A blended theoretical perspective of influence factors on triple bottom line performance

Transcription

1 A blended theoretical perspective of influence factors on triple bottom line performance Antony Paulraj, Dept. of Entrepreneurship and Relationship Management, University of Southern Denmark, Denmark. Abstract Apart from achieving economic superiority, firms are also increasingly expected to excel along the environmental and social aspects of sustainability. In this paper, we use blended theoretical arguments from environmental orientation (EO) theory, theory of fit as coalignment and institutional theory to suggest that a simultaneous focus on triple bottom line performance requires firms to co-align their external environmental practices so as to match with their internal environmental practices. Accordingly, in this study, we propose the notion of environmental co-alignment and examine how drivers such as external motivation and enviropreneurship lead to better environmental co-alignment. In addition, we propose and test the link between environmental co-alignment and triple bottom line (TBL) performance. Using data collected from 145 US firms, a number of direct and mediation effects are hypothesized and tested. The results from this study provide strong support for the significant role that environmental co-alignment can play in excelling along all aspects of the triple bottom line performance. In terms of driver, while enviropreneurship was found to significantly influence environmental co-alignment, external motivation did not significantly influence environmental co-alignment. Implications of this pattern of results for future research and practice, specifically implications for responsible purchasing are offered. Keywords: Triple bottom line performance; enviropreneurship; external motivation; coalignment; profile deviation approach. 1

2 1. Introduction Recognizing the importance of studying the environmental impact of firms, several scholars have explored the area of internal environmental practices (e.g., Min & Galle, 2001; Melnyk, Sroufe, & Calantone, 2003; Zhu & Cote, 2004) as well as external environmental practices (e.g., Bowen, Cousins, Lamming, & Faruk, 2001; Zhu & Sarkis, 2004; Preuss, 2005; Vachon & Klassen, 2006; Lee, 2008; Paulraj, 2009, 2011). According to this extant literature, the need for firms to be environmentally friendly is triggered by a variety of sources including consumers, competitors and other stakeholders. In order to meet these expectations, pioneering firms are investing so as to achieve environmental excellence. One such emerging trend is the notion of enviropreneurship which is defined as an entrepreneurial orientation that simultaneously satisfies the needs of the environment as well as the economic objectives of organizations (Menon & Menon, 1997). Additionally, firms are increasingly aspiring to balance three aspects of performance that is referred to as the triple bottom line. The emerging literature in this area has started to examine the influence of internal environmental practices on triple bottom line performance. A limited number of researchers are also looking at the role of external environmental practice on triple bottom line performance. But rarely do researchers examine the influence of the alignment between internal and external environmental practices (e.g., De Giovanni, P., 2012; Gimenez, Sierra, & Rodon, 2012). Accordingly, our first objective is to understand the influence that environmental alignment could have on triple bottom line performance. The related second objective is to understand factors that enhance the alignment between internal environmental practices and external environmental practices. We speculate that strong external pressure will enhance the eventual need and performance with respect to environmental alignment. Additionally, we hypothesize that enviropreneurship could also enhance environmental alignment. This has been an understudied area and this paper uses environmental orientation theory as applied to environmental management to strengthen support for this hypothesis. In summary, this paper integrates three theories to offer a holistic model that links enablers and environmental alignment to triple bottom line performance (Please refer to Figure 1 for the hypothesized model) Insert Figure 1 about here Theoretical Development and Research Hypotheses In order to excel in environmental management, firms try and conform to the rules and belief systems prevailing in the environment. This is so because institutional isomorphism, both structural and procedural, could help build organizational legitimacy (Suchman, 1995; 2

