1. 1. BA Businesses Management Honours Dissertation SESSION 2014/5 Trimester Two TITLE: AN INVESTIGATION INTO EMBEDDED SUSTAINABILITY WITHIN THE ENERGY INDUSTRY AUTHOR: Madelaine Sophie Hickman 40059632 Supervisor: Dr Hock Tan
2. 2. Declaration I declare that the work undertaken for this BA Dissertation has been undertaken by myself and the final Dissertation produced by me. The work has not been submitted in part or in whole in regard to any other academic qualification. Title of Dissertation: An Investigation into Embedded Sustainability within the Energy Industry Name (Print): MADELAINE SOPHIE HICKMAN Signature: _____________________________________________ Date: __________________________________ 2
3. 3. Edinburgh NAPIER UNIVERSITY DATA PROTECTION ACT 1998 Consent Form I confirm that this dissertation is all my own work. I understand that my written permission is required for the University to make copies of my dissertation available to future students for reference purposes and that my name may be evident. I hereby give my consent to my named work being made available. I confirm that my work is not confidential. Print name: Madelaine Sophie Hickman Matriculation No: 40059632 SignatureDate. FACULTY: Business School SCHOOL: Craiglockhart MODULE NO: XL000589 DISSERTATION: TITLE: An Investigation into Embedded Sustainability within the Energy Industry LOCATION IN WHICH TO BE HELD 1/53, Craiglockhart 3
4. 4. Abstract Purpose To explore Embedded Sustainability by investigating The Little Green Energy Company's strategy and to make recommendations to leaders and managers within the energy industry on the development of sustainability orientated strategies. Methodology Secondary research gained insight into a range of strategic models which promote Embedded Sustainability and provided a background of the energy industry's current goals and strategies. Primary research in the form of a questionnaire method was then undertaken to gain qualitative and quantitative responses, forming a demonstrative case study on The Little Green Energy Company's environmental strategy. Findings The questionnaire design, response description and response analysis was structured and informed by the literature review and provided answers to the aim and objectives initially proposed for this dissertation. The findings are potentially transferable to companies within the energy industry, students undertaking study in the area of Embedded Sustainability particularly with an energy industry perspective and to motivate the environmental strategy creation of governments, research institutions, NGO's and the wider private sector. Research Limitations Sampling from a range of energy companies renewable, non-renewable, small and large would have provided findings which would be more generalisable to the entire energy industry. Also questionnaires have a tendency to produce responses which lack a higher quality and depth of thought. Recommendations The findings from the research encourage further study of sustainability within the supply chain, partnerships to set and accomplish sustainability goals and the change management of oil and gas companies to endorse their development of technology towards sustainable energy. Nether-the-less the study promotes Embedded Sustainability through use of initiatives and innovative strategies which encompass the challenges of the environment. 4
5. 5. Acknowledgements Firstly I would like to express my appreciation to my supervisor Dr Hock Tan for his ongoing help, guidance, support and enthusiasm over my chosen topic Embedded Sustainability within the energy industry. I would also like to say thank-you to all the employees of Edinburgh Napier University for facilitating my learning of numerous Business Management subjects and for their consistent friendly and courteous manner. Furthermore I am extremely grateful for the contribution and efforts given by all the employees within The Little Green Energy Company. Their complementing and returning of my questionnaire surveys has helped me to produce a primary data description and data analysis which has greatly supported my conclusions and recommendations towards the energy industry. Finally I would like to thank my friends for their strong interest in my dissertation project and for sharing their insightful experiences helping me to approach my selected topic, Embedded Sustainability, in an objective manner. 5
6. 6. Table of Contents Declaration.............................................................................................................................2 Consent Form .......................................................................................................................3 Abstract .................................................................................................................................4 Purpose .............................................................................................................................4 Methodology......................................................................................................................4 Findings ............................................................................................................................4 Recommendations.............................................................................................................4 Acknowledgements................................................................................................................5 Chapter 1 Introduction............................................................................................................9 1.1 Introduction.................................................................................................................9 1.2 Background..................................................................................................................9 1.3 Rational for Topic Choice..........................................................................................10 1.4 Aim.............................................................................................................................11 1.5 Objectives..................................................................................................................11 1.5.1 Objective 1.........................................................................................................12 1.5.2 Objective 2.........................................................................................................12 1.5.3 Objective 3.........................................................................................................12 1.5.4 Objective 4.........................................................................................................12 1.6 Summery of Methodology.........................................................................................12 1.7 Potential Limitations of Study...................................................................................12 1.8 Summery of Chapters................................................................................................13 Chapter 2 Literature Review................................................................................................14 2.1 Introduction...............................................................................................................14 2.2 Marks and Spencer Plan A: An Approach to Embedded Sustainability....................16 2.3 Porters Three Generic Strategies...............................................................................17 2.3.1 Cost Leadership.................................................................................................18 2.3.2 Differentiation....................................................................................................19 2.3.3 Segmentation Focus ..........................................................................................20 2.3.4 Critical Analysis of Porters Model within a Sustainability Context .................20 2.4 Blue Ocean Strategy..................................................................................................21 2.5 Christensen Disruptive Innovation............................................................................25 2.6 Embedded Sustainability the Solution.......................................................................28 2.7 Energy Industry.........................................................................................................30 2.7.1 Todays Energy Industry on the Spectrums of Sustainability and Change.......30 2.7.2 The Goals of the Industry...................................................................................31 2.7.3 Is there a Feasible Path to Lead Todays Industry Towards the Goals?.............32 2.7.4 Industry Example...............................................................................................34 2.8 Conclusion of Chapter...............................................................................................36 Chapter 3 Research Methods................................................................................................38 3.1 Introduction...............................................................................................................38 3.2 Outline of Primary Research.....................................................................................38 3.3 Hypothesis and Questions.........................................................................................39 3.4 Method of Primary Data Collection..........................................................................40 3.4.1 Informed Methods..............................................................................................40 3.4.2 Critical Analysis of Questionnaire Method........................................................41 3.4.3 Concurrent Mixed Method Data Collection......................................................41 3.4.4 Cross-sectional Case Study................................................................................43 6
