Sustainability Vs. Profitability In Business Organizations: A Study On Major Food Retail Chains In The UK

Background of the Study: Literature Review

Describe about the Sustainability vs. Profitability in Business Organization?

Various research studies and organizational practices have identified significant conflict between sustainability and profitability of the business organizations. Recent studies have recognized the importance of sustainable practices and growing number of organizations have been focusing on adoption of sustainable practice. Sustainable business practice ensures that resources will be utilized in such a way so that it meets the requirement without compromising on the capability of the future generation in fulfilling their needs. Sustainable business practice considers the impact of profit making business activities on the society and environment. According to Bloomberg more than 1/3^rd companies in United Kingdom are generating significant profit from the sustainable efforts. This paper will focus on conducting a study which will analyze the how sustainability influences the profitability of the major food retail chains in UK. The research proposal has included the major findings of the past research studies and provided an insight to the chosen industry. Research aims, objectives and research questions have been structured in this paper. Moreover, this paper has outlined the research method as well as identified the sources of relevant information which will be analyzed for reaching final conclusion at the end of the research study.

Concept of Sustainability and Its Importance

Sustainability can be described as satisfying the current needs without compromising the potential of the future generation in fulfilling their requirements. Over the past decade, the concept of sustainability has been receiving significant importance. Various business organizations are adopting sustainable practice through making significant contribution in the society, economy and the environment. For triangulating with the society as well as nation, business firms have been emphasizing on developing new strategy and policy for redefining the activities and roles. Dyllick and Hockerts (2002), have argued that sustainable business practice provides significant assistance in achieving triple bottom line by delivering social, economic and environmental advantages. Several organizations across the globe have focused on integrating sustainability into their business practice across the globe.  Integration of sustainability seeks to achieve equilibrium between short term and long term business considerations and the stakeholder’s interest stakeholders (Raynard and Forstater, 2002). 

Researchers have conducted several studies for identification of major benefits of sustainable business practice. As per the past exploration studies sustainable business practices can be considered as an aid for the organizations to accomplish its business objectives easily. However, some studies and business organizations have argued that practicing sustainability leads to incur additional cost for making significant contribution to the society and reducing the negative impact on the environment (Maas and Reniers, 2014). This section will focus on the analyzing the studies which have indentified that integration of sustainable business practice provides lot of opportunities to the business firm. Environmental Protection Agency (EPA) of US had published a report which has lucidly discussed how sustainable business practice contributes in the organizational growth through efficient management of risk and ultimately enhances the return on the investment (U.S. Environmental Protection Agency, 2010). 

According to ( ), sustainable business practice emphasizes on reducing waste as well as recycling through enhanced efficiency in the business operations. Hence, money can be saved from such practices. Hence, research studies have supported that sustainable business practice assists in improving the financial performance of the firm. Human resource is one of the important factors for organizational success. It is evident that sustainable business practice significantly helps in improving employee morale leading to enhance overall organizational performance (www.ey.com, 2013). Ethical consumerism has been receiving growing attention across the world. It implies that consumers are preferring products which are ethically sourced. Present trend has demonstrated that sustainable business practice helps in attracting ethical or green consumes. According to Fombrun, Gardberg and Barnett (2000), adoption of sustainable business practice assists in improving the reputation of the business firm or the brand image. A research condition was conducted in 2009 on the companies listed on Standard & Poor. It has been observed that reputed market leaders have been able to perform 22% better than the average companies. Moreover, the share price of these reputed organizations has been found to be 88% higher than the S&P average (Prophet, 2009). Hence, it can be concluded that the integration of sustainability helps in enhancing reputation followed by increase in the share price. Sustainable business practice has been found to be helpful in increasing positive interaction or public relation with the major stakeholders of the business. As various studies have demonstrated that sustainable business practice significantly helps in effective risk management, enhanced reputation and brand image. Consequently, organizations practicing sustainability will have better access towards capital. According to Vorhies and Morgan (2005), a socially responsible and environment friendly business organization will stand out in the competitive market. Thus, integration of sustainability helps in gaining competitive advantages and performs better that its rivals. 

