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Journal of Operations Management 29 (2011) 577–590

Contents lists available at ScienceDirect

Journal of Operations Management

j o u r n a l h o m e p a g e : w w w . e l s e v i e r . c o m / l o c a t e / j o m

alancing priorities: Decision-making in sustainable supply chain management

haohui Wu a,∗, Mark Pagell b,1

Oregon State University, College of Business, 200 Bexell Hall, Corvallis, OR 97331-2603, United States Schulich School of Business, York University, 4700 Keele Street, Toronto, Ontario M3J 1P3, Canada

r t i c l e i n f o

rticle history: eceived 28 June 2008 eceived in revised form 7 September 2010 ccepted 25 October 2010 vailable online 3 November 2010

a b s t r a c t

The need for environmental protection and increasing demands for natural resources are forcing com- panies to reconsider their business models and restructure their supply chain operations. Scholars and proactive companies have begun to create more sustainable supply chains. What has not been fully addressed is how organizations deal with short-term pressures to remain economically viable while implementing these newly modeled supply chains. In this study, we use theory-building through case

eywords: reen supply chain management ecision-making ustainability

studies to answer the question: how do organizations balance short-term profitability and long-term environmental sustainability when making supply chain decisions under conditions of uncertainty? We present five sets of propositions that explain how exemplars in green supply chain management make decisions and balance short and long term objectives. We also identify four environmental postures that help explain the decisions organizations make when dealing with strategic trade-offs among the economic, environmental and social elements of the triple-bottom-line.

. Introduction

Organizations have begun to examine their supply chains in esponse to numerous interrelated economic and environmental hallenges such as fluctuations in commodity prices and climate hange. Critics confront “business as usual” and demand sustain- ble practices. Many organizations initially resist change, but some ompanies have recently begun to transform their supply chains in fforts to become more sustainable.

How difficult this transformation will be is debatable. There is body of research which suggests that many organizations can

imultaneously achieve business goals and reduce their environ- ental impacts (e.g. Russo and Fouts, 1997; Christmann, 2000; elnyk et al., 2003). However, while waste and pollution reduction

re aligned with the traditional goals of operations management, ot all environmental practices will bring cost savings and some ill increase costs, especially in the short term. For instance, proac-

ive investment in green technology may not pay off for decades. nd there is evidence that some companies take bold environmen-

al action at the expense of their financial health (Margolis et al.,

007). The challenge is how to run a viable business today while ot compromising the natural environment in the future.

∗ Corresponding author. Tel.: +1 541 737 3514; fax: +1 541 737 4890. E-mail addresses: [email protected] (Z. Wu), [email protected]

M. Pagell). 1 Tel.: +1 416 736 2100x77939.

272-6963/$ – see front matter © 2010 Elsevier B.V. All rights reserved. oi:10.1016/j.jom.2010.10.001

© 2010 Elsevier B.V. All rights reserved.

Managing this trade-off is going to test every organization – and not just because environmental issues will be new to many. Recent studies suggest that organizations making choices regarding the natural environment operate in a complex and dynamic setting (Matos and Hall, 2007; Devinney, 2009). When making decisions about the environmental impact of their supply chains, organiza- tions face information uncertainty, evolving decision parameters and changing decision boundaries (Chechile, 1991; Matos and Hall, 2007). In such a setting organizations are going to be forced to navigate a dynamic environment without a clear road map. Deci- sions about the trade-off between short-term profitability and long-term environmental sustainability involve uncertainty and risk (Kahneman et al., 1982; March and Simon, 1993).

Further, since environmental and social issues are intertwined, stakeholders such as NGOs who were not traditionally considered in supply chain decisions, suddenly are involved (Gladwin et al., 1995; Pagell and Wu, 2009). Freeman (1984) defines a stakeholder in an organization as “any group or individual who can affect, or is affected by, the achievement of the organization’s objectives.” Organizations have stakeholders with different priorities due to their values and issue saliency (Donaldson and Preston, 1995), and therefore are often forced to make trade-offs (Hertwich et al., 2000). For instance, owners and managers will focus on profitability, while members of the community are likely concerned with the over- all livability of the community and environmental impacts from

production.

The challenge is how to balance environmental issues and sound business practices in this dynamic, complex and uncertain set- ting. Existing research has not addressed the business models and

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ecision-making processes underlying sustainable supply chain anagement. Understanding these models and processes will shed

ight on how organizations manage the intrinsic dynamic and com- eting priorities between business and environmental goals.

We examine how leading practitioners of sustainable supply hain management address environmental issues. First, at the trategic level, we investigate how companies incorporate envi- onmental issues into their overall business and supply chain trategies. We focus on supply chain decisions that incorporate nvironmental issues and the trade-offs these decisions may force rganizations to make. However, since operational strategy is riven by organizational strategy (Hayes and Wheelwright, 1979), ne must simultaneously understand the role of environmental ssues in organizational decisions.

Second, we explore the decision process itself to understand ow organizations handle the interplay of business and environ- ental needs, in an environment of uncertainty and/or incomplete

nformation. We cover four decision areas that are central to under- tanding the supply chain: product and process design, purchasing nd supply management, internal operations management, and ogistics.

The research takes an incremental step towards understand- ng how companies incorporate environmental issues into their upply chain decision-making. We take a grounded approach to xamine the supply chain operations of eight leaders in sustainable usiness practices in the United States. Specifically, we set out to xplore the following question: how do organizations balance the eed for short-term profitability and long-term environmental sus- ainability when making supply chain decisions under conditions f uncertainty?

. Literature and theoretical background

.1. Balancing economic and environmental priorities

Environmental issues are considered an integral part of the road framework of sustainability. The World Commission on Eco- omic Development describes a sustainable business as one “that eets the needs of the present without compromising the abil-

ty of future generations to meet their own needs” (WCED, 1987). his definition captures the three intrinsically related dimensions social, environmental and economic) of the triple-bottom-line ramework (Elkington, 1998). The triple-bottom-line framework as gained rapid recognition as evidenced by its incorporation in growing number of third-party certification programs such LEED

usgbc.org) and FSC (fsc.org), as well as a number of sustainability eporting initiatives such the Climate Action Partnership (2010). ustainability means that business activities should also protect atural resources and the environment, and serve the common ood of society.

Following the growing stream of research on environmental ssues in supply chain management (Linton et al., 2007), we will ocus on the environmental dimension of sustainability. In a supply hain context this is often referred to as green supply chain man- gement (e.g. Zhu and Sarkis, 2004; Vachon and Klassen, 2006). he social dimension of sustainability will be discussed only in the ontext of the research question we set out to investigate.

Existing studies find mixed results when examining the rela- ionship between organizations’ economic and environmental utcomes. Many studies have found a positive connection between rms’ environmental actions and financial performance (e.g.

elnyk et al., 2003; Pagell et al., 2004). In operations management

iterature this view is often exemplified by the total quality environ- ental management (TQEM) perspective that sees a strong positive

ssociation between quality management systems and environ-

Management 29 (2011) 577–590

mental management systems (e.g. Curkovic et al., 2000; Corbett and Klassen, 2006; Curkovic et al., 2008). The same processes that improve quality, reduce waste, cut costs and improve competi- tiveness can be used to improve environmental outcomes as well, implying that multiple stakeholders can be simultaneously satis- fied (Curkovic et al., 2000).

However, there is research that suggests that not all stakehold- ers can be satisfied all the time. Strategic decisions with ambitious environmental goals can come with real economic costs (Walley and Whitehead, 1994; Hoffman et al., 1999; Morris and Su, 1999). Walley and Whitehead argue that once firms move beyond the “low hanging fruit” such as reducing energy use, scrap and the like (the focus of TQEM efforts) and start to examine more fundamental issues such as supply chain design and business models, they will recognize that further environmental action will require significant investment, radical changes in operational practices and reengi- neering of existing supply chains (Devinney, 2009). This school of thought notes that proactive environmental actions can place an economic burden on companies that competitors do not have. This literature suggests a trade-off between environmental and economic outcomes.

More importantly, as companies begin to confront global com- petition for resources and tighter environmental regulations, the debate has moved beyond the consideration of whether or not it pays to be green (e.g. Florida, 1996; King and Lenox, 2001, 2002) to focus on how to address environmental challenges while main- taining competitiveness (Kleindorfer et al., 2005).