7. 7. 3.5 Sampling....................................................................................................................44 3.5.1 Non-Probability Purposive Sample....................................................................44 3.5.2 Census Sample of Population............................................................................44 3.6 Data Analysis Methodology......................................................................................45 3.6.1 Meta-ethnography Approach.............................................................................45 3.6.2 Integration of Quantitative Data........................................................................46 3.6.3 Directive Content Analysis Presentation...........................................................46 3.7 Summery....................................................................................................................47 Chapter 4 Data Description and Data Analysis....................................................................47 4.1 Introduction...............................................................................................................47 4.2 Porters Generic Strategies ........................................................................................48 4.3 Blue Ocean Strategy .................................................................................................50 4.4 Disruptive Innovation ...............................................................................................54 4.5 The ES Cloud ............................................................................................................56 4.6 Natural-Resource Based View...................................................................................58 4.7 Sustainable Initiatives................................................................................................61 4.8 Additional Comments and Recommendations .........................................................61 4.9 Main Findings on the Primary Research Subject Embedded Sustainability within the Energy Industry and The Interconnected Secondary Research ......................................62 Chapter 5 Conclusion and Recommendations......................................................................64 5.1 Research Approach and Key Findings.......................................................................65 5.1.1 The Concept of Sustainability............................................................................65 5.1.2 Key Models and Theory's .................................................................................65 5.1.3 Primary Research ..............................................................................................66 5.1.4 Recommendations..............................................................................................67 5.2 Implications of Findings and Recommendations......................................................68 5.3 Have the Research Objectives been Achieved? ........................................................68 5.4 Limitations of Study and Topics for Further Research .............................................68 References............................................................................................................................69 Appendices .........................................................................................................................77 Appendix A .....................................................................................................................77 Appendix B......................................................................................................................78 Appendix C .....................................................................................................................78 Appendix D......................................................................................................................78 Appendix E......................................................................................................................79 Appendix F .....................................................................................................................85 Appendix G .....................................................................................................................88 7
8. 8. Index of Figures Figure 2.3.1 Porters Generic Strategies (Porter, 1985)........................................................18 Figure: 2.3.2.1 Creating Sustainable Value Laszlo (2008)...................................................19 Figure: 2.4.1 The Yellow Tail (Kim and Maubougne, 2004) ..............................................23 Figure: 2.6.3.1: Demonstration of the absence of a global climate framework (World Energy Council, 2013).........................................................................................................33 Figure: 4.2.1 Question 1 ......................................................................................................49 Figure: 4.2.2 Question 2.......................................................................................................49 Figure: 4.2.3 Question 3.......................................................................................................49 Figure: 4.3.1 Did The Little Green Energy Company enter a Blue Ocean? .......................51 Figure: 4.3.2 Rating of Innovation.......................................................................................52 Figure: 4.3.3 Rating of Value/Utility ...................................................................................52 Figure: 4.3.4 Rating of Affordability ...................................................................................53 Figure: 4.3.5 Alignment of Value-Innovation Attributes with Sustainability.......................53 Figure: 4.4.1 Categorization of Performance in The Energy Industries Traditional Competitive Areas................................................................................................................55 Figure: 4.5.1 Rating of Sustainability .................................................................................57 Figure: 4.6.1 Sustainability Integration into each Function ................................................60 8
9. 9. Chapter 1 Introduction 1.1 Introduction The purpose of this paper is to explore Embedded Sustainability within The Little Green Energy Company and make recommendations to leaders and managers within the energy industry on the development of sustainability strategies. This chapter describes the function of the dissertation. It also offers a background to the research area within a global context, providing justification for the authors research goals. Distinct aims and objectives of the study are defined, a brief description of the research methodology is outlined and a summary of each of the following sections is provided. 1.2 Background Laszlo and Brown (2014) aspire for humans and life in general to thrive on the planet forever. However society is currently using the environmental resources at a rate that requires 1.5 planets (World Wide Fund for Nature, 2010). Global energy consumption is increasing with the dramatic rise in population and there is now an essential requirement for clean energy with zero emissions which is globally abundant, compact with modest land usage, affordable and competitive with other fuels (Zwicker, 2013). Most economic activity is conducted by large and small companies therefore businesses heavily determine the selection of technologies and the resource intensity of economic activities (Leadership Council of the Sustainable Development Solutions Network, 2014). For this reason, the traditional role of business, to provide goods and services that meet customer demands in a profitable way, must be expanded, improved and ultimately fixed. Current literature which discusses the ideas of Conscious Capitalism and Embedded Sustainability encourages businesses to make sustainability the back bone of business where sustainable objectives are woven into the fibre of the organization, going beyond bolt on corporate social responsibility (CSR) activities such as donating to charity (Simpon, Fischer, Rohde, 2013; Laszlo and Zhexembayeva, 2011). The Little Green Energy Company has the characteristics of a firm on endearment, generating value for all of their stakeholders and 9
10. 10. obtaining long-term competitive advantage as a result (Sisodia, Wolfe and Sheth, 2014). The company provides insight into modern sustainable practice rendering rational for an in-depth study of their strategy. 1.3 Rational for Topic Choice Despite a multitude of corporate sustainability reports which highlight sustainability efforts, most business leaders lack a clear understanding of how to embed sustainability in their day-to-day decisions and processes (Bertels, Papania and Papania, 2010). A survey undertaken by Hanna and Lacy (2011) indicates there is widespread belief in the strategic importance of sustainability issues among CEO's. However executives are still struggling to address the issues as competing strategic priorities are seen as a major barrier (Hanna and Lacy, 2011). The European Commission (2001) highlights the importance of environmental concerns and sustainability with regards to current and future energy security. Pasqualetti and Sovacool (2012) believe energy security requires the provision of available, affordable, reliable, efficient, environmentally benign, properly governed and socially acceptable energy services. Although a few large renewable energy firms are committing to energy security goals such as the A2Z Group (India) and Abengoa (Spain) all in all there are a limited quantity of large energy companies which exhibit a broad-based commitment to sustainability. In 2013 renewables accounted for just 2.2% of global energy consumption and Co2 emissions continued to increase (BP, 2014) reflecting the lack of energy companies jumping onto the sustainability bandwagon. This is unsurprising as the literature surrounding the question of how to embed sustainability is limited (Salzmann, Ionescu-Somers and Steger, 2005) and there is particular uncertainty over the ways in which energy companies can balance energy security, energy equity and energy sustainability (The World Energy Council, 2015). The frameworks discovered via secondary research and the findings from analysis of The Little Green Energy Companies strategy will assist managers to create long term strategies towards embedded sustainability. The dissertation identifies the 10
11. 11. main strategies required to make the shift from the Business-as-Usual (BAU) trajectory towards a Sustainable Development (SD) path within the Energy Industry. It will advise good management practice of the energy industry in regards to the worlds natural resources encouraging organizations to perceive sustainability a business priority, supporting economic and human development. It is essential for energy companies to conform to the changing paradigm of sustainability, whereby organizations act as environmental stewards and global environmental challenges are internalized (Bithas, 2011). They can achieve this by developing new strategy, exploiting their resources and technical ability and developing partnerships with governments, international institutions and research associations (United Nations, 2008). A strategy embedded with sustainability should direct energy companies towards a new path which could lead to long term value and competitive advantage. The challenges facing the energy industry therefore represent unprecedented opportunities for large companies such as Shell, BP, Exxon Mobil and Chevron. 1.4 Aim The researcher will undertake primary research within The Little Green Energy Company to assist with the investigation of the concept of embedding environmental sustainability and to discover practical strategies for implementing embedded sustainability, particularly within the energy industry. Hence the case study investigation into a renewable energy companys strategy will aim to reveal truths on how to Embed Sustainability. The project also aims to assess the consistency between the findings of the case study investigation and the models of Embedded Sustainability discovered during secondary research. The primary and secondary research ultimately aims to reveal the best techniques/ models for embedding environmental sustainability into strategy and ways in which the models can be applied to conventional energy companies to promote the movement to alternative, environmentally sound fuels. 1.5 Objectives This dissertation intends to achieve the following objectives: 11