Concept of Sustainability and Its Importance

Conflict between the corporate social performance and corporate financial performance is a much debated topic. Sustainable business strategies have included the idea of corporate social responsibility and focuses on making investment for the improvement of society and reducing the negative impact of business activities on the environment. However, some researchers have argued that higher cost associated with sustainable practice and innovation has affected the financial performance of the organization (Bryson and Lombardi, 2009). Though large number of studies has provided evidence for supporting sustainable business practice and its positive implication on the organization, some researchers have argued that a negative association is found between the corporate social performance and the financial performance. If earlier studies are considered, it can be observed that Friedman (1970), have demonstrated that sustainable practice encourages high investment in the society and environment, alteration of the business activities which affect the profitability of the firm. The major aim of the business firm is to maximize the value of the shareholders. However, increased cost prevents the organization from achieving this objective. However, this perspective was negated by the study of Freeman (1984). This study has exhibited a positive association between being socially responsible and eco-friendly organization and financial performance of the firm. This view was also supported by Jones (1995) and he explained that adoption of sustainable practice encourages in enhancing the social spending which improves the relationship of the business organization with the stakeholders.  It has been observed that improved relationship contributes in diminishing the transaction expenditure of the firm (Basu and Palazzo, 2008). Additionally, Fombrun, Gardberg and Barnett (2000) have argued that sustainable business practice provides ample opportunity to the company along with the pricing premium which can be capitalized in improving the overall financial performance of the organization (Fombrun, Gardberg and Barnett, 2000). It is evident that the cost of sustainable business practice is higher. But, Barnett and Saloman (2012) have argued that the business firms must focus on considering the principle benefits of the sustainable business practice which makes significant contribution in developing long term capability of the firm in order to capitalize its effort towards the society and environment (Bryson and Lombardi, 2009).

Various researchers have found that relationship between corporate social responsibility and the financial performance varies in different context and organization. The study conducted by Barnett and Saloman (2012), have found in case of some organizations, the association between sustainability and corporate financial performance has a negative association and in some cases the relationship between these two factors seems to be positive. Presently, large number of researchers has provided support for the positive association between sustainability and financial performance of the business firm. According to Barnett (2007), when a business firm plans to incorporate sustainable business practice, it will accrue the major influence capacity of the principle stakeholders. Support and co-operation of the stakeholders are very important for optimizing the major profits and benefits of the sustainable business practice. Hence, the business firm practicing sustainability must focus on exploiting the influencing capacity of the stakeholders. In other words, organizations cannot achieve success in achieving adequate stakeholder influence capacity; it will consequently fail in obtaining desired level of returns on investment from the activities (Sakellaris, 2008).

Major Benefits of Sustainable Business Practice

According to the study of Barnett and Saloman (2006), a ‘U’ shaped association exists between social and financial performance of a business organization. It has been observed that the return on the mutual funds that have invested in the businesses practicing sustainability varies with the severity of the criteria for social screening. The study conducted by Brammer and Millington (2008) have considered the association between the social and financial performance of the firm at the organizational level. According to the major findings of the research, it can be concluded that the highest as well as lowest level of social performance of a business firm can be associated with the highest level of financial performance.

The above sections have outlined that the researchers have provided significant evidence for supporting the sustainable business practice due to its positive implication on the business firm. However, it has been observed that several business organizations have been encountering major issues regarding integration of sustainable business practice. It is important to identify the major challenges of implementing sustainable business practice (Amir Bolboli and Reiche, 2013).  Various researchers have identified different issues faced by the organization in integrating sustainability.

