Week 3

Ecologically Dominant logic and instrumental logic of sustainability

Economic and social issues are nested inside environmental issues. When trade-offs are inevitably encountered, the priority is to protect the environment, then society and only then to consider profits. Doing no harm is the starting point.

If the social system is disrupted, the economic system can’t work. Same with environmental

• The Triple Bottom Line (TBL) has been a dominant concept in sustainability research. A common definition of the TBL is “an accounting framework that incorporates three dimensions of performance: social, environmental and financial”. The TBL aspires to treat each of its three aspects with equal importance. TBL is sometimes used as a synonym for sustainability.

• Often social impact is forgotten. Using the TBL as a means of capturing a chain’s performance is, conceptually, integrative in that the TBL includes all of a supply chain’s impacts. Thus, the TBL seems to align well with stakeholder theory

there is typically not agreement between stakeholder issues and societal issues, so the TBL may not be as inclusive of all stakeholders as previous research has presented it.

firms in a supply chain can argue that it is not their fault that customers do not buy more sustainable products. Thus, it is not surprising that firms choose to emphasize the economic nature of the TBL over the other two aspects as there are no institutions that can ensure that all three aspects of the TBL are given equal treatment and thus supply chains can shift blame to customers.

• The Natural Resource-Based View (NRBV), which is an integrative theory of sustainability with the natural environment as a key constraint

“The conflict between environmental protection and economic competitiveness is a false dichotomy. It stems from a narrow view of the sources of prosperity and a static view of competition.” In other words, firms and supply chains can be environmentally friendly and make a profit. Porter’s argument was a narrow one that stated that “properly constructed regulatory standards” would encourage innovation and that this innovation would help supply chains stay competitive. This win–win perspective has been very influential in research, especially research on the “does it pay to be green” question

• firms and supply chains can be environmentally friendly and make a profit.

• Total quality environmental management (TQEM)

• Creating Shared Value (CSV), has been called greenwashing

• while there are certainly win–win opportunities, creating truly sustainable supply chains will involve both changes that have win–win outcomes and changes that will force trade-offs that are inevitable given the complex nature of sustainability

• By following the win–win paradigm sustainability issues are ultimately judged through the lens of profit maximization rather than being treated as ends in themselves

• The first would be driven by changing regulation and enforcement, which is a change that may already have started. Future regulation is likely to require much more transparency in firs reporting and to inhibit many activities that are presently allowed.

• The second path will likely come from supply chains themselves. For instance in the automotive industry, Toyota is planning to have a combustion engine-free supply chain by 2050

An “integrative logic” and note that “The integrative logic no longer treats business and society as a trade-off between two competing variables or a zero-sum game, but rather speaks to the natural connection between the variables and suggests the presence of potential synergies”

• synergies will not always exist and trade-offs do sometimes have to be made.

• Be explicit in recognizing trade-offs and prioritizing them in a truly sustainable way.

• The Ecologically Dominant logic is explicit in its hierarchy, with environmental systems being of the highest priority, followed by social and then economic systems

• Economic performance outcomes are nested under, rather than being equally important to, environmental and social outcomes.

• The Ecologically Dominant logic is an alternative logic based on a series of constraints and in essence means that social and ecological embeddedness becomes requirements of managerial cognitions to create sustainability

• When trade-offs exist the instrumental logic favors supply chain economic outcomes while the Ecologically Dominant logic favors ecology first, society next and supply chain economic outcomes last.

• The Ecologically Dominant logic will account for a wider range of stakeholders and outcomes than the instrumental logic of sustainability.

• The instrumental logic emphasizes satisfying customers’ demands while doing the minimal amount of harm. The Ecologically Dominant logic emphasizes first satisfying environmental and social constraints and then attempting to meet customer demands

• Managers who are committed to sustainability following the Ecologically Dominant logic consider profit after protecting environmental or social systems and are more likely to pursue radical innovation to find ways to meet the environmental and social constraints.

• Supply chain managers using the instrumental logic focus their practices on profit maximization and are only willing to make decisions that improve environmental or social outcomes if they at worst have no impact on profits. Supply chain managers using the Ecologically Dominant logic focus their practices on harm elimination and are only willing to make decisions that increase profits if they at worst cause no harm to environmental or social systems

• Supply chain managers using the instrumental logic will make decisions with a relatively short time horizon that creates harm today to be partially addressed in some unknown future. Supply chain managers using the Ecologically Dominant logic will make decisions with a long time horizon that prevents the harm from occurring.

• The adoption of the Ecologically Dominant logic will be fundamental to the creation of sustainable supply chains.

How can a supply chain benefit from addressing environmental or social issues?

• This logic is backward-looking in that it studies existing unsustainable supply chains to determine what they are doing to become less unsustainable

• Research following this logic is usually conducted from the perspective of the focal firm, rather than taking the supply chain or supply network as the unit of analysis.

• These enterprises pursue a social goal enabled by an economic activity and manage their supply chain accordingly.

