The Roles of Integration and Use of Management Tools in Economic Performance: A Comparative Analysis of Manufacturing Firms
Wagner, Marcus, International Journal of Management
The purpose of this paper is to analyse empirically the link between specific aspects of accounting and economic performance and to illuminate the role which the integration of non-traditional corporate objectives with other core aspects of a firm's operations and the utilisation of management tools have in this. The paper takes a comparative perspective by analysing manufacturing firms in two European countries, the Netherlands and Germany. As a methodological novelty for empirical work on the above issues it applies structural equation modeling to this data, which is a statistical approach to account for latent variables in empirical research. This is enabled by the high response rates to surveys in both countries, yielding 362 observations in the Netherlands and 342 in Germany as a basis for the analysis. The analysis finds that integration is positively associated with economic performance and that specific elements of accounting as well as that the more extensive usage of management tools can explain the significantly more positive effects in German firms. The paper provides novel and to date rare empirical evidence based on large-scale survey data (rather than individual case studies) that specific aspects of accounting and related management tools help to improve the economic performance of firms.
Sustainable development and corporate sustainability are increasingly perceived as a long-term trend, rather than a short-term fad. Profit-oriented organisations are therefore increasingly expected to provide solutions towards these two objectives (Schaltegger and Burritt, 2005). To enable such solutions, sustainability accounting in the widest sense becomes an increasingly important enabling factor, since managers often perceive that it can both contribute to profitability as well as to corporate sustainability and sustainable development at large.
Whilst sustainability accounting can be understood in different ways (Lamberton, 2005; Schaltegger and Burritt, 2006), one important element of it that is commonly mentioned is the non-monetary evaluation of performance, i.e. sustainability performance measurement (Yongvanitch and Guthrie, 2006). This relates to qualitative and broadly -defined goals, performance measures to assess progress on these goals, target values for quantitative performance indicators and specific activities that lead to organizational change which ultimately is reflected in quantitative improvement towards and beyond pre-defined target values for corporate performance.
One important element of sustainability accounting especially in the non-monetary realm is integration. This paper therefore aims at evaluating the role of integrating corporate strategy and sustainability accounting and management based on large-scale empirical data. In doing so, it can provide insights that go beyond case studies on individual organizations that to date are predominant in empirical research on sustainability accounting. For this purpose, the paper adopts a very similar notion to the one of Schaltegger and Burritt (2006) described earlier and doing so also enables an empirical assessment to which degree this definitional approach is useful for empirical research.
To develop a better understanding of the context of such an empirical study, in the following the literatures on the link between accounting and performance, on the role of integration for sustainability, the relationship of sustainability performance measurement and sustainability accounting, and the role of management tools (and here particularly the balanced scorecard) for sustainability accounting are reviewed. This will help to identify empirically relevant research topics and will assist the development of research questions as well as the identification of research gaps.
2. Literature review
Linking sustainability accounting and performance: A holy grail and the role of contingencies
As long as one accepts the proposition that more environmental and social management activities (i.e. more sustainability accounting) increase the level of environmental performance a firm achieves and that this corresponds to increased social welfare, then the issue is be reduced to the effect on firms' economic performance, where the latter is understood in a wider sense including more indirect effects on competitiveness such as the corporate or product image, market share effects and productivity improvements or the firm's ability to recruit excellent staff.
The link between environmental and economic performance has been a topic with a long tradition in the strategic management and sustainability accounting literatures (Klassen and McLaughlin, 1996; Pava and Krausz, 1996; Waddock and Graves, 1997;Ragothaman and Carr, 2008; Margolis and Walsh, 2001; Konar and Cohen, 2001). Margolis and Walsh (2003), Walsh et al. (2003) Orlitzky et al. (2003) as well as Ambec and Lanoie (2008) provide recent reviews and meta-studies summarizing empirical work on the relationship of environmental performance with economic performance. In this, of the 95 studies reviewed by Margolis and Walsh (2001) and discussed in more detail in Margolis and Walsh (2003), the results overall favour a positive relationship between environmental performance and economic performance.