First of all, organizations encounter major challenge when it makes an attempt to estimate the sustainable business activities and impact on the environment and society at the macro level. The effectiveness of the practice is extensively reliant upon the implementation strategy and process. Presently, organizations have several metrics in order to estimate the implication of sustainable practice (Hong, Roh and Rawski, 2012). However, issue arises when organizations have to choose appropriate measurement system in order to estimate as well as evaluate the impact of sustainable business practice (Sikdar, 2003). According to Laugland and Bansal (2011), there are different metrices and measurement system in order to serve distinct purpose. Some metrics address the requirement of a specific department while some deals with the issues. Some metrics set a benchmark for easy assessment of the sustainability practice. If the benchmark is not met, the organization needs to focus on improving that particular area (Dos Santos, Svensson and Padin, 2013).

Though ethical consumerism is growing across the globe, significant number of consumers does not consider this issue while making purchasing decision. As consumers make the purchasing decision, it is important to educate the consumers regarding the importance of sustainability so that their purchasing decision can be influenced (Stout, 2000). Moreover the perception of the investors regarding sustainable practice must be analyzed. As purchasing behavior and the perception of the investors have significant impact on integration of sustainable practice by a business, organization encounters difficulty when consumers and investors have different perspective (Laugland and Bansal, 2011).

Employee engagement is one of the important factors for practicing sustainability successfully. Studies have demonstrated that employees prefer to work for a sustainable organization. According to (Montgomery and Ramus, 2007), employees are ready to sacrifice higher income jobs to join sustainable organization. However, the organization encounters major issues in motivating the employees in order to execute the sustainability initiatives. Without spontaneous engagement of the employees it is impossible to practice sustainability successfully.

Sustainability Vs Corporate Financial Performance

According to Eberhardt-Toth and Wasieleski (2013), managers encounter major challenges in making financial decision related to sustainable investment. In most of the cases, the company can realize the intangible rewards in long term. However, the managers find difficulty in justifying the sustainable practice in case of short term investment. Hence, it can be stated that management faces major issue in integrating the value of sustainability in the financial decision making process (Aigner, Hopkins and Johansson, 2003).  Moreover, ineffective communication and leadership issues are challenges for practicing sustainability successfully.

The retail chains of United Kingdom has focused on developing sustainable infrastructure and operation as they have identified it is not enough for the business organizations to be concerned with profit maximization. The food retailers of UK have considered giving something back to the society through educing the negative impact on the environment and complying with the ethical codes (Walker and Jones, 2012). Studies have identified that retailers play a significant role in enhancing sustainable business practice. In the UK retail market, food retails chains are responsible for making higher contribution.  Presently, the food retailers of UK considering the issues related to climate change and waste management (Jones, Comfort and Hillier, 2009). The leading retailers from UK has taken various initiatives for recycling, sustainable sourcing, programs for supporting the local community, animal welfare, promoting healthy lifestyle and ethical consumption. Tesco, Morrison, Asda, Sainsbury, marks and Spencers have been using sustainable consumption messages in the marketing communication (Jones, Hillier and Comfort, 2014). The food retailers of UK have been integrating sustainability throughout the supply chain. Marks and Spencer’s have reported that sustainable development initiatives have helped in achieving greater profitability (Eaem.co.uk, 2011).

This study will focus on the retail chains of United Kingdom for understanding the impact of sustainable business practice on profit margin. The retail chains of UK include department stores, virtual stores and independent stores. Presently, e-commerce has been re-shaping the equation of retail chains. The retail sector of United Kingdom is highly competitive and the organizations are focusing on achieving competitive advantage for maximizing profits. The retail sector of United Kingdom has been encountering extensive growth and it has become a leader in innovation. The leading organizations of the retail sector in UK have already identified the importance of sustainable business practice in order to enhance the value of the business. The leading retailers of UK have been focusing on integrating sustainability throughout the supply chain for providing support to the local community and ensuring ethical sourcing. UK retail significantly contributes in the economy of the region. The retail industry is also focusing on promoting sustainable consumption through marketing communication.

