Leadership in Business - Term Paper Example

 «Leadership in Business» The increasing competition to improve social image has led companies to develop environmental sustainability development programs. World Commission on Environment and Development (1987) defined Environmental Sustainability as the development which is made to meet the needs of the present generation without sacrificing the needs of future generation (Geneseo). The concept of corporate social responsibility is not limited to environment only, but organizations also develop corporate sustainability strategy. Thomas Bieker et al. defined corporate sustainability as a strategy which must meet the needs of the stakeholders of the firm without compromising the needs of its future stakeholders. Is it possible for companies to pursue their corporate or business strategy while developing environmental sustainability programs? Business objectives are the goals and directions defined by the companies and a combined strategy is used by the organization at every level of operation to achieve those objectives (Chavis). A general assumption about business objective is that major objective of a business is to make profit however; there are various objectives of business and they can be classified as economic objectives, human objectives, social objectives, national objectives and global objectives (NIOC). Doyle conducted a study to determine the impact of business objectives on Western companies’ performance and he found that profitability is the objective of western firms and most of these companies try to over focus on profitability because it is considered as a measure of performance (Doyle). Therefore, if the companies only consider achieving profitability then how can they develop an environmental sustainability vision? In order to evaluate whether pursuing a strong environment sustainability vision while achieving its business objectives is possible or not, various examples of the companies will be used. Moreover, the rationale behind this statement will be also evaluated based on the theories and models. Conclusions will be made after analyzing the literature cited. First, the arguments and examples will be used to highlight the point of view of those who believe in that sustainability and business objectives are incompatible. Sustainability versus profit maximization has been always an important area of investigation for the researchers. Researchers based on their findings relevant to sustainability versus profit maximization can be categorized into two groups. One group of researchers argues that achieving business objective such as to maximize profit is not possible if company pursues sustainability programs. On the other hand, the other group of researchers argues that achieving business objectives become more practical for the companies after pursuing sustainability programs because such programs increase the value of the customers and enhance the image of the company in the markets. Alexander (2007) argues that the managers in the organizations are compelled not to pursue morally good initiatives by the systemic conditions of the markets today, especially when such practices conflict the profit-making objective of the organizations. Therefore, Alexander recommended that to make companies to pursue sustainable programs, there is a need to change the rules and laws that regulate and define the markets. Hoosear (2009) argues that a structural issue stops the companies to become social enterprises because investors seek to increase the profits on their investments and rather than sustainable profits they want short term profits and they are in a direct conflict with helping communities and investing in long run. There are various examples of the companies which claim to focus on sustainability while pursuing their business objectives however; such claims are not reflected by the actions of these organizations. The case of British Petroleum is one of the major examples. In the last decade British Petroleum claimed to invest in renewable sources of clean energy to pursue its vision of “Beyond Petroleum” future, however, the terrible spills in the Gulf of Mexico highlighted the true nature of this transactional organization (Daly, Czech and Blackwelder). They also argued that the slogan of the company “Beyond Petroleum” may develop its image as a socially responsible organization however, rather than investing in clean energy programs, British Petroleum spent US $50 billion to buy back its stock. Therefore, British Petroleum has been considered as an obstacle to the sustainable development of economy and it is a company which lacks moral principles; pursue false advertising campaigns and has failed to take environmental responsibility. This example supports the idea that achieving profitability is not possible if company pursues sustainable environmental programs therefore, companies are more inclined to achieve business objectives as they have to attract investors. Do the models of steps defined to achieve sustainability and business objectives are impractical? Developing a social enterprise image has become necessary for companies to ensure their survival. Large companies are more visible in the markets therefore, they talk more about their environment sustainability programs, however, when it comes to perform actions, their business objectives become their priority. The models defined by the researchers are not wrong and their implications are also practical however, when such actions