Sugar Factory with clean vapor emission, Minas Gerais, Brazil, 2007 (Source: Wikimedia Commons)
Ideas for Leaders #618

Meeting Sustainability Priorities in Competitive Operational Strategies

This is one of our free-to-access content pieces. To gain access to all Ideas for Leaders content please Log In Here or if you are not already a Subscriber then Subscribe Here.

Key Concept

Environmental and social sustainability priorities can be integrated with traditional priorities to varying degrees. Companies competing on innovation, for example, are more open to environmental and social sustainability than companies competing on price. Yet for all companies, environmental and social sustainability priorities play an increasingly greater role in their success.

Idea Summary

Company follow different strategies in their quest for competitive advantage. For example, some companies compete on price. Other companies try to differentiate themselves from competitors through their capabilities. Still others draw their competitive advantage from their flexibility and innovation.

At the operations level, the strategic direction chosen by the company leads to a set of interacting priorities, which can be formalized as operations strategy configuration models.

For example, a price-oriented configuration model describes the company that competes on price, but also (but to a lesser extent) on quality and on delivery. In a market-oriented operations strategy configuration model, a company competes on design flexibility and innovation; after-sales service is also a priority (although a lesser one) in this model. Finally, the third common configuration model is the capability-oriented model, in which a company is focused on achieving innovation and excellence by developing or enhancing different capabilities.

Today, companies recognize that environmental and social sustainable priorities can also be competitive differentiators. Environmental sustainability involves preventing the depletion of resources; social sustainability is related to ensuring a high quality of life for future generations.

What happens, however, when companies try to integrate these new priorities with the traditional operations competitive priorities as captured in their configuration models? Must the old configuration models be discarded and replaced with completely new models?

To explore these questions, two researchers based in Barcelona and Milan analysed data from a global database of nearly 700 industrial companies from 21 countries. The database was based on surveys in which plant managers were questioned on operations strategies, practices, decisions and performance.

The researchers’ analysis showed that traditional operations strategy configuration models were modified but did not have to be replaced to accommodate new environmental and social sustainability priorities. In other words, the new priorities complemented the original priorities in place — although this integration was more successful for certain configuration models than others.

For example, the best fit for environmental and social sustainability priorities occurred in capability-oriented companies — companies that emphasized competitive advantage through innovation and differentiation. The researchers labelled this modified priorities model, which made the highest commitment to the environment and sustainability, new innovators. In the new innovators, sustainability-related priorities were the most important priorities after quality, customer service and flexibility.

Integrating environmental and social sustainability priorities into the traditional market-oriented strategies configuration models yielded two new modified models. The first, labelled new servers, focused on achieving competitive advantage through an optimal balance of delivery, after sales and quality. The new designers model, also building on traditional market-oriented priorities, focused on product innovation and design quality. Instead of fulfilling customer needs by focusing on on-time delivery, for example, these companies focused on introducing new products for their customers.

In general, the researchers found that environmental and social sustainability priorities were less important in the new designers model than in the new servers model.

Finally, and not surprisingly, the new environmental and social sustainability priorities had the least impact on traditional price-oriented strategies. The researchers called the modified price-oriented strategies model the new caretakers, but noted that sustainability concerns were not a high priority in this model. Price, followed by quality and design, were the principle competitive differentiators. That said, the new caretakers model considered environmental and social sustainability issues more important than the innovation or flexibility priorities of the other models.

Business Application

Environmental and social sustainability priorities have become key competitive differentiators. The research found that, especially in the long-term, these new priorities can make a difference in performance. For example, companies already treating sustainability as a goal are developing competencies that their competitors will have problems matching. In addition, showing concern for environmental and social sustainability enhances a company’s reputation and can also increase the loyalty and engagement of other stakeholders.

Some managers might be concerned about the impact of a new set of priorities on traditional strategies. It is true that certain strategies are more conducive to integrating these new priorities than others — notably capability and market-focused companies vs. price-centred companies. (As noted above, the development of new competencies is one of the benefits of sustainability as a priority).

Interestingly, the researchers found that the number of price-centred companies in the database was noticeably lower than the other categories. This may reflect the growing realization that in the 21st century, the most potent competitive advantage is built not on lower prices, but on more substantive competitive advantages — advantages that should include innovation and competencies related to sustainability. 

Contact Us

Authors

Institutions

Source

Idea conceived

  • February 2015

Idea posted

  • August 2016

DOI number

10.13007/618

Subject

Real Time Analytics