A recent investigation by management academics at Kaunas University of Technology (KTU) in Lithuania highlights the critical role of dynamic capabilities within organizations for promoting environmentally friendly business practices. By examining data from 139 manufacturing firms, the study indicates that a combination of financial and technological expertise, along with the ability to adapt to regulatory changes and shifting consumer preferences, is vital for facilitating the green transition.
Adopting a green transition presents multifaceted, systemic challenges regarding the development of capabilities and resource allocation among companies. Various systemic issues often impede this transition. For instance, using secondary raw materials can be more costly, and nations must invest in circular infrastructure, which includes essential systems for separate collection, sorting, preparatory processes for reuse, and recycling. Investments are also needed in product design, research and innovation, and establishing business models focused on the circular economy.
Researchers stress the importance of understanding the green transition through the lens of business stakeholders. In today’s complicated and evolving landscape, companies must develop capabilities to synergize their competencies, engage diverse stakeholders, and collaboratively invent innovative solutions.
“The concept of dynamic capabilities perfectly embodies the flexibility and adaptability necessary to weave sustainability into standard business operations, such as sourcing, production, waste management, and other activities,” states Dr. Lina Dagilienė, head of KTU’s Circular Economy Research Group.
In their recently published research, Dagilienė and her KTU colleagues Viktorija Varaniūtė and Kristina Šutienė investigated the relationship between companies’ capabilities and their circularity practices, based on survey data from 139 established businesses in Lithuania.
“For companies that have been in the market for a substantial time, established routines pose significant obstacles. Their primary challenge lies in altering or transforming current activities and practices, rather than starting anew, which can be quite challenging,” explains Dr. Dagilienė.
Enhancing Outcomes through Investment
The study’s findings indicate that Lithuanian manufacturing companies can adopt circularity principles by leveraging internal resources and forming partnerships externally, while financial resources emerge as a crucial factor in executing innovative solutions.
“Our findings demonstrate that manufacturing companies allocating over 10 percent of their revenues towards circularity initiatives achieve notably superior results. These investments may involve new technologies, waste management improvements, and cleaner production methods. Given that most Lithuanian manufacturing firms are exporters, they are required to adapt to foreign market standards,” asserts Assoc Prof Viktorija Varaniūtė.
Dr. Varaniūtė notes that investing in circular endeavors often leads to long-term advantages, such as reduced waste, improved resource efficiency, and the capacity to create sustainable products. Despite the fact that all surveyed companies were from Lithuania’s manufacturing sector, she believes the findings can be adapted to various organizations and markets, especially within the context of the EU.
Moreover, she points out that the survey involved businesses from traditional industries like textiles, food production, and wood. Hence, different sectors, such as high technology, will need to consider distinct raw material flows, regulations, and customer expectations.
“Furthermore, the study focused on medium and larger enterprises, so the conclusions might be less applicable to smaller firms or startups that may lack adequate resources and expertise,” adds a KTU researcher.
Strategies for Achieving Circular Success – Zoom In and Zoom Out
In their research, KTU scholars utilized ‘zooming in’ and ‘zooming out’ approaches to analyze the dynamic capabilities of companies.
“Zooming in and zooming out serve as metaphors for strategic thinking, highlighting the fluidity of the environment and the necessity for companies to continually monitor and optimize both external and internal resources,” Dagilienė elaborates.
Zooming out focuses on observing the external environment to uncover opportunities, which involves engaging in product supply chains, cross-sector collaborations, and anticipating future environmental regulations. In contrast, zooming in emphasizes the organization and management of internal operations, along with the ongoing enhancement of skills and knowledge.
The researchers found that ‘zooming out’ capabilities positively affected production design, while ‘zooming in’ capabilities contributed to waste management. This correlation was also evident in their findings.
The majority of the companies involved in the study provided production services for larger European firms, thereby making zooming out capabilities—such as responding to future changes and meeting the expectations of key companies—a significant dynamic trait. Meanwhile, specific knowledge and skills (zooming in) are crucial for implementing technological advancements, such as creating more sustainable packaging solutions,” concludes Dagilienė.
The ability to integrate financial resources is influenced by external financial assistance, green credit schemes, and tax policies. It is essential for manufacturing firms to seize financial opportunities that arise during the green economy transition. Overall, the paper emphasizes transforming challenges into opportunities, emphasizing the relevance of a dynamic capabilities approach.
Despite focusing on manufacturing firms that typically function within a B2B context, the researchers highlighted the importance of consumer acceptance of green or circular products. The ability to dynamically assess consumer needs in the marketplace is critical for the circular transition.
