Ford, some of the experiences have spilled over to the US. DaimlerChrysler11 DaimlerChrysler was formed in 1998 when the German firm DaimlerBenz and the US-based Chrysler merged.12 Daimler-Benz has traditionally focused on high-end markets by selling luxury cars and differentiating products through technological innovation. The focus on technological competence is shown by the acquisitions of Daimler-Benz in the aerospace and electronics industry during the early 1990s. Chrysler has long been the third US automobile firm behind GM and Ford. During the 1970s Chrysler was particularly affected by changing customer demands towards smaller cars. It had not developed a small car strategy because it preferred the larger profit margin of bigger cars. During the 1980s Chrysler developed the minivan, a vehicle that offers the room of a van but drives like a car. As it was classified as a truck the firm was not required to meet costly fuel efficiency and safety requirements. With this vehicle Chrysler initiated the SUV success story. While this led to a recovery for Chrysler, the firm experienced a number of financially disastrous years which resulted in the merger. The brands of DaimlerChrysler include Mercedes-Benz, Smart, Chrysler, Dodge, Plymouth (dissolved in 2001) and Jeep. The firm concentrates mainly on the sales of large and luxury vehicles and relies on its SUV sales for profitability. Throughout the period that is of most concern in this chapter, the firm experienced post-merger problems and increasing criticism from investors who questioned the viability of the merged firm (see Table 7.4). The definition of ecological value for DaimlerChrysler is based on its commitment to conserve natural resources and enhance the quality of the environment. Environmental protection is presented as an integral component of the corporate strategy which aims at ensuring long-term value creation. Technological innovations are seen as ‘invariably advancing the cause of environmental protection’. More specifically, the firm seeks to develop products which are ‘highly environmentally responsible’ in their market segment. In the post-merger process DaimlerChrysler has sought to develop an integrated approach towards dealing with its ecological impact. For this reason it established so-called environmental synergy projects that work

140

Table 7.4

Creating ecological value

Strategic perspectives of DaimlerChrysler DaimlerChrysler

Generic strategic orientation

● ● ●

Definition of ecological value

● ●

Organizational routines

●

Ecological strategies

● ● ● ●

mainly active on luxury cars and SUVs focus on innovation substantial dependency on US SUV market environmental protection is the basis for long-term value creation technological improvement is the basis for solutions strong R&D ability synergies with activities in other mobility systems improvements in diesel ICE technology (Europe) partnership with GM and BMW for R&D in hybrid technology hybrid SUV announced for 2008 first mover in development of fuel cell technology through partnership with Ballard (1989)

in four areas that are considered central: environmental management systems, internal and external environmental communications, environmental criteria for outsourced products (so-called black and grey lists) and the remediation of contaminated sites. Differences are considerable: for instance, all former Daimler facilities have certified environmental management systems while comparable systems needed to be set up in the Chrysler facilities. The advances of DaimlerChrysler in terms of fuel efficiency built to a great extent on the improvements of diesel technology which was applied mainly to the vehicles it sold on the European market. For alternatives to the ICE the firm built on a longer history of research at Daimler-Benz and benefited from its expertise in other forms of mobility, such as trains. During the 1970s and 1980s Daimler-Benz carried out extensive research on electric vehicles, fuel cell technology and hybrid vehicles. In the early 1990s the firm developed several prototype electric vehicles; but after 1995 R&D in electric vehicles was scaled down. In 2001 DaimlerChrysler purchased General Electric Motorcars. DaimlerChrysler for a long time was sceptical about hybrid vehicles due to their cost and complexity. In 2005 the firm entered into a strategic alliance with GM and BMW to develop hybrid technology which aimed at higher performance and also on long distances. The firm expected to market a hybrid vehicle in 2008. In contrast with its late adoption of hybrid technology DaimlerChrysler was an early leader in the development of fuel cell vehicles. This role

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Table 7.5

141

Percentage unit sales of automobile firms in three regions, 2005

Honda Toyota GM Ford DaimlerChrysler PSA VW

EU

Japan

USA

Worldwide

8 13 22 37 19 69 63

22 32 11 n.a. 1 n.a. 1

49 31 58 50 63 n.a. 7

100 (3 242 000) 100 (7 408 000) 100 (9 100 000) 100 (6 818 000) 100 (4 030 000) 100 (3 390 000) 100 (4 670 000)

Note: DaimlerChrysler sales for EU and Japan are Mercedes brand only. n.a.: not available. Sources: Honda, GM, Toyota: annual report 2006, DaimlerChrysler, PSA, VW, Ford annual report 2005.

dates back to the late 1980s when Daimler-Benz developed knowledge on this technology through its aerospace activities. A few years later the firm developed a joint venture with the Canadian firm Ballard, which at that time had superior knowledge on fuel cells. Given the advances that were made, especially in the reduction of weight and size of the fuel cell, Daimler-Benz stepped up its R&D towards mass production. In 1997 Ford joined the partnership and brought in its expertise on electric drive trains. A year later the firm projected that it would be able to bring a fuel cell vehicle to the market in 2004. Investments and staff devoted to the development increased considerably. By 2003 the firm was less convinced of this date, and a competing alliance between GM, Toyota and ExxonMobil challenged its leading role.

ISSUES IN GEOGRAPHICAL REGIONS Firms in the automobile PCS have developed as local providers to national markets with governments actively protecting these markets from foreign competition.13 Especially since the 1980s the industry has become increasingly international or even global. But automobile firms still have a considerable regional market basis (Table 7.5). These regions are not my selection; they are routinely used by firms themselves as well as analysts of the sector. VW and PSA sell the majority of their vehicles in Europe and GM, Ford and DaimlerChrysler rely to a great extent on the US market for their sales. Honda and Toyota have substantial positions on the US market as well as on their home market. But they are

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dominant on the Japanese market; other producers have negligible sales there. These percentages are a first indication that firms face different contexts depending on their region of origin.14 In the sections that follow the distinct character of these regions is described around the three central issues within the PCS: CO2 emissions, alternatives to the ICE and end-of-life vehicles.

FROM FUEL EFFICIENCY TO GLOBAL WARMING In terms of definitions of ecological value all firms in 2006 considered the contribution of their products to global warming as the major ecological impact that they had to consider. This particular issue gained general attention during the 1990s. Coordinated efforts of scientists assessed by the Intergovernmental Panel on Climate Change (IPCC) have led to broad acceptance throughout the world that the emission of CO2, to which transport activities contribute considerably, is a major cause of changes in the earth’s climatic system. Firms differ considerably in their timing of accepting this view as well as the way in which they translate it into action. In the USA, GM, Ford and Chrysler have been early members of the Global Climate Coalition, an advocacy organization founded in 1989 which united a number of mainly US firms that criticized the claims of the IPCC and successfully lobbied against regulations that aimed to reduce CO2 emissions. They resigned as members in the period 1999–2000.15 Subsequently these firms tended to formulate climate change as important because it influences consumer demand and regulators. In contrast, firms such as Toyota have acknowledged climate change as an ecological problem with potentially disastrous consequences and base their actions on that recognition. Short-term solutions to deal with CO2 emissions are without exception formulated in terms of improving the fuel efficiency of the ICE. This links current events to discussions originating in the 1970s. The reason for this is the direct link between CO2 emissions and fuel efficiency.16 For consumers fuel efficiency is part of the trade-off in buying a new car, which is influenced by the price of fuel. As a result of sharp increases in oil prices during the 1970s automobile firms have been confronted with consumer and governmental demands to increase fuel efficiency. Partially as a result of differences in fuel prices in the three regions this demand has operated with different force on firms. In the US market it has been the weakest and since the beginning of the 1980s a general trend towards less fuel efficiency can be noted (Table 7.6).

The automobile PCS

Table 7.6

Change in car fleet CO2 emissions per manufacturer on the US market

Combined New Car and Light Truck Fleet

Average per Vehicle CO2 Emissions 1990

2005

% Change

Ranking Based on 2005 Emissions

5.38 5.49 5.54 4.73 4.34 4.69 5.24

5.54 5.74 5.81 4.59 4.53 4.75 5.32

3.0 4.7 4.8 –3.0 4.4 1.3 1.5

4 5 6 2 1 3

General Motors Ford DaimlerChrysler Toyota Honda Volkswagen Overall Source:

143

DeCiccio et al. (2007).

The trend shown here is to a great extent the result of the introduction of so-called sports utility vehicles (SUVs) by US-based firms. These quickly became a success with US consumers during the 1990s. GM, Ford and Chrysler were eager to build on this success as SUVs provided a much larger profit margin than smaller vehicles: a difference of up to 15 per cent. Market shares rose from 1.8 per cent in new vehicles sales in 1980 to over 25 per cent in 2002. During the 1990s SUVs were the means for US firms to return to profitability; for Ford and GM, SUV sales were estimated in 2002 to contribute up to 70 per cent of their profits.17 In the competitive landscape SUVs also were important as for a long time they were dismissed as a passing fad by foreign firms operating in the US market.18 The increased share of SUVs, however, decreased the fuel efficiency of car manufacturers’ fleets because of their size, shape and weight. In the US, federal regulations concerning fuel efficiency have a tradition going back to the first oil crisis.19 So-called CAFE standards have been developed for cars and light-duty trucks. As a result of substantial lobbying by firms these standards have not been raised between 1985 and 2006.20 Moreover, US firms have successfully lobbied for lower standards for SUVs. In addition CAFE introduced credits for flex-fuel vehicles, cars that can run on ordinary fuels as well as biofuels. These credits have led US firms to develop such vehicles even if consumers fill them up mainly with gasoline because of a lack of availability of biofuels. The credits that firms receive allow them to continue to produce relatively fuel inefficient models such as SUVs. In European markets the average fuel consumption of vehicles is lower

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Table 7.7

Reductions in CO2 emissions by brand in the EU

Brand

Citroën (PSA) Peugeot (PSA) Ford Opel (GM) Toyota Honda Mercedes (D/C) Volkswagen (VW) Audi (VW) Skoda (VW) Source:

Average per Vehicle CO2 g/km 1997

2005

% Target Achieved

172 177 180 180 189 184 223 170 190 165

144 151 151 156 163 166 185 159 177 152

115 94 95 81 76 60 59 48 35 71

T&E (2006).

than in the US. Reflecting the contribution of transport to climate change, the EU announced a strategy in 1996 to reduce CO2 emissions from passenger cars. Negotiations with the industry resulted in a voluntary reduction plan for passenger cars from the European Automobile Manufacturers Association (ACEA).21 The aim was an overall decrease in CO2 emissions by 25 per cent to an average of 140 g/km. Around 2006 it became clear that the industry would not meet this target. Table 7.7 shows that with the exception of PSA all firms at that moment were still challenged by their self-set targets for 2008. Overall a reduction of 13 per cent had been achieved. The ACEA countered criticism by highlighting the advances made and the fact that several producers have brought more fuel efficient vehicles to the market. More generally it reiterated an ‘integrated’ approach which was also reflected in the position taken by VW: CO2 reduction could only be achieved through the efforts of all stakeholders involved and car makers had done their part by developing more fuel efficient vehicles. The European Commission nevertheless moved forward to develop legislation. A process of intense lobbying followed in which German firms played a large role, given their poor performance relative to producers such as PSA and Fiat. They allied with European units of Ford and GM and sent a letter to the Commission’s President stating that there would be severe negative economic consequences if the proposed legislation would be enacted. They also argued that ‘reducing CO2 emissions through vehicle technology is the most

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expensive and least cost-effective option for society’.22 Eventually a compromise was reached in which a binding target of 130 g/km by 2012 was set, which is to be reached by improved vehicle technology. An additional 10 per cent had to be reached through modifying tyres, air conditioning systems and a greater use of biofuels. Despite keeping a united front through ACEA, the data in Table 7.7 shows substantial differences among firms and reveal the interplay between the ecological strategies they employ and their market strategies. VW, for instance, was committed to incremental innovations to improve the fuel efficiency of the ICE. Yet the models it brought on the market with these improvements were sold in insufficient numbers to contribute to achieving its self-set goals, especially combined with the efforts of VW to position itself in the luxury market. Comparing the achievements in fuel efficiency in the US and European markets also reveals that some firms perform markedly different: Ford was able to significantly improve the average fuel efficiency of its European sales while at the same time its performance on the US market in terms of fuel efficiency was worsening. This is strong evidence that the regional markets forge distinct strategies from firms. It also draws attention to the fact that these tables do not represent the performance of firms; instead they map the result of the interaction between their efforts and the buying behaviour of consumers. As a result of its high dependency on foreign oil, the oil crisis of 1973 induced the Japanese government to develop a general law concerning the rational use of energy in 1976. In 1979 the Energy Conservation Act was issued which contained for the first time fuel efficiency requirements for automobiles. Targets were increased during the 1990s and after Japan signed the Kyoto Protocol in 1997 the general law of 1976 was revised and the TopRunner approach was introduced. In this approach targets were set based on the best performing firms. Fuel efficiency standards for cars were set to reach an improvement of 23 per cent for gasoline cars and 15 per cent for diesel cars in 2010, as compared with 1995. These goals were already achieved in 2007. This prompted another raising of the required levels by 2015, an example of stimulating continuous improvement by raising the mandatory bar based on achieved increases in fuel efficiency. Contrary to the schemes in the US and the EU, the Japanese standards were set for individual weight classes rather than as an average for the total vehicles sold by a firm. Thus, poor fuel efficiency in one weight class originally could not be compensated by improved fuel efficiency in another class. As a result of protests from European and US firms the government revised the programme so that such compensation was allowed to some extent.23

