Relationship between the Environment and the Performance of Businesses

Published: 2021-06-23 21:52:44
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Harvey Mudd College
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Rapid technological growth has provided firms with new tools of exploiting available resources to deliver high-value goods and services to their customers. For instance, technological advancement has rendered many computers obsolete as high-tech companies strive to outpace each other in the production of more customer-centered products. The massive generation of electronic waste has led to environmental degradation, endangering the lives of millions of people around the world. This has resulted in a dramatic increase in the level of awareness in the corporate community for the need to pay more attention to the effects of business activities on the environment and communities. This awareness includes the realization among business leaders that the environment in which a business operates plays a significant role in sustaining business activities. This paper will conduct a critical examination of the relationship between the environment and the economic performance of businesses.

Rationale for the Environment-Business Relationship

The environment within which a business operates has a special relationship with that particular business. This relationship may enable the business to thrive or flop depending on the responses shown by the owners towards the environment. Although the concept of responsibility of businesses towards the environment received widespread acceptance among firms a few decades ago, management scholarship before this period had suggested that business organizations had no choice other than responding to the new needs of the environment. In context, Hawken et al., (1991) suggested that business organizations must recognize that the environment in which they operate offers life support services which cannot be substituted nor measured in quantitative terms. For this reason, Hawken et al. contended that it was imperative for businesses to respond to environmental needs to sustain their operations in the long-term.

An overwhelming majority of the efforts made by business organizations are directed to the conservation of the physical environment. Such exclusive attention is based on the influence the physical environment has on the long-term survival of businesses. For instance, the physical environment provides natural resources and human capital which are the most important components of the engine on which businesses run. Customers of various business organizations also depend on the physical environment for the sustainability of their lives (Hawken et al., 1991).As such, any failure to acknowledge the value of the physical environment may spell doom for any organization. However, some scholars have claimed that the motivation for the conservation of the physical environment for most businesses is to comply with the legal environment rather an expression of concern for the well-being of the future generations (Aragon-Correa and Rubio-Lopez, 2007).

Why Businesses Engage in the Conservation of the Ecosystem

Ecological responsiveness witnessed in the business community stems from the realization that the physical environment is critical to their existence. According to Basal and Roth (2000), environmental responsiveness is a set of organizational initiatives that seek to mitigate the impact of business activities on the natural environment. Firms adopt initiatives such as a revision of products, processes, and policies so as to minimize the amount of energy needed in the production processes as well as reduce waste generation. Motivations for ecological responsiveness originate from internal and external environments (Morrow & Rondinelli, 2002).

The obligation to comply with government regulations, pressure from stakeholders, competitive advantage, critical events, and ethical motives have been identified as the factors that motivate firms to engage in ecological conservation (Bansal & Roth, 2000; Morrow & Rondinelli, 2002; Gonzalez-Benito & Gonzalez-Benito, 2006).Regulations are a set of commands imposed by the state to ensure that firms engage in responsible business practices. These restrictions establish standards businesses observe to reduce the impact of their activities on the natural environment (Lynch-Wood & Williamson, 2013).Regulations come in the form of penalties, fines, and legal costs. These potential liabilities motivate companies to comply with the law. Regulations also enable companies to engage in proactive activities as a strategy of staying ahead of government monitoring and associated liabilities (Bansal & Roth, 2000).These actions are critical to performance in the sense that regulation-related costs eventually reduce profit margins as well as hurt the reputation of the organization.

A group of factors that have had a considerable impact on enhancing sensitivity to ecological conservation is the stakeholders. The group is comprised of customers, local communities, environmental lobby groups, and even the physical environment itself (Bansal & Roth, 2000).Today, for instance, customers are more aware of the environmental impact of business products and are demanding more from the concerned corporate institutions to take more responsibility in reducing the degradation of the natural environment(Paulraj, 2009).Besides, environmental degradation has made many organizations to take it as their individual responsibilities to cut down emissions that pollute the environment. These initiatives are anchored on the premise that a polluted environment would eventually affect the buying behaviours of consumers, a result that is likely to have an adverse impact on the market performance of businesses (Lynch-Wood & Williamson, 2013).