12. 12. 1.5.1 Objective 1 To describe the concept of Embedding Sustainability by reviewing and comparing relevant and useful literature and theory. 1.5.2 Objective 2 To investigate and identify key models and theories on how to embed environmental sustainability into corporate strategy. 1.5.3 Objective 3 To undertake primary research within The Little Green Energy Company (solar panel designer and installer) to reveal the opinions of employees over the companies sustainability strategy and address the question; how can environmental sustainability be embedded into strategy? 1.5.4 Objective 4 To make recommendations, based on the analysis of both primary and secondary information, to managers, particularly in the energy industry, who are seeking to take advantage of the opportunity to embed environmental sustainability into strategy and move beyond corporate requirements and to impose persuasive influence on those who are not. 1.6 Summery of Methodology Primary research in the form of a case-study was undertaken to investigate the research topic. All the employees within the Little Green Energy Company were sent questionnaires. The questionnaires involved both open ended and close ended questions of which the majority were based on theory discussed within the secondary research. The findings were analysed using mixed quantitative and qualitative methodology. The objective of the questionnaires was to gain the employee's opinions of the companies sustainability strategy therefore gaining insight and a transferable understanding of the research topic. 1.7 Potential Limitations of Study The lack of experience of the researcher, time limitations, and sole data collection 12
13. 13. method (questionnaire survey design) constrains the generalizability, reliability, internal validity and external validity of the research. Also there is a lack of literature in the area of Embedded Sustainability within the energy industry and although the gap is used as an opportunity to expand upon the research, it also means there is a lack of relevant data to draw upon. If repeated the study could also include interviews as a means to obtain the in- depth opinions of employees. Future researchers could therefore revise the questionnaire research method perhaps utilizing a triangular approach to improve the reliability of the data. Also the primary research has an organization-wide perspective so future research could detail the importance of building sustainability into the entire supply chain. Furthermore the questionnaire design whereby models selected by the researcher are utilized to form questions (the grounded approach) could introduce researcher bias. The qualitative analysis of data whereby trends and parameters are identified and selected by the researcher may similarly introduce researcher bias. Finally bias may have occurred during identification of the study population as The Little Green Energy Company is only one Small to Medium Enterprise (SME) within the sea of energy companies. This presents an opportunity for future researchers to study the strategy of larger renewable firms or the change management of large oil and gas firms towards the supplying of renewable fuels. 1.8 Summery of Chapters The study begun by presenting a background to the concept of Embedded Sustainability and of the current condition of the energy industry. The introduction also offered a rational for the topic choice, the overall aim and supporting objectives. Chapter 2 provides an overview of Embedded Sustainability followed by a literature review which explores the key frameworks surrounding Embedded Sustainability and an example of a sustainable strategy within the energy industry. Chapter 3 evaluates the methodological approach selected to analyse the primary 13
14. 14. research and discusses the integration of the secondary research within the questionnaire and data analysis. Chapter 5 is devoted to a data description of the primary research questionnaire responses and an analysis of the data. Finally Chapter 6 arrives at conclusions relating to the research aims, questions and objectives and offers recommendations based on the entire study. Chapter 2 Literature Review 2.1 Introduction Embedded Sustainability can be defined as the integrating of sustainability pursuits into the DNA of the organization, incorporating environmental health and social value into the organizations core whilst excluding trade-offs in price and quality (Laszlo and Zhexembayeva, 2011). Bertels, Papania and Papania (2010) identified 13,756 academic articles and reports related to Embedded Sustainability of which 96 were highly relevant to the study of how to embed sustainability. The current and significant discussion over the concept of Embedded Sustainability has emerged from the vast accumulation of literature throughout the past two decades which recognizes the crucial role industry plays towards the future achievement of sustainable development (Pfeiffer 2004; Business Action for Sustainable Development, 2012). The Brundtland Report (World Commission on Environment and Development, 1987) defines sustainable development as: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The WBCSD (World Business Council of Sustainable Development, 2014) is strongly encouraging businesses to take full account of global social and environmental capacities by considering longer-term environmental and social impacts. The WBCSD is just one of the growing array of campaigners and stakeholders attempting to steer businesses to take responsibility for their impacts on the environment and make active strategic decisions to ensure their business operations remain within the barriers of social and environmental capacities, balancing the interests of Elkingtons (1997) triple bottom line. This builds a strong 14
15. 15. rationale for the investigation of appropriate strategy to embed sustainability. Embedding Sustainability into corporate strategy would ease the positive tension between drivers of sustainability such as environmental activist groups, consumers, political bodies and those with the power to make decisions such as company directors, leaders and managers. Marks and Spencer's recently evolved approach which has aligned sustainability with their core strategy will be the first approach to be outlined, offering initial insight into the main components of Embedded Sustainability. Next the review will discuss and assess Laszlo and Zhexembayeva's (2011) suitably selected three strategic models which Embed Sustainability for the demanding business environment of the contemporary; Porters (1985) Three Generic Strategies, Kim and Mauborgne's (2004) Blue Ocean Strategy and Christensen's (1997) model of Disruptive Innovation. The ES (Embedded Sustainability) cloud, a model derived from a combination of the prior three models by Laszlo and Zhexembayeva, will also be evaluated. Laszlo and Zhexembayeva are experts in corporate sustainability, teaching, researching and writing about the subject in depth. The creditworthiness of Laszlo and Zhexembayeva and the compelling nature of the book 'Embedded Sustainability' provides the author with significant rational to investigate their suggested models of Embedded Sustainability. Laszlo and Zhexembayeva (2011) self-justify their selection of models by explaining the models relevance to the external environment which is characterised by declining resources, high transparency and rising expectations. They believe the models are reflective of the magnitude of these current sustainability challenges. This being said the review of each of the suggested theories will include an investigation into supporting and opposing literature to highlight potential weaknesses of the models. The key models core suggestions towards integrating sustainability into strategy will then be applied to the current global energy industry. This will begin to indicate which of the key models of Embedded Sustainability, if any, will be most viable 15
16. 16. and applicable to the energy industry. Finally the review will explore the attempts of ExxonMobil towards developing a strategy embedded with sustainability which promotes the move from the trade of oil and gas towards natural fuels. Fusion energy will then be introduced as an alternative energy source and a possible solution to energy sustainability challenges. Finally a summery of the models, their contribution and limitations with regards to the wider researcher topic and their relevance to the primary research will be provided. 2.2 Marks and Spencer Plan A: An Approach to Embedded Sustainability Marks and Spencer introduced the Plan A as a scheme to address sustainable development issues and accelerate their journey towards a sustainable business (Grayson, 2011). The first step, fully supported by former M&S manager Sir Stuart Rose and his successor Marc Bollard, was to obtain the commitment of top management and publicly communicate the companys dedication to the goals of Plan A to investors, stakeholders and customers. Plan A executives were appointed and a bonus system was settled for the successful implementation of Plan A initiatives. Board meetings were set to occur twice annually to ensure alignment of investment decisions. The Plan A commitments became fully integrated into operations, transforming from bolt-on attributes (See Apendix A) to functions ran by every department. This required strong change management to shift the way M&S did business. For example the Human Resources department developed healthy eating initiatives, the store development department have ecological targets and the purchasing department aim for each product to have at- least one Plan A sustainable supplier story by 2020 encouraging change of supplier practices. M&S's following measure involved the engagement of the value chain. M&S encouraged knowledge sharing between their 2500 suppliers via an online portal and held a sustainability conference, of which 1000 suppliers attended, aimed at teaching suppliers cost effective ways to innovate for Plan A (Grayson, 2011). They also engaged customers to participate in sustainability pursuits by introducing a 5p charge for plastic bags, donating the profits to Groundwork, an 16