• they try to provide organizational answers to the social-welfare and the commercial logics characterizing the institutional the environment in which they are embedded

• social enterprises often break conventions, span sectoral boundaries, and experiment with different ways of organizing and managing

SISCM approaches are different from traditional SCM due to its limited capability to address this kind of institutional complexity

• At the extremes of this continuum, there will be focal organizations that manage their supply chains through a purely commercial or social welfare, respectively. The former is structured around the goal to sell products and services on the market to produce an economic surplus that can ultimately be appropriated by owners, whereas the latter mainly makes products and services available to address social needs.

• Rejecting logics and simplifying it has an issue: commercial enterprises don’t focus enough on social issues, and SEs focus too less on making money.

Decoupled, Combinatory, and Coupled.

A situation characterized by a focal organization in which the one logic is core and the other logic is peripheral. Usually in SCM the focal organization will set up a socio-commercial supply chain, where the commercial logic prevails while formally addressing the social-welfare logic by delivering products or services to people in need.

• the supply chain strategy will essentially be profit oriented, meaning a way to create value through delivering a product or a service to people in need.

• Decoupled SISCM requires the focal organization to not only establish direct relationships in its supply chain with for-profit organizations but also incorporate social entities that understand the target communities. These social entities have earned the trust and loyalty of local communities that they have assisted during challenging times such as war, natural disaster, or poverty relief

The focal organization prioritizes both shareholders and beneficiaries intended as customers. But, this focal organization will need to identify and engage directly in its supply chain with stakeholders different from traditional for-profit actors to achieve their ultimate commercial intention. They might need to design a product or service specifically for the identified population in collaboration with local authorities or social entities as well as build and coordinate a local supply chain to distribute products or services that might include both profit and non-profit actors, governments, and regulators to deliver the product or service.

the commercial logic is dominant in the focal organization, with managers trying to replicate the formal and transactional style of its traditional SCM and understand relationships in terms of power dependence determined by resource ownership. At the same time, when local social actors act as intermediaries between local communities and the focal organization, the latter might face the challenge of forgoing an arm’s-length relationship management style in favor of more relationalism. As a consequence, in Decoupled SISCM, the focal organization most likely maintains traditional power dominated relationships with some stakeholders

• the focal actor is characterized by high centrality with both commercial and social-welfare logics at its core.

• The focal organization in this case could be an NGO or nonprofit organization (NPO) moving to be more financially self-supporting through the management of its social activities, a for-profit moving to Benefit (B) corporation status (B Lab, 2018), or a purposefully formed social enterprise, all combining the social-welfare and commercial logics

  • The focal organization combines, in the same supply chain, actors that mainly adopt a social-welfare logic with actors that mainly adopt a commercial logic, often separated into the downstream or upstream side of their supply chain

• The focal organization combines, in the same supply chain, actors that mainly adopt a social-welfare logic with actors that mainly adopt a commercial logic, often separated into the downstream or upstream side of their supply chain

• Alternatively, when the social-welfare logic actors dominate the upstream side of the supply chain, the focal organization works to include people in need on the supplier side.

• Depending on which side of the chain the Combinatory SISCM engages in social impact activities, the commercial side of the chain either finances and distributes needed products or services on the supply side for downstream social impact or sells the products or services to generate economic resources to support the social enterprise activities for the upstream social impact.

• They will serve beneficiaries, financers, and customers as distinct groups

• Different stakeholders are targeted as a result of different logics.

• The social-welfare logic prescribes to identify and engage the people in need at one side of the supply chain and to collaborate with local social actors to help include people in need in their supply chains. The commercial logic requires identification and engagement with market players that enable the economic activity.

• Combinatory SISCM aims to protect less powerful actors at one tier of the supply chain and therefore tends to establish collaborative, long-term and altruistic relationships locally, while managing formal and transactional relationships with market actors representing for-profit customers/suppliers.

• Combinatory SISCM that includes a powerful supplier or distributor will need to use formalized contracts to compensate for power asymmetries, or the powerful buyer can invest in site-specific assets for less powerful partners.

• Unique SCM challenges such as inadequate infrastructure, novel distribution channels, inadequate training, and different cultural norms around work and financial transactions.

• the focal organization goes beyond just employing the workers. The social impact locations are particularly vulnerable not only to life-threatening interferences but disruptions in material, labor, or product availability, incoming and outgoing deliveries, and exporting and importing regulations that are subject to shifting political agendas

• the focal organizations operate at the nexus of two different supply chains to address, respectively, social and commercial activities. A social enterprise in which the social-welfare logic is core and the commercial logic is peripheral.

• With a social core, the social enterprise has a main mission to address a social need and an economic activity running in parallel to support this social mission and augment its effectiveness.

• Focal organizations operate separate but consistent supply chain strategies to feed the social one.

• The commercial supply chain performs a separate economic activity providing economic resources for the social supply chain so it can continue operating without depending on donations and external funding.

• for-profit actors can be engaged in the commercial supply chain while social actors are engaged in the social supply chain. However, in Coupled SISCM, it might become difficult to clearly distinguish these stakeholder types and the stakeholders themselves will display a hybridization of logics.