Indeed, the real challenge for organizations is when the impacts of environmental actions are not clear or when such actions impose costs in the short term while benefits accrue to the supply chain – as well as external stakeholders – only in the long term. Thus, environmental actions offer opportunities as well as challenges. Organizations have to figure out how to balance competing prior- ities by weighing short-term and long-term consequences, while making decisions under uncertainty.

2.2. Decision-making under uncertainty

The complexity of supply chain decision-making is multiplied when organizations address the uncertainty that surrounds envi- ronmental decisions, environmental issues due to the number of entities in the chain, and the interconnectedness of supply chain and ecological systems. As companies set out to evaluate the environmental impact of their supply chains, they often do not have complete information on decision parameters or con- sequences. Organizations may have limited scientific information about the environmental problems they face, how environmental issues interact and affect other dimensions of sustainability, and the consequences of such interactions. Furthermore, their deci- sions have to incorporate the expectations of external stakeholders (Freeman, 1984; Donaldson and Preston, 1995). Even when differ- ent stakeholders are exposed to the same information, they can still differ as to the best course of action (Hertwich et al., 2000).

When companies are constrained by limited information and information processing ability, they experience bounded rational- ity in considering environment-business trade-offs (March and Simon, 1993). They can hardly be certain of environmental con- sequences when the information itself is uncertain and ambiguous and they are not fully aware of all of the factors involved in the decision in the first place (Chechile, 1991; Alvesson, 1993).

Because of these limitations researchers have proposed that we must consider environmental decisions as taking place in com-

plex and adaptive systems (Choi et al., 2001; Matos and Hall, 2007; Surya et al., 2007). In such a system, organizations navigate “rugged landscapes” as they process the information available to them (Kauffman, 1993). In the absence of complete or reliable infor-

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ation on the interactions between environmental and economic arameters, organizations make local decisions that have less than ptimal outcomes at the system level (Frenken, 2001).

Choi et al. (2001) conclude that companies will follow a set of imple rules or schemas when they make decisions in such rugged andscapes. The decision-making literature reaches a similar con- lusion, pointing out that because of uncertainty, decision makers esort to simple rules when they search for solutions (Tversky and ahneman, 1974; Feldman and Lynch, 1988; Hall and Vredenburg, 003; Camerer, 1998; Cowell et al., 2002). For instance Zhou (1997) ound that organizations in crisis often adopt rules quickly to induce redicable behavior. Simple rules provide a way for organizations o deal with uncertainty and hence are likely a component of how hey approach the inherent uncertainty in supply chain decisions bout environmental sustainability. Such rules are based on the ecision-makers’ interpretation of their organization’s institutional orms and the information available to them (Eoyang, 1997; Choi t al., 2001; Frenken, 2001).

While these studies of complex and adaptive systems begin to xamine how companies deal with uncertainty, there is little dis- ussion of how companies make trade-offs in the decision process. nd we do not know if organizations establish simple rules to deal ith uncertainty in environmental trade-off decisions.

Existing studies have informed managers of the interdepen- ency of environmental and economic systems but they fall short n explaining how organizations handle the competing priorities f different stakeholders, make sense of the complex supply chain nvironment, deal with information uncertainty and take actions o induce change. This research explores decision-making in this etting to better explain how organizations manage the short-term eed to remain profitable while attaining environmental sustain- bility and competitiveness.

. Methods

This study adopted the grounded theory building approach e.g. Glaser and Strauss, 1967; Strauss and Corbin, 1990). More pecifically, the principles of theory building based on case stud- es were adopted (Eisenhardt, 1989; McCutcheon and Meridith, 993; Miles and Huberman, 1994; Yin, 1994). Since we were explor-

ng a relatively new research area, case studies were appropriate McCutcheon and Meridith, 1993; Yin, 1994).

.1. Sampling

This study focuses on organizations’ environmental decision- aking, with the unit of analysis being the company or

rganization, therefore we took a theoretical sampling approach o identify companies for this study. We focused on exemplars n sustainable supply chain management to answer our research uestion. All the companies in the sample are leaders in their

ndustries when it comes to environmental sustainability. One key riterion for being an exemplar was that the organization had to go ell beyond regulatory compliance in their environmental efforts.

hey are also profitable and have a record of long term viability. n addition, by sampling exemplars we were much more likely to e dealing with organizations that had already addressed obvious in–win opportunities. Because the “low hanging fruit” (Walley

nd Whitehead, 1994) was more likely to have been picked at these rganizations, they were expected to be dealing with environmen- al issues with greater levels of uncertainty as well as complex

rade-offs between profitability today and sustainability in the uture.

We identified the initial pool of companies through trade mag- zines such as Sustainable Industries, newspapers such as the New

Management 29 (2011) 577–590 579

York Times and the Wall Street Journal and membership lists of non-profit environmental organizations such as The Natural Step Network (US chapter). Existing studies have found that company size influences the likelihood of adopting sustainability practices and companies of different types of ownership will have differ- ent challenges and opportunities in their environmental initiatives (Pagell et al., 2004; Sharma and Henriques, 2005). Therefore we purposefully selected companies of various sizes, with different types of ownership and across a variety of industries with an aim of creating a sample from which we could generalize. The sample contains everything from multinationals with global supply chains to regional and local chains. This mix allowed us to examine the research question in a broad spectrum of settings.

Fourteen companies were initially identified and invited to par- ticipate in the study. Data from eight companies were eventually used. We were unable to gather reliable information in four of the organizations. Two additional organizations provided us access, but they did not do any production themselves. They had limited con- trol or visibility into decisions about design, sourcing, operations and logistics that we are exploring. Therefore we dropped them because neither faces the types of decisions of interest.

Eisenhardt (1989) suggested about seven cases as an adequate number for theory-development. A sample of eight cases allows us to generalize while remaining cognitively manageable for qualita- tive data analysis. Table 1 profiles the participants in the research. At the request of the participants, we used the generic prod- uct/service to name each company to ensure anonymity. Data were collected between 2006 and 2008.

3.2. Data collection and analysis

To answer our research question, a semi-structured interview protocol was developed (see Appendix A). The protocol called for multiple respondents from multiple functional areas; a mem- ber of the top management team, the top managers in charge of operations, R&D, purchasing, marketing and logistic, one or more people involved in product and/or process design, and the per- son with responsibility for “sustainability.” Interviewing multiple respondents allowed us to examine different areas of a company’s supply chain and triangulate data. In general each interview lasted between 60 and 90 min, with several interviews lasting more than 120 min.

To understand the role of environmental practices in the com- pany’s business model, we asked how sustainable practices are adopted in internal operations (i.e. R&D, production, and mar- keting) and supply chain management (i.e. purchasing, customer relationship management, and logistics). We also gathered infor- mation about the history and evolution of sustainability in these organizations. These questions shed light on managerial motives and company strategy. To understand how organizations balance competing priorities in their decision-making processes, respon- dents were asked to walk through real cases where the organization needed to resolve challenging issues. Finally, although the compa- nies were known as exemplars, we asked for more comprehensive information on economic and environmental performance.

Data were collected by multiple interviewers at six of the eight companies. In seven companies, including both with a single interviewer, the interviews were taped and later transcribed. We also collected archival data from company websites, trade jour- nals, reports published by NGOs and government agencies such as the Environmental Protection Agency. Data collection stopped when we reached a saturation point (Glaser and Strauss, 1967;

Eisenhardt, 1989) where additional data would not provide new information to our understanding of the research question.

We first conducted within-case analysis following the proce- dures of Miles and Huberman (1994). The coding was conducted

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580 Z. Wu, M. Pagell / Journal of Operations Management 29 (2011) 577–590

Table 1 Sampled organizations.