This section will outline research aim and objectives along with the research questions. Research questions are based on the objective of the study and helps in structuring the study.

Research Aims and Objectives:

To understand the influence of sustainable practice on the profitability of the business
To explore the association between sustainability and profitability in the retail food chains of UK.

Research Questions:

What is the importance of sustainability in the contemporary business practice?
What is the relationship between sustainability and profitability in case of food retail chains of UK?

Research methodology is a comprehensive outline of the process of conducting the entire research for achieving firm conclusion at the end of the study. Research offers rational solution and insight to a particular issue. The major aim of this study is to explore how sustainable practice influences the profitability of the food retail chains in UK. This section will include the methodological assumptions, research approach; different techniques, methods for collecting data etc will be discussed in this particular section in order to guide the researcher towards the right direction.

Research onion contributes in providing a systematic structure to a research. Various steps are associated with an exploratory study. The researcher needs to describe each element of the research topic in order to achieve research objective. Starting from the outer most layer, each stage of the research onion must be explored systematically. Each layer of the research onion has specific implication and it helps the researcher in indentifying the most appropriate pathway for undertaking the study. Research onion is referred as the conceptual replica of the research which helps in structuring research activities for achieving the research objectives (Best and Kahn, 2006).

The first layer of the research onion can be described as the way of proceeding with the research topic. Other stages are significantly reliant upon the research philosophy and hence choosing the right philosophy is very important. It has been suggested that positivist belief helps in describing phenomena from an objective perspective. Positivist philosophy is a highly structured method for conducting research study. In this study, the researcher focuses on analyzing impact of sustainable business practice on the profitability of the organization. It has been observed that, adoption of positivism philosophy will be helpful in satisfying the research goals. Positivism philosophy will focus on the information which has been derived from the logical thinking as well as statistical analysis. Hence, it can be stated that positivism philosophy will be suitable for this study.

Research approach is the second layer of the research study and helps in determining the direction of the study. Researchers adopt a research approach between inductive and deductive. Lodico, Spaulding and Voegtle, (2006) have defined the inductive approach is associated with data collection, observation and critical analysis of data by using different analytical tools. Therefore, theories are developed from the findings of the research. In contrast, in case of deductive approach, the researcher needs to select theoretical framework, test hypothesis and analyze the data. At the end of the study, the result of the data analysis provides confirmation of the theoretical evidences. In this study, the researcher has to make a firm conclusion regarding the association between sustainability and profitability in case of the retail food chains of United Kingdom. Hence, in this study, adoption of inductive approach will be appropriate as the study will gather data and therefore establish a relationship between sustainability and profitability in the chosen market.

Research design is related to the specific pathway of the study and the third layer of the research design must be chosen carefully as the research design significantly helps in establishing a framework for undertaking the exploratory study. Research design helps in correlating the pathway of the research with its objectives (Mertler and Charles, 2005). It is evident that effective research design assists the researcher in maintain the superiority of the research study. Researchers choose from three major types of research design: exploratory, descriptive and explanatory. In this study, the researcher needs to choose descriptive design as it will provide support in relating to the research study (Lodico, Spaulding and Voegtle, 2006). Descriptive research design will significantly contribute in correlating the research pathway with the objective i.e. analyzing the impact of sustainable practice on the profitability of the food retailers of United Kingdom.

Data collection method refers to the way of gathering data from authentic source which will be utilized in reaching conclusion. In this study, two types of data will be collected: primary data and secondary data. Primary data will be collected in two ways. First of all, managers of three food retailers of UK: Tesco, Sainsbury and Marks and Spencer’s will be interviewed to provide an insight to the organization’s perspective regarding sustainability practice and its impact on profit margin. Open ended questions will be asked to the managers for gathering qualitative data (Mertler and Charles, 2005). Moreover a survey will be conducted where the consumers will be asked to respond regarding their perspective regarding sustainable business practice and how it influences their purchasing behavior. The questions will be closed ended and the data will be collected for quantitative research.

