International Journal of Social Science and Business (IJSSB)

As special types of interorganizational relationships, supply chains possess the unique characteristic of connecting firms across different industries. As such, they play unique roles in the inter-industry diffusion of the impetus to develop sustainability capabilities – i.e. capabilities that help firms improve their sustainability track records. In this study, we develop a theoretical framework to explain the drivers and contingencies that govern this diffusion process at the granular level of a single supply chain link between a buyer and a supplier firm. Our theoretical framework integrates insights from various literatures including firm capabilities, supply chain management, sustainability, and institutional theory to paint a comprehensive picture of the varied and, at times, opposing forces that may be responsible for distinct development patterns of sustainability capabilities along different supply chains. Growing concerns shared by a broad range of stakeholders over the deterioration of the natural environment have pushed the issue of sustainability into center stage in many fields including strategic management (Schaltegger, 2011). From a strategy standpoint, firms‟ sustainability track record and performance can be perceived as being driven by underlying capabilities developed and polished over repeated interactions with relevant stakeholders. Historically, the goal of any organization involved in developing new capabilities has been to secure a competitive advantage by making it difficult for competitors to obtain or replicate. When it comes to sustainability-related capabilities, however, stated goals tend to surpass the economic gain of any single business, paving the way for their transfer and replication by other organizations in the name of the greater social good. As special forms of interorganizational relationships, supply chains are unique in that they cut across industries and connect firms belonging to different industrial and institutional contexts and hence, play a unique role in the interindustry diffusion of sustainability measures. In this study, we focus on the role of supply chains as platforms for the development and diffusion of sustainability-related capabilities1, defined as sets of routines and practices aimed particularly at improving a firm‟s sustainability track record. The unique challenges that the development of sustainability capabilities poses to organizations call for special attention to the dynamics of their inception and diffusion. Extant research on the diffusion of sustainability practices and capabilities has mainly focused on horizontal diffusion among competitors within a single industry, leaving out the idiosyncrasies of the process of diffusion between industries. Supply chains cut across multiple industries and hence, the process of practice diffusion along them is subject to distinctive institutional and market forces of various industries while conforming to the structural features of the supply chain itself. In this paper, we offer a theoretical model for the diffusion of sustainability capability building efforts along supply chains via connections between buyer and supplier organizations. 1 For simplicity, we will refer to these capabilities as sustainability capabilities from here on. 7 Our study addresses a persistent gap in our knowledge with regards to actionable solutions to the difficulties of implementing sustainability measures in multi-organizational settings such as supply chains. The obstacles faced by a single enterprise seeking to adopt a new practice are magnified manifold in such settings where different value objectives are often present and operational processes of partners are seldom aligned (So et al., 2011). We examine the ways in which the process of sustainability capability building and transfer is influenced by internal supply chain structure and external institutional environments to which the participants are exposed. By focusing on supply chains as the most common form of inter-industry relationships, we forward a theoretical framework that incorporates insights from various literatures including firm capability life cycle (Helfat and Peteraf, 2003), sustainability, institutional theory, and supply chain management to paint a comprehensive picture of the diverse forces responsible for the development and transfer of sustainability capabilities in buyer-supplier relationships. At a fundamental level, we focus on a single buyer-supplier relationship as a building block, or a „link‟, in the long and complex value chains that characterize most product markets today. The pressure for sustainability capability development and diffusion may emerge at any stage of the value chain and influence partner policy in both top-down and bottom-up directions. With the accelerated pace of the market demanding ever-improving performance and effectiveness in the face of increasingly stricter sustainability requirements, the importance of supply chain members acting as strategic partners involved in every step of the product life-cycle rather than uncoordinated resource deliverers or product assemblers, has been indicated by both researchers and practitioners time and again (Frohlich and Westbrook, 2001). The pressure for sustainability capability development may originate downstream from a major corporation urging its suppliers to meet certain sustainability criteria, as demonstrated by the case of Wal-Mart acting as a „private regulator‟ demanding more environmentally friendly products from its nearly 100,000 suppliers (Nemetz, 2013). Conversely, the pressure may come from upstream suppliers with strong bargaining power due to their overwhelming market share. A case in point is the sustainability leverage of the so-called „Big Six‟ energy suppliers controlling over 90 percent of the energy market in the UK and determining the course of energy development all the way to the end consumer. The push for sustainability capability development can also arise in the middle, as in the case of Intel acting as a supplier for a wide variety of original equipment manufacturers as well as major corporations like Google and Facebook, while at the same time employing more than 10,000 suppliers, and essentially setting sustainability expectations for both of these groups. Prior literature has long argued that inter-firm relationships can function as catalysts in the diffusion of organizational practices. Partner firms often collaborate on developing new practices and advocate their adoption by other firms that are willing to join the coalition, or the interest group, to support the new practice as the next industry standard. Inter-firm relationships often entail a significant level of interaction between the employees of partner firms who act as ambassadors to advocate the acceptance and adoption of new practices within their respective organizations. Such interactions are particularly intricate in the context of supply chains consisting of complex networks of suppliers, buyers, and intermediaries that have to reckon with intersecting internal and external pressures at various levels (Frohlich and Westbrook, 2001). We model the impact of such complexity on sustainability capability development based on the degree of homogeneity at the level of supply chain structure as well as the broader institutional environments that surround it. The „conduciveness‟ of a supply chain relationship for the transfer of sustainability capabilities is inherently contingent upon its endogenous characteristics including its structural makeup. Moreover, conduciveness of the relationship also depends on exogenous aspects such as regulative, normative, and cognitive institutional pressures acting upon the partners and their interrelationship. Besides relationship conduciveness, potential patterns of sustainability capability development also depend on the „disruptiveness‟ of the capability and its underlying processes and routines (Garcia & Calantone, 2002). Capabilities based on new practices with a high degree of disruptiveness are radically different from current organizational practices and hence involve a higher adoption and implementation risk and a higher likelihood to undergo variation to fit the existing organizational model. We combine the concepts of relationship conduciveness and capability disruptiveness to develop a framework that allows us to explore and explain various sustainability capability development and diffusion patterns that may emerge in a supply chain relationship, along with their implications that transcend the special context of supply chains and inform the broader strategy and organizational research at the intersection of firm capabilities and sustainability in interorganizational settings.