Company Description Size/ownership Process(s) at which they are considered exemplarsa

Building Renovation Local custom house remodeler. Market: homeowners

Medium/private Product and design service, internal operations

Cleaning Products Regional producer and distributor of cleaning products. Market: Janitorial service providers

Medium/private Product development and design, service operations

Forest and Wood Regional grower and processor of forest products. Market: Wholesale dimensional lumber

Large/private Operations

Pizza Restaurants Local pizza restaurant chain with 4 outlets. Market: Retail food and beverage

Small/private Supply chain design, operations, product design, supply management

IT Hardware Multi-national IT hardware and services provider. Markets: Consumer electronics and B to B

Large/public Operations, reverse logistics

Snack Foods Multinational producer and distributor of organic and all-natural snack foods. Market: retail – consumer food

Medium/privateb Operations, supply management

Period Lighting National producer and distributor of authentic period lighting. Market: consumer lighting fixtures

Medium/private Operations, supply management, distribution

Specialty Food & Beverage Global distributor of retail food and beverages. Large/public Supply management in the developing world,

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a Based on the external sources used to identify the possible participants in the r b At the end of our data collection, Snack Foods was bought by a private equity fi

teratively. First, each researcher individually coded the data. We hen compared the individually coded data to assure consistency.

e discussed and resolved disagreements before we combined our ata into a consensus document. This process led to clarification nd, on occasion, redefinition of the constructs and discussion of he evidence. The researchers reached consensus on all constructs efore calling the process complete, which assured inter-rater reli- bility between the two coders was 100%.

The within-case analysis had two objectives. First, we tried to ain a broad understanding of the business model of each company nd the operations of its supply chain. We determined how the rganization makes money, the role of environmental management n their product and service value proposition and the impact of nvironmental initiatives on financial performance.

Second, we explored how organizations incorporate environ- ental initiatives in their decision-making in key areas of supply

hain management and operations including design, operations, ourcing, and logistics. Respondents were probed specifically about difficult” decisions where environmental actions could have a neg- tive impact on the company’s financial performance. We further sked the managers how they handled information uncertainties, anaged the dilemmas associated with competing stakeholders,

nd sorted out possible trade-offs to make decisions. Analysis of ultiple examples and perspectives from multiple managers in

ach company provided insight into decision patterns within each ompany. Table 2 summarizes the salient supply chain and opera- ions issues in each company.

Cross-case analysis identified common themes as to how ompanies handle information uncertainty, make trade-offs, and alance the potentially competing needs to be profitable and envi- onmentally sustainable. Eventually, a coherent understanding of rade-off decision-making emerged. The findings are presented in he next section.

. Findings

In our analysis, we find that organizations do indeed face infor- ation uncertainty when making environmental decisions, and

hat they address this uncertainty by establishing and adopting imple rules. We also find that an organization’s environmental

osture helps to explain the trade-offs they face as well as the deci- ions they make. This posture leads to the specific decision rules hat are created. Finally, it is a sequence of decisions that overtime ead to the development of a unique supply chain.

supply chain design

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4.1. Decision-making under uncertainty: Operating Principles and Technical Standards

These organizations have to make environmental decisions without complete information on a regular basis. Managers in the sample share the sentiment that environmental challenges for them are multi-layered and like “peeling an onion.” In the process of addressing one particular issue, additional, unexpected issues will come up. And because these exemplar organizations already surpass regulatory compliance the “correct path” is often impos- sible to identify because there is no target, and in many cases no good way to measure all of the consequences of a decision.

In our sample, organizations use Operating Principles and Technical Standards which are “rules” to help make decisions in this uncertain setting (Zhou, 1997; March et al., 2000). Operat- ing Principles are broad schema to help organizations navigate information uncertainty and provide decision guidelines while Technical Standards are created to provide specific direction in a single decision-making setting. Table 3 provides additional details on the Operating Principles and Technical Standards.

4.1.1. Operating Principles Seven of the eight companies have established and adopted

an Operating Principle. Operating Principles can guide all types of decisions but they do not prescribe specific actions; instead, they articulate the organizations’ environmental values and goals and compel managers to innovate to achieve these goals (see Table 4 that describes the principles for all organizations).

For instance, Snack Foods’ Operating Principle is explicated in their “ingredient philosophy” which stipulates that the ingredients in their products must be both all-natural and genuine: “We are about ‘you get what you see, you get what it says.’ If it says roasted red pepper and goat cheese, then it is going to have roasted red pepper and goat cheese in it. We are about transparency.”

This principle influences how the company designs products, selects suppliers and then tracks every ingredient in their sup- ply chain. They recognize that they do not have the expertise or resources to quantify the environmental benefits of being all nat- ural for every single ingredient they source, but their rationale is that sourcing only all natural ingredients provides environmental

and health benefits in general, even if this is not always true. But because these specific instances are hard to identify they adhere to the Operating Principle with the assumption that it leads to the best long-term outcomes.

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Table 2 Salient sustainable supply chain management issues in each case.

Company Price premiuma Key sustainable supply chain management issues

Building Renovation Yes Their design-build projects have no prescribed roadmap to implement environmental practices because each project is unique and needs a customized solution. The environmental issues associated with home remodeling include using environmentally-friendly building materials, local sourcing, architectural design to reduce overall energy usage, and construction waste reduction. Customers are usually not exposed to the environmental issues associated with design and construction. As a result, behind-the-scenes environmental endeavors are not recognized by the customers.

Cleaning Products No Existing cleaning products contain toxic chemicals that are detrimental to people and the environment. Generally not able to charge a price premium for their products, and they have had to invest significant resources into R&D, customer training and creating service-oriented business processes.

Forest and Wood No Sustainable forestry and production has led to much more efficient operations, but limited top line benefits. The bulk of their business is commodity products where customers normally are not willing to pay a price premium for wood that is grown or processed sustainably.

Pizza Restaurants Yes Buying locally grown produce creates supply variability. The company pays significantly above market prices for produce to guarantee both quality and supply. The company tries to reduce energy use in pizza delivery, packaging and restaurant operations.

IT Hardware No Disposable products not in line with brand or prevailing direction the industry. Need to address electronic-waste without disrupting existing supply chain. Reverse-logistics is costly

Snack Foods Yes Ingredient philosophy mandates strict sourcing control. Packaging imposes a serious environmental challenge. Period Lighting No Many processes are inherently dirty and labor intensive.

Need to compete without violating Operating Principle of “being thoughtful and treading lightly.” Most competitors outsource production to low-wage countries with relatively lax environmental standards.

Specialty Food & Beverage Yes Rapid growth makes it difficult to find and maintain supplies of high quality ingredients created in accordance with s grow

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T O

Operating Principle that protect

a Does the organization get a green premium (charge higher prices) because of it

Building Renovation’s Operating Principle of conserving the mbodied energy in existing buildings does not prescribe spe- ific actions or provide precise directions on how to preserve the mbodied energy in any individual building. Instead, the Operat- ng Principle forces designers to think about choices that can better tilize natural light and airflow within the confines of the exist-

ng building and directs on site personnel to reuse material when ossible and minimize scrap in general.

At Period Lighting, the Operating Principle of being thoughtful nd treading lightly appears to be rather intangible, yet it is under- tood by every employee as the code of conduct and embodies the thos of their culture. For example, the management of the com- any was adamant that they “would not outsource pollution”. This eant that they would not use a less expensive supplier who could

ot meet their own environmental criteria, regardless of the regu- ations in the supplier’s country. Hence, they delayed outsourcing o China and India until they could identify and develop suit- ble suppliers. By postponing outsourcing, they not only incurred ignificant costs, but expended additional resources on supplier evelopment.

The analysis suggests that when an organization is faced with a

rade-off decision, especially in situations where the environmental osts or benefits of a choice are uncertain, they choose the option hat is best aligned with the Operating Principle. Operating Prin-

able 3 perating Principles and Technical Standards.

Operating Principles

Definition General schema or simple rules to guide all dec

Main purpose To offer managers and employees a decision gu information about the environmental challenge certain.

Range of decisions it can be applied to Used on a daily basis for decision-making at bo tactical levels.

Discretion Remains in hands of decision maker

Source Linked to organizational culture, values and bro issues associated with the product and industry

Limitation Broad and often open to employees’ interpretat

ers.

inability efforts?

ciples enable the organizations to make decisions in an uncertain setting. The principles set the environmental agenda and prescribe conduct in each company. Thus they identify the choices a com- pany needs to make in different areas of operations. Additionally, since the principles do not prescribe specific actions or choices, they allow flexibility for decision makers to make trade-off choices. They motivate managers to process all the information available, weigh choices in consideration of the cost and constraints and choose the best possible alternative.

4.1.2. Technical Standards We find that four of the organizations developed Technical

Standards (see Table 3) to specify the scope of particular deci- sions thus reducing uncertainty and risk and often improving the flow of information in the chain. Technical Standards are imposed by management to tackle environmental issues in a specific pro- cess or function. They are created to help achieve environmental goals articulated in the Operating Principle, thus they do prescribe explicit actions.