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ALTERNATIVES TO THE ICE In the early development of motorized transport several competing technologies were developed, but eventually the ICE emerged as the dominant design.24 When local air pollution and oil scarcity became wide public concerns during the 1960s and 1970s most firms were involved in the R&D of vehicles based on alternatives to the ICE, such as fuel cell technology, electric vehicles and hybrid technology. In all three regions governments supported the exploration of such alternatives in response to the oil crises of the 1970s.25 No significant commercial activities emerged from these efforts and with the diminished threat of oil scarcity the need for alternatives withered. But by the end of the 1980s the perceived need for an alternative to the ICE again increased. In France the research on electric vehicles dates back to the 1960s when the national electricity producer Électricité de France (EdF) and car manufacturers developed a joint programme to explore fuel cells.26 This eventually led to research into battery-powered electric vehicles (BEV). When EdF started working with a group of potential users, such as the Paris airport and the French postal service, it quickly became clear that their demands could not be met with then-current battery technology. In the early 1990s there was substantial concern among national policy makers about the worsening air quality in French urban centres. This concern was fed by an epidemiological study issued in 1994 which established a relationship between atmospheric pollution and human health in the greater area around Paris. Initiatives from politicians to stimulate BEVs were helped by the fact that electricity production relied mainly on nuclear power plants. A move into BEVs would thus contribute considerably to a reduction of atmospheric pollution. As the density of French urban centres led to the majority of car trips covering less than 10 km, the limited range of BEVs became less of a critical issue. Furthermore, the high taxes imposed on gasoline made alternative fuels attractive to consumers. In 1992 a so-called Accord Cadre was signed aiming to develop electric vehicles. This voluntary agreement was coordinated by the Ministry of Industry and included the Ministry of the Environment, PSA, Renault and EdF. The agreement was formalized in 1995 and aimed to reduce local air pollution and CO2 emissions by bringing onto the French roads at least 100 000 BEVs in 1999. Financial support for buyers was arranged and an additional law was passed to stimulate public agencies and national corporations with a car fleet of over 20 cars to have at least 20 per cent BEVs. However, none of these rules was backed up by formal penalties. The active role of the government is further illustrated by the fact that several

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local authorities developed car sharing programmes that also acted as pilot projects for the automobile firms. As late as the end of 2002, the 1999 target was not met. Nevertheless, France had the most electric vehicles on the roads of any industrialized country and PSA currently is the world leader in BEVs. Most of these cars are part of the fleets of municipalities and utilities. This development was an example of the active involvement of French government in industrial development and the resulting resource networks were characterized by closed relationships among governmental officials and industry representatives and lack of conflicts fought out in public media or the courts. Notably, environmental groups were largely absent in the development of the electric vehicle. As most of French electricity is produced in nuclear plants they would support BEVs only if the electricity they used did not come from a nuclear source. In the early 1970s the Japanese Ministry for International Trade and Industry (MITI) started to support the development of alternatives for the ICE.27 The general approach of MITI was to guide industrial restructuring and development of strategically important sectors through developing Visions and related plans which focus on R&D as well as market development. MITI coordinated the activities of relevant actors that were involved in such plans. For the automobile industry the vision sought to reduce energy dependency and local air emission, and BEVs were seen as the technology to achieve these aims. Although the governmental support spawned R&D as well as targets regarding the procurement of BEVs, activities remained modest due to slower than expected technological progress, as well as less urgency due to stabilizing oil markets. Nevertheless, firms like Honda and Toyota engaged in partnerships with suppliers to develop various new components for electric vehicles. In addition to these bilateral partnerships, multilateral cooperation, for instance through the Japan Electric Vehicle Association (JEVA) and MITIsponsored R&D programmes, ensured that newly developed knowledge was diffused through the inter-firm network. In 1991 MITI issued a more aggressive plan for stimulating the development and market entry of BEVs as a result of the increased urgency of global environmental and energy issues, as well as regulatory developments in California which affected major Japanese firms. The Californian initiative also led firms like Toyota and Honda to intensify their R&D activities. They developed core technologies such as electric traction inhouse while partnering with potential future suppliers in the development of battery technology. Around 1996 it became clear that the targets for market penetration set up by MITI would not be met. It proved difficult to set up a network of charging stations and consumer demand was weak.

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Public procurement did not bring solace; due to the economic downturn governmental agencies simply could not afford to buy new vehicles. Soon afterwards Toyota and Honda launched their hybrid vehicles on the Japanese market. Hybrid technology had not been part of MITI’s plans because it still made use of the ICE and for that reason was not considered to be an answer to the problems of energy dependency and CO2 emissions. But after they were launched on the market MITI included hybrid vehicles in a subsidy programme which helped to increase market penetration. Induced by the oil crisis of 1973 the US federal government provided substantial funding for the development of technology for BEVs from 1976 to 1983.28 This did not lead to the introduction of any electric vehicle to the market, and funding was stopped by the Reagan administration. In 1993 the federal government and the three US-based firms formed the Partnership for a New Generation of Vehicles (PNGV), a collaborative research programme which aimed to bring fuel efficient cars (80 mpg) to the market by 2003. This partnership provided these firms with funds and knowledge concerning hybrid and fuel cell technology. In addition to these federal programmes, California’s state legislation played a major role in the developments during the 1990s and beyond. Over several decades the California state government developed a record of passing stringent legislation to reduce air pollution of cars in response to longstanding problems in the Los Angeles area. Given the size of its market and the fact that its legislation has several times proven to be preceding federal rules, California’s initiatives are closely monitored by automobile firms. In 1989 GM introduced a prototype electric vehicle and announced that it expected to commercially launch BEVs in six to eight years time. The California Air Resources Board (CARB), which searches for ways to reduce local air pollution, took this as a signal that zero emission vehicles (ZEVs) were technologically feasible. It developed a ZEV mandate; legislation that mandated major producers for the California market to sell a certain amount of ZEVs with increasing sales percentages from 1998 to 2003. This mandate was also seen by the state government as an attempt to spawn new industrial development in the many supporting technologies necessary to produce such vehicles. As other producers had been developing BEVs as well, the electric vehicle emerged as the dominant ‘alternative to be developed’ in the period until 1996, with GM considered the leading firm. Around 1990 it became clear that BEV technology needed to be developed further to allow market introduction and thus there was uncertainty as to whether the demands of the mandate were feasible. For this reason

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CARB decided to review the advances made every two years. The agency also organized workshops in which various interested parties were invited to bring in their knowledge and interests. Progress was also monitored by CARB’s staff, which consisted of hundreds of scientists and engineers. The CARB regulation was under debate for most of the 1990s. It received substantial media coverage and was the topic of attempts by firms to influence public and political opinion. Oil companies and car manufacturers opposed the demands through media campaigns and aggressive lobbying and filed several lawsuits to try and overturn the CARB rules, which had also been adopted by two other states. Firms that stood to benefit from the introduction of electric vehicles, such as electricity companies, employed similar formative strategies in defending the mandate. In addition to their formative strategies US automobile firms responded by creating the US Advanced Battery Consortium (USABC), a collaboration with the Electric Power Resource Institute and the Department of Energy. The consortium aimed to improve battery technology which was considered to be vital for meeting the ZEV demands. In the period 1991–95 several producers developed BEVs and tested them on the California market in collaboration with fleet-owning organizations. In the 1996 biennual review, progress in battery technology was evaluated and found to be wanting, and as a result, the 1998 requirements of the mandate were dropped. This seemed to be a result not only from the lobbying of firms but also from the fact that the criteria used in the biannual reviews had shifted. In the first reviews a broad definition of consumer acceptance was used, which acknowledged the need of experiential learning among users. Also, performance criteria were defined broadly and included environmental performance, level of maintenance and noise produced; all criteria on which electric vehicles scored positively. Around 1996 criteria became more narrowly defined and focused on costs and performance comparable with ICE engines, in line with the perspective upheld by automobile firms. After 1996, led by GM, all major firms introduced BEVs to the market, mostly leasing them to consumers. In developing these alternatives to the ICE, firms formed multiple partnerships with battery manufacturers and suppliers of other components. In terms of BEVs appearing on Californian roads the results remained modest. Car manufacturers generally attributed this to low consumer demand as a result of low performance when compared to then-current ICE models. However, there were also indications that firms had resisted reacting to consumer demand and had fulfilled only the minimum requirements of the ZEV mandate. Eventually all producers terminated their BEV programmes in the US in the years 2000–04. From 1997 onwards there was a shift in emphasis from electric vehicles

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to fuel cell vehicles (FCV). There had been a lack of progress in battery technology as well as an alleged lack in consumer demand for electric vehicles. Fuel cells have a history dating back to the 1960s, when GM developed a prototype of a fuel cell car. The weight of the fuel cell made commercial application impossible and only during the 1980s were advances made that made it a viable prospect, especially through advances pioneered by a Canadian company, Ballard. Daimler-Benz recognized the potential of Ballard’s work and established a partnership in 1993. Such recognition was not trivial: fuel cell technology is primarily chemical and thus lies outside the competence of car producers. At the same time, propulsion technology is at the heart of the technical capabilities of these firms. If fuel cells are to develop to become the dominant technology in the automobile sector then it was seen as vital to develop the necessary competencies. The step by Daimler was consistent with its espoused strategy being based on technological excellence. When Daimler introduced its interest in this technology through the unveiling of a prototype, other car manufacturers followed. GM and Toyota started their in-house development in the early 1990s. After 1997 firms collectively shifted towards FCVs as the main focus of long-term R&D. In 1998 Ford joined the Daimler–Ballard partnership and brought in its expertise on electric drive trains. Toyota and GM formed a competing partnership which quickly caught up with the achievements of the competing partnership. Moreover, in 1999 CARB and the California Energy Commission established the California Fuel Cell Partnership. This was a collaboration with several automobile firms, Ballard, oil firms and governmental agencies. Initially aiming to catalyze the successful commercialization of fuel cell vehicles around 2003, it later implemented projects that aimed to demonstrate the potential for FCVs, making commercial application possible in the longer run. Projects were aimed not only at vehicle technology, but also at the necessary infrastructure technology. In France, Renault and PSA announced government-supported collaboration in 1999. Although several firms announced the intended commercial launch of their FCV around 2004, this deadline was not met. Most producers now state that commercial application can be expected around 2020. Parallel to these R&D efforts, Toyota and later Honda introduced hybrid vehicles to the US market, and the Prius especially met with considerable success. In 2007 Toyota announced that cumulative sales of hybrid cars had reached 1 million units, a goal which was originally set for 2010. Other car producers had considered hybrid vehicles but only after Toyota’s success did they decide to develop commercial models. They displayed distinct approaches to this. Ford has licensed technology from

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151

Toyota, and GM (formerly publicly dismissing the hybrid) entered a partnership with DaimlerChrysler. PSA aims to develop the hybrid concept step-wise, with an electric motor to stop and restart the car as a first phase. The commercialization of the hybrid car has thus been led by Japanese firms with other firms lagging behind considerably.

POST-CONSUMER WASTE: DEVELOPING ELV NETWORKS29 For a long time cars have been subject to a high rate of reuse and recycling. A substantial percentage of cars goes through a number of owners before they are finally discarded. They then enter the stage of dismantling where usable parts are recovered and used again. The resulting waste has a high steel content which can be recycled. The remaining fraction is called automobile shredding residue (ASR) and traditionally has been landfilled. One of the more general trends in automobile production during the 1980s has been to increase the use of various plastics such as in car bumpers. As a result the amount of ASR increased, which in several countries led to problems with landfilling ASR. This led the EU to identify the post-consumer waste of automobiles as a priority waste stream in 1989. This initiated substantial activities among firms to explore the possibilities of dealing with post-consumer waste. In the member states the industrial structure in which cars are collected, dismantled, recycled and disposed of differs considerably. Dismantling a car depends on the way it is put together and thus represents different challenges for the various models of different firms. As a consequence firms developed their explorative activities within their country of origin, often collaborating with national governments. Through the EU involvement and ACEA there was also considerable exchange of knowledge, for instance, in developing manuals for dismantling. In several countries these activities led to national regulations or voluntary agreements between government and industry. In Germany the national government drafted regulation that makes automobile firms responsible for the recycling of discarded vehicles in 1990. In response firms collectively lobbied to convince the government that responsibility has to be shared with suppliers of parts, dismantlers and shredding firms and costs have to be dealt with through the market mechanism. At the same time they developed R&D into the possibilities of recycling and dismantling. Here firms developed distinct approaches, such as Daimler-Benz exploring the possibility of metallurgic recycling. Furthermore firms developed distinct approaches to organizing the post-consumption network. Opel, GM’s European subsidiary, and Ford Europe developed dedicated networks of

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Creating ecological value

dismantlers while VW and DaimlerChrysler opted for contracting a third party to take care of recycling ELVs. In France the leading shredding firm CFF put the issue of ELVs on the agenda as it experienced increasing landfill costs. It proposed to use ASR to fuel cement ovens, an option which was explored in collaboration with PSA. The national government became involved in the issue as it became clear that the EU was preparing regulations and in 1993 formulated a voluntary agreement with firms that stated a maximum percentage for ELV disposal and left it to the firms involved and the market mechanism to choose specific technologies and distribution of costs. This permitted a further development of a general structure where so-called ManagersDistributors, often subsidiaries of shredding or dismantling firms, were contracted by automobile firms to organize the post-consumer waste. Based on the experiences in Germany, France and other member states the EU proposed a Directive in 1997 which took extended producer responsibility as a basic principle. It required firms to take back cars from their final owners free of charge, set standards for dismantling and treatment operations and placed limitations on the extent to which ASR could be treated through energy recovery. Automobile firms as well as dismantlers and shredders opposed many elements of the Directive, such as the restriction on energy recovery from ASR. Only after a controversial process of consultation did the European Parliament approve the final text of the Directive in 2000. The preparation of and requirements from the EU Directive led firms that have substantial European activities (VW, PSA, Ford, DaimlerChrysler and GM) to develop practices regarding design for dismantling and recycling which were combined with the use of LCA studies to assess the impact of choices made during the design process. In addition these firms developed distinct networks with firms active in the post-consumption stages of the product life cycle. These networks were nationally specific, reflecting differences in industry structure and involvement of national governments. During the 1990s problems around discarded automobiles increased in Japan as a result of uncontrolled dismantling activities and lack of space for landfilling ASR.30 General regulations on waste and recycling provided a first impulse to deal with these problems. In 1997 the Japan Association of Automobile Manufacturers (JAMA) announced a voluntary initiative to increase ELV recycling to 85 per cent in 2002 and 95 per cent by 2015, targets that were similar to European voluntary agreements. In addition to JAMA, parties to the agreement were MITI and industry associations of other firms in the product chain. JAMA agreed to develop guidelines for including recoverability considerations in the design stage and the sharing of information among involved firms. Individual car producers

