Proactive corporate environmental strategy and the ... · PDF fileSTRATEGY AND THE DEVELOPMENT OF COMPETITIVELY VALUABLE ORGANIZATIONAL CAPABILITIES ... Sanjay Sharma, ... of competitively

Strategic Management JournalStrat. Mgmt. J.,19: 729–753 (1998)

PROACTIVE CORPORATE ENVIRONMENTALSTRATEGY AND THE DEVELOPMENT OFCOMPETITIVELY VALUABLE ORGANIZATIONALCAPABILITIES

SANJAY SHARMA1* and HARRIE VREDENBURG2

1Faculty of Commerce, St. Mary’s University, Halifax, Nova Scotia, Canada2Faculty of Management, University of Calgary, Calgary, Alberta, Canada

This article presents the results of a study conducted in two phases within a single industrycontext. The first phase involved comparative case studies to ground the applicability of theresource-based view of the firm within the domain of environmental responsiveness. The secondphase involved testing the relationships observed during the case studies through a mail survey.It was found that strategies of proactive responsiveness to the uncertainties inherent at theinterface between the business and ecological issues were associated with the emergence ofunique organizational capabilities. These capabilities, in turn, were seen to have implicationsfor firm competitiveness. 1998 John Wiley & Sons, Ltd.

INTRODUCTION

Since the World Commission on Environmentand Development Report of 1987 (commonlyknown as the ‘Brundtland Commission Report’)was published, corporate managers and man-agement scholars have been grappling with thequestions of how and why corporations shouldincorporate environmental concerns into strategicdecision making. The Brundtland CommissionReport coined the term ‘sustainable development’and explicitly postulated a positive role for thebusiness corporation in furthering the cause ofenvironmental protection (as opposed to the nega-tive traditional role of corporations being the‘problem’ and governments being the ‘solution’)by integrating environmental protection with eco-nomic performance. Since the Brundtland Com-mission Report raised the management of

Key words: environmental strategy; capabilities; con-tinuous innovation; stakeholder integration; higher-order learning*Correspondence to: Sanjay Sharma, Faculty of Commerce,St. Mary’s University, 923 Robie Street, Halifax, NS, CanadaB3H 3C3

CCC 0143–2095/98/080729–25 $17.50 Received 4 February 1997 1998 John Wiley & Sons, Ltd. Final revision received 26 August 1997

environmental concerns to a strategic issue forthe corporation, managers and management schol-ars have been debating the role of environmentalstrategy in the repertoire of strategic management.

One stream of literature has focused on theconcept of sustainable development and hasattempted to redefine broadly the global societalrole of the business corporation (Gladwin, Ken-nelly, and Krause, 1995; Hart, 1997; Sharma,Vredenburg, and Westley, 1994; Shrivastava,1995a; Starik and Rands, 1995: Westley andVredenburg, 1996). Most of this literature sayslittle about how moving to a sustainable develop-ment model will affect firm competitiveness.

Other writers have cautioned that implementingsuch a broad redefinition of the role of the corpo-ration may be hazardous for the corporation’sfinancial well-being (Walley and Whitehead,1994). These writers advocate a return to strictcost–benefit frameworks, investing in environ-mental practices that have paybacks within aneconomic time frame through reduced costs ofregulatory compliance, lower waste disposal,energy and material savings, etc. Hart and Ahuja(1996), after empirically examining firms’ savingsfrom emission reduction, conclude that while

730 S. Sharma and H. Vredenburg

there are initial cost savings for most firms dueto the low cost of remedying existing inef-ficiencies and wastes, once the ‘low hanging fruithas been harvested’ it becomes increasingly dif-ficult to improve financial performance as theinvestments in emission reduction may exceedthe savings generated.

A third stream of literature has attempted todemonstrate how firms might gain competitiveadvantage in ways other than waste/efficiencycost savings from environmental strategies. Porter(1991) and Porter and van der Linde (1995)argue that strict environmental regulations willgive firms in their jurisdiction a competitiveadvantage in other markets as other jurisdictionsmove standards upward as well, in the same waythat operating in a demanding domestic consumermarket ‘toughens up’ a firm for internationalcompetition. Jacobs (1992), Hawken (1993) andVredenburg and Westley (1997) explore what‘good’ regulations and environmental standardsmight look like and how they might lead tocorporate environmental innovation. Shrivastava(1995b) and Westley and Vredenburg (1991)show how firms may gain competitive advantageby gaining social legitimization. These authorsrely primarily on case studies to make their argu-ments. Klassen and McLaughlin (1996), viewingthe firm essentially as a ‘black box,’ find corre-lations between firm environmental performanceand firm financial performance (as measured bystock performance) in subsequent time periods.This study suggests that environmental perform-ance may, in fact, be associated with more thanthe realization of greater efficiencies within afirm, lending some support to the argument thatcompetitive advantage may be derived from fac-tors other than waste/efficiency savings.

Hart (1995) speculates theoretically what mightbe happening inside Klassen and McLaughlin’s‘black box.’ He applies the resource-based viewof the firm (e.g., Barney and Zajac, 1994) to thedomain of corporate environmental strategies.Theresource-based view of the firm has gained prom-inence as a competitive theory of the firm (Barneyand Zajac, 1994). This view argues that a firm’scompetitive strategies and performance dependsignificantly upon firm-specific organizationalresources and capabilities. These capabilities aremore likely to emerge during periods of greaterturbulence and organizational change (Wernerfelt,1984). Indeed, the limited empirical research in

1998 John Wiley & Sons, Ltd. Strat. Mgmt. J.,19: 729–753 (1998)

this area has found that firm capabilities evolveas a result of firm response to competitiveenvironments (Barnett, Greve, and Park, 1994;Levinthal and Myatt, 1994). In turn, these capa-bilities within organizations are seen to influencecompetitive strategies and organizational out-comes (Ginsberg, 1994; Barney and Hansen,1994). Developing his theoretical argument, Hart(1995) predicts that innovative environmentalstrategies can lead to the development of firm-specific capabilities which can be sources of com-petitive advantage. He argues that corporateresponse to calls for environmental protection isan important emerging competitive domain forbusinesses and might be best understood in termsof the resource-based view of the firm.

The arguments linking environmental respon-siveness to organizational capabilities and per-formance have been theoretical to date. In theabsence of empirical evidence for these relation-ships, cost–benefit frameworks are dominant andinfluence corporate managers to adopt only thoselimited investments in environmental practiceswhich can yield tangible monetary benefits withinan economic time frame. The objective of thisarticle is to examine the validity of the hypothe-sized linkages between environmental responsive-ness strategies and the emergence of competi-tively valuable organizational capabilities (Hart,1995).

This research was conducted within a singleindustry context. The first phase of the studyinvolved comparative case studies through in-depth interviews in seven firms in the Canadianoil and gas industry to ground the resource-basedview of the firm within the domain of corporateenvironmental responsiveness. This study wasintended to examine linkages between environ-mental strategies and the development of capabili-ties, and understand the nature of any emergentcapabilities and their competitive outcomes. Theexploratory study was conducted longitudinallyover a period of 18 months using the same cohortof respondent companies and managers. Thesecond phase involved testing the emergent link-ages through a mail survey-based study of theCanadian oil and gas industry.

The next section describes the researchmethods used in the exploratory study. The articlethen describes the findings of the case compari-sons conducted during the exploratory study. Inthis section, data from the exploratory study are

Environmental Strategy and Organizational Capabilities 731

supplemented by literature from corporate socialperformance, environmental strategies, organi-zational learning, and the resource-based view ofthe firm, to explain the linkage between proactiveenvironmental responsiveness strategies and theemergence of organizational capabilities. The arti-cle then describes the research methods and theresults of the mail survey which indicate thatproactive environmental strategies are associatedwith the emergence of competitively valuableorganizational capabilities. We end with a dis-cussion of the theoretical, research, and mana-gerial implications of this research.

THE EXPLORATORY STUDY:RESEARCH METHOD

We begin by explaining the rationale for choosingthe case method for the exploratory study, thecriteria for selecting the Canadian oil and gasindustry as a domain, the criteria for selectingthe seven firms included in the exploratory study,the data collection method and the data analysistechniques used.

The case study is an appropriate method ofempirical inquiry when the phenomena to bestudied (in this case, corporate environmentalresponsiveness and organizational capabilities)can not be easily separated from their organi-zational context (Yin, 1989). Case comparisonsenable an investigation of the ‘what’ and ‘how’questions (Yin, 1989), such as: What are thedifferent strategies of environmental responsive-ness adopted by different organizations within thesame industry? How do these strategies impactupon organizational competitiveness? Compara-tive case studies of organizations within the sameindustrial context facilitate comparison throughreplication of results, either literally (when similarresponses emerge) or theoretically (when contraryresults emerge for predictable reasons), to enable‘analytic generalization’ (Yin, 1989). A commonindustrial context also facilitates control for rel-evant external influences such as the degree ofenvironmental regulation, the degree of scrutinyby media and special interest groups, and indus-try-wide environmental standards and commonpractices.

The Canadian oil and gas industry was chosenas a research setting because it is an example ofan industry based on nonrenewable inputs, under


pressure from its external stakeholders to changeits environmental practices. Further, most of theindustry is located in Alberta with head officesin Calgary. This concentration in one locationreduced the diversity of external influences facedby individual firms in the industry and facilitateddata collection by providing easy and repeatedaccess to managers of the firms included in thestudy.

Firms were picked from each size category(major, senior, intermediate, junior) and fromeach activity category (integrated, upstream, anddownstream). This was to understand whetherenvironmental responsiveness strategies wereinfluenced by firm resources (as reflected byindustry size categorization of ‘majors,’ ‘seniors,’‘intermediates,’ and ‘juniors’) as also by differentsets of stakeholder groups impacted by a firm’srange of activities (upstream: exploration, drilling,crude oil production; downstream: refining andmarketing; or integrated).

Letters were sent out to the Chief ExecutiveOfficers (CEOs) of 15 companies requestingcooperation for the study. Twelve CEOsresponded and agreed to provide access forresearch. Data collection was stopped after sevencompanies were studied and theoretical saturationseemed to have been reached, that is, new insightsinto the phenomena being examined were nolonger gained (Glaser and Strauss, 1967). Whileit is possible that inclusion of more firms afterthis stage may lead to new insights, Glaser andStrauss (1967) stress that once theoretical satu-ration is reached, the phenomena to be studiedhave been substantially explained.