Orlitzky et al. (2003) analyse the business case for corporate sustainability but in this keep separate the environmental and social dimensions of the analysis. They find that, whilst there is little evidence of a negative link (and hence against a business case), and some for a weak but statistically significant positive link, there is still significant variation across individual studies, ranging from negative to insignificant to moderately or even strongly positive relationships between environmental, social and economic performance.
Whilst one commonly agreed feature of all meta-studies is that by and large, firms are not penalized economically for improving their social or environmental performance, the variation in the results indicates that firm-level factors such as the stance towards sustainability accounting or the choice of specific tools and their fit to the company matter considerably. Admittedly, other reasons for why this empirical literature has so far not produced a clear consensus exist, such as differing measures of environmental and economic performance, different specifications of causal models and control variables and the assessment of differing time periods in different studies. Yet, one additional reason directly related to the choice of management tools and the stance towards sustainability accounting that to date is only rarely addressed in empirical work is the effect of integration (i.e. the interlinkage of environmental and social management activities with other strategic considerations).
Whilst the empirical "pay s-to-be-green-or-social" literature did not analyse systematically the effect integration has on economic performance, the theoretical literature addressed integration to some degree (Buysse and Verbeke, 2003; Sharma and Vredenburg, 1998), but is limited from a managerial perspective in that it is not much linked to work on tools that could be used to achieve integration nor to the role of organizational and other contingencies. As a result important gaps exist in the literature linking sustainability accounting and performance : the limited empirical evidence on the effect of integration from larger surveys and the missing connection between theoretical reasoning on integration, management tools and contingencies. To shed more light on this gap requires a more detailed inspection ofthe role of integration for sustainability accounting (Schaltegger and Burritt, 2005).
Sustainability accounting and management: The role of integration
As highlighted by reviewing the literature on the link between corporate sustainability and performance, an increasingly important question is whether there is actually a direct link between environmental/social and economic performance or if a joint effect of a third variable actually drives the relationship. Judge and Douglas (1998) show in this respect that integration of functional areas within the firm positively affects economic performance, suggesting integration as such a third (and commonly unobserved) variable. Historically, environmental and social accounting are often conceived as being separate systems with only minimal links (e.g. in terms of personnel or organisational structures and processes) to the general management system of a firm (Hamschmidt and Dyllick, 2002) . This also implies a potential for doubling of corporate functions, in turn suggesting inefficiencies. While the general management system is responsible for strategic and operative planning environmental management for example is responsible solely for planning the environmental activities of the firm and supporting these by means of guidelines and tools. As a result economic efficiency is frequently limited, for example because ofthe additional coordination efforts needed. Central to the limited efficiency characteristic of this separation is the "parallel", but unconnected management system. Since additional resources needed for coordination are usually recorded as indirect or overhead costs or expenditure, they are frequently not traced adequately in the accounts of a company (as they would be with full-blown sustainability accounting). This leads to negative effects on economic performance being neglected or, even worse, being overlooked due to limited managerial resources. On the other hand, when firms voluntarily enhance their environmental or social performance beyond the minimum level legally required, they are motivated often by the hope that this produces improvements in their corporate image or similar competitive advantages. Such advantages are however difficult to evaluate in terms of their economic value and therefore an assessment of the impact is often not even attempted. Again, limited managerial attention can lead to important benefits resulting from increased integration being overlooked. Overall, these considerations highlight the value of and need for integration, as also identified in earlier work (e.g. Welfordand Gouldson, 1993; Burke andLogsdon, 1996; Oktem et al, 2004). In line with this notion, a strong trend has been identified in practice towards integration of internal management systems such as quality and environmental management, health and safety (H&S) and social aspects (Sharma and Ruud, 2003). This is based on the similarity ofthe underlying management standards such as ISO 900 1 , ISO 1400 1 , OHSAS 18001 or SA 8000 (Rahimi, 1995). In addition to this, it has been argued that benefits exist from integration e.g. in terms of scale economies, complementarities and through supporting a joint approach for ensuring compliance with and beyond environmental, quality and H&S standards (Matias and Coelho, 2002). Extant work therefore supports the notion that integration of social and environmental topics with other strategic aspects (i.e. the design of more closely coupled systems) brings about benefits that exceed cost, and hence should relate positively to firms' economic performance. This integration challenge has also been highlighted for sustainability accounting at large (Schaltegger and Burritt, 2006).