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committed to the recycling percentages and agreed to provide assistance to dismantlers and to develop technology for energy recovery from ASR. Individual firms like Toyota had already taken steps before 1998, such as marking parts, reducing the number of materials in new cars and starting to use recycled material in new models. As the issue of waste disposal arose on the political agenda in Japan the national government adopted a new regulatory framework that aimed to create a sound material-cycle society in which resources are used efficiently, reused and recycled. The framework was based on the principle of extended producer responsibility and mandated producers to take back products after they had been used. Consumers paid a fee that covered part of the expenses that had to be made in dealing with the waste. Vehicle recycling was considered to be a key step in establishing a recycling-based economy in Japan, so as part of the framework a specific law for end-oflife vehicles was adopted in 2002 aiming to increase the recycling of airbags and ASR of the 5 million ELVs generated every year. The law which came about after consultation with JAMA became active in 2005. It set a target for the recycling of 70 per cent of all ASR by 2015. Firms like Honda and Toyota have invested in the development of ASR recycling technology as well as in developing an infrastructure to be able to recover ELVs. As in the EU, regulations on ELV and the resulting activity of firms in developing recycling technology have led them to consider recoverability in the phase of product development. As a result of the new law the resource network around ELV waste has changed. Whereas previously many small companies dominated the dismantling stage, larger firms have now entered this step as well as manufacturers and dealers as part of their extended producer responsibility. Also, integrated firms that combine the activities of collection, dismantling and shredding have entered the market. In contrast with developments in Japan and the EU, in the US there has been no specific regulation concerning ELV waste and ASR. In 1991 GM, Ford and Chrysler created the Vehicle Recycling Partnership, which is devoted to conducting research on (design for) recycling. In addition, firms have developed their own initiatives, partly in response to regulatory developments in the EU and Japan. There they need to conform to local regulations, and are thus forced to deal with ELVs sold on these markets.

ANALYSIS AND CONCLUSIONS All seven firms discussed above can be classified as operating from the dynamic strategic perspective. The basis for this is that each of them

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introduced improvements to existing products which remain within the bounds of the current technological paradigm. Moreover, all firms stated explicitly in their definition of ecological value that technological advances are considered as crucial in dealing with the ecological impact of their products. However, there are substantial differences among firms. These may best be represented by taking the dynamic type as a continuum between the stable and transformative type. Then a clear pattern emerges. US-based firms GM, DaimlerChrysler and Ford tend more towards the stable strategy type. They combine a continued market strategy of SUVs with modest improvements in the fuel efficiency of their models and continuously employ formative strategies that seek to pre-empt governmental regulation. Honda and Toyota both tend towards the transformative type as they combine more substantial improvements in fuel efficiency of the ICE with the early development and marketing of hybrid vehicles. While an ICE is still the main propulsion system, hybrid vehicles constitute a first step towards an alternative technological trajectory as an electric propulsion mechanism complements the ICE. This requires alternative technology and the establishment of partially new resource networks of knowledge development and material and energy resources. VW and PSA can be positioned in between the US-based and Japanese firms with a more determined approach towards improving the fuel efficiency of its vehicles which depends to a great extent on diesel technology, and introducing more substantial incremental improvements of the ICE. All firms are engaged in R&D efforts exploring technologies that might be a basis for a transformative perspective. Such explorations can be seen as the more fundamental research that is done by dynamic firms. Making such efforts public is at least partially a formative strategy which helps to ensure governmental agencies that they are not ignoring the issue of global warming. Also, in other respects it is clear that firms are not considering a transformation of the PCS in the short run. Firms like VW are explicit about this: they see the period until 2020 as a transitional phase where the ICE will still be a main basis for the industry. Also, most firms stress that a major issue is to strike a balance between the reduction of ecological impact and consumer demands relating to other performance criteria. This assessment of consumer behaviour is underpinned by the lack of success of vehicles that are based on a different trade-off, such as VW’s 3-litre car and the electric vehicles in California. The only exception in this sense is PSA, which has built up a small niche in electric vehicles. Framing change in this way, firms are reluctant to introduce vehicles that deviate too much from existing products. While exploring or cautiously introducing alternatives, the production of privately owned vehicles propelled by ICEs remains their profit base. This dual strategy is

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characteristic for dynamic firms which by nature combine existing products with new ones. The way in which elements of the strategic perspectives are shaped through interactions within resource networks becomes apparent around the three issues of ELV, fuel economy and alternatives to ICE. The ELV issue shows how an ecological issue which is prioritized by governmental agencies announcing new rules becomes the trigger for the development of interlinked new resource networks around materials, knowledge and rules. This issue has nationally specific characteristics in terms of the distinct networks of dismantlers and shredders. As their efforts are indispensable automobile firms connect to these national networks to develop knowledge and material exchange relationships. These have the dual aim of preparing activities that enable them to fulfil their obligations if some rule is set, while at the same time they provide knowledge that helps to influence the exact shape of regulations. Based on this knowledge firms operate collectively in rule-constructing networks with the general aim to prevent regulations, opting for voluntary agreements that allow them maximum freedom. In the EU firms were successful in this respect and consequently there was diversity in the way they dealt with the issue even within the same national context. In Japan firms first tried to pre-empt legislation by developing a voluntary initiative, but this was superseded by legislation. In the US comparable regulatory initiatives were lacking. Although they developed some activities in their home market US-based firms were mainly active on the issue through their European subsidiaries. In dealing with the issue of improving fuel efficiency firms have displayed variety in a different way. As fuel economy has been a recurring issue for all firms since at least the 1970s, they each have organizational routines that have served them well and which guide their strategies in a specific direction. US-based firms have to conform to regulatory standards that are modest and firms are successful in resisting attempts to make them stronger through employing formative strategies in rule-constructing networks. They also resisted, for a longer period, the association of their products with the issue of global warming. Their general strategy is based strongly on the principle of serving the demands of customers, which they interpret as a demand for larger vehicles. Within the Japanese and European region, firms have a longer tradition of developing fuel efficient cars. They acknowledged the issue of global warming as having a central ecological impact on their products much earlier than US firms and their routines have helped them to increase fuel efficiency. Within this general trend firms have displayed variety in the exact technologies that have been developed and the extent to which all models, or only specific models, have

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been made more efficient. European firms in particular have employed diesel technology as a basis for more fuel efficient vehicles. These activities are also shaped by their material exchange networks which differentially engage suppliers into such incremental innovations. Despite their ability to reduce the CO2 emissions of their products, European firms remained opposed to stricter regulations and through engagement in the EU rule-constructing network they succeeded in pre-empting regulation by means of a voluntary agreement. This agreement failed to meet its target. Japanese firms are similar in this respect; they also increased the fuel economy of their products, and Japanese regulation is influenced by their efforts, making the targets relatively modest. Thus, in each of the regions the strategy of incremental improvement of the ICE is combined with formative strategies that are often conducted through interest associations. In addition individual firms are able to develop linkages to governmental actors in other regions through becoming a member of these associations or by lobbying individually. Apart from this variety, which corresponds to their home base, firms are internally fragmented in the sense that they perform differentially within the different regions, as can be seen by comparing Tables 7.6 and 7.7. This is strong evidence that the differences in the performance of firms can be viewed as a result of the interacting influence of consumer demand and regulation in the three geographical regions. These differences exist not only in terms of governmental regulations, but also in the way in which fuel economy is measured. The fuel efficiency of a vehicle is established by letting it perform a driving test. These tests are different for each of the regions and as a consequence the same model has different scores on fuel economy depending on what driving cycle is used.31 Further differences are the result of other measures, most notably fuel taxes, which are combined with fuel economy standards by governments to reduce greenhouse gas emissions. Especially in the EU this has led consumers to drive less, and induce firms to focus on fuel efficiency.32 Firms adapt to these differences, and as a consequence their performance differs depending on the region that is studied. When sales are predominantly in one region, this will affect their overall strategic perspective. This explains the emphasis given to improving overall fuel economy (low for US firms, higher for EU and Japanese firms), as well as influences the technologies used for doing so.33 Regarding the issue of developing alternatives to the ICE, firms are engaged mainly in resource networks of knowledge development and rule construction. Firms like Honda have a preference for in-house R&D, but it participates in knowledge development networks with Toyota and the Japanese government. The ZEV mandate issued by CARB induced

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the emergence of a network in which knowledge development and rule construction go hand in hand. Over time the emphasis has shifted from electric vehicles to FCVs. The influence of the ZEV mandate is also visible in the timeline that firms use. Collectively they have used the deadlines of the ZEV mandate (1998 and 2004) as dates when new technologies will be introduced. GM and Ford in particular combine their explorations with substantial formative strategies that seek to prevent any regulatory demands on introducing alternatives. This is in line with their stated preference for market-based solutions. There are two instances in which alternatives are actually introduced. The first one is the commercialization of hybrid vehicles. This development is led by Japanese firms and as they meet with success other firms are forced to develop hybrid vehicles themselves. The second one is the introduction of electric cars in France. Although a small niche, it represents an example of the viability of this technology which is the result of combined resource networks of rule construction, knowledge development and material exchange which have been actively coordinated by the national government.

NOTES 1. 2. 3. 4. 5. 6. 7.

8. 9. 10. 11. 12. 13. 14. 15. 16.

Womack et al. (1990). Cowan and Hultén (1996). ACEA (2008). JAMA (2008) and Cooney and Yacobucci (2005). This description is based on Jürgens (1998), Austin et al. (2003), and annual and environmental reports of Volkswagen Group from 2000 to 2007. Based on Loubet (1998), Austin et al. (2003), and annual and environmental reports of PSA Peugeot Citroen from 2000 to 2007. Based on Shimizu (1998), Austin et al. (2003), Van den Hoed (2004), Autozine (2008), The Economist (2005, 2007), Taylor (2006), annual reports TMC 2000–07, environmental reports 1999–2002, environmental and social reports 2003–05 and sustainability reports 2006–07. Based on Mair (1998), Austin et al. (2003), Van den Hoed (2004) and Honda annual environmental reports 2000–06. Based on Bordenave (1998), Austin et al. (2003), Van den Hoed (2004), Smith (2005), Business Week (1998), Ford Motor Company annual reports 2000–07, environmental report 1999 and Corporate Citizen reports 2000–04, sustainability reports 2005–06. Based on Flynn (1998), Shnayerson (1996), Austin et al. (2003), Van den Hoed (2004), and GM corporate responsibility and sustainability reports 2000–06. Based on Belzowski (1998), Van den Hoed (2004), Austin et al. (2003) and DaimlerChrysler annual and environmental reports 2000–06. The merger was dissolved in 2007. Wells (1974). See Kolk and Levy (2004) and Mikler (2006, 2007). Levy and Rothenberg (2002). An and Sauer (2003).

158 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

Creating ecological value Luke (2001, p. 8). Austin et al. (2003). In the US market the state of California has a special position when it comes to regulations concerning the emissions of cars. This issue is taken up below. With the exception of a slight raise for light trucks in 2003 (Austin et al., 2003). CEO (2007) and Beise and Rennings (2005, p. 13). CEO (2007, p. 3). Plotkin (2001), Mikler (2006) and Kuik (2006). Kirsch (1997). Cowan and Hultén (1996). The description of French developments is based on Callon (1980), Cowan and Hultén (1996) and Calef and Goble (2007). This section is based on Åhman (2006) and Patchell (1999). The description of US and Californian developments is based on Cowan and Hultén (1996), Shnayerson (1996), Steinemann (1999), Brown (2001), Van den Hoed (2004), Dyerson and Pilkington (2005) and Calef and Goble (2007). The EU description is based on Zoboli (2000), Mazzanti and Zoboli (2006), Den Hond (1996, 1998) and Orsato et al. (2002). The description of the Japanese ELV developments is based on Zoboli (2000), JETRO (2006), Ogushi and Kandlikar (2007) and Sakai et al. (2007). An and Sauer (2003). Ibid. (p. 2). See also Kolk and Levy (2004) and Mikler (2006).

8.

An evolutionary approach towards the strategic perspectives of firms

By analysing the strategic perspective of firms within the context of resource networks the case studies of coffee and automobiles show the complex dynamics of production and consumption systems. A major theoretical challenge is to develop propositions about these dynamics that provide a basis for future research. For this the two levels of analysis introduced in Chapters 4 and 5 need to be augmented with insights on the dynamics at the analytical level of the PCS. This analysis will be based on an evolutionary approach. This completes the theoretical framework and provides insight into the topics framed by the central questions outlined in Chapter 1: the way in which the strategic perspective of a firm is formed and maintained, its change over time, and the ways in which it is connected to dynamics in the PCS. I will start with a general description of the constitutive parts of an evolutionary approach: variation, inheritance and selection. I will then go into detail for each of these parts and specify the mechanisms that shape the strategic perspective of firms within a PCS. Specific combinations of these mechanisms constitute scenarios of system dynamics. The chapter concludes with an analysis of the coffee and automobile case studies using the evolutionary approach.