Table 1 presents the comparative characteristicsof companies included in the exploratory study.Company names are disguised for confidentiality.

Data collection

During the first phase of data collection in 1993,unstructured interviews totaling 36 hours wereconducted with 19 senior and middle managementexecutives of the seven companies. The execu-tives interviewed in each company included eitherthe CEO or a member of the top managementteam, the environmental assessment manager, astaff manager, and a line/operations manager.In smaller companies, several functional areashappened to be combined into one position andfewer managers were interviewed. The managers


Table 1. Comparative company characteristics (names disguised for confidentiality)

Buffalo Sioux Royal National U.S. Oil Farmers Northern

Company Senior Intermediate Major Major Senior Intermediate Juniorclassificationa

Range of Integrated Downstream Integrated Integrated Integrated Upstream Upstreamoperationsb (except for

retail)

Sales C$ 1.5 bn. C$ 0.5 bn. C$ 10 bn. C$ 6 bn. C$ 4 bn. C$ 0.3 bn. C$ 0.1 bn.

Employees 1500 1000 10,000 7,000 2400 700 400

aCompany classifications within the industry are based on size in terms of a mix of sales and assets.bIntegrated oil companies include operations covering the full range of petroleum industry activities, including exploration,production, refining, and retail marketing. Companies with operations focused in theupstream end of business almostexclusively engage in exploration and production activities, while companies with operations focused in thedownstreamendof business engage almost exclusively in refining and marketing activities.

were identified through the snowball technique.During each interview, leads to other managersknowledgeable about environmental strategies andpractices were identified. Interview transcriptswere verified for accuracy by the managers. Eachtranscript was analyzed immediately following theinterview and used as a basis to explore emergingthemes in subsequent interviews. Follow-up inter-views were conducted with several managers toverify themes that emerged in subsequent inter-views. A literature search was conducted in tan-dem with data collection and analysis in orderto ground the analysis theoretically (Glaser andStrauss, 1967).

In the second phase of data collection, overthe next 1. years, the seven companies includedin the first study were contacted again and 27managers were interviewed. Each manager wasinterviewed between two and five times duringthe year. Most of these interviews were brief andwere conducted over the telephone. The respon-dents were senior and middle managers andincluded 18 of the 19 managers interviewed inthe first study. Nine managers were added at thesuggestion of the first cohort of 18 managers asuseful sources of information on environmentalstrategies and competitiveness of the companies.Most of these additional nine managers werein line/operating positions such as ExplorationManager, Drilling Supervisor, Marketing Man-ager, Refinery Manager, etc. This phase resultedin a further 33 hours of transcribed interviewdata. Thus a total of 69 hours of transcribedinterview data were collected in two phases.

One objective of the second phase of datacollection was to verify that companies had con-


tinued the environmental strategies identified inthe first phase. The interviews in the secondphase were specifically focused on the actionsundertaken by companies to reduce the environ-mental impact of their operations. In terms oforganizational outcomes, the interviews sought toascertain whether managers perceived environ-mental practices as having had any positive ornegative effects on corporate performance andcompetitiveness.

Interview data were triangulated, during bothphases, through a qualitative content analysis ofcorporate public documents such as annualreports, environmental reports, company newslet-ters, and newspaper reports for the period 1980–95. Interviews were also conducted with officialsof the regulatory body (the Alberta Energy andResources Conservation Board, renamed in 1995as the Alberta Energy and Utilities Board—hereafter AEUB), with officers of the industryassociation (the Canadian Association of Pe-troleum Producers—hereafter CAPP), and withrepresentatives of two environmental groupsmonitoring the industry’s practices. These datawere used primarily to verify company inter-view data.

Data analysis

The interview transcripts were analyzed throughthe categorization and analysis of emergent con-cepts and ideas (Miles and Huberman, 1984) andconstant comparison of these concepts (Glaserand Strauss, 1967) to identify common themes.An interview summary form (Miles and Huber-man, 1984) was prepared after each interview to


highlight emergent themes, variables, and otherissues of interest which would be followed up atsubsequent interviews. Each interview was codedin accordance with these emerging themes andsentences relating to each different theme wereentered in separate computer text files set up foreach emergent theme. The number of referencesand intensity of support for each theme wereidentified within each file before deciding whichthemes to retain and which to drop as less theo-retically significant. Connections between the sig-nificant themes were investigated in the data. Anumber of the themes were dropped at earlierstages of data collection when subsequent inter-views revealed them as less theoreticallyimportant or part of another theoretical theme.The sifting process continued in tandem with datacollection. If theoretical parallels could not befound, then the themes were abstracted into gen-eric descriptive labels.

During the first phase of data collection in1993, the resource-based perspective was not thefocus of data analysis. However, some of theemergent themes relating to organizational out-comes suggested labels from the resource-basedliterature (e.g., Amit and Schoemaker, 1993; Bar-ney, 1991; Hart, 1995). Therefore, the secondphase of data collection in 1993–94 focused onthe linkages between environmental strategies andorganizational capabilities. The data analysis sug-gested a range of environmental responsivenessstrategies adopted by these firms, and linkageswith organizational outcomes in the form oforganizational capabilities and competitive bene-fits.

ENVIRONMENTAL RESPONSIVENESSAND ORGANIZATIONALCAPABILITIES

Corporate environmental strategies were exam-ined along 11 dimensions. These were determinedon the basis of the areas in which the oil and gasindustry substantially impacts upon the naturalenvironment, as well as dimensions that havebeen used to evaluate environmental performancein the literature. The impact of the oil industryon the natural environment is strongest in theareas of species habitat preservation at explorationand drill sites, environmental restoration of con-taminated soil, risk reduction of environmental


accidents and wastes, and waste reduction/reuseat production and refining sites. Dimensions takenfrom environmental management literature, suchas those used by the Coalition for Environmen-tally Responsible Economies (CERES), bysocially responsible investment funds (Kinder,Lydenberg, and Domini, 1992), and by the Busi-ness Council for Sustainable Development(Schmidheiny, 1992), included material usereduction and conservation, use of alternativefuels, energy conservation, less environmentallydamaging products, stakeholder partnerships forenvironmental preservation, public disclosure, andcommitment to research and employee trainingprograms for environmental preservation.

The companies included in the study exhibiteda wide range of responses in dealing with thebusiness/natural environment interface. Somecompanies exhibited specific areas of excellencein reducing environmental impact, such as Buf-falo’s efforts in habitat/biodiversity preservationand waste reduction, Sioux’s efforts in developingand selling less environmentally damaging fuels,and Royal’s efforts in risk reduction. However,we looked for consistency of environmental prac-tices across all the dimensions that were relevantto a firm’s range of operations. Therefore, eventhough Royal, U.S. Oil, and National were veryactive in stringent risk reduction, they had under-taken very limited environmental practices in theother dimensions such as habitat preservation,waste reduction, lower polluting products, stake-holder partnerships to reduce environmentalimpact, etc. Thus, companies were consideredproactive only if they exhibited a consistent pat-tern of environmental practices, across all dimen-sions relevant to their range of activities,notrequired to be undertaken in fulfillment ofenvironmental regulations or in response to iso-morphic pressures within the industry as standardbusiness practices.

In addition to consistency across dimensions,the proactive firms (by our definition) shouldhave exhibited a consistent pattern of such volun-tary actions over time. Two significant years forthe industry from the environmental perspectivewere 1988 and 1993. In 1988, public attentionwas focused on the natural environment due toevidence of thinning of the Earth’s ozone layer,evidence of climate change, theExxon Valdezoilspill, increased stringency of Canadian environ-mental regulations, and the ‘Energy Options’


initiative in Canada to formulate a blueprint fora sustainable energy future. In 1993, all environ-mental regulations in Alberta were consolidatedinto one act and managers were made personallyliable for environmental accidents. In order tobe considered proactive, companies should haveexhibited a consistent pattern of voluntary actionsacross all relevant dimensions before the eventsof 1988 catalyzed environmental action acrossmost of the industry. Interviews with regulators,industry associations, and environmental groups,as well as an analysis of archival data for theperiod 1980–95, helped verify the claims madeby managers about past practices. These genericstrategy categories of reactive and proactiveresponses have been frequently used in the corpo-rate social performance literature (Post, 1978;Sethi, 1979).

Based on the 11 dimensions of environmentalresponse, two companies were classified as proac-tive and five as reactive. Buffalo Oil, a companyconsidered proactive, has been an industry leadersince 1981, in preserving natural habitats, species,and historical heritage sites impacted by its oper-ations. This company made considerable invest-ments in technologies and management practicesto reduce its environmental impact. It undertookcomprehensive environmental audits of its oper-ations (the first audit being conducted in 1983),innovated less environmentally damaging explo-ration and drilling techniques (including thedevelopment of horizontal drilling techniques),and voluntarily ceased oil exploration and drillingoperations in areas of high negative ecologicalimpact since 1987. In order to ‘level the competi-tive playing field,’ it lobbied the provincialgovernment to set aside these areas as protectedpreserves under the Alberta government’s SpecialPlaces 2000 program. Buffalo is an industryleader in technological innovations to reduceemissions, solid waste, and energy use in itsrefining and manufacturing operations. It holdsover 50 patents in the areas of process improve-ment, sulfur dioxide recovery, waste reductionand disposal, soil restoration, and less pollutingfuels. It has also invested in research into cleaner-burning fuels, renewable energy sources, and fuelcell technologies.

The other proactive company, Sioux Oil, setup the first North American commercial operationto recycle used engine oil in 1980. It has sincebeen actively engaged in developing and market-


ing lesser polluting fuels such as vegetable-basedengine oils, ethanol-blended gasoline, methanol,compressed natural gas for automobiles, and ineducating consumers about the more responsibleuse of fossil fuels. It has also invested in researchinto renewable energy sources.