It is stressed that integration is achieved through a process based on tacit capabilities (like e.g. quality management activities or corporate strategy development) which is difficult to imitate (Hart, 1995; Aragon-Correa and Sharma, 2003). This turns the resulting level of integration into a strategic resource. Based on this reasoning it is also suggested that firm-specific cross-functional coordination integrates environmental management with other strategic aspects in a way that improves economic performance and similarly the argument is made that inclusion of social demands as strategic issues should lead to improved economic performance (Christmann, 2000; Judge and Douglas, 1998; Jansson et al, 2000; Klassen and McLaughlin, 1996).
Linking sustainability accounting and management tools: The case ofthe balanced scorecard
Integration can be fostered through the use of specific instruments and this has been discussed in a stream of more applied work developing management tools. For example, the balanced scorecard approach has been suggested to assist the integration of environmental, social and economic objectives (Kaplan and Norton, 1996; Kaplan and Norton, 2001 ; Epstein and Manzoni, 1998). The balanced scorecard (BSC) is for a number of reasons one of the most promising and interesting instruments for better integration ofthe environmental, social and economic aspects of sustainability management and for fostering the application of sustainability accounting in companies.
First of all, this is because the balanced scorecard is highly popular amongst managers and has experienced rapid diffusion as a management tool. Because of this and its multidimensional conception, it is well placed to efficiently address the major challenges of corporate sustainability, because in business reality environmental and social performance indicators rarely stand alone but need to be related to economic performance measures in a comprehensive sustainability performance measurement approach that addresses social, environmental and economic aspects (Schaltegger and Wagner, 2006).
Furthermore, sustainability performance measurement requires that environmental and social management activities are integrated with business strategy and management. Hence integration also has a pivotal role which underscores the relevance of the BSC.
Finally, since sustainability performance measurement refers to the performance of the organization for a sustainable development of the economy and society as a whole, it comprises elements of organisational change and thus also relates to specific (environmental or social) management activities at the firm level (Schaltegger and Burritt, 2006). This is particularly relevant since in practice balanced scorecards are not designed de novo, but build on existing activities and legacy systems in a firm. For example, specific environmental management activities such as the existence of qualitative and broadly-defined goals, performance metrics to quantify progress towards these goals, target values for quantitative performance indicators and specific activities that lead to organizational change (which ultimately is reflected in quantitative improvement towards and beyond pre-defined target values for corporate performance) can increase the success chances for implementing a balanced scorecard. Therefore, existing activities ultimately also impact different dimensions of economic performance and hence a link exists between sustainability accounting and performance.
The starting point of the balanced scorecard is the business strategy which is operationalised through four to five management perspectives based on cause and effect chains (Kaplan and Norton, 2004; Ohe et al, 1999). The main focus of implementation is essentially on identifying a suitable balanced scorecard of non-monetary (i.e. physical) indicators that in the context of sustainability accounting also extends beyond purely economic measures to environmental and social aspects (Bennett and James, 1997; Rikhardsson et al.9 2005). This is why the balanced scorecard approach seems very suitable for linking sustainability accounting and management tools.
3. Research questions
Three main areas for research questions emerge from the review of the extant literature in the domains of sustainability accounting, performance, integration and balanced scorecard that was carried out in the previous part of the paper. The first is whether indeed integration matters for economic performance and competitive advantage as this is a key assumption for promoting sustainability accounting as an enabler that simultaneously fosters corporate sustainability and sustainable development at large. As identified in the literature review, this matters because there is some doubt about a direct link between sustainable management and economic performance, with the alternative being that a joint effect of a third variable actually drives the relationship. For example, Wagner (2007) shows that integration of functional areas within the firm positively affects economic performance and is also likely to be related to environmental performance. A positive association of integration (of business strategy with environmental and social aspects) and economic performance in this is a precondition for the existence of a third variable. Therefore a first set of research questions can be posed:
* Is there a positive association between sustainability integration and different dimensions of economic performance?
* Does the link differ across dimensions?
