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NTC Project S06-AC01

Funded by the National Textile Center

Sustainability and Triple Bottom Line Performance

Project Team:

Industry Partner:

Grant Overview

Objective: In the management field, researchers have proposed that our future lies in building sustainable enterprises that connect industry, society and the environment.¹⁶ The firm’s ultimate goal should not be just profitability (creating economic value for its shareholders); rather, it should be three-fold (creating economic, social, and environmental value).⁶ This goal is often referred to as triple bottom line performance. In this project, our objective is to examine the relationship between strategic sustainability practices in the apparel-textile complex and performance outcomes. We are particularly interested in the impact of triple bottom line performance outcomes stemming from economic (sales increase, cost reduction, waste reduction, cycle reduction), social (social responsibility, ethics) and environmental (legal compliance, standards, codes, reduced impact) goals. We will focus on firms in three areas of the textile industry: apparel, furnishings, and artificial turf. Within each sector we will develop a benchmark group of sustainability practices tied to measurable performance outcomes that firms can follow to improve their triple bottom line. Using case study and longitudinal analysis, our research can contribute to both the short term viability and the long term competitiveness of firms in the textile industry.

Examining the impact and competitive potential of strategic sustainability on firm performance will facilitate the NTC mission to enhance and expand the knowledge base of the textile and apparel industry. 

Strategic sustainability is rapidly becoming an imperative in many industries, yet we can find many definitions and interpretations of this construct across continents, industries, and firms. The fuzziness of strategic sustainability makes day-to-day organizational decision making difficult for firms.³ Little is known about strategic sustainability in the U.S. textile and apparel industry; the little research that has been done has focused on sustainable practices in the carpet industry.¹⁵ Our project extends this work by examining triple bottom line performance outcomes (economic, social and environmental) of strategic sustainability practices and focuses upon three diverse textile industries (apparel, furnishings, and artificial turf). We will review current theoretical frameworks and examine empirical studies that show a causal relationship between sustainability and a sustainable competitive advantage. From this work, we will develop a survey to test the extensiveness of strategic sustainability within each of the three industry sectors and assess its impact upon firm competitiveness.  The project builds on work done under NTC project #S03-AC01 in empirically relating distinct strategic practices identified to firm performance.

According to Barney, "A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy" (p. 102).² Research in strategic management on competitive advantage suggests that firms that anticipate change and adapt their strategy using their resource base accordingly will be able to realize competitive advantages.² If firms don't act, then existing competitors or new entrants may seize opportunities. Firms that are late adapters may also lose market share due to changes in consumer behavior or to an unanticipated substitute product.⁵ Sustained competitive advantage may arise from differentiation or cost advantages.¹⁴ As Figure 1 shows, strategic sustainability activities create either relative short term advantage or long term sustainable competitive advantage.

 Relative Short Term Competitive Advantage – Cost Advantage. When firms implement strategic sustainability practices vertically in their value chain, they typically take control of supplier’s materials, enforce ethical human resource practices (e.g., no child labor), and/or act to reduce supplier’s manufacturing effects on the environment.¹⁰ This is similar to Hennes & Mauritz sustainability strategy of active materials management and production management in the value chain.⁸ Each of these practices impacts the firm’s triple bottom line. We expect that economic performance will be improved by reductions in waste, cycle time and production costs. Improvements from social performance will come from establishing global corporate sourcing principles including no child labor, improved occupational safety and standardized working hours. Labor turnover will be reduced and accidents will be significantly decreased. From an environmental performance perspective, we expect firms will implement codes of practice that cover chemicals used in dyeing, finishing and printing of textiles, reducing the environmental impact. In sum, these strategic sustainability practices are expected to be used by firms in the textile industry to gain relative short term competitive advantage.

