Strategy development in small and medium sized enterprises for sustainability and increased value creation

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Abstract

Sustainability strategies create many synergistic effects for SMEs working collaboratively, as well as systemic benefits for the commons. After setting forth the business case for sustainable SMEs, and considering SME sustainability advantages in contrast to MNEs, this paper discusses several different incentives for SMEs to optimize sustainability: (1) becoming valuable sustainable investment targets for larger firms; (2) creating highly competitive networks of sustainable SMEs in market spaces where large enterprises are less successful; (3) becoming highly efficient suppliers in global supply chains through sustainable practices.

While several successful models of the sustainable SME are evolving, it may be that networks of SMEs will become essential for addressing the systemic problems that underlie industrial ecology, enterprise resilience, and global supply chain sustainability. SMEs represent the majority of all enterprises, and rapidly evolving communication technologies allow for various routes of network formation.

Introduction

Since the 1990s, environmental and social factors have become increasingly important strategic considerations for enterprises of any size. Emerging 21st century market conditions are now creating truly new lenses through which the world must be viewed [1]. By ignoring the “hidden connection” between business and the environment, business is missing many new sustainable development (SD) opportunities that may prevent the threat of an inevitable collapse of society [2]. As more companies recognize our “Common Journey” [3], which underscores the necessity of creating sustainable development, firms worldwide are intentionally developing strategic plans to make their companies competitive sustainably. Hart and Milstein have insisted that creating a sustainable enterprise should be viewed as just another factor in the modern business environment and should be addressed as such within the planning process by 21st century business strategists [4]. However, even this view may no longer be adequate.

Modern business plans should include both “the limits and opportunities” presented by changes in global social and environmental circumstances, as limitations of future growth may occur if the global and environmental perspectives for sustainable societies are ignored. Paradoxically, the global economy grows more rapidly as companies become more resource efficient. Ecological footprint analysis indicates that with this “rebound effect” [5], humanity's ecological demands already exceed what nature can supply [6]. This “ecological overshoot” means that we are depleting the stock of natural environmental capital rather than “living off the interest” [6]. In spite of limits to growth, just as is true for all living organisms, business enterprises need to grow at least enough to keep pace with the economy, but defining growth and the ways and means of “growth” need to change [7]. Sustainable enterprise resilience is the “capacity for an enterprise to survive, adapt, and grow in the face of turbulent change,” and at the same time, “to increase shareholder value without increasing material throughput” [5]. Sustainable enterprise resilience within the framework of industrial ecology creates multiple business opportunities through green technologies, reduction of raw material and energy use, and “discovering innovative pathways for recovery and reuse of waste streams in place of virgin resources” [5]. This redefines growth in a more sustainable context, a context that is not foreign to SMEs, who have been operating for centuries within the context of limited local markets, and adapting to those conditions successfully [8].

The strategy of a sustainable enterprise has been defined as “the process of aligning an enterprise with the business environment to maintain a dynamic balance”[9]. By adding a sustainability lens within the framework of SME strategic planning, SME development seeks to balance resilience and growth so as to align the creation of abundance: economically, environmentally, and socially, and to conserve that value for future generations [10]. Integrating sustainability into their competitive strategy, and thereby obtaining greater profitability for SMEs through adoption of intentional sustainable strategies, can help them to optimize their rate of sustainable change.

“It is becoming apparent that voluntary, incremental environmental improvements by individual companies will be inadequate to significantly offset the growth of the global economy, and that the rapid growth of China, India, and other Asian economies will likely exacerbate this problem” [5].

Sustainability strategies create many synergistic effects for SMEs working collaboratively, as well as systemic benefits for the commons. After setting forth the business case for sustainable SMEs, and considering SMEs sustainability advantages in contrast to MNEs, this paper discusses several different scenarios for SMEs to optimize and use sustainability to create competitive advantages rather than simply focusing on reducing unsustainability [5]:

  • become valuable sustainable investment targets for larger firms;

  • create networked SMEs in sustainable market spaces where MNEs are less successful;

  • become sustainable suppliers in global supply chains.