The second set of research questions that emerges from the literature review is the role of organizational and other contingencies. For both the above research questions the effect of moderating factors matters and hence several frequently suggested moderator effects need to be analysed. These organizational contingencies are whether responsibility for corporate sustainability lies at the board level, if firms have implemented a quality management system as a complementarity (Christmann, 2000), whether firms are large or small and if firms are from different regulatory contexts (i.e. Germany and the Netherlands in this case). Therefore, a second set of research questions can be proposed:
* Do contingency factors affect the association ofsustainab ility integration and different dimensions of economic performance?
* Do the contingencies relate more to firm-level organizational or more to other factors or to both equally?
The third set of research questions that emerges from the literature review is whether integration is positively associated with specific activities of sustainability accounting such as setting goals, deriving performance measures to assess progress on these goals, defining target values for quantitative performance indicators and specific activities that lead to organizational change which is conducive to achieving or exceeding defined target values. More specifically, in order to evaluate, to what degree the balanced scorecard concept discussed in the literature review section has practical viability and to probe deeper into any relevant contingencies identified, the main characteristics ofthe conventional balanced scorecard (objectives, indicators, target values and measures) are analysed with regard to the dependence of their usage on the linkage between corporate strategy and sustainability. The expectation based on the literature review is that this drilldown of how firms integrate their environmental and corporate strategy considerations and relate this to the use of core elements of strategic sustainability accounting as in the balanced scorecard method can help explaining differential performance effects and the role of contingent factors for these differences. This expectation is also reflected in the research call by Epstein et al. (2000) which further underlines the issue's relevance. Therefore, a third set of research questions can be proposed:
* Are there differences in the association of integration levels and the pursuance of specific activities relating to the main sustainability accounting aspects ofthe balanced scorecard method for any significant contingencies identified?
* Can these differences help to explain any differences in the relationship between integration and different dimensions of economic performance?
The research questions derived from a review of extant literature on sustainability accounting and adjacent fields are analysed in the following using a dataset of firms in the manufacturing sectors of two relatively similar European countries, namely the Netherlands and Germany.
4. Data and Method
The focus of the empirical analysis is on environmental aspects based on the assumption, that a similar situation can be expected for social aspects and is based on data collected during a mail survey. The questionnaire asked firms for a self-assessment on different aspects of economic performance in terms of benefits from environmental management, about the level of integration between environmental, social, quality and H&S aspects with the firm's general strategy and for general information about the firm and its structure. Of the 2000 firms contacted in Germany to complete the questionnaire 342 responded, resulting in a response rate of 17. 1 per cent. Of the 342 responses, 37 had to be excluded from the analysis due to missing values. In the Netherlands 2080 firms were contacted, of which 362 responded, equalling a response rate of 17.4 per cent. Of the 362 responses, 10 had to be excluded from the analysis due to missing values. Despite of the exclusions, the overall response rates in both countries are good compared to other firm-level surveys and suggest that it is appropriate to proceed with a more detailed multivariate analysis of the data set.
To assess in more detail the representativeness of the responses data of the German federal agency for employment and the OECD was used (Batenburg, 2006). For Germany larger firms with more than 500 employees are represented over-proportionally in the responses, whereas firms with 151 to 500 and less than 150 employees are under-represented in the dataset due to fewer responses from smaller firms. For the Netherlands a decreasing interest of especially large and medium-sized firms in participating in survey research was observed, possibly also impacting representativeness to a small degree.
Concerning response bias, it is possible that the replies received contain over-proportionally many firms that are particularly active in terms of environmental management. Such a bias is a frequent problem of surveys based on written questionnaires (Armstrong and Overton, 1977). However, the broad variability found in the responses indicates that also environmentally inactive firms that participated in the survey.
Next to response bias, self-assessment and the use of only one survey instrument may be a cause for distortions in the data set, in particular concerning common method bias. Common method bias results from variance in the data being attributed more to a measurement method than to the constructs measured. The extent of common method bias varies across fields and is below average in marketing and business studies (Cote and Buckley, 1987).
Self -assessment or soliciting data on independent or dependent variables does not per se imply the existence of common method bias since its strength can differ amongst subgroups of respondents (e.g. respondents from different countries) and since methodrelated variance can deflate or inflate the relationships observed (Podsakoff et al, 2003). For the survey data used here a number of procedural and statistical steps were taken to ensure that common method bias is minimized or at least reduced.
