There is growing consensus among both managers and scholars that corporations need to work with their suppliers to enhance their social and environmental performance. These expectations have increased also because of scandals, such as the Rana Plaza disaster in Bangladesh in which over 1,100 workers died after a factory collapsed. The tragedy highlighted the precarious working and living conditions of garment workers producing clothing for well-known brands like Benetton.
Supply chain sustainability efforts are not just there to prevent public relations scandals. They can also have a widespread positive impact given that many thousands of companies make up the supply chains of corporations. Corporate buyers often have significant influence over suppliers, so they can motivate and enable – or even force – suppliers to improve their performance on human rights and environmental concerns.
But managers of corporate supply chains face difficult questions and differing prescriptions as to how to go about this.
On the one hand, there are recommendations that managers should compel suppliers to comply with specified social and environmental standards, such as labour conditions or pollution limits. This may be checked through supplier self-assessments, by internal auditors, or by third-party auditors. If a supplier fails to comply, they may face penalties – or even lose their contracts. Some argue such coercive systems create the necessary incentives for suppliers to improve their performance on social and environmental issues.
On the other hand, managers are advised to adopt a more collaborative approach with suppliers. This is meant to enable joint learning in the supply chain and more responsiveness to different contexts and circumstances.
Those supporting a more collaborative approach point to evidence that coercive systems make suppliers do as little as possible to meet compliance requirements, or even cheat. A coercive approach may foster a “checkbox” mentality and stifle learning and innovation.
In our recently published research we looked at these contrasting approaches. We conducted an experiment to compare a “coercive” approach focused on compliance with mandated environmental standards and an “enabling” approach focused on collaboration.
We found that the enabling approach was more likely to create attitudes among suppliers that were conducive to learning. This suggests that corporate managers should include an enabling approach in their efforts to increase suppliers’ social and environmental performance.
Our first step was to develop hypotheses about how different approaches might influence supplier engagement on sustainability issues. To do so, we built on influential prior work on two kinds of administrative systems. “Coercive” systems focus on compliance with specified requirements. “Enabling” systems emphasise learning, flexibility and collaboration.
Our hypotheses focused on how these systems influenced supplier managers’ attitudes to the administrative system, to sustainability goals, and to their relationship with the corporation. We focused on attitudes because they tend to shape engaged behaviour in organisations.
We then tested these hypotheses in an experiment in a large South African insurance company. An experimental research design can help address some of the methodological constraints of cross-sectional studies comparing different companies and contexts.
The corporation we chose was making a new effort to improve sustainability performance among its suppliers. The focus was on its over 1,000 motor body repair service providers. These suppliers had important sustainability challenges related to, for example, air and water pollution resulting from paint spraying, or the disposal or recycling of old car parts such as bumpers.
We invited 900 suppliers to participate in the experiment and eventually had a sample of 113 go through the whole process.
We divided suppliers into three groups, including a control group. All suppliers were asked to complete a baseline survey to measure their attitudes.
One group was asked to respond to an additional set of open-ended questions that represented an “enabling” approach. These questions explored how the suppliers planned to address sustainability issues, and how they might be supported in that process. For example, one of the questions was: “Are there ways in which your company could dispose of solid and liquid waste in a more environmentally sustainable way?”
The questions meant to communicate the corporation’s interest in collaborating with suppliers towards shared environmental objectives.
Another group received a more focused and restrictive set of questions, including requests for specific quantitative data. This represented the “coercive” approach. For example, one of the questions was: “What environmental safeguard has your company implemented for its spray booths?” Respondents had to choose from three response options.
Three months later, all respondents were asked to complete a follow-up survey to assess how their attitudes had changed during the process.
The strengths of an enabling approach
Our findings confirmed that an “enabling” approach fostered positive attitudes among suppliers about corporate efforts to enhance the supply chain’s sustainability performance. Suppliers who received the “enabling” treatment felt the administrative system in the supply chain supported learning. The treatment also strengthened their views that sustainability goals were important for the corporation.
In contrast, the “coercive” approach did not produce such positive attitudes. Instead it eroded some suppliers’ belief that they could raise and discuss issues with the corporation.
The implication for managers is that they should be careful about adopting too “coercive” an approach. This can harden attitudes and diminish the willingness and ability of suppliers to learn and share information with their partners.
This does not mean that performance standards and monitoring should be left out of supply chain strategies. But these kinds of compliance-oriented elements should be combined with efforts that signal a willingness to collaborate with suppliers on finding sustainable solutions.
Ralph Hamann, Professor, University of Cape Town; Frank Brueck, Associate lecturer, Stellenbosch University; Franz Wohlgezogen, Senior Lecturer of Management and Leadership, The University of Melbourne, and Joerg S. Hofstetter, Associate professor, Kedge Business School