Going green? Examining Sustainability in Dutch Industrial Firms

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Going Green?

Examining Sustainability in Dutch

Industrial Firms

Author: Ali Emre Kepenek Student number: 4259726 Supervisor: Peter Vaessen 2nd_{Supervisor: Jan Jonker}

Master thesis

Business Administration – Strategic Management Nijmegen School of Management

Radboud University Nijmegen April 2019

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1. Introduction

Firms face increasing environmental demands. There is a global consensus on the necessity of sustainable practices. Society, stakeholders, and regulatory institutions drive businesses to continuously adopt environmental innovations in order to reduce the impact that their

operations have on the (natural) environment. Policy-makers and researchers agree that clean technologies and environmentally friendly innovations are vital in creating a desirable

situation to maintain and/or improve economic competitiveness and secure environmental sustainability of different sectors and the economy as a whole (e.g. Porter and Van der Linde, 1995a, 1995b; Eder, 2003; Triebswetter and Hitchens, 2005; Van Kleef and Roome, 2007; Montalvo and Kemp, 2008; Montalvo, 2008; Calleja and Delgado, 2008; Foxon and Pearson, 2008; Geels et al., 2008). However, the speed at which the adoption of environmental

innovations takes place is different for certain businesses. Thus, if we are to address the issue of lacking engagement in environmental innovation, it is desirable to know why certain businesses are slower in the adoption of environmental innovations compared to their counterparts and competitors. Therefore, this research aims to find out which types of businesses are relatively lacking in the adoption of environmentally friendly technologies.

Although there is a global consensus on the need for sustainability, the means of achieving this remains a challenge. Environmentally friendly innovations, of which many could lead to competitive gains and social and environmental benefits, are underused, meaning that they are not adopted easily and quickly in the economy (Carrillo-Hermosilla et al., 2009). There are multiple reasons for delays in adopting environmental innovations. More often than not, environmentally friendly alternatives are considered as being too costly, not on the same performance level as existing products, or requiring users to change their existing routines (Yudelson, 2006; Ozaki, 2011). Furthermore, some people regard environmental innovation as perhaps most fraught with risk and uncertainties (Van Waarden, 2001). While some people can cope with risks, most would agree that uncertainties are unwanted. This means that the diffusion of (environmental) innovations is, among other reasons, slowed down by existing uncertainty (Hall, 2004).

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innovations. A part of this path dependency, meaning the reluctance to deviate from an existing course of the organization, can be explained by a ‘lock-in’ into the existing situation, mostly due to economies of scale and scope (Arthur, 1989). Besides this economic lock-in, existing organizations also naturally favor stability and thus oppose change (Unruh, 2000). One can imagine that even if environmental innovations are readily available, they are unlikely to be adopted if the decision makers are unwilling to pay for these innovations and take certain risks. This means that besides financial incentives, the decision makers’ intention and ability to let go of ‘old’ customs, technologies, and investments play a role in the

adoption of sustainable technologies.

As noted before, it is widely accepted that environmental innovations play a crucial role in increasing competitive advantage and sustainable development. Despite this crucial role, it is not sufficiently clear under what conditions environmental innovations are stimulated or not. Unfortunately, despite increasing attention on innovation processes related to firms’

sustainable development in the last two decades, concrete empirical studies that examine this subject are very limited (Sezen and Çankaya, 2013). The issue that is focused on within this thesis is that certain businesses are trailing in the adoption of environmental innovations. These businesses are slower than others regarding their engagement in environmental innovation.

This research examines notable characteristics associated with the rejection or delay of the adoption of environmental innovations by industrial companies in the manufacturing sector in the Netherlands. This will provide more insight in which kind of businesses are more likely to adopt environmental innovations and which ones are not. Acquiring this knowledge is

important, because the findings in this study might offer important implications for practitioners and policy makers seeking to encourage environmentally friendly manufacturing, thus improving the sustainability of our society.

An example of how this is possible is that the results of this thesis can be used by i.e. the government to formulate specific policies and/or target specific groups of producers to promote the adoption of environmental innovations (in Dutch manufacturing industries). Furthermore, knowledge about which characteristics these trailing businesses possess is limited in the existing literature. Therefore, this research also aims to contribute to the

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making investments to increase public wellbeing through products, i.e. an environmentally friendly product, thus giving this research not only practical, but also scientific relevance.

To help gain this knowledge, the following research question will be used:

Which characteristics are related to Dutch industrial firms that are trailing with regards to their engagement in environmental innovation?

The factors that influence the behavior of Dutch industrial firms regarding their adoption of environmental innovations will be derived from three broad perspectives in organization theory for analyzing organizational operations. These are strategy, structure and environment (e.g. cf. Chandler, 1962; Lawrence & Lorsch, 1967). The aim of this thesis is to find out which strategic, structural and environmental characteristics are recurring in businesses that are trailing in the engagement in environmental innovation. A welcome addition is to be able to make assumptions/predictions about the existence and intensity of a firm’s environmental innovation based on their characteristics.

For this research, the data gathered by the Institute for Management Research of the Radboud University Nijmegen will be used. The survey is named ‘Modernization of the production’ and it allows for the analyzation of the characteristics related to the adoption intensity of environmental innovations for all the Dutch industrial manufacturing businesses that have participated in the survey.

This research consists of five sections. The following section consists of the theoretical framework of this research and the research model. Section three consists mainly of the description of the data, the operationalization of variables, and the research methodology. The fourth section will present the results of the data analysis. This thesis will be concluded by a research summary, answers to the research questions portraying the characteristics of

environmental laggards, the reflection on theory, policy recommendations and suggestions for further research, and the limitations of this research. The used survey will be included in the Appendices.