Specialty Food & Beverage purchases horticultural products

from suppliers who operate in many developing countries and often in ecologically sensitive areas. They worked with several non-profit organizations to create a supplier certification program and rating system which offers full transparency and traceability. The sys-

Technical Standards

isions. Specific rules and criteria that define the scope of a company’s environmental tasks and prescribe decisions.

ideline when and solution is not

To reduce risk, speed decision-making and create standard solution by removing uncertainty for specific or narrow decisions.

th strategic and Targeted and focused decision area with relatively narrow scope. Removes much discretion from decision maker, codified rules and measures

ad environmental .

Supports Operating Principle in single decision-making area.

ion and discretion. Creates clear boundaries on what can and cannot be done. Less useful for deciding how to do something. The scope and specification of the standard delimit actions.

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Table 4 Operating Principles.

Company Operating Principle Explanation

Building Renovation Conserve the embodied energy A house is a living system. Designers and workers need to consider the environmental impact of (re)building and living in a house. Conserve energy through better layout and design, material/equipment choice, reuse and recycling, etc.

Cleaning Product Phase out toxic chemicals Long term goal is to replace traditional cleaning products with ones that are not toxic to people or the planet. Creating a green brand has expanded the meaning of this beyond product development and into all aspects of the supply chain. The same principle that initially led to product development and redesign led to service offerings such as training and vendor-managed inventory to reduce total chemical usage by customers.

Forest and Wood Never log more than annual growth of the forest Limiting logging is an essential part of holistic forest land management; bio-diversity, forest thinning, and riparian protection are all part of the operations. This informs a general conservation mindset in all operations.

Pizza Restaurants Use local foods; minimize energy use Attempt to source only foods grown within 100 miles of restaurant as part of larger efforts to reduce energy use. Local sourcing has multiple implications including food-mile/energy conservation, environmental protection and protection of local communities.

IT Hardware This is the only case where no specific Operating Principle was identified.

Snack Foods All natural ingredients Products must be all natural and contain what the label says they contain – no fine print. All natural ingredients philosophy predicates farming and sourcing practices. This philosophy, which originated from pollution concerns, also informs pollution reduction effort in the organization’s operations.

Period Lighting Being thoughtful and tread lightly Be aware of environmental and social consequences of decisions. Minimize negative impacts – try and have positive impacts.

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Specialty Food & Beverage Sustainable agriculture

em measures the growers’ environmental practices in areas such s soil conservation, pest control and effluent management. The tandard also comprises a social component that includes tracking he flow of money in the supply chain to ensure that growers, not ntermediaries, reap the economic rewards of their environmental erformance.

Snack Foods also has a supplier certification program, but with a arrower focus than Specialty Food & Beverage. Their supplier cer- ification system demands extensive information from suppliers to nsure all ingredients provided meet their “all natural” Technical tandard. However unlike Specialty Food & Beverage, no attempt s made to trace money in the chain or to determine other prac- ices (for instance conditions of farm laborers) that are not directly elated to a product’s status as all natural. This Technical Stan- ard then helps Snack Foods adhere to the Ingredient Philosophy perating Principle.

IT Hardware has developed a supplier code of conduct that cov- rs suppliers’ social and environmental actions and, like supplier ertification, reduces uncertainty about how suppliers behave and he materials they use. Suppliers promise to refrain from activities uch as child labor or use of banned materials. However, suppliers eed not disclose what they do. Because this code of conduct is less pecific than the other companies’ supplier certifications, it func- ions more to reduce the risk of supplier non-conformance than as conduit of information.

In all three cases the supplier certification functions as a Techni- al Standard that aids decision-making: buyers may only purchase rom organizations that have been certified or adhere to the code f conduct. However, the programs vary with the organization.

We also found evidence that Technical Standards were being sed in areas besides supplier certification. Cleaning Products is small regional company in an industry dominated by multi-

ationals. They have the additional complication that they both anufacture their own line of products and distribute products

ade by others. They can control what goes into their own cleaning

roducts, but they have limited control over the organizations for hom they act as a distributor. To address their desire to distribute

nly products that are aligned with their Operating Principle to

Provide the best quality products without sacrificing the environment; protect the supply – and the suppliers, who are generally farmers in developing countries.

phase out toxic chemicals, they worked with external labs and reg- ulators to create a Technical Standard, their “green gate keeper,” so that they could determine the toxicity of product. Before they will distribute a product it has to go through the “gate keeper” process to ensure that it is in line with the Operating Principle. They cannot tell vendors how to formulate their products, but they can and do tell vendors that they will not distribute specific products that they deem too toxic: “So it is not like we are shutting them out of the market place. It is just that we have a very high standard.” Rather than certifying the organizations, Cleaning Products ensures that each individual product meets the Technical Standard.

IT Hardware’s business depends on the production of what are effectively disposable products. Growing their business necessar- ily increases the flow of discarded products going to landfills, a proposition that puts them at risk for increased regulation and a diminished reputation. To address this risk, top management imposed a Technical Standard of creating a closed loop supply chain to take back and reuse the materials. The Technical Standard spec- ifies material choices, design for environment requirements, and the logistical and remanufacturing processes.

Technical Standards specify how these organizations deal with certain aspects of the supply chain such as sourcing, supplier practices, material selection, and reverse logistics. In addition, envi- ronmental decisions in these areas are well-defined and can be measured objectively. As a result, managers making these deci- sions are not as burdened as managers who only have an Operating Principle to guide them. Operating Principles reduce informa- tion uncertainty by setting a broad environmental agenda and prescribing guidelines, while Technical Standards further remove uncertainty from specific decisions. Both Operating Principles and Technical Standards are decision rules. The Operating Principle can be applied to any decision, while Technical Standard(s) will have a much narrower scope, so an organization would have one Operat- ing Principle, but could have numerous Technical Standards.

Our findings corroborate Zhou’s (1997) observation that orga- nizations are more likely to create and follow rules when they experience a higher level of information uncertainty. Operating Principles and Technical Standards embody the environmental

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alues of the organization and incorporate the institutional inter- retation of the issues they face. Thus decision makers in each rganization share a common understanding of the rules, which n turn induces predicable behavior, a necessity for organizational ontrol in a dynamic environment.

P1: Organizations develop Operating Principles and Techni- cal Standards in order to make decisions about environmental issues.

P1a: The Operating Principles and Technical Standards reflect the values of the organization and manifest the institutional understanding of the environmental issues they face.

P1b: An organization will have only one Operating Principle which can be applied to all organizational decisions, but can have multiple Technical Standards, each of which will apply to a specific environmental issue.

P1c: The development of an Operating Principle or Technical Standard reduces uncertainty when making decisions relating to environmental actions supporting the organization’s values when there is a trade-off between environmental and economic goals and improving decision efficiency.

.2. A committed workforce

A committed workforce is one of the concrete ways that the tudied organizations mitigate trade-offs between short term prof- tability and long term environmental sustainability. All eight rganizations noted that their sustainability initiatives had pro- ided significant benefits in recruiting and retaining workers. More mportantly, these organizations had committed workforces which hey leveraged to make continuous improvements and to innovate.

A frequent refrain from the respondents was that they had per- onally sought work at this specific organization because of how it id business. For instance an employee who left a leader in the lobal logistics industry to manage distribution and shipping at ighting Products told us: “This is where I wanted to work, and of ourse took a substantial cut in pay. . . It is because of the thought- ulness that goes into our product. . . how we treat our employees, ou know, how we are in the community.”

And it was not just managers who sought employment at these rganizations, this occurred at all organizational levels. People were ighly motivated to work for these companies for non-economic easons.

Employees who willingly sacrifice higher pay for what they see s higher ideals allow these organizations to hire and retain talent or lower costs than their less sustainable competitors. And even n organizations that paid at or above industry averages, commit-

ent still lead to specific savings. Operational employees worked or Pizza Restaurants for years, in an industry where average yearly taff turnover at the time of data collection was over 80%. The orga- izations in the sample were then spending less on compensation, ecruitment, training, and the like.

The most important benefits from the committed workforces ould not show up directly on a balance sheet. Lighting Prod- cts’ distribution manager not only took a pay cut to join the rganization; she came with knowledge and experience base that ompetitors likely could not match. And while Specialty Food and everage could match salaries at the Fortune 500, they were able o offer the chance for top managers to “change the world” in a ositive way, a significant motivation for many of our respondents.