Through this exploration, there is a critical underlying question, which will require fuller investigations; which of these scenarios, or combinations of scenarios, can provide the best alignment for SMEs with the principles of industrial ecology, enterprise resilience, and global sustainability?

Section snippets

Why do SMEs need to articulate and use SD business plans for integrating factors of globalization within social and ecological limits to growth?

Ignoring the possibilities offered by sustainability can produce an artificially narrow vision, with even small firms being constrained as they attempt to operate in a global marketplace, if an expanding vision of sustainability is not included in planning and benchmarking performance [11], [12]. SMEs have a vital role to play in managing limited global environmental and social resources. A broad, multidimensional, multi-stakeholder perspective that is formed based on emerging ideas and trends

Differences between large and small firms that result in sustainability advantages to SMEs

A major facet of corporate planning among leading manufacturers in every industrial sector is the emphasis on sustainability in “internal business processes, external stakeholders and investor relations, and customer value propositions” [5]. It appears that global multinational enterprises are taking actions towards becoming more sustainable and they feel strongly enough about the importance of their efforts to report on their progress through various avenues [29]. An entire lexicon and

SMEs as a laboratory-sandbox for developing sustainable strategies and technologies which are then integrated into MNEs via acquisition

SMEs have traditionally been entrepreneurial businesses that grow through internal financing. The leap to external financing or acquisition becomes necessary when growth outpaces the ability of the SME to finance that growth, or if an SME's technology or market segment becomes of special interest to investors [8]. Small firms can fulfill the desire to grow larger by raising capital in public markets, or they can become attractive acquisition targets for larger firms [37]. Large firms seeking

Network advantages for SMEs utilizing the effects of creative destruction and information technology

One of the apparent reasons for the increasing number of smaller firms globally is the acceleration of “creative destruction” effects caused by rapid technology transitions within global markets [41], [56]. This factor has persisted despite the breadth of advantages inherent to larger firms [31], [57]. Moreover, globalization of communication technology is facilitating the formation of SME networks. These inter-organizational networks, which are strategic partnerships or alliances among SME

The end game of the comparison of large and small firms is the triple bottomline

Kerr concludes that SMEs should develop strategies that incorporate sustainable development, and that the resulting skills would guide them to act in a sustainable way [62]. Acting and leading in sustainable ways that acknowledge the global commons are premised on multiple ethical, social, and environmental imperatives. However, significant research findings which cannot be ignored indicate that a primary survival driver for SMEs (or for any size firm) to invest in sustainability must increase

SMEs as sustainable suppliers in global supply chains

Firms of all size are increasingly being confronted by multiple external stakeholders to demonstrate a commitment to corporate social and environmental responsibility (CSR/CER). One response is “supplier management for risks and performance” that takes a minimalist approach to incorporate environmental and social criteria to complement what are essentially economic-based supplier evaluations [16]. The second strategy, “supply chain management for sustainable products” goes beyond mere

SME sustainability and resilience

It seems that rapid growth and disruptive innovations are being achieved by SMEs from core competencies derived from a focus on entrepreneurial sustainability. Why are small firms innovating in these new, exciting areas, while large global firms are not? The reason for this differential may be due to the nature of sustainability itself. Hart and Milstein [4] introduced a strategy framework which describes how firms can analyze investments through the lens of “sustainable enterprise” with the

Conclusions

As SMEs succeed in integrating social and environmental sustainability performance into financial projections and strategic business goals, they will expand opportunities for innovation by increasing their opportunities for rapid learning. This paper has made the business case for SMEs investing in sustainability while exploring various scenarios: being acquired by an MNE; becoming networked with other SMEs; playing a major role in creating and maintaining sustainable supply chain management.

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