• Social enterprises adopting Coupled SISCM look for stakeholders to be part of their supply chain that display both social-welfare and commercial logics and do not just orchestrate them as providers of specific resources but actively involve them as partners of both the social and commercial supply chain, sometimes even delegating crucial tasks for the mission achievement.

• The focal organization adopting Coupled SISCM is part of two separate supply chains that adopt different logics, have different scopes and strategies, and thus require different relationship management styles.

• The focal organization could simply adopt more relationalism in the social supply chain and more traditional arm’s-length style in the commercial supply chain.

• Typically, it is up to the social enterprise to act as a catalyst and create the basis for a trusting and cooperative climate between the two supply chains characterized by shared values, synergies and resource exchange, and minimum conflicts

• Institutional complexity

  • A social enterprise is typically guided by multiple, potentially conflicting, institutional logics – “principles that prescribe how to interpret organizational reality, what constitutes appropriate behaviour, and how to succeed”.

• Organizational hybridity

  • Social enterprises require a hybrid organizational model affecting many elements such as organizational forms and structures, governance, workforce composition, organizational activities, collaboration and formalization

The latter is technical in nature, as it requires technical skills and innovations to implement, and features internal control, so firms can make internal changes (e.g., product design) to achieve it. In contrast, social commitment depends more on external stakeholders' interests and actions, which are harder for any individual firm to control.

• Stakeholders is any group or individual who can affect or is affected by the achievement of the organization's objectives

• Whether a firm respond to a stakeholder depends on salience, which is determined by Power, Urgency and/or Legitimacy

However, audits cannot be effective if emerging-country suppliers often lack the basic capacities to implement their buyers' environmental and labor requirements. In other cases, suppliers actively attempt to deceive or cheat auditors, such as by creating false inspection or maintenance records, related to both safety standards and pollution prevention

According to the relational view, firms can achieve superior performance with their strategic partners through combination, exchange, or investment in idiosyncratic assets, knowledge, and resources/capabilities. The creation of relational rents is based on four sources, that is, relation-specific investments; knowledge-sharing routines; complementary resources and capabilities; and effective governance

• First, relationship-specific investments might involve physical or human assets. IT integration enhances SC performance. First, relationship-specific investments might involve physical or human assets.

• knowledge-sharing routines might increase economic performance because they facilitate the transfer, recombination, or creation of specialized knowledge

• The complementarity of resources and capabilities might provide benefits, yet it is not studied often. This is because in a buyer-supplier relationship, the parties' contributions to their vertical partnerships are, by definition, complementary

• Trust, reciprocity, and respect, as the norms that constitute relational capital, serve as a form of self-enforcing governance, which effectively lowers operational risks by controlling opportunism and promoting cooperation

• Due to differing levels of perceived claim urgency and sanctioning power held by local environmental and labor protection bureaus, in combination with the greater legitimacy ascribed to environmental issues, pressures by environmental (compared to labor) regulatory agencies are perceived as more salient by Chinese suppliers.

• Due to the higher levels of urgency and power exercised by buying firms in relation to environmental issues, combined with the greater legitimacy ascribed to environmental issues, environmental (compared to labor) pressures by buying firms are perceived as more salient by Chinese suppliers.

• Compared with labor NGOs, environmental NGOs (and IPE in particular) are developing growing, albeit limited, influence in China, and pressure from them is perceived as more salient by Chinese suppliers.

• Knowledge-sharing routines between Philips and its suppliers disseminate technical knowledge, and thus can help suppliers address environmental issues. Knowledge-sharing routines are less meaningful for the dissemination of organizational and interpersonal knowledge (e.g., employee–management communications) that could evoke deeper changes throughout the supplier's organization and thereby address labor issues.

• Effective governance between Philips and suppliers helps safeguard the suppliers' investments in environmental responsibility. However, because investments in social responsibility have more uncertain outcomes, they cannot be sufficiently safeguarded by relational capital.

Who is responsible for unsustainable supplier behavior?

Shareholder value might drop if bad news comes out

• Auditing

  • Any activity related to evaluating suppliers (e.g., questionnaires, company visits)

  • Companies can force standards on suppliers

    • 1st party audit: conducted by the suppliers themselves (not very reliable)

    • 2nd party audit: conducted by buyers/brands

    • 3rd party audit: conducted by independent certification companies (Has become the norm)

• Collaboration

  • Working directly with suppliers, providing them with training, support, or other activities (financial or technological support

• Supplier assessment but that alone is not enough

• Collaboration with suppliers is also needed

• Regulatory agencies

  • which can exert compliance pressures through on-site inspections, levying fines, and even shutting down factories

• Buying firms

  • which can exert compliance pressures through reducing orders and even completely terminating business relationships with the suppliers

• NGOs

  • “naming and shaming”

Whether the stakeholder has power, urgency, and legitimacy

• Knowledge-sharing routines (like lean production)

  • Such routines are used to increase the suppliers’ productivity and thus slack resources, which can be invested to improve supplier environmental and social responsibility

• Effective governance

  • Increases the suppliers’ commitment to long-term relationships with the buying firms

It is much harder to foster social supplier sustainability