On the other hand, the five companies iden-tified as having reactive environmental strategiesemphasized the reduction of risk and liabilities ofenvironmental accidents and spills. Environmentalaccidents cannot be insured and can cause finan-cial disruption, negative media exposure and dam-aged reputations for these companies. Royal, U.S.Oil, and National concentrated on eliminatingspills and leakages while transporting oil and gasin pipelines and tankers, reducing leakages duringtransfers of petroleum products from tankers tounderground tanks, and effective emergencyresponse procedures in the event of an environ-mental accident. The regulators confirm that thesethree companies are exemplary at regulatory com-pliance. However, these three companies have notundertaken any voluntary environmental practicesin the areas of habitat preservation, restoration,waste reduction (as opposed to emission/wastecontrol as per regulations), material use reduction,development of less polluting petroleum products,and stakeholder partnerships for environmentalpreservation. In fact, the last dimension has beena major deficiency, with conflicts having takenplace between these companies and local com-munities as well as environmental groups.

The smaller companies, Northern and Farmers,appointed outside consultants to ensure that their‘paper trails’ are in order to show due diligencein the event of an environmental accident. Theywere doing the minimum to ensure regulatorycompliance. This may have been due to theirlimited resources and smaller size resulting in alower intensity of media attention.

The environmental strategies of the seven com-panies did not appear to have any associationwith the range of activities of the companies.Buffalo is an integrated ‘senior’ company, Siouxis a downstream ‘intermediate’ company, whilethe reactive companies range from integrated‘majors’ to upstream ‘juniors.’ The ability toclearly separate the seven companies into twodistinct categories based on their environmentalresponsiveness strategies facilitated comparison ofthe organizational outcomes associated withthese strategies.


Environmental responsiveness andorganizational capabilities

While managers of both reactive and proactivecompanies considered improving shareholdervalue an important mission, the former perceivedenvironmental responsiveness as detracting fromthis objective. The proactive companies, incontrast, perceived a number of competitive bene-fits emerging from their environmental response.These included lower costs ofprocesses/inputs/products, innovations inprocesses/products/operating systems, improvedcorporate reputation, and relationships with awide range of stakeholders. In contrast, thereactive companies were unable to associate theircorporate environmental responsiveness strategieswith any positive organizational outcomes otherthan lower liabilities due to reduction in risk ofenvironmental accidents.

These competitive benefits were perceived bythe proactive company managers as the outcomesof strengths built up through environmentalresponsiveness strategies. These strengths wereoften described in terms of characteristics thatidentified them as organizational capabilities.Organizational capabilities are the coordinatingmechanisms that enable the most efficient andcompetitive use of the firm’s assets—whethertangible or intangible (Day, 1994). The competi-tive advantage of these capabilities stems fromtheir elusive nature based on social complexityand deep embeddedness in organizations (Hart,1995; Teece, 1987; Winter, 1987). They are ofteninvisible (Itami, 1987), based on tacit learning(Hart, 1995; Polanyi, 1962) that is causallyambiguous (Hart, 1995; Reed and DeFillippi,1990; Rumelt, 1987) and thus difficult to identifyand imitate by competitors (Teece, 1987). Thesecapabilities usually lack an identifiable owner inan organization and are not traded in factor mar-kets (Barney, 1991; Hart, 1995; Reed and DeFil-lipi, 1990). They are path dependent upon acombination of unique organizational actions andlearning undertaken over a period of time(Barney, 1991; Dierickx and Cool, 1989; Hart,1995). They span several different functions andlevels within an organization and are capableof multiple uses (Amit and Schoemaker, 1993;Barney, 1991).

During the first phase of interviews, some ofthe themes emerging from the interviews indi-


cated that the perceived linkages betweenenvironmental responsiveness and competitivebenefits in proactive companies were due to theemergence of certain capabilities. Hence, thesecond phase of data collection specificallyfocused on this issue by explaining the conceptof capabilities and asking managers if they per-ceived any capabilities as having been built upas a result of their environmental responsivenessstrategies. However, examples of capabilities werenot suggested to managers. The managers of thereactive companies indicated the capabilities ofminimizing of risk and liability (Royal, U.S. Oil,and National) and exemplary regulatory com-pliance (Royal and National). We did not con-sider these as competitively valuable capabilitiesbecause both proactive and reactive companieswere required to achieve these two objectives.The managers of the smaller reactive companies,Northern and Farmers, ridiculed the notion thatenvironmental responsiveness could have anycompetitive benefits for their companies.

Table 2 shows how the ‘first cut’ categorizationof themes based on a listing of common conceptsand ideas emerging from the interview transcriptsin the first phase of data collection. Table 3shows the capability themes emerging duringmore focused data collection in the second phase.An analysis of the interview data indicated threeemergent capabilities.

Capability for stakeholder integration

This involves the ability to establish trust-basedcollaborative relationships with a wide variety ofstakeholders, especially those with noneconomicgoals. These stakeholders may include local com-munities, environmental groups, regulators, non-governmental organizations (NGOs), etc. Hart(1995) suggests stakeholder integration as a capa-bility arising as a result of product stewardshipwhich requires the integration of perspectives ofkey external stakeholders such as environmentalgroups, community leaders, the media, and regu-lators into product design and development. Hereit was observed that stakeholder integrationemerged for the proactive companies not only asa result of product stewardship, but also as aresult of habitat preservation, resource man-agement, waste reduction, and energy conser-vation. These companies engaged concernedstakeholder groups in dialogue over new explo-


Table 2. Environmental responsiveness and organizational capabilities (first phase of data collection)

Capabilities Illustrative quotes (P = proactive;R = reactive)

Stakeholder (P) Buffalo: ‘Our mission is to generate goodwill among our stakeholders.’ ‘We believe inintegration integrating our neighbours into all aspects of our operations.’ ‘Our employees learn more about

environmental issues from stakeholder groups than from training programs.’ ‘Even . . . [an anti-oil industry activist] is willing to sit down and talk to us.’ ‘If our stakeholders advise usagainst a new development, we save ourselves a lot of grief and expense later on.’ ‘Theinvolvement of stakeholders into operations is an ongoing process.’(P) Sioux: ‘The ethanol blends would not have survived without our strong relationships withfarmers in Saskatchewan and with crown corporations purchasing our products.’ ‘Our businessis built on relationships with a wide range of citizen groups.’(R) Royal: ‘The local communities and environmental groups have genuine concerns but weknow the business better than they do. We always come up with the best solutions withoutinterference.’ ‘We hold open houses every six months. Members of local communities arewelcome to walk in and ask questions.’(R) Northern: ‘We have emergency response procedures in place and have circulatedinformation to residents in the areas we operate in . . . what more are we expected to do?’(R) Farmers: ‘To be honest, no one has a right to tell us how to run our business.’(R) U.S. Oil: ‘We contribute to programs for protection of endangered species. We contributeto charitable causes. We run our business efficiently and expect local communities andenvironmental groups to trust us to do our best for environmental protection. Their involvementis more often disruptive than helpful.’

Higher-order (P) Buffalo: ‘Our interactions with stakeholders have opened up our minds to entirely newlearning ways of running this business.’ ‘Talking openly with local communities and environmental

groups opened our employees up to fresh perspectives.’(P) Sioux: ‘We have the most exciting learning environment in the industry . . . our employeesconsider this is one of the best perks.’(R) Royal: ‘We know the business better than anyone else . . . look at our profits. The issuehere is not learning but squeezing increasing efficiency out of the existing operations.’

Continuous (P) Buffalo: ‘In our technologically mature industry, this is the one frontier open to freshinnovation learning, innovations, and productivity improvements.’ ‘A concern for environmental

preservation has led to several process improvements and process cost reductions which wehave patented and sold to companies in six different countries.’ ‘We pioneered and perfectedhorizontal drilling techniques . . . all because we wanted to reduce our footprint on nature.’‘Our exploration and development process, undertaken in consultation with stakeholders, has thelowest environmental impact in the entire industry.’(P) Sioux: ‘We try to introduce at least three alternative fuels or less damaging fossil fuelproducts into the market every year.’ ‘Our past successes were based on adoption of alreadydeveloped technologies. In recent years, our research and development centre has built up astrong program of research in alternative energy.’(R) Royal: ‘This is a technologically mature industry. No one is going to make any majorimprovements.’(R): U.S. Oil: ‘With 50 to 70 years of reserves left, companies will not scramble to improveprocesses and products.’(R) National: ‘We should be investing in improving technologies in the Third World . . . that’swhere you’ll get more bang for the buck.’ ‘It doesn’t make sense to spend billions of dollarsto improve sulfur dioxide recovery another 2 percent.’(R) Farmers: ‘We use state-of-the-art equipment . . . what sort of improvements do youexpect?’



Table 3. Theme analysis of organizational capabilities (second phase of data collection)

First-order themes Second-order themes Final themes

• The ability for an early sensing • Ability to collaborate with Stakeholder Integrationof societal concerns stakeholders to find solutions to (Hart, 1995)

• Positive ties/relationships with environmental problemsstakeholders • Ability to communicate with

• Ability to solve problems stakeholders in the environmentalcollaboratively domain

• Goodwill reserves among • Ability to steeer newneighbors developments effectively through

• Ability to work with communities public consultation processesand interest groups forenvironmental solutions

• Organization-wide culture oflistening to local communitiesand environmental groups

• Capability of explainingcompany’s point of view toexternal stakeholders

• Goodwill reserves leading to thecompany receiving the benefit-of-the-doubt from regulators,communities, and environmentalgroups

• Capability of steering newdevelopments through publicconsultation process

• A knowledge base of • Line-staff cooperation and Continuous higher-order learningenvironmental information and integration around environmentalbiodiversity data information exchange

• Constant updating of the • Continuous expansion ofknowledge base on environmental knowledge about theimpacts business/natural environment

• An ability to understand the interfaceenvironmental impact of • Ability to look for solutions tocorporate operations environmental problems from

• An ability to look for solutions fresh anglesto environmental problems fromfresh angles

• Formal and informal channels ofenvironmental informationexchange

• Integration of line and stafffunctions for informationexchange and disseminationaround environmental practices

• Feedback systems for reportingof environmental performance

• Control systems to rewardenvironmental reporting andsolutions



Table 3. Continued

First-order themes Second-order themes Final themes

• Capability of constant • Ability to experiment on the Continuous innovationexperimentation business/natural environment (modified from ‘Continuous

• The ability to take a long-term domain Improvement’—Hart, 1995)view of experimental actions • Ability to balance environmental

• A reservoir of accumulating objectives with ecological goalstechnical operational knowledge• Ability to spot opportunities

• The ability to take a fresh amidst changes in socialperspective of traditional expectations and environmentaloperations/processes regulations

• A culture of innovativeness • Ability to innovate and• An ability to balance continuously improve operations

environmental objectives with while reducing environmentalecological goals impact

• The ability to spot opportunitiesin adverse situations and crises

• The ability to make continuousimprovements in processes,products, systems

• Acting before the rest of theindustry

• Ability to preempt regulations• Ability to generate feasible low-

cost solutions to environmentalproblems

• Control systems to rewardenvironmental solutions

• Corporate culture of • Leadership in environmental This theme dropped as beingenvironmental leadership regulatory compliance abstract and not competitively

• Corporate culture of exemplary valuableregulatory compliance

rations, developments, site location, plant design,new product, and used oil recycling decisions.One catalyst may be the greater emphasis placedin Canada on public consultation, and hencestakeholder involvement, in the environmentalregulation of industry (Pasquero, 1991).

