Sustainable Business Management

Von UVK Verlag

With the book the authors want to make a contribution towards discovering and developing the subject of sustainable business management. To do so, they initially put sustainable business management in its scientific context and then illuminate the areas of direct relevance for management. This includes the positioning within strategic management, the demands of sustainability on personnel management, innovation management, international management as well as operative environmental management.

With a focus on corporate leadership, sustainability is discussed in the context of financial management and controlling, including the already existing instruments for implementing sustainability used by practitioners as well as legal requirements. Next, the reader learns how the value chain and marketing activities can be structured in a sustainable fashion. Finally an outlook on the possible future development of sustainable management is provided.

• Sprache: Deutsch
• Herausgeber: UVK Verlag
• Erscheinungsdatum: 22. Apr. 2015
• ISBN: 9783864968198

Buchvorschau

1 Sustainable Development – an Introduction

by Ulrich Sailer

Learning Objectives

The readers

are familiar with the term sustainable development and its origins,

know how the term sustainable development evolved from the Brundtland Report to the Three-Pillar-Model,

recognize the inherent tensions between traditional models of business management and sustainable business.

List of Key Terms

Compliance

Should we even bother with the term sustainability these days? It is used in an inflationary fashion and for many different purposes. It is mocked as a buzzword and often abused rather than used. We frequently do not know what an author means concretely when he uses the term. One author may use sustainability simply as a synonym for something that has a long-term or lasting effect. Another one may imply the full weight of the → Brundtland Report, the → Three-Pillar-Model and the recommendations of the study commissions from various parliaments. And a third author talks about sustainability because today products and services are absolutely expected to have that feature. Who would want to buy anything else?

Especially this frequent and undifferentiated use, the misuse of the term and also the abusive → greenwashing result in the fact a number of observers think of sustainability as a worn out and trendy term which should consciously be avoided. Those who continue to work on business sustainability issues in academia are frequently forced to justify, in a slightly apologetic manner, why they still use the term. And this is exactly what the authors of Sustainable Business Management discussed. Now that business management has been turned sustainable, many a cynic might consider such a volume to be unavoidable. As we can already choose sustainable vacation travel, biological and sustainable wine and sustainable electrical power, it is inevitable that somebody also wants to sell the idea of sustainable business management. But isn’t good business management already sustainable? Hasn’t the goal of our management science always been to develop healthy companies which can grow sustainably? In that case, there is no reason for the discipline of business management to listen to the lectures of the supporters of sustainability who stress its narrow-mindedness. Not far away is an ideological debate about social romantics and do-gooders, who want to seize the opportunity offered by the spirit of the times to take revenge on business management. Given these challenges, it is unsurprising that a number of people try to distance themselves from the term of sustainability. There is a real danger that the message is misunderstood or that the author is associated with the wrong crowd.

It is clear that the term sustainability cannot be used lightly. But we feel it is our responsibility to seize the opportunities for advancing the field of business management which arise from a critical discussion of sustainability. Sustainable business management is neither a complete concept nor an ideology. And it is absolutely not the case that traditional business management is abandoned completely or discredited as hopelessly one-sided and incomplete. Instead we are looking at an evolutionary development, which confirms many insights from classical business management, makes numerous additions and also refutes several ideas.

How can we define sustainable so that it is useful and enriching for business management? If we google the term, we get more than 100 million hits in less than half a second. But where does the term originate? Sustain has its roots in the Latin word sustinere, which can be translated as maintain, carry, preserve or keep. Sustainability thus implies stable structures which at the same time provide sufficient reserves for the future.¹ The origin of sustainability is regularly traced back to forestry, where the limits of short-term overexploitation were already decried centuries ago. Due to lengthy regeneration times and the slow growth of forests, the necessity for a caring treatment of the natural resource wood is obvious if the supply is to be assured over the long term. Only that amount of wood can be harvested which is replaced in type and quantity. Today sustainable development still reflects the self-image in forestry.

Discussions about sustainability frequently make reference to the so-called → Brundtland Report from the year 1987. Gro Harlem Brundtland, born in 1939, is a Norwegian politician and member of the Social Democratic Party. She was minister of the environment in the seventies and later until 1996 repeatedly prime minister of Norway. She narrowly escaped the terrorist attack on the Norwegian island Utoya, since she only left the island shortly before. Beginning in 1983, Brundtland headed the World Commission on Environment and Development which was assembled by the United Nations. The final report of the commission is entitled Our Common Future and is frequently called → Brundtland Report. The report is credited with mapping out the principles of sustainable development and coining the term sustainability. It is stated: Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs.² Sustainable development thus expresses awareness for the responsibility for future generations and the environment. Restraint is exercised and options are foregone in order to enable future generations to have their own options.