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2. Theory and Model

2.1 Introduction

In this chapter, the theories related to the topic of this thesis will be presented. First, an explanation will be given for the chosen approach regarding the chosen set of company characteristics. In chapter 2.3, the term ‘innovation’ will be elaborated. Thereafter, the hypotheses will be presented and elaborated.

2.2 Determinants of organizational operations: strategy, structure, environment

This thesis will consider the three sets of characteristics in Dutch industrial firms, namely strategy, structure, and environment. This research does not aim to depict the drivers and barriers for environmental innovation in general, as those have already been researched to a certain degree. The aim of this thesis rather is to unearth and depict the characteristics found especially in trailing firms. From a business administrative point of view, the overall aspects of a firm are strategy, structure and environment. Firms have internal factors i.e. structure and strategy, and external factors i.e. the environment.

Regarding the internal factors, Porter (1996) defines strategy as “the creation of a unique and valuable position, involving a different set of activities.” A more detailed definition comes from Johnson et al. (2008), who say that strategy can be defined as the direction and scope of an organization over the long-term, aiming to achieve advantages for the organization through the configuration of resources within the organization’s environment, with the end goal of meeting the needs of markets and fulfilling stakeholder expectations.

Structure is defined by Mintzberg (1987) as “a fundamental, tangible or intangible notion referring to the recognition, observation, nature, and permanence of patterns and

relationships of entities.”

Besides the internal aspects mentioned above, the firm always operates in a certain external environment. Environmental forces, ranging from governments to the global stock market, are often too powerful for a single firm to influence. The strategy and structure of a firm must be in line with the environment in which it operates, meaning that firms must adapt to the developments in their specific environment in order to survive. Once the necessary strategy for a firm considering environmental forces has been determined, the decision makers identify

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environment is known as ‘strategic alignment’ (Johnson et al, 2008). This reasoning explains why the literature connects a firm’s strategy, structure, and environment in business related researches, and why these three dimensions have also been selected for this thesis.

This thesis will deviate from existing theories regarding the relationships between structure, strategy, and environment. Chandler (1962), after having done research on 70 American companies, famously pointed out that structure follows strategy, pioneering this line of thought. While some, like Chandler, say structure follows strategy, others, like Hall and Saias (1980) and Peters (1984) say strategy follows structure, and both sides acknowledge the effect of the environment on strategy and structure (Hall and Saias, 1980, p. 150). However, for this research, the main interest is not in the relationships between these three, but more in their autonomous occurrence in the characteristics of a trailing firm. As mentioned, there are numerous studies regarding the drivers and barriers for environmental innovation, but not many that identify concrete characteristics of firms that are lagging when it comes to

environmental innovation. To allow for policy makers and other propagators of environmental innovation to localize and possibly intervene in trailing firms, the main goal of this thesis is to identify the characteristics occurring in these firms. In this thesis, these lagging firms, i.e. environmental laggards, can be defined as: firms that are relatively lagging in their engagement in environmental innovation.

2.3 Innovative operations of organizations

The term environmental innovation, or in short ‘eco-innovation’, is widely used in the

environmental management literature (e.g., Fussler and James, 1996; Rennings, 2000; Belin et al., 2009; Carrillo-Hermosilla et al., 2010). The literature proposes a large variety of

definitions regarding this term (e.g., Fussler and James, 1996; Rennings, 2000; Rennings and Zwick, 2002; Andersen, 2008; Carrillo-Hermosilla et al., 2010; Machiba, 2010). However, there currently is no generally accepted definition of eco-innovation. In general, the existing definitions emphasize that eco-innovations, regardless of the original motivation, should reduce the environmental impact caused by consumption and production activities. Carrillo-Hermosilla, Río and Könnölä (2010, p. 1075) describe the term as “an innovation that improves environmental performance”.

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A review of 8516 publications by Schiedrig et al. (2012) with the aim to contribute to the clarification of these concepts showed that the notions such as green, eco/ecological, and environmental innovations could be used interchangeably, since they only had minor

conceptual and descriptive differences. However, sustainable innovation stands further away from the other terms. Sustainable innovations also include a social dimension of

sustainability, while the other concepts focus on the environmental (and economic)

dimension. Within this thesis, environmental innovations are defined as “product, process, marketing and organizational innovations leading to a noticeable reduction of environmental burdens caused by organizational activities”.

A distinction can be made in the type of environmental innovations. In the 1997 OECD ‘Guidelines for Collecting and Interpreting Technological Innovation Data’ a distinction is made between technical innovations and organizational innovations. Technical innovations are further divided into product innovations and process innovations. The following

definitions of types of innovation that are used in this thesis are taken from Frondel et al. (2007, pp. 2):

o Process innovations enable the production of a given amount of output (goods, services) with less input.

o Product innovations encompass the improvement of goods and services or the development of new goods.

From the definitions above, two things that are relevant for this thesis can be concluded. First, process innovations lead to cost-reduction. Second, product innovations, by introducing better goods and services, increase firm revenue.

In the following chapter regarding the firms’ strategic characteristics, the process and product innovations are of importance. Hypothesis 1 is about product innovations, in the way that the firm aims to increase its revenue by engaging in environmental product innovations.

Hypothesis 2 is about process innovations, in the way that the firm aims for cost-reduction by engaging in environmental process innovations. It should be noted that in some hypotheses, this distinction in the type of environmental innovation will not be made. This is because no reason for further distinction in the type of innovation is exists, and we are interested in all types of environmental innovation combined. Furthermore, the author is aware that not all

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Unfortunately, there are numerous firms who try both without any engagement in environmental innovation.

2.4 Strategic characteristics of environmental innovation laggards

This chapter introduces three strategies for engaging in environmental innovation, namely two of a business-economic nature and one related to the decision maker’s ideology. Thus, three hypotheses are formulated, focusing on the firms’ aim for revenue increase through product differentiation, price-competitiveness through cost-reduction, and their ideological motives.

