In recent years there has been a shift in competition among companies such that the focus is not on individual companies but on the supply chain performance. Supply chain performance is defined as the extra supply chain’s activities intended to meet the requirements of the end customer including the availability of products, on-time delivery and the other entire significant inventory and activities in the supply chain to ensure delivery of the performance in a responsive way. The performance management specialists are mandated with these tasks. However, there are several challenges that they face in delivery of the supply chain performance including changes in the socio-environmental changes around business operations, frequencies of emerging technologies, increased complexity in supply chain and relationships with supplier and changing consumer preferences and behavior.
This essay will critically analyze an article by Robert G. Eccles and George Serrafeim. The title of the article is; ‘The performance frontier: Innovating for a sustainable strategy’. Robert G. Eccles is a professor at Harvard Business School whereas George Serafeim is an associate professor at Harvard Business School. The authors are right in indicating that despite the fact that many companies have initiated sustainability programs, these programs fail because they are not equivalent to sustainability strategy. As indicated in the article, companies may, however, benefit if they focus strategically on the most significant things to the shareholders and develop innovations in the supply chain.
Summary of the Article
Most companies have various sustainability programs which the often launch with the hope that they will receive a financial reward, even when the programs launched are irrelevant to their strategies and operations. The problem with such sustainability programs is that it fails to understand the interconnectedness of financial performance and issues of environment Social and governance (ESG) of the organization. Improvement of one results in increased cost of the other. However, organizations don’t have to face this dilemma since it is possible to boost both the financial performance and ECG performance simultaneously. To achieve these organizations should strategically focus on the issues that are most relevant to shareholder value as they develop significant innovations in process, products, and business models that address those issues.
To develop an innovation program that also forms a sustainability strategy four basic initiatives should be considered. First, the organization should be able to identify the material ESG issue. The second, step is to quantify how the financial performance and the ESG relate. Third, the organizations should get involved in the innovation of products, processes and business models and lastly the company’s innovation should be communicated to the stakeholders. The Sustainability Accounting Standards Board has developed maps that provide ranks of 43 materiality issues for 88 industries. These maps can give valuable guidance to organizations. In addition, companies can also benefit from the broad initiatives that are currently undertaken by three companies including CLP Group, Dow Chemical, and Natura. These companies have demonstrated the kind of innovations that have the capacity to push performances into new realms.
Supply chain refers to the vertical sequence of transactions of sequences which add value to the end consumer (Silvestre, 2016). Given the fact that satisfaction of the end final consumers is relevant to most organizational efforts have been made to enhance the supply chain performance and management which helps to achieve sustainability (Masoumik et al, 2014). According to Silvestre (2016), sustainability is the Triple Bottom Line (TBL) concerns of the business including the need for simultaneous assessment on matters to do with finance, environment, and social aspects.
Throughout the 1980s, the term supply chain management (SCM) was used to describe material flow between organizations. Consequently, it was initially understood as an extension of logistic, a synonym of logistics or activities and processes which are related to business integration which indicate something that was beyond logistic (Pereira de Carvalho, & Barbieri, 2012). Since the 1980’s many types of research have been done and the term SCM has been defined in different ways. Despite the many definitions, the primary goal of supply chain management is to allow organizations to realize more profit throughout the supply chain (Rota, Reynold & Zanasi, 2012). Achieving this goal has however been difficult since the self-interest of individual stakeholders in the supply chain has to be adjacent to those of the supply chain as a whole. Also, there are other external factors comprising of the social, environmental and governances aspect that impend the goal of (SCM).
Silvius & Schipper (2014) indicate that many companies are integrating sustainability programs in various stages of the supply chain including marketing, annual reports, corporate communication and in various activities. Sustainability can be linked to projects in that projects acts as the instruments of change within an organization. As such, sustainability can only be achieved through a thorough strategic planning by the project managers before it is integrated into the projects (Silvius, & Schipper, 2014). Otherwise, the changes made may be detrimental to the organization even after making huge monetary investments in the project.