17. 17. environmental charity. Furthermore M&S has collaborated with, commercial organizations, competitors, the public sector and charities to discover new ways to Embed Sustainability. They also monitor the progression of Plan A and facilitate its continuous improvement, delivering an annual Plan A progress report. The project required 200 million of funding over five years of operation. However a return of 50 million has been gained. This demonstrates that Embedded Sustainability can generate substantial returns. M&S have recycled the profits back into Plan A indicating a ceaseless belief that a company can do well by doing good, a view derived from Benioff and Southwick (2004). Marks and Spencer gain competitive advantage from their strategic capabilities which incorporate a range of sustainability initiatives/ actions. The approach is derived from the natural resource based view towards creating sustainable value whereby capabilities are central, a firm is concerned with its future position thus matches its capabilities to the external environment and valuable and costly to copy resources of a firm are key to maintaining competitive advantage (Hart and London, 2005). Overall the purposeful mission and goals of Plan A partnered with strong leadership have facilitated the continuous development of company-wide initiatives towards sustainable practices and endowed a corporate culture where sustainability is held at the core, influencing and guiding both employees and operations. 2.3 Porters Three Generic Strategies Porter introduced the Generic Strategies as an extension of his 1979 article in the Harvard Business Review which focused on the analysis of five environmental competitive forces; threat of new entry, intensity of rivalry, pressure from substitute products, bargaining power from suppliers and bargaining power from buyers (Ormanidhi and Stringa, 2008). Porter (1985) believes the generic strategies (Figure 2.3.1) position a company against the pressure of the five forces. Porter's (1985) study consisted of three methodological stages. The first stage 17
18. 18. involved the conducting of a questionnaire to discover executive views regarding their firms competitive method, analysis to discover the key dimensions of the methods and a categorization of the dimensions to reveal the Three Generic Strategies. The second stage gained recommendations from a panel of experts towards the content of each strategy and the final stage assessed the variation in performance between three groups of firms, each implementing a different generic strategy (Dess and Davis, 1984). The first generic strategy is cost leadership. The strategic strength lies in offering low cost products or services to a broad market. The second is differentiation which focuses on offering unique products and services to a broad scope of consumers. Pavitt (1991) states firms which use innovation to differentiate themselves from competition can be twice as profitable supporting Porters (1985) differentiation strategy. The final strategy, segmentation focus, tailors strategy to a specific customer segment (narrow market scope). Segmentation focus has two variants, cost focus and differentiation focus. Cost focus meets the needs of the segment with competitive pricing whereas differentiation focus brings success by supplying for the specific needs of the segment. However both segmentation variants assume the customer segment targeted is not currently adequately served by the competitors. 2.3.1 Cost Leadership Laszlo and Zhexembayeva (2011) believe sustainability can be utilized by 18 1. Figure 2.3.1 Porters Generic Strategies (Porter, 1985)
19. 19. businesses in different ways to achieve each of Porters (1985) Three Generic Strategies. Sustainability can promote cost leadership if a business implements initiatives to reduce material inputs, reduce waste and reduce energy requirements. Walmart have achieved cost leadership with a broad scope by perusing three main cost cutting goals. Walmart aim to use 100% renewable energy, produce less greenhouse gasses and create zero waste (Walmart, 2014). Conversely Laszlo (2008) believes firms now need to make a transition from cost cutting and risk management approaches towards full blown sustainability strategies involving every aspect of the business from the lower levels of strategic focus such as business processes to reduce waste and Co2 to the higher levels of strategic focus such as embedding sustainability within employees mindsets and organizational culture (Figure 2.3.2.1). 2.3.2 Differentiation Sustainability can also be a source of differentiation. Businesses can promote the 19 2. Figure: 2.3.2.1 Creating Sustainable Value Laszlo (2008)
20. 20. uniquely sustainable attributes of the product or service and charge a price premium as a result. Differentiation is usually successful when a company seeks to satisfy peoples specific needs (Porter, 1985). At the simplest level the sustainable aspect adds to the overall product attributes such as the fair-trade aspect of Starbucks coffee. 2.3.3 Segmentation Focus Finally sustainability can be utilized in attempt to adopt to Porters (1985) segmentation focus. Tesla's Model S zero emissions, luxury car is an example of the differentiation focus variant (Tesla Motors, 2014). The product is uniquely entirely sustainable, targeting the narrow market niche segment of consumers who value luxury and demand an environmentally friendly car. The the value of sustainability to the niche segment enables Tesla to charge a price premium. Cost focus achieves cost advantage in the niche segment. The business can offer cheaper products than the competition by performing cost cutting sustainable operations similar to those of cost leadership. Over half of small businesses now recognise the cost benefits of implementing sustainable business practices and some have seen improved profitability as a result (Lloyds Bank, 2013). 2.3.4 Critical Analysis of Porters Model within a Sustainability Context Overall Laszlo and Zhexembayeva (2011) show that pursuits to increase social, environmental and economic performance can often strengthen the strategic performance of a company. The pursuits can either drive a business to perform activities differently for example using renewable fuels or perform a different set of activities such as providing renewable energy rather than oil and gas. However Porters (1985) framework has a fundamental weakness as it fails to provide information or theory on ways for a businesses to move towards a new strategy within the sustainability driven marketplace (Laszlo and Zhexembayeva, 2011). Furthermore Porters general approach which focuses heavily on the external business environment is widely criticised by resource based theorists as it lacks attention to internal aspects such as the roles of the employee, worker morale and 20
21. 21. leadership to bring out the potential of employees (Aktouf at al 2005). Stalk, Evans, and Schulman (1992) believe focus should be taken from the creation of strategy to achieve competitive advantage towards ideas over where to gain competitive advantage, believing the advantage can be found in resources and skills held within the company opposed to the external market. Porter (1991) acknowledges the resource based theory but believes it only provides a small step towards the understanding of strategy to obtain competitive advantage, believing competitive advantage is gained from all sources which determine performance. Porter's (2011) discussion of CSV (Corporate Social Value) is closely aligned with Laszlo's and Zhexembayeva's (2011) discussion of the Generic Strategies within a sustainability context. Porter (2011) explains how businesses should not just participate in industry analysis when speculating strategy but investigate the broader business environment surrounding their major operations, connecting business success with societal improvement. Porter and Kramer (2011) CSV article similarly sees opportunities in addressing social and environmental issues and believes the issues are now a means to create business advantage. Epstein- Reives and Weinreb's (2013) article praises Porters ideas stating he has enormously aided the sustainability movement. Furthermore Cruz et al, 2006; Peters, & Zelewski, 2011 and Shrivastava, 1995 have also discussed the generic strategies in the context of sustainable development, supporting Laszlo and Zhexembayeva's (2011) sustainability interpretation of Porters strategies. 2.4 Blue Ocean Strategy Kim and Mauborgne's (2004) Blue Ocean Strategy also supports the sustainability movement by helping companies to progress towards a new, more defensible strategy. This is a development from Porters (1985) framework which focuses on strengthening existing strategy. Kim and Mauborgne (2004) believe the marketplace is divided into Red Oceans and Blue Oceans. Oceans turn red when supply exceeds demand and products become more alike and standardized causing competitive convergence. Red Oceans are expanding because of the 21
22. 22. increased ease of replicating competitor moves due to global changes such as the lowering of trade barriers. However Blue Oceans are accessible for the companies who decide to neglect the competitive game of the current marketplace and the benchmarking of their operations to those of competitors, instead aiming to create unique customer value in a new, uncontested marketplace. Kim and Mauborgne (2004) propose companies can create Blue Oceans by participating in value innovation. Value innovation works on the assumption that value without innovation traps companies in the old paradigm which supports only incremental changes. They believe incremental changes are insufficient within the ever demanding marketplace. Value innovation also assumes innovation without value creates products which would lack demand. To overcome these issues value innovation aligns the products cost, price and utility with innovation to create goods which will be both accepted by the market and profitable for the company. Value innovation provides an excellent frame to enable sustainability orientated business to be accepted by the market and for the business to capture a proportion of the value created. Taking a perspective behind the lens of sustainability, value without innovation promotes incremental changes such as Nestle reducing plastic material use in its eco-shape bottle (Nestle, 2014). This does not combat the real challenge of using an entirely sustainable material. On the other end of the spectrum, innovation without value brings products to market which fail to achieve market penetration such as Lackner's (2013) artificial trees which remove CO2 from the atmosphere. Blue Oceans await for the companies which align value innovation with sustainability. Vast markets can be created as a reaction to the pressure to reduce reliance on fossil fuels and eliminate waste. Value-innovation is therefore suited to the enormity of ecological and social challenges, providing companies a means to achieve whole system change of their utility whilst ensuring the alignment of price and cost attributes (Laszlo and Zhexembayeva, 2011). Where eco-efficiencies such as cutting material inputs may contribute to the strengthening of Porters 22