In this thesis, a division is made regarding the firm’s strategy. On one side, the business-economic aspect is to be considered. More and more firms are starting to see the financial benefits of ‘going green’. Authors such as Ambec and Lanoie (2008) and Kumar et al. (2012) support the notion that going green pays off. Foxon and Andersen (2009) suggest that firms may seek to enhance their green competitiveness in two ways: “either by acquiring a

premium price for its green reputation or product, or to reduce production costs by achieving greater resource efficiency or reducing the costs of costly emissions.” A large part of the literature on the adoption of environmental innovations assumes that firms choose to adopt environmental innovations through rational cost–benefit analyses, where decision makers possess a high degree of certainty regarding the possible economic impacts of their decisions (Abrahamson, 1991; Rogers, 2003). However, while they can be enabling, financial motives are usually not the only factors that play a role in a firm’s decision to adopt environmentally friendly technologies. Thus, besides the financial motive, the ideological aspect of strategy will be considered in chapter 2.4.3.

 2.4.1 Product differentiation and the engagement in environmental

innovation

In recent years, firms are increasingly interested about a possible relation between their image and environmental friendliness. Pioneering firms will enjoy the ‘first mover advantages’ in new markets, allowing them to improve their green image, to sell unique environmental technologies or services, to ask for higher prices for their environmentally friendly products, and to create totally new markets (Hart, 1995; Porter and Van der Linde, 1995b). Proactive

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competitive advantage (Berry and Rondinelli, 1998; Henriques and Sadorsky, 1999). Furthermore, firms can apply environmental ideas into the designs and packaging of the products to increase the advantages of product differentiation (Shrivastava, 1995). When a firm makes their engagement in environmental innovation visible, it sends positive signals to customers, investors and other stakeholders, which are expected to result in positive returns. The importance of consumers' behaviors, and their need to be reassured about the quality and safety of the products they purchase as well as to be assured that the products have no harmful impact on the environment are shown by previous researchers such as Srivastava (2007). Related to this, firms are expected to introduce new environmentally friendly products and project this to their customers.

Reid and Miedzinski (2008) state in their report that a positive projection of the corporate image is comparatively more important than real environmental products or services for the engagement in environmentally friendly innovation. This notion is supported by Rennings and Zwick (2002). Chen et al. (2006) and Chen (2008) have considered how a firm’s engagement in environmental innovation affects its ‘green’ image and its competitive advantage in

general. Noci and Verganti (1999) have examined the relationship between environmental innovation and the organization’s image through four qualitative case studies and found that the ‘green’ image plays a crucial role firms with an innovation-based strategy. Chen et al. (2006) distributed a survey to 600 managers in the information and electronics industry in Taiwan to research how environmental innovations affect a firm’s competitive advantage and found that environmental innovation positively affects competitive advantage. Cheng and Shiu, using the data provided by the 298 valid survey responses obtained from firms in China and Taiwan, note that positive relations exist between engagement in environmental

innovation and firm performance in these four financial dimensions: market share, sales, return on investment, and the profitability (2012, p. 335).

To avoid endangering their revenues, firms are expected to comply to market demands. According to Pujari (2006), who distributed a mailed survey and analyzed 68 respondents in North America, firms aim to introduce more environmentally friendly products and services to differentiate from competitor firms and to achieve a stronger position in the market. Furthermore, the positive effect of expected demand in the implementation of environmental innovations is confirmed by Horbach (2008) and by Green et al. (1994), who found that the

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the key drivers for the implementation of environmental innovations. Therefore, the aim for revenue increases through product differentiation could play a positive role in the process of adopting of environmental innovations. Furthermore, based on historical and contemporary examples, Mirata and Emtairah (2005) list, among other things, the generation of additional income due to higher values of byproduct and waste streams as a benefit. Ambec and Lanoie (2008), in their examination of previous studies, found that environmental innovations could lead to opportunities to increase revenues by providing a firm with better access to certain markets, differentiating products, and selling pollution-control technologies. From the explanations above, the conclusion can be made that the contribution of environmental innovation on firm performance is recognized (Klassen and Whybark, 1999; Christmann, 2000). In this context, the goal of this hypothesis is to test the possible relation between the aim for revenue increase through product differentiation and engagement in environmental innovation.

The hypotheses in this thesis are formulated negatively, aiming towards firms that are lagging in environmental innovation engagement. The interest of this thesis lies in locating laggards, thus the hypotheses are formulated such. This reasoning will be implemented in the

formulation of following hypotheses.

Hypothesis 1: All else equal, the weaker a firm’s focus on differentiation through product innovativeness, the less environmentally friendly its new products will be.

 2.4.2 Price-competitiveness and firm engagement in environmental

innovation

Some decision makers in firms feel as if they have to choose between doing what is beneficial for the environment and keeping costs low. However, this notion that environmental practices are costly is gradually losing validity in recent times. Porter and Van der Linde (1995b) claim in their article that firms are unaware that innovations can lead to cost savings and thus help firms to achieve competitive pricing advantages. Beside this unawareness, Russo and

Harrison (2005) state that some firms only adopt measures to alleviate certain harmful effects of their operational processes instead of focusing on genuine (environmental) sustainability.

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Researchers argue that the dilemma of ‘green versus profit’ is not valid anymore and that sustainability is “a mother lode of organizational and technological innovations that yield

both bottom-line and top-line returns” (Nidumolu et al., 2009). Porter and Van der Linde

(1995a) suggest that reducing resource inefficiency triggers environmental innovation. Furthermore, as is stated in the introduction of chapter 2.4, firms may enhance

competitiveness by reducing production costs through the achievement of greater resource efficiency or by reducing the costs of costly emissions (Foxon and Andersen, 2009).

