The Impact of Environmental Management System on the Competitive Advantage of Organizations - Essay Example

 The Impact of Environmental Management System on the Competitive Advantage of Organizations INTRODUCTION The deteriorating world environment is fast becoming a major concern for all involved. Organizations are increasingly being required to become environmentally sensitive. While in the United States, firms still have a choice, in Europe, thanks to consumer demand; firms which do not comply are faced with extinction. United States firms, on the other hand, are fighting strict regulations on the grounds that going “green” will make them less competitive. ISO 14001 only give a roadmap on how to become environmentally friendly. It does not give any guide on how to use this as a corporate strategy. Several papers have been written over the years discussing the competitive advantages of the environmental model. Unfortunately, most of these papers are either to simplistic or cover only a single aspect of the environmental model. Thus, in-depth studies on EMS are of great value to the future developments of it being in the corporate world. While there is no dearth of literature on why and how adopting Environmental Management System (EMS) can be advantageous, no one has as yet analyzed the various available literatures to present a comprehensive view of what makes EMS competitive. This paper attempts to fill this knowledge gap by analyzing available literature. This analysis should give a comprehensive view of the various advantages of adopting EMS. Though attempts have been made to include as many journals as possible, including every available literature was beyond the scope of this paper. The analysis in this paper is limited to the most important literatures on the impact of EMS on competitive advantage of organizations. The remaining part of the report is divided into various sections, as follows: In section 2, a comprehensive literature review is undertaken in order to establish a theoretical background for studying Environmental Management System, and determine key features of EMS with special reference to EMS as a competitive advantage for organizations. Research hypothesis is formulated accordingly. Section 3 deals with research methods, and section 4 presents the findings revolving the research hypothesis, based on the qualitative research of the available literature. Then, in section 5, the research is concluded along with the limitations of the research. LITERATURE REVIEW AND RESEARCH HYPOTHESIS The Environmental Management System (EMS) is a contemporary concept in the corporate world. Organizations are employing this system in order to establish a competitive edge in the market. Environmental Management System (EMS) as a Competitive Advantage As mentioned, there is no dearth of literature on EMS and its competitive advantages. This is in part due to the ISO 14001 standard, a voluntary system which is an effective means of continuous environmental improvement for organization. Although widely adopted in Europe, firms in United States adopt the standard only when forced by demands from across the Atlantic (van der Veldt, 1997). This has led to a huge library of literature that seems to have the agenda of convincing more and more US firms to adopt the standard. However, many of these papers fail to list the competitive advantages which may be gained by adopting the standard. According to Porter’s (1979) Five Force model of competitive advantage, the best corporate strategy is the one where the organization is able to discover a way to defend itself from five different competitive forces such as the bargaining power of suppliers, threats of new entrants, bargaining power of buyers, threat of substitute products or services, lastly and most importantly, the industry competitors. They other way of a successful corporate strategy in Porter’s (1979) view are to influence the forces in the organization’s favor. Hence, in order to convince firms to adopt this standardized model, it is important to illustrate how an organization can negotiate these forces as they become competitive. Figure 1 Michael Porter's Five Force Model (Value Based Management.net. 2009) In another instance, Shrivastava (1995) proposes building of environmental technologies to maintain competitive advantage. He defines environmental technologies as “production equipment methods and procedures, product designs, and product delivery mechanisms that conserve energy and natural resources, minimize environmental load of human activities, and protect the natural environment” (Shrivastava, 1995, p. 185). This clearly indicates the significance of EMS in a world where the world environment is worsening day by day. Then again, adoption of EMS depends on managerial perceptions of its benefits. Banerjee (2001) examined the impact of managerial perception of regulatory forces, public environmental concerns, top management commitment and need for competitive advantage on the adoption of environmental strategies. He found that managers were more likely to adopt environmental strategies as it is a win-win situation, that is, what is good for the environment is also