conflict with corporate objectives, companies stop pursuing such models. On the other hand, various research studies and real world examples show that a number of companies have been able to achieve the balance between sustainability and business objectives. These examples show that sustainability is compatible with business goals and objectives and the idea that while pursuing sustainability actions, achieving business objectives is not possible is actually not true. The case of Vermilion also shows huge problems faced by the organization while pursuing its sustainability program. The case concluded that even if a company like Vermilion decides to change its business strategy to “doing the right thing”, it can still face various problems because many times the long term environmental are at stake and the contingency plans of the companies do not appropriately address the ecological concerns (Stern). Procter & Gamble Co. has recently announced its environmental goals in which company has announced to use renewable energy to power its plants, to use hundred percent recyclable materials in packaging its products and producing zero consumers and manufacturing waste to landfills (Business Courier of Cincinnati). This new sustainability vision of the company is the commitment of P&G towards environment and company considers it as an important component of purpose-inspired growth strategy to improve lives of consumers. Actually P&G and various other companies actively participate in environment sustainability activities because they believe that getting an image of socially responsible organization makes it easier for the firms to exhibit how company values it customers thereby, making it easier for the company to achieve its objectives. Various researchers have worked to study the impact of environmental sustainability goals of the company on its business objectives. The research work of Becchetti, Giacomo and Pinnacchio (2008) found that environmental sustainability programs of organizations may increase higher costs of labor and intermediate output however; such programs increase the motivation, involvement and motivation level of the people at workplace to achieve the organizational goals and to positively impact the productivity. To achieve sustainable growth and profitability together, a Customer Value Model has been proposed by MarketAbility (Allen). This model has five steps which can help a company to achieve sustainability and profitability. Source: MarketAbility The diagram shows that this Customer Value Model shows that companies can ensure their profits and high value to customers by focusing entirely on the customers. Various others such models have been presented however, critiques have been always challenging these models as impractical and unfeasible. Various activists groups have figured out that there is a need to change industrial landscape and initiatives should be taken for this. For example, PETA initiated a program through which it selected various companies as its target markets and pressurized them to follow some target steps. PETA selected McDonalds to be a part of its eleven months campaign “McCruelty” and the goal of this campaign was to improve the animal treatment in McDonalds supply chain. Once PETA got successful in bringing these improvements without letting McDonalds to compromise on its objectives, it came up with a sustainable strong argument. PETA then contacted Wendys and Burger King that if McDonalds can treat animals ethically without incurring financial problems, then why excuses from these companies are coming (Unruh). Another example is of environmental quality of Volvo products. The company has been able to achieve the image of a socially responsible organization by matching the environmental strategy for developing products with the core values of Volvo groups including quality, safety and environment. Moreover, company has achieved its corporate objectives and sustainability in long term after developing quality products (Lesourd and Schilizzi). It shows that Volvo has disproved the statement that business strategy and sustainability are incompatible. Therefore, various examples show that companies can achieve sustainability mission without changing their business goals and objectives, however, for the time being short term gains have to be ignored. On the other hand, various examples also reflect that in the real world, companies could not pursue sustainability programs because such actions conflicted with their business goals and objectives. Before reaching on any conclusion, it is important to evaluate whether the assumptions behind the statement that environmental sustainability and business objectives are compatible or not. There are two major assumptions behind the defined incompatibility between sustainability and business objectives. First, the assumption one has about one’s role as a leader governs the way one behaves. The second assumption is that raison d’être for an organization and the timeframe over which such meaning is considered also add another determining factor which may impact the leader’s behavior. First assumption can be studied in the light of role theory. Role theory talks about the social behavior both at individual and collective levels and at individual level it has two observations; first, in different situations and positions a particular individual may feel or act differently; second, in similar relationships different individuals may behavior quite similarly (Turner). Thomson (2001) argues that Role Theory highlights that role expectation for suitable behavior in a particular position affects role behavior and the role behavior of individuals change as a result of role sending and role receiving (Boston College). Role theory also explains the leadership behavior of individuals. In consideration to Role Theory, individuals make role expectations about their role as leaders and these expectations and assumptions impact their behavior as leaders. For the current and future corporate leaders, achieving environmental sustainability will be a major challenge and it demands innovative approaches to promote sustainability through management of organizations and systems and carefully studying the markets (Saloner and Knight). Leadership role and behavior has actually become very important to environmental sustainability. In the new paradigm of leadership, creating human and environmental welfare is important and evolutionary leadership explores new ways to achieve social, economic and environmental sustainability (Syntony Quest). On the other hand, leaders have to ensure that procedures and directions set in the organization enable the organization to achieve the business objectives. To achieve business objectives, leaders are accountable to investors and owners whereas, to contribute in sustainability development, leaders are accountable to society and customers. Vermilion had bad reputation because of its environmental insensitive behavior however, in during the mid 1980s, company aimed to change its image because of the attitude of director of offshore production, Peter Ostenson (Stern). Although various leaders came in the history of company but it was the attitude of Ostenson which changed the business strategy of the company. The assumed role of the individuals as leaders direct affects their leadership behavior. Second assumption is that objectives of the business and the timeframe for which they have been defined also appear as the major determinants of leadership behavior. For example, businesses set very specific objectives such as to attain a specific level of net income. If leader faces huge pressure from investors to achieve that profit level, then it may become difficult for the leader to invest more in sustainability programs. If the time frame of the objectives is short term, then preference to achieve those objectives may further enhance. On the other hand, if the business objectives are long term and investors ask the leaders that they want to see the company at a certain level, then leaders may pursue more sustainable programs so that image of the company as a socially responsible organization could be built and more customers could be attracted. In addition to the contributions made in reducing the operating costs of the company, insurance premiums and capital costs, ensuring sustainable business practices also enhance the shareholders value by enhancing the brand equity, human capital, alliances, reputation and other intangibles which are around 90 percent of the total firm’s value (Fiksel, Low and Thomas). Therefore, the assumptions of leaders about their role as a leader, objectives of the business and the timeframe for which the objectives have been defined appear as the major determinants of leadership behavior. The table shows how an organization can position itself based on its business and environmental strategy. Paradyme positioning shows that atypical characteristics of the company make it a pioneer in some of the management practices which have the potential to spread as a society’s commitment to sustainability increase. Moreover, to make significant organizational changes to become sustainability-promoting strong senior management support and leader is necessary (Sutton). Table: Paradyme current business and environmental positioning The business strategy that declines the firm’s culture Environmental stance Cost leader Fast follower Quality leader Pioneer Social activist Adopter Specific environmental technologies Adaptor Originator Systems integration Catalyst Firms typical of each strategy Woolworths, Hyundai AMD, Acer Toyota, Electrolux 3M Body Shop Most of the companies are actually benefiting by investing in sustainability programs. The Chairman and CEO of General Electric argued that by solving tough and global problems, the company makes money. General Electric developed a program “Ecomagination” which aimed to design environmental innovations. Total $1.5 billion from 2004 to 2010 was budgeted to invest in Research and Development and the company expected to earn a minimum of US $20 billion by selling the environmental friendly products to customers (Draper, Hanson and Uren). The objective of General Electric was to increase its revenues and if the company had to achieve it in one year, then company could only develop a new product without considering environmental sustainability. However, as the company planned to earn $20 billion by investing in R&D to develop environmental friendly and innovative product for five years therefore, the timeframe was significantly higher and leaders could thought in the long run. Therefore, leadership behavior plays a very significant role in determining whether the statement under discussion is true or false in the context of an organization. Since leaders are playing very significant roles in achieving the business objectives and in improving the image of organizations as socially responsible enterprises therefore, researchers are also keen to learn about