Numerous studies on environmental innovation have shown that cost-savings is a motivation for adopting cleaner production technologies (Frondel et al., 2007; Horbach, 2008). Adoption of environmental innovations can lower a firm’s costs, for example, because firms end up reducing the inputs they use and the waste they generate. This can lead to a reduction of the cost of energy consumption, reduce the cost of waste treatment and discharge, and avoid fines in the case of environmental accidents (Zhu and Sarkis, 2004). An empirical research by Horbach et al. (2013) using the data of the fourth Community Innovation Survey with a response from 3421 French and 1966 German firms found that their hypothesis that cost savings are an important motivation for the realization of environmental innovation was upheld by the data. Frondel et al. (2007) state that cost savings tend to favor clean production. They are supported by Triguero et al., who state that “cost-savings and reduced

environmental damage are not incompatible” (2013, p. 26). Firms can maintain price-competitiveness strategies when the product prices are lowered thanks to cost-reductions through environmental innovations. Thus, the expectation in this thesis is that there is a significant positive relationship between firms who aim for price-competitiveness through cost-reduction and their engagement in environmental innovation. In the same manner as the first hypothesis, the expectation is that if firms that are leading in environmental innovation are focused on price-competitiveness through cost-reduction, firms that are trailing in environmental innovation are expected to be less focused on price-competitiveness through cost-reduction.

Hypothesis 2: All else equal, the weaker a firm’s focus on price-competitiveness through cost-reduction, the less it engages in environmental process innovation.

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 2.4.3 Ideological motives and firm engagement in environmental

innovation

A large part of the literature on the adoption of environmental innovations assumes that firms choose to adopt environmental innovations through rational cost–benefit analyses, where decision makers possess a high degree of certainty regarding the possible economic impacts of their decisions (Abrahamson, 1991; Rogers, 2003).

Recently, scholars have begun to acknowledge that “adoption decisions are embedded in a web of conflicting interests” (Briscoe & Murphy, 2012, p. 553).

This complexity comes forth from the interrelationship between human endeavors, economics and the environment. Important for this discussion on adoption is the ability of the decision makers to abandon old ways or technologies that do not enhance their organization’s sustainability. Besides financial investments, emotional and intellectual investments in predictable and accepted ‘old’ technologies are also real barriers to adoption and sometimes need to be abandoned to make way for new environmental innovations. Should, for example, a cheap but low efficiency power station be kept running when a newer, low emission and higher efficiency power generation technology is available? Or, should an organization that is striving for sustainability continue to measure and report its environmental performances in the same manner that it always has with ‘older and conventional’ business practices? Sustainability is also about organizations thinking through new measures and indicators of performance and abandoning old practices that no longer help an organization reach

sustainability. Decision makers’ beliefs can be a very powerful enabling or disabling factor in the consideration of the adoption of environmentally friendly technologies. Therefore, the expectation in this thesis is that those who adopt environmental innovations for ideological concerns have a higher intensity of engagement in environmental innovation. This means that those who are not ideologically concerned are less engaged in environmental innovation. Since there is no theoretical foundation to specify the firm engagement in a certain type of environmental innovation i.e. product and/or process innovation, both will be tested separately. As with the previous hypotheses, laggards in environmental innovation are expected to have the opposite characteristics of leading firms.

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Hypothesis 3a: All else equal, non-adopters of sustainable product innovations are less ideologically concerned with the environment compared to adopters of sustainable product innovations.

Hypothesis 3b: All else equal, non-adopters of sustainable process innovations are less ideologically concerned with the environment compared to adopters of sustainable process innovations.

2.5 Structural characteristics of environmental innovation laggards

The first set consists of the structural characteristics of Dutch industrial firms. Here, two hypotheses will be used, focusing at a firm’s size as well as its belonging to a group i.e. the firm’s independency. The reasoning for choosing these is explained below. In this thesis, the independence of a firm i.e. whether it belongs to a group or not, is considered to be a part of the firm’s structural characteristics, since it influences the firm’s innovation organization. The two topics that are chosen in this thesis with regards to firm structures are both supported by Mintzberg’s (1987) definition of structure. In line with his theory, the aspects of Mintzberg’s ‘nature’ refers to the size aspect within this thesis and Mintzberg’s ‘relationships of entities’ refers to the independency aspect.

 2.5.1 Firm size and engagement in environmental innovation

Naturally, there is an expectation that the structural characteristics of the firm affect its adoption of environmental innovations and the intensity of this adoption. The firms’ specific characteristics - their size, the fact that they belong to a group or not, the fact that they invest in research and development – all influence their engagement in environmental innovation processes (Galliano and Nadel, 2012). Engagement in environmental innovation refers to the firm’s possible adoption of environmental innovations and the intensity thereof. The relations between a firm's size and environmental innovation have been the focus of many previous studies.

Schumpeter’s (1934, 1942) hypothesis states that larger firms have a higher probability of being innovative than smaller firms. This is because larger firms have more financial, physical and commercial resources that are required for innovating. Smaller firms are generally

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adopt new environmental innovations. In more recent years, this still seems to be the case, considering that many have emphasized a positive relation between size and environmental innovation (Cleff and Rennings, 1999; Frondel et al., 2007; Rehfeld et al., 2007; Rave et al., 2011).

Baylis et al. (1998) argue that environmental activities go along with a higher amount of financial and human resources, which is why larger firms have better opportunities and abilities to reduce environmental impact. Becheikh et al. (2006) note that this is at least true when controlling for other factors, like industry, firm age, et cetera. The research among 371 participating European companies by Rehfeld et al. (2007) confirms that size, unsurprisingly, has a significant positive effect on environmental innovations. The research of Rave et al. (2011) among 1304 firms also supports the positive relation between firm size and

environmentally friendly innovations. As shown in the research done by Cohen and Klepper (1996) among 75 industries and in the econometric models by Klette and Kortum (2002), size has been found to be highly significant determinant for a firm’s propensity to engage in innovation. The research by Janz et al. (2003) among 575 German and 474 Swedish firms also confirm that the probability of being innovative increases with firm size.