3 Deephouse, 1996; Dacin, 1997). Institutional isomorphism theory suggests that coercive, mimetic and persuasive pressures force firms to gain legitimacy through appropriate action (Meyer & Rowan, 1977; DiMaggio & Powell, 1983). In the environmental management area, an example of coercive pressure is when government agencies insist that firms within a certain industry meet environmental standards (say for example with respect to toxicity). On the other hand, persuasive pressure can come from customers who could influence how ethical firms are and choose to boycott product made by companies who were found to pursue environmentally unfriendly practices. Collectively these three pressures motivate firms to not only take into account internal environmental practices but also how those internal environmental practices align with external environmental practices. We call this alignment as environmental alignment. And, by using blended arguments from institutional isomorphism theory and theory of strategic fit, we hypothesize: H 1 : External motivation will have a positive effect on environmental alignment. Over and above such reactive influence, firms have also resorted to a proactive view that suggests that some firms which are at the cutting edge look beyond the reactive view and are proactive by deploying an entrepreneurial climate towards environmentalism. Following Paulraj (2011), we apply this concept in the context of environmental management to define the construct of enviropreneurship which is a proactive approach to suggesting environmentally friendly product and process innovations that improve the environmental footprint of firms. In other words, enviropreneurship calls for a greater need for balancing internal and external environmental efforts. The behavioral cornerstones of enviropreneurship innovation, risk propensity, and proactiveness are crucial traits in achieving the ambitions of sustainability (Covin & Slevin, 1991). Innovation is one the most important components of strategy that will help a firm to provide new directions of evolution within any industry (Hamel, 2000). This aspect of innovation is especially important to address the unique nature of the opportunities and challenges posed by the natural environment (Menguc & Ozanne, 2005). Risk propensity suggests that a firm is inclined to undertake frame-breaking as well as experimental activities at the face of uncertainty (Lumpkin & Dess, 1996). Such an attitude will enable enviropreneurial organizations to: (1) respond to even ill-defined customer preferences; and, (2) cope with the uncertainty in the acceptance of ensuing sustainability initiatives (Coddingon, 1993; Menguc & Ozanne, 2005). Proactiveness refers to the ability of a firm to foresee and identify opportunities. It also reflects the ability to lead aggressively by example so as to thwart potential challenges and convert them into opportunities (Covin & Slevin, 1991; Ireland et al., 2001). Accordingly, enviropreneurial firms will not only identify emergent opportunities, but will also take preemptive initiatives to develop and implement 3

4 strategies that will better preserve the environment (Miles & Snow, 1978; Covin & Slevin, 1991). Accordingly, enviropreneurial firms will be more inclined to take intra- as well as interfirm initiatives that can ultimately lead to sustainability leadership. More specifically, as pointed out by Hart (1995), green initiatives aspiring for pollution prevention and product stewardship involve unique resource combinations that require relational competencies that cross organizational boundaries (Levinthal & March, 1993; Atuahene-Gima & Ko, 2001). So, in order to lead through green imperatives, enviropreneurial firms will cross organizational boundaries to access and acquire required relational resources and capabilities (Dyer & Singh, 1998; Chen, Paulraj, & Lado, 2004; Paulraj, Lado, & Chen, 2008). Thus, we propose that: H 2 : Enviropreneurship will have a positive effect on environmental alignment. The few studies that have considered both internal and external practices together have also focused predominantly only on their direct relationships on other constructs. But we believe that it is important to study whether firms that have high levels of both internal and external environmental practices achieve better performance improvements. The theory of strategic fit suggests that firms that balance the external environment with internal strategies will enjoy superior performance (Van de Ven & Drazin, 1985; Venkatraman, 1989; Venkatraman & Prescott, 1990). Specifically, firms who have superior capabilities in the area of environmental alignment will have higher environmental as well as social performance. Given the domain content of the environmental alignment construct that includes scrutiny of methods and processes to improve the utilization of resources and engage in lean techniques to reduce waste, we expect that better environmental alignment will also result in higher economic performance. Thus, environmental alignment is the ideal way to improve performance along economic, environmental as well as social dimensions. Thus, we hypothesize: H 3 : Environmental alignment will have a positive effect on environmental performance H 4 : Environmental alignment will have a positive effect on economic performance H 5 : Environmental alignment will have a positive effect on social performance 3. Methodology 3.1 Data Collection Given that we included both firm-specific as well as relationship-specific (dyadic) factors in the survey, key respondents including vice presidents or directors of purchasing, supply chain management, and materials management were considered as appropriate to answer the questions relating to these factors. The target sample frame consisted of Institute for Supply Management (ISM) members working in U.S. firms. Data was collected in two stages. The 4