GENERAL STRUCTURE OF AN EVOLUTIONARY EXPLANATION Evolutionary explanations build on the seminal work of Darwin who first proposed an evolutionary theory to explain the changing characteristics of biological organisms.1 Such characteristics are a result of their genetic material which is transmitted in the process of reproduction. During this process mutations in the genetic material can occur which may result in new characteristics. Darwin’s crucial insight was that the extent to which these new characteristics spread through a population depends on whether they ‘fit’ with the environment in which the organisms live. Organisms that have these characteristics will have more 159

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offspring than those who lack the characteristic. In other words, the environment operates as a ‘selecting device’ that favours some characteristics over others. This line of argument has been extended beyond the field of biology to explain economic and cultural phenomena.2 I will build on this work in developing an evolutionary account of the strategic perspectives of firms. For this I need to specify three crucial parts of any evolutionary explanation.3 First, an evolutionary account is based in the occurrence of variety. Variety was already introduced in Chapter 1 as a crucial characteristic. Based on subsequent chapters, it is possible to provide more insight into the origins of variety in the elements of strategic perspectives of firms. Second, it is necessary to specify the analogy of the biological mechanism of reproduction. Third, selection mechanisms need to be specified.

VARIATION As shown throughout this book there exists considerable variety among firms in terms of the elements that constitute their strategic perspectives: ecological strategies, organizational routines, definitions of ecological value and general strategic orientations. Novel characteristics emerge in a PCS either through change within the strategic perspectives of firms that are members of the PCS or through new entrants with different characteristics. Entry of new firms is a phenomenon at the level of organizational fields which will be taken up later. Here I will focus on change in incumbent firms. Novelty is created through the internal dynamics of the firm: the processes of framing, positioning, routinizing and problem solving introduced in Chapter 4. Firms may be confronted with unwanted results of their activities which instigates a process of problem solving leading to new activities. Changes in the firm’s context may also be an incentive for such a search process. Such changes need not be negative; they can also come in the form of perceived opportunities. When new activities are considered to be successful and are further developed through learning they are performed more often and become encapsulated into organizational routines. In the course of the search process members of the firm may question its current definition of ecological value or even reconsider its strategic position, which causes these elements of the strategic perspective to change. In the automobile PCS such a process happened in the course of searching for alternatives to the ICE in response to Californian regulation. Initially the solution to reduce global and local air emissions was

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sought in terms of an electric vehicle; later on firms shifted their search activities towards fuel cell technology as a more viable solution. In the coffee case the collapse of the International Coffee Agreement was an incentive for many farmers to look for other ways to generate an income; one of these was the production of organic coffee. And for Peeze the pressure from a local government to reduce its emissions was an incentive to develop new process technologies that radically increased the efficiency of its energy and water use. The power struggle among competing coalitions within a firm may also be a source of change. The rise of a new dominant coalition may serve to initiate processes of reframing the definition of ecological value, repositioning to adopt another strategic orientation, and learning to develop new routines or, equally important, discarding old routines. Alternatively, changes in the power distribution within the firm may make existing alternative routines and frames more important. The generation of novelty through problem solving is different from genetic mutation in biological evolution because it is not a blind process.4 The search process is guided by criteria that are based more or less directly on the general strategic orientation and definition of the ecological value of the firm, unless these themselves are perceived to be the cause of problems. Also, firms have a differential ability to engage in search processes. This is partially reflected in the strategic types; dynamic and transformative firms are defined in terms of their ability and propensity to engage in search processes much more than stable firms. In addition, search activities require financial and human resources that may or may not be available. In exploring resource networks around knowledge in Chapter 5 as well as in the cases in Chapters 6 and 7 it has become clear that firms often collaborate in the search process with other firms, knowledge institutes and even NGOs. To the extent that such collaborative partnerships are maintained over time (such as the one between Ballard and DaimlerChrysler in developing FCVs) novelty is created by networks rather than individual firms. The way in which Peeze collaborated with a number of partners to develop supply bases for organic coffee is another good example of such collaborative problem solving. Apart from problem solving, variation can occur through various other ways in which the actual activities performed by organizational members deviate from organizational routines. This can be a result of different interpretations or making mistakes while following routines. Such idiosyncrasies have not been observed in the cases but in the evolutionary process such variations can be as relevant as those that emanate from a search process.

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MECHANISMS OF INHERITANCE: TRANSMISSION AND RETENTION Inheritance can be split up into two mechanisms: transmission and retention. Transmission specifies the ways through which specific manifestations of strategic perspectives, such as a specific ecological strategy, a specific organizational routine or a specific definition of ecological value, are transmitted from one firm to another. Retention is the mechanism through which firms incorporate new characteristics into their organizational memory, that is, make them part of their strategic perspective in such a way that they are retained over time. In my conceptualization of strategic perspectives retention is dealt with through the process of routinizing within firms.5 For mechanisms of transmission we can take institutional theory as a starting point.6 As a general condition the chance of transmission increases with the level of interaction among firms. Such interaction can take a number of specific forms. A first form is coercion, the use of power by other organizations as a way to make a firm conform to specific characteristics. This relates directly to resource dependencies as discussed in Chapter 5. Coercion is likely to operate whenever there are asymmetric dependency relations between the firm and other organizations. Pressure from governmental agencies is the standard example, which is understandable given the formal authority governmental agencies have over their constituents through issuing regulations. But dependencies occur around other resources and may make a firm dependent on other firms, standardizing organizations or financial agencies. Pressure from such organizations is a mechanism of transmission to the extent that it specifies the characteristic to which the firm must conform, and makes use of monitoring and sanctioning to ensure compliance. Whenever either of these characteristics is absent (specificity and monitoring/sanctioning), pressure exerted by other organizations is better seen as selection pressure (see below). In the cases there are several examples of this mechanism. Firms in the automotive PCS such as Ford and Toyota exert pressure on their suppliers to adopt environmental management routines that conform to the ISO 14001 standard. In the coffee PCS farmers are subject to coercive transmission once they adopt a certain standard; subsequent changes in criteria and demands have to be followed; otherwise they lose their certification. A related mechanism is conditioning through taxes and subsidies. Whenever taxes and subsidies promote specific activities they act as mechanisms of transmission as they provide an incentive to firms or consumers to adopt such activities.

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A third mechanism is imitation. Firms may copy characteristics from other firms that they perceive as successful. The success of hybrid vehicles on the US market was first established by Toyota and was followed by most producers active on that market. In the coffee case a product strategy based on organic production of coffee was first established by small alternative groups and firms. On the Dutch market this was followed by other roasters. Even though this is imitation, it may require substantial search activities as the observed activities may be difficult to reproduce.7 In fact, imitation as a transmission mechanism is complicated by the fact that firms may have reasons to prevent such transmission in order to be able to capture the benefits of their R&D work. Thus, in the Californian organizational field there was imitation on the general direction of ICE alternatives but imitation of the technological solutions firms developed was prevented as much as possible. In the coffee case there is explicit discussion among members of the Fair Trade movement whether imitation by large roasters is desirable and should be supported. The above deals with imitation that is motivated by the success of the model firm. Interestingly, imitation among firms may also occur when such perceived success is absent. Indeed, uncertainty about the consequences of an activity, or goal ambiguity, is posed within institutional theory as a predictor of imitation. I have already presented the relevance of this uncertainty for ecological strategies in Chapter 1 where I argued how definitions of ecological value tend to emerge due to lack of consensus on the relevance, extent and possible solutions to ecological impact. In situations of uncertainty managers tend to look at other firms for possible clues on how to proceed in that situation. In the automobile PCS this mechanism seems to operate with respect to changes in the way in which the various alternatives to the ICE are perceived. Even though firms have their own, to some extent, competing R&D programmes on this topic, firms that constitute the organizational field which emerged around the Californian legislation first looked in the direction of electric vehicles and around 1998 all switched towards the fuel cell as the most viable alternative. In the phase where the electric vehicle was considered the most viable option GM clearly was the model which was copied. In the later development of FVCs the partnership between DaimlerChrysler and Ballard was considered to be the model to follow. A fourth transmission mechanism is that of norms that are diffused through professional networks, consultants and standardizing agencies. Managers and employees of firms are trained and through their education become socialized into specific norms and models of management. On the job, new models may be presented by consultants that also promote them in other firms, thus acting as a transmitter. A clear example of this in the

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coffee PCS is DE. It made use of existing standards once it decided to make its products more sustainable.

SELECTION MECHANISMS Selection operates whenever a firm with a certain characteristic has a larger chance to outperform firms that do not possess that characteristic. The frequency of a characteristic within a group of firms thus alters as a result of selection as an effect of outside pressures.8 I will first discuss selection pressure emanating from the natural environment, then selection due to competition among firms, then with selection pressure which results from other sources. A first mechanism to consider is selection pressure that originates from the natural environment. Eventually firms are confronted with the selection mechanism of biological survival. If the activities of human beings within a PCS disrupt ecosystems to such an extent that their habitat is destroyed, or the health of species members is critically affected, such activities will be eliminated. Such ecological selection pressure has been documented in several historical cases, usually dealing with subsistence economies.9 The highly industrialized societies that we have been dealing with in this book are different as they interfere with ecological cycles across large spatial and temporal scales; the usage of carbon-based energy sources makes them less directly subject to ecological pressure in the short term. Thus, in understanding the strategic perspectives of firms, ecological selection pressure at this moment may be considered to be relatively uncommon. This is also the reason why social construction is relevant in understanding the way in which firms deal with their ecological impact. When ecological selection pressure is dominant, it reduces the uncertainty in which different interpretations of ecological impact are feasible. I will return to this point in Chapter 9. An exception can be made for increased scarcity of natural resources, which can already be seen to be becoming more important. Destruction of top soil, overfishing and depletion of natural resources such as oil are already progressing to such an extent that they may be considered as driving forces. They result in a changed use of technologies, such as oil sand exploitation or relocation of fishing activities due to exhaustion of resources in other areas. The relevance of ecological selection pressure increases when renewable energy sources are used. The recent ventures of energy companies into renewable sources confront them with increased ecological selection pressure. When they opt for wind or solar energy they become dependent on

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climate, while a move into biofuels makes them vulnerable to bad harvests. In the case of hydro power they are subject to changes in sea and river water levels. All of the examples mentioned relate to atmospheric cycles that constitute the earth’s climate system, but they act in a very different way from most of the issues that have up until now been explored under the banner of climate change. The difference is one of social construction of ecological impact versus actual confrontation with ecological impact. A second selection mechanism is competition among firms, which is a consequence of them drawing on a limited pool of resources as defined in Chapter 5. In market terms this may be a limited set of customers or a scarce supply of raw materials. Firms that are better able to secure these resources will perform better than others, which over time may lead to the extinction of less able firms.10 Competition comes in different gradations and as such it needs to be established to what extent it really operates as a selection pressure. Also, markets are heterogeneous in many ways (geographically, price differentiated),11 which leads to niches which provide shelter from total competition. Nevertheless, the products of firms that enact certain ecological strategies may outperform those of firms which do not employ the same strategy, forcing the latter to leave the market and thus reducing variation. Selection pressure can also emanate from other sources that are able to control the survival or performance of a firm. Such pressure comes close to coercive transmission, but it differs from that in one essential aspect: it does not specify precisely the action the firm needs to perform. Instead, it poses a goal which must be reached by the firm, leaving the firm to develop and choose the means by which it will do so. The CARB regulations in the automotive PCS are a perfect example of this: they state only certain emission levels as a goal, leading to a search process of firms.

EVOLUTION OF STRATEGIC PERSPECTIVES IN ORGANIZATIONAL FIELDS: REFLEXIVITY Table 8.1 summarizes the mechanisms that have been presented as part of an evolutionary framework within which the strategic perspectives of firms can be understood. Based on this, the context in which firms operate can now be further specified as organizational fields in which a specific mix of mechanisms of transmission and selection operate. The specific way in which variation, selection and transmission operate within a PCS is an empirical variable. There is no a priori assumption about the relative importance of the one or the other. In some cases selection pressure is sufficiently strong to force firms to adopt a certain

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Table 8.1

Creating ecological value

Evolutionary mechanisms in organizational fields

Elements of Evolutionary Explanation

Mechanisms

Variation

● ●

Inheritance: ● retention ● transmission

● ● ● ● ●

Selection

● ● ●

novelty creation through problem solving mistakes retention through routinizing coercion conditioning imitation norms ecological pressure competitive pressure other selection pressures

characteristic. In other cases selection pressure is weak and mechanisms of transmission explain changes in the level of distribution of a characteristic.12 Such differences can have important consequences which will be further discussed in the next section. A second point is one that complicates any evolutionary explanation: the extent to which selection operates on the characteristics that are studied. Firms may compete on other characteristics and the selection of specific elements of a strategic perspective may be a by-product of that. In the US automobile market the successful marketing of SUVs has been a source of competitive advantage for several firms. This may lead to prominence of the ecological strategies, definitions of ecological value and organizational routines of these firms, but in that case, selection pressure has not operated on these elements. A third point is that a PCS typically consists of various organizational fields which can be analysed as distinct in terms of a specific combination of transmission and selection mechanisms. The boundary of such organizational fields can be of different natures. In the coffee and automobile case geographical boundaries prove to be important. They connect to distinct governmental jurisdictions and they are also perceived by firms to constitute distinct markets with specific consumer characteristics. As a result such fields have a specific set of mechanisms of transmission and selection. A final point deals with the ability of actors in social systems to reflect on their actions and context. Based upon that ability they will seek to influence their context. Such reflexivity, and the strategic behaviour based

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upon it, is a major difference between the evolution of social systems and that of natural ecologies. It implies that firms can develop the ability to change to some extent the operation of mechanisms of selection and transmission, and do so in order to achieve their goals. Firms may employ formative strategies to try and change selection and transmission mechanisms in such a way as to favour their products/activities. Firms may also try to block transmission to prevent appropriation of knowledge by competitors. And they may be able to create a viable niche for their activities which insulates them from general competitive pressure. Such niches are partially influenced by physical factors such as the costs of transport of high weight products; this helps to create geographically separated markets. To a great extent, however, market niches are a social construction: they can be created, which shows that the whole process of competition is to some extent shaped by social criteria.13 As a result of reflexivity the operation of evolutionary mechanisms is not deterministic: it is partially shaped by conscious attempts of firms to change them. Such attempts are not necessarily successful; they depend on the formative and coordinative routines of the firm as well as its dependency position in resource networks.

