Why sustainable operations are good for business

Firms that promote sustainable practices increase human-resource and customer benefits.

This article is based on research by Annachiara Longoni

Making businesses sustainable is not always at the top of the list of companies whose goals are purely financial. Esade associate professor Annachiara Longoni has found evidence that could change this perception and make companies more interested in making their operations more sustainable.

The findings, published in the International Journal of Operations & Production Management, demonstrate that sustainable operations not only help businesses gain a competitive advantage but also increase human-resource and customer benefits.

"Our findings reveal that sustainable operations practices have a direct impact on customer benefits – they improve a firm's positive relationship with its customers," says Longoni. "Companies with sustainable operations in place also bring about human-resources benefits – that is, intangible benefits that contribute to improving employees' motivation to pursue the firm's goals and strategy."

Companies with sustainable operations in place contribute to improving employees' motivation

Longoni and her colleague Raffaella Cagliano at the Politecnico di Milano analysed more than 100 Italian firms in the food industry to see whether these companies' sustainable operations practices were helping to increase their competitive advantage.

Green and social operations

In particular, the researchers studied how these companies were implementing two different types of sustainability practices:

  1. Green operations practices aimed at reducing consumption of natural resources and eliminating pollutant emissions.
  2. Social operations practices aimed at improving employees' working conditions, health and safety.

The findings differed depending on which type of sustainable practices were implemented: "Companies that have green operations practices in place will see a direct impact on their customer benefits, but no human-resource benefits. However, firms that focus their efforts on social operations will have a direct impact on human-resource benefits and also an indirect impact on customer benefits."

Social operations and human-resource benefits

Employees are the most valuable resource leading to a firm's competitive advantage. For employees to be a valuable resource, however, they must be motivated to continuously build their ability to contribute to the firm's goals and competitive advantage.

Talented employees are more likely to be retained when they work in a safer work environment

"We observed that companies that implement sustainable social operations such as clean and safe working environments, health benefits and worker well-being practices are better at maintaining employee motivation and retention, thus bringing direct benefits to the firm through competitive advantage. Talented employees are more likely to be retained when they work in a safer and healthier work environment," explains Longoni.

Green operations and customer expectations

Research shows that customers are increasingly attracted by companies that pay attention to environmental issues. "Today, individuals are more and more aware of the impact of firms' operations on natural resource consumption and pollution emissions. In this scenario, companies that promote green operations practices improve their public perception as a 'green' firm and this perception enhances customer relationships, loyalty and sales."

The researchers identified many positive benefits when firms adopt green operations practices, including enhanced brand visibility, counterpoints to negative publicity, greater brand awareness, and brand image reinforcement. According to the authors, these outcomes also result in incremental gains in new sales and repeat purchases of old and new customers.

Practical implications for firms

The first practical implication for operations managers is that investment in both green and social sustainable operations practices is positively related to customer benefits and contributes to the firm's competitive advantage: "Managers in charge of operations may benefit from sustainable practices that incorporate both green and social operations, as both are crucial to obtaining customer benefits."

The authors also suggest that firms should acknowledge the relevant role employees play in achieving external benefits such as customer benefits.

"Firms should be increasingly encouraged to consider sustainable operations management as a win-win system that improves environmental and social outcomes as well as internal (i.e., human resource) and external (i.e., customer) benefits. The view of sustainable operations practices as a cost due to compliance with regulations should be discarded in place of a positive view of these practices as competitive levers," conclude the researchers.

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