However, there are some deviations. Horbach’s (2008) study among 967 German firms show an absence of significant effects between size and environmental product innovation.

According to Horbach, the effect of a firm’s size on its engagement in innovation activities

“is undetermined from a theoretical perspective” (2008, p. 5). Horbach explains this by

stating that “large monopolistic firms have less incentives to innovate, whereas small firms in

competitive markets are forced to “be better” than their competitors by developing new products” (2008, p. 5). Other authors show the existence of a non-linear U-shaped

relationship between firm size and (environmental) innovations. Kamien and Schwartz (1975) note that research efficiency decreases with firm size, and that research input intensity first increases and then decreases beyond a certain point. This, according to Kamien and Schwartz, leads to anticipation that “research output, relative to firm size, should increase with size but

then decline with further increases in firm size” (1975, p. 3). This coincides with Horbach’s

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firm age et cetera (Becheikh et al., 2006). To avoid other factors influencing this relationship, firm age will be controlled for, following the example of Becheikh et al. in this case.

Furthermore, this thesis will follow the majority of the literature in the expectation that innovational activities increase with firm size. This is done mostly because larger firms have more financial and human resources to, for example, set up dedicated teams to engage in (environmental) innovation. Also, while undoubtedly some small sized firms focusing on sustainability and who are heavily engaged in environmental innovation do exist, it is still expected that the majority of small and medium sized enterprises does not have sustainability as their focus. In line with the notion in previous hypotheses, because leading firms are expected to be bigger in size, environmental laggards are expected to be smaller. Furthermore, since most of the literature makes no distinction between the type of innovation, and to allow for more specific and correct conclusions, the relationship of size with both types of

innovation will be tested.

Hypothesis 4a: The smaller the size of a firm, the less it engages in environmental product innovation.

Hypothesis 4b: The smaller the size of a firm, the less it engages in environmental process innovation.

 2.5.2 Group membership versus firm autonomy in environmental

innovation engagement

Continuing the subject of structural characteristics, belonging to a group can foster innovation and help firms overcome the difficulties they experience during the innovation process, as found by Lhuillery and Pfister (2009), who researched a core sample of the French second Community Innovation Survey, investigating the innovative behavior of 2354 French manufacturing firms. The exchange of internal knowledge with other group members can result in unique knowledge creation, which may lead to new environmental innovations that would not have been possible to develop individually – or might have taken longer to do so. Equally, firms that are members of a group are expected to benefit from internal access to finance (Mairesse and Mohnen, 2002)

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and share their innovations, some firms can lose motivation for spending their resources into environmental innovation. These firms could have a wait and see approach. This is shown by Janz et al. (2003), using the data of 474 Swedish firms. They found that belonging to a group reduces the probability of doing research and development and other innovation activities. Furthermore, some firms resist takeovers because it does not suit their long-term sustainability plans. An example of such a firm is AkzoNobel. The American firm PPG Industries

repeatedly attempted to take over AkzoNobel, even though the latter expressed their disinterest after each attempt. AkzoNobel considered the offer from PPG Industries as undesirable and not in the interest of all stakeholders. These interests include certain long-term values such as the contribution AkzoNobel makes to sustainability, the activities in the field of research and development and the quality of employment in the Netherlands (Pieters, 2017). This shows that AkzoNobel expected that, if the takeover attempt were to be

successful, it could result in a reduced focus on sustainability. Another example of a firm resisting group membership in order to stay on the path of sustainability is Unilever.

American KraftHeinz, backed by shareholders such as the Brazilian 3G Capital and Warren Buffet, proposed a takeover of Unilever worth $143 billion. Unilever aggressively rejected this bid within two days. 3G Capital became known in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to boost profits and thus shareholder value, often at the cost of stakeholder value (Flaherty and Hirsch, 2017). This is the main reason why Unilever rejected the bid, because Unilever defines itself as a firm "making sustainable living commonplace." This means sometimes valuing stakeholder interests above shareholder interests and aiming for a low environmental impact (Worstall, 2017). Thus, being a member of a business group can either be beneficial or detrimental to sustainability and environmental innovation. It is expected that group membership i.e. firm autonomy influences engagement in innovation, but no expectation of the author in the direction of this influence exists. The relation between group belonging and environmental innovation will be tested for both environmental product and process innovation.

Hypothesis 5a: A firm’s group membership influences its engagement in environmental innovation, they are either less or more engaged in environmental product innovation compared to independent firms .

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2.6 Environmental characteristics of environmental innovation laggards

The following hypotheses look at the environmental aspect of a firm. In this set, a firm’s location will be considered, as well as the regulations that firms are confronted with. The argumentation for choosing these aspects is given in chapter 2.6.1 and 2.6.2. Thus, two sets of hypotheses are proposed, focusing on a firm’s geographical position and the regulations it faces.

In general, the firms’ environment consists of countless forces, which are beyond the control of the firm in the short run. These forces entail threats and opportunities for the firm. (Chi et al., 2009). One perspective on the environment is a focus on groups external to the

organization that impinge on its activities including customers, competitors, suppliers and regulatory agencies (Bourgeois, 1980). This perspective is thus focused on the non-spatial aspect of the environment. In this thesis, regulations are a part of this environmental aspect. Besides the non-spatial aspect, there naturally is the spatial aspect of environment.

Geographic (physical) location of a firm is belongs to the spatial aspect of the environment.

 2.6.1 Firms’ geographic location and engagement in environmental

innovation

Finding a possible relation between the location of a firm and its engagement in

environmental innovation is important, because policy makers and/or other propagators of sustainability can more accurately target specific firms that are trailing when it comes to environmental innovation.