good for the company. Thus, suggesting that employing the EMS is not only beneficial for the environment but also for the organization itself. Karagozoglu and Lindell (2000) too found that firms would opt for greener strategies only if they saw it as potential way of gaining competitive advantage. It might give the impression that a firm’s financial performance would ultimately decide whether or not EMS is to be adopted. However, Elsayed and Paton (2009) found that financial performance alone was not the deciding factor but a firm’s life cycle stage also determined if investment in EMS were to be made or not. Moreover, SMEs may not find it easy to adopt EMS because of high non-transferable costs associated with it (Simpson et al, 2004). And yet Walker (2008) believes that environmental management may be critical to firms’ long term survival, not just multinationals, but also smaller organizations. On the other hand, the Blue Ocean Strategy (Chan and Mauborgne, 2005) advocates adopting strategies which would make competition irrelevant, thus, suggesting that establishing new markets where there is no place for competition. Similarly, Berrone et al (2008) illustrated through their empirical examination that environmental-related innovations help generate business opportunities. Organizations which do not adopt EMS would not have the incentive to spend on environmental research, and this could lead to these firms becoming less competitive in the long run. In the current environment of global competitiveness, few firms can afford to ignore this. Yet numerous firms complain about the unfairness of competing against foreign rivals who have to face lenient regulations. Here, a firm with adopts EMS may get the first mover advantage (Nehrt, 1998). As Hakansson and Snehota (2006) point out, no business is an island and firms cannot ignore the various parties that it interacts with while formulating its strategy. Another way to gain from adopting EMS is through environmental marketing (Fraj-Andrés et al, 2009). Also, firm which has already adopted EMS may push for stricter regulations, thus differentiating itself from its competitors to gain competitive advantage (Hanoteau, 2009). Even from a stakeholder point of view, there is increasing pressure on firms to go green. Banerjee et al (2003) point out that the pressure from stakeholders varies across industries, with some industries facing more pressure to go green than others. Rueda-Manzanares et al (2008) found that uncertain business environment has a direct positive influence on a firm’s adoption of environmental strategy while complex business environment has a direct negative impact. Darnall et al (2005) found that institutional pressures coupled with an organization’s resources and capabilities determined whether or not it would adopt EMS. Murillo-Luna et al (2007) found that there were several internal and external barriers which prevented firms from adopting EMS. External barriers include high opportunity cost of environmental investment, bureaucratic complexities and competitive pressures while internal barriers include managerial perceptions and lack of capabilities. Despite the challenges that firms might face with adopting environmental strategies, for many firms, environmentalism has become an integral part their organizational strategy (Dechant and Altman, 1994). Dechant and Altman argue that companies which do not take environmental problems seriously are likely to find themselves at a competitive disadvantage. Many firms have seen an improvement in their competitiveness after adopting EMS (Leal et al, 2003; Martin, 2005). Knudsen and Madsen (2001) point out that better environmental conduct requires more efficient resource allocation which leads to strategic advantage. Lado et al (1992) advocate consciously developing certain competencies to improve a firm’s sustainable competitive advantage. Morris (1997) actually shows a negative relationship between the pollution that firm releases and its cost advantage, thus further strengthening the argument that EMS can actually make a firm more competitive. Orsato (2006) argues that the resource-based view does not constrain a firm’s choices to industry structure but to its own internal capabilities which can be harnessed to create competitive advantage for an organization. Reinhardt (1998) advocates differentiating a product environmentally to gain competitive advantage. Wagner (2005) found that if a firm wants to get a win-win result of implementing sustainable technologies, then it must integrate it throughout its processes, rather than towards the end. He pointed out that integrated pollution prevention do not require additional costs, but may bring down operating costs, thus improving profit margins. Finally, if firm is still not convinced of the cost benefits of adopting EMS, than Oktem et al (2004) suggest implementing EMS without relying on cost-benefit analysis for justification. They use case studies to argue is that once a firm goes ahead with the implementation; it will find a variety of viable approaches to make the implementation strategically important. There is no doubt that going green pays. Even if firms do not see