23. 23. (1985) cost leadership strategy for example this does not lead to the whole system transformation required to create Blue Oceans. Whole system innovation can lead to Embedded Sustainability by challenging the system behind every activity a company undertakes and encouraging a leap in value for both the business and the buyers. Kim and Mauborgne (2004) investigated this leap in a study of 108 business launches. The findings showed only 14% of launches aimed to create Blue Oceans, the rest were line extensions. The Blue Ocean projects generated 61% of the companys profits whereas the line extensions only accounted for 39% of profits indicating the clear performance benefits associated with creating Blue Oceans. Cemex, a cement company, created a Blue Ocean by launching The Patriminio Hoy program in 1988. The program provided credit instalments to people in Mexico to enable them to build their own homes room by room. This enabled 75,000 people to build houses whilst generating $650 million a year. Cemex is an excellent example of a company looking at value-innovation through the lens of sustainability. Kim and Maubouge offer a strategic profile framework to enable businesses to reach Blue Oceans (Figure 2.4.1). 23 3. Figure: 2.4.1 The Yellow Tail (Kim and Maubougne, 2004)
24. 24. The framework illustrates the opportunity to explore into new potential dimensions of a product (the yellow tail) and bring focus away from the conventional dimensions competitors previously competed on in order to attract a new market. In this case wine with the new dimensions, ease of selection and fun, attracts custom from cider and beer drinkers and takes market share from the current premium and budget wines. In the context of sustainability the framework leads to four key questions for businesses to consider; 1. Which dimensions can be reduced below industry standard? 2. Which factors the industry takes for granted could and should be eliminated? 3. Which factors should be raised above industry standard? 4. Which factors can be created which do not currently exist? The questions can be contextualized and applied to the installation of solar panels; 1. The visual impact of solar panels can be bellow industry standard yet accepted by consumers. 2. Solar panels eliminate the need to rely on gas or electricity (sources of energy which consumers often take for granted). 3. Solar panels provide customers with long term benefits such as energy security which the traditional energy industry fails to offer. 4. Feed-in-tarrif's from governments are offered, adding an additional beneficial factor to the purchase of solar panels which does not exist with traditional energy sources. However this approach to sustainability has been widely criticised. Firstly The TRU Group (2014) critique Kim and Mauborgne's research as it conceals full details on their methodology and analysis. Furthermore only 13 out of 108 (14%) business launches analysed were of a Blue Ocean Nature, providing a small sample. Small samples are less likely to yield reliable and precise results (Hackshaw, 2008) making it difficult to generalize Kim and Mauborgne's (2004) conclusions over the 24
25. 25. successes of companies pursuing Blue Ocean's to all business launches which attempt value-innovation. Secondly Herman (2005) believes the Blue Ocean Strategy sees sustainability as a simple addition to a product and it is therefore similar to Levitt's (1980, p.99) differentiation which is defined as a change of the attributes of products to give the marketer an opportunity to win custom and retain the customers. Herman (2010) also points out the significant limitation that once Blue Oceans are created they will quickly turn red with other businesses replicating or improving upon the new business model. Kim has accepted the limitation within a business insider article, however Kim believes the manger can resolve the challenge by searching for a new strategy every several years (Herman, 2010). This is concerning for businesses which are attempting to create Blue Oceans by implementing sustainability related product attributes as the profits related to their value innovation may not last. If Blue Oceans disappear, companies may disregard sustainability orientation and value-innovation as a means to gain long term success. This leads to another limitation. Kim and Maugborge have not yet explored the creation of an entirely new Blue Ocean for sustainability opportunities. This would surpass the simple integration of sustainability into new product dimensions and encourage acceptance of Simpon, Fischer, Rohde's (2013) idea that sustainability can be the backbone of a business. Also the ideas do not define how high to aim with regards to sustainability driven operations (Laszlo and Zhexembayeva, 2010). 2.5 Christensen Disruptive Innovation Christensen (1997) disruptive innovation is relevant to the current sustainability challenges which require radical business solutions. Christensen distinguishes between disruptive innovation and sustaining technologies. Where sustaining technologies makes incremental or transformational improvements to performance across the dimensions which customers value in the current market place, disruptive innovation does not conform to the valued attributes of the mainstream markets, introducing a product to market which may initially offer poor 25
26. 26. performance but appeals to those who value the particular innovation. Christensen (1997) uses the example of the electric car industry to show the challenges and benefits of disruptive innovation in relation to sustainability. He investigates the difference in performance of electric cars produced by new entrant companies and large car companies in respect to the mainstream market demand. The performance criteria selected by Christensen; top speed, range of miles and acceleration, are popular and valued dimensions of the car industries market. The analysis showed the Chevy Volt and Tesla Model S outperformed the market demand in all the three dimension in 2010. The Nissan Leaf did not reach market expectations for the range of miles and for speed of acceleration. Tesla Model S outperformed both the larger car companies in all three areas. Christensen further explores into potential reasons why the majority of the companys electric cars display higher performance on the three dimensions than market expectations and why Tesla, a new entrant, is outperforming the larger companies. Christensen concludes companies need to exceed the expectations of the mainstream market within the key valued dimensions to enable the disruptive innovation to be adopted by the mainstream market. The consumers will be encouraged to switch from petrol cars to electric cars as the electric cars excel in the conventional performance dimensions petrol cars compete upon. Performance in conventional areas is required because the product attributes such as zero emissions may not be immediately appealing to the mainstream market. Larger companies often work closely with their Research and Development department and a lack of demand for the disruptive innovation (introduction of electric car) identified by the large firms value network, often leads the firms to allocate resources towards the sustaining of innovations (continuous improvement) which are currently measured such as manufacturing a car with higher horsepower. The deafness of larger firms to market realities such as the pressures of sustainability allows new players to emerge such as Tesla, who value 26
27. 27. the innovation despite its weaknesses, recognizing the long term opportunities of a sustainability approach. The new entrant begins to make improvements to the technologies leading to an overshooting of customer needs and a consequent invasion of established market segments of the larger firms. The large firms then introduce the new technology simply to defend their customer base. First mover advantage from this pattern of managerial decision making of the large and small firms means the Nissan Leaf and the Chevy Volt are outperformed by the Tesla Model S. The large incumbent firms struggle to look past poor short term performance of the disruptive technology, there is a time lag in the discovery of the innovations potential and as a consequence they are forced to respond to the introduction of the disruptive innovation by new entrants. This is the innovators dilemma. Larger firms need to begin to look ahead of current customer needs and expectations towards the needs of future generations. Christensen's (1997) work assists incumbent firms to recognize the dilemma which favours new entrants and begin to see sustainability challenges as an opportunity for disruptive innovation. His work therefore assists firms to realize the hidden danger of existing market success and consequent sustaining of innovations, assisting firms to explore beyond their previous boundaries and participate in disruptive innovation. Which, a consumer group, conducted a survey, involving 9,400 informants, to investigate the customer satisfaction of different energy providers (Christie, 2015). The survey revealed that small and green energy companies had the highest customer satisfaction levels. Ecotricy, an independent green energy supplier, had the greatest customer satisfaction of 84% and another green energy company, Good Energy, scored 82%, strongly outperforming the big 6; E. ON, British Gas, EDF Energy, Npower, Scottish Power and SSE which all scored 50% or less. 27
28. 28. This validates Chistensens (1997) thesis and shows its substantial relevance to the energy industry. 'The big six' need to raise their game and participate in similarly green practices to experience the customer satisfaction benefits of the smaller energy firms who use Embedded Sustainability as a source of disruptive innovation and competitive advantage. The survey results also indicate and confirm that smaller companies are pressurized to exceed customer expectations in conventional product/ service dimensions such as customer service in order for the sustainable disruptive innovation to be adopted by the market. 2.6 Embedded Sustainability the Solution Laszlo and Zhexembayeva (2011) incorporate the prior three models, adopting a meta-analysis approach, to compose a comprehensive solution to strategic problems such as the innovators dilemma. Laszlo and Zhexembayeva (2011) use the example of the Ersta Group Bank to demonstrate Embedded Sustainability though the collaboration of key models. In 2008 the bank realized it was quickly approaching maximum efficiency. This drove the management to rethink their strategy to find a new way to achieve competitive advantage. The Ersta Group bank therefore decided to increase its shares owned by non-profit organizations to 31% of total shares. This is an example of the strengthening of Porters (1985) differentiation strategy by pursuing sustainability interests and providing the company with a 'good bank' image. The Ersta Group furthered its sustainability pursuits by moving towards a strategy to provide micro-finance and by participating in social entrepreneurship. This was a highly uncontested market space and an excellent example of exploring Blue Oceans when traditional markets turn red. Laszlo and Zhexembayeva (2011) promote their ES cloud as a guide to assist companies to pinpoint their current strategy on the scales of; sustainability (polluting to solving global issues) and change (incremental to radical), and identify their desired position for the future. The framework guides a company to choose a path which enables them to either Embed Sustainability leading to better 28
