Incorporating sustainability in business models: An om perspective

Guide(s)

Saranga, Haritha

Department

Production and Operations Management

Area

Production and Operations Management

University

Indian Institute of Management Bangalore

Place

Bangalore

Publication Date

3-31-2024

Year Awarded

March 2024

Year Completed

March 2024

Year Registered

June 2018

Abstract

The increase in waste generated by humans over the last few decades due to unsustainable consumption patterns has become a significant concern. The impending threat of environmental collapse and global warming have made consumers more aware of the negative impacts of over consumption and the importance of the 3 R's (reduce, reuse, and recycle) has increased in the consumer psyche. In response, both governments and firms have started promoting closed-loop supply chains. The closed-loop supply chain design aims to recover the components and reuse them to increase the life of a product instead of discarding them at the end of their lifecycle. Implementing sustainable practices in business models has become crucial due to the changing business landscape and the high penalties imposed by governments for failing to maintain sustainability standards. In my thesis, I evaluate current business practices and suggest ways to incorporate sustainability practices without negatively impacting consumer well-being or firm profitability. Apart from reducing pollution, sustainable business practices can save billions of dollars in material costs and reduce CO2 emissions by thousands of tons (MacArthur, 2013). In the first study, I examine business practices adopted by a firm operating in multiple vertically separated product segments. The firm refurbishes its used products from the higher-end segment and sells them in the lower-end segment, where they compete with and potentially cannibalize new product offerings in the lower-end product segment. Our study aims to identify the optimal quality and pricing decisions for the company's new higher-end products, taking into account both its profits and consumer welfare. I developed an analytical model based on utility theory to capture the trade-offs involved in making optimal quality and price decisions while ensuring both firm profitability and consumer welfare. I also examine the impact of different market characteristics on optimal decisions. Moreover, I conduct a comparative analysis between two scenarios, one where the firm decides not to refurbish its high-end products and the other where the firm chooses to do so. I evaluate the impact of refurbishment decisions on consumer welfare, providing interesting insights for a firm to decide whether it should refurbish its high-end products or not. I find that a firm's quality investment decision is primarily driven by the profit potential of the higher-end product segment rather than the refurbished product segment. I also find that if the customers in the lower-end market a highly green-conscious, then the firm is able to pursue a refurbishment strategy without compromising on the consumer well-being of the higher-end market, which highlights the importance of customer education on the benefit of green consumption. In the second study, I evaluate the influence of a firm's business environment on the effectiveness of its GHG emission reduction efforts via a cross-geography study of US and EU firms. A firm's business environment can be divided into two segments: external business environment and internal business environment. I empirically examine how the firm's external environmental pressures (in terms of government regulations) and internal environmental pressures (in terms of a firm's supply chain structure and the sustainable practices adopted by the firm) influence its GHG emission reduction efforts and provide novel insights for both policymakers and practitioners alike. I find that better-implemented government environmental policies helped the GHG emission reduction efforts of a firm, whereas policy reversals hindered the same. I also find that firms having more concentrated supply chains performed better in their GHG emission reduction efforts as compared to firms having more fragmented supply chains which highlights the importance of collaboration between firms and their suppliers in achieving better environmental outcomes. In the third and final study, I explore the newly emerging regulations around right-to-repair (RTR) which has been adopted by the governments in the EU and USA, and its impact on the firm's optimal decision. A mandatory RTR regulation ensures that consumers have access to the parts and know how to repair their products and the firm is mandated to provide such resources to the consumers. Curiously, many firms have decided to provide such services even in markets where no such regulations exist as of yet (Apple Press Release, 2021; HP India, 2022). I study the circumstances under which a firm will choose to adopt a voluntary RTR policy which can be beneficial to both firms and consumers. I develop utility theory-based models to capture a firm's profit function when adopting either a pro-RTR (PRR) or an anti-RTR (ARR) policy; with the key difference being the availability of a self-repair option in PRR. I also consider the presence of unauthorized third-party repairers (TPRs), which is a widespread phenomenon globally. I also analyze the conditions under which PRR policy outperforms ARR policy: both in terms of firm profit and consumer surplus, leading to a 'win-win' scenario. I find that firms that design products to be easily repairable and have efficient repair operations are better positioned to adopt a PRR policy voluntarily. My findings also show that markets having a higher share of green-conscious customers who prefer to repair their products over purchasing new products are more suitable for the adoption of voluntary PRR policy.

Pagination

xii, 177p.

Copyright

Indian Institute of Management Bangalore

Document Type

Dissertation

DAC Chairperson

Saranga, Haritha

DAC Members

Verma, Nishant Kumar; Jain, Tarun

Type of Degree

Ph.D.

Relation

DIS-IIMB-FPM-P24-17

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