The process started when Buffalo and Sioux,having decided, around 1980, to assume anenvironmental leadership stance, determined thatit was essential to improve their managers’ under-standing of environmental issues through inter-action with multiple stakeholders concerned withthe preservation of the natural environment. Thetwin goals of goodwill generation among diversestakeholder groups and reducing corporateenvironmental impact became important goals forboth companies. Both companies provided organi-zational incentives to facilitate the developmentof employees’ abilities to listen to and incorporate


the viewpoints of the concerned stakeholders.Employees were rewarded not only for achievingproduction and financial goals, but also forachieving low levels of stakeholder complaints,negative publicity and high levels of positivefeedback from stakeholder groups. Further,employees were also provided discretion throughflexibility in a portion of their operating budgetsto experiment with different ways of reducingenvironmental impact. This enabled employees torespond to some of the suggestions of externalstakeholders, further improving collaborativerelationships and mutual trust.

Thus, proactive companies benefited from abattery of subtle sources of social influencederived from their employees’ close relationshipswith the representatives of these stakeholdergroups. These close interactions increased thelikelihood that stakeholder representatives had


positive and favorable influences on criticaldecisions made by these groups in respect of theproactive companies (Cialdini, 1984). Buffalo’srefinery manager explained:

This process took around five to seven years ofconsistent actions and behavior to seep into theorganizational culture . . . New employees learnedquickly that developing positive relationshipswith a wide variety of stakeholders is asimportant as satisfying customers and earning anabove average return for investors.

While Buffalo’s emphasis was on relationship-building with stakeholder groups at the upstreamend of operations, Sioux’s emphasis was onrelationship-building with suppliers and customergroups which include farmers, government agen-cies, crown corporations, nonprofit organizations,and NGOs. These groups supported Sioux’s movetowards less environmentally damaging fuel alter-natives. Sioux’s recycled engine oil was pur-chased by members of these groups during the12 years it lost money on this product, keepingthe pioneering operation alive. With growingawareness of environmental degradation duringthe 1990s, more consumers began to buy recycledoil and the more expensive vegetable-based oils,making this operation profitable.

On the other hand, the reactive companiesemphasized the role of legal and public relationsdepartments in handling the concerns of stake-holders with noneconomic motivations. Thesecompanies’ managers indicated that persuasionand image management were more important intheir dealings with these groups. They perceivedtheir actions as driven by the concerns of primarystakeholders (Clarkson, 1995) such as investorswho have representation on their boards, cus-tomers who have purchasing power, and regu-lators who have sanctioning power. In contrast,the proactive companies’ managers were moreproud of their relationships with environmentalgroups, local communities, regulators and othergroups motivated primarily by noneconomic goalssuch as values for the preservation of the environ-ment. For the proactive companies, joint problemsolving, information sharing and negotiations(Gray, 1989; Vredenburg and Westley, 1997)took place primarily within the framework ofenvironmental protection and not within theframework of the economic transaction. Thereactive companies assumed adversarial positions


toward environmental groups and local communi-ties who ‘blocked’ or opposed their business oper-ations, arguing that these groups affected theirability to generate jobs and revenues. These com-panies are still actively fighting and lobbying toopen up protected natural areas for development.

The environmental groups and local communi-ties confirmed that the reactive companies do notacknowledge their stake in new developmentswhich may have major environmental impacts.At the same time, they confirmed their positivecollaborative relationships with the proactivecompanies based on mutual consultation forenvironmental preservation. They trusted thesecompanies to try their best to reduce environmen-tal impact in accordance with these consultations.Even the representative of Greenpeace, committedto closing down the industry, said:

We can talk to these (proactive) companies . . .they are in a dirty business but at least they tryharder than the larger companies with moreresources.

According to the officials of the regulatoryagency (AEUB), while no company has a perfectrecord in meeting emissions and solid wasteslimits, the two proactive companies made moresincere efforts than others to cut down theiremissions and wastes. The regulators confirmedthat they give the ‘benefit-of-the-doubt’ to ‘sin-cere companies’ in case of minor infractions, andconcentrate on companies that tend to have a‘bad attitude’ toward environmental standards. Ingeneral, the regulators have an overall positiveview of the larger reactive companies (Royal,U.S. Oil, and National) as well, but a negativeview of the two smaller companies (Northern andFarmers) in terms of ‘sincerity.’ This is consistentwith the definition of the reactive companies asthose staying within regulatory boundaries.

Some of the competitive benefits of this firm-specific capability lie in improved corporate repu-tations that translate into favorable economicdealings including retail sales and increased good-will that leads to the easing of opposition toeveryday operations and development plans. Theproactive companies are able to go through publicconsultation hearings and approval processes fornew developments much faster. This leads tosavings in project cost over-runs, lower interest


charges, and lower litigation expenses. Thereactive companies face stiff opposition, and thesehearings can go on for years without resolution.In 1994, U.S. Oil had to withdraw from a majornew development in Alberta after spending over$15 million on development expenses and legalcharges during 1991–94. U.S. Oil did not consultwith local communities or environmental groupsand try to address their concerns about theenvironmental impacts of the project. In contrast,Buffalo and Sioux always consult these groupsbefore announcing new developments. If theirstakeholders clearly indicate that the developmentis not desirable due to ecological sensitivity, thesecompanies withdraw without spending time andmoney on legal battles.

The trust and credibility developed by proactivecompanies with a variety of stakeholder groupsis a path-dependent strategic capability that cannot be easily imitated by competitors. This capa-bility is an asset, based upon over a decade ofconsistent flow of actions (Dierickx and Cool,1989; Hart 1995) by the companies to reducetheir impact on the natural environment in consul-tation with a diversity of stakeholder groups. Thiscapability is firm-specific because it is based onfundamental changes in business philosophies andvalues accompanied by changes in organizationdesign over a period of a decade or more. Thiscapability is internally socially complex since itresides in every employee by virtue of corporateculture. At the same time, this capability is exter-nally socially complex (Coff, 1997) based oncollaborative trust-based relationships betweenboundary spanners and external stakeholders.

Capability for higher-order learning

An organizational mandate to improve under-standing of environmental issues exposed themanagers of the proactive companies to a varietyof external influences, and thus sparked sharedlearning processes. Organizational learning isdefined as ‘the development of insights, knowl-edge, and associations between past actions, theeffectiveness of those actions, and future actions’(Fiol and Lyles, 1985: 811). Learning withinorganizations is indicated by successful organi-zational coping with rapid environmental change(Duncan and Weiss, 1979; Hedberg, 1981; Pfefferand Salancik, 1978; Weick, 1979) and behavioraloutcomes based on shared ideology and under-


standing of the changes taking place (Daft andWeick, 1984; Fiol and Lyles, 1985; Starbuck,Greve, and Hedberg, 1978).

Changes in the business environment that moti-vate exploration of alternative organizational rou-tines, technologies, environments, and objectives,may lead to higher-order (or higher-level—Fioland Lyles, 1985; double-loop—Argyris andSchon, 1978) learning. Higher-order learninginvolves the development of different interpre-tations of new and existing information, as aresult of developing new understandings of sur-rounding events (Fiol, 1994). This type of learn-ing characterizes organizational change underconditions of ambiguity and uncertain information(Lant and Mezias, 1992; March and Olsen, 1976;Miller and Friesen, 1980; Starbucket al., 1978).This is not unlike the ambiguity and lack ofinformation that currently characterizes thebusiness/natural environment interface in theCanadian oil and gas industry.

The strategies that an organization may adoptto deal with these ambiguities and lack of infor-mation will create a context for issue inter-pretation and decision-making (Daft and Weick,1984; Ginsberg and Venkataraman, 1992, 1995;Thomas and McDaniel, 1990) and lead to higher-order organizational learning (Fiol and Lyles,1985). Thus, environmental strategies can lead todifferent paths of learning and knowledge creationon the business/natural environment interfacefor each firm. Facilitation of experimentation(searches for alternative routines—March, 1988)by managers can lead to the recognition of newgoals and the means to achieve these goals. Theselearning processes, in turn, result in major reori-entations that involve changed norms, values,world-views, or frames of reference (Argyris andSchon, 1978; Bateson, 1972; Shrivastava andMitroff, 1982).

Similarly, changing business paradigms andfundamental shifts in philosophy occur when thefirm’s managers deal with the uncertain outcomesof incorporating environmental considerations intotheir decision processes. Besides consideration ofthe systemic impact of the natural environment onbusiness (Shrivastava, 1995a), some fundamentalphilosophical changes in organizational thinkinginvolve a shift to thinking toward closed systemsand circular flows instead of linear processingsystems, material conservation instead ofefficiency in maximizing output and the use of


renewable energy sources. Thus, not only per-formance below aspirations, as the literature dis-cusses at length, will trigger higher-order learning(Argyris and Scho¨n, 1978; Cyert and March,1963; Lant and Mezias, 1990; Milliken and Lant,1991), but fundamental shifts in philosophyaccompanying proactive environmental strategiescan create an experiential base of activities thattriggers the processes of higher-order learningwithin organizations. According to the environ-mental assessment manager of Buffalo:

In our technologically mature industry, this is theone frontier open to fresh learning, innovations,and productivity improvements.

Managers of Buffalo and Sioux explained thatin opening up communication channels to ideasfrom stakeholders such as local communities andenvironmental groups, they were able to lookinwards and find ways of accomplishing theobjectives of these groups while generatingimprovements within their organizations. Thiswas seen as a circular process in which outsidestakeholder influences sparked internal learning,which, in turn, triggered innovation leading todemonstrated actions for environmental protec-tion. These actions, in turn, led to better relation-ships with external groups, feeding back asgreater outside influence to reinforce organi-zational learning.

