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Green / sustainable procurement has been in the agenda for many of the organisations in the recent years and is considered as a way of greening the operations management by organisations. It is a process of effective "sourcing of goods and services, keeping in mind the three aspects, environmental, social and economic issues" (Jae Mather, 2010). Green procurement does not just mean eco-friendly products, but it is also refers to social and ethical sourcing, for example, sourcing locally from small suppliers can address the issues of unemployment and development of local economy. Green procurement should therefore not be just considered as an operating decision but looked as a strategic importance by firms. There is no standard template or process of implementing green/sustainable procurement as it varies from product to product and industry to industry to what makes it a sustainable/ green product.
Sustainable procurement has gained of strategic importance over the years. A study conducted by Business International (International, 1990) shows that nearly a third of the respondents considered environmental issues as a central issue and another 60% of them considered it as important. Moreover, organisations are allocating specific resources to overcome the environment issues. As reported by Morrison (Morrison, 1991) in one of his studies, 70% of the organisations have specific allocations made to tackle this issue. But still many organisations consider this from a corporate reputation and that the competitors are doing it which forces them to do it as well. It is nothing more than a marketing gimmick or advertisement agenda for the firm. Governments of different nations are encouraging both private and public firms to become green in which ever ways possible and have been creating policies and providing with incentives for initiatives taken by these firms.
Environmental issues have been the core of sustainable procurement. The ozone depletion, reduction of carbon emission, bio-degradable materials, eco-friendly products, alternate energy sources to effectively use the natural sources have all been important factors. Socio-economic development of the local, like the social welfare of people, health care, employment opportunities also form the core of sustainable procurement. The below graph (Figure 1) shows on the time scale the global increase in Carbon emission. Over the last century, the increase carbon emission is over eight billion metric tonnes and is still growing (Marland, G., T.A. Boden, and R. J. Andres, 2007). At this rate it is very alarming as the impact of this on the environment is enormous and organisations have to cope with the drastic change in climatic conditions. This intern leads to the uncertainty in business and organisation having to act accordingly.
This is something that cannot be stopped immediately but can be brought down with a concise effort of the people and organisations. B&Q, The Body Shop, M&S, Corporative foods, Waitrose etc., in UK are amongst some of the big firms, who are using green initiatives as a strategy and also develop & educate the supplier base as well by creating strict policies. There are two specific reason why going green is an important issue for the purchase and supply managers, one is to protect and preserve the ecology and the other being the improved risk-management i.e., to avoid penalties for non-compliance.
Implementing sustainable procurement strategy needs some fundamental changes in the way the procurement process is carries out. This always comes at a cost and not all organisations and supplier are prepared to invest into it. From the organisations perspective, buying green products or process is like the concept of buying lemons. The determination of the value of green is indefinable and is difficult for organisations to evaluate, which some supplier use to express opportunistic behaviour in order to achieve the maximum surplus value out of it. There are various certifications that the supplier can take to emphasise that they follow the procedures of producing environmentally but in reality it is difficult for one to test this. Managers also find it difficult to adopt it into their agenda as sourcing green means that they would have to consolidate the demand and place the business to supplier(s) who is compliant. Most organisations are acting cross-functional and the agendas of one department will not be the same as the agendas of the other and consolidation could be a problem. This could lead to inter-departmental conflicts and the use of power by managers in getting done their agendas.
The barriers to the implementation could be created from various reasons, ranging from the macro-environmental problem of information asymmetry, supplier base/market availability, uncertainty in the market to the micro-issues like internal organisations structure or the organisational politics and power. This research aims in finding and outlining those different barriers which makes the implantation of green/sustainable procurement process a difficult task and drawing a conclusion as to, under what conditions can the green/sustainable procurement strategy be successfully implemented in the organisations.
The first section of this research covers the theoretical aspects of the study in relations to change management. A force field analysis is used to find the forces acting for the change and that are against the change and then study in depth the forces that are against the change or implementation process. The role of power played in both the internal factors and the external factors affecting the change is then taken as the basis to study the impact on the organisational decision making. Then drawing up both internal and external barriers together a possible condition for successful implementation of the strategy is formed; thus forming the hypothesis of the research.
The next section is the research methodology, describing what kind of research is followed and how it is carried out. The next section is the analysis of the primary data; A case study was conducted in an organisation where the green/sustainable procurement strategy was implemented and finding the difficulties that the organisation faced during the process. Two specific cases were selected for the study, one where the process of transformation was a smooth process and the other, where the process hit a few barriers before being fully operational; and interviews were conducted with the key stakeholders, purchasing manager and purchasing staff to find what are the barriers faced by the organisation.
Final section is the summary and conclusion which also includes the further scope of the project. The summary/conclusion of both the cases is tested against the hypothesis and the conclusion is derived based on the outcomes it.