29. 29. positioning, taking from Porters (1995) model, or Embed Sustainability to create Blue Oceans (Kim and Mauborgne, 2004). Laszlo and Zhexembayeva (2011) argue no choice is superior however the path selected should be dependent on the type of change desired. The change desired will fit into either Christensen's (1997) sustaining change to remain in the existing market space but improve positioning via eco-efficiency's, incremental or radical, or Christensen's (1997) disruptive innovation, radical change which creates uncontested market space (Blue Oceans). Clean energy providers such as Vestas Wind Systems demonstrate the use of disruptive innovation to respond to sustainability drivers and to create Blue Oceans. Vesta historically produced household appliances and agricultural products however began to rethink its strategic path in the 1970's. Vesta began the mass production of wind turbines in the 1980's (Vesta, 2014). The cloud draws on many additional industry examples. Each company exemplified has a starting point based on the companys rate of sustainability and rate of change, has adopted a new path and has reached a new, more positive position on the cloud. The cloud therefore offers managers an opportunity based framework where an array of paths can be taken to achieve Embedded Sustainability. The key dimensions of Embedded Sustainability verses a 'bolt-on' approach are displayed in Appendix A. Hammersley (2001) critiques the meta-analysis approach (the methodological approach adopted by Laszlo and Zhexembayeva, 2011) which combines studies to achieve a mean affect, as the variation between models can cause heterogeneity which often removes critical contextual information. On the other hand Clem's (2012) book review praises the ES cloud as it is derived from other highly valued models and assists managers to assess their current situation and plot a course which makes sense for the particular business for permanent Embedded Sustainability. Clem (2012) sees Embedded Sustainability as an avenue for managers to combat the changing business landscape, realizing long term growth and competitive advantage whilst remaining profitable. 29
30. 30. 2.7 Energy Industry 2.7.1 Todays Energy Industry on the Spectrums of Sustainability and Change An investigation into the opinions of executives regarding sustainability issues can be useful in identifying the level of change in an industry and the level of sustainability on the agenda. Executive opinions can therefore assist in pinpointing the starting point of an industry on the ES cloud. The Global Compact Surveys (United Nations, 2007) investigation into executive opinions showed sustainability was only a minor concern within the energy industry. Hanna and Lacy's (2011) investigation three years later indicates a radical change within the energy industry, revealing sustainability issues are now a key priority and concern of executives. Hanna and Lacy (2011) found ninety-four percent of executives within the energy industry rated sustainability issues as either important or very important. However the research also identified some key issues within the industry. Although Ninety- one percent of CEO's in the renewables sector expressed sustainability issues as 'very important' only sixty-one percent of CEO's in the oil and gas sector regarded the issues as 'very important'. Hanna and Lacy (2011) believe the divide is evident because the renewable sector see sustainability solutions as an opportunity where the oil and gas sector view sustainability as a hindrance. The survey also discovered the support for sustainability is stronger within emerging markets. Hanna and Lacy (2011) believe this is attributed to 'the lens of proximity' where social development issues drive emerging market companies to engage in sustainable operations. The survey also measured executive opinions of stakeholder influences. An above average fifty-one percent of the energy industry CEO's, out of all CEO's, saw the government as a primary influence in enabling Embedded Sustainability as investment incentives and regulations 30
31. 31. directly affect the companies. Communities were also identified as a strong driving influence for change within the industry. 2.7.2 The Goals of the Industry The World Energy Council (2013) believes the global energy industry is experiencing sustainability challenges of an increasing complexity which necessitate the introduction and achievement of three key goals; energy security, energy equity and environmental sustainability. Energy security is the effective management of the energy supply by energy providers to ensure current and future demand will be met. Energy equity is concerned with the affordability of energy across the population and environmental sustainability involves the development of industry towards supplying renewable energies or efficient alternatives. The goals, if shared, would assist in leading the energy industry to overcome sustainability challenges. However The World Energy Councils interviewees have expressed concern that the essential values for a globally sustainable energy system are not shared and that we are far from a globally sustainable energy system. The World Energy Council (2013) defines the deviation from the three values as an 'energy trilemma'. Increasing pressure has been pushed on governments to implement complimentary policies and regulations and increase investment however The Energy Council (2013) also emphasizes the role of industry in overcoming the energy trilemma. Furthermore they believe companies within the energy industry can influence government energy policies and regulations by sharing knowledge, insights and experiences. Also they recommend the energy industry to act independently by increasing private investment in energy infrastructure and technology and attempting to support those economies which particularity struggle with achieving energy sustainability. The key sustainability goals and industry recommendations of The Energy Council could be used as benchmarks to guide companies within the energy industry towards the solving of global problems within Laszlo's and Zhexembayeva's (2011) ES Cloud. 31
32. 32. 2.7.3 Is there a Feasible Path to Lead Todays Industry Towards the Goals? Hanna and Lacy's (2011) research reveals the current state of the energy industry and The World Energy Council (2013) sets vital goals for the industry however there is widespread uncertainty and a lack of consensus over a particular path to adopt. In 2011 102 mining companies published reports, of which 95% were based on the GRI framework (GRI, 2012b), a global standard of sustainability reporting. However Moneva et al (2006) claim that the GRI approach of reporting sustainability has significant flaws which can camouflage an organizations un- sustainabile activities. Fonseca et al (2012) provides a critical review of the Global Reporting Index, warning the mining industry that by continuing to accept the limitations of GRI and by perceiving it as a sufficient means of sustainability reporting, the companies may experience difficulties in the future when communities and governments begin to require more integrative approaches. Gray and Milne (2002) argue effective sustainability reporting requires an analysis of the organization's compatibility with ecological systems, resources, habitats, and societies incorporated with a consideration of all other organizations past and present impacts on the same systems. However The Word Energy Council (2013) highlight the absence of a global climate framework (Figure 2.6.3.1) which consequently makes it difficult for private companies in the energy sector to determine activities which will contribute to the achievement of industry goals. 32
33. 33. Hanna and Lacy (2011) provide a more optimistic view believing companies can shape the future energy system by pushing the boundaries of what is possible by innovation and Embedding Sustainability in line with core business challenges and opportunities. They suggest energy companies can position themselves for the new waves of demand by shifting resources towards opportunities which are environmentally sustainable and investing in new technologies which will both cut costs and drive growth. Hanna and Lacys (2011) suggestions are derived from industry examples such as Austria based OMV and South African Eskom. OMV primarily supplies fossil fuels but now ensures this core operation is conducted in an environmentally responsible and climate-friendly way. Also OMV is developing innovations such as carbon capture and storage (CCS) technologies. Lastly they are actively increasing their renewable energy operations. Eskom, traditional a coal dominated company, moved its strategy towards renewables by heavily investing in solar panels and wind-farms. Overall, although the path will be company and country specific (Steger, 2004) the growth and success of the companies which are creating a sustainable path indicate the feasibility and benefits of strategic changes to Embed Sustainability 33 4. Figure: 2.6.3.1: Demonstration of the absence of a global climate framework (World Energy Council, 2013)
34. 34. into the core of business and internalize environmental issues. 2.7.4 Industry Example Switzer (2014) sees significant barriers in the sustainability pursuits of oil and gas companies towards providing renewable fuels. Firstly the capital costs of renewable energy is high and the rate of return often low. Secondly political effort is lacking around climate change and renewables and there is a lack of renewable energy literacy among oil and gas engineers. Finally the oil and gas sector usually requires personality-driven leadership approaches to renewable energy project development, securing top management commitment. However Greenwonder (2014) believes there are counter forces pushing oil and gas companies to go green; The growing anxiety over the depletion of oil, the negative impact on the environment attributed to oil spills and air pollution, the industrialization of poor countries which were previously considered as major future sources of oil and the changing belief of oil companies who now see renewable energy as a more viable future power source. Forbes (2009) discusses ExxonMobil's combined political and engineering approach to going green. The softening of ExxonMobils strategy regarding climate-change is largely attributed to the leadership of Rex Tillerson. ExxonMobil have invested $600 million into methane producing algae farms which turn sunlight to fuel. Methane releases up to 50% less carbon dioxide than coal and petroleum. The use of the natural fuel would cut 1 billion tons of carbon dioxide a year, equivalent to building 80,000 wind turbines. ExxonMobil have worked in close proximity to the Qatari government and prime minister Al-Attiyah, paying 40% royalties in return for favourable terms towards developing the North Field LNG plants (algae farms along a 80 mile stretch of Qatars coast). Both Shell and BP overlooked the opportunity and have suffered a negative relationship with the Qatari government as a consequence. ExxonMobil clearly have a highly differentiated strategy, making informed strategic decisions based on their unique perception of the long term potential of 34