There are various strategic management theories that can be applied by organization to enhance sustainable development with the organization. This theory include resources based theories, survival theories, contingency theories, human resource based theories and agency theories (Parker, Parsons, & Isharyanto, 2015). All of these theories focus on a specific element of the supply chain and indicates how it can be used to achieve competitive advantage. Also, gaining a competitive advantage is not enough for organizations since they have to also work towards sustaining the competitive advantage so that they can have a sustained performance.
Sustainability strategies should also be able to assess and forecast some of the risks that the organization is likely to face in the event of launching a given sustainability program. The relevance of risk assessment is to allow organizations to be able to strategize on ways in which they will cope with the uncertainties resulting from the sustainability projects. According to Silvius & Schipper (2014), organizations can achieve more if they accept that uncertainties brought about by changes in sustainable projects are inescapable and therefore ways of coping should be identified. Other factors that are likely to enhance the success of sustainability programs include normative competencies, systemic thinking competencies, interpersonal competencies, strategic competencies and anticipatory competencies.
Systemic thinking competencies are the ability to recognize the relationship between key elements in the supply chain and the basic causes of complex sustainability. It also encompasses both the internal and external factors that may influence sustainability such as governance, economic, sociological, technological and geographic factors that affect the sustainability program either directly or indirectly. Anticipatory competence enables the management of an organization to project the outcomes of an invented sustainability program. Normative competencies are the understanding of the different concept of justice, equity, integrity, ethics and socio-ecological factors affecting the sustainability project. Interpersonal competencies are the capacity for the management to motivate employees and encourage research and problem-solving techniques. All of these competencies are relevant in the sustainability of an organizational project.
One of the companies that have been able to use a sustainability strategy to in enhancing innovation is Natura. Natura has been able to maintain a high innovation power while at the same time remaining committed to sustainability. To attain this, the company had to do a strategic analysis of key elements of the supply chain and then use the knowledge to identify gaps that needed improvement through innovation. Just as Natura, the administrations of companies that have been able to attain sustainable developments are likely to be directly involved in project management. Also, most companies with high sustainability have well established long-term processes for engagement with key stakeholders (Eccles, Ioannou & Serafeim, 2014). In addition, high sustainability companies outperform their rivals by far in the long-term both in terms of accounting performance and the stock market.
Many companies are integrating sustainability programs in their supply chain through getting involved in such things as waste reduction, reduced carbon emission and use of technology to enhance operational efficiency within the organization. In as much as such programs are beneficial, it can result in companies spending a significant amount of money on sustainability programs while lowering their profit. This is due to the fact that adopting sustainability programs is not the same as having a sustainability strategy. Sustainability strategy requires long-term planning since involves assessment and analysis of each component in the supply chain.
Forming sustainability strategy demands that organizations not only develop various sustainability programs but also increase the value of the shareholders. The sustainability strategy should also be quantifiable so that the company can know if they are making progress. The measurement of performance in sustainability strategy can be done through order book analysis, profitability, and time and managerial analysis (Sillanpää, 2015). Before fully adopting a program in an organization project managers should test if the programs will have a quantifiable benefit to the organization. The measurement indicators can be used during the trial stage and only after quantification can the organization fully adopt the program.
It is also significant for the management to identify all the stakeholders involved in the supply chain activity and their relations to achieve a sustainable strategy. The degree of complexity in the supply chain should also be assessed and the potentials for future changes. The general supply chain model shows that the supply chain usually changes over time (Janvier-James, 2012). Also, the general systems theory of supply chain management holds that the more complex the supply chain for an organization is the lesser its capacity to be compatible with the changing environments becomes. Basing on this principle it is advisable for organizations to have a well-defined supply change. Organizations can achieve this through establishing a long-term relationship with the suppliers, employees, and customers.