the leadership behavior in this regard. For example, the previous leadership theories were based on discussing the nature and leadership styles and the personality traits of the leaders however; current theories focus on various other aspects. Spiritual leadership theory is a current theory which talks about the needs of both leaders and followers and also talk about the values, attitudes and behaviors which necessary for the well-being of organizations such as financial performance and sustainability (International Institute of Spiritual Leadership). Conclusion Based on the above analysis, it can be concluded that business objective is the major reason because of which a business may come into existence. However, the increasing global competition and their impact on natural environment and consumers have made it necessary for the companies to develop the programs which could contribute to sustainable development of environment and customers. Various researchers have found sustainability and business strategy as mutually incompatible whereas, there are various others who have found a strong relationship between the two. By considering the point of views of various researchers and real world examples, this study has found that no doubt, companies have to keep a balance between business strategy and sustainability however; this balance can help the organization to achieve its objectives in a better manner. Leaders in an organization can develop such programs which may contribute to sustainability development and enable the organizations to achieve its objectives without changing its business strategy. Nevertheless, assumptions of the leader about his role, objectives of the firm and the timeframe defined to achieve those objectives are the major determinants of leadership behavior. As a result, leadership behavior plays a significant role in determining whether sustainability and business strategy of an organization are incompatible or compatible. This study concludes that relationship between business strategy and sustainability cannot be generalized without considering the behavior of leaders towards these two approaches. Recommendations The literature cited shows that various research has been done to study the relationship between environmental sustainability and business strategy. However, very less work has been done to study the reasons because of which some organizations have experienced this relationship as mutually incompatible while some claim that sustainability facilitates business strategy. Therefore, it is recommended that researchers should divert their attention to study why some organizations cannot pursue environment sustainable programs to achieve their business objectives. Instead of discussing again and again whether this relationship is compatible or incompatible, ways should be find to enhance the focus of organizations towards sustainable development. Moreover, it should be also study that how the leadership behavior and role can contribute to make this relationship more strong and positive. Bibliography Alexander, John. "Environmental Sustainability Versus Profit Maximization: Overcoming Systemic Constraints on Implementing Normatively Preferable Alternatives." Journal of Business Ethics (2007): 76(2),155-162. Allen, Phil. Sustainable Business Growth and Profitability with Customer Value Management . 26 September 2010 . Bieker, Thomas, et al. Towards A Sustainability Balanced Scorecard Linking Environmental and Social Sustainability to Business Strategy. 25 September 2010 . Boston College. Role Theory, Definition(s) of. 27 September 2010 . Business Courier of Cincinnati. P&G rolls out sustainability plan. 27 September 2010. 28 September 2010 . Chavis, Jason. What Is a Business Objective? 28 September 2010 . Daly, Herman, et al. British Petroleum Vs. a Sustainable Planet: Time to Ban BP from Doing Business in the United States. 2010. 29 September 2010 . Doyle, Peter. "Setting business objectives and measuring performance." European Management Journal (1994): 12(2), 123-132 . Draper, Stephanie, Lena Hanson and Sally Uren. Are you a leader business? 2010. 27 September 2010 . Fiksel, Joseph, Jonathan Low and Jim Thomas. Linking Sustainability to Shareholder Value. June 2004. 29 September 2010 . Geneseo. What is Environmental Sustainability? . 26 September 2010 . Hoosear, Todd Van. On Profit Maximization, Sustainability, & Social Enterprises. 28 Januray 2009. 29 September 2010 . International Institute of Spiritual Leadership. Spiritual Leadership Theory. 28 September 2010 . Lesourd, J.B and S.G.M Schilizzi. "Eco Marketing and the Environmental Quality of Goods." In the Environment Corporate Management: New Directions and Economics Insights. UK: Edward Elgar Publishing, 2001. 338-375. NIOC. Objectives of Business. 25 September 2010 . Saloner, Garth and Philip H Knight. Leadership in Environmental Sustainability. January 2010. 27 September 2010 . Stern, Alissa J. "The Case of Environmental Impasse." Harvward Business Reviewon Business and the Environment (2000): 201-228. Sutton, Philip. "Building Corporate Capabilities to Promote Ecological Sustainability: A Case Study." Dunphy, D., et al. Sustainability: The Corporate Challenge of the 21st Century. St Leonards: Allen & Unwin, 2000. 127-166. Syntony Quest. EVOLUTIONARY LEADERSHIP FOR SUSTAINABILITY. May 2010. 27 September 2010 . Turner, Ralph H. Role Theory. 2001. 27 September 2010 . Unruh, Gregory C. Can You Compete on Sustainability? 22 March 2010. 26 September 2010 . Read More