There are few benchmarks and a low levelof existing knowledge in the industry regardingeffective ways of reducing environmental impact.Thus, solutions for reducing these impacts wereoften left to the discretion of line managers. Thisdiscretion was accompanied by the integration ofknowledge acquired from stakeholders, diffusionof knowledge within the organization, keepingup the momentum of learning, and feedback onknowledge application. In both companies, inorder to encourage interaction, monthly meetingsunder the themes ‘environmental leadership’(Buffalo) and ‘alternative energy development’(Sioux) brought together a changing mix of man-agers from all of the company’s facilities andoperations. These groups formally and informallydiscussed advances in knowledge on thebusiness/natural environment interface andactions taken to reduce environmental impact ineach managers’ operational domain.

This is a firm-specific capability since the samemanagers may not be able to adopt similar stances


on experimentation, learning, and knowledge gen-eration in organizations that do not provide asimilar context. This capability is path dependent,involving a series of unique interactions and anexperiential base of organizational activities overa long period of time. It must be noted here thatproactive corporate environmental responsivenessis but one of the possible catalysts for buildingup an organization’s capability for higher-orderlearning. It is possible that companies withreactive environmental strategies may build asimilar capability as a result of other influences.However, the managers of the reactive companiesdid not associate environmental responsivenesswith any capability or learning processes. Higher-order learning not only leads to capability devel-opment within companies, but is also a capabilitythat leads to competitive benefits in terms ofimproved operations, increased efficiencies, costreductions, higher productivity, as well as thetriggering of a capability of continuous innovation.

Capability for continuous innovation

Higher-order learning processes, triggered byenvironmental responsiveness strategies, lead toa changing experiential base of organizationalactivities, routines, and goals. Changes in technol-ogies, processes, specifications, inputs, and prod-ucts can stimulate the building-up of internalcapabilities and knowledge-based invisible assets(Itami, 1987). While environmental change pro-vides an opportunity for a firm to be the firstmover, the likelihood of a firm benefiting in asustained manner from the first-mover status willdepend upon the development of these capabili-ties. As the window for technological innovationsgets shorter, even internal innovations in systemsand management practices are rarely defensibleagainst competitive actions. However, a capabilityof continuously generating a stream of inno-vations enables an organization to stay a stepahead of competitors who do not possess thiscapability. Hart (1995) calls this the capabilityof continuous improvement resulting from organi-zational efforts to reduce, minimize, and elimi-nate waste.

The managers of the reactive companies con-sidered the industry as mature with 50–70 yearsof commercially viable oil stocks remaining.Hence, they saw no incentives for major techno-logical improvements. In contrast, these factors


were not seen as constraints by the proactivecompanies. Table 4 provides numbers in differentactivity areas for the seven companies in respectto all innovations perceived to be related toenvironmental responsiveness.

The table provides numbers separately for inno-vations up to 1993 and during 1994. The latterindicate the continuing momentum of innovationsfor proactive companies. The numbers inparentheses indicate patents filed for, or obtained,for these innovations. The Appendix descriptivelylists some of the major innovations attributed bythese companies to their environmental respon-siveness. As can be seen from Table 4 and theAppendix, Buffalo has a greater concentrationof technological innovations in its upstream andmanufacturing operations, while Sioux has con-centrated on product-based innovations. At thesame time, the reactive companies do not associ-ate many innovations with their environmentalstrategies.

It may be noted here that the research studydid not seek to understand and explore the emer-gence of innovations not perceived to beassociated with environmental responsiveness bythese companies. Thus, reactive companies may

Table 4. Innovations (patents) related to environmental responsiveness (second phase of data collection)

Buffalo Sioux Royal National U.S. Oil Farmers Northern(P) (P) (R) (R) (R) (R) (R)

Innovations (1980–93)Approx. total (patents filed)Drilling and exploration 23 (16) – 2 (1) 5 (1) 5 (3) None NoneProcess 16 (7) 2 (2) – 2 2Waste and emissioncontrolProducts 33 (17) 5 (2) 2 (1) 2 2 (1)Others 9 (2) 25 (20) 2 (2) 2 (2) 2 (2)

8 (3) – – 1 2

Innovations (1994)Approx. total (patents filed)Drilling and exploration 7 (5) – 1 (1) 1 1Process 4 (2) 1 (1) – 1 – None NoneWaste and emission 14 (8) 1 (1) 1 (1) 1 (1) –controlProducts 1 (1) 5 (5) – – –Others 1 (1) – – 1 –


have an independent stream of innovations totallyunrelated to environmental responsiveness. More-over, the numbers of innovations do not reflectthe visible excitement of dealing with a wholenew area of continuing opportunity evidenced bythe managers of Buffalo and Sioux. This excite-ment was missing among the reactive companies.The capability to innovate in the proactive com-panies was not confined to a specific operationor functional area, but appeared to be a pervasivepart of the organizational culture.

The proactive companies provided an organi-zational context to support experimentation andthe seeking of opportunities at thebusiness/natural environment interface in anefficient and effective manner through employeecompensation systems and by facilitating mana-gerial discretion. This context encouragedemployees to respond to these external influences,resulting in changing environmental philosophiesand the emergence of unique organizational capa-bilities. Thus, new capabilities were developed ina period of perceived turbulence (Wernerfelt,1984) and organizational change required toaccommodate environmental strategies. This leadsto the following hypotheses:


Hypothesis 1: The greater the degree towhich a company adopts proactive environ-mental responsiveness strategies, the greaterthe likelihood that firm-specific organizationalcapabilities will emerge.

Hypothesis 2: The greater the degree towhich firm-specific organizational capabilitiesemerge within a company, the greater the like-lihood of competitive benefits flowing fromthese capabilities.

The second hypothesis essentially is a test of theresource-based view of the firm; that is, organi-zational capabilities are competitively valuable.The first hypothesis does not rule out the emer-gence of organizational capabilities due to othertypes of organizational strategies as well as otherorganizational and environmental influences. Thehypothesized relationships were tested through amail survey in the Canadian oil and gas industry.

A SURVEY OF THE CANADIAN OILAND GAS INDUSTRY: RESEARCHMETHOD

The mail survey was conducted through aquestionnaire-based research instrument. A 95-item, 7-point Likert-type, continuous scale wasused to measure environmental strategies(ENVSTRGY). Due to unidimensionality of theitems (as indicated by factor analysis), simpleaverages of the items were used to constructthis scale. Perceptual measures using multiplerespondents were used due to the unavailability ofquantitative data bases that can reliably measurecorporate environmental strategies in the Cana-dian oil and gas industry. The items constitutingthis scale, shown in Table 5, were based on the11 dimensions used in the exploratory research.High scores indicate proactive strategies ofenvironmental responsiveness. While this scaledoes not provide a discrete separation betweenreactive and proactive strategies, it is adequate totest Hypothesis 1 that companies which scorehigher on environmental responsiveness strategieswill also score higher on the organizational capa-bilities scale.

Table 6(a) presents the items included in theorganizational capabilities (CAPABLTY) meas-ure. Since hypothesis testing was done within


the larger context of the entire industry, it wasconsidered necessary to supplement the threecapabilities emerging from the exploratory studywith a more general measure that could accom-modate other capabilities that companies mayassociate with environmental responsiveness.Thus, the capabilities construct was based bothon the exploratory study and concepts drawnfrom the resource-based view literature. The threecapabilities emerging from the exploratorystudy—that is, stakeholder integration, continuousinnovation, and organizational learning—wereincluded in the measure. Characteristics of organi-zational capabilities drawn from the resource-based literature included causal ambiguity (Hart,1995; Reed and DeFillippi, 1990; Rumelt, 1987;Teece, 1987), lack of an identifiable owner in anorganization (Barney, 1991; Reed and DeFillipi,1990), path dependency (Barney, 1991; Dierickxand Cool, 1989; Hart, 1995), and social com-plexity (Amit and Schoemaker, 1993; Barney,1991), among others. Data collection was com-pleted in spring 1995 and hence the survey didnot include capabilities such as ‘shared vision’predicted later by Hart (1995).

In order to test Hypothesis 2, a competitivebenefits measure was developed. Table 6(b)presents the measure for competitive benefits(BENEFIT) intended to measure the competitiveoutcomes of the capabilities. The items constitut-ing this measure were determined based on com-petitively beneficial outcomes of the capabilitiesperceived by managers during the exploratorystudy. These included cost reduction (Hart, 1995),improved operations and management practices,product quality, employee morale, corporate repu-tation and goodwill, faster regulatory approvals,product differentiation, improved ability to com-pete in the future (Hart, 1995), etc.

This research instrument was vetted by a groupof university-based management researchers andindustry experts, and then pretested among agroup of 25 oil and gas industry managers.Reliability (Cronbach’s coefficient alpha) checkswere run for the constructs used. Most constructsexhibited high reliability in excess of 0.80. Tables5, 6(a) and 6(b) include the Cronbach’s coef-ficient alpha scores for the constructs. Data diag-nostics tests for normality, homoscedasticity, andlinearity indicated no violations of regressionassumptions. Factor analysis using obliminrotation revealed that each of the three constructs,


Table 5. List of items constituting the environmental strategies measure (overall construct reliability—Cronbach’scoefficient alpha: 0.84)

1. To what extent has your company modified business practices in the following areas of operation, inorder to reduce impact on animal species and natural habitats?(Dimension Cronbach’s coefficient alpha: 0.85)

• Exploration and prospecting sites• Drilling sites and wellheads• Oil and gas production• Oil and gas gathering pipelines• Refining facilities• Transportation of petroleum products/chemicals

2. To what extent has your company undertaken the following voluntary actions (i.e., actions that are notrequired by regulations) for environmental restoration?(Dimension Cronbach’s coefficient alpha: 0.83)

• Clean-up of abandoned well sites• Restoration of organic properties of contaminated soil• Clean-up of abandoned retail gas station sites• Protection of, and withdrawal from, ecologically sensitive habitats• Disposal and treatment of hazardous/toxic wastes• Compensation to local communities, employees, and other impacted parties for injury caused due to the

company’s environmental policies and accidents

3. To what extent has your company reduced wastes and emissions from operations as a result of thefollowing actions?(Dimension Cronbach’s coefficient alpha: 0.81)

