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Full title:
Stakeholder Engagement: Defining Strategic Advantage
for Sustainable Construction
Short title:
Stakeholder Engagement for Sustainable Construction
Alexander Rodriguez-Melo and S. Afshin Mansouri
*
Brunel Business School,
Brunel University,
Uxbridge, Middlesex UB8 3PH,
United Kingdom
*Corresponding Author,
Email: Afshin.Mansouri@brunel.ac.uk
Tel: +44-1895-265361, Fax: +44-1895-269775
Revised version of the manuscript BSE-10-0082 submitted to:
Business Strategy and the Environment
(Accepted and published in Vol. 20 (2011), pp. 539–552)
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Stakeholder Engagement: Defining Strategic Advantage for Sustainable Construction
Abstract
Although sustainable development is increasingly becoming part of business plans, it is not
clear what makes the economic, social and environmental dynamics strategically compatible.
This research examines which of three factors in sustainable development – government
policy, managerial attitude and stakeholder engagement – is the most influential on the
profitability of companies in the UK construction sector. Quantitative and qualitative
analyses were rendered through a survey and semi-structured interviews. Patterns of
ambiguity in legislation were discovered as an obstacle for changing the sector’s mind-set.
Stakeholder engagement was identified as the defining factor increasing managers’
awareness, helping legislation to be effectively implemented and making sustainability
highly appealing to clients. These findings indicate that to gain competitive advantage,
companies should embark in long-term strategic alliances which adopt the proposals of
environmental NGOs and closely follow public opinion. Thus, strengthening brand equity,
this allows for premium pricing, increased market share, and maximised profit.
Keywords: Sustainable construction; Stakeholder engagement; Strategic advantage; United
Kingdom
1. Introduction
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Nowadays, remaining competitive in the market does not depend on financial assets.
Sustainable development is increasing pressure on the way companies design their strategies
(Elkington, 1997). Nevertheless, the dependency of the social, environmental and economic
lines on each other represents the new paradigm to be resolved by strategists. Previous
investigations have identified factors in sustainable development which influence a
company’s performance. However, there is not clarity in identifying the most significant
factor, thus clearly exposing a flaw as strategic efforts cannot be used effectively. Moreover,
studies have focused on industries such as oil or automobile and the construction sector has
not been considered in these investigations. This sector employs c.2.1 million people and
contributes more than £100 billion a year to the UK economy (BERR, 2006). Additionally,
buildings are accountable for 50% of UK carbon emissions, 50% of water consumption, 35%
of landfill waste and 13% of all raw materials utilised in the UK (DEFRA, 2007). These facts
expose a significant opportunity to explore one of the most controversial issues in business;
sustainable development, in the framework of one of the most important sectors; the UK
construction sector.
With companies defining objectives in terms of financial results, this research aims to
analyze and establish which of three factors in sustainable development – government policy,
managerial attitude and stakeholder engagement – yields the greatest improvements in
financial performance in the UK’s construction sector. The study examines the extent to
which each factor is perceived as the most profitable element of sustainable development and
analyses any correlations among the three factors.
The remainder of the paper is structured as follows: the next section will analyze previous
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literature and will establish the research’s aim and hypotheses. Section 3 will describe the
research approach. The findings will be presented and analyzed in Section 4. Finally, Section
5 will discuss the findings of the research and will reflect on the authors’ recommendations.
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2. Analysis of Previous Literature
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2.1 Sustainable Development: a Source for Competitive Advantage
Conventional economics have worked solely in a monetary world, constantly ignoring
societal and environmental needs. This gap highlights the urgency to establish measurable
indicators for environmental and social aspects, to make an accurate assessment of a
company’s practices. A first attempt to define measurements in the social aspect is denoted in
the stakeholder theory. The theory classifies the stakeholders’ dimensions within the tasks of
boards of directors. These dimensions are categorised in, the narrow sense, which includes
individuals on which the firm depends for its existence, and the wide sense, which involves
individuals who are affected or has an effect in a firm (Freeman and Reed, 1983).
The ample definition of this theory has raised criticism. According to Sternberg (1997), for a
corporation is impossible to be equally accountable to all stakeholders. Hence, conflicting
interests between different parties cannot serve as a functional model for corporate
governance (Sternberg, 1997). These contradictions, nonetheless, can be amalgamated by the
concept of sustained competitive advantage originated on a company's resource-base
(Barney, 1991). This concept defines value, rarity, inimitability and organisation as the
dimensions which position a company ahead of its competitors.
The complexity of the triple bottom line makes sustainability perfectly suitable for Barney’s
model. Therefore, the companies integrating diverse stakeholders successfully would be able
to acquire a privileged position in the market (Hart, 1995). Evidence in the property
development industry suggests that integrating sustainability as a distinctive competency in a
firm’s strategy results in the identification of profitable market niches (Bryson and Lombardi,
2009). This has been tested in the oil industry. Empirical explorations have determined the
effectiveness of environmental strategies as part of the resource-based dimensions to obtain
competitive advantage (Sharma and Vrandeburg, 1998). Oil industry’ investigations offer
valuable generalisation. Companies in this industry must focus their strategy in an
international scope. Additionally, this industry is one of the most profitable but
simultaneously environmentally damaging.
Judge and Douglas (1998) confirm the benefits of sustainability to a company’s strategies in
other industries. Their quantitative examination not only established sustainability as a base
for sustained competitive advantage, but also established the strong and increasing
dependency of a company’s strategies on the natural environment.