OBSERVABLE REGULARITIES The evolutionary approach is helpful in specifying the main mechanisms through which the elements of strategic perspectives of firms change over time, and how their frequency changes in a PCS. However, this does not automatically enable us to predict the development of a PCS in terms of the ecological strategies that are adopted. A PCS is a complex adaptive system whose dynamics are created by interacting elements in a way that is not completely knowable.14 The strategic perspectives of firms are shaped through the internal dynamics of the firm which are influenced by a context which transmits new characteristics and exerts selection pressures to which the firm responds, channelled through its relative dependency position in resource networks. With hindsight, it is possible to observe regularities in specific cases such as the ones presented throughout this book. These regularities are explored below and then used to provide an analysis of the coffee and automobile cases. In Chapter 9 they will be summarized in propositions that may serve as a guide to future research. Coming back to the core questions of the book the aim is to deepen the understanding of ways in which firms deal with their ecological impact. Within a PCS there is variety in the strategic perspectives of firms and the specific way in which the elements of these perspectives are shaped. Over time these elements change, which leads to an increase or decrease in the

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variety observed at the level of the PCS. This leads me to formulate regularities at two levels: 1.

2.

Firm level: the ways through which firms change in terms of the elements that constitute their strategic perspective, or are able to retain existing elements. PCS level: the ways through which variety of strategic elements increases or decreases over time in a PCS.

The analytical level of resource network is not dealt with separately here as it provides the connection between levels (1) and (2). Firm-Level Retention and Change Firms can change in two basic ways: they can create novelty in dealing with their ecological impact through problem solving, or they can adopt characteristics through transmission. Both are retained within the firm through the process of routinizing. Whether such a characteristic persists depends on it being viable in the organizational fields in which the firm is active. When a firm does not engage in problem solving and is able to resist transmission of characteristics it will maintain its existing characteristics. The general principles behind these mechanisms have been given in the preceding section. As far as transmission is concerned, uncertainty and asymmetric dependency relations are to a great extent firm specific and in that sense, within the same field, firms which differ on these characteristics will respond differently to these mechanisms. I will now further specify these mechanisms for the three strategic perspectives. Stable firms have as a basic orientation that they operate at a specific point on the technological trajectory. This implies that they perceive their technology to be stable. Failures and opportunities, as well as selection pressure, are interpreted in ways which leave that technology unaltered as much as possible. Nevertheless, they may create novelty in terms of formative and coordinative routines and ecological strategies. For instance, failure of an existing defensive lobbying strategy may lead them to search for alternative ways to influence governmental agencies. Such novel characteristics may enable them to influence selection and transmission mechanisms in such a way as to maintain their stability, and remain competitive. The adoption of characteristics as a result of transmission by stable firms follows the general mechanisms outlined in the preceding section. Their inclination to keep operative activities stable may make them more

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prone to decouple these from other routines when adoption is inevitable. Stable firms will also tend to employ coordinative and formative strategies in ways that enhance the transmission of their particular definition of ecological value to other actors within the PCS. Another possibility is that a stable firm, confronted with increasing pressure, decides to leave the field in which it is operating, or will move towards fields which better fit its perspective. Dynamic firms are geared towards problem solving as their strategic orientation entails movement along the technological trajectory. Thus, firms with a dynamic perspective have routines for seeking new opportunities in terms of technological innovation, which they then translate into operative routines and activities. Their coordinative and constitutive routines and activities are also shaped to that purpose. On the one hand, this means that they will actively seek to change selection and transmission in such a way that their novelties will be accepted. At the same time, they will try to prevent transmission of the novelty among competitors, for instance through patents, in order to prevent the dissolution of the competitive advantage it is expected to bring. An issue which is vital for dynamic firms is that of timing.15 Their search activities are conducted alongside the exploitation of their existing position on the technological trajectory. A major issue then becomes at what moment the novelty should be introduced. Although first mover advantages can be substantial, this does not imply that a novelty is best introduced whenever it is marketable. Firms may be in a position to decide to reap the benefits of existing technologies before introducing new ones. Transformative firms are defined by their ambition to establish a new technological trajectory. In that sense they can be seen as institutional entrepreneurs who seek to form a new organizational field with its own selection and transmission mechanisms. By definition, they are involved in creating novelty and their strategic perspective is also under construction: organizational routines are not yet fully established, even though a strong strategic orientation and definition of ecological value may provide a basis for the search process. This is clear from the coffee PCS, where firms first built up resource networks around an alternative definition of ecological value, which over time developed into an alternative technological trajectory. At the same time, the products of transformative firms compete with those of firms in an established field and as a result they are subject to transmission mechanisms. Adoption of certain characteristics that are common in the existing field may be required to achieve the legitimacy that is necessary to introduce and successfully market these products. A discussion of problem solving and adoption of characteristics in

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terms of the three strategic perspectives begs the question about the extent to which firms are able to change from one strategic type to another. In terms of the evolutionary approach, this has to do with retention of characteristics. Retention provides some stability to the firm and its activities. As a result, current routines and definitions of ecological value reinforce existing characteristics. In problem solving or adoption, path dependency may be expected: a change in one of the elements that fits with existing other elements is more likely than a change in all elements.16 As a result, it may be expected that firms will first seek to solve problems in ways that fit their existing strategic perspective. Shifts across strategic types are much less common, although they do happen, as in the case of DE. For this it seems necessary that either the dominant coalition within the firm shifts, or prolonged selection pressure or coercive transmission leads a firm to reorient in such a basic way. The evolutionary approach also provides insight into the issue of coherence of the strategic perspective of a firm. The typology developed in Chapters 3 and 4 suggests coherence in a general sense, that is, that all elements of the perspective are aligned in terms of its position towards the technological paradigm. Yet the perspective and changes within its elements are a result of internal dynamics, the way in which the firm operates in various resource networks and the organizational fields in which the firm is active. Each of these three factors may result in a lack of coherence among the elements of the strategic perspective. As discussed in Chapter 4, the internal dynamics of the firm are influenced by the coalitional struggle within a firm. A strong dominant coalition may be able to enforce coherence among the firm’s definition of ecological value, organizational routines and ecological strategies, as in the case of Peeze, where the owner/manager is able to develop a transformative perspective. Changes in the dominant coalition may occur, as in the case of Ford, where a new CEO seeks to change an established strategic perspective. In other cases coalitional struggles may result in fragmentation, as in the case of GM during the 1990s where one group was focused on developing and bringing to the market an electric vehicle, while the public affairs department operated to stall any regulatory efforts that would force the industry in that direction. Such coalitional patterns extend to, and are influenced by, the resource networks to which the firm is connected. A strong dominant coalition within a firm which has a strong position within these networks is able to shape its context, and align its resource networks along the lines of a coherent strategic perspective. When coalitional struggle is more present, it may extend to various resource networks in the sense that each coalition develops the networks with which it has contact towards its own position.

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This will be strengthened to the extent that the dependency position of the firm in these networks is weaker, and demands that are placed upon the firm are incongruous. At the level of the PCS, fragmentation is stimulated by the level of distinctiveness of organizational fields in which the firm operates. The evolutionary mechanisms in each field may direct the firm into a certain direction and firms may thus display fragmentation to the extent that they are forced or choose to operate differently in these fields, exploiting the opportunities that each of them gives. A firm like Ford is a clear example of such a strategy, following distinct courses of action in the US and European market. Alternatively, firms may choose to align their strategies across organizational fields, and thus act as transmission mechanisms between them. The way in which firms like Toyota and Honda operate on the US market is an example of that. Dynamics in Production and Consumption Systems At the level of the PCS a major question concerns the way in which larger parts of the system show changing ways of dealing with ecological impact. As explored in Chapter 3, such change can fit within the existing technological trajectory, but it can also involve the establishment of an alternative trajectory. Such change manifests itself through the creation and diffusion of new definitions of ecological value, new organizational routines and new ecological strategies throughout larger parts of the PCS. This raises the question of how novelty creation, transmission and selection lead to changes at the system level. For this a number of scenarios of system dynamics can be distinguished.17 The starting point for the analysis at the system level is that organizational fields, each with their specific mechanisms of transmission and selection, are the relevant unit of analysis. The dynamics within and between these fields results in reproduction of the existing situation or change. Seven of such scenarios are summarized in Table 8.2. For each scenario relevant mechanisms are specified. In addition, the actions of firms to modify the operation of these mechanisms are described. The point of departure is a PCS which is in an equilibrium situation. This does not mean that there is an absence of dynamics: rather, the dynamics contribute to the persistence of the current situation, which may be characterized by variety or similarity in characteristics. In a situation of reproduction of existing variety, firms within the PCS follow their established routines. Variety here refers both to differences in the elements of the same strategic perspective, or differences in types of strategic perspectives. Persisting variety is a result of the absence of both transmission

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Table 8.2

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Scenarios of system dynamics and related evolutionary mechanisms

Reproduction of similarity Reproduction of variety Niche formation

Selection Pressure

Transmission

strong selection pressure favouring existing characteristics –

strong transmission

–

Niche growing into PCS

consumer pressure

Competing niches

consumer pressure; governmental pressure

Selection pressure without niches

strong selection pressure (ecological or governmental) is created in the process of transition

(Vision-based change)

– within specific resource networks; limited imitation among producers imitation among consumers; imitation among producers; coercive transmission through governments imitation among consumers; imitation among producers quick transmission

transmission through direct interaction

and selection pressure. Exchanges among system actors then support the continued operation of routines. Such actions may include strategies to prevent the successful operation of selection and transmission mechanisms, such as shielding the spill-over of knowledge. Another equilibrium situation is that of reproduction of similarity. Here firms within the PCS operate by and large according to similar routines, under similar definitions of ecological value and so on. This is a product of the (combined) operation of strong selection pressure and transmission mechanisms which have weeded out variety, and leave no room for the introduction of new variety. When perceived as favourable, firms may support the operation of these mechanisms. Alternatively, when they are seen as detrimental, their attempts at modification are not successful. In the absence of successful selection pressure change is instigated by the successful formation of niches. This is based on novelty creation by a firm which, because of internal dynamics, perceives such change to be

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strategically interesting. The firm then builds external coalitions in relevant resource networks, which together constitute a niche of alternative activity within the PCS. This scenario requires transmission, often along several stages of the product chain, led by the firm instigating the change. Also, transmission may take place through other firms imitating the successful firm. The emergence and preservation of niches is a consequence of the limited size of the diffusion of a characteristic within the whole PCS. This may be the result of limited transmission, but it may also be the consequence of a limited consumer base for the resulting products and services offered to the market. A fourth possible scenario is that of a niche growing into a PCS. When other consumers start imitating niche consumers, this provides selection pressure on firms that have ignored the niche thus far. Such pressure may force them to leave the market, or imitate niche firms to the extent that imitation is possible. This results in niche characteristics becoming dominant throughout the PCS. Governmental agencies may also decide that the niche characteristics warrant further diffusion, and thus enforce transmission to other producers and/or consumers. Firms may develop activities to resist this but selection pressure may be strong enough to force them to give in, or leave the market. The situation where there are competing alternative niches is largely similar to the preceding one. Here several firms have been successful in building viable niches which compete to grow into the PCS. Such competition at the system level can take different forms.18 Which competing system is selected is difficult to predict, as definitions of value are part of the competition rather than a framework for deciding what proposed alternative is superior. The outcome is determined by a combination of factors including market demand, availability of powerful (coalitions of) producers and/or consumers, the ability to develop a favourable industry standard, regulatory requirements and perceptions of participating firms on the potential of the new system.19 In other words, the outcome of the competition may be influenced to the extent that firms are able to successfully shape selection and transmission mechanisms to their advantage. A sixth scenario exists when there is selection pressure in the absence of available niches, such as a governmental demand which cannot be met by any firm in the system. When such pressure is moderate or weak it is likely to be resisted. But this may be difficult, especially when pressure is based on expectations raised by firms themselves. The CARB regulation that was based on GM’s statement that it would be able to market an electric car within six years is an example of such expectations. Although up until recently firms were able by and large to resist this pressure and modify it,

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it spawned a lot of activities and arguably led to the introduction of hybrid vehicles on the US market by Honda and Toyota. When selection pressure is sufficiently strong, it will lead to a change which diffuses directly throughout the system. This may be ecological selection pressure, or governmental selection pressure which is based on a definition of ecological value that establishes a crisis-like situation and requires immediate action. After a satisfactory solution is found, quick transmission can be expected throughout the PCS. A final scenario is vision-based change. This means that actors from the PCS jointly develop a vision on an alternative system and start implementing it. This is what transition management is about. In essence, it falls outside the scope of an evolutionary approach, as it is totally guided. An example is the development of electric cars in France, which arose as governmental agencies, a major electricity producer and automobile firms joined together to develop a vision on how to deal with air pollution in urban areas.