Procedurally, different response formats were used, the anonymity of respondents was ensured, question order was counter-balanced and scale items were improved, especially during the pre-test phase ofthe survey. All these steps were aimed at reducing socially desirable responses and item ambiguity. For the sake of keeping the anonymity of respondents, it was not generally possible to pursue two other procedural remedies, namely obtaining assessments from different respondents and separating measurements. However the instructions provided for the survey (in particular to ask for the most knowledgeable person to answer it) and the way the survey was implemented made it possible that even these two remedies could in principle be applied by respondents.
In terms of statistical ex post evaluation of the presence of common method bias in the data finally used in the analysis, Harman's single-factor test was applied to establish whether one single factor accounting for most of the variance in the data could be identified from the unrotated solution of a factor analysis. The unrotated factor solution yielded 4 1 factors of which 1 1 had eigenvalues larger than unity. The first three factors explain 7.9 per cent, 7.6 per cent and 7.4 per cent, respectively. All remaining factors with Eigenvalues greater than one explain between 6.5 per cent and 2.9 per cent of the variance in the data. This is strong evidence against the existence of one general factor accounting for most ofthe variance in the data. Therefore common method variance does not seems to be a critical issue in the data in terms of both ex ante procedural precautions and ex post statistical evidence. Overall, the analysis of representativeness, response and common method bias allows concluding that it is save to develop constructs from the data at hand. These are briefly described in the following.
Integration is understood in this paper in terms of specific patterns of linking environmental, quality and health and safety aspects with the firm's general strategy. This definition includes quality and H&S, because their integration has been proposed by many authors as being a specific stage of integration i.e. integration proceeds from environment, health and safety to total environmental quality management to being integrated with social and strategic issues (Welford and Gouldson, 1993; Benn and Probert, 2006). The specific processes leading to this could not be obseded and therefore the process aspect is not elaborated further in this paper. Instead, the focus rests on the level of integration resulting from the process.
Economic performance is defined in this paper as that element, which can actually be influenced by environmental management activities and different dimensions are derived as latent variables for the path analysis. This approach was also pursued by Sharma (2001) and seemed to be the most suitable when involving self-assessment by firms. Measurement was thus by means of a set of items asking about the effect of management activities on different economic performance aspects such as effect on market share or cost of insurance to the firm for business liabilities.
Confirmatory factor analyses were carried out for the economic performance and integration constructs prior to involving them in SEM. Next to the central variable (integration), this allowed confirming four latent variables for economic performance. Whether or not items were retained for the latent variables was decided on the basis of the change of the Cronbach Alpha for each variable and based on overall model fit. Each latent variable is briefly described in the following.
Integration is measured using three indicators which are based on respondents rating on a 5 -point scale the degree to which environmental management is integrated with quality management, health and safety aspects and corporate strategy, respectively.
The first latent variable identified for economic performance refers to sales, market share and new market opportunities. Therefore it was labeled 'Markets' since it predominantly addresses the market-related benefits of a company's activities. The relevant items for the second latent variable are corporate image, management satisfaction, and worker satisfaction. It was thus termed 'Image' since it mainly refers to internally oriented satisfaction and company image benefits from a company's activities. For the third latent variable identified, the items short-term profits, cost savings and productivity are particularly relevant. These predominantly refer to the short-term performance of a company and this factor was therefore named 'Efficiency'. Two items relating to improved insurance conditions and better access to bank loans emerged as the fourth latent variable are related to the financial effects on a company from its chosen level of environmental management activities and are thus labelled 'Risk'. Table 1 summarises further validity measures for the above latent variables.
Fornell and Larcker (1981) suggest that the association of a construct with its indicators should be stronger than its association with any other construct. Hence the FornellLarcker-Ratio is included in Table 1 to address the discriminant validity of each construct. It has to take values below unity to fulfill the outlined condition. Furthermore, indices of local fit suggest that all constructs are reliably measured by their indicators, since for each of the latter the indicator reliability exceeds 0.4 (except for one item on the 'Efficiency' construct which with 0.39 is marginally lower). Also all factor loadings of the manifest items were significant (see t-values in column 4). The factor reliabilities (column 5) as well as the average share of indicator variance extracted (DEV) by the corresponding latent construct (column 6) are sufficiently high except for a slight deviation on the 'Risk' construct. In summary therefore, all latent constructs are sufficiently separable from one another.
