Dynamic Environmental CapabilitiesReport on work in progress

Rachel Hilliard, CISC

Don Goldstein, Allegheny College (USA)

Valerie Parker, CISC

Funded by the Environmental Protection Agency

Research question

• What distinguishes companies able to ‘green’ production competitively?

• Working hypothesis:

strong dynamic organisational capabilities

Regulation and the Porterian Firm

REGULATION INNOVATION

BY FIRMS

‘Firms have numerous avenues for technological improvement and limited attention’

Role for regulation to direct firms to potentially profitable area of innovation

Evolutionary Economics: Regulation and the Firm

REGULATION

ORGANISATIONAL PROCESSES OF KNOWLEDGE/LEARNINGORGANISATIONAL CAPABILITIES

INNOVATION BY FIRMS

• Tests: economic AND environmental performance

• Capabilities evolve in relation to competitive surroundings & survival tests

Requirements of IPC Licensing

• Compliance with EU emissions standards for air and water pollution - BATNEEC

• Rolling programme of environmental projects demonstrating development of cleaner technology solutions over end-of-pipe

• Environmental Management System including development of measures/targets

Research plan

• Link IPC data with financial data

• Add survey data on organisational practices

• Model determinants of environmental & economic performance

Getting there: simultaneous thinking about…

Research question

Model Data

Creating data:Information generated by IPC licensing

IPC Application

Products/processes

Technologies

Key emissions

Environmentalmanagement

Correspondence

EPA audits

Reports of

non compliances

Company response

3rd party complaints

AnnualEnvironmentalReports

Emissions of pollution

Environmental technology projects

Environmental management

Creating data:Financial information from Companies Registration Office

• Economic performance– Operating profitability

• Output proxy– Deflated sales

Creating data:IPC info empirical proxies

• Environmental performance– (Normalised) emissions– Pollution noncompliances

• Direct determinants– Technology practices– Organisational practices

• Complementary organisational capabilities– Static: repetitive response– Dynamic: search, assessment-for-change

Creating data:Defining & measuring capabilities

• Organisational practice– Activity: subject to choice in each period– May directly affect performance that period

• Organisational capability– Capacity to mobilise practices & resources in coordination– Affect performance over time– Affected by periodic practices through fitness screen

• Model as organisational capital investment:– Annual ‘practice’ measure– Cumulative ‘capability’ measure, incremented annually

Creating a model: Two stage (+1) process

• Environmental performance– Function of tech & organisational

practices– Find environmental best practices

(EBPs)

• Economic performance– Function of EBPs– Control company, sector, economy

influences

Given complementary capabilities

• Evolution of organisational capabilities– Degree, sources of time variation?– Differ across static, dynamic

capabilities?

Creating a model:Capabilities as complementary assets

• E.g., stage 2: Economic performance = f(EBPs)

• Panel regression: for company i and year t,

Profitabilityit = f (tech-EBPit , org-EBPit , capabilitiesit , interactionsit ; company controlsit , other controlst ),

where for both tech and org,

interactionsit = EBPit x capabilitiesit

Creating a model:Heterogeneity problem

• ‘Fixed’ (constant), unmeasured company differences affect both performance and independent variables

• Remove effect of different levels, look at changes in independent variables (& effect on performance)– First differences– Fixed effects (similar to company dummies)

• Both: fixed variables drop out (interactions remain)

• Effect on model results??

What do we hope to be able to say about…

• What distinguishes companies able to ‘green’ production competitively?

• Under what circumstances does it pay to be green?

Using the data

Research question

Model

Right info extracted?

Appropriate variables & taxonomies created?

Good proxies for… Environmental performance ? Practices ? Capabilities

Using the model

Research question

Data

Exploiting the data?

Getting at the issues?

E.g., can we model kinds of capabilities?

•Static, dynamic?•Fixed, time-varying?•Managerial, technological, relational?

What we hope to contribute:

• Empirically distinguish capabilities from– practices (redundant) – performance (tautological)

• Explore evolution of (kinds of) capabilities– Over what time frame ‘fixed’? – To what extent ‘fungible’?

• Suggest policy perspective on competitive greening– What’s critical?– What’s replicable?