BSS ARTIKEL WEEK 5.1
This post summarizes research on how social movements incite companies to enter moral
markets. Is it good, in your opinion, that companies such as Walmart or BP are also
entering?
The markets these four firms have entered, solar energy and organic food, are two instances
of what are known as moral markets—markets that exist not just to create economic value,
but to explicitly create social value.
But why do companies as diverse as Walmart and Patagonia decide to enter moral markets
in the first place?
Conventional wisdom emanating from classic strategy texts and consultants suggests that
companies enter new markets where they can leverage existing resources to gain an
advantage.
But when it comes to entry in moral markets, a company’s resources tell only part of the
story.
Take the case of Patagonia, the outdoor clothing retailer that entered the organic food
market with its Patagonia Provisions line. When this was announced back in 2012, many
were surprised by the move. What business does a clothing company have in the food
industry?
Patagonia’s founder, Yvon Chouinard, later clarified that this move was not about
reusing or exploiting the company’s existing resources. Rather, the company saw the
need to offer organic and sustainable food choices as a partial solution to the
environmental crisis.
With or without related resources, however, it is clear that both Unilever and Patagonia saw
entry in a moral market as an opportunity to realize their corporate identity.
Often reflected in companies’ mission and purpose statement, identity constitutes the
essence of the organization: what are its central attributes; why it exists in the first
place.
But as the opening examples show, companies whose identity is in conflict with moral
markets also enter.
Oil companies such as BP or Total, for example, have spent considerable amounts of
money in manufacturing solar panels, despite the fact that the oil industry relies on a
fundamentally different technology and knowledge base compared to the solar
business.
Why is this the case? To resolve this paradox, we have to look not only within but
also outside these organizations.
,It turns out that social movements can prompt firms with conflicting identities to enter moral
markets.
- Via consumer education campaigns, lobbying efforts that influence public policy, or
other tactics supporting these markets, activists can make moral markets more
attractive.
- At the same time, they also engage in protests that single out the ‘bad guys’– those
companies responsible for creating the problem in the first place.
- This forces such companies to deliberate on how best to respond to such protests
and may actually motivate them to enter the market, either to reap the benefits sown
by the more committed early movers or to forestall criticism that they are the source
of the problem.
Whether the presence of consistent and conflicting identity companies is good or bad for the
development of moral markets is an open question.
On the one hand, such diversity is beneficial because diverse companies contribute
varied resources to building the market.
On the other hand, it is dangerous because the presence of the ‘bad’ guys can lead
to mission drift or discourage companies from working together to promote the
market.
, BSS ARTIKEL WEEK 5.2
This article explains the concept of “self-regulating institutions”. Focus on understanding
why they appear and reflect on the consequences they have for organizations
regarding their environmental behavior. Also, should these self-regulating institutions be
favored over regulation? Are they complementary?
Scholars of management have long considered how institutions can help resolve market
imperfections and thereby improve human welfare.
Most previous research has emphasized the use of for-profit firms. Such institutions
cannot effectively address many environmental problems, however, because
environmental problems often transcend firm boundaries.
As a result, management scholars have begun to explore the use of more distributed
institutional forms.
In this article, we review the emerging scholarship on the formation and function of
self-regulatory institutions.
The “Theory of the Firm” proposes that transactions are internalized in firms when
particular features (e.g., uncertainty or specificity) are problematic with respect to market
exchange, and the magnitude of the problems exceeds the disadvantages of organizing
within firms (e.g., bureaucracy costs, “low powered” incentives).
In the absence of government regulation, solutions to environmental problems might require
that actors “self-regulate.”
Scholars have employed “the tragedy of the commons” as a powerful metaphor for the
problems inherent in self-regulation.
Although each actor shares in the benefits derived from the conservation of common
resources, each actor also directly profits by consuming more of the resource.
Thus, according to Hardin (1968), “the inherent logic” of any commonly held resource
“remorselessly” leads to ruin.
The mutual benefits afforded by self-regulation generates a new, “second order”,
commons problem.
Self-regulatory institutions exist in industries as diverse as accounting, electronics,
computer software, agriculture, and banking.
