Edition 40, Strategy

SMEs at the SUMMIT (CIMA)*

*CIMA literally means peak or Summit. However in this article it is also used as an acronym to Know (conocer in Spanish), Innovate, Meassure and Act.

By: Antonio Lloret
Professor and Researcher at the Business School
ITAM

Sustainability and social responsibility efforts of companies seems to be exclusively focused on large companies, those that are listed in the stock exchange or simply those that are recognized by the population at large. However, more than 99 of every 100 companies in Mexico are medium or small, PYMES (SMEs). Although these companies only concentrate 35% of the total gross production, they hire 73% of personnel employed (INEGI 2010). PYMES play no small role in the economy, in society and in the environment; therefore, it is necessary that they generate a sense of sustainability or social responsibility that is proportionate to their size and their impact, to the extent possible.

PYMES must establish a sustainability strategy that is aligned with its competitiveness and generation of value; otherwise, the PYME’s sustainability becomes, in the best of cases, a romantic idea.

The main objective of the sustainability is to generate economic, social and environmental value in order to last. It has to do with stop seeing companies as generators of monetary value (measured in pesos and cents) and seeing them as companies capable of generating value inside and outside their economic, social and environmental environment. Porter calls this concept shared value, (Porter y Kramer 2011). Freeman et al. call it stakeholders value (Freeman et al. 2010).

The hypothesis that by adopting a sustainability or social responsibility strategy, eventually the Company will generate economic benefits (Clarkson et al. 2007; King y Lenox 2001; Orlitzky, Schimdt and Rynes 2003). The hypothesis has been partially proven abroad, although there are doubts as to whether the economic benefits only reflect the operation efficiency (Porter y van der Linde 1995). In the case of Mexico, there is no solid empiric information proving, in general terms , that the hypothesis is valid. We can say that, we are just crawling.

Some studies mention that the reputation (González-Lara 2008) or philanthropy (Weyzig 2007) trigger sustainability actions; however, in economic structural models it is mentioned that the adoption of environmental sustainability practices is the result of stringiest regulations (Blackman et al. 2007; Ruiz-Arredondo, Rivera-Planter and Muñoz-Piña 2006), training subsidized by the regulator (Dasgupta, Hettige y Wheeler 2000) or rather market incentives, such as access to international markets or the demand of goods and services of governments committed to preserve the environment (Blackman et al. 2007; Montiel and Husted 2009). The adoption of Environmental management systems does not necessarily mean that the companies are more profitable.

In the only empirical study that brings the idea of competitiveness close to sustainability in Mexico, it was found that in companies that have more than 500 employees, six of every ten companies consider that the sustainability actions they have implemented have generated economic benefits to them (Aigner and Lloret 2011).

Assuming it is true that sustainability generates more economic benefits or simply that the search for sustainability in the Company can lead to operation efficiencies, it makes it worthwhile to ask if PYMES are prone to this process and if so, where and how to begin.

The answer is found in “La CIMA”.

CIMA is an acronym of the steps a PYME and all other companies should take to adopt a sustainability strategy that generates value in the internal and external environment. CIMA is formed by specific actions the company should undertake immediately, and without incurring in costs, adopt a sustainability strategy.

The first thing that has to be done to get to CIMA is to think that the size of a company should not be a reason to adopt a sustainable strategy. Actually all companies, no matter how small they are, can achieve this..

CIMA means to generate value for the company, value shared inside and outside with its interest agents, stockholders, suppliers, clients, employees, the government and even competition

CIMA is the strategy to Know, Innovate, Measure and Act that leads to generate economic, social and environmental value. (La CIMA es la estrategia de Conocer, Innovar, Medir y Actuar que lleva a generar valor económico, social y ambiental.)

To know

  • Know the consumer. What are his preferences and trends? What are his needs?
  • Know competition. Where is it, who is it, what does it do, how does it produce? Knowledge is essential for competitiveness. Not allow the competition to determine the market. Buy, to the extent possible, the product of the competition, analyze it, get to know it, understand it and compare it with the products of the company: what does the company do well, what does the competition do well. Adopt the necessary measures.
  • Know the company well. Know what is being produced, how it is produced and who produces what. Know the employees, the value chain, the assets, the resources. Know what resources are those that strategically give value to the company.

To know is equivalent to understand the market trends, the company’s strengths and weaknesses.