Respondents noted that their employees wanted to come to ork; they helped to spread the message to customers and

mproved the organization in innovative ways they would not have ithout their commitment to the organization and its ethos. Pizza

Management 29 (2011) 577–590 583

Restaurants’ staff helped develop alternative means of pizza deliv- ering; designers at IT Hardware spent their own time reducing the environmental impacts of a design (but not on non-environmental features), skilled trades people came to work for Building Ren- ovation to find novel ways to make buildings greener and so on. Innovation depends on the knowledge and commitment the workforce. And these organizations could attract and retain knowl- edgeable people for lower costs than their competitors. More importantly, the employees of these organizations were motivated to participate in innovation.

Thus, as these companies confront environmental challenges, they face the same financial and other business constraints as other companies. But rather than using cost and resource constraints as an excuse for inaction, they use these constraints to motivate cost-neutral solutions and innovation. Their committed workforces drive innovation and help create supply chain practices that clearly differ from industry norms.

P2: Cost-environment trade-offs are mitigated at these orga- nizations because of the benefits of having a committed workforce.

P2a: Managerial employees, especially highly skilled senior managers, will accept lower pay to work for a more sustainable organization.

P2b: Recruitment and retention of motivated and skilled employees will enable environmental innovation.

4.3. A sequence of decisions

The research question focuses attention mainly on orga- nizational performance outcomes and the trade-off between short-term economic viability and long term environmental sus- tainability. Our data suggests that while this tradeoff does indeed exist, many of the trade-off decisions made by organizations were shorter-term in nature, and that these short-term trade-offs were common. Table 5 details some of the trade-offs faced by the orga- nizations.

The studied organizations are leaders in sustainability, yet they usually do not address environmental issues at the expense of their companies’ financial well-being. These managers are as pragmatic as their counterparts at less sustainable organizations. Several of them asked us to clarify the definition of sustainability and made the point that “one has to be economically sustainable to be envi- ronmentally sustainable.” For these organizations, there is always the tension to figure out “how much one wants to be green and how much one can afford to be green.” Sustainability does not exist if a company is not profitable.

The respondents offered many examples where the costs of an environmental initiative were currently too high. Period Light- ing’s very old facility was expensive to heat and not amenable to air-conditioning. This meant wasted energy in the winter and uncomfortable employees in the summer. Management realized that a retrofitted building would have a smaller footprint, provide enhanced employee wellness, and be cheaper to operate, but the expense of a new building was impossible to justify for real, but relatively small, improvements in social and environmental out- comes.

In addition, other business needs often forced them to forego environmental initiatives, in the short to medium term. For instance, after a few trials Pizza Restaurants had to give up using a recycled paper box for take-out salads and switched to

a clear plastic box, which was better for food presentation. Simi- larly, Snack Foods had to store some seasonal organic ingredients in temperature-controlled warehouses to maintain a year-round supply, because retailers would not stock the end-product on a

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Table 5 Examples of trade-offs where the organization is “practical” or prioritizes short term profits.

Company

Building Renovation Projects are only as “green” as the customers are willing to pay for in terms of design and the selection of construction materials. Some individual projects do not conserve as much embodied energy as the organization would like.

Cleaning Products Often continue to produce a more toxic formulation alongside a new green product because customers hesitate to change to new green products when old products “work just fine.”

Forest and Wood Being Forest Stewardship council (FSC) certified has brought increased brand awareness, but the company does not always promote FSC because the certified products usually do not bring price premiums.

Pizza Restaurants Packaging – especially plastic – is resource intensive and not easy to recycle. Customers demand organic products out of season and hence they must be stored in temperature-controlled warehouse.

IT Hardware Can make products that would last 50–100% longer for 20% higher price but customers prefer the present product (which means more frequent purchase and disposal as well higher total cost to customer).a

Snack Foods Store seasonal ingredients to provide product year round. Packaging not recyclable.

Period Lighting The old production facility is not energy efficient, yet the company cannot economically justify a renovation. Produce fixtures designed for old style incandescent bulbs because customers demand them.

Specialty Food & Beverage Do not own most retail locations and hence cannot control practices such as energy use and recycling which are at the property owner’s discretion. Has not been successful in shifting consumers (in

s h t

p t I

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general) to reusable packaging.

a To protect anonymity and proprietary information numbers have been changed.

easonal basis. Management worries that their all-natural products ave lost their meaning, given the high energy involved in storing he ingredients.

Individual decisions about environmental issues are then very ragmatic and all of the organizations keep sight of the fact that hey must be both economically and environmentally sustainable. n the short term this often means placing profits first.

All good managers make decisions that minimize costs and or aximize customer satisfaction. What makes these organizations

nique is that the environmental impacts are part of the daily con- ersation such that they do not accept the status quo and actively ork to mitigate the trade-offs they identify. The end result is that

hey remain economically viable in the short term as they try to ecome more environmentally sustainable over the long term.

This pragmatism is exemplified by a packaging problem at Snack oods. The transportation of their products required the use of a on-recyclable bag made up of multiple layers of virgin plastics nd metal. When the expiration date of their products was reduced ue to faster turnover, they immediately decided to remove a layer f plastic from the bag because it was no longer needed to pre- erve the freshness of the products. While such changes also reduce osts, the managers’ primary concern was plastic usage, not cost. It ad become natural for them to consider environmental implica- ions when business conditions changed. This incremental progress upports the notion of TQEM (Curkovic et al., 2000) – sustainable

ractices are part of a company’s continuous improvement effort.

P3a: Incremental changes through continuous improvement take place when companies make decisions to conserve

Management 29 (2011) 577–590

resources (material and energy) and reduce pollution in an existing production system and supply chain.

Continuous improvement of the existing production system and supply chain is often not sufficient. Our analysis suggests that these exemplar companies may have radically different environ- mental practices because of the dynamic interplay between trying to adhere to the Operating Principle and making tactical trade- off decisions. The managers are deeply aware of the practical and technical aspects of the environmental issues they face in their daily operations, and strong values accentuate the challenges the companies face. Because of this, organizational goals based on envi- ronmental values and Operating Principles contend with practical constraints, creating cognitive tension. This tension pushes orga- nizations away from considering only tactical trade-offs and forces them to consider bold environmental decisions that lead to system changes.

For instance, Period Lighting had a metal-finishing process that created a stream of toxic contaminants that were discharged into the sewer system, leading to close monitoring by the local environ- mental regulator. This process was unsatisfactory because of both the environmental impact and the paperwork involved and fre- quent intrusive inspections. They could have invested in improved processes that reduced the discharge, but they realized that as long as they discharged waste they faced regulatory scrutiny as well as creating tension with their Operating Principle. Therefore, they approached the problem from a new perspective; they asked “what if we had no discharge?” Reframing the issue led to the develop- ment of a closed-loop system that differed radically from traditional systems. The upfront costs of this change were high, but the orga- nization justifies the change based on the elimination of both the waste stream and the regulatory oversight. They no longer spend managerial time doing paperwork, preparing for inspections and so on. And they do not have to worry about future changes in regulation because they no longer discharge into the sewer system.

The tension between adhering to the Operating Principle and accepting a trade-off prods managers to create innovative solutions in supply chain systems and operational routines. For instance, Building Renovation’s top management conscientiously pushed designers and workers to reduce material usage and waste. In house renovation projects, however, it is often cheaper to buy new construction materials than to salvage old materials by decon- structing a building. In one case, instead of specifying new lumber, a carpenter used 1920s vintage studs found in a local shop sell- ing used building/remodeling materials at discount price. Practices like this were promoted as success stories to employees and exter- nal contract workers. Designers and workers were encouraged to improvise to find create new work routines and alternative supply sources. Such innovative practices lead to business practices that are better aligned with the Operating Principles.

Thus, as these companies are confronted with environmental challenges, they face financial and other business constraints sim- ilar to other companies. And the trade-off decisions they make do not always favor more environmentally oriented choices, espe- cially in the short run. Yet at the same time, we find that rather than using cost and resource constraints as an excuse for inac- tion, these companies search for cost-neutral solutions and become more innovative. As a result, the committed workforces create sup- ply chain practices that are clearly different from industry norms.

