A recent study by Kaunas University of Technology (KTU) Lithuania management scholars underscores the importance of organisations' dynamic capabilities for greener business practices. Analysing data from 139 manufacturing companies, the research reveals that financial and technological expertise combined with adaptability to regulations and evolving consumer demands, are key to advancing the green transition.
A green transition poses complex, systemic challenges for how companies should develop capabilities and mobilise their resources. Generally, many systemic problems hinder the green transition. Secondary raw materials are often more expensive, countries need to invest in circularity infrastructure, such as the basic infrastructure for separate collection, sorting, preparation for reuse and recycling. Investment is needed in product design, research and innovation and circular economy business models.
According to researchers, analysing the green transition from a business actors' perspective is crucial. In this complex and dynamic environment, companies need capabilities to combine competencies in new ways, engage different stakeholders, and co-create innovative solutions.
"Dynamic capabilities' concept perfectly covers flexibility and adaptability, and how they can help to integrate sustainability into companies' business-as-usual activities, such as sourcing, production, waste management and other endeavours," says Dr Lina Dagilienė, the head of the KTU Circular Economy Research Group.
In the recently published study , that analyses the relationship between companies' capabilities and circularity practices Dagilienė and her KTU colleagues Viktorija Varaniūtė and Kristina Šutienė analysed survey data from 139 incumbent companies in Lithuania.
"The companies, which have been on the market for a while, have their own established routines. For them, the biggest challenge lies in changing or disrupting existing activities and practices, rather than starting afresh. This is not easy," says Dr Dagilienė.
For better results, companies need to invest more
The research findings revealed that Lithuanian manufacturing companies can apply circularity principles by integrating internal resources and collaborating with external partners, while financial resources are becoming a key element for implementing innovative solutions.
"Our results show that manufacturing companies that invest more than 10 per cent of their revenues in circularity actions achieve significantly better results. Such investments can be in new technologies, waste management processes and cleaner production. In addition, Lithuanian manufacturing companies are mostly exporters. This means that they must adapt to the requirements of foreign markets," says Assoc Prof Viktorija Varaniūtė.
According to Dr Varaniūtė, investing in circular initiatives often brings long-term benefits such as waste reduction, resource efficiency and the ability to develop sustainable products. Although all the companies surveyed were manufacturing companies from Lithuania, she believes the study results can be adapted to different organisations and markets, at least in the EU context.
However, she highlights the fact that the survey was carried out with companies operating in traditional sectors, such as textiles, food production, and wood. This means that other markets or industries (for example, high-tech) will need to take into account different raw material flows, regulations and customer expectations.
"Also, the study looked at medium-sized and larger companies, so the findings may be less applicable to small companies or start-ups that lack resources and expertise," adds a KTU researcher.
Strategies for circular success – zooming-in and zooming-out
In the study , KTU researchers applied zooming-in and zooming-out perspectives towards dynamic capabilities of the companies.
"Zooming-in and zooming-out are metaphors for strategic thinking that emphasise the dynamic nature of the environment and the fact that companies need to constantly monitor, strengthen and manage external and internal resources," explains Dagilienė.
Zooming-out capabilities focus on monitoring the external environment and discovering opportunities, i.e. being able to engage in companies' product supply chains and cross-sectoral networks, forms of (long-term) cooperation, anticipating and adapting in advance to future environmental regulations. Zooming-in capabilities include the organisation and management of internal business processes and the continuous improvement of competencies and knowledge.
The researchers claim that the "zooming-out" capabilities positively influence production design and the "zooming-in" ones positively influence waste management. This was revealed in the research, too.
"Most of the surveyed companies made production for other large European companies, zooming-out type capabilities (reacting to future changes, meeting focal companies' expectations) therefore appeared to be an important dynamic characteristic. At the same time, specific knowledge and skills (zooming-in) are needed while implementing technological solutions, e.g. how to have more sustainable packaging solutions," explains Dagilienė.
The capability to integrate financial resources depends on external financial support, green credit schemes, tax policies, etc. It is important that manufacturing companies are able to take advantage of the financial opportunities for a green economy transition. Overall, the paper develops the idea of turning disadvantages into opportunities, which is why the dynamic capabilities perspective is applied.
Although the study involved manufacturing companies, which often operate in a business-to-business context, the scientists emphasised the role of consumer acceptance of green/circular products. Zooming-out capability to dynamically assess consumer needs in the market is significant in the circular transformation.