A few years later, in June 1992, the first United Nations Conference on Environment and Development took place in Rio de Janeiro. Approximately 10,000 participants from 178 countries compiled lines of action for a sustainable global development. Sustainable development was designated as a guiding political principle. This was based on the insight that global environmental protection is possible only if social and economic aspects are also taken into consideration. This developed into the → Three-Pillar-Model of Sustainability, which consists of an economic, an ecological and a social pillar. If one of the aspects is ignored, sustainability collapses. Unsurprisingly, this initiated a discussion about the most important pillar and the appropriate handling of conflicts among the aims. Should environmental pollution be tolerated if it creates employment? Or should democratic processes be avoided, since a majority is possibly opposed to a project which protects the environment?

Figure 1-1: Three-Pillar-Model of Sustainability

Example: Beiersdorf AG

We manage our business sustainably and are committed to our ecological and social responsibility. Our actions are determined not only by our company’s economic success, but also by our active approach to environmental protection and occupational safety, and by our commitment to society. Our actions are based on a culture of trust, fairness and equality of opportunity.³

The following Table lists for each of the three pillars the societal dimension alongside the practical implementation at the company level.

Table 1-1: Societal and business dimensions of sustainability

Especially the field of business management frequently stresses the importance of reaching clear decisions on the basis of unambiguous relationships among variables. Introductory business courses already teach the importance of studying linkages between variables, clarifying conflicts among competing aims and defining a clear hierarchy of targets. Admittedly, this is grounded in a rather mechanical model of a company. On the basis of clearly defined target systems, exactly defined binding constraints and complete information, it is possible to develop solutions that are theoretically clean, but usually have little in common with business reality. In our daily lives, however, we are quite capable of dealing with imprecision, missing information and contradictions. And numerous companies manage to strike an appropriate balance between economic, ecological and social considerations in the face of possible contradictions. Instead of weighing the targets against each other, a commensurate and lasting balance of targets is important. The transfer of the → three-pillar-model to the business world makes it clear that defining the success of a company by maximizing a single key performance indicator it is no longer possible.

This leads us to an important insight for sustainable business management. Ecological and social targets are not merely additional guidelines for the company, further guard rails, which reduce the scope of management even further. Thus it is not just business as usual with less freedom. We should not discuss sustainable business management in such a traditional mode of thinking. Instead we are abandoning strictly linear thinking and company management as managing a machine. Not individual targets are maximized, but instead a balance of targets is sought. Contradictions, incomplete or even incorrect information are a part of daily operations. Not either – or, but instead as well as shapes our understanding of reality.⁴

Example: Siemens AG

Although decisions in these areas are not always free of conflicting interests, we aim to make them transparent and to find the best solutions possible. The responsible use of natural resources, targeted investments in viable technologies that promise profitable growth and offer our customers a competitive edge, and corporate ethics that extend beyond compliance with the law and focus on integrity. These are the factors that enable us to drive sustainable development and to lay the foundations for a successful future of our company.⁵

Challenging the simplifying, classical world of business modeling also means abandoning familiar structures that work well in the models and taking completely new perspectives that will likely yield new insights. In complex systems, we need to move away from the erroneous belief that given adequate information, everything can be controlled.⁶

By now we have familiarized ourselves with two aspects of sustainable development. Sustainability in an ethical sense comprises the three-pillar-model and generational equity, while sustainability in a functional sense deals with the limits to control of complex social systems. Both aspects of sustainability are interrelated and hence must both be included in sustainable business management. In applied work as well as in the literature, sustainability in an ethical sense tends to dominate.

Business sustainability is already well established in many companies. Sustainability targets are defined, measures derived and results presented in sustainability reports. Established terms include → corporate social responsibility (voluntary support for social sustainability), → compliance (adherence to legal and societal as well as self-imposed ethical standards) or → corporate citizenship (local social engagement). Meanwhile, all larger companies are forced to actively position themselves with regard to sustainability. This commitment can be traced to the true support of decision makers or the pressure from customers, employees, business partners, investors, the public, the internet community or regional and supra-regional politicians. And finally it is also the case that invitations to tender or strategic partnerships frequently require certifications to evidence the fulfillment of social or ethical demands (for example ISO 14001, EFQM, SA8000). Thus sustainability has arrived at the company level. It is therefore imperative that the science of business management also actively deals with the many aspects of business sustainability.