P3b: When organizations encounter tension between their Operating Principle and business realities such as costs and cus- tomer expectations they innovate to create unique supply chain

processes, knowledge and routines.

In our initial analysis we treated each decision independently, which made it easier to pinpoint what, trade-off, if any, the orga-

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ization faced in the specific setting. However, the unique supply hains we studied were the result of multiple decisions made over xtended periods of time. Therefore, we re-examined the data, ana- yzing multiple decisions simultaneously to get a better sense of he implications of multiple choices. This showed that the organi- ations often balanced short term economic needs and long term nvironmental needs with a sequence of decisions. We find that here is an underlying relationship among an organization’s deci- ions and these decisions are not independent. This connectivity etween decisions helps to explain the differences between the ample companies and their peers in terms of supply chain envi- onmental practice and performance.

Each organization started by addressing an initial environmen- al opportunity or need. This action led to future opportunities and hanges that were possible because of both accumulated learn- ng and changes taking place in the organization’s operations and upply chain infrastructure.

For example Forest and Wood Products stopped taking water rom the local river, thus improving resource efficiency and ddressing potential water shortages in the region. Their initial ecision was to treat and reuse water within the plant. They leased he only available piece of farm land and built a wetland to store nd treat the discharge, but the wetland turned out to be too mall to store all of the treated water, forcing them to find a way o use the “extra treated water” immediately. Workers and engi- eers realized that they could cut electricity use by modifying the eat exchange and cooling systems in the production process to ake use of the extra water. The initial decision to stop taking ater forced managers to re-engineer the production process. A

ingle decision to reduce water use led to sequence of decisions. he result – a much different production process – not only uses ess water, but also requires less energy to run, freeing up capi- al. Simultaneously the organization learned not only about water nd energy use, but about improving operations. Finally, the expe- ience motivated workers who saw immediate benefits from their fforts in terms of facility efficiency and in their community’s water upply.

By analyzing the decisions at each company holistically, we egan to recognize the inherent logic among many of their deci- ions. Specifically, earlier environmental actions lead to new hallenges and opportunities, and trigger new choices and actions. ome decisions are directly influenced by earlier decisions, and sub- equent decisions sometimes replicate the logic of earlier decisions ven though there is no direct operational linkage among them. or instance at Specialty Food & Beverage, the standard for the ey agricultural product was later adopted for other agricultural roducts. Similarly, Building Renovation applied what they learned bout saving energy, with the accumulated knowledge eventually eading to a more holistic design philosophy based on viewing the uilding as a system.

There are two main implications of looking at the organiza- ions’ sequence of environmental decisions. First, the organizations ssess the feasibility of multiple environmental actions simultane- usly, taking actions when feasible and compromising when they ave to. Second, over time the outcome of this sequence of deci- ions is the unique supply chain system that arises from continuous mprovement and innovation in an attempt to mitigate tradeoffs

hile adhering to the Operating Principle.

P3c: Companies’ decisions addressing environmental issues are sequential, where earlier decisions induce further choices that are unique/specific to the individual company and its supply

chain.

P3d: Far-reaching supply chain and operational changes take place when sequential decisions are made over time. Sequential

Management 29 (2011) 577–590 585

decisions fundamentally change a company’s value proposi- tion, tacit knowledge of environmental management and supply chain structure.

4.4. Environmental postures

One of the core objectives of these case analyses was to iden- tify the business model of each organization emphasizing how each organization incorporated environmental concerns in strate- gic decision-making. It became clear that while the focus of the research is on environmental issues, social and environmental issues are closely connected, but interrelate differently for different organizations.

Therefore to understand business and environment trade-offs, it is necessary to bring in the social dimension and examine the busi- ness models in the context of the triple bottom line framework. The analysis suggested that the organizations address sustainability dif- ferently because of their history, stakeholders, and the experiences of owners and key managers.

We are able to categorize the organizations based on their business models and priorities in decision-making. Specifically, we find that they configure social, environmental and business strategies differently. We use the term “strategy” not in the sense of Porter’s generic strategies (Porter, 1980) which are content- based, but instead follow Mintzberg and Waters (1985) concepts of realized and intended strategies. Our interest lies in the real- ized configurations of environmental behaviors, social behaviors and business strategy. These configurations, which we will refer to as environmental postures, are then the result of a pattern of deci- sions about business, social and environmental goals made over time. We identify four unique environmental postures that help to explain both the decisions the organizations make and more impor- tantly the strategic trade-offs they face between elements of the triple-bottom-line.

Table 6 describes the elements of each environmental posture and which companies they comprise.

4.4.1. The Environment First posture Three organizations, Building Renovation, Pizza Restaurants and

Snack Foods comprise the Environment First posture. Their key com- monality is that their founders’ values led them to capitalize on environmental issues in the creation of a viable business. For orga- nizations with an Environment First posture, business success is contingent on the accomplishment of their environmental goals.

From their inception, these organizations were motivated by the strong environmental values of the founders and managers. These businesses were started with the intention of being environ- mentally sustainable and the business is a vehicle to carry out an environmental agenda. While all three companies are engaged in community service and do discuss social issues when making deci- sions, tackling environmental issues is an essential part of business operations, while social issues are secondary.

These organizations can and do explicitly communicate their environmental messages to customers. Pizza Restaurants’ cus- tomers are made aware that their pizza is made from local and often organic ingredients, cooked in an energy efficient manner, and delivered using a carbon-neutral vehicle. Their environmen- tal attributes are also quality attributes, so their pizza is better for both the customer and the environment. When these organiza- tions improve their environmental performance, the customer also benefits via higher quality products and a healthier environment. Because the customers explicitly benefit from the company’s envi-

ronmental efforts, organizations with an Environment First posture can charge a price premium over less sustainable competitors. This price premium can offset the costs of some of the environmental activities or provide resources to address additional environmen-

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Table 6 Environmental postures.

Posture/companies The role of environmental issues in business strategy

What it means to customers Triple-bottom-line implications

Environment first Building Renovation Pizza Restaurants Snack Foods

Environmental issues addressed as part of their initial business plan. Achieving their business agenda helps achieve their environmental agenda.

A green product offering that they are willing to pay extra for.

Social aspect of triple-bottom-line is deemphasized relative to economic and environmental aspects.

Equal footing Forest and Wood Period Lighting

Environmental and social issues equally addressed as part of business plan.

A responsible organization that charges basically the same prices as other organizations that are less responsible.

Balanced approach to triple-bottom-line that means all aspects equally weighted which can limit short term growth

Opportunity first Cleaning Products

Environmental issues addressed as a business opportunity.

A green product offering that comes from an organization without a long pedigree of being green: there is little to no price premium.

Economic aspect of triple-bottom-line most heavily weighted, environmental aspect of nearly equal importance, social aspect not emphasized

Community first Environmental issues addressed A socially responsible product that ustom s long nviro

Environmental aspect of

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IT Hardware Specialty Food & Beverage

because poor environmental performance was not congruent with social values.

c a e

al issues. The owners and managers at these organizations take reat pride in their ability to be both green and financially success- ul. While all show a concern for people and societal issues, they re primarily motivated by a concern for the environment. From an utcome perspective these organizations are leaders environmen- ally, are differentiated from their competitors and able to charge rice premiums, but are generally not leaders or significantly dif- erentiated from competitors when it comes to social outcomes.

P4a: In the Environment First posture the social aspect of the triple-bottom-line is deemphasized relative to economic and environmental aspects.

P4a1: Organizations with an Environment First posture will be exemplars on environmental performance, have average to above-average profit margins and average social outcomes.

.4.2. The Equal Footing posture Two organizations, Forest & Wood Products and Period Light-

ng comprise the Equal Footing posture. Their key commonality is hat they have always done business sustainably, and their envi- onmental and social efforts directly benefit employees, suppliers nd local communities. In these organizations environmental and ocial issues are highly integrated and equally important.

Specifically, Forest & Wood Products’ conservation-based phi- osophy has allowed them to maintain a stable workforce while he forestry industry as a whole has experienced declining employ-

ent and production over the past two decades. This approach does imit growth and profits in some years, but in return they have pro- ided decent-paying jobs to their employees and stability to the ommunities in which they operate.