The other principle of the general supply chain theory is that larger systems require more resources to support the system (Janvier-James, 2012). This principle is relevant in adopting a sustainability strategy that will enhance innovation and at the same time improve the firms’ performance of ESGs. Organizations can weigh the sustainability program that they wish to adopt and analyze how large the system is. For instance, they can assess the number of employees that will be required to maintain the program, the cost of maintenance and the implications that the innovation has on other systems. Only those programs that are small and can be accommodated within the organization without straining other systems should be adopted. This will enable the organization not to be strained financially and at the same time adopt a sustainable strategy.
As indicated by Eccles & Serafeim (2013) identification of the material key issues is significant for organizations that wish to achieve a sustainable strategy that will improve on the ESG issues and at the same time enhance organizational profit. The materiality of various sustainability issues often varies systematically across industries and firms (Khan, Serafeim & Yoon, 2016). Consequently, many organizations are currently focusing on discriminating between the immaterial ESG issues and the material ESG issues. If significant discrimination is achieved then it can help in exploiting differences in materiality across issues of sustainability it can be used in testing the potential performance of the sustainability strategy that an organization wishes to invest in. Organizations can use the Sustainability Accounting Standards Board (SASB) to classify sustainability programs as either immaterial or material prior to implementing their plans in the organization. As stated by Khan, Serafeim & Yoon (2016) organizations that have strong ratings of material sustainability are likely to perform well in future.
Quantifying the material ESG issues financially is significant in enhancing a sustainable program. The financials quantification of the ESG issues can help and organization to decide the ESG issue to improve on (Calik & Bardudeen, 2016). The issues that demand relatively less finance will be less strenuous to the organization hence it can be adopted. Quantification will also help with ranking the ESG issues that the organization can prioritize based on the significance of that ESG issue and the capital that they are willing to spend on the sustainability strategy. Identification of the ESG issues will enable organizations to know their competitive advantage in comparison to rival companies. This can help the organization to better position itself so as to gain better competitive advantage.
In order to realize improvement, the company should have innovation on process, business models and products. The benchmarking done to compare the firm’s position to that of competing companies is significant as it indicates the ESG issues that the company should prioritize on. An innovation that complements the ESG issue can then be adopted so as to realize a profit and also have a sustainable program. Innovation and creativity in the company can come from employees if they are given a good platform to present their ideas. The organization should offer an enabling environment for the employees to feel that their input is appreciated (Eccles Perkins & Serafeim, 2012). Information system technology can also be used to create a platform for various employees to contribute their ideas and sharpen each other’s creativity. Although ideas from all employees should be considered much focus should be given to employees with knowledge, skills and experience in the mention ESG issue, those that are intrinsically motivated and those with creative personality.
Effective communication to all stakeholders involved in the supply chain is an effective ingredient for sustainability of the ESG and the innovation. At no point should the management of an organization assume that their innovation will be clear to everyone without being communicated. Proper communication will enable different stakeholders to support the sustainability strategy that has been adopted by the company. Proper communication also ensures that other suppliers understand the values of the organization. The partners, customers and the suppliers of the company can then align their values to that of the organization or at least respect those values. For example, Natura Company has innovated sustainable programs and has ensured that all stakeholders in the supply chain are aware. The collaboration of the company and other stakeholders in the supply chain is characterized by factors such as reputation, trust, cooperative information system and joint program (Pereira de Carvalho & Barbieri, 2012). They also have established a long-term relationship with the supplier which has enabled the company to have a competitive advantage over its rivals.
This essay has provided a critical review of Eccles et al article on sustainable development. Many organizations find innovation of a sustainable strategy to be difficult even after launching sustainability programs. Adopting a sustainability program for most organizations leads to excessive financial expenditure without any profit. This can be avoided when organizations adopt a sustainable strategy. The strategy should first consider distinguishing between the material ESGs and the immaterial ESGs. The material ESGs should be selected and then quantified financially. This should be followed by the innovation of business models, products, and process which can then be communicated to the stakeholders. The general supply chain theory and literature has been used to support this procedure in achieving a sustainable strategy.
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