35. 35. sustainability opportunities. ExxonMobils differentiation also demonstrates their neglect of the current competitive game within the oil and gas industry and alternative exploration of Blue Oceans, finding value and customer utility in a uniquely innovative project. Where other oil and gas companies such as BP continue to compete on traditionally valued customer dimensions, ExxonMobil engages in disruptive innovation of their core activities, adding the yellow tail dimensions of energy security, environmental sustainability and energy equity and seeking to produce power via a natural form of energy to cater for the needs of future generations. However pinpointing ExxonMobil on the ES cloud is a difficult task. The company is performing radical changes however it is difficult to know or predict if the new strategy contributes towards solving global issues. As algae still produces CO2 the strategy could simply be seen as a corporate social responsibility activity and it is debatable to whether energy from algae is a solution to the magnitude of sustainability challenges within the energy industry. Therefore although ExxonMobils strategy has the key characteristics of Embedded Sustainability it is questionable as to whether they have fully internalized sustainability issues and Embedded Sustainability to solve the global issues of future energy security, energy equity and environmental sustainability. Fusion power on the other hand may be more suitable and relevant to the global issues. Fusion power is generated by the fusion of atoms, creating heat, which is then used to operate a steam turbine, driving generators to produce electricity. This is similar to most coal, oil, and gas-fired power stations however the power does not rely on fossil fuels and consequently is an environmentally sound option (Wood, 2013). Zwicker, 2013; Smith and Prager, 2014; Gentile, 1995; and Jacobs, 2013 believe fusion energy can meet the worlds energy needs and promise virtually unlimited clean fuel. However Jacobs (2013) describes the challenges of incorporating fusion energy as part of the global energy network as myriad. Fusion energy would have to transform from a research project to a commercial venture with political backing and increased competition within the market. 35
36. 36. Toole and Vogel (2011) believe some problems are so large, that they cannot be solved solely by the actions of individual businesses. To fight the true enormity of energy challenges non-profit research groups such as the U.S Department of Energy, institutions such as Princeton University's Plasma Physics Laboratory (PPPL), governments and private companies operating within the energy industry must form partnerships, similar to those seen in the Marks and Spencer case, to adequately fund investment and support activities towards researching, developing and implementing renewable energy alternatives which have the potential to meet the energy needs of the present and future population (United Nations, 2014). However Seyfang (2004) believes statements made by international governments echo a denial of the importance of considering overall resource use, or of questioning economic growth which consequently prevents the market mechanism from delivering sustainable consumption. These market failures would have to be addressed in order to solve environmental problems. 2.8 Conclusion of Chapter This chapter discusses many models and examples which contribute towards the formation of strategy which Embeds Sustainability. The Marks and Spencer case demonstrates the use of a large-scale sustainability plan and numerous initiatives to achieve Embedded Sustainability. Porter (1985) sees sustainability as strategy strengthening mechanism to enable a company to obtain competitive advantage. Kim and Mauborgne (2004) explain how a company can make the transition towards a defensible strategy by creating uncontested market space (Blue Oceans) via sustainability pursuits. Christensen (1997) takes a similarly divergent approach, introducing disruptive innovation as a strategy to bring a sustainable and non-conventional products to the marketplace and eventually secure mainstream customer interest. Laszlo and Zhexembayeva (2011) encourage Embedded Sustainability by incorporating the prier three models, creating a strategic approach based on a starting point, a goal and a path. The models demonstrate that companies should no longer see sustainability as an obligation or an attribute to bolt on instead viewing sustainability as an opportunity which 36
37. 37. does not require trade-offs and can be integrated into core business activities. The decision to execute the long term integration of sustainability into a companys DNA can bring substantial benefits from cost savings achieved by using natural resources, a highly motivated workforce, improved reputation, regard from non- governmental organizations and other stakeholders and improved investor relations (May and Spring, 2008). Furthermore Oleson (2004) believes sustainability-driven management can lead to fewer trade-offs, increased speed to market, and an improved connexion between product and strategy. However the chapter prompts further research to investigate Embedding Sustainability into strategy via internal drivers such as human resources, technology development and organizational culture. Further investigation into the resource based view of sustainability would provide a more comprehensive augment over the ways to successfully Embed Sustainability and encourage the discovery of a strategic approach which details the internal execution of the models and suggestions. This being said the predominantly external focus and the framework design of the models enables their application to multiple contexts, making it possible to apply the models to the energy industry and The Little Green Energy Company. The wider models and frameworks can be used during the primary research analysis of The Little Green Energy Company to assess the models validity to energy industry, compare the models against one another and identify the key variables to consider when Embedding Sustainability. On the other hand, although the models discussed offer great insight into strategy through the lens of sustainability, they do not express the level of change required. It is essential that the goals of sustainability are recognized and known by each industry in order to encourage the adoption of a path towards positive strategic change from their current activities (The World Energy Council, 2013). ExxonMobil embrace a new, more sustainable strategic path towards the achievement of ambitious goals. However to combat the energy trilemma, companies within the energy industry must truly internalize sustainability issues, assessing alternatives 37
38. 38. such as fusion energy and tacking the barriers of implementation by building partnerships with non-profit sustainability orientated organizations, energy research institutions and governments. Overall the review of literature has discovered that elements from all the models can be used towards formulating an appropriate strategy which embeds sustainability. The compatibility and broad outlook of the models make a useful stage for the environmental pursuits of the energy industry and the analysis of The Little Green Energy Company. Chapter 3 Research Methods 3.1 Introduction This chapter discusses and explains the research methodology selected to conduct the primary research investigation. The first section outlines the key purpose of the primary research, its connection to the secondary research and the technique of data collection. The second section discusses the main questions the primary research will seek to resolve and the consequent mixed style of questions, open ended and close ended to obtain both qualitative and quantitative responses. Next the author will justify the questionnaire method of data collection selected. The following paragraphs will explain and justify the sampling technique applied. Finally the technique of data analysis will be described. Limitations of the selected primary research method will also be discussed. 3.2 Outline of Primary Research The purpose of the primary research was to expand the knowledge base surrounding Embedded Sustainability by applying the conceptual and theoretical ideas, revealed within the prier secondary research, to a specific industry (the energy industry) and company (The Little Green Energy Company). The broad scope of function characterized by the key models was narrowed in order to undertake an in depth investigation of strategy to promote Embedded 38
39. 39. Sustainability within the energy industry. Permission was granted from the head engineer within the Little Green Energy Company securing informed consent, a principle from the Code of Human Research Ethics (Oates et al, 2010). The data was collected via a questionnaire survey method to obtain both qualitative and quantitative responses. The surveys were sent in January via email to assist with a convenient and easy return of the questionnaires. The vast majority of employee's within The Little Green Energy Company completed and returned the questionnaires in February. The questionnaire adhered to the framework for research excellence (Economic and Social Research Council, 2012) by openly and honestly explaining the research agenda, thanking the employees for their time, avoiding harm and informing respondents their answers would be treated with confidentiality. 3.3 Hypothesis and Questions The secondary research which discusses the key models of embedding sustainability has validated the relevance of the authors originally proposed research hypothesis and questions; Hypothesis 1: A case study investigation into a renewable energy companys strategy will reveal truths on how to embed sustainability, Hypothesis 2: The findings from the primary research (case study) are consistent with models of embedding sustainability, Question 1: What are the best techniques/ models for embedding environmental sustainability into strategy? Question 2: How could these models be applied to conventional energy companies to promote the movement to renewable fuels? The models investigated during secondary research also triggered enquiry questions to address and analyse the Little Green Energy's fit into each model. These further questions aim to discover the classification of the companys strategy according to each model. The questionnaire seeks to gain responses to address; Which of Porters (1985) Three Generic Strategies does The Little Green Company adopt? Did the companies launch create a Blue Ocean (Kim and Mauborgne's, 2004) and if so is the Blue Ocean consistent with the ideas of value innovation? Could The Little Green Energy Company be considered as a new 39