5 first stage involved a mail survey. The survey was sent to 1,000 respondents that were randomly selected from a 2,500 member list provided by ISM. The usable sample size from this first stage was 102. The second stage involved a web survey. We mailed a consent form, along with a cover letter explaining the research project, to 466 potential participants seeking their consent to participate in our study. A total of 125 returned the consent form; but 66 out of these 125 participants declined to participate in the survey. Initial s were sent to the 59 participants who consented to participate in this study. The usable sample size from this stage was 43. The final usable sample, including both the mail and web survey, was Data Analysis and Results We used the Partial Least Squares (PLS) approach to simultaneously assess the measurement instrument and the hypothesized model. PLS is a component-based structural equation modeling approach that places minimal restrictions on sample size and data as well as residual distributions (Gefen, Straub, & Boudreau, 2000). When compared to covariancebased structural equation modeling techniques (e.g., LISREL), PLS is better suited for explaining complex relationships that includes interaction as well as mediation effects (Chin, Marcolin, & Newsted, 2003). Specifically, PLS avoids inadmissible solutions and factors indeterminancy, the two key problems that are characteristic of covariance-based techniques: (Fornell & Bookstein, 1982). PLS is also considered as the first choice when evaluating complex models with latent variables (Wold, 1985). Additionally, PLS is also comparable to LISREL when researchers need to simultaneous assess multiple dependent variables and test for statistical mediation (Tiwana & Konsynski, 2009). Given that our hypothesized model includes complex relationships involving mediation, we chose PLS to analyze our model. The moderate sample size also warrants the use of PLS over LISREL. The statistical significance of the parameter estimates were assessed using a bootstrapping procedure with 1000 resamples generated from the original dataset; bootstrap samples of 250 and 500 were also used to ensure the consistency of results across different sample sizes. The results from PLS are presented in the following subsections. We cross-checked the results by running the structural model using LISREL and found them to be similar to the PLS results. 3.3 Measurement Model Assessment We first assessed the measurement model to ensure whether the measurement of the theoretical constructs were reliable as well as valid. Please refer to Table 1 for the descriptive statistics, inter-correlations, Cronbach s alpha, Composite Reliability (CR), and Average Variance Extracted (AVE) for the constructs. The results from the PLS analysis item loadings and their significance are presented in Table 2. We assessed reliability using the internal consistency method via Cronbach s alpha (Nunnally & Bernstein, 1994) as well as the composite reliability values (Chin, 1998). All constructs had a Cronbach s alpha as well 5

6 as CR greater than 0.70; thereby, establishing the reliability of all the theoretical constructs. We then evaluated the convergent validity of the constructs by evaluating their item loadings and significance. All indicators had loadings higher than 0.70 and were positively and significantly related to their respective constructs (see Table 2). Additionally, we also found the cross-loading of retained items to be much lower when compared to the loading of the items onto their respective constructs. In addition, the CR and AVE values exceeded the threshold values of 0.70 and 0.50 respectively. We assessed discriminant validity by comparing the squared correlation between two constructs to their AVE estimates (Fornell & Larcker, 1981). This test suggests that the squared correlation between each pair of constructs must be less than the AVE of the individual constructs. As evident from Table 1, we found none of the correlations to be higher than the square root of the AVE value of the individual constructs. Subsequently, we also established discriminant validity by ensuring that the retained measurement items had (1) low (< 0.50) and insignificant cross-loadings and (2) cross-loadings were considerably lower when compared to the loadings on the focal construct. These results collectively show that the indicators are valid as well as reliable. 3.4 Hypothesis testing Insert Tables 1 and 2 about here Given that we wanted to study the importance of an ideal alignment between internal and external environmental practices on performance, we adopted the profile deviation methodology to derive the ideal profile for the environmental alignment construct. As suggested by extant research, the ideal profile can be derived either theoretically or empirically (Van de Ven & Drazin, 1985; Venkatraman, 1989); we derived our ideal profile empirically. As a first step in identifying the ideal profile of environmental alignment, we came up with an initial calibration sample consisting of the top 10% of our sample based on the score for the indicators within the constructs of internal and external environmental practices. Some of the firms in this initial calibration group did not exhibit high values across all indicators. Accordingly, after a closer look at the responses of all indicators of internal and external environmental practices within the initial calibration group, we selected 7 best firms to form the final calibration sample (Venkatraman & Prescott, 1990; Conrad, Brown, & Harmon, 1997; Hult, Boyer, & Ketchen Jr., 2007). The mean scores of the eleven indicators of internal and external environmental practices were calculated for this calibration group; the mean score represents the ideal score for each indicator. After this, we determined the extent to which each sample firm differed from the ideal profile using the following Euclidean distance formula: 6