Similarly, Period Lighting is willing to forgo some potential prof- ts in order to meet environmental goals such as not outsourcing ollution and social goals such as employing refugees who often equire extra-training. Like Forest & Wood Products, Period Light- ng used a conservation mindset to redesign operations. They have sed TQEM principles to reduce the impact of production facili- ies (theirs and suppliers’), while increasing efficiency and allowing hem to offer better working conditions for employees and overseas uppliers. Like members of the Environment First posture these rganizations are able to attain resource efficiency in many areas f their supply chains.

The organizations in the Equal Footing posture are willing to

nternalize some of the environmental costs that are not presently

andated by existing regulations to provide long term bene- ts to employees, suppliers, and the communities in which they perate. These organizations are leaders environmentally and

ers are willing to pay extra for as it does not harm the

nment.

triple-bottom-line is deemphasized relative to economic and social aspects.

socially, but from an economic perspective do not grow as fast as competitors.

P4b: In the Equal Footing posture, a balanced approach to the triple-bottom-line means all aspects are equally emphasized, which can limit growth.

P4b1: Organizations with an Equal Footing posture will be exemplars on environmental and social performance, but will have restrained growth.

4.4.3. The Opportunity First posture Cleaning Products is the only organization in the Opportunity

First posture. This posture is significantly different from the previ- ous two in that the environmental efforts of the organization are relatively recent and driven by an economic opportunity not the values of the founders or managers. Cleaning Products initially pur- sued environmental sustainability as a way to achieve economic goals.

The organization faced a commodity trap because their cus- tomers bought janitorial supplies based on price, and national competitors had economies of scale they could not match. By refor- mulating their own brand cleaning products to be free of toxic chemicals they created a way to differentiate beyond price.

Cleaning Products were already in the market as a traditional (not sustainable) competitor whose customers already associated the organization with specific attributes, including low prices. Because customer expectations are slow to change, the manage- ment team soon recognized that they needed to offer a “total cost” value proposition to recover their higher costs that resulted from smaller production volumes. Consequently, the company expanded their efforts into service areas such as vendor-managed inventory and custodian training to reduce usage for customers. Organiza- tions in the Opportunity First posture can brand their products as sustainable, but unlike Environment First organizations, they will have to overcome customers’ deeply held perceptions, formed before the decision to capitalize on the environmental opportunity.

In addition, organizations with an Opportunity First posture are engaged in a relatively recent entrepreneurial venture with high upfront costs. The high upfront costs and resources needed to changing customer expectations suggest that Opportunity First organizations are less likely to invest in environmental initiatives, especially if the environmental pay-off is far in the future. These

organizations are environmental leaders when they can leverage to create economic opportunity, have above average growth rates but are generally not leaders or significantly differentiated from competitors when it comes to social outcomes.

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P4c: In the Opportunity First posture the economic aspect of triple-bottom-line is most heavily weighted with the environ- mental aspect of nearly equal importance and the social aspect not emphasized.

P4c1: Organizations with an Opportunity First posture will have above average growth rates, be exemplars on certain aspects of environmental performance and have average social perfor- mance.

.4.4. The Community First posture Two organizations, IT Hardware and Specialty Food & Bever-

ge compose the Community First posture. Their key commonality s that they address environmental issues in reaction to threats to heir socially sustainable values and branding. Both organizations alued people and communities and both had brands that were uilt on these values to some extent. And both took on environ- ental initiatives only when the negative environmental impacts

f their business became a salient managerial concern. Specialty Food & Beverage had a reputation for caring about the

ommunity and protecting their workers’ well-being. As the com- any grew, close scrutiny from the public and NGOs compelled hem to consider environmental issues in food-growing countries. o protect the environment and communities where it purchased, pecialty Food & Beverage created a supply chain that was funda- entally different from the industry norm. They used a Technical

tandard (supplier certification) linked to financial incentives to anage supplier environmental and social performance and bring

upply chain management into line with the organization’s and xternal stakeholders’ values.

Similarly, IT Hardware had a reputation for commitment to mployees’ welfare as well as a culture built on a history of innova- ion. The environmental problems created by disposable products ere incongruent with the organization’s culture. This was mag- ified by changing regulation which was also putting pressure on heir business model. In response, IT Hardware created a world- ide closed-loop supply chain to collect and recycle its disposable roducts. However, their solution had to protect the existing busi- ess model built on disposable products, and has turned out to be ery expensive.

In addition to continuing to communicate their messages of eing socially aware, these organizations now explicitly commu- icate their environmental messages of reducing impacts and onserving resources to customers. However, not all of their nvironmental efforts directly benefit customers. IT Hardware’s nvironmental goals are not currently aligned with their economic oals. Environmental management at these organizations is often ndertaken either to minimize risk or in response to a misalign- ent between existing business models and social values. These

rganizations are leaders socially and above average environmen- ally, but from an economic perspective the reactive nature of some f their environmental efforts can be expensive.

P4d: In the Community First posture the environmental aspect of triple-bottom-line is deemphasized relative to economic and social aspects.

P4d1: Organizations with a Community First posture will be exemplars on social performance, have average profit margins and above average environmental outcomes.

In conclusion, the four postures offer important insight into our esearch question. They suggest that even the leaders in green sup-

ly chain management are on different trajectories with different otivations. More importantly, they also explain how organiza-

ions prioritize elements of the triple-bottom-line and determine hich stakeholders are most important when making decisions.

Management 29 (2011) 577–590 587

Strategic trade-offs among all elements of the triple-bottom-line are then a function of the environmental posture of the organiza- tion.

P5: A company’s environmental posture predicts which ele- ments of the triple-bottom-line it will prioritize when facing a strategic trade-off in decision-making. The organizations’ triple bottom line performance will be predicated on their priorities.

5. Discussion

We set out to answer the question: how do organizations balance short-term profitability and long-term environmental sus- tainability when making supply chain decisions under conditions of uncertainty? Summarizing the results from our systematic examination of the supply chain operations of eight exemplar orga- nizations, we have three core findings.

First, we find that managers in the eight sampled organizations often lack sufficient information in making environmental deci- sions. Factors such as uncertainty about environmental outcomes and future regulations, the saliency of each environmental issue to multiple stakeholders, as well as a lack of visibility and influence in one’s supply chain, all can contribute to the uncertain decision envi- ronment. In response, organizations in our sample establish and adopt an Operating Principle and Technical Standards as decision rules to mitigate this information uncertainty. Our study highlights how these rules are applied in environmental decision-making (Zhou, 1997; March et al., 2000).

Second, we find that when making environmental decisions, the managers in these exemplar organizations do make short-term concessions to business needs. What makes these organizations unique is neither that they face trade-offs and experience dilem- mas, nor that they often put profits first. Rather it is what happens after a trade-off is identified that makes these organizations suc- cessful both environmentally and economically.

Specifically, the companies in our sample maintain business viability and financial health while pushing for improved environ- mental outcomes. We find that these organizations make practical environmental decisions; environmental efforts have to make busi- ness sense. However, cost and other resource constraints do not necessarily hamper environmental innovation. In fact, environ- mental challenges offer these companies a new lens to examine their supply chain operations. Furthermore, the costs and resource constraints associated with environmental issues force managers to consider not only profits and sustainability, but also short- term growth and long-term competitiveness. These challenges are addressed by committed workers who are intrinsically motivated by the organization’s values and objectives.

Finally, we are able to specify four unique environmental pos- tures which capture environmental strategies through empirical specification of archetypes based on the actual behaviors of these firms. Specification of the postures is itself theory-development, because each posture describes the dynamics among different factors and predicts certain performance outcomes (McKinney, 1966; Bailey, 1994; Boyer et al., 2000). These environmental pos- tures capture unique configuration of the three dimensions of the triple-bottom-line framework. More importantly, they predict the decision patterns of these companies when they face trade-offs among competing needs embedded in the notion of the triple- bottom-line.

In this sense, our study moves beyond a normative prescrip- tion that companies need to strive for excellence across all three

dimensions of the triple-bottom-line. Our findings offer an under- standing as to how companies consider social and environmental issues through their supply chain operations. The postures suggest that in reality, even exemplar organizations’ sustainability agendas

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588 Z. Wu, M. Pagell / Journal of Operations Management 29 (2011) 577–590

Radical Change in Supply Chain Structure and

Operational Practices

Environmental Posture

Operating Principle and Technical

Standard(s)

A Sequence of Trade- off Decisions

Continuous Improvement

Committed Workforce

Incremental Environmental

Performance Gains

isions

u n t

t t t t m c t w d

o e t

o d c s u B n c t

o a c e t a z l

t H p t f s a j

p

Fig. 1. Sequential trade-off dec

sually do not equally emphasize all three dimensions. Only orga- izations with the Equal Footing posture are able to integrate the hree dimensions in a balanced fashion.