• Safe disposal of solid/hazardous wastes• Investment in pollution/emission control equipment• Recycling programs• Closed-loop waste use within the organization• Closed-loop waste use with other organizations• Process modifications to reduce waste at source• Changes in input material specifications• Modifications of product specifications• Implemented new technology to reduce wastes

4. To what extent has your company reduced purchases of nonrenewable materials, chemicals, andcomponents, as a result of the following actions?(Dimension Cronbach’s coefficient alpha: 0.84)

• Reduction in total materials used• Substitution by renewable materials• Use of recycled/waste materials

5. To what extent has your company reduced the use of traditional fuels, by substitution of, and researchinto, the following energy sources?(Dimension Cronbach’s coefficient alpha: 0.83)

• Substitution by renewable energy sources(i) Photovoltaics/solar energy(ii) Wind power

• Substitution by alternative energy sources(i) Natural gas(ii) Geothermal energy(iii) Methane(iv) Biomass(v) Energy from wastes

• Increase in co-generation facilities• Investment in research into alternative energy sources



Table 5. Continued

6. To what extent has your company reduced energy use, due to the following actions?(Dimension Cronbach’s coefficient alpha: 0.82)

• Better housekeeping/maintenance procedures• Retrofitting/replacement of high-energy-consuming equipment• Changes in process technology• Changes in product specifications• Changes in specifications of input materials

7. To what extent has your company undertaken the following actions to reduce the environmental impact ofits products?(Dimension Cronbach’s coefficient alpha: 0.97)

• Introduced gasoline blends with lower emissions• Introduced chemicals with lower environmental impact• Made changes in packaging for engine oils/chemicals sold:

(i) Reduced packaging(ii) Introduced packaging made from recycled materials(iii) Introduced biodegradable/recyclable packaging(iv) Eliminated packaging that damages the ozone layer

• Introduced used engine oil collection facilities• Adopted comprehensive product life cycle analysis• Obtained ecological certification of a product or service• Reduced production of, eliminated, or replaced a product harmful to the environment• Changed product specifications in order to make production processes less environmentally damaging• Combined the functions of more than one product

8. To what extent has your company undertaken the following actions to reduce the risk of environmentalaccidents, spills, and releases?(Dimension Cronbach’s coefficient alpha: 0.82)

• Investments in equipment and control/alarm systems• Rigorous emergency response procedures• Employee training in emergency response procedures• Employee involvement and responsibility for emergency response• Training of local communities in emergency response procedures• Fundamental changes in design of processes and products to reduce/eliminate environmental accidents,

spills, releases, and hazardous waste• Reduce/eliminate storage and use of hazardous chemicals/wastes

9. To what extent has your company established partnerships to reduce environmental impact?(Dimension Cronbach’s coefficient alpha: 0.80)

• Technology and research alliances with other companies:(i) Within the oil and gas industry(ii) Outside the oil and gas industry

• Agreements with other companies to process wastes• Partnerships to establish environmental standards for products, processes, operations, and materials with:

(i) Other companies(ii) Environmental groups(iii) Suppliers(iv) Distributors or retailers(v) Industry associations

• Establishment of consultative councils with local communities/governments, and environmental groups• Education programs for reduction of wasteful consumption• Partnerships in developing countries for environmental preservation



Table 5. Continued

10. Indicate the extent to which your company undertakes the following actions for environmental audit,public disclosure, employee training and immunity?(Dimension Cronbach’s coefficient alpha 0.84)

• Detailed assessment of the environmental impact of operations (every years)• Comprehensive environmental audit (every years)• Release of a public environmental stewardship report (every years)• Employee training programs on environmental issues• Provide immunity and protection to employees who report environmental accidents to management or

authorities• Inform in a timely manner everyone who may be affected by conditions that might endanger health,

safety, or the environment• Follow environmental practices according to North American regulations in developing countries where

environmental regulations are less stringent• Invest in research for environmental preservation:

(i) Within company(ii) With industry associations(iii) With universities and other research agencies

ENVSTRGY, CAPABLTY, and BENEFITS weremeasures of a single variable.

Data collection and analysis

The questionnaire was administered to the totalpopulation of Canadian oil and gas companies inthe Compact Disclosures data base with annualsales revenues in excess of $20 million. Thispopulation definition was intended to exclude thesmallest companies which were hypothesized tolack the resources and motivation both to gobeyond minimum regulatory compliance and torespond to a 13-page questionnaire. Each com-pany was contacted by telephone to obtain namesof potential respondent managers knowledgeableabout the phenomena to be measured. The tele-phone contact also helped eliminate companiesthat had merged with other companies or wereotherwise ineligible for the study. These telephonecontacts identified the names of the CEO or amember of the top management team more likelyto respond, the manager responsible for environ-mental affairs, a crude oil production and/orrefinery manager, divisional supervisors, a drillingsupervisor, and a marketing manager. The 110companies thus included in the survey accountedfor approximately 80 percent of the total annualsales revenues in the Canadian oil and gas sector.

Based on the names obtained during initialtelephone contacts, questionnaires were mailed to


between three to five persons for each company.The first mailings elicited a return of around 60percent within 2 weeks. Follow-up faxes andtelephone calls after two weeks resulted in atotal response rate of 90 percent (99 out of 110companies). The high response rate is largelyattributable to the follow-up by telephone andfax, a mention of the funding support by CAPP(which agreed to undertake all mailing) in thecover letter, and the fact that the institution withwhich the researchers were affiliated is wellknown among Canadian managers.

Sixty-four companies (65%) provided multiplerespondents. Of these, 40 companies providedtwo responses (usually from a manager in chargeof environmental affairs and a member of thesenior management team), 16 companies providedthree responses (including a line manager suchas exploration manager/refinery manager/drillingsupervisor), 6 companies provided four responses,and 2 companies provided five responses.Obtaining multiple responses in strategy researchprovides perspectives from different levels andfunctional areas within a company. Strategy maybe emergent and the top management viewpointneed not necessarily reflect the pattern of actionsthat constitutes strategy within an organization(Mintzberg, 1978, 1994). A 65 percent multipleresponse from top and middle managers was con-sidered a healthy measure for triangulating differ-ent viewpoints within the companies for measur-ing strategy. The data indicated an interrespondentreliability greater than 0.80 on most measures.


Table 6(a). Items constituting the measure for organizational capabilities

Capabilities (reliability—Cronbach’s coefficient alpha: 0.93)

The following items list some characteristics associated with organizational capabilities. Please indicate theextent to which you perceive capabilities, with the following characteristics, emerging within your organizationas a consequence of your environmental practices:

• They take a long period of time to build up• Competitors can not build up these capabilities faster through a greater application of resources• They can not be easily be identified or imitated by competitors• They span (provide benefits) to several functional areas/departments• They span (provide benefits) to different levels within the company• They lack a clearly identified owner within the company, i.e. an employee cannot leave with

organizational reputation, knowledge, relationships, etc.• They act as triggers for collective learning within the company• They act as triggers for innovation within the company• They act as triggers for collaborative problem solving with stakeholders• They combine with other assets to generate benefits for the company, e.g. improved reputation combines

with an established retail network

Table 6(b) Items constituting the measure for organizational benefits

Benefits (reliability—Cronbach’s coefficient alpha: 0.96)Please indicate the extent to which the company’s environmental practices have led to any of the followingcompetitive benefits?

• Reduction in costs:(i) Material costs(ii) Process/production costs(iii) Costs of regulatory compliance

• Improved operations:(i) Increased process/production efficiency(ii) Increases in productivity(iii) Increased knowledge about effective ways of managing operations(iv) Process innovations

• Improved product quality• Product innovations• Organization-wide learning among employees• Improved employee morale• Overall improved company reputation or goodwill• Better relationships with stakeholders such as local communities, regulators, and environmental groups

Thus, multiple responses were averaged in orderto arrive at variable values representative of thecompany as a whole.

The response rate of 90 percent largely pre-empted a nonresponse bias risk in the data. More-over, a scan of the 11 companies out of 110 whichdid not respond indicated 1 senior company, 2intermediates, and 7 junior companies. This wasroughly the same in demographic proportions tothe company population surveyed, further minimiz-ing the nonresponse risk. The hypotheses weretested using multivariate regression.


THE MAIL SURVEY: RESULTS

Two regression models were tested according tothe hypotheses presented above. The first (1)predicted that companies which score higheron environmental responsiveness strategies(ENVSTRGY) will also score higher on theorganizational capabilities (CAPABLTY) meas-ure. The second (2) predicted that higher levelsof competitive benefits (BENEFITS) will beassociated with higher scores on the organi-zational capabilities (CAPABLTY) measure.


CAPABLTY = a + b ENVSTRGY+ e (1)

BENEFITS= a1 + b1 CAPABLTY + e1 (2)

Table 7 presents the results of the regressionanalysis.

Both hypothesized relationships were found tobe statistically significant atp , 0.0001. Environ-mental responsiveness strategies of the companiesappear to explain around 20 percent of the vari-ation in the emergence of organizational capabili-ties within these organizations. Further, organi-zational capabilities appear to explain around 51percent of the variation in the competitive benefitsemerging in these organizations. Thus, proac-tiveness in environmental responsiveness is per-ceived to be associated with the emergence oforganizational capabilities, and does not appearto have a negative impact on corporate competi-tiveness.

Table 7. Results of regression analysis

Variables Unstd.b Beta (B) t-value p (one-tailed)(S.E.)

Dependent variable: CAPABLTYENVSTRGY 0.0082 0.4569 5.059 0.0000

(0.0016)Constant 1.8822 0.454 0.0000

(0.4145)R2 0.2088Adjusted R2 0.2006F-statistic 25.5910Probability of F 0.0000N 99

Dependent variable: BENEFITCAPABLTY 0.7481 0.7207 10.186 0.0000

(0.0734)Constant 0.6271 2.091 0.0392

(0.2999)R2 0.5194Adjusted R2 0.5144F-statistic 103.7581Probability of F 0.0000N 99


DISCUSSION AND IMPLICATIONS

The study addresses the debate regarding the roleof environmental strategy in firm competitivenessby exploring empirically the relationship betweenenvironmental strategy and the emergence ofcompetitively valuable organizational capabilities.

