Sustainability and Competitive Advantage: A Case of Patagonia's Sustainability-Driven Innovation and Shared Value

Sustainability and Competitive Advantage: A Case of Patagonia's Sustainability-Driven Innovation and Shared Value

Francesco Rattalino (ESCP Europe, Italy)
DOI: 10.4018/978-1-4666-7476-9.ch016
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Abstract

Sustainability and Corporate Social Responsibility have been perceived for many years by companies only as an annoyance, involving regulations and extra cost. The recent economic downturn and increasing stakeholder pressure have forced businesses to embrace the complexity and interdependencies between shareholder value and sustainable value. Sustainability-driven innovation is the key to overcoming the old conflict between economic and social objectives and, as in the case of Patagonia Inc., is paying off for a growing number of companies as it generates a sustainable competitive advantage. This chapter explores ways in which corporations can pursue economic, social, and environmental objectives simultaneously while creating shared values. It also looks into the very complex issue of measuring both the business and social impacts of shared-value strategies.
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Introduction

The recent economic downturn, coupled with two of the worst ever environmental disasters and some highly questionable corporate practices, revived the long-standing debate about the role of business in society and is raising important questions about the ways in which businesses can pursue their objectives (being profitable), whilst generating positive value not only for themselves but also for the stakeholders involved in their activities – their investors, their employees, their suppliers, the communities where they operate and the natural environment (Kanter, 2011).

Modern communications systems, such as social networks – Facebook and Twitter – and on-line media offer people the opportunity to have access to more information faster than they did in the past. Companies, therefore, cannot hide their activities anymore and, for this reason, over the last 15 years an incredible number of disasters and unauthorized activities have come to public light, mostly caused by the unethical behavior of business organizations. Here are some dramatic examples:

  • Top managers of Bear Stearns and Lehman Brothers earned a shocking $1.4 billion and $1 billion in emoluments and bonuses respectively in the eight years preceding the bankruptcy of their companies (Bebchuk, Cohen, & Spamann, 2009). Were they maximizing value for their shareholders or for their own personal interests?

  • In China 14 workers making Apple products committed suicide. As a consequence, instead of increasing the quality of working conditions, Cupertino’s company obliged their subcontractors to make their employees sign a pledge to not commit suicide (Chamberlain, 2011).

  • According to a survey conducted by Trucost on behalf of the United Nations, in 2008 the world’s biggest companies polluted or caused damage to the environment amounting to $2.2 trillion (Young, 2010).

  • On April 20, 2010, an explosion destroyed the Deepwater Horizon causing the death of eleven workers and the release of 4,9 millions of barrels of oil into the Gulf of Mexico. The well was eventually capped on July 15. The total damages to BP, the environment and the U.S. Gulf Coast economy are estimated to be $36.9 billion (Smith et al., 2011).

  • On March 2011 a huge earthquake and tsunami struck the Fukushima Daiichi nuclear power station. The nuclear bars in the reactors’ cores overheated causing the explosion in the reactors. “Radioactive material released into the atmosphere produced extremely high radiation dose rates near the plant and left large areas of land uninhabitable, especially to the northwest of the plant. Contaminated water from the plant was discharged into the sea, creating international controversy” (Holt, Campbell & Nikitin, 2012).

All of this has been creating a growing mood of protest among ordinary citizens. Many non-governmental organizations (NGO) are actively lobbying governments to increase the level of environmental accountability for business organizations and national and local governments are also trying to carry out a difficult mediation between business organizations and communities. The promoters of these protest movements, among them the famous “We are the 99%”, maintain that the world of business and finance are only interested in short-term profits, while completely neglecting problems regarding the environment and sustainability.

Key Terms in this Chapter

Stakeholder: A party that has an interest in an enterprise or project. The primary stakeholders in a corporation are its customers, suppliers, employees and shareholders. Modern theory goes beyond this conventional notion to embrace additional stakeholders such as the community, government and trade associations.

Competitive advantage: An advantage that a firm has over its competitors, allowing it to generate greater-than-expected value from the resources it employs. Thus, competitive advantage means having low costs, differentiation advantage, or a successful focus strategy.

Corporate Social Responsibility: A company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates.

Shareholder Value: The value delivered to shareholders because of management's ability to grow earnings, dividends and share price. In other words, shareholder value is the sum of all strategic decisions that affect the firm's ability to efficiently increase the amount of free cash flow over time.

Creating Shared Value: Set of policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

Sustainability: Continued development or growth that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Stakeholder Value: The value delivered to all the company’s stakeholders (customers, suppliers, employees, shareholders, and the community). It is central to the Stakeholder Value Perspective in which the social responsibility is an organizational matter and, as a matter of fact, society is best served by organizations pursuing joint interests and economic symbiosis.

Sustainability-Driven Innovation: The creation of new market space, products and services or processes driven by social, environmental or sustainability issues.

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