AN EVOLUTIONARY ACCOUNT OF THE COFFEE AND AUTOMOBILE PCS The coffee and automobile PCS have been analysed in Chapters 6 and 7 in terms of the strategic perspectives of firms and resource networks. Here I provide an analysis which focuses on the third level of analysis: the way in which evolutionary mechanisms shape the dynamics in the PCS. In the coffee case two organizational fields can be distinguished: that of Mexican producers within their national context and the Dutch market. Traditionally these have been connected through a market mechanism which has been influenced from both sides in order to affect prices resulting in, for instance, the International Coffee Agreement. Beginning in the 1970s novelty was created first by interested consumers and Dutch NGOs. Their assessment of then dominant definitions of ecological value and social issues led them to connect with farmers in coffee producing countries and develop a resource network built on alternative definitions of ecological value which in some cases were linked to resolving the social issue of poverty. Thus the activities of small coffee roasters that operated from a transformative perspective constituted the transmission of organic farming practices to producers. In order to minimize their dependency on producers these roasters developed criteria and monitoring mechanisms and built up supply networks in several countries. This led to the development of standards which acted as mechanisms of transmission of specific definitions of ecological value. Initially the coffee was sold through

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alternative outlets and thus a resource network of material exchanges was created that formed a niche within the existing PCS. Transmission was coercive in the sense that the criteria were determined by Western firms and standard organizations, but there was also imitation among producers and their cooperatives. The collapse of the International Coffee Agreement in 1989 and the subsequent price crash provided competitive selection pressure to which producers and the actors involved in developing standards responded by further developing this diversity. In Mexico there was evidence of transmission through imitation such as Michiza modelling its efforts after the UCIRI initiative. Standards and the organizations that administered them functioned as mechanisms of transmission as they diffused specific definitions of ecological value and associated organizational routines. They did so in Western markets by attracting roasters and retailers to adopt their specific standard. More importantly, they transmitted specific characteristics to producers and their resource networks. Within the Mexican organizational field these characteristics were further transmitted through imitation as traditional farmers copied practices from those working under organic standards. The involvement of coffee roasters in developing standards provided them with a first mover advantage on the Dutch market as they developed standards that fit with their acquired knowledge. This advantage was diminished by the strategy of other roasters to develop their own standards. The selection pressure of consumers left room for substantial variety in terms of the definition of ecological (and social) value. The pressure was at this moment not differentiating completely among different standards, especially in the retail market where competition was about having a certificate, or not. As a result a scenario of competing niches occured. For some time niches coexisted without substantial competition taking place. After the year 2002 selection pressure from institutional consumers increased as a result of the increased attention given to corporate social responsibility by firms and sustainable procurement by governmental agencies. This led market leader DE to choose to convert to the Utz Certified standard. The effect of this shift was shaped by the fact that DE preferred to change its entire supply rather than develop niche products to respond specifically to selection pressure in market segments. As a result, competitive selection in one market segment led to a shift in the whole market. This substantially altered the competitive landscape. Given the scale of its operations, coffee certified under the Utz label quickly outpaced that of other labels. Competition among standards had not ended yet, however.

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As the Dutch government sought to establish general rules for sustainable procurement, a choice for the Max Havelaar could have forced DE and other firms to switch to this standard. As a result firms as well as the independent standard organizations enacted formative strategies to influence the content of this rule. Each of the players in the Dutch market thus recognized the importance of this rule as a mechanism of transmission. If the Dutch government formulated criteria which implied a choice for a specific standard, then selection pressure from institutional customers would have been replaced by transmission through a governmental model. Such transmission would have been coercive among governmental agencies and would probably be further transmitted through imitation by other institutional customers. Given the then-current make-up of the Dutch market it could have meant that DE would be forced at least to develop a more differentiated product line. Alternatively, DE might have transformed its whole operation to fit with more stringent criteria. In the automobile case the three market regions can be considered as separate organizational fields with their own mix of evolutionary mechanisms. The regional organizational fields are established and to a great extent maintained through the resource networks that firms engage in: the material exchanges with consumers, distinct networks of rule construction, knowledge production and societal demands. These fields are linked through the fact that all firms operate in several of these market regions. But the extent of this linkage depends on the strategic choice of firms to coordinate their activities in each of these fields. Especially in terms of (perceived) consumer demands firms generally do not seek to alter these in any fundamental way. Also, in general, relationships in resource networks are such that ‘home’ firms’ interests are considered to be more important, and thus they have a power advantage over ‘foreign’ firms. During the 1990s further linkage was established by the emerging network around the CARB regulations in which all major firms participated. On the issue of fuel economy, there was first of all the shift towards relating this to global warming as the main ecological impact of the automobile. Through globally connected networks of public opinion (such as Al Gore’s movie), knowledge development (IPCC) and rules (the Kyoto Protocol) this definition of ecological value had been contested for a number of years by some firms but was eventually adopted by all firms at least in terms of increasingly driving regulatory agencies and consumer demand. Through this issue fuel economy had become a major focus again for producers, as this is directly related to CO2 emissions. Firms showed considerable activity in creating novelties that constituted incremental innovations in the ICE such as direct injection engines, improved diesel

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technology and flexible fuel vehicles. Many of these technologies have been successful because they do not affect or even enhance other performance criteria that are valued by consumers. Given the fact that these novelties can be used to improve fuel economy as well as to increase performance in terms of speed and acceleration, this search behaviour is difficult to interpret as a specific reaction to selection pressure to increase fuel economy. Several of these technologies were transmitted among producers through imitation. Some firms, like VW with its 3-litre car, introduced models that strike a different balance, but these were discontinued after a few years. In Japan and the EU this variety had partially been induced by weak governmental selection pressure. Firms had been subject to rules to increase fuel economy in the EU and Japan. The selection pressure of governments was consistently and successfully modified by producers through formative strategies. In that sense the situation was similar to firms in the US which also opposed further strengthening of CAFE regulations. In the EU the voluntary agreement lacked any form of sanctions except for the scrutiny of public opinion and as a result it acted only modestly to shape the activities of firms. The achievements in terms of improved fuel economy of cars sold (see Tables 7.6 and 7.7) must be interpreted as a result of the interplay between the actions of producers and consumers. The choice of consumers is influenced considerably by the availability and price of fuels. In the EU taxes on gasoline have led to substantially more sales of fuel efficient cars, a process of consumer selection pressure that is induced by governmental policies. In all, concerning this issue we see a scenario of persisting variety both within and across organizational fields. Selection pressure is insufficient to lead to any significant reduction of variety. In each region firms are active in diminishing selection pressure as much as possible and they do adapt to regional definitions of consumer demands. The issue of developing alternatives to the ICE represents an interesting combination of transmission and selection. In addition it provides insight into the special character of dynamic firms in their choices regarding the timing of introducing novelties. Alternative technologies have been the subject of more fundamental R&D by several firms over the years and can be seen as inherent search activities of dynamic firms. Alternative technologies are often explored in knowledge developing resource networks which in some cases are nationally distinct, as in France with the R&D on fuel cells and electric cars. During the 1990s such activities intensified as a result of the activities of CARB. The selection pressure of the ZEV mandate combined with the transmission mechanism provided by the biennual reviews led to a coordination in search strategies which is clearly visible in the collective shifts in terms of an initial focus on electric cars, a

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subsequent shift to FCVs, as well as the dates mentioned when commercial application can be expected. Within this context electric vehicles have been brought on the California market for a number of years. A combination of moderate transmission among consumers and reluctance of firms to really push forward has worked against the establishment of this niche. The latter factor illustrates a more general characteristic of the activities of firms. They have the dual character of being not only an exploration of future technologies but also an effort to show governmental agencies that they are seriously looking at solutions for ecological impact. In that sense search activities are part of the formative strategies of firms. Two developments in the PCS depart from that: the introduction of electric vehicles by PSA in France and the introduction and diffusion of hybrid vehicles. The establishment of electric vehicles in France is best seen as a scenario of vision-based change as it is the result of coordinated efforts of the national government and PSA resulting in a small niche of car sharing programmes in several French cities and electric car fleets of governmental agencies. The proliferation of hybrid vehicles has been initiated by the two Japanese firms that developed this novelty in response to increased attention to electric vehicles during the 1990s. The growing selection pressure that results from transmission among consumers has made Toyota in particular a model to be imitated by other firms. Although this is partially the result of transmission among producers it is also emerging as a distinct market niche where producers are developing specific varieties of this particluar technology. This market segment is characterized by increasing competition and firms show variety also in terms of the moment at which they decide this is a market segment where they want to be involved. To summarize, on the issue of alternatives to ICE there are nationally emerging niches such as around the French electric vehicle as well as a niche in all regions for hybrid vehicles. While growing because of increased competition among major firms, it remains a niche in the sense that they produce hybrid vehicles as a small component alongside ICE vehicles. Other technologies are being explored. In this respect California serves as a bridging field where a mix of selection pressure and transmission through imitation drive the firms active on that market in similar directions. In the issue of ELV European firms engaged in search behaviour at the beginning of the 1990s as part of their formative strategies to influence regulation, as did Japanese firms some years later. Regulation in each of the fields provided selection pressure as it did not specify exactly how recycling had to take place. The response of firms depended on the routines they developed in this process but also on the structure of material and energy resource networks in their countries of origin. National states in

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the EU and Japan each have developed their own regulation and also have their own structure for dealing with discarded cars. The search process is thus highly individualized even if the goals towards which they strive are more or less similar. Each firm develops its own approach. Given the fact that firms are confronted with different regulations in various countries at the collective level they develop partnerships with agreements for managing each other’s ELV in the country in which they have developed an infrastructure. Differences in selection pressure and existing post-consumer structure lead to nationally distinct fields that are connected through agreements among firms that operate in these countries, which results in transmission of knowledge. There is no competition among car manufacturers on this issue. As a result of these activities firms also develop individual strategies regarding design for recyclability and the inclusion of recycled material in their products. These allow variation because of a lack of selection pressure and transmission mechanisms. US firms are affected by the selection pressure exerted by the EU and Japanese government through their sales on these markets. The issue of ELV shows a scenario of emerging and then persisting variety at the level of the PCS as a whole. This is a result of the national differences in material exchange networks combined with essentially nationally distinct selection pressure. As firms negotiate contracts to have their ELVs treated within national boundaries these differences remain in place. Even though the dynamics around the three issues are distinct, they show one important parallel: the success of formative strategies of firms. Building on their power position in networks of rule construction, firms are able to redirect governmental selection pressures in their favour. In the US firms are able to prevent tightening of CAFE standards and succeed in watering down the ZEV mandate. In the EU firms for a long time have successfully pre-empted regulation on CO2 by reaching a voluntary agreement which lacks sanctions. And in Japan the goals of the TopRunner approach are set at modest levels.

CONCLUSION The evolutionary approach developed in this chapter completes the theoretical framework of this book by substantiating the mechanisms that operate at the level of the PCS as a whole. The added value of this third level of analysis is to distinguish specific combinations of variation, transmission and selection mechanisms, as well as reflexive uses of it, which provide insight into how certain scenarios of system dynamics emerge and follow each other in sequence.

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Table 8.3

Summary of major elements of three levels of analysis

Level of Analysis

Building Blocks

Dynamics

Firm

Elements of strategic perspectives: ● general strategic orientation ● definition of ecological value ● organizational routines ● ecological strategies Networks of exchange around: ● materials/energy ● knowledge ● rules ● societal demands Organizational fields that arise through interlocking resource networks

Processes of: ● positioning ● framing ● learning/routinizing ● problem solving mediated through coalitional struggle

Resource networks

PCS

Shaped by differential dependencies between the firm and external actors; mediated by the firms’ coordinative abilities Evolutionary mechanisms: ● novelty creation ● transmission/retention ● selection connect into scenarios of system dynamics; mediated through firms’ attempts to shape mechanisms

The evolutionary mechanisms of variation, transmission and selection have been specified and found to shape the dynamics of organizational fields. These in turn shape the PCS as a whole. These mechanisms are not deterministic, and given the reflexive capacity of human actors, their operation and direction can be influenced. In Chapter 9 the threads of the theoretical framework will be pulled together and propositions will be presented that provide direction to future research on the way in which firms deal with their ecological impact. Also, the implications of the framework for staying within metabolically consistent boundaries are explored.

NOTES 1. 2.

Darwin (1968 [1859]). See Dennett (1995), Boyd and Richerson (1985) and Nelson and Winter (1982).

An evolutionary approach towards the strategic perspectives of firms 3. 4. 5. 6.

7.

8.

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

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Elster (1983). Boyd and Richerson (1985) refer to this as guided variation. See also McKelvey (1997, p. 214). See Nelson and Winter (1982). Institutional theory has often been presented as an alternative to evolutionary accounts. I draw on Boyd and Richerson (1985, pp. 32–6) who define inheritance in terms of social learning, which is further defined as imitation, or teaching, and reinforcement. The parallel with the three mechanisms put forward by DiMaggio and Powell (1983) is striking, and I develop this in the following section. In the resource-based view of the firm inimitability is posed as a criterion for capabilities that provide a basis for competitive advantage. Within institutional theory, this aspect is dealt with under the label of translation (Czarniawska and Sévon, 1998), which refers to the process by which organizations translate general concepts and routines (such as ISO 14000) to establish a fit with unique firm characteristics. There is an issue of what is the appropriate unit of selection when dealing with firms and organizations: the entire organization or specific characteristics of that organization. I take the latter position. But to some extent this is an empirical variable, which depends, for instance, on the size of an organization (Aldrich and Pfeffer, 1976, pp. 87–8). Diamond (2005). Based on Knight (1992, pp. 115–16). Alderson (1957). Child (1972). Mahon and McGowan (1996). Stewart (2001). Sartorius and Zundel (2005). For an elaboration, see Greenwood and Hinings (1993, pp. 1052–3) and Tushman and Romanelli (1985). Here I build on work from Smith et al. (2005), Geels and Kemp (2007) and Geels and Schot (2007). Arthur (1994). Anderson and Tushman (1990) and Green et al. (1994).