Feldman (2000) states that there are two major traditions in the empirical study of the relationship between innovation and geographic location. The first tries to quantify the geographic impact of knowledge spillovers on innovation. The second is focused on

explaining differences in economic outcomes, such as (innovation) productivity. In this thesis, the interest lies in the first tradition. The goal is to find out the effect of location on the engagement in environmental innovation, which is, among other things, caused by knowledge spillovers. A study among Dutch firms by Capasso, Cefis and Frenken (2016) provides a ‘spatial product life cycle theory’. They state that new products are conceived in

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new products enjoy differentiation benefits and are able to ask a premium price. As the product life cycle advances, others might copy the new product and the market may become saturated. In this case, producers might shift from exploration to standardization. This is accompanied with a shift from product to process innovation (price competition), which favors firms in low-cost locations. The low-cost location refers to rural areas, since generally the land prices are lower, the population is less educated in rural areas and thus the wages are lower, and the environmental regulations are less stringent. Thus, besides product innovation, the data will also be analyzed to find possible a relation between geographic rural location and process innovation.

Many studies that look at the geographic aspect of innovation emphasize the role of

agglomeration and of proximity in the adoption of innovations and knowledge (Feldman and Audretsch, 1999). Feldman and Audretsch (1999) have used a spatial Gini coefficient to measure the geographic concentration of firms. They have shown that innovative activity is substantially more concentrated than overall production of goods and services and that firms emphasizing research and development activities tend to be more geographically

concentrated. Expected to be opposed to urban agglomeration and proximity are the rural areas, which have a disadvantage because of weaker interfirm relations, a lack of diversity of human capital and of knowledge externalities (Autant-Bernard et al., 2006; Galliano and Roux, 2006).

The expectation in this thesis is that knowledge spillovers caused by agglomeration of firms mostly leads to product innovations. Research and development activities, patents and product innovations are usually highly concentrated in larger agglomerations (Brower et al., 1999; Feldman and Audretsch, 1999; Fischer et al., 2001; Gehrke and Legler, 2001; Simmie, 2003) Examples of regions where unique agglomeration advantages lead to unique product

innovations are Silicon Valley in the United States of America and Shenzen in China. Such regions benefit from relatively nigh location of firms which results in increased spillover of tacit knowledge (Breschi and Lissoni, 2001), which is contributing to product innovation in those regions.

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focused on process innovations (Tödtling, 1992; Feldman, 1994; Fritsch, 2000). Tödtling’s (1992) research into 149 Austrian manufacturing plants shows that firms in rural areas focus more on process innovation, generally caused by a focus on low-cost strategies. As described before in chapter 2.4.2, a focus on cost reduction generally leads to a focus on process

innovation. Tödtling (1992) further explains that these rural areas usually have unfavorable locational conditions. Examples are a lack of knowledge generating universities and research facilities, lack of skills and competence of the labor force, bad conditions for personal

contacts caused by low population density, lack of modern communication infrastructure compared to urban areas. Besides these locational conditions, rural areas also have unfavorable structural conditions for product innovation (e.g. branch plants with little decision-making autonomy, small firms lacking boundary-spanning functions and outward-looking behavior). In this research, agglomeration is considered to be focused around the Dutch ‘Randstad’, which includes the metropolitan areas of Amsterdam, Rotterdam, The Hague, Utrecht, and as an addition in this research, Eindhoven.

Hypothesis 6a: Firms located outside the Randstad are to a lesser extent engaged with environmental product innovation compared to firms located inside the Randstad. Hypothesis 6b: Firms located inside the Randstad are to a lesser extent engaged with environmental process innovation compared to firms located outside the Randstad.

 2.6.2 Regulations and engagement in environmental innovation

Green et al. (1994) suggest that firms implement environmental product innovation to comply with existing and anticipated legal requirements. Horbach (2008) finds that the positive influence of subsidies on environmental product innovation is significant at the 1% alpha level (967 observations, Z-score of 3.08), which means that subsidies are an enabling factor for environmental product innovation. The finding is that more government subsidies lead to more environmental product innovation. Kammerer (2009) shows that a high level of

regulatory stringency incentivizes firms to implement environmental product innovations that are new to the firm, but this result cannot be corroborated when these innovations are new to the market. Finally, the respondents in the research of Horbach et al. (2012) confirm that expected future regulations are highly important for engagement in environmental product innovations. Firms take the possibility of future regulations into account when considering

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possible future regulations seem to be as important as currently existing regulations for the responding firms.

Regulations are thus another influencing factor for a firm’s engagement in environmental innovation. Green et al. (1994) suggest that firms engage in environmental innovation to comply with existing and anticipated regulations. Multiple empirical studies (Cleff and Rennings, 1999, Rehfeld 2007; Horbach, 2008) have confirmed that complying with environmental regulations was one of the key drivers for firms to engage in environmental innovations. For example, Horbach’s (2008) panel study on 753 German firms showed a significant positive influence of government subsidies on firms’ engagement in environmental innovation. Recently, increasing attention has been given to the role of regulation in

enhancing investments in environmental innovations (Brunnermeier and Cohen, 2003). Regulation is not seen as an undesirable cost-increasing factor but as a stimulator of firms’ innovativeness that, in turn, would lead to certain advantages in markets for environmental innovations (Porter, 1991; Porter and Van der Linde, 1995a). Porter and Van der Linde (1995b) argue that more environmental regulations could change traditional innovation (‘lock-in’) practices and thus increase environmental innovations. Yet, an issue that is often overlooked in these studies is related to the motivations in firms’ environmental innovation engagement. For example, large Dutch firms are required by law to trade in emission rights (EU ETS), but smaller ones do not. This could lead to large firms putting relatively more effort in environmentally friendly practices than smaller firms. Furthermore, less innovative firms may adopt environmental innovation as a means to reduce production costs and/or to comply with the minimum environmental standards, whilst more innovative firms may adopt environmental innovation in order to stay ahead of competition (Grubb and Ulph, 2002). The effectiveness of regulations that stimulate firms could potentially differ depending on whether or not they are already ahead of their peers in sustainable innovation engagement. In line with authors such as Porter and Van der Linde, the expectation in this thesis is that regulations serve as an incentive to engage in environmental innovation. Thus, in line with previous hypotheses, environmental innovation laggards are expected to not have regulations as a motive for engaging in environmental innovation, if they engage at all.