At a glance

The term sustainable development may indeed have numerous meanings, but we define it against the backdrop of the Brundtland Report and the Three-Pillar-Model. For business management, sustainability is more than just another binding constraint; it leads to a redefinition of the target system. This means that economic, ecological and social aspects need to be integrated into business management and a balance of targets must be achieved. The frequently dominating mechanical model of the company needs to be extended. Companies are social systems, multi-faceted and dynamic. Sustainable business management must find ways of dealing with such complexity.

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¹ Grober, U. (2010), pp. 19–20

² The Brundtland Report can be found at www.un-documents.net/ocf-02.htm

³ Homepage of Beiersdorf: http://www.sustainability.beiersdorf.com/Our-Way/Guidelines/Sustainability-Guidelines.aspx?l=1, translated

⁴ Sailer, U. (2012), pp. 90–98

⁵ Siemens AG, in: http://www.siemens.com/sustainability/de/nachhaltigkeits-verständnis/grundsaetze.htm, translated

⁶ Sailer, U. (2012), p. 110

2 Sustainable Business Management

by Dietmar Ernst

Learning Objectives

The readers

are able to list the various scientific programs in business management and can name important representatives of these fields,

are able to express the most important basic tenets of the different scientific programs in business management,

are able to compare the individual scientific programs in business management,

are able to explain the contributions of the individual scientific programs in business management with regard to business sustainability and support them with examples,

are able to express the main ideas of sustainable business management and explain its contribution to the development of research in business management,

are familiar with the principles of sustainable business management, are able to critically discuss them and provide supporting examples.

List of Key Terms

Environmental approach

2.1Introduction

On the following pages we want to introduce sustainable business management as a new scientific program in business studies. Business sustainability is a term that is used at every level of human activity. Does the introduction of sustainable business management merely react to the spirit of the times? Should it be considered as an opportunistic attempt to force business management into a straightjacket which may be applauded by practitioners, but does not contribute to any substantial development of the discipline? Or is sustainable business management an innovative approach based on earlier scientific programs in business management and likely to yield value added concerning the improvement of decisions in business management.⁷

The second aspect will dominate the following elaborations. It will be shown that the scientific programs in Germany have made an important contribution to the development of sustainable business management. To that aim, the most important insights will be summarized briefly. In the next step, it will be discussed how both research and applied work in business management have increasingly been dominated by capital market considerations. This has changed the discipline. In the following, the scientific program of sustainable business management will be presented, which can be seen as a counterpoint to the shareholder value approach. First tendencies towards sustainable business management are already present in the literature.⁸

Figure 2-1: Scientific programs in business management

Before we begin with the analyses of the scientific programs in business management, it should be pointed out briefly that the definition of business sustainability in the context of a Three-Pillar-Model as presented in the introductory chapter should definitely be checked for completeness. A look at business management research reveals that the concepts used are not only influenced by social and environmental aspects, but are also strongly driven by technological factors and the legal sciences. Technology and legislation act as both framework conditions and additional driving forces for sustainable economic management. The five pillars of business sustainability (economy, social sphere, environment, technology and legislation) are reflected in various scientific programs in business management and constitute important components of sustainable business management. Figure 2-1 clarifies these linkages.

2.2 Scientific Programs in Business Management and their Links to Business Sustainability

2.2.1 Gutenberg’s Factor Theory

→ Gutenberg’s factor theory is considered to be the first closed system in the field of business management. According to Gutenberg’s factor theory, the field of business management has the task to detect the inner logic of things and to intellectually penetrate the circumstances of a company … The scientific path does not depend on the practical relevance of the subject matter.⁹ With his three volumes Production, Distribution and Finance he implemented the integrative idea of business management as the science of linkages in production. At its core is the functional production relationship between factor input and factor return. Profit maximization is the chief target criterion and takes center stage.

Insight

The instruments used by Gutenberg are closely related to economics, more precisely to neoclassical microeconomics. Complete rationality is assumed as represented by homo oeconomicus, an ideal-typical economic subject.

These premises, which up to this date are found in most financial models, have the advantage that the complex world can be reduced to a closed system of mathematical equations, which allows the derivation of unambiguous decisions and action plans. The contribution of Gutenberg is the introduction of formal and mathematical methods to business management and the development of the discipline towards a normative approach. At the same time, this entails the danger that business management is closed off from other disciplines. Especially the lack of practical relevance of its model premises (profits as the sole target criterion, rational decision making, harmony of the profit goal with social welfare maximization) are considered to be the major points of criticism, which were taken up by the scientific programs discussed in the following.

