Inhoud
,ARTICLE 1: BUSINESS SUSTAINABILITY: IT IS ABOUT TIME (Bansal et al.)
Unilever’s CEO believes that short-termism “lies at the heart of many of today’s problems”. It is the
downfall of sustainability. The CEO wanted to make investments that do not necessarily deliver
short-term returns, but realize long-term benefits. Sustainability is not as acts of kindness, but as
creating long-term business value.
This article argues that time is central to sustainability, which differentiates it from other similar
concepts, such as corporate social responsibility (CSR), corporate citizenship, and the triple bottom
line. Sustainable businesses are those that manage intertemporal trade-offs in strategic decision
making, so that both the short and long term are considered. Time should be at the center of
organizational theorizing, in order to enhance both organizational and societal outcomes over the
long term.
Business sustainability = the ability of firms to respond to their short-term financial needs without
compromising their (or others’) ability to meet their future needs.
Trade offs
1. Firms must choose between investing less for smaller profits sooner and investing more for greater
profits later.
2. Firms profit from exploitation by marketing and selling current products and services, but must
also invest in exploration activities, such as research and development, to secure future products.
Risks at the levels
Firms are systems nested within larger macro-systems. Firms that do not manage intertemporal
trade-offs well are exposed to risks at the micro- and macrolevels of analysis.
- Micro-level
Firms confront direct risks by failing to manage their income flow.
Example: if firms underinvest in research and development, they could erode their longterm value.
- Macro-level
Firms are exposed to indirect risks if the system collapses because firms collectively fail to balance
the short and long term.
Hence, firms that manage both the short and long term mitigate risks within a single level of analysis
and across levels of analyses.
Sustainability is not responsibility
CSR = the set of organizational activities that are good for society and the firm.
But this misses the necessary trade-offs. Responsibility is nothing more than good business. Concepts
like shared value and win-wins suggest that firms can create value for both business and society
simultaneously.
1. Different paradigms
?
,2. Different outcomes
The concern for intertemporal equity can lead to different outcomes for sustainable vs. responsible.
CSR aims to create shared value by addressing competing stakeholder interests.
- However, the focus on current stakeholder interests can obscure intertemporal trade-offs.
- And CSR encourages firms to reconcile economic and societal goals, but the pursuit of social
legitimacy can sometimes result in perfunctory (plichtmatige) measures.
- And even worse, the pursuit of shared value can stimulate rapid, unsustainable growth, as firms
seek ever-accelerating returns to generate wealth for the firm and society.
Example: mining companies create shared value when they build local hospitals. But, these
responsible actions may not necessarily be sustainable if the surrounding environment is degraded
and traditional lifestyles are disrupted, even if the local community participates in the initial decision
making.
3. Different practices
Acts of CSR, but do not necessarily sustain the viability of micro- and macro-systems in the long run.
Example:
- Charitable donations that relieve social problems are responsible, but they are not sustainable if
they do not resolve the underlying issue.
- Mining companies that construct schools and hospitals but do not provide ongoing funds to
maintain the buildings which may lead to local economic stress.
The threat to sustainability and strategy: short-termism
Temporal imbalances are among sustainability’s greatest threats. This is for example short-termism
= decisions and outcomes that pursue a course of action that is best for the short term but
suboptimal over the long run. This can be seen in managers that are discounting the future more
today, bias for immediate gratification and temporal discounting,
Urgency and uncertainty sharpen this bias, because people want more rewards now and future
rewards are blurred.
Short-termism can lead to suboptimal outcomes for both the firm and society for several reasons:
1. Investments driven by short-term payoffs tend to be incremental, rather than transformational.
These firms are unlikely to make the necessary strategic investments in disruptive technologies that
will help them leapfrog their competitors.
2. Firms that rely too heavily on short-term investments experience more volatile earnings.
A win is often followed by a loss. This perpetual cycle of wins and losses encourages even greater risk
taking to compensate for earlier losses, contributing to a speed trap and even shorter term decisions.
, Strategic management theories
The tendency of most strategic management theories to focus on a single level of analysis obscures
system dynamics over time, which is particularly salient in understanding the sustainability of the
firm and the system, and which will ultimately offer insights into the success of organizational
strategies.
- Competition theories are at macro-perspective = exploring how strategy affects the action and
reaction of competitors.
- The resource-based view = focuses on the firm level of analysis, exploring the resources and
capabilities that offer the firm a competitive advantage.
- Corporate governance = dives deeper still into the organization, exploring the relationship between
principals and agents that can help the firm achieve its desired outcomes.