40. 40. entrant disruptive innovator (Christensen, 1997)? and Where is The Little Green Energy Company positioned on Laszlo and Zhexembayeva (2011) ES Cloud? The intended purpose of the questionnaire was to discover the feasibility of a sustainability orientated agenda and Embedded Sustainability within the energy industry. To achieve an in depth analysis the questionnaire assessed queries raised by the key models, encouraged qualitative informant description of the stages involved within the process of Embedding Sustainability and a description of the core competencies of the company which enabled environmentally sustainable strategies. Berry (1995) and Denyer and Tranfield (2006) believe questions to obtain qualitative responses obtains information with the potential to provoke managerial decision-making and action. 3.4 Method of Primary Data Collection 3.4.1 Informed Methods Secondary research helps to build a conceptual framework which shows the main dimensions or variables and the presumed, theory-driven relationship between them (Miles and Huberman, 1984). Existing research discussed within the literature review not only informed the questions included within the questionnaire but the research method selection. Grayson's (2011) case study method of Marks and Spencers strategy generated detailed findings and great insight into best practice towards a strategy which embeds sustainability. Esty and Winston (2009); Romm (2006) and Werbach (2009) also use case studies to demonstrate the best practice of sustainability. The key limitation of Grayson's (2011) case study investigation into Marks and Spencer strategy however was the lack of generalizability of the findings to other industries. However the Grayson's (2011) research exemplifies the case study method as an appropriate means to investigate Embedded Sustainability within a particular company and industry therefore encouraging a similar methodological approach to be selected by the author for the investigation of the energy industry and The Little Green Energy Company. 40
41. 41. The questionnaire method was used by Porter (1985) to discover the key variables which are commonly linked to a strong corporate strategy. Porters research design influenced the methodological approach selected to address Objective 3 (To undertake primary research within The Little Green Energy Company (solar panel designer and installer) to assist in answering the question; how can environmental sustainability be embedded into strategy?). 3.4.2 Critical Analysis of Questionnaire Method However Gorrell et al (2011) believes questionnaires often introduce bias in the form of common method variance (CMV). CMV occurs when the approach of data gathering introduces a bias, leading to exaggerated correlations between the separate variables being measured (Gorrell et al, 2011). People have a tendency to answer questions that measure the same hypothesis with high consistency, providing answers which either support or go against the hypothesis, particularly when a singular data gathering technique is used such as the questionnaire method. For example the primary research questions During the launch of The Little Green Energy Company the marketplace was new and uncontested. Do you strongly agree, agree, don't know, disagree or strongly disagree? and Has The Little Green Energy Company brought new performance dimensions for the energy industry to compete on? For example energy efficiency. What are the new dimensions? may lead the informant to answer both questions similarly and consequently lead to a conclusion which may falsely inflate positive correlations between the two entirely different models and unrelated variables. Nether-the-less the above questions were informed and supported by secondary research providing qualitative validation. According to Hult et al (2011) qualitative validation reduces CMV bias. 3.4.3 Concurrent Mixed Method Data Collection The questionnaire research method was selected to obtain qualitative and quantitative data through a mix of open ended and close ended questions. Driscoll 41
42. 42. et al (2007) believes the concurrent mixed method of data collection can allow participants to be intuitive by offering a large space within the open-ended response fields and if these fields are linked to the preceding structured questions, explanation by the participants during data collection will be facilitated. This was evident in Embedded Sustainability within the Energy Industry questionnaire design as respondents were free to type unlimited responses below each open- ended question. Quantitative research is suitable for answering questions about relationships between specific variables and who, where and how much questions whereas qualitative questions are more apt for answering how and why questions (Harrison and Reilly, 2011). Miles and Humberman (1984) describe qualitative research as an investigation involving a process to make sense of a social phenomenon by contrasting, comparing, cataloguing and classifying the object of study. The questionnaire attempts to make sense of Embedded Sustainability within the Energy Industry by classifying The Little Green Energy Companies activities in terms of each model, comparing the responses relevant to separate models and recording additional responses. The use of existing models of Embedded Sustainability allows for an assessment of the questionnaires concurrent validity which shows the level consistency between the questionnaire results and established measures. The close ended questions however seek to discover the link between variables such as the level of integration of sustainability into each business function. Harrison and Reilly (2011) believe the mixed approach provides strengths which offset the weaknesses of using a singular approach. Furthermore according to Eisenhardt (1989) the mixed approach gives a synergistic view of evidence, promotes divergent perspectives and strengthens the grounding of research. However Driscoll et al (2007) comments on the difficulties of analysing, coding, and integrating unstructured data with structured data, describing the process as complex and time-consuming. Overall the use of open and closed questions increases face validity as the questions can measure the construct with higher accuracy and content validity as the mixed approach allows for coverage of the important aspects. 42
43. 43. 3.4.4 Cross-sectional Case Study A cross-sectional study measures a concept at one point of time, allowing researchers to compare many different variables at the same time (Weerasekera, 2014). Although a longitudinal study may have offered insight to the ways in which Embedded Sustainability changes and develops within an organization over time, cross-sectional surveys can be conducted using any mode of data collection, require less time and are less costly. The case study mode of data collection is gaining acceptance within small business research (Perren and Ram, 2004). Yin (2014, pp.40) defines a case study as: an empirical inquiry which investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident. This is relevant to the study of Embedded Sustainability within The Little Green Energy Company as there is currently limited evidence to show how to embed sustainability within the energy industry. However there is controversy regarding the process to select towards creating a sound and grounded theory via a case study. Eisenhardt (1989) believes case studies should be compared to other cases and literature to increase the likelihood of creative re-framing into a new theoretical vision, creating valid and testable theory from the intimate interaction with the evidence. However Glaser and Strauss (1967) argue it is simply the intimate connection with empirical reality that permits the development of a testable, relevant, and valid theory. Although direct comparisons between the case study and literature were not made, the questions within the Embedded Sustainability within the Energy Industry questionnaire were based on literature, assisting with the re-framing of theory and development of conclusions to fulfil objectives 3 (Section 1.5.3) and 4 (Section 1.5.4). 43
44. 44. 3.5 Sampling 3.5.1 Non-Probability Purposive Sample A non-probability purposive sampling method was selected to target The Little Green Energy Company due to its strong sustainability agenda and qualities. Maxwell (1997) defines purposive sampling as: a type of sampling in which, particular settings, persons, or events are deliberately selected for the important information they can provide that cannot be gotten as well from other choices (p. 87). There is a certain extent of sampling bias associated with this method (Lohr, 2010) as the results will not be representative of the entire energy industry population. Probability samples of informants from a range of companies within the energy industry would have obtained a wider array of responses which could have been analysed to come to conclusions with higher external validity and representativeness (Teddlie, 2007). Nether-the-less the non-probability method was selected due the high costs of alternative probability sampling and the time constraints of the project. Also Miles and Humberman (1984) believe the sampling technique selected should not only be relevant to the population but to the social processes wished to be researched and purposeful sampling can more adequately obtain qualitative information about The Little Green Energy Companies strategy, providing insight into research topic. To some extent the sample of The Little Green Energy Company's population will be reflective of the characteristics of the population from which it is drawn (the energy industry). 3.5.2 Census Sample of Population A census sampling technique of The Little Green Energy Company population was attempted. A census includes every member of the specific population, providing accuracy, reliability, a true measure and true values. Furthermore a census makes 44
45. 45. it possible to access detailed information from a small group such as the staff members within The Little Green Energy Company. There are 13 full time staff members within The Little Green Energy Company; Contracts Manager, Managing Director, Designer, Head of Sales, Office Manager, Site Manager, 5 x PV installer, 2 x electricians (See Appendix B). Unfortunately one member of staff failed to respond. 3.6 Data Analysis Methodology 3.6.1 Meta-ethnography Approach Meta-ethnography is similar to the grounded theory approach as it uses open coding and identifies categories emerging from the data as well as making constant comparisons between in