Contribution of the factor theory to sustainable business management

What can sustainable business management learn from the factor theory? Initially, it must be accepted that almost all financial models which are helping to shape the development of business management are based on the neoclassical paradigm. This includes among others the → shareholder value approach, the portfolio theory, the theory of company valuation, the capital market theory or the option price theory. Despite continued criticism, research in business management has so far not been able to replace the financial models which were developed primarily in the sixties and seventies with more realistic and at the same time normative models. It must also be stated that these models are very well suited for solving specific questions. But a mistake which was made in the past years and which must be avoided is the assumption that the complex reality can be governed with these models. In this regard, the growing importance of the financial markets has also led to an increasing focus on financial issues in business practice. In fact, business management is dominated by financial management. This certainly offers perspectives for sustainable business management.

2.2.2 Heinen’s Decision-oriented Business Management

In contrast to the approach chosen by Gutenberg, the → decision-oriented approach of Heinen gives greater importance to the practical tasks of business management. It is the scientific starting point for business management. The fundamental importance of the decisions concerning the objectives becomes evident in the structure of the theory of the corporation, which makes up the core of the quest for knowledge in business. At the beginning of every effort to develop such a theory is the search for the target function of the firm. Depending on the choice of the target function, the theory of the firm will have a different structure.¹⁰

The decision-oriented approach introduced two innovations to business management:

The realistic incorporation of concrete decision situations,

The opening towards questions from the social sciences.

Decision-oriented business management sends ... the from classical microeconomics into fairyland. Its analysis of decision making is based on basic models of humankind, organization and society.¹¹ It moves away from the idea of the firm as humans and organizations.¹²

Heinen considers his approach to be a synthesis of the ethical-normative program of Heinrich Nicklisch on the one hand (the firm cannot be considered only with regard to the productiveness of the factor input, but must be viewed as a sub-unit of societal order) and the program of production relationships of Gutenberg on the other hand. The orientation towards decisions should be seen as the unification of both approaches.¹³

The decisions of individuals who face economic choices are at the heart of → decision-oriented business management. Heinen merges approaches to logical decision making of prescriptive decision theory (which rests on the neoclassical paradigm) with questions concerning the decision making process in reality. These are at the center of descriptive decision theory, which is closer to the social sciences.

Further gains in knowledge of the decision-oriented approach relate to the incorporation of the time factor, since decisions that span several periods or sequences of decisions over time are made predictable. Furthermore, Heinen succeeded in quantifying risk and uncertainty and incorporating it into decision theory. Better than any other approach, decision-oriented business management allows the conceptual integration of tasks related to decisions and design.

Contribution of the decision-oriented approach to sustainable business management

From the current perspective, the decision-oriented approach of Heinen constitutes an important step in the direction of sustainable business management. It opens up the field of business administration towards a unified treatment of management and personnel issues. The relevance of employees for companies in particular is a central component. Due to increased demands on job profiles of employees and the demographic change in Germany, personnel issues will be of increasing relevance in business management. Furthermore, the decisionoriented approach of Heinen takes on the creative challenge without reducing the complex environment to purely functional premises.

2.2.3 The → Systems-oriented Approach

While Gutenberg introduced the development of descriptive and explanatory models into business management, Heinen extended this system by including decision models. The systems-oriented approach goes one step further and sets itself the task of devising models for shaping future developments. As the systems-oriented approach belongs to the field of cybernetic science, it is not interested in what is, but rather what will be, not in the existence, but rather in the functioning of systems.¹⁴

Insight

Cybernetics is the science of structuring, directing and regulating complex systems via information and communication.

Ulrich writes on this issue: The essence of the cybernetic systems is their ability as open systems to compensate for interruptions in the context of control and regulation processes, so that the system will independently return into the range of permissible deviations.¹⁵

Systems-oriented business management considers itself to be a design theory related to engineering. The difference is that it deals with social and not with technical systems. The approach is purposefully interdisciplinary and is designed to assure the inclusion of insights from neighboring disciplines (for example behavioral sciences). This gives up the mathematical consistency and formality of Gutenberg’s theory in favor of practical relevance and a stronger focus on dynamic aspects.

The notion of the actual operating process as a black box for management purposes is expressed by Ulrich as follows:

We do not even try to capture in detail all the activity inside the system and to determine a corresponding causal relationship. We are content with those features that we can observe from the outside: inputs and outputs. We consider the system itself as something inaccessible, as a black box.¹⁶

Is it even possible on this basis to reach the aim of shaping developments, which was given such prominence by Ulrich? If the system company is considered to be inaccessible, the difficulty of providing direction in business management becomes clear. The systems-oriented approach is honest in accepting that questions in business management are not easily solved with the help of mathematical formulas, but are instead characterized by complexity.