To analyse the research questions derived above, structural equation modelling (SEM) is employed. Next to an overall path analysis, also moderator analyses were carried out with regard to four important explanatory factors: national policy, firm age, firm size and the status of sustainable development in the firm. National policy settings and national culture differences (Williams and Seaman, 2001) were proxied by the firm's country location, firm age by the logarithm of the number of years the firm existed, firm size by the logarithm of the size of the number of employees and the status of sustainable development by a dummy indicating whether the ultimate responsibility for environmental management was with a member of the board or not. I used the median value for each moderator variable to split the whole data set and evaluate the SEM separately for each respective sub-sample.
All analyses were carried out with AMOS (Aibuckle, 1999) with raw data as inputs and using full information maximum likelihood estimation ofthe parameters. The marker variable strategy of fixing the loading of one of the items for each latent variable to 1 was used to achieve model identification (Ullman, 2001). Evaluation of measurement model fit was initially based on the Chi-square value and indicates that the measurement model has a very good fit (Chi-square/df = 1.82; ? < 0.01). Furthermore, the root mean square error of approximation (RMSEA) forthe model of less than0.04, Bender's (1990) comparative fit index (CFI) of 0.94 and the Tucker and Lewis (1973) fit index (TFI) of 0.92 indicate good fit. The overall model fit therefore meets or exceeds the standards of model fit proposed by Hu and Bender (1999). Table 2 gives an overview of the main effects in the SEM model. As described in Table 1 all loadings ofthe observable indicators on the latent variables are significant at pO.OO 1 and are in the right direction, providing confidence in the estimates. Notable are the differing magnitudes ofthe effects estimated across the four latent variables since this suggests differential performance effects of integration.
As argued when deriving the research questions, it is likely that organisational and other contingencies impact the paths in the model. More particularly, it was argued that the variables firm size, if responsibility for corporate sustainability lies at the board level, whether firms have implemented a quality management system and the regulatory context (i.e. country location) of the firm are the relevant and often-cited moderator variables. To test for any moderating effects of these factors, specific constraints are imposed on the model reported in above and the appropriateness of these constraints is tested separately for sub-groups in the data set through hierarchical model comparisons.
More specifically, multi-group AMOS initially constrains all parameters to be equal between the two sub-groups identified based on the median values of the moderator variables. Only if this constrained model is significantly worse in terms of fit than the unconstrained model it makes sense to test individual paths for equality across groups. For the latter, multi-group AMOS then compares two models that are different only with regard to the denominated path. These are nested in that one model restricts the parameter corresponding to the denominated path to be equal across groups whilst the other, more general model allows this parameter to vary across the two groups.
For firm size, level of responsibility assignment and quality management system implementation, the differences between constrained and unconstrained models at the aggregate level are all insignificant (at p = 0.41, p = 0.19 and p = 0.92, respectively). The results of the moderator analysis of country location (where the difference between the constrained and unconstrained models is significant at p = 0.001) are shown in the following Table 3.
Given that only country moderation effects could be identified in the SEM multi-group comparison, the attempt is made in the following to probe deeper into what may drive the differing association of integration with the economic performance dimensions in terms of specific management activities that are carried out by firms. Comparing firms in this way between the two countries can provide clues what the crucial activities are to realize a positive effect of integration on performance. The management activities particularly relate to the BSC model (i.e. goals, indicators, targets, actions) since the features ofthe balanced scorecard (Kaplan and Norton, 2001; Olve et al, 1999) such as different perspectives and causal linkages seem to position it very well for a structured firm-level process of integration with regard to environmental, social and economic aspects that ultimately has a positive impact on performance.
The focus is on this last linkage dimension because in stage models of strategy development these are considered more advanced than total enviromnental quality management or EHS systems (Hunt and Auster, 1990; Welford and Gouldson, 1993; Oktem et al., 2004). Tables 4 and 5 provide summaries of activities for Germany and the Netherlands.