2. Literature Review (3204 words)
Change is inevitable; as said by Laurie, organisations are subject to continuous change in one form or another (Laurie J. Mullins, 2008, p. 476) at any given time. There are various reasons for organisations to implement change; it could be due to uncertainty in the market, changes in political conditions, customer preferences, change in legislation/policies, government indulgence or technological advancements. Change management is not just a technical exercise where, the organisation plans, develops, implements and reviews the process. It is more a political process of decision making considering some of the key actors in the process.
There two ways in which change can be induced / implemented, (Baron, 1983),
"The Rational-Economic Model - The ideal way
The Administrative Model - The real way"
According to the Rational-Economic Model (Baron, 1983), "it is possible to make decisions that are completely rational and perfect which will lead to maximising profits (Rents). According to the theory, a problem is defined, and all the possible solution for the problem is considered and the optimal solution is then implemented. Rational choice model starts with the assumption of a goal or set of consistent goals; and then a set of decision alternatives to b chosen from; and the next step being the assessment of the outcomes & consequences of the action. The "decisions are then related directly to the goals or objectives set; that provides maximum value" (March, 1976). This seems very naive as knowing all the possible outcomes/options and their consequence is not possible and not realistic. On the other hand, the administrative model considers the fact that it is not possible to get all the information required as humans are boundedly rationale. Goals are views as constraints and decisions are taken to satisfy these constraints. The decision makers have to settle for the most acceptable solution under the given conditions and implement the change.
Although the administrative model seems to be the best solution for the circumstance, it is important to analyse the factors that make the transition a difficult process. To determine the different factors that impede the process of the implementation a "force field analysis" is conducted.
"Force field analysis' has been a widely used tool for planning and implementation of changes in organisations. The concept of force field analysis was first introduced by Kurt Lewin way back in 1950's" (Lewin, 1951). This has been widely used for implementing changes in various areas of organisation, from structure to technological to people and in some cases has been used to identify the forces that are affecting the change (Huse, 1980; D. Hellriegel, 1983, Steers, 1981). As seen in Figure 2.1, the organisation are in the position A and by inducing the change the firms want itself to be moved to a more desirable position B. There are two forces acting here, one the force which is for the change and the other is the resisting force, which hinders or does not want the change to happen, creating barriers.
Figure 1.1 Force Field Analysis, Adopted from Joe Thomas Model
Source: Thomas, 1985
As we can see from the above figure (figure 2.1) the forces that act for the change, are the forces that assist in the implementation of the new strategy or policy. These are used as key resources by the organisation to reduce the forces impeding the change. This can be from both internal and external sources. The internal sources could be from the stakeholder's interest and push for the new strategy, or the need for improving the production efficiency or due to the changing environment conditions. The external sources for change could be the government regulations imposing the change as mandatory, the socio-cultural changes in the locality and the pressure from the competitors & changing customer preferences forcing the change to take place.
The forces against the change are the forces that impede or create barriers for the successful implementation of the change process. This again could be from two sources, the external forces and internal forces against change. External forces of resistance can be due the fact that the suppliers have to fulfil prior commitments for which contracts have been signed already. Also the suppliers have to book the raw materials well in advance and there is a considerable time between the order placement and the delivery. So, if there is a change in strategy mid-way through the contract, it will be difficult for the supplier to implement the change and lead to poor supplier relation which intern will create barriers. Same is the case with the government regulations, if there is a change in the legislation or new policies implemented, it will be difficult for organisations to get it on-board immediately as there will be some cost involved due to which there will be some oppositions. The other kind of external forces is maintaining the good customer relations as not doing so will lead to customers losing confidence. For example, if there is a new product launched by a firm, the previous/old product has to be slowly phased out, else the customers will find it difficult to adapt to the new product. Apple and other computer products like Microsoft Windows stand as a good for this; when a new product is launched, they don't stop the existing product but slowly phase out from the market.
The internal forces against changes are often around the problem of the organisations willingness to adapt change. Sometimes, it is due to the fact that the organisation does not possess the necessary resources, like, skills required, inadequate equipments, and financial strength. Organisation culture also acts as a hindrance to firms changing strategies, as way the organisation was led and their belief and norms created by the leader at the top management is difficult to change. Also the problem of organisational politics or micro-politics in organisations also creates barriers as managers do not want to give away the status quo or see reduced power so they resist the change.
Barriers to change as we have seen above from the force field analysis can be both from external sources like, supplier market, government policies, customers themselves; and internal sources like individuals resistance to change, organisational politics and power and organisational culture. It's important for organisations to evaluate these prior to the implementation of change as this could provided them with the necessary solutions/options when the problem arises to successfully implement the change process.