Early advocates of the ‘green is gold’ schoolargued that cost savings due to increasedefficiency and waste elimination more than com-pensated for the cost of such environmental strate-gies. When these arguments proved overlysimplistic and sometimes erroneous (Hart andAhuja, 1996; Walley and Whitehead, 1994), moreelaborate theoretical arguments premised on theresource-based view of the firm were advanced(Hart, 1995). Empirical findings using stockprices as a firm performance measure andenvironmental awards and crises as proxy vari-ables of environmental strategy suggested that a


more complex intraorganizational relationshipmay exist (Klassen and McLaughlin, 1996). Ourstudy provides some empirical evidence for thetheoretical argument that proactive environmentalstrategy may lead to the development of uniquecompetitively valuable organizational capabilities(Hart, 1995).

Using comparative case studies, we found evi-dence of the development of a capability forstakeholder integration, a capability for higher-order learning, and a capability for continuousinnovation in firms which we labeled as havingproactive environmental strategies, based on self-reported environmental activities and triangulatedwith external (regulators and environmentalgroup) commentators.

Statistical tests showed that proactive environ-mental strategy explained more than 20 percentof the variance in the firms’ reports of whethertheir environmental strategy can be associatedwith the the development of unique organizationalcapabilities as conceived by the resource-basedview of the firm (that is, they are path dependent,inimitable, socially complex, etc.).

These unique organizational capabilities,resulting from proactive environmental strategies,appear to account for more than 50 percent ofthe firms’ self-reported variance in competitivebenefits (that is, process/product/operationalinnovations, cost reductions, improved corporatereputations, better employee morale, etc.). Thesefindings suggest that, in fact, proactive environ-mental strategies may invoke the processes sug-gested by the resource-based view of the firmand lead to competitive advantage.

Limitations and future research

This study was focused on environmental strategyas a source for competitively valuable organi-zational capabilities, and it does not rule out thepossibility that other organizational strategies mayalso lead to the development of competitivelyvaluable organizational capabilities. It is also pos-sible that the environmentally reactive firms inthis study developed competitively valuableorganizational capabilities from other corporatestrategies. Future studies might explore what othertypes of strategies lead to the development ofsuch capabilities.

Although attempts were made in this study totriangulate data by using independent observers


of the oil and gas industry wherever possible, thestudy relies heavily on self-reported measuresprovided by company managers. This is amethodological weakness shared with much otherresearch examining corporate strategies. Never-theless, future studies could add to our confidencein the results reported here by replicating thisstudy using more direct objective measures of thetheoretical constructs.

This paper is an empirical exploration and testof the resource-based view of the firm perspectivethat companies can gain competitive advantagefrom proactive environmental strategy (Hart,1995). Further ramifications and theoretical link-ages are left to future research which couldinform our understanding of the linkage betweenparticular dimensions of each of the major con-structs in our study. For example, does the capa-bility of stakeholder integration lead to improvedmorale, goodwill and reputation while the capa-bility of continuous learning leads to improvedoperations and cost reduction?

It is possible that the findings reported hereare limited to the Canadian context where prac-tices such as extensive public consultation proc-esses are perhaps more prevalent and expected inthe environmental domain than in other nationalcontexts (Pasquero, 1991). The authors are cur-rently engaged in replicating and extending thestudy in the United States and in Latin Americancountries. Future studies may replicate and extendthe study in other industries where environmentalconcerns may present themselves differently thanin the oil and gas industry. Future studies mayalso extend the study to dependent measures offirm financial performance, measured objectivelyas return on investment, return on equity or stockprice changes, or through self-reported measurescompared to industry average (e.g., Govindarajan,1984; Gupta, 1987). Both types of measures havebeen used in other studies linking the corporatestrategies to financial performance.

Implications

As opportunities for developing corporate com-petitive advantage diminish in a world of globalcompetition, shortening product life cycles, anddeclining barriers to entry, the resource-basedview of the firm may provide increasing guidanceto the development of competitive strategies. Asa theory of the firm predicated on developing


organizational capabilities that can provide sus-tained competitive advantage, complex and com-prehensive environmental strategies may indeed,as Hart (1995) argues, be an important emergentcompetitive domain to which leading firms shouldpay heed.

Public policy makers might look to ‘raising thebar’ environmentally in a predictable and timelyfashion leaving details of how to meet therequirements to firms’ own technical and mana-gerial innovativeness. This would favor firms whoproactively develop environmentally based capa-bilities while ‘pulling up’ the rest of the industry’senvironmental performance.

ACKNOWLEDGEMENTS

The authors would like to thank the two anony-mous SMJ reviewers for their constructive com-ments.

REFERENCES

Amit, R. and P. J. H. Schoemaker (1993). ‘Strategicassets and organizational rent’,Strategic Manage-ment Journal,14(1), pp. 33–46.

Argyris, C. and D. A. Scho¨n (1978). OrganizationalLearning. Addison-Wesley, Reading, MA.

Barnett, W. P, H. R. Greve and D. Y. Park (1994). ‘Anevolutionary model of organizational performance’,Strategic Management Journal,Winter Special Issue,15, pp. 11–28.

Barney, J.B. (1991). ‘Firm resources and sustainedcompetitive advantage’,Journal of Management,17(1), pp. 99–120.

Barney, J.B. and M.H. Hansen (1994). ‘Trustworthinessas a source of competitive advantage’,StrategicManagement Journal,Winter Special Issue,15, pp.175–190.

Barney, J. B. and E. J. Zajac (1994). ‘Competitiveorganizational behavior: Toward an organizationally-based theory of competitive advantage’,StrategicManagement Journal,Winter 1994,15, pp. 5–9.

Bateson, G. (1972).Steps to an Ecology of Mind.Ballantine, New York.

Cialdini, R. B. (1984). Influence. William Morrow,New York.

Clarkson, M. B. E. (1995). ‘A stakeholder frameworkfor analyzing and evaluating corporate social per-formance’,Academy of Management Journal,20(1),pp. 92–117.

Coff, R. W. (1997). ‘Human assets and managementdilemmas: Coping with hazards on the road to theresource-based theory,’Academy of ManagementReview,23(2), pp. 374–402.


Cyert, R. M. and J. G. March (1963).A BehavioralTheory of the Firm. Prentice-Hall, EnglewoodCliffs, NJ.

Daft, R. L. and K. E. Weick (1984). ‘Toward a modelof organizations as interpretation systems’,Academyof Management Review,9, pp. 284–295.

Day, G. S. (1994). ‘The capabilities of market drivenorganizations.’Journal of Marketing,58, pp. 37–52.

Dierickx, I. and K. Cool (1989). ‘Asset stock accumu-lation and sustainability of competitive advantage.’Management Science,35, pp. 1504–1511.

Duncan, R. B. and A. Weiss (1979). ‘Organizationallearning: Implications for organizational design’. InB Staw (ed.),Research in Organizational Behavior.JAI Press, Greenwich, CT, pp. 75–123.

Fiol, C. M. (1994). ‘Consensus, diversity, and learningin organizations’,Organization Science,5(3), pp.403–420.

Fiol, C. M. and M. A. Lyles (1985). ‘Organizationallearning’, Academy of Management Review,10(4),pp. 803–816.

Ginsberg, A. (1994). ‘Minding the competition: Frommapping to mastery’,Strategic Management Jour-nal, Winter Special Issue,15, pp. 153–174.

Ginsberg, A. and N. Venkataraman (1992). ‘Investingin new information technology: The role of competi-tive posture and issue diagnosis’,Strategic Manage-ment Journal,Summer Special Issue,13, pp. 37–53.

Ginsberg, A. and N. Venkataraman (1995). ‘Insti-tutional initiatives for technological change: Fromissue interpretation to strategic choice’,OrganizationStudies,16, pp. 425–448.

Gladwin, T. N., J. J. Kennelly, and T. S. Krause(1995). ‘Shifting paradigms for sustainable develop-ment: Implications for management theory andresearch’,Academy of Management Review,20(4),pp. 874–907.

Glaser, B. G. and A. L. Strauss (1967).The Discoveryof Grounded Theory: Strategies for QualitativeResearch.Aldine, Chicago, IL.

Govindarajan, V. (1984). ‘Appropriateness of account-ing data in performance evaluation: An empiricalexamination of environmental uncertainty as anintervening variable’, Accounting, Organizations,and Society,9(2), pp. 125–135.

Gray, B. (1989). Collaborating: Finding CommonGround for Multiparty Problems.Jossey-Bass, SanFrancisco, CA.

Gupta, A. K. (1987). ‘SBU strategies, corporate–SBUrelations, and SBU effectiveness in strategyimplementation’,Academy of Management Journal,30(3), pp. 477–500.

Hart, S. L. (1995). ‘A natural-resource based view ofthe firm’, Academy of Management Review,20(4),pp. 986–1014.

Hart, S. L. (1997). ‘Beyond greening: Strategies for asustainable world’,Harvard Business Review,25(1),pp. 66–76.

Hart, S. L. and G. Ahuja (1996). ‘Does it pay to begreen? An empirical examination of the relationshipbetween emission reduction and firm performance,’Business Strategy and the Environment, 5, pp. 30–37.


Hawken, P. (1993).The Ecology of Commerce: ADeclaration of Sustainability.Harper, New York.

Hedberg, B. (1981). ‘How organizations learn and un-learn?’. In P. C. Nystorm and W. H. Starbuck (eds.),Handbook of Organizational Design,Vol. 2. OxfordUniversity Press, New York, pp. 8–27.

Itami, H. (1987).Mobilizing Invisible Assets.HarvardUniversity Press, Cambridge, MA.

Jacobs, J. (1992).Systems of Survival, Vintage Books,New York.

Kinder, P., S. D. Lydenberg and A. L. Domini (1992).Investing for Good: Making Money while BeingSocially Responsible. Harper Business, New York.

Klassen, R. D. and C. P. McLaughlin (1996). ‘Theimpact of environmental management on firm per-formance’, Management Science,42, pp. 1199–1213.

Lant, T. and S. J Mezias (1990). ‘Managing discontinu-ous change: A simulation study of organizationallearning and entrepreneurship’,Academy of Manage-ment Journal,11, pp. 147–179.

Lant, T. K. and S. J. Mezias (1992). ‘An organizationallearning model of convergence and reorientation’,Organization Science,3(1), pp. 47–71.

