Original Study: Ortiz-de-Mandojana, N. and Bansal, P. (2016): The long-term benefits of organizational resilience through sustainable business practices. In: Strategic Management Journal, Vol. 37, p. 1615-1631.
The study in one sentence
This study shows how sustainable business practices are paying off in the long-term.
Interesting for people who…
… believe that sustainability and short-term profitability lead to a trade-off decision.
What to remember
Today, most firms feel the call – or are called by new laws - to incorporate social and environmental practices (SEPs) into their businesses. However, to integrate and anchor SEPs into an organization involves investments in the here and now, e.g. making changes in production technology and processes, investing in employee development, certificates or stakeholder relationships, etc. However, what the value of such SEPs is in the long run is not yet clear at all. That’s why most SEP decisions today are taken based on the traditional short-term view, informed by one-year accounting returns or financial market measures. This study does a great deal to help understand the long-term effects. It shows that firms with SEPs outperform firms without SEPs in the long run through higher organizational resilience, which shows in less financial volatility, higher growth rates and a higher rate of survival. On top: These firms did not show lower short-term profits. It seems that SEPs particularly help accumulate so-called non-tradable resources, such as reputation, stakeholder trust, and motivated employees who beneficially influence the survival of a firm.
The most insightful sentence
«[..S]ocial and environmental practices (SEPs) help firms sense and seize long-term opportunities and mitigate threats, which contributes to their resilience, […that in turn] helps firms endure over the long term and through crisis.»
The most provocative sentence
«Therefore, financial performance, as reflected by changes in share prices, is not a reliable indicator of the long-term value of SEPs.»
Consequences for managerial practice
Firms that incorporate SEPs should make an effort to take on a long-term view and start monitoring their organizational resilience. It holds firms stable and credible with regards to any kind of external shocks or crisis. This long-term value is only generated through sustainable trusting stakeholder relationships. That means firms need to make sure that any kind of sustainable practice creates more stakeholder trust and engagement, e.g. in the form of motivated supply partners that are reliable particularly in times of crisis, or employees who are motivated, healthy and willing to go the extra mile. It means to put stakeholder engagement in the center of any corporate sustainable management if SEPs are to create not only short-term but as well long-term values for a firm. Above all, it requires adding on to the existing accounting frameworks and operationalized monitoring of these rather untradeable long-term values.
Food for forward thinking…Albert Einstein already knew “We cannot solve our problems with the same thinking we used when we created them.” Applying the same short-term performance logic to SEPs, firms will miss out on the long-term value and come to ill-informed decision-making. How can we measure the long-term value of SEPs through progress in humanity, ethics, and stakeholder trust more appropriately? Your thoughts are more than welcome – either below or directly to me.