Innovate

  • The knowledge of the Company, its clients and the competition should concentrate on the investigation of where the company stands and where is it going. Finding this out leads to understand what it does and to ask you if it can be done better. To do better is to redesign the products and services thinking how to generate economic, social and environmental value. Innovate is also to improve the way things are done. It is to leave behind the traditional paradigms of organization and production in order to include society and the community in the Company goals. The objective should be to improve what the company does. Also, redesign helps to curb costs. We should not believe that redesign implies to do things from scratch again. It implies to rethink the processes, to know that they are working well and what has not and what has been done to correct that. Investigate leads to innovate, to do things better. To invest in innovation does not necessarily mean to make disbursements. Innovate is to generate benefits, increase the demand, reduce the costs. To innovate does not mean to sacrifice profits. To be sustainable means to get ahead of competition in a responsible manner and this is achieved by innovating..

Measure

  • It is essential to measure in order for actions to generate value. Sustainability needs measurement, monitoring and to know the impact the Company operations have; to measure the use of natural, human and financial resources. To measure needs to know how much is done today and to set specific goals for each one of the resources. One has to measure how much is spent on water, on electricity, on raw materials, and of course how many residues does the company generate. One has to measure the impact of the company outside its walls. One has to assess the company’s impact on the community, on the municipality, state and country. If the impact is negative, one has to innovate the processes to improve. It is essential to remember that to measure implies to gather and to analyze information in order to be more efficient, more profitable. The more you measure, you will surely find more areas to improve.

Adapt, Adopt, Acquire knowledge and Act

  • It is convenient to adapt the operations so that what has been learnt during the investigation and innovation generates value to the company. You should not forget to measure. A vision towards the future has to be adopted and watch the company throughout time; adopt the best practices of respectable companies; to applaud, to recognize the team for doing things well, and when things are not done well, to learn from our errors. Learn from success and from failure. Learn from the customers, from competition and their clients. To act and make decisions today.

The sustainability strategy is a value generation strategy in which knowledge of trends, innovation and redesign of processes, goods or services, measurement and action allow us to reach a higher competitive level and to undertake sustainability efforts. Remember: tomorrow, when you go back to your office, go directly to CIMA.

Bibliography

Aigner, Dennis J., y Antonio Lloret. 2011. “Sustainability and Competitiveness.” UC-MEXUS.

Blackman, Allen, Bidisha Lahiri, William Pizer, Marisol Rivera-Planter y Carlos Muñoz-Piña. 2007. “Voluntary Environmental Regulation in Developing Countries: Mexico’s Clean Industry Program.” Resources for the Future.

Clarkson, P. M., Y. Li, G.D. Richardson y F.P. Vasvari. 2007. “Does It Really Pay To Be Green: Determinants and Consequences of Proactive Environmental Strategies.” Simon Fraser University.

Dasgupta, Susmita, Hemamala Hettige y David Wheeler. 2000. “What Improves Environmental Compliance? Evidence from Mexican Industry.” Journal of Environmental Economics and Management 39: 39-66.

Freeman, R. Edward, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L. Parmar y Simone de Colle. 2010. Stakeholder Theory. The State of the Art. Cambridge, Cambridge University Press.

González-Lara, Mauricio. 2008. Responsabilidad social empresarial. México, Grupo Editorial Norma.

INEGI. 2010. “Resumen del Censo Económico 2009.” Instituto Nacional de Estadística, Geografía e Informática (National Institute of Statistics, Geography and Informatics).

King, Adrew y M.J. Lenox. 2001. “Does It Really Pay to Be Green? Accounting for Strategy Selection in the Relationship Between Environmental and Financial Performance.” Journal of Industrial Ecology 4: 105-16.

Montiel, Ivan, and Bryan W. Husted. 2009. “The Adoption of Voluntary Environmental Management Programs in Mexico: First Movers as Institutional Entrepreneurs.” Journal of Business Ethics 2009 88: 349-63.

Orlitzky, M., F.L. Schimdt y S.L. Rynes. 2003. “Corporate Social and Financial Performance: A Meta-analysis.” Organization Studies 24: 403-41.

Porter, Michael E., y Claas van der Linde. 1995. “Toward a New Conception of the Environment-Competitiveness Relationship.” Journal of Economic Perspectives 9 4: 97-118.

Porter, Michael E., y Mark R. Kramer. Enero de 2011. “Creating Shared Value.” Harvard Business Review: 1-17.

Ruiz-Arredondo, José, Marisol Rivera-Planter y Carlos Muñoz-Piña. 2006. “Incentivos económicos de las empresas a participar en acuerdos ambientales voluntarios. (Economic incentives of companies to participate in the voluntary environmental agreements)” México, Instituto Nacional de Ecología (National Ecology Institute).

Weyzig, Francis. 2007. “Corporate Social Responsibility in Mexico.” Accountancy Business and the Public Interest 6 1: 1-157.

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