Secondary data has been collected from wide range of literatures. Journal articles, authentic websites, books, magazine articles, past research paper etc have been utilized for colleting secondary data. Secondary data is used for developing the theoretical basis of the study and presented as the background of the study.

Sampling is an important aspect of primary data collection method. Sampling method will determine who will be surveyed for collecting primary data from this study.  There are two sampling techniques: probability and non-probability sampling. In this study, simple random sampling will be used for choosing respondents for participating in the survey. The major advantage is this sampling technique is unbiased. However, random sampling increases the risk of error and it can be minimized through increasing the sample size.

Sample size refers to the number of respondents who has been surveyed for collecting primary data. As simple random sampling has been chosen, large sample size will be appropriate. Total 120 people will be surveyed for this study.

Data analysis is one of the important parts of the research as it will clearly indicate the implication of the gathered data and assist in reaching conclusion. In this study, qualitative as well as quantitative data analysis will be conducted. Hence, mixed approach will be adopted by the researcher in order to analyze two types of data (Giddings and Grant, 2006).

Ethical issues must be considered by the researcher. It must be ensured that all the information will be solely used for academic purpose. Additionally, the respondents and the mangers of the chosen organizations will be disclosing personal information at the time of survey and interview. Hence, it is the responsibility of the researcher to maintain confidentiality of the personal information shared by the respondents and managers.

In this section the time consumed for each activity of the research study has been presented.

Principal Activities	Week 1	Week 2 and 3	Week 4	Week 5	Week 6	Week 7	Week 8
Research topic selection & scope analysis
Identification of the sources for secondary data
Literature Review
Description of Research Methodology
Preparation of survey questions
Collection of primary data
Data analysis
Comparison of findings
Conclusion and recommendation
Final submission

Various resources are essential for conducting research study. All the resources are employed for making the exploratory study successful.

This research study requires £450 for different activities. First of all, conducting survey and gathering data will require money. Cost of traveling to different locations for collecting primary data will lead to major expenses. Additionally stationary and miscellaneous cost must be taken into consideration.

Information resources are very important for this study. College library and database can be used for gathering secondary information. In order to collect primary data appointment will be fixed with the manager of the three food retailers of UK. Moreover, survey will be conducted by considering simple random sampling. Relevant data can be easily accessed with wide information sources.

References

Aigner, D., Hopkins, J. and Johansson, R. (2003). Beyond compliance: sustainable business practices and the bottom line. American Journal of Agricultural Economics, 85(5), pp.1126–1139.

Amir Bolboli, S. and Reiche, M. (2013). A model for sustainable business excellence: implementation and the roadmap. The TQM Journal, 25(4), pp.331-346.

Barnett, M. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32(3), pp.794–816.

Barnett, M. and Salomon, R. (2006). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27(11), pp.1101–1122.

Barnett, M. and Salomon, R. (2012). Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal, 33(11), pp.1304–1320.

Basu, K. and Palazzo, G. (2008). Corporate social responsibility: A process model of sensemaking. Academy of management review, 33(1), pp.122–136.

Best, J. and Kahn, J. (2006). Research in education. Boston: Pearson/Allyn and Bacon.

Brammer, S. and Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), pp.1325–1343.

Bryson, J. and Lombardi, R. (2009). Balancing product and process sustainability against business profitability: sustainability as a competitive strategy in the property development process.  Strat. Env., 18(2), pp.97-107.

Dos Santos, M., Svensson, G. and Padin, C. (2014). A “fivefold bottom line” approach of implementing and reporting corporate efforts in sustainable business practices. Management of Environmental Quality: An International Journal, 25(4), pp.421–430.