2.1 The Internal Forces or Role of Power
The internal factors to change are around the individual's resistance to change and how they influence others in the organisation. It is important for managers to understand the strategic change dynamics for it to be a success. The key here is the decision making and how individuals exercise power within the organisation. Pettigrew argues that "individuals are governed not just by the structure but also on their ability to mould and shape the structure according to his own interest. As said by Pettigrew, organisational power, politics and change are interlinked to each other. A change made in the organisation forms or ignites ambiguity and uncertainty into the organisation and creates a ripple across the organisation. He says that, managing change will be challenging and power exercised by the change agents will stimulate the change process. The extent to which politics and power can be exercised depends on organisation to organisations and there is no specific ways of dealing with it" (Pettigrew, 1973).According to Emerson, "dependence of actor A over actor B as (1) being directly proportional to A's motivational investment in goals mediated by B, and (2) inversely proportional to the availability of those goals outside the A-B relationship" (Emerson, 1962, p32). He argued that "the power of A over B is same as the dependence of B over A".
As explained by March, "classical models of choices in decision making have two major complications, the first is the fact that the possible outcomes of the problem can be anticipated but it is difficult to know which of them is realised and the second factor being that the consequences also depends on various other strategic actors" (March, 1988). March argues that decisions are always made under various conditions of ambiguity ranging from the "ambiguity about preferences, ambiguity about relevance, ambiguity about history and ambiguity about interpretation". Understanding of the ambiguity is important in understanding, predicting and improving the organisational behaviour of individuals.
Pfeffer (Pfeffer, 1981) argues that "power is used by individuals under various conditions in the organisations. He broadly classified them into three conditions". The first condition being the use of power under interdependence, where what happens to one individual affects another in the organisation". If for instance in a joint activity, a decision taken by individuals in activity A affects the outcomes of preceding activity B. "The second condition for use of power is the condition of heterogeneous goals, or goals which vary with each individual or department". Different individuals or departments have different goals and they form sub-units in the organisation creating a barriers/resistance while implementing a homogenous goal like the green procurement strategy in the organisation. The third is under condition of scarcity, where the organisations have limited resources and cannot satisfy the need of all the individuals and departments. This creates internal conflicts leading to the most powerful in the organisation getting the resources. He also argues that under the above conditions the only way to reach a solution will be through the use of power and it is inevitable.
The power of individual in the organisation is determined by the importance of what they do to the organisation and how skilfully the do it (Pfeffer, 1981). There are a number of sources through which intra-organisational power are created in organisation. It all related to the critical role of dependency that creates power. Organisations are dependent on their employees and they form as value resources for the organisations. Some of these resources form as a critical part of the organisation, like for example in a software company the software engineers become critical part of the organisation and thus get a privilege over the other departments in terms of resource allocations (monetary resource, prestige/status quo, legitimacy, rewards and schemes) . Power is also created when a part of the business or an individual is irreplaceable. These are people or teams which possess a specialised expertise which is important to the firm. Power is also accrued through ability of an individual or a department to cope with uncertainty (Cyert and March 1963). Thus individuals create power for themselves in the organisation and influence other people in the organisation in achieving their own manifesto/interests.
Inducing a change in the organisation requires a principle, the one who creates/initiates the change process and change agents who carry out the process. The implementation of a change process is only possible when the barriers created by these powerful agents are minimized or low.
2.2 The External or Macro-Environmental Forces
On a macro level as well, there are various factors that act as a barrier towards change. This is again around the discussion of power and how it plays a big role in the decision making process. The external forces could be government regulations, customers themselves and the resistance from the supplier. Government restrictions and regulations act as a hindrance as, certain restrictions created by policies prevents/restricts the firms from implementing a proposed change. Customer preference, though not of greater importance also forms as force acting against the change. If the customers are not willing to pay the premium for a green product/process, organisations find it difficult to invest into the process as there is high uncertainty of the product in the market. The supplier on the other hand play an important part as the implementation of green strategy requires certain specific investments to be made by the supplier.
To understand the supplier's resistance to change, it is important to understand the power dynamics in the buyer-supplier relationship. "Power is defined as the ability of the player A to influence player B to do something that otherwise player B would not have done" (Dahl, 1957). Power plays a different role for the buyer and supplier. For the buyer, "Power is about driving the price down and giving higher bargaining power. On the other hand, for the supplier it is about increasing the marginal cost and being able to hold-up the buyers. The buyer-supplier power relation depends on the extent to which they share the cost based information and the more uneven the distribution, the problem of information asymmetry arises. The below four box matrix shows the four possible buyer-supplier relationship in business.