9.

The future of creating ecological value

In October 2007 the United Nations Environmental Programme (UNEP) published its fourth Global Outlook report.1 The report presents evidence that many of the ecological impacts that have been on the agenda of concerned citizens and public and private decision makers for quite some time do not show trends towards being solved. Despite substantial efforts, issues like ozone depletion, global warming and deforestation are not closer to being resolved. Gaining insight into the way in which firms deal with their ecological impact is vital in addressing such problems as firms are central actors in processes of production and consumption. Understanding the way in which they define their ecological impact and come to act based on that perception, as well as the way in which those actions interact to change systems of production and consumption, is not just an interesting scientific challenge; it is a necessary basis for adequately dealing with our current predicament. I use the word understanding in the sense of the sociologist Weber, who acknowledged that any explanation of social phenomena requires that we are able to comprehend the meaning which is attached to actions by the individuals that perform them.2 This requires insight into their motives, frames of references and also into the social context in which they operate. The social constructionist approach adopted in this book takes this methodological requirement seriously. The theoretical approaches that have been used as building blocks fit with this requirement: dependency in resource networks is relevant as it is perceived by the actors involved in the relationships, and evolutionary mechanisms influence the actions of firms and their members as filtered through their interpretational lenses. Interestingly, such interpretative understanding invites a critical perspective, while at the same time the researcher must be sensitive to the objects of study. The critical perspective is stimulated by working from the assumption that while the meaning that certain individuals or firms attach to an action is relevant for them, another person (including the researcher) may attach a different meaning to it. This allows a critical look at the way in which definitions of ecological value evolve and the way in which they 182

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shape the actions of firms and other actors in a PCS. At the same time interpretive understanding calls for taking the frames of actors seriously; otherwise their actions cannot be understood. I believe that such a combination of a critical perspective with empathy is not only a sound scientific methodological starting point, but also a valuable point of departure for dealing with the ecological impacts of production and consumption systems in practice. In this concluding chapter I have a few things to say about the latter, but I deal mainly with the scientific contribution that is made in this book. I first provide a summary of the argument of the book which culminates in a set of nine propositions. These propositions are aimed at serving as a guide to future research; they are not formulated as testable hypotheses. I then try to place the theoretical perspective into its context by discussing what I think are its main achievements and limitations. Finally, I link the theoretical insights to practice.

A SUMMARY OF THE THEORETICAL FRAMEWORK In Chapter 1 I have formulated the following main questions: 1.

2.

How do firms define the impact of their activities on the natural environment, and what leads them to develop certain activities to deal with this impact? In what way do the ecological strategies of individual firms interact to shape the dynamics at the level of production and consumption systems?

In order to answer these questions I have adopted a social constructivist position, acknowledging that the way in which ecological impact of production and consumption activities is perceived (as laid down in a specific definition of ecological value) plays a central role in how firms deal with this impact. Firms have diverse ways of dealing with ecological issues, and the first question calls for a better understanding of this. This requires a systemic perspective for two main reasons. First, definitions of ecological value, as social constructions, are to some extent the product of the larger social context in which the firm finds itself. For that reason this context needs to be addressed. Second, any firm requires resources from its environment. Satisfying this need connects the firm with external actors into dependency relationships. In this book the most encompassing systemic context is defined in terms of the PCS.

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Answering these questions thus leads along several levels of analysis. The way in which firms define their ecological impact and the ecological strategies and organizational routines that flow from that have been defined in terms of three strategic perspectives: stable, dynamic and transformative. This typology enables the exploration of the diversity among firms in a PCS. The four elements of the strategic perspective are determined in part by internal dynamics through the mechanisms of positioning, framing, learning/routinizing and problem solving. Another mechanism that operates within the firm is the coalitional struggle: shifts within the strategic perspective can originate from changes in the dominant coalition. The different elements of a strategic perspective have some coherence which results from the fact that they tend to reinforce each other: the definition of ecological value provides a frame which guides the activities that are employed by the firm, and these activities become routinized, which establishes more firmly the frame on which they are based. Change in the elements of a strategic perspective results from two main sources: changes in the dominant coalition and activities that do not lead to desired results. In the latter case the firm may engage in a process of problem solving which leads to new activities. Over time, these become organizational routines and may result in a reframing of the definition of ecological value. These internal dynamics are only partly determining the strategic perspectives of firms; they are shaped to a considerable extent by external mechanisms. Such external influences impinge on the firm through the resource networks in which it is active. In each resource network the firm has a specific dependency position towards other actors. If it has power over other actors, this can be used to realize its aims through these relationships. In the course of doing so the firm will transmit parts of its strategic perspective to other actors. To the extent that other actors in a resource network have power over the firm they can use this to effect changes in the strategic perspective of the firm. In cases of relatively equal dependency collaborative interactions can lead to joint development of frames, activities and routines. The first central question can thus be answered by pointing at the internal dynamics of firms in combination with the evolutionary mechanisms that result from the interaction of the firm with others in its resource networks. Power is a central issue here, especially when defined in social constructivist terms: ‘Power is the ability to define phenomena and have them react accordingly.’3 At the level of the individual firm, power is relevant in that the coalitional struggle may lead to substantial changes in the strategic perspective. At the level of resource networks, asymmetric dependency relationships translate into power, either of the firm over others, or of other actors over the firm. And finally, at the

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level of the PCS, power is relevant as the differential ability of firms to affect the operation of evolutionary mechanisms of transmission and selection. The second research question has been answered by showing how the interaction of firms and other actors in resource networks leads to the evolutionary dynamics of a PCS. The variety in strategic perspectives that is present at a certain point in time may increase as a result of mechanisms of variation; mechanisms of transmission are responsible for the diffusion of elements of strategic perspectives among firms, and mechanisms of selection are responsible for the elimination of certain routines, ecological strategies or definitions of ecological value. These evolutionary mechanisms operate in organizational fields, and a PCS may consist of several such fields. Possible ways in which such fields may evolve have been captured in seven scenarios of system dynamics.

PROPOSITIONS The value of the theoretical framework has been shown through an analysis of two case studies. In order to further develop the framework more empirical research is necessary. To facilitate this, I provide nine propositions that capture the essence of my argument. Propositions 1 to 4 deal with the level of the individual firm; Propositions 5 to 9 with the level of the PCS. The activities of firms regarding their ecological impact can be classified into three general strategic perspectives, which are based on their attitude towards the technological trajectory that characterizes the PCS of which they are part. Each perspective is defined by a specific elaboration of the four elements of a strategic perspective: a general strategic orientation, a definition of ecological value, a set of organizational routines and a set of ecological strategies. This starting point is captured in the first proposition. 1.

Firms can be classified into three strategic perspectives based on the way they are dealing with their ecological impact. ●

●

Stable firms seek to maintain their position on the technological trajectory and deal with demands concerning ecological impact in a way to minimize changes in that position. Dynamic firms seek to move along the technological trajectory, balancing their existing activities with the introduction of novelty in products and processes.

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Transformative firms seek to establish an alternative technological trajectory by developing and attempting to transmit a novel definition of ecological value and related products and processes.

Firms are distinct in the extent to which the elements of the strategic perspective are aligned, that is, can be presented and viewed as a coherent ‘story’. This is a function of two factors. First of all, the internal dynamic of coalitional struggle influences processes of positioning, framing, routinizing and problem solving. Second, coherence is influenced by the relative position of the firm in resource networks, which is partly shaped by the operation of mechanisms of transmission and selection which can lead to more or less coherent demands. Also, the relative position of a firm in resource networks is determined by the extent to which it has developed coordinative and formative routines. This is summarized in Proposition 2: 2.

The strategic perspective of a firm will be more coherent to the extent that it has a strong dominant coalition, is powerful in resource networks, and operates in organizational fields of which selection and transmission mechanisms pose coherent demands.

The relationships in this proposition are mediated to some extent by the type of strategic perspective. Given the fact that ecological impact is framed by stable firms mainly in terms of external demands, a lack of coherence for them can be expected to the extent that they operate in distinct organizational fields. For dynamic firms, lack of coherence is related to their tendency to combine existing products and processes with the development and introduction of novelty. Transformative firms will tend to show high coherence. Their defining characteristic is the aim to establish a new technological trajectory. This requires a strong vision which enables coherence. Coherence is also vital in order to be able to forge the external conditions necessary for transformation. Lack of coherence must be interpreted as a situation that exists for a longer time. Otherwise, it is confused with the sometimes slow process of change which develops slowly due to time consuming processes of problem solving and learning. More generally, changes in the elements that constitute the strategic perspective of a firm are a result of internal dynamics (proposition 3) as well as the operation of selection and transmission mechanisms (proposition 4). Given path dependency and the stickiness of routines firms will tend to change in ways that leaves the type of their strategic perspective unaltered. Change from one strategic type to another will be uncommon.

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3.

4.

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Change in elements of the strategic perspective can result from internal dynamics through changes in the dominant coalition, or from problem solving activities that become routinized and lead to a reframing of the definition of ecological value. Change in elements of the strategic perspective can result from evolutionary dynamics when the firm is unable to resist their operation given its dependency position in resource networks in which it operates.

The second research question deals with the level of the PCS. The dynamics at this level are shaped in the end by the activities of firms and other actors (which have been included as constituting transmission and selection mechanisms) and have been summarized in seven scenarios of system dynamics (see Table 8.2). These scenarios are the result of specific combinations of selection and transmission mechanisms, given an initial level of variety in firm characteristics. 5.

What scenario of system dynamics is produced depends upon the specific combination of selection and transmission mechanisms (as specified in Table 8.2) within the organizational fields that constitute the PCS:

The seven scenarios are shaped by evolutionary mechanisms, but they depend on the activities of firms. Depending on their strategic perspective firms play different roles in these scenarios. The reproduction of variety requires that firms do not seek to introduce novelty. This situation can occur in the absence of transformative firms, and when dynamic firms choose to stall the introduction of novelties in favour of exploiting existing products and processes. Reproduction of similarity requires that firms support existing transmission mechanisms and are able to block the operation of selection mechanisms that would forge change. Again, this requires the absence of transformative firms, and dynamic firms stalling the introduction of novelty. Niche formation is the result of dynamic or transformative firms which are able to build a successful but small area of novelty within an otherwise unchanged PCS. Other firms (of any type) may be instrumental in this by successfully blocking the establishment or operation of transmission mechanisms that would result in a larger area being occupied by the niche. A niche growing into a PCS occurs when dynamic or transformative firms are able to stimulate transmission of their novelty, and consumers pick up on that. At the same time, stable firms, as well as dynamic or transformative firms with an alternative novelty, are unsuccessful in attempts to shape

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evolutionary mechanisms to their advantage. When other dynamic or transformative firms are also successful in such attempts, the scenario of competing niches ensues. Selection pressure without niches puts pressure on firms whatever their strategic perspective, without them being able to resist it. The roles of firms in different scenarios are summarized in Propositions 6 to 8. 6.

7.

8.

Stable firms play an active role in supporting the transmission of their existing strategic perspective, and will seek to obstruct the installation and operation of selection and transmission mechanisms that require them to alter elements of their perspective. Dynamic firms introduce novelty and thus are active in establishing new niches. They will enable transmission through consumers and selection mechanisms that favour their new products and processes. The extent to which firms enable these mechanisms is dependent on their decisions about timing the introduction of novelty. Transformative firms introduce novelty and will seek to establish selection and transmission mechanisms that enable the alternative technological trajectory they seek to materialize.

Propositions 1 to 8 are based on the premise that there is uncertainty about the way in which the production and consumption activities interfere with ecological cycles. This gives room for alternative definitions of ecological value which influence the activities of firms, consumers and other members of the PCS. As ecological selection pressure increases this uncertainty is reduced and as a result the complex social interactions within a PCS are increasingly determined by ecological selection pressure. 9.

Increased ecological selection pressure will dominate other evolutionary mechanisms and will force firms to move to a dynamic and transformative perspective.

WHAT DOES THE THEORY CONTRIBUTE? A useful new theoretical framework needs to meet three demands: the success of old theories must be reproduced, failures of old theories must be explained and the new framework should offer new insights beyond old theories.4 While further work is required to substantiate any claim more solidly, the work presented in this book provides some basis, especially with regard to two main theoretical strands: new institutionalism approaches and the resource-based view on the ecological strategies of firms.

