This work focuses on one aspect of ‘sustainable development’ from a company’s perspective, specifically Sustainable Value Creation (SVC), defined as the corporate ability to pursue the dual objective of financial and... [ view full abstract ]
This work focuses on one aspect of ‘sustainable development’ from a company’s perspective, specifically Sustainable Value Creation (SVC), defined as the corporate ability to pursue the dual objective of financial and sustainability performance. Indeed, according to a preliminary literature review of 86 papers on the relationship between sustainability and financial results, while practice claims the need of models and tools helping to achieve a SVC strategy, academic research on SVC is still in its early stage. To address the issue, this work proposes the analysis of switching costs (SC) of sustainable projects as an approach to understand SVC strategic dynamics. While there are studies recognising the multi-dimensionality of the switching cost construct, e.g. Burnham et al. (2003) in terms of financial, relational and procedural costs, none of them have considered how the different types of SC have contributed to or prohibited the achievement of either sustainability, or corporate financial performance (CFP), or both (in other words, the SVC). As one of the most common practices of measuring sustainability is to consider environmental, social and governmental (ESG) factors, this research argues that the necessity to combine the ESG dimensions of SVC is reflected in the ability of switching costs analysis to reveal financial, procedural and relational dynamics when sustainability is implemented. Therefore, the following research questions are investigated: 1) How does SC analysis help in building or improving a SVC strategy? 2) How can SC and ESG be mapped for this purpose? A review of 97 journal articles on the topic of SC was conducted, revealing that the strategic role of SC in business value generation is widely recognised in literature. A detailed list of SC, which were categorised as financial, procedural and relational, was created for the SC analysis. It was noted that, while financial costs are usually assessed, often that is not the case of relational and procedural costs, as they are not directly quantifiable. Nevertheless, ignoring them may cause a negative impact on sustainability and business performance, contradicting the very aim of pursuing SVC. Therefore, to capture the non-quantifiable SC, qualitative research methods were used. The analysis was conducted on projects aimed to UN Sustainable Development Goals implemented by SVC “best-practice” Walmart Mexico and Central America. Data was collected through semi-structured interviews to head of departments and processed using Nvivo. Through the case study, in which the relevance of different types of SC to sustainability as represented in ESG were coded, mapped and plotted, both positive and negative effects of SC were illustrated. While traditional literature such as Porter (1980, 1985) suggests that diminishing SC faced by the company has a positive effect on CFP, this analysis further expand the picture including the relationship between SC and sustainability by mapping its effects and opening to different relationship possibilities. Results show that reducing procedural SC may contribute to an improvement of all the three components of ESG.
KEY WORDS: Switching Costs (SC), Sustainable Value Creation (SVC), Sustainability, Environmental, Social and Governmental (ESG), Corporate Financial Performance (CFP).
5a. Corporate sustainability and CSR