,ARTICLE 1: BUSINESS SUSTAINABILITY: IT IS ABOUT TIME (Bansal et al.)
Unilever’s CEO believes that short-termism “lies at the heart of many of today’s problems”. It is the
downfall of sustainability. The CEO wanted to make investments that do not necessarily deliver
short-term returns, but realize long-term benefits. Sustainability is not as acts of kindness, but as
creating long-term business value.
This article argues that time is central to sustainability, which differentiates it from other similar
concepts, such as corporate social responsibility (CSR), corporate citizenship, and the triple bottom
line. Sustainable businesses are those that manage intertemporal trade-offs in strategic decision
making, so that both the short and long term are considered. Time should be at the center of
organizational theorizing, in order to enhance both organizational and societal outcomes over the
long term.
Business sustainability = the ability of firms to respond to their short-term financial needs without
compromising their (or others’) ability to meet their future needs.
Trade offs
1. Firms must choose between investing less for smaller profits sooner and investing more for greater
profits later.
2. Firms profit from exploitation by marketing and selling current products and services, but must
also invest in exploration activities, such as research and development, to secure future products.
Risks at the levels
Firms are systems nested within larger macro-systems. Firms that do not manage intertemporal
trade-offs well are exposed to risks at the micro- and macrolevels of analysis.
- Micro-level
Firms confront direct risks by failing to manage their income flow.
Example: if firms underinvest in research and development, they could erode their longterm value.
- Macro-level
Firms are exposed to indirect risks if the system collapses because firms collectively fail to balance
the short and long term.
Hence, firms that manage both the short and long term mitigate risks within a single level of analysis
and across levels of analyses.
Sustainability is not responsibility
CSR = the set of organizational activities that are good for society and the firm.
But this misses the necessary trade-offs. Responsibility is nothing more than good business. Concepts
like shared value and win-wins suggest that firms can create value for both business and society
simultaneously.
1. Different paradigms
?
,2. Different outcomes
The concern for intertemporal equity can lead to different outcomes for sustainable vs. responsible.
CSR aims to create shared value by addressing competing stakeholder interests.
- However, the focus on current stakeholder interests can obscure intertemporal trade-offs.
- And CSR encourages firms to reconcile economic and societal goals, but the pursuit of social
legitimacy can sometimes result in perfunctory (plichtmatige) measures.
- And even worse, the pursuit of shared value can stimulate rapid, unsustainable growth, as firms
seek ever-accelerating returns to generate wealth for the firm and society.
Example: mining companies create shared value when they build local hospitals. But, these
responsible actions may not necessarily be sustainable if the surrounding environment is degraded
and traditional lifestyles are disrupted, even if the local community participates in the initial decision
making.
3. Different practices
Acts of CSR, but do not necessarily sustain the viability of micro- and macro-systems in the long run.
Example:
- Charitable donations that relieve social problems are responsible, but they are not sustainable if
they do not resolve the underlying issue.
- Mining companies that construct schools and hospitals but do not provide ongoing funds to
maintain the buildings which may lead to local economic stress.
The threat to sustainability and strategy: short-termism
Temporal imbalances are among sustainability’s greatest threats. This is for example short-termism
= decisions and outcomes that pursue a course of action that is best for the short term but
suboptimal over the long run. This can be seen in managers that are discounting the future more
today, bias for immediate gratification and temporal discounting,
Urgency and uncertainty sharpen this bias, because people want more rewards now and future
rewards are blurred.
Short-termism can lead to suboptimal outcomes for both the firm and society for several reasons:
1. Investments driven by short-term payoffs tend to be incremental, rather than transformational.
These firms are unlikely to make the necessary strategic investments in disruptive technologies that
will help them leapfrog their competitors.
2. Firms that rely too heavily on short-term investments experience more volatile earnings.
A win is often followed by a loss. This perpetual cycle of wins and losses encourages even greater risk
taking to compensate for earlier losses, contributing to a speed trap and even shorter term decisions.
, Strategic management theories
The tendency of most strategic management theories to focus on a single level of analysis obscures
system dynamics over time, which is particularly salient in understanding the sustainability of the
firm and the system, and which will ultimately offer insights into the success of organizational
strategies.
- Competition theories are at macro-perspective = exploring how strategy affects the action and
reaction of competitors.
- The resource-based view = focuses on the firm level of analysis, exploring the resources and
capabilities that offer the firm a competitive advantage.
- Corporate governance = dives deeper still into the organization, exploring the relationship between
principals and agents that can help the firm achieve its desired outcomes.