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The main problems associated with the resource-based view are that it deals mainly with so-called proactive ecological strategies and that it treats the determination of value of capabilities as an exogenous factor. Also, while there are findings that support the theory, these are modest, and leave a large percentage of variation unexplained. The framework developed here does not contradict the resource-based view; rather, it treats the focus and consequent findings of the resource-based view as a subclass of the larger spectrum of ecological strategies of firms. It shows how other types of ecological strategies (in particular those that fall within the stable perspective) can be a source of competitiveness. Moreover, it shows that the relationship that is postulated between certain capabilities and competitive advantage is too simple. US-based firms in the automobile PCS regain competitiveness on their home market based on a strategy that seeks to buffer selection and transmission mechanisms towards change that reduces the ecological impact of products. Theoretically, there is no reason why firms with a specific strategic type would be more competitive than those of another type; depending on their context (resource networks and evolutionary mechanisms) and the influence they can exert on that, stable firms may use their capabilities to outcompete other firms just as much as dynamic and transformative firms may be unable to establish their novelties successfully. Within the theoretical framework competitiveness as conceptualized within the resource-based view relates to economic selection pressure. It has been made clear that such selection pressure may be relatively weak and other selection pressures or mechanisms of transmission may be more important in explaining what characteristics firms display. Moreover, such mechanisms are influenced by firms, and thus they shape themselves the definitions of value which form the criteria of competition. Understanding such efforts is helped by the distinction between operative, coordinative and formative routines and strategies. Moreover, the resource-based view deals with capabilities only. By looking at capabilities (or routines) as part of a strategic perspective, it has become clear that other elements, especially the definition of value which is enacted by the firm, is vital in understanding the way in which firms deal with their ecological impact. Turning to the new institutionalism perspective the main improvement is that the theoretical framework developed here allows an understanding of both convergence and divergence of firm characteristics. The new institutionalism focuses on convergence and consequently leaves unexplained the substantial diversity that can be found in firms that operate in an organizational field. Such diversity can be understood as the result of two sources. First, selection and transmission mechanisms may be weak and therefore allow for the introduction of novelties that go against increased

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convergence. Second, firms are influenced eventually through their relationships in resource networks. As such resource networks are not identical for all firms they are engaged in different patterns of interaction. Patterns of interaction within an organizational field are thus locally specific, which can lead to the development of niches within a field. Thus, the framework further specifies the general hypothesis of new institutionalism. In addition, the new institutionalism tends to group governmental regulation under the heading of coercive isomorphism while often such pressure does not specify the exact way in which firms must respond. In that case it is better to view it as selection pressure. This is relevant as selection pressure does not specify exact characteristics and therefore shows how diversity rather than convergence can be induced through regulation. While introducing some complexity, the theoretical framework offers new insights as it specifies the relationships among the internal dynamics of individual firms, their actions, and the dynamics at the level of a PCS. This is a result of its multilevel character. The extent to which changes in the ecological impact of such systems are generated are understood in terms of the interactions of individual firms. Also, the strategic perspectives of firms are conceptualized as the result of mechanisms that operate at the level of the PCS. This understanding of inertia and change at the systemic level is something which is not provided by other theories of firms dealing with their ecological impact. In addition to these improvements over two main existing theories the theoretical framework might provide improved understanding of strategy formation more generally. This relates to the question of to what extent ecological strategies and related strategic perspectives are different from general strategies. Looking at the set of propositions, it is conceivable that they apply to other areas of strategy formation. I tend to see the area of firms dealing with their natural environment as a fruitful empirical area for studying the way in which firms change, but it would be interesting to explore the contribution of this framework to other areas of interest.

LIMITATIONS OF THE THEORETICAL FRAMEWORK A possible limitation lies in the fact that the framework emphasizes evolutionary rather than revolutionary change. Proposition 9 states that there are cases where this emphasis is mistaken. When ecological selection pressure becomes stronger, there might be a shift from evolutionary towards revolutionary processes. The reason for this is that increased ecological selection pressure leaves less room for the mechanisms of social

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construction to operate. Simply put, people then have to deal with ecological crises rather than argue about definitions of ecological value. Within the compressed timeframe of a crisis other dynamics might operate than the ones that take up most of the attention in the theoretical framework. This does not mean that they become obsolete, but their relative importance will diminish. A second limitation of the framework is that it does not enable predictions. The theoretical framework developed in this book provides a number of mechanisms and ways in which these are interrelated. Such mechanisms provide an explanation by specifying the link between two phenomena, such as changes in ecological strategies and organizational routines that result from the confrontation with external events. In this case the mechanism is the searching for new activities, which become engrained in the routines of the firm through a process of learning. Specifying this mechanism provides understanding after the fact, but it does not allow prediction. This would require that we know the necessary and sufficient conditions under which a certain mechanism would be activated. This is hardly ever possible in the social sciences.5

THE THEORETICAL FRAMEWORK AS A BASIS FOR ACTION In addition to advancing our understanding of the ways in which firms deal with their ecological impact, the theoretical framework provides a starting point for assessing ways of changing production and consumption activities. At the level of the individual firm it provides insight into the way in which actions, routines, definitions of ecological value and strategic orientations are linked. Whenever change is sought at that level, these interdependencies must be addressed. Change of isolated characteristics of firms, especially when forced, will be of little value. Also, both cases show the role of dominant coalitions forging change within firms, exemplifying the importance of working with firms that seek to operate consistently from a dynamic or transformative perspective. Enabling such firms to build their resource networks to advance their products and processes is an important first step. Firms that seek to introduce novelty are crucial as they expand the level of diversity on which selection and transmission mechanisms operate. The theoretical framework calls for an intelligent assessment of the different ways through which the diffusion of certain novelties can be facilitated, making use of existing evolutionary mechanisms, and supplementing them with others that enhance their effectiveness. Often this involves the

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activities of firms that are not the same as those who introduce the novelty. Rather than converting laggards into leaders, an interesting approach is to stimulate laggards in order to increase the critical mass needed for diffusion of the novelties introduced by leaders. As in the Dutch coffee market, a market leader may not be the one that introduces change, but it does have the routines and resource networks that enable it to scale it up. At the same time, the theoretical framework builds on the insight that strategies aimed at influencing the operation of such mechanisms are inherent in the dynamics of a PCS. Firms that seek to oppose change may use their knowledge of the dynamics involved in change to try and maintain the status quo. Thus, attempts to forge changes need to incorporate the possibility that reflexivity is displayed by opponents as well. If we can learn something from the past, it is that production and consumption systems that are not metabolically consistent can be remarkably resilient. Activities that intrude on ecological cycles, especially cycles at the global or long-term level, are not easily changed. In terms of evolutionary dynamics, situations where selection pressure is sufficiently strong to forge such change, or a string of developments leading to viable niches which grow into a PCS, require the successful introduction of novelty by dynamic or transformative firms and a specific mix of selection and transmission mechanisms that facilitates the diffusion of such novelties. If Proposition 9 has any merit, increased ecological selection pressure may force societies to change into this direction, but this will have serious side effects. I hope we will not come into a position where ecological selection pressure will be a major force at work to shape the ecological strategies of firms.

NOTES 1. UNEP (2007). 2. Weber uses the German word ‘Verstehen’ which in the translation of Roth and Wittich becomes (interpretative) understanding (Weber 1978, pp. 8–11). 3. Huey P. Newton, cited in Shaar Murray (1989, p. 207). 4. Beinhocker (2007, p. 95). 5. See Elster (1989) and Hedström and Swedberg (1998) for an elaboration of this point.

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Index acid rain 12–13 alkali industry 23–5 automobile industry and planned obsolesence 29–30 definitions of value in 42–3 learning processes in 86–7 types of strategic perspectives in 47–9 automobile PCS evolutionary analysis of 176 – 9 history of 102–3 post-consumer waste in 151–3 resource networks in 147, 153–7 strategic perspectives in 124, 131, 138, 140, 153–4 Brent Spar 94–5 carrying capacity 9–10 cultural 10 chemical industry 30 in nineteenth century Britain 23–5 and detergents 38 and REACH 89–90 climate change 142, 144 position of Ford on 132–3 position of GM on 136 coercion 53–4 as transmission mechanism 162 coffee PCS 101–18 evolutionary analysis of 174–6 history of 102–3 resource networks in 104, 109, 113, 116–17 strategic perspectives in 108, 112, 115–16 sustainability standards in 103–5 competitive advantage see ecological strategies decoupling 54, 80, 97 see also greenwashing

definition of ecological value 12–16, 56–7, 60, 74, 183–4, 191 in automobile PCS 154 in coffee PCS 116–17 defined 14 historical examples of 20–37 and institutionalization 92 of Philips CE 66–7 as a result of framing 70–71 of Scanda Metal 65 shared 16 standards and 174–5 in US mining industry 93–4 detergents 38 dominant coalition 70 and change of strategic perspective 170, 184, 187 and coherence of strategic perspective 186 and novelty creation 161 dominant design 41–2 establishing new 45–6 in automobile PCS 119, 146 ecological cycles 1, 10, 39, 57, 77–8, 164, 188, 192 ecological value creating 2 see also definition of ecological value ecological impact 8–9 economic development and 10–12 technological change and 38–9 ecological strategies 60–63 and competitive advantage 7, 8, 52–3, 74–5, 189 convergence of 5, 54, 189 coordinative 61–3, 82, 99 defined 14 diversity in 2–6, 54, 160, 189 formative 61–3, 74, 80, 87, 92, 116, 133–4, 149, 154–7, 167, 176–9

207

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operative 61–2, 81–2, 168–9 as a result of problem solving 71 yardstick for 8–12 electric vehicles 45, 125, 128, 130, 134, 137, 140, 161, 163, 170, 178 in France 146–7 in the US 148–9 end of life vehicles 151–3, 155, 178–9 energy PCS 44–5, 49 environmental management 6, 88, 91, 96, 162 evolutionary mechanisms 166, 185, in automobile PCS 176 – 9 in coffee PCS 174–6 propositions on 187–8 reflexivity and 166–7, 192 retention 162, 166, 168, 170 selection 162, 164–7, 172, 185–8 and system dynamics 171–4 transmission 162–4, 166, 172, 185–8 variation 160–61, 166, 185 evolutionary perspective 5 general structure 159–60 evolutionary process as punctuated equilibria 40–41 firm defined 73 rise of the modern 20 see also internal dynamics food PCS 49 fuel cell vehicles (FCV) 122, 126, 129, 130, 133–4, 136–8, 140–41, 146, 150–51, 177 fuel efficiency 142–5, 155–6, 176–7 fragmentation 170–71 global warming 77–8 and automobile PCS 142–5, 154–5, 176 see also climate change greenwashing 54, 74, 80, 97 governance changing 33 self-governance 88, 90–91 hybrid vehicles 50, 121, 126, 130, 134, 136–7, 140, 148, 150–51, 154, 157, 163, 174, 178 Toyota Prius 1, 128–9, 150

imitation 166, 172 in automobile PCS 177–8 in coffee PCS 175–6 as transmission mechanism 163 innovations 16 and ecological strategies 61 technological 40–41 incremental 40 paradigm shifting 45 and resource networks 82–5 institutional theory 8, 53–4, 162–3, 189–90 internal dynamics 63, 70–71, 97, 170, 184, 186–7 and novelty creation 160 as source of variation 160–61 internal combustion engine (ICE) alternatives to 146–51 IPAT formula 39 learning 58, 71, 160–61, 186, 191 collaborative 60 in resource networks 82–6 legitimacy 53–4, 60–62, 74, 79–80, 169 and rules 85–90 and societal demands 90–95 lock-in 44 systemic 16, 46 metabolic consistency 10, 50, 192 of carbon economy 78 mining industry 93–4 natural environment as wider context of strategy 77–8 niche 154, 165, 167, 172–3, 175, 178, 187–8, 190, 192 market 7, 72, 106 oil industry 28–9 see also Brent Spar organic coffee 110–11, 113, 161 organizational fields 97–9, 185–7, 189–90 in automobile PCS 176–7 in coffee PCS 174–5 new 169 distinctiveness of 171

Index dynamics in 171–4 transmission and selection in 165–7 organizational routines 57–60 coordinative 58–60, 82, 85, 96, 99, 167–9, 186, 189 formative 58–60, 87–8, 92, 167–8, 186 as a result of learning and routinizing 71 operative 58–60, 169 planned obsolescence 29–30, 35 power 184–6 and dominant coalition 63, 70, 161, 184 market 29, 35 in resource networks 79, 81–2, 96–7, 184 see also coercion problem solving 42, 71, 83, 169, 184, 186–7 in resource networks 82–5 as source of variation 160–61 production and consumption system (PCS) defined 15 dynamics in 171–4 and organizational fields 97–8 propositions regarding 187–8 social structure of 41–2 product service systems 63, 81 resource-based view 52–4, 60, 74, 189 resource dependency see resource networks resource networks 79–80, 170–71, 172–3, 184, 186–7, 190 in automobile PCS 147, 153–7 in coffee PCS 104, 109, 113, 116–17 interrelatedness of 95–8 knowledge 82–5 material and financial 80–82 around rules 85–90 around societal demands 90–95 regulation 30–32, 59, 61–2, 87–90, 190 compliance with 6–7

209 as transmission 162 as selection pressure 165

scenarios of system dynamics 171–4, 180, 187–8 in the automobile PCS 176–9 in the coffee PCS 174–6 selection pressure 164–5, 188–90 ecological 164–5, 188, 190–91, 192 competitive 165 as distinct from transmission 165 and reflexivity 165–6 and system dynamics 172–4 see also evolutionary mechanisms social constructionist perspective 14, 36, 46, 54, 182–3 standards in coffee PCS 103–5, 113–16, 174–6 on environmental management 91, 96–7 in resource networks 85, 88, 173 and transmission 162–4 strategic perspective coherence in 170–71, 186 definition of 47 dynamic 47 elements of 55–63 and evolutionary mechanisms 168–70 examples of 63–70 grey areas between 49–50, 72 propositions regarding 185–8 stable 47 transformative 47 typology of 46–50 strategic orientation 55–6 as a result of positioning 70 sufficiency perspective 39, 57 sustainable development 9, 32–3, 57 systemic perspective 15–17, 59, 183, 190 technological change 17, 38 and ecological impact 38–9 as a socially embedded process 40 technological discontinuities 40

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technological paradigm 42–6 in automobile PCS 154, 170 technological trajectories 40–44 transformation of 45 technology 34 definition of 38

timing 169 transition management 62, 172, 174 uncertainty 34–5, 41, 45, 92, 164, 188 as motive for imitation 54, 163