Figure 1 – Strategic Sustainability and Implications for Competitive Advantage¹⁰

Relative Short Term Competitive Advantage – Differentiation Advantage. Firms that follow a differentiation strategy may focus on the value chain to implement innovative materials practices. For example, Patagonia developed technology to recycle soda bottles for use in fleece.¹³ In terms of environmental impact, the company focused on organic cotton in their products. Patagonia provides organic cotton farmers with incentives to grow organic cotton and guarantees its purchase. These practices allow Patagonia to impact its triple bottom line by differentiating products through organic cotton, by minimizing environmental impact of cotton production, and by helping farmers to stay in business. We expect that differentiation sustainability strategies impact economic performance by creating products that consumers are willing to pay a price premium because they perceive added value. Social performance improvements are likely to come from encouraging organic components. In terms of environmental performance; we expect firms that use differentiation strategies will try to reduce reliance on non-renewable energy thus reducing their impact on the environment in quantifiable terms. We expect that firms that follow these strategic sustainability practices will gain a relative short term competitive advantage.

 Long Term Sustainable Competitive Advantage – Cost Advantage. To gain long term sustainable competitive advantage, firms must fundamentally change their culture. Ray Anderson, CEO and founder of Interface, Inc., has committed his firm to becoming a sustainable enterprise that produces no waste and consumes no nonrenewable resources.¹ This strategic sustainability culture has been radically implemented throughout the firm, thus producing triple bottom line performance. This type of mindset and implementation of strategic sustainability practices is rare, valuable, difficult to imitate and non-substitutable in the short run; thus, forming the basis for sustained competitive advantage.² We expect that economic performance will be improved by reductions in waste, as, e.g., Interface produces carpet tile [Entropy] where no two tiles are alike, similar to a forest floor, resulting in a virtually waste free production process with zero defects. Improvements from social performance are likely to come from goodwill in the market based on consumer perceptions of the company’s social responsibility. Firms will build a long term positive feedback loop from multiple stakeholders including employees, customers, investors, and business to business partners. From an environmental performance perspective, firms like Interface create an industrial organization that emphasizes cyclical processes that do no harm to nature, use nothing that is not natural or rapidly renewable, and produce no waste. The cost savings are tremendous (~10% of sales) and the environmental impact is relatively benign. These strategic sustainability practices are radical and require real leadership commitment. It is highly unlikely that many firms in the textile industry will attempt these changes. However, firms that do commit to these types of strategic sustainability practices are expected to gain long term sustainable competitive advantage.

Long Term Sustainable Competitive Advantage – Differentiation Advantage. A competitor-oriented firm emphasizes relative resources or cost positions, whereas a customer-oriented firm emphasizes segment differences and differentiation advantages.⁹ To create a long term sustainable competitive advantage using a differentiation strategy, consumers must perceive some difference between a firm's product offering and the competitors' offering.⁴ This difference must be some product/delivery attribute that is a positive key buying criterion for the market. In terms of economic performance, we expect that firms that differentiate their products based on sustainability will tap into the $226 billion Lifestyles of Health and Sustainability (LOHAS) market.¹¹ Analysts estimate this consumer segment represents 68 million American consumers, who are willing and able to pay higher prices for products that appeal to their sustainability ideals. To meet this market’s needs Shaw, e.g., produces Eco Solution Q carpet fiber which is fully recyclable back to carpet fiber.¹⁷ This product costs more but has a cradle to cradle technology that produces no waste. In terms of social performance, this market segment is extremely loyal and sensitive to social responsibility. Firms are likely to produce annual social responsibility reports detailing their activities (e.g., Gap 2004 Social Responsibility Report⁷). From an environmental performance perspective, we expect firms will use technology to reduce their impact on the environment in interesting ways. For example, changing the entire production process to cradle to cradle practices similar to William McDonough’s plan¹² for Ford "to create modern manufacturing systems" that “actually enhance the environment.” Radical changes to manufacturing process cost huge amounts of money but have huge benefits for environmental performance. Firms that use differentiation strategies to achieve sustainable competitive advantage must make significant, perhaps irreversible decisions to change. However, these strategies will be difficult to imitate and are expected create long term competitive advantage.

Research Approach