Due to the ever-changing nature of customer needs, organizations have invested heavily in innovation so as to design efficient and environmentally-friendly products. Firms tend to mimic the ecological responsiveness of successful competitors in order to acquire reputation before the eyes of the customers and other stakeholders. Such firms expect that a good reputation would enhance their competitive advantage. In this regard, competitive advantage continues to motivate organizations to exploit existing technologies for them to utilize resources efficiently and design environmentally-friendly products while minimizing their waste disposal. A good reputation is expected to improve the profitability of these firms in the long term (Paulraj, 2009). However, this motivation has been considered as less ineffective since its primary focus is to maximize the profitability of the firm through the saving of resources and not a genuine concern for the natural environment. As Aragon-Correa and Rubio-Lopez (2007) found, many managers and stakeholders have realized that such proactive ecological responses create further environmental problems while other measures yield minimal tangible results in regards to offering long term solutions to environmental issues.

Some scholars attribute the low impact of pursuing reputation and competitive advantage as a response to ecological issues to the lack of internal motivation in responding to environmental issues. Studies conducted by Morrow and Rondinelli (2002) revealed that, in cases where external factors are the major motivations, firms simply adopt certain practices to meet external regulations. As more firms acknowledged the need for ecological responsiveness, governments and associations formed standards that guide environmental protection practices. In effect, many multinational corporations have certified these standards, but little achievement has been realized beyond the minimum expectations (Aragon-Correa and Rubio-Lopez, 2007). This problem is evident especially in nations where enforcement of environmental protection laws is not stringent.

Strict observance to business ethics has been described as the ideal motivation that yields tangible results in regards to the protection of the natural environment against pollution. Firms that show ecological responsiveness based on this motivation do it because they believe it is the right thing do in order to conserve the environment (Paulraj, 2009).The influence of top leaderships of these firms and their values play a vital role in encouraging them to assess ecological issues from the perspective of a just society (Bansal & Roth, 2000).In other words, these are moral actions and, thus, do not reflect what businesses intend to gain from conserving the environment. Rather, it is a show of genuine concern for the negative impact of business activities on human beings and other living things. However, even these moral initiatives have profit objectives but organizational values often override the pursuit of short-term profits (Paulraj, 2009), a business strategy which has been linked to environmental pollution.

Variability of the Relationship between Businesses and the Environment

Strategic decisions of most firms are based on the environment in which they operate. These decisions outline various mechanisms through which the business is to achieve its goals and objectives (Griffiths & Benn, 2014).For some businesses, responses to environmental issues are part and parcel of their strategic plans whereas other firms show little regard to including ecological initiatives in their strategic plans. For such organizations, environmental conservation and the regulations that seek to protect the ecosystem are interpreted as a distraction to business activities (Griffiths & Benn, 2014; Gonzalez-Benito & Gonzalez-Benito, 2006; Morrow and Rondinelli, 2002). This variability has received a lot of attention from management scholars. There is consensus among scholars that the level of stakeholders pressure, company size, resource differences, internal capabilities, regulation, geographical area of operation, strategic attitudes of top leadership, and organizational structure play a critical role in determining the level of organizations ecological responsiveness (Gonzalez-Benito & Gonzalez-Benito, 2006; Lynch-Wood & Williamson, 2013; Perez-Valls et al.,2017).

Size and resource availability influences the ability of firms to mobilize adequate resources for management of the environment. Large institutions are more likely to operate in a wider geographical area hence the higher possibility of facing pressure from stakeholders to adopt environmentally-friendly business practices. Moreover, large organizations have the capabilities to invest in superior technologies which are crucial for the implementation of eco-friendly practices (Benito & Gonzalez-Benito, 2006).On the other hand, small-sized businesses rarely delegate duties since in most cases directors act as managers and pursue profit objectives in most of their strategic decisions. Additionally, small firms devote little time to conserve the environment as most of them claim that they make little contribution to environmental pollution (Wood & Williamson, 2013).

Operation in wider geographical area also motivates companies to invest in innovation to deliver high-value goods and services to diverse groups of people. Regulations, especially of multinationals, also vary across regions. These variations require different responses (Paulraj, 2009). For firms to circumvent successfully these varying legal environments, they factor ecological responsiveness to their strategic plans. For instance, SC Johnson operates in more than 60 countries, and this geographical distribution has made the company more responsive to ecological needs. Initially, the company had low response to environmental issues, but increased consumer awareness and the pressure to comply with different regulatory environments motivated the firm to embrace innovation. Notably, the firm...

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