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Hypothesis 7b: All else equal, non-adopters of environmental process innovation are less likely to be triggered by environmental legislation compared to adopters of environmental process innovation.

Conceptual Models

From the theories discussed above, four models regarding the described relationships can be formed. The first model is a general depiction of the variables. The other three models show the relationships between each variable in more detail.

 Figure 2. The general conceptual model

In Figure 2, the three characteristics are Structure, Strategy, and Environment, with all their respective independent variables included. The Structure characteristic includes the firm’s size and its group belonging. The Strategy characteristic includes the firm’s aim for revenue increase, aim for cost-reduction, and its ideology. The Environment characteristic includes the firm’s geographic location and regulations. The two dependent variables are Environmental Product Innovation and Environmental Process Innovation that a firm is engaging in.

Environmental Product & Process Innovation Structure Size Group membership Strategy Product differentiation Price-competitiveness Ideology Environment Location Regulations

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Environmental

Product

Innovation

Product

differentiation

Ideology

Size

_membership

Group

Agglomeration

Regulations

 Figure 3. The conceptual model of the relationship between firm characteristics and environmental product innovation.

In Figure 3, the relation between seven variables and environmental product innovation is displayed. The following statements are relative to environmental innovation laggards. Firms aiming for revenue increases are expected to engage more in environmental product

innovation. Firms engaging in environmental innovation for ideological reasons are expected to engage more in environmental product innovation. Smaller firms are expected to engage less in environmental product innovation. Group membership can be either a driver or a barrier for firms to engage in environmental product innovation, or it could have no effect. Firms that are in agglomerations are expected to engage more in environmental product innovation. Non-adopters of environmental product innovation are expected to be less triggered by environmental legislation compared to adopters of environmental product innovation.

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Environmental

Process

Innovation

Price-competitiveness

Ideology

Size

_membership

Group

Rural location

Regulations

 Figure 4. The conceptual model of the relationship between firm characteristics and environmental process innovation.

In Figure 4, the relation between seven variables and environmental process innovation is displayed. The following statements are relative to environmental innovation laggards. Firms aiming for cost-reduction are expected to engage more in environmental process innovation. Firms engaging in environmental innovation for ideological reasons are expected to engage more in environmental process innovation. Smaller firms are expected to engage less in environmental process innovation. Group membership can be either a driver or a barrier for firms to engage in environmental process innovation, or it could have no effect. Firms that are in rural areas are expected to engage more in environmental process innovation. Non-adopters of environmental process innovation are expected to be less triggered by environmental legislation compared to adopters of environmental process innovation.

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3. Data and Methodology

3.1 Introduction

This chapter will discuss the design of the research. First, an explanation will be given for the chosen research methodology, research unit, and the data collection with the contacted entities will be described. Next, an operationalization of the relevant survey questions will follow. Lastly, the validity and reliability of this research will be discussed, followed by an ethical consideration.

3.2 Research method, research unit and data collection

Research methodology is typically divided in quantitative and qualitative research (Bryman and Bell, 2007). In quantitative research methods, the quantification in the collection and analysis of data is usually emphasized. In qualitative research methods, usually the emphasis lies on people’s actions and their meanings rather than solely quantification in the collection and analysis of data (Denzin and Lincoln, 1994). For this research, quantitative research methods will be used to gather and analyze the data. More specifically, this research is of an explanatory design.

A distinction can be made between exploratory, descriptive, and explanatory research (Pinsonneault and Kraemer, 1993). Several authors state that exploratory surveys should mainly be used to form the basis for further developing concepts and methods for more detailed descriptive or explanatory surveys (Babbie, 1973; Dillman, 1978; Fowler, 1984). The main purpose of a descriptive research is to find out what situations, events, attitudes or opinions are to be found in a certain population. The goal is to simply describe a certain distribution or to make further comparisons between certain distributions (Pinsonneault and Kraemer, 1993). The way in which the hypotheses in this thesis are formulated show the research aim of finding statistically significant relations between variables, in order to paint an image of the current situation regarding Dutch industrial manufacturers and engagement in environmental innovation. This research and thus the hypotheses are furthermore aimed to find specific causal interactions that look into the ‘how’ question of the considered variables in this research, making this research of an explanatory design.

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The research done in this master’s thesis is enabled by the European Manufacturing Survey 2015 (EMS). The EMS is a study conducted every three years and organized by research institutes and universities from and across Europe. The German Fraunhofer Institute for Systems and Innovation Research (ISI) coordinates the study. In this study, 18 countries have participated. The survey aims to gain more insight in the efforts of industrial firms to

modernize their production and processes. It focuses on the adoption of new manufacturing technologies, the use of innovative organizational and managerial concepts as well as on various performance indicators such as productivity, quality or flexibility of companies (Ligthart et al., 2013). Radboud University is one of the European research institutes that participates in this study and accounts for the data in The Netherlands.

For this thesis, the EMS distributed under Dutch industrial manufacturing firms will be used. It covers a broad range of topics, from technology implementation to industrial espionage. The research method used for distribution was in the form of an online survey, thus making it suited for quantitative analysis. An online survey allows for a relatively quick distribution of the questionnaire and subsequently the collection of standardized data. This data can then be analyzed using software such as SPSS or STATA.