Levinthal, D. and J. Myatt (1994). ‘Co-evolution ofcapabilities and industry: The evolution of mutualfund processing’,Strategic Management Journal,Winter Special Issue,15, pp. 45–62.

March, J. G. (1988). ‘Variable risk preferences andadaptive aspirations’,Journal of Economic Behaviorand Organization,9, pp. 5–24.

March, J. G. and J. P. Olsen (1976).Ambiguity andChoice in Organizations. Universitetsforlagt,Bergen, Norway.

Miles, M. B. and A. M. Huberman (1984).QualitativeData Analysis: A Sourcebook of New Methods. Sage,Newbury Park, CA.

Miller, D. and P. H. Friesen (1980). ‘Momentum andrevolution in organization adaptation’,Academy ofManagement Journal,23, pp. 591–614.

Milliken, F. and T. K. Lant (1991). ‘The effect of anorganization’s recent performance history on stra-tegic persistence and change: The role of managerialinterpretations’. In P. Shrivastava, A. Huff and J.Dutton (eds.),Advances in Strategic Management,Vol. 7. JAI Press, Greenwich, CT, pp. 129–156.

Mintzberg, H. (1978). ‘Patterns in strategy formation’,Management Science,24(9), pp. 937–948.

Mintzberg, H. (1994).The Rise and Fall of StrategicPlanning. Free Press, New York.

Pasquero, J. (1991). ‘Supraorganizational collaboration:The Canadian environmental experiment’,Journalof Applied Behavioural Science,27(1), pp. 38–64.

Pfeffer, J. and J. Salancik (1978).The External Controlof Organizations. Harper & Row, New York.

Polanyi, M. (1962).Personal Knowledge: Towards aPost-critical Philosophy. University of ChicagoPress, Chicago, IL.

Porter, M. E. (1991). ‘America’s green strategy’,Scien-tific American, April, p. 168.

Porter, M. E. and C. van der Linde (1995). ‘Greenand competitive’,Harvard Business Review,73(5),pp. 120–134, 196.


Post, J. E. (1978).Corporate Behavior and SocialChange. Reston Publishing, Reston, VA.

Reed, R. and R. J. DeFillippi (1990). ‘Causal ambi-guity, barriers to imitation and sustainable competi-tive advantage’,Academy of Management Review,15, pp. 88–102.

Rumelt, R. P. (1987). ‘Theory, strategy, andentrepreneurship’. In D. Teece (ed.),The Competi-tive Challenge: Strategies for Industrial Innovationand Renewal.Ballinger Division, Harper & Row,Cambridge, MA, pp. 137–158.

Schmidheiny, S. (1992).Changing Course: A GlobalBusiness Perspective on Development and theEnvironment. MIT Press, Cambridge, MA.

Sethi, S. P. (1979). ‘A conceptual framework forenvironmental analysis of social issues and evalu-ation of business response patterns’,Academy ofManagement Review,4, pp. 63–74.

Sharma, S., H. Vredenburg and F. Westley (1994).‘Strategic bridging: A role for the multinationalcorporation in Third World development’,Journalof Applied Behavioral Science,30(4), pp. 458–476.

Shrivastava, P. (1995a). ‘The role of corporations inachieving ecological sustainability’,Academy ofManagement Review,20(4), pp. 936–960.

Shrivastava, P. (1995b). ‘Environmental technologiesand competitive advantage’,Strategic ManagementJournal, Summer Special Issue,16, pp. 183–200.

Shrivastava, P. and I. I. Mitroff (1982). ‘Frames ofreference managers use: A study in applied soci-ology of knowledge’. In R. Lamb (ed.),Advancesin Strategic Management. JAI Press, Greenwich, CT,pp. 161–182.

Starbuck, W. H., A. Greve and B. Hedberg (1978).‘Responding to crisis’,Journal of Business Adminis-tration, 9(2), pp. 112–137.

Starik, M. and G. P. Rands (1995). ‘Weaving andintegrated web: Multilevel and multisystem perspec-tives of ecologically sustainable organizations,’Academy of Management Review,20(4), pp. 908–935.

Teece, D. (1987). ‘Profiting from technological inno-vation: Implications for integration, collaboration,licensing, and public policy’. In D. Teece (ed.),TheCompetitive Challenge. Ballinger, Cambridge, MA,pp. 185–220.

Thomas, J. B. and R. R. McDaniel (1990). ‘Interpretingstrategic issues: Effects of strategy and the infor-mation-processing structure of top managementteams’, Academy of Management Journal,33, pp.286–306.

Vredenburg, H. and F. Westley (1997). ‘Fostering inno-vation toward sustainability in renewable resourceindustries: The effects of regulation on organi-zational response.’Optimum: The Journal of PublicSector Management, 27(2), pp. 32–40.

Walley, N. and B. Whitehead (1994). ‘It’s not easybeing green,’Harvard Business Review,72(3), pp.46–52.

Weick, K. E. (1979).Social Psychology of Organizing.Addison-Wesley, Reading, MA.

Wernerfelt, B. (1984). ‘A resource-based view of thefirm’, Strategic Management Journal,5(2), pp.171–180.


Westley, F. and H. Vredenburg (1991). ‘Strategic bridg-ing: The collaboration between environmentalistsand business in the marketing of green products,’Journal of Applied Behavioral Science,27, pp.65–91.

Westley, F. and H. Vredenburg (1996). ‘Sustainabilityand the corporation: Criteria for aligning economic

APPENDIX: List of innovations in theoil and gas industry

Reactive companies

I Royal Petroleum: Advancements in soil resto-ration technology between 1991 and 1994.

I Royal Petroleum and National Oil: Joint devel-opment of emergency response guidelines andrisk assessment procedures for the oil and gasindustry during 1989–93.

Proactive companies

Buffalo Oil—Pre-1993I Patented technology to recover oil by crushing

used filters to reduce solid waste disposal spaceand costs. The recovered oil is collected andsent to Sioux’s recovery plant.

I Patented process improvements to reducewastes and improve recovery in oil refining by5 percent. This innovation has been sold toover 30 oil refiners in six countries.

I Patented improvements in the technology ofhorizontal drilling of wells that reduce therequirement for number of wells that need tobe drilled to access a pool of oil. This alsoreduces costs of oil production and improvesefficiency.

I Patented improvements in remote-sensing tech-nology for oil exploration from the air.

I Several innovations to reduce environmentalimpact during prospecting, exploration, anddevelopment, such as the use of backpackingand horses to study geological formations inecologically sensitive areas. These changesresulted in better relationships with communi-ties and environmental groups and explorationcosts reductions.

I Development of the industry’s first detailedenvironmental assessment procedure in 1985.The law requiring detailed environmentalassessment was passed in 1986.

I Development of a unique detailed data baseof migration patterns and habitat biodiversity


practice with environmental protection’,Journal ofManagement Inquiry,5, pp. 104–119.

Winter, S. (1987). ‘Knowledge and competence asstrategic assets’, In D. Teece (ed.),The CompetitiveChallenge.Ballinger, Cambridge, MA, pp. 159–184.

Yin, R. K. (1989). Case Study Research: Design andMethods.Sage, Newbury Park, CA.

covering over 200 species in ecologically sensi-tive areas. This data base is used as a commonresource and is lent to regulators and smallercompanies required to conduct environmentalassessments.

I Patented innovations in refineries undertakenwith low investment allow a 99 percent averagerate of sulfur recovery, resulting in 40 percentless sulfur dioxide emissions than permittedunder the license requirements of 98 percentrecovery. In contrast, the managers of reactivecompanies stated that reduction of air emissionsby 1 percent from 98 percent to 99 percentwould involve an investment of $1 billion forthe entire oil and gas industry.

I Patented waste management procedures atrefineries to recycle oily waste.

I Patented development of innovative and low-cost asphalt reclaimers at refineries.

I The first oil company to set up high-altitudemeteorological monitoring systems to assist allplants in meeting air quality standards andreduce carbon dioxide emissions.

I Pioneered the collection plan at service stations(with Sioux) to recover used engine oil fromconsumers.

I The first oil company to set up land-farms in1983, at its refineries to biodegrade oilysludges.

I In 1982 it developed the use of steamers toclean oil from equipment instead of usingchemical solvents. These innovations resultedfrom an ongoing process of thorough house-keeping analysis, replacement of componentsand high-energy use equipment, and analysis ofwaste patterns.

Buffalo Oil—1993–94

I Patented process for recovery of sulfur contami-nated with soil.

I Development of higher-efficiency vapor recov-ery systems technology to capture gasolinevapor from storage tanks to reduce ground-levelozone buildup.


I Advances in ongoing research in photovoltaiccell-based batteries in collaboration withresearch institutes in the United States, Japan,and Europe.

I Ongoing expansion of the data base on speciesmigration patterns and biodiversity by docu-mentation of 11 more species of flora and fauna.

I Several new patents on innovations to reducewastes and steam recovery in the refiningprocess.

I Development of two new high oxygenatedblends of petroleum with lower carbon emis-sions. Its fully owned subsidiary in the UnitedStates is a world leader in hydrogenation tech-nology, specializing in the development andlicensing of advanced technologies for produ-cing environmentally clean fuels from variousfossil fuels such as heavy crude oils and high-sulfur coals.

Sioux Oil—pre-1993I Sioux pioneered the technology for large-scale

cleaning of used engine oil to produce usableclean engine oil. The first plant was set upin 1980.


I Set up the first used engine oil collection pro-gram from gas stations in Canada in 1981.

I In 1985, it set up the first commercial plant inCanada to manufacture vegetable-based engineoils. Pioneered ethanol-blended gasoline in Can-ada in 1979.

I Patent on the development of a super-lightweight fuel tank for storage of compressednatural gas for automotive use.

I 1988: Set up a facility to convert trucks andautomobile engines to natural gas.

Sioux: 1993–94

I Patents on 10 percent improvements in prod-uctivity at its ethanol distilleries while reduc-ing wastes.

I Advancements in research in photovoltaic cell-based rechargeable automotive batteries.

I Development of a new ethanol blend: 10 per-cent ethanol and highly oxygenated andreformulated gasoline that has the lowest totalemissions of particulates and carbon gases inthe world.

Documents

Proactive corporate environmental strategy and the ... · PDF fileSTRATEGY AND THE DEVELOPMENT OF COMPETITIVELY VALUABLE ORGANIZATIONAL CAPABILITIES ... Sanjay Sharma, ... of competitively