Figure 2.2 Buyer Supplier Relationship Model, adopted from Cox, A
Source: Cox,A, et al., 2000
As the above Figure 2.2 shows, the buyer-supplier relations depends on two variables relative utility and relative scarcity that both parties bring into the relationship. Another variable, 'relative information' could also be added to these variables as information shared has an impact on the relationship. The Buyer Dominance is said to be under a condition when the buyer's offer is of high utility to the supplier or forms a significant part of the suppliers' business or the resources are plenty and have low utility to the buyers. On the other hand, Supplier Dominance is a condition when the supplier possesses scarce resource which is of high utility to the buyer or the buyer's offer is not of high utility to the supplier. Independence is situation when the utility is low for both the parties and there is no power exercised. Inter-dependence is a condition when both the parties utilities are scarce and the party which possess most information tends to hold the power in the relationship" (Cox,A et al., 2000).
The two key variables, "the resource utility and the resource scarcity are the forces that shape the power" (Cox,A, et al., 2000). "Power is relative" and tends to change over the time based on the changes in these variables. Resource utility is determined by the operational importance and the commercial importance of that resource on the revenue of the firm. From the buyer's perspective, the operational importance is the degree to which the resource is indispensible and the number of substitutes that are readily available for the product/service. Certain resource could be of higher importance because they cannot be substituted and some with low operational importance (Cox,A, et al., 2000). From the supplier's perspective though, the operational importance is about the buyer's regularity and the expenditure of the buyer. Thus a supplier will have more preference for a buyer who provides with regular business. The commercial importance of the utility is about the future revenue generating opportunity provided by the supplier utility.
Resource scarcity on the other hand is determined by the imitability and substitutability of the resource. If a supplier posses a scarce resource which is of strategic importance to the buyer then he is destined to have more power over the buyer. As described by Cox (Cox,A, et al., 2000). "Rumelt was instrumental in developing the concept of 'isolating mechanism', which is a factor that impede the imitative competition. The two main types of isolating mechanism are "property rights to the scarce resource and the quasi-property rights in the form of first-mover advantage". These mechanisms provide the power to the supplier and create barriers to protect their unique market position. Resource scarcity could also be created by the information asymmetry, i.e. the public and private information held by both the parties. The public information is readily available but the private knowledge is the hidden knowledge. During the transaction, hidden knowledge is known only to one of the contracting parties and it comes at a significant cost to the other party. For example, supplier producing a green product knows the exact added value of the green products, but demands a price well above the cost of production; and it is difficult for the buyer to estimate the exact price and ends up relying on the supplier. . This creates a room for the supplier to exhibit opportunistic behaviour during the pre-contractual process and is called as 'adverse selection'. On the other hand, buyer also use the additional knowledge that they posses to gain advantage. They create preferred suppliers and promise them with assured future business to strike a better bargain in the current deal. Privileged suppliers on the other hand also turn their added knowledge into an advantage by convincing the buyer for a contract and condition favouring them post-contractually. This kind of post-contractual opportunism is described by Cox as 'moral hazard' behaviour of the supplier.
Determining the supplier power and the two important factors determining the power (resource utility and resource scarcity) is important before the introduction of green procurement strategy because it helps determine if there would be resistance from suppliers in getting onboard the new policies. If the suppliers see the buyers business as their integral part of their business or the buyer is a strategically significant buyer i.e. blue chip client or a profitable part of the business, then would comply with the changes. If the buyer's business is not a key account for the suppliers, then they would not play ball. This would make the implementation of the new strategy a difficulty as the supplier's will be reluctant to change and would do it only if there is any strategic benefit for them in it. The ideal position for the buyer to be in will be the Buyer dominance, which will give them the upper hand over the supplier while implementing the change.
Thus from the above discussion, it is possible to say that both the internal and external factors act as barriers in implementing a change process. Bringing both these factors together, the below four box matrix (Figure2.3) is created. There are four different conditions that the organisation could be placed before the implementation of the new strategy/policy.
Figure 3.3 Possible Conditions under which Implementation is Feasible
The first condition is, when the internal barriers are high and the external barriers being low, which means that the supply markets/suppliers are ready to incorporate the change but the intra-organisational power and politics makes it a difficult to sell within the organisation. The second condition is when the internal barriers are low and the external barriers are high, where the organisations want to implement the new strategy but the supplier provide resistance because of the specific investment that they would have to make. The third is when both the internal and the external barriers are high, where the possibility of implementing green strategy is very bleak unless it is regulated by the government. Neither of the parties feels the real need or strategic benefit of the implementing the new strategy. The ideal condition when the implementation is possible is when both the internal barriers and the external barriers to change are low. Both suppliers and organisation are willing to invest into the new process and find it beneficial. Under all other circumstances, the organisations will have to face problems in implementation of new strategy.
Thus the research hypothesis is implementation of green/sustainable procurement is possible only under the condition when both inter and intra-organisational barriers are low.