6.3.1: Resources, capabilities, and competitive advantage
In classic strategic management, the Resource-Based View (RBV) considers capabilities and resources that companies have which, when bundled in a unique manner bestows a company with a core competence. These core competences can generate a competitive advantage (an above average return) for the firm if they valuable, rare, inimitable and non-substitutable (VRIN).
Traditionally, strategic models have not considered how the constraints of the natural environment affect firm’s ability to generate a competitive advantage through its operations. The Natural Resource-Based View (NRBV) emerged to deal with this aspect.
6.3.2: A natural resource based view of the firm (company)
The natural resource based-view (NRBV) works on the principle that a company’s competitive advantage fundamentally depends upon its relationship with the natural environment.
The NRBV framework identifies how companies can generate competitive advantage based on capabilities that support sustainable development. Stuart Hart (1995) developed a framework of three interconnected capabilities that firms can build including (i) pollution prevention, (ii) product stewardship, and (iii) sustainable development. Each of these has an underlying driving force for the natural environment. Pollution prevention capabilities help to minimize emissions and waste. Product stewardship capabilities minimize life-cycle costs of products. Sustainable development capabilities minimize the environmental burden that results from firm growth and development.
In parallel with these driving forces, companies build three key capabilities (resources): continuous improvement, stakeholder integration, and a shared vision. Each of these respectively leads to a competitive in the form of lowering costs, preempting competitors, and establishing a future position.
A Natural Resource-Based View: Conceptual Framework
(A) Pollution Prevention
Pollution stems from the inefficient use/treatment of production materials, resources and by-products. Pollution prevention enhances a company’s capabilities through significant cost savings, increased productivity, and heightened efficiency.
– Less waste in products generates greater efficiency in the use and treatment of inputs, resulting in reduced raw resource material and disposal costs.
– The optimization of operational processes (simplification or removal of outdated technology or unnecessary processes) improves efficiency and reduces production times, resulting in the reduction of pollution and operational costs.
– Pollution limitation/prevention strategies assist companies in fulfilling or exceeding regulatory requirements, thus enhancing their social license to operate and lowering their potential compliance/ liability costs.
(B) Product Stewardship
All activities and processes within a company’s operational value chain results in environmental impact. These impacts have to be minimized as the company transitions towards sustainability.
Product stewardship addresses the environmental concerns of stakeholders within the company’s product design and development processes. Concurrently, the company attempts to minimize the environmental impacts and life cycle costs of its products in order to remain competitive. This competitive advantage is achieved by forecasting future market trends, undertaking measures to secure access to resources, and building environmental capabilities.
Product stewardship provide companies with the opportunity to:
– Exit environmentally hazardous business activities
– Redesign, innovate or recreate existing products and processes to reduce liability and losses
– Develop new products with lower life cycles costs.
(C) Sustainable Development
Sustainable development serves to remove the negative links between the business world and the natural environment. It visualizes global environmental concerns, and examines how domestic and international strategies can be implemented to build sustainable and resilient global markets and cultures.
A company’s commitment to adopting sustainable management strategies requires substantial investment and a long-term commitment to market development. This is due to the lack of short term profits. This commitment has the potential to raise a firm’s future performance in relation to its competitors – leading to greater future competitive advantage.
6.3.3: Types of sustainability capabilities that companies develop
In 2011, I published a paper that tried to pinpoint the types of capabilities companies develop for sustainability, using the NRBV framework. I looked at nearly 200 corporate sustainability reports and websites and found that seven common capabilities were developed by companies. The table below highlights these seven capabilities and ways in which companies implement them.
How it is implemented
Proactive implementation of environmentally sustainable processes
Supply chain management
Supplier and buyer policies; life cycle analysis; product stewardship; industrial symbiosis
Relationships with government bodies, NGOs, business associations, community engagement, employee/volunteer programs, SRI investors
ISO certification, environmental management systems, environmental R&D
Long-term commitment to sustainable development, global vision
Top management skills
Senior environmental executives, Clear environmental reporting structure to the board
Environmental training programs, GRI or other reporting initiatives
Source: Environmental capabilities and pathways for implementations (Source: Walls, Phan & Berrone 2011 https://deepblue.lib.umich.edu/bitstream/handle/2027.42/58598/1105-walls.pdf;sequence=1)