Dyllick, T. and Hockerts, K. (2002). Beyond the business case for corporate sustainability. Business strategy and the environment, 11(2), pp.130–141.

co.uk, (2011). M&S and other retail chains find sustainability profitable | EAEM. [online] Available at: https://www.eaem.co.uk/news/ms-and-other-retail-chains-find-sustainability-profitable [Accessed 18 Mar. 2015].

Eberhardt-Toth, E. and Wasieleski, D. (2013). A Cognitive Elaboration Model of Sustainability Decision Making: Investigating Financial Managers’ Orientation Toward Environmental Issues. Journal of business ethics, 117(4), pp.735–751.

Fombrun, C., Gardberg, N. and Barnett, M. (2000). Opportunity platforms and safety nets: Corporate citizenship and reputational risk. Business and society review, 105(1), pp.85–106.

Freeman, R. (2014). Dialogue: toward superior stakeholder theory. Business Ethics Quarterly, 18(2), pp.153–190.

Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, (September), pp.122-126.

Giddings, L. and Grant, B. (2006). Mixed methods research for the novice researcher. Contemporary Nurse, 23(1), pp.3-11.

Hong, P., Roh, J. and Rawski, G. (2012). Benchmarking sustainability practices: evidence from manufacturing firms. Benchmarking: An International Journal, 19(4/5), pp.634–648.

Jones, P., Comfort, D. and Hillier, D. (2009). Marketing Sustainable Consumption within Stores: A Case Study of the UK’s Leading Food Retailers. Sustainability, 1(4), pp.815-826.

Jones, P., Hillier, D. and Comfort, D. (2014). Assurance of the leading UK food retailers’ corporate social responsibility/sustainability reports. Corporate Governance: The international journal of business in society, 14(1), pp.130-138.

Jones, T. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of management review, 20(2), pp.404–437.

Laughland, P. and Bansal, T. (2011). The Top Ten Reasons Why Businesses Aren’t More Sustainable. Ivey Business Journal, 75, pp.1–4.

Lodico, M., Spaulding, D. and Voegtle, K. (2006). Methods in educational research. San Francisco, CA: Jossey-Bass.

Maas, S. and Reniers, G. (2014). Development of a CSR model for practice: Connecting five inherent areas of sustainable business. Journal of Cleaner Production, 64, pp.104–114.

Mertler, C. and Charles, C. (2005). Introduction to educational research. Boston: Pearson/A & B.

Montgomery, D. and Ramus, C. (2007). Including Corporate Social Responsibility, Environmental Sustainability, and Ethics in Calibrating MBA Job Preferences. Stanford Graduate School of Business

com, (2009). Reputation Winners and Losers: Highlights from Prophet’s First Annual U.S. Reputation Study | Thinking | Prophet. [online] Available at: https://www.prophet.com/thinking/view/398-reputation-winners-and-losers [Accessed 12 Aug. 2014].

Raynard, P. and Forstater, M. (2002). Corporate Social Responsibility: Implications for Small and Medium Enterprises in Developing Countries. Vienna: UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION, p.5.

Sakellaris, G. (2008). Is it possible to achieve profitability considering sustainability, social and regulatory issues together?. Journal of Biotechnology, 136, pp.S761-S762.

Sikdar, S. (2003). Sustainable development and sustainability metrics. AIChE journal, 49(8), pp.1928–1932.

Stout, G. (2000). Sustainability requires consumer partnerships. p.41.

S. Environmental Protection Agency, (2010). Smart steps to sustainability : a guide to greening your small business. U.S. Environmental Protection Agency, p.1.

Walker, H. and Jones, N. (2012). Sustainable supply chain management across the UK private sector.Supply Chain Management: An International Journal, 17(1), pp.15-28.

ey.com, (2013). Role of HR in driving sustainable business practices. [online] Available at: https://www.ey.com/Publication/vwLUAssets/EY-role-of-hr-in-driving-sustainable-business-practices/$File/EY-Role-of-HR-in-driving-sustainable-business-practices.pdf [Accessed 12 Aug. 2014].