The organizations adopt environmental initiatives proactively o protect their brands and differentiate themselves in competi- ive markets. Our analysis suggests that these companies are able o establish distinct sustainable supply chain practices and rou- ines that allow them to compete with the norm in their industry;

eanwhile, such practices and routines contain difficult-to-imitate apabilities. Research that uses the resource-based view of the firm o explore environmental outcomes (e.g. Russo and Fouts, 1997) ould predict this outcome. Our research helps to understand the ecision-making processes that lead to this outcome.

Our analysis shows that it was a sequence of decisions made ver time, as well as the inter-relatedness of these decisions, that nabled the organizations to create differentiated supply chains hat are economically and environmentally viable (See Fig. 1).

A company’s environmental posture leads to the development f the Operating Principle and Technical Standard(s) that drive the ecisions the organization makes. Operating Principles and Techni- al Standards are central to environmental decision-making in the tudied organizations because they set decision boundaries, reduce ncertainty, and reduce the search space for acceptable solutions. y providing direction and boundaries, the principles and standards ot only make decision-making tractable, they make it more effi- ient because fewer options need to be considered and less time is aken with justifying choices.

The commitment of the workforce is also a key component f mitigating trade-offs and creating a unique supply chain. In ddition to reducing the actual costs of training, retention and ompensation, the committed workforce is a source of knowl- dge. These committed workforces are willing and able to provide heir knowledge and tackle difficult problems that might not be ddressed by similarly paid workers at competitors. These organi- ations can then address environmental issues at a lower cost than ess-sustainable competitors in the same situation.

Many of the individual decisions will be incremental and occur hrough the continuous improvement of the existing supply chain. owever, over time the sequence of organizational decisions makes uts it on a unique trajectory. And as the organization travels fur- her down this vector it builds a supply chain radically different rom its less-sustainable competitors. Each decision informs sub- equent decisions, creating a feedback loop of knowledge, practices

nd routines that moves the organization along their unique tra- ectory.

The creation of a supply chain that is more sustainable than com- etitors implies that the supply chain has fewer trade-offs between

in a sustainable supply chain.

economic and environmental outcomes. However, this same pro- cess also creates trade-offs between the elements of the triple bottom line. So while all of the organizations in the sample are exemplars in sustainable supply chain management and (by defini- tion) have fewer trade-offs than their less-sustainable competitors, they still face long term strategic trade-offs among triple bottom line outcomes, due to the prioritization in their sequential decision paths.

This study has two significant practical implications. First, the four environmental postures provide managers with a template to examine their strategic options and create sustainable busi- ness models. Since the postures suggest different performance implications (Doty and Glick, 1994), managers can use them as a framework to identify opportunities for performance improvement and evaluate the integration of environmental goals into business performance.

We note two things about the four environmental postures that managers should consider. Our sample is of exemplars in sustain- able supply chain management, most of whom have been pursuing environmental and or social performance for decades. For most organizations that are just confronting these issues, the most likely posture available will be the Opportunity First posture, because the existing values and decision-making scheme will not (yet) support the other postures.

Additionally, the experience of Cleaning Products suggests that over time, customers, employees and other stakeholders of the Opportunity First posture will come to expect more responsible behavior. What started as a business opportunity for Cleaning Products has indeed radically changed their products. However, the organization has also been pushed by numerous stakehold- ers to confront a host of other issues because these stakeholders now expect that an organization that sells responsible products is truly responsible in all of its actions. In essence, protecting and growing the brand means that the Opportunity First posture will likely embrace broad environmental and social tasks over time, and migrate toward the Equal Footing posture.

The second practical implication is that environmental deci- sions have a profound impact on a wide range of supply chain issues and an organization’s ability to compete. Managers can gain insights from the practices of these leading companies to assess their own decision environment and create coherent sustainability strategies.

6. Conclusion

Sustainable supply chain management has gained increas- ing attention in recent years. Besides addressing technical issues

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tions

s r e m a e t e u

r l F l p w v g c t

t T 1 m p o W i d w s ( b

d t m a a g r 2

m o r r p a

A

a a s r s

A

a a

Z. Wu, M. Pagell / Journal of Opera

uch as product design and reverse logistics (Guide et al., 2003), esearchers have started to address broad strategic issues (Linton t al., 2007) that involve system implementation (Sroufe, 2003), anufacturing strategy (Klassen and Whybark, 1999; Corbett

nd Kirsch, 2001) and supply chain system design (Karakayali t al., 2007; Matos and Hall, 2007). Along this line, our study akes another incremental step to understanding companies’ nvironmental decision-making processes. There are still many nanswered questions.

First and foremost, the external validity of our proposed theory emains to be empirically tested. Like all case studies, the theory is imited by the idiosyncratic nature of the cases (Eisenhardt, 1989). or instance, both companies in the Community First posture are arge publicly owned companies. We do not know how these com- anies would behave today if they were privately owned, though e do know that Specialty Food & Beverage developed their social

alues when they were a small private origination, strongly sug- esting that this posture is not the sole domain of large public ompanies. Regardless, future research should use large samples o test the propositions empirically.

Second, sustainable supply chain management concerns all hree dimensions outlined in the triple-bottom-line framework. his study, like many other supply chain studies (Handfield et al., 997; Zhu and Sarkis, 2004), focuses mainly on the environ- ental practices and their connection with traditional business

erformance. A comprehensive analysis of sustainable business perations should consider all three dimensions simultaneously. hile the four configurations emerging from this study suggest

nteresting interactions among the three dimensions, the social imension and the social impact of environmental management ere not the focus of this study. We suggest that future research

hould more fully tap the conceptual domain of sustainability WCED, 1987; Wacker, 2004) to better understand how companies alance all three dimensions of sustainability.

Finally, more research is needed to investigate the manager’s ecision-making role in a complex and adaptive supply chain sys- em. Such research can provide practical guidance to how managers

ake responsible decisions (Fiske and Taylor, 1991; Glac, 2009) nd make decisions under uncertainty (Simon, 1962, 1969; Cyert nd March, 1963; Eisenhardt and Zbaracki, 1992). A lack of such uidance has resulted in suboptimal performance in critical envi- onmental areas such as life cycle assessment (Matos and Hall, 007) and public policies (Pimentel, 2003).

This research provides important insight into the decision- aking of exemplars in sustainable supply chain management. As

rganizations navigate the trade-offs between profits and envi- onmental outcomes, their decisions provide the opportunity to e-conceptualize the supply chain and develop new products and rocesses, many of which also create new business opportunities nd long-term competitive advantage.

cknowledgements

This study was partially funded by the Summer Research Grant t Oregon State University. We thank the firms and numerous man- gers who generously devoted their time to participate in this tudy. We also acknowledge and thank Regina Hauser of The Natu- al Step Network (USA) for introducing us to the firms used in this tudy and Deborah Rose for helping us with the data collection.

ppendix A. Interview instrument

Review the project. Explain the objectives of the study. Explain nd clarify that we focus on the environment aspect of the sustain- bility issues.

Management 29 (2011) 577–590 589

1. Strategy and practices 1.2 Understand the business model of the company. How does

this company make money because of/in spite of sustain- ability?

1.3 Internal operations: sustainability operations in terms of product development, manufacturing and service opera- tions, lean practice, human resource management, logistics and marketing.

1.4 Supply chain management: Sourcing, supplier and customer relationship management. The roles of the suppliers, cus- tomers, NGOs, competitors, and government.

2. Decision-making 2.2 Technical challenges of being sustainable (i.e. product and

process technology, industry norms, suppliers, customers). 2.3 Organizational challenges (human resources, management

and employees, learning) 2.4 What are the dilemmas, trade-offs and costs in decision-

making? Illustrate with examples and explain the decision- making process.

3. History 3.1 History and evolution of sustainability practices in the com-

pany. 3.2 Motivations behind the company’s sustainability initiatives.

4. Performance 4.1 The effect of sustainability practices on business perfor-

mance. 4.2 Business performance, environmental and social perfor-

mance as a result of the sustainability practices.

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