A first insight from Table 4 is that indeed in German firms higher levels of integration associate significantly positively with management activities conducive for balanced scorecard implementation as one specific form of sustainable performance measurement and an important tool for sustainability accounting. Also for the Dutch firms in the data set, the basic association of integration levels with the probability of pursuing specific management activities conducive for the application of sustainability accounting tools such as the balanced scorecard is confirmed. Yet, across countries the strength of association can still differ.
In order to evaluate, to what degree the balanced scorecard and the arguments identified in the literature review relate to the findings of the multi-group comparison the main characteristics of the conventional BSC (objectives, indicators, target values and measures) can be evaluated in terms of the strength of association (measured by means of Spearman rank correlation) to provide insights about the relationship of their usage.
As can be seen, in almost all cases the strength of association is larger for German firms than for Dutch firms in the order of magnitude of 20 to 25 per cent. The only exception is the use of quantitative performance indicators, but the difference of 0.03 (corresponding to 10 per cent) is much smaller than the differences for the other three binary variables where the German firms have in all cases much stronger associations.
6. Conclusion and Discussion
This research set out to answer a number of research questions on the link of sustainability accounting and integration. As concerns the first set of research questions, the empirical analysis confirms a positive association between sustainability integration and different dimensions of economic performance. Interestingly, judging from the standardized estimates the effects are strongest for the image- and market-related dimensions. However also for the efficiency- and risk-related dimensions integration has a positive effect. This can be understood as an indication, that integration helps especially when e.g. deciding on which new product developments to pursue and which markets to target with which approach. Also it means that integration helps companies to act consistently over a widerrange of business activities, in turn significantly improving image-related benefits. It seems that integration especially ensures that there are no gaps or inconsistencies in a firm's sustainability -related activities.
Future empirical research based on large samples o firms should attempt to confirm and corroborate these findings ofthe analysis and in doing so, amongst other things, help to gain a better understanding whether these are confined largely to Europe or even only to some countries within the European Union. For example, surveys on this topic in the United States, the BRIC countries or other non-European OECD countries would be of considerable value in order to develop a more comprehensive picture of the link between integration and performance, and the role which management tools and sustainability accounting have in this.
As concerns the second set of research questions country location and national regulation emerges as a strong contingency factor and moderator variable. Opposed to this, for the structural level to which responsibility for corporate sustainability is assigned, finn size and the existence of a certified quality management system do not affect the association of sustainability integration and different dimensions of economic performance. This means for example that whether responsibility for sustainability is assigned to the board level does not affect the different paths from integration to the various economic performance dimensions. That is, no moderation effect of board responsibility is identified in the multi-group comparison. One important implication of this is that leadership through board responsibility is insufficient, but that leadership in processes and policies is needed additionally.
Concerning the countiy moderator effect the positive effect of integration on different dimensions of economic performance is considerably stronger and more significant in Germany as compared to the Netherlands. This result suggests that firm-level organizational contingencies matter less and that firm-external contingency factors are more important for variations in the relationship between integration and performance.
The role of country -level factors also indicates that regulatory frameworks and national culture most probably impact on the association of integration and performance for firms in a given countiy. However, there is also some interrelatedness with firm-level organizational contingencies. For example, a survey of the OECD (Johnstone, 2007) which collected data from 4,200 facilities in seven countries (including Germany) finds that the level in the organization to which ofthe individual who has overall responsibility for environmental matters belongs varies across countries. The study suggests that this has strong influence on the type of corporate environmental strategy pursued. For example, in terms ofthe (normalized) level of integration of environmental management with other functional areas, the level of integration with quality management is 0.72 and with health and safety management 0.71. This compares with figures for Germany and the Netherlands of 0.66 (both countries) and 0.73 and 0.67 (for H&S management), respectively, in the research reported in this paper.