7 where X ij = the score for the firm along the j th indicator, and M ij = the mean for the calibration group along the j th indicator. The MISALIGN score shows the distance of a sample firm from firms included in the calibration group. Therefore, the greater the Euclidean distance from the ideal profile, the less importance the sample firm attributes to the alignment between internal and external environmental practices. The MISALIGN score for each firm was used a single indicator for the construct of environmental alignment in the hypothesized model. As indicated earlier, the hypothesized model was evaluated using PLS. Given that the MISALIGN score indicates the distance from the ideal profile (i.e., the opposite of alignment between internal and external environmental practices), we expect coefficients to be negative and significant (Conrad et al., 1997; Hult et al., 2007). The results of the PLS analysis indicate that the hypothesized model explains 20% of the variance in economic performance; 40% of the variance in environmental performance; 37% of variance in social performance; and 42% of the variance in environmental alignment. None of the control variables were found to be significantly related to economic, environmental, and social performance. Hypotheses 1 linking external motivation and environmental alignment was found to be not significant (β = , t-value = 1.164, ns). Hypotheses H 2 linking enviropreneurship and environmental alignment was found to be significant (β = , t-value = 7.703, p < 0.001). The path linking environmental alignment and the performance measures were all significant providing support for hypotheses H 3, H 4, and H 5 : environmental performance (β = , t-value = , p < 0.001), economic performance (β = , t-value = 6.784, p < 0.001), and social performance (β = , t-value = , p < 0.001). 4. Discussion and Conclusion In this study, we sought to examine two research objectives. The first objective pertaining to answering the question: does environmental alignment between internal environmental practices and external environmental practices lead to higher triple bottom line performance? In other words, we wanted to test whether environmental alignment could balance the seemingly opposing forces of optimal economic, environmental as well as social performance. Our study found strong support for the idea that alignment facilitates better triple bottom line performance. This result contributes strongly to the literature on sustainability. To managers, our result suggests that firms should pay attention to those internal environmental practices that are part of our construct and use them to engage with suppliers and customers to further enhance external environmental initiatives. Similarly, when the firm insists on well documented waste reduction methodologies internally, they should recommend, develop and monitor similar waste reduction methodologies for their key 7

8 suppliers as well. Eventually, this should be part of the normal supplier scorecard design and implementation for firms. The second research objective pertained to understanding the roles of important antecedents to environmental alignment, namely, external motivation and enviropreneurship. Contrary to the suggested hypothesis emanating from institutional isomorphism theory, mimetic, coercive or customer pressures do not enhance alignment. One possible reason could be that the average firm in our sample is further along the sustainability journey that this enabler is valid but not critical to shape alignment efforts. Taken together with the finding with respect to the second enabler of enviropreneurship, this speculation is not unreasonable. The study found a strong association between enviropreneurship and alignment thereby suggesting that setting the right climate is indeed important. References Atuahene-Gima, K., & Ko, A. (2001). An Empirical Investigation of the Effect of Market Orientation and Entrepreneurship Orientation Alignment on Product Innovation. Organization Science, 12(1), Bowen, F.E., Cousins, P.D., Lamming, R.C., & Faruk, A.C. (2001). The Role of Supply Management Capabilities in Green Supply. Production and Operations Management, 10(2), Chen, I.J., Paulraj, A., & Lado, A. (2004). Strategic purchasing, supply management, and firm performance. Journal of Operations Management, 22(5), Chin, W. (1998). The partial least squares approach to structural equation modeling, In G. Marcoulides (Ed.), Modern methods for business research. Mahway, NY: Lawrence Erlbaum Associates, Chin, W., Marcolin, B., & Newsted, P. (2003). A partial least squares latent variable modeling approach for measuring interaction effects: Results from a Monte Carlo simulation study and an electronic-mail emotion/adoption study. Information Systems Research, 14(2), Coddington, W. (1993). Environmental marketing: Positive strategies for reaching the green consumer. New York, NY: McGraw-Hill. Conrad, C.A., Brown, G., & Harmon, H.A. (1997). Customer satisfaction and corporate culture: A profile deviation analysis of a relationship marketing outcome. Psychology and Marketing, 14(7), Covin, J.G., & Slevin, D.P. (1991). A conceptual model of entrepreneurship as firm behavior, Entrepreneurship Theory and Practice, 16(1), Dacin, M.T. (1997). Isomorphism in context: The power and prescription of institutional norms. Academy of Management Journal, 40(1), De Giovanni, P. (2012). Do internal and external environmental management contribute to the triple bottom line? International Journal of Operations & Production Management, 32(3), Deephouse, D.L. (1996). Does isomorphism legitimate? Academy of Management Journal, 39(4),