immediate profits, they may gain long-term reputation and improve their long-term competitive advantage (Sawhney and Jose, 2003). Environmental Management System as a Competitive Advantage: A Comparative Perspective Thus, it can be deduced that almost all available literature emphasizes on the benefits of adopting EMS though they also point out the difficulties associated with it. Despite covering numerous aspects of the implementation of EMS, there is an absence of an overall analysis of the environmental model to understand the ways in which organizations could benefit from adopting and EMS and the reasons why it may prove to be costly. Almost none of the journals discussed warn of the pitfalls which organizations must avoid while implementing EMS. This paper tries to fill this gap in the extant literature and presents an environmental model that not only stresses all the benefits of adopting EMS but also warns of the mistakes to avoid. Research Hypothesis Based on the study of these journals, this paper hypothesizes that in order to get competitive advantage from the adoption of EMS, firms must to look at their internal capabilities and integrate the environmental model throughout the organization. H: There is a positive relationship between gaining competitive advantage through adoption of Environmental Management System and an organization’s internal capabilities. METHODOLOGY Research Design A qualitative research design is used in this paper. The reason for not employing a quantitative research design is that it requires extensive surveys and field researches, which was beyond the scope of the present paper. However, in order to overcome this limitation, extensive research of the available literature on the subject was carried out. Although it was not possible to include each and every journal and article written on the subject, a widely representative sample was selected. Research Method Secondary data in form of journal articles was used as a research method in the study. This was due to the fact that the authors of the journals used in the research had already carried out extensive empirical researches on the subject and their findings can be analyzed to get quite a comprehensive view of the problem. Data Collection For the final paper, twenty nine articles from peer reviewed journals were selected. These articles covered every angle of the subject so that a proper representation could be made. For example, of the twenty nine articles, two papers dealt with small businesses while three papers covered the stakeholder views. Instruments Once the articles had been carefully selected, a careful content analysis of the articles was carried out using the Nvivo software. The Nvivo software is a useful tool in interpreting unstructured qualitative data. The findings are discussed in the next section. FINDINGS After a thorough analysis of the available literature, the key findings suggest that beings environmentally conscious has its benefits. Due to strict regulations regarding Environmental Management System in European countries, numerous European firms have adopted EMS; the same is not true in the United States. However, in the current global environment, firms in the United States cannot ignore the competition faced by them from these European firms who have successfully implemented EMS. Hence not implementing the environment model is not an option that any firm in the world can exercise rather it is a necessity. Despite the negative perceptions, it is time that managers looked at EMS as competitive strategy rather than as burden. While implementing EMS, care should be taken to consider a firm’s resource-based internal capabilities. This would minimize the costs of implementing EMS and by exploiting the firm’s inherent strengths; it would deliver maximum costs benefits to the organization. Thus, Environmental Management System must be implemented with care and with complete managerial commitment. A half hearted approach in employing EMS can prove disastrous for the organization. In order to be successful, the environmental model must be integrated throughout the system, rather than at the most obvious place. Furthermore, it has to be communicated throughout the organization so that the employees are aware its significance in the achievement of organizational goals. This is because while proper implementation of EMS can yield several advantages, if not properly implemented, it can result in prohibitively high costs which cannot be justified by resulting benefits. Hence in order to get the true benefits of Environmental Management System (EMS), its proper implementation is the key. CONCLUSION This paper analyzes the available literature on Environmental Management System to develop strategies that would make the adoption of EMS successful for any organization. It also brings forward the pitfalls of EMS and warns against improper adoption of EMS. 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Sustainability: Environmental management, transparency and competitive advantage. Journal of Retail & Leisure Property, [online] 7(2), 119-130. Available from Business Source Complete database. [Accessed January 19 2010]. Read More