The systems-oriented cybernetic approach entered management education as the so-called St. Gallen-School. The task of management is to position a company in such a way that the system can evolve evolutionary and develop superior solutions.¹⁷ This requires the self-organization of the company which is preferred over a rational structure established to reduce complexity.

Insight

Crucial elements of the systems-oriented and cybernetic approach are decentralization, lack of detailed regulation as well as the establishment of a company culture which fosters an evolutionary development of the organization.

Contribution of the systems-oriented approach to sustainable business management

The → systems-oriented approach exhibits numerous features that are relevant for the design of sustainable business management. This includes the opening up of business management towards neighboring sciences and the understanding that business management is an interdisciplinary subject as well as the insight that a company is part of an interrelated system. This insight is explicitly taken up in business sustainability, where the interrelations of economic actions are studied in an economic, ecological and social context. A further central element is the extension of the approaches of Gutenberg and Heinen to include the task of shaping the organization. This responsibility is seen as an evolutionary process. The self-organizing corporation is able to reach innovative solutions in an environment that is subject to constant change. Such innovative power enhances the competitive strength in a global marketplace.

2.2.4The → Behavioral Approach

Gutenberg’s factor theory as well as most decision theories and capital market theories are rooted in the rationality principle. The advantage of this principle is the ability to mathematically model the question at hand and to provide clear decision support on that basis. The price that has to be paid for this is the use of very restrictive premises, which lead to models that cannot adequately capture reality. One example of these premises is homo oeconomicus, which is rejected by Heinen, who moves away from the principle of rationality in his decisionoriented approach. This idea is also taken up by the → behavioral approach to business management.

Insight

The behavioral approach to business management sets itself the goal of explaining the actual decision making behavior of individuals and companies with the help of findings from behavioral science.

Concretely, business management is opening up towards disciplines such as psychology, social psychology and sociology by including insights from these fields. This is supposed to lead to better explanations for the behavior in companies and on markets, which in turn will yield improved forecasts and superior decision support.

The decision-oriented approach of Heinen and behavioral business management have resulted in a shift away from the primarily theoretical orientation of Gutenberg and towards the Anglo-American school of management with its focus on concrete management problems.¹⁸ The decision-oriented approach has an influence for example also in behavioral finance, which explains irrationality in financial markets and has gained major influence in the wake of the financial market crisis.

The behavioral approach and the factor approach equip business management with two extremely useful theories. With the behavioral approach it is possible to explain actual behavior in a company rather well, while the normative approach offers mathematical models to calculate optimal solutions. Current research in business management has so far not been successful, however, in merging the two approaches into a comprehensive framework. This may not even be possible, since the two methodologies define different tasks for themselves. For these, they may already offer optimal solution techniques.

Contribution of the behavioral approach to sustainable business management

Which of these two approaches is better suited for the concept of sustainable business management?

Since one of the pillars of business sustainability aims at social targets, the behavioral approach provides an important counterpoint to the shareholder value orientation. The behavioral approach accepts humans with their differences and their individuality. By turning away from homo oeconomicus, it is made possible to individualize the production factor labor and to include its potential for company success. In contrast, the normative approach is suitable for solving a large number of decision problems, which are not addressed by the behavioral approach. One example is investment planning.

2.2.5The → Environmental Approach

The environmental approach constitutes a reaction to the increasing environmental problems of our industrialized society, which has led to a reassessment in politics, business and academia. Concerning research in the field of business, two main streams can be discerned at the moment:

The ethical and normative ecological business management,

the ecological approach.

Insight

Ethical and normative business management is demanding a fundamental reorientation of economic thought and action by giving greatest prominence to the consistency between ecological and business perspective.

This approach is not so much concerned with the things that can be done immediately, but rather about a fundamental debate about the relationship between economy and ecology.¹⁹ Global warming is one example for such a debate about basic principles. The results of this debate will have an effect on the economy via policy measures.

Insight

The environmental approach is not so much about a complete reorientation of business thinking, but rather about the inclusion of ecological topics into the traditional core of business management.

Environmental protection and environmental technologies are seen as new elements in the catalogue of business targets. They should not be seen in competition with the profit motive, but rather as constraints or as opportunities to optimize economic goals.

Contribution of the environmental approach to sustainable business management

Sustainable business management is tightly linked to the environmental approach.