9 DiMaggio, P.J., & Powell, W.W. (1983). The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, Dyer, J.H., & Singh, H. (1998). The relational view: cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 24 (4), Fornell, C., & Bookstein, F.L. (1982). Two structural equation models: LISREL and PLS applied to consumer exit-voice theory. Journal of Marketing Research, 19, Fornell, C., & Larcker, D. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), Gefen, D., Straub, D.W., & Boudreau, M.-C. (2000). Structural equation modeling and regression: Guidelines for research practice. Communications of the Association for Information Systems, 4(7), Gimenez, C., Sierra, V., & Rodon, J. (2012). Sustainable operations: Their impact on the triple bottom line. International Journal of Production Economics, 140(1), Hult, G.T.M., Boyer, K.K., & Ketchen Jr., D.J. (2007). Quality, operational logistics strategy, and repurchase intentions: A profile deviational approach. Journal of Business Logistics, 28(2), Ireland, R.D., Hitt, M.A., Camp, S.M., & Sexton, D.L. (2001). Integrating Entrepreneurship and Strategic Management Actions to Create Firm Wealth. Academy of Management Executive, 15(1), Lee, S-Y. (2008). Drivers for the Participation of Small and Medium-Sized Suppliers in Green Supply Chain Initiatives. Supply Chain Management: An International Journal, 13(3), Levinthal, D.A., & March, J.G. (1993). The learning myopia. Strategic Management Journal, 14, Melnyk, S.A., Sroufe, R.P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21(3), Menguc, B., & Ozanne, L.K. (2005). Challenges of the Green Imperative: A Natural Resource-Based Approach to the Environmental Orientation-Business Performance Relationship. Journal of Business Research, 58, Meyer, J.W., & Rowan, B. (1977). Institutional organizations: formal structure as myth and ceremony. American Journal of Sociology, 83, Miles, R.E., & Snow, C.C. (1978). Organizational strategy, structure and process. New York, NY: McGraw-Hill. Min, H., & Galle, W.P. (2001). Green Purchasing Practices of US Firms. International Journal of Operations and Production Management, 21(9), Nunnally, J., & Bernstein, I. (1994). Psychometric Theory. New York, NY: McGraw-Hill. Paulraj, A. (2009). Environmental Motivations: a Classification Scheme and its Impact on Environmental Strategies and Practices. Business Strategy and the Environment, 18(7), Paulraj, A. (2011). Understanding the relationships between internal resources and capabilities, sustainable supply management, and organizational sustainability. Journal of Supply Chain Management, 47(1),

10 Paulraj, A., Lado, A.A., & Chen, I.J. (2008). Inter-organizational communication as a relational competency: Antecedents and performance outcomes in collaborative buyersupplier relationships. Journal of Operations Management, 26(1), Preuss, L. (2005). Rhetoric and Reality of Corporate Greening: A View from the Supply Chain Management Function. Business Strategy and the Environment, 14, Suchman, M. (1995). Managing legitimacy: strategic and institutional approaches. Academy of Management Review, 20, Tiwana, A., & Konsynski, B. (2009). Complementarities between organizational IT architecture and governance structure. Information Systems Research, 21(2), Vachon, S., & Klassen, R.D. (2006). Extending Green Practices across the Supply Chain: The Impact of Upstream and Downstream Integration. International Journal of Operations and Production Management, 26(7), Van de Ven, A.H., & Drazin, R. (1985). The concept of fit in contingency theory. Research in Organizational Behavior, 7, Venkatraman, N. (1989). The concept of fit in contingency theory: Toward verbal and statistical correspondence. Academy of Management Review, 14(3), Venkatraman, N., & Prescott, J.E. (1990). Environment-strategy coalignment: An empirical test of its performance implications. Strategic Management Journal, 11(1), Wold, H. (1985). Partial least squares. In S. Kotz, & N. Johnson (Eds.), Encyclopedia of statistical sciences. New York, NY: Wiley, Zhu, Q., & Sarkis, J. (2004). Relationships between operational practices and performance among early adopters of green supply chain management practices in Chinese manufacturing enterprises. Journal of Operations Management, 22(3), Zhu, Q.H., & Cote, R. (2004). Integrating green supply chain management into an embryonic eco-industrial development: a case study of the Guitang Group. Journal of Cleaner Production, 12(8 10),