Overall, sustainable development seen from the resource-based perspective of the firm is a
determinant of competitive advantage. The next step is to identify the main factors in
sustainability which contributes to that advantageous position in the market.
2.2 Sustainability’s factors influencing positive financial performance in companies
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Positive Managerial Attitude towards Sustainability
Environmental awareness is increasing rapidly; therefore companies that do not implement
environmental standards in their practices will find their culture to be undermined by
employees’ personal principles (Hoffman, 1993). The amalgamation of nature and integrity
promoted by managerial strategy are necessary if the discourse of ecological and social
sustainability is to be maintained (Gladwin, Kennelly and Krause, 1995). This suggests that
managerial attitudes towards the natural environment, further than being the force of
transformation, can create applicable ideas of profit making through sustainable practices.
Regarding the construction sector, the approach of positive managerial attitude towards
“green” corporations as the main factor influencing performance, exhibits a limitation. The
construction sector is project-based in nature, consequently each project with its own
peculiarities increases the probability of unpredictable events interfering with plans (Bresnen
and Marshall, 2001). These issues make the transfer of managerial knowledge more complex
than, for instance, the manufacturing sector.
Nonetheless, managerial commitment of belonging to a socially responsible culture has the
greatest influence on improving a company’s environmental strategies (Catasus, Lundgren
and Rynnel, 1997), which as a result brings more economic value to a company’s activities
despite the industry in which the firm operates (Fineman, 1996). Hoffman (1999), for
example, argues that the cultural origins of organisational impacts on the environment
depend on managerial decisions. This suggests that environmentally sound strategic
preferences overtaken to maximize competitive advantage, has to be negotiated by a
dedicated champion (Fineman, 1997). In the construction sector where, for instance, if
resources are utilised effectively, a balance between avoiding waste and pollution and
achieving a good quality of life can be obtained (Jones and Patterson, 2007).
These arguments advocate that managerial attitude is the primordial factor within
sustainability boosting financial performance in a company.
Government Policy
Businesses awareness of profitable opportunities without regulatory enforcement creates a
false supposition about competitiveness in the real market (Porter and van der Linde, 1995).
Moreover, company directors tend to assume that all cost-effective advantages for
environmental innovation have already been created, thus company’s motivation to pursuit
sustainable practices is easily overturned (Porter and van der Linde, 1995).
Jaffe et al (1995) study in the manufacturing industry showed that the expenditure created by
complying legislation may be equal to the benefits of using it. These results conclude that the
role of regulation is to impose a framework of good practice, but its influence on a
company’s performance is not positive whatsoever. Bonifant, Arnold & Long (1995),
recognise that traditionally, regulation is perceived as an obstacle for a company’s practices
and development. Conventional legislation, focused solely on cost-impact, delays progress in
environmental matters (Porter and van der Linde, 1995). Therefore, the authors argue for a
change in the focus of legislation from pollution-prevention to resource-productivity. This
new regulation would generate competitive advantage through innovation, e.g. by using
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materials which last longer and can be recycled. Moreover, the most efficient enabler of
economic instruments to incentivize innovation comes from conventional policy of direct
regulation (Krozer and Neinties, 2006).
This idea can be seen in the UK’s construction sector. The key factor of this type of
regulation is to force companies to comply with a certain requirement and to provide
companies with guidelines that show “how to” achieve the goals established by
environmental regulation. It is also complemented by incentives which motivate
organisations to fulfil the parameters imposed by government.
For example, under the Code for Sustainable Homes, the UK Government has established a
minimum of level 3 on all planning applications for construction. It is an ambitious and
demanding objective, which is even more complicated to reach under the climate change
levy. This is a tax on electricity used by non-domestic energy users. Despite the tough target,
enormous incentives are provided by the Climate Change Agreement, which gives an 80%
discount on the climate change levy charge in exchange for attaining energy-efficiency or
carbon emission reduction targets (DEFRA, 2008).
Another example is the business opportunities created by legislation under the Kyoto
protocol’s carbon trading scheme, which motivates industries to become more aware about
environmental protection and furthermore encourages them to be more innovative in the way
they operate to raise profits (Hill, 2001; Sathiendrakumar, 2003).
The previous arguments demonstrate that environmental policy is the main source of
innovation and, therefore, a source of profitability.
Stakeholders (Environmental NGOs & General Public)
Research naming stakeholders as the source of competitive advantage points at two particular
stakeholders: the general public and environmental NGOs. Roarty (1997) argues that, since
market values are a symbol of society’s choice, the general public is the main driver, as it
represents consumers’ and citizens’ preferences for a more sustainable economy. He claims
the function of society as the influential factor to become green is the core incentive for
businesses to create more environmentally friendly technologies. I.e. if clients are “green”, it
will be lucrative for organisations to become “green” (Roarty, 1997).
This undermines the criticism of authors such as Hart and Ahuja’s (1996) who state that
following environmental strategies have limited financial benefits. Moreover, despite the
increasing awareness of environmental issues, it is uncertain whether external stakeholders
can be recognized as the driving force for corporate, and profitable, environmentalism
(Sandhu et al, 2010). Therefore, environmental strategies would not represent the objective of
sustainable development (Hart, 1997).
As demonstrated by Maxwell et al (1997); Sharma, Pablo & Vredenburg (1999) nonetheless,
further improvement in financial performance can be achieved by implementing marketing
strategies created to satisfy the need of the general public and environmental NGOs. They
state that these strategies create value by improving performance through reducing costs of
input resources, higher efficiency, lower energy consumption, waste reduction and
differentiated products.