Such differences in the level of integration, whilst potentially driven by differences in country-level regulatory frameworks of course also represent firm-level differences and hence indirectly firm-level contingencies may well matter, even though their direct effect was shown to be rather weak given their insignificance in the multi-group comparisons reported above. As concerns the last set of research questions, some significant differences can be identified between firms in the two countries (which was the only significant moderator identified) in the association of integration levels and the pursuance of specific activities that relate to the main. Overall, there is more usage ofthe four activities relating to the core sustainability accounting aspects of the balanced scorecard method in Germany for a given level of integration than is in the Netherlands. Relating this back to the multi-group countiy comparison this result suggests that the higher occurrence of these activities related to sustainability accounting and the balanced scorecard enables German firms better to reap economic benefits from integration, whereas Dutch firms may pursue a different and somewhat less effective approach. Still, given the SEM results, firms which pursue activities related to the core sustainability accounting aspects of the balanced scorecard method more strongly as part of the integration of corporate strategy and sustainability accounting and management perform better. Furthermore, as can be seen from Tables 4 and 5, for quantitative environmental targets (i.e. existence of target values for the indicators used) the usage probability is highest for German firms that strongly link environmental with corporate strategy considerations.
Whilst the absolute level of association differs across countries, this linkage is in both countries of similar strength as the one for a written environmental policy which may also be due to the fact that often such targets are associated closely with the existence of a policy. The likely mechanism behind this is that targets are usually derived from policies and that hence existence of targets is closely associated with the availability of a written policy and that firms are more likely to have an implementation program when they have environmental targets. The somewhat weaker linkage in both countries (relative to the other three binary variables) of quantitative indicators with the integration of environmental, economic, and possibly also social aspects towards sustainability performance measurement and strategic sustainability accounting also points to scope for improvement because it suggests that firms having a written policy, targets and a program to implement the latter in some cases do not use quantitative indicators for monitoring. Whilst this could be due to the fact that targets can simply be achieved by means of appropriate actions without using sustainability accounting tools to continuously record and track quantitative performance indicators, it could also indicate that a state of fully developed sustainability performance measurement using sustainability accounting has not yet been reached. Being a core element of sustainability performance measurement based on the balanced scorecard method this weaker adoption of quantitative indicators somewhat limits the ability of firms to benefit from implementing a balanced scorecard. One important reason for this weakness could be that firms are endowed with capabilities and resources to a different degree. Relating this back to the natural-resource based view, Marcus and Anderson (2006) in a similar context note that not one general dynamic capability, but different ones for business and social responsibility objectives are at work in some industries. In the context of the empirical study reported here this may mean that those firms that have strong capabilities with regard to business objectives are well-positioned to make use of performance indicators, but are not the ones that can handle well the more specific elements of sustainability accounting. This is another issue that should be analysed in more detail in future research. Even though the core balanced scorecard literature does not explicitly suggest the value of this management tool for integration (see endnote iv), precisely this is proposed here because the suitability of the balanced scorecard to achieve integration is high, linkages between specific sustainability accounting activities related to this tool and integration levels could be established and also empirically integration supports economic performance in different dimensions. In addition to this also from a managerial point of view a balanced scorecard is well placed to efficiently address the challenge of integration because of its high popularity and rapid diffusion as a management tool and due to its multidimensional conception that has already been extended into the sustainability realm (Johnson, 1998; Epstein and Wisner, 2001; Epstein and Roy, 2001).
Furthermore, the balanced scorecard approach also fosters involvement of middle managers in strategy making and should thus reduce detrimental effects from micropolitics and the inertia of corporate culture (Collier et al., 2004; Grant and Visconti, 2006; Scullen et al., 2005). This paper has responded to a gap in extant research about the role of integration of environmental, social and economic aspects at the firm level in potentially bringing about a positive relationship with economic performance. It has shown that this presumed link can be detected in large-scale survey data and that contingencies exist that moderate this link.
The paper also shows that one important explanatory factor for the association of integration and performance is the degree to which key sustainability accounting aspects of the balanced scorecard method are taken into account by firms. In doing so it encourages managers to consider more comprehensive application of sustainability accounting in their companies.
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Publication information: Article title: The Roles of Integration and Use of Management Tools in Economic Performance: A Comparative Analysis of Manufacturing Firms. Contributors: Wagner, Marcus - Author. Journal title: International Journal of Management. Volume: 28. Issue: 2 Publication date: June 2011. Page number: 427+. © International Journal of Management Dec 2008. Provided by ProQuest LLC. All Rights Reserved.
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