The research unit consists of Dutch industrial firms with 10 or more employees, economic active and registered in the Chamber of Commerce database. It is important to note that only specific and single offices were targeted. This means that for a firm with multiple offices, only one is considered in this survey. The sample was chosen using the Chamber of

Commerce database, with a population of 8195 industrial firms. The survey was sent to 6146 industrial firms via letter and two reminders with the request to participate in the survey online.

3.3 Operationalization

In this chapter, an overview is given of the operationalization of the variables used in this research. The tables are organized by dependent variables first, followed by the independent variables and lastly the control variables. Each table corresponds to a set of

dimensions/variables and will be briefly explained. The precise formulations of the survey questions are noted in the Appendix.

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3.3.1 The operationalization of dependent variables

In this research, there are two dependent variables placed under two dimensions: process innovation and product innovation.

The dimension ‘process innovation’ can be divided in three indicators (Table 1.1). The first indicator is the ‘energy and climate management systems’ that are used by the firm, and it is a part of technological innovation. Under this indicator, survey items such as the firm’s energy management and efficiency systems, reclamation of waste heat and the renewable energy and heat generation systems, and the management of current systems are included.

The next two indicators are ‘product life cycle management (PLM)’ and the ‘effects of firm operations’. These indicators differ from the previous, because these are organizational innovations. They are improvements of methods for organizing firms. For the first indicator, the items are the firm’s ‘instruments for analysis i.e. ISO 14020 and Cradle-to- Cradle’ and the firm’s usage of ‘PLM data management’. For the second indicator, the corresponding item is the ‘inclusion of sustainability in firm performance’.

All the items under the dimension ‘Technologies’ that will be used for analysis are originally measured (minimum / maximum) on a scale of zero to one. The survey options indicate a no-answer (scoring zero), and three types of affirmative no-answers, ranging from low intensity to high intensity of implementation, are bundled into a yes-answer (scoring one). Thus, the measurement level is nominal. The other dimension is also measured by a yes or no answer, thus have a minimum and maximum score of zero (no) to one (yes). For the specific

descriptions of the survey questions, refer to the Appendix.

The variables under the dimension process innovation will be combined into a new (dependent) variable named ‘ecological process innovation’. This variable will have a

continues scale measurement level. A higher score will mean more engagement in ecological process innovation.

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 Table 1.1 The dependent variable process innovation

Dimension Dimension Indicator Min score /

max score Measurement level Question § in the survey Environmental

Process innovation Technologies

Machine shutdown i.e.

PROFI-energy 0 / 1 Nominal §8.1

Automated systems for

energy efficiency 0 / 1 Nominal §8.1

Reclamation of waste heat 0 / 1 Nominal §8.1

Renewable energy and

heat generation 0 / 1 Nominal §8.1

Shutdown of inactive systems 0 / 1 Nominal §8.2 Improvement of existing systems 0 / 1 Nominal §8.2 Premature replacement of systems 0 / 1 Nominal §8.2 Organizational concepts

Energy management i.e.

ISO 50001 0 / 1 Nominal §3

Instruments for analysis i.e. ISO 14020 and Cradle-to-Cradle

0 / 1 Nominal §3

Inclusion of sustainability

in firm performance 0 / 1 Nominal §3

PLM data management 0 / 1 Nominal §8.1

The other dependent variable dimension, ‘product innovation’, consists of three categories. The first category is 'no product innovations', which consists of firms scoring a zero on the survey item that measures product innovations introduced by the firm since 2012. Firms scoring one on the previously mentioned item are considered to have introduced 'normal product innovations', thus forming the second category. This second category differs from the third, because these product innovations did not have positive effects on the environment. The third category 'environmental product innovations' consists of firms that have introduced product innovations since 2012 which also had a positive effect on the environment. A positive impact on the environment is measured through six items, consisting of effects such as reduction of environmental pollution, reduction of energy use, et cetera (see Table 1.2). A product innovation is considered to have a positive effect on the environment if at least one of the six positive environmental effects has a score of one.

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Variable Indicators Min score / max score Measurement level Question § in the survey Environmental Product innovation Product innovations since 2012 0 / 1 Nominal §9.2

Reduction of health risks 0 / 1 Nominal §9.2

Improvement of product

lifespan 0 / 1 Nominal §9.2

Reduction of energy

consumption 0 / 1 Nominal §9.2

Reduction of

environmental pollution 0 / 1 Nominal §9.2

Simplification of product

maintenance 0 / 1 Nominal §9.2

Improvement of

recyclability 0 / 1 Nominal §9.2

3.3.2 The operationalization of independent structure variables

The first set of independent variables are focused on the firm’s structure. The firm’s structure has two dimensions: firm size and firm independency. The firm’s size is measured by looking at the number of employees in the firm. The yearly turnover of firms correlates highly with the number of employees and the latter is often used in research as an indicator of firm size, which is why the choice has been made to use the number of employees as the indicator of firm size. The firm size is thus measured by looking at the number of employees in the responding firm.

The independency of a firm is measured by looking at the respondents’ group membership. The original survey items measuring this independency have a minimum / maximum score of zero to one. A score of zero means that the item is not applicable to the respondent. A score of one means that the chosen item is indeed representing the respondent’s situation. The survey allows for only one answer. Since the original survey questions do not match the

operationalization in this thesis, the ‘independency’ variable must be constructed, as will be mentioned in chapter 4.3.2. For the specific descriptions of the survey questions, refer to the Appendix.

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Size Personnel size Number of employees 10 / ∞ Nominal §21 Independency Independent versus

subsidiary

Head office of a business entity with foreign subsidiaries

0 / 1 Nominal §1.1

Subsidiary of a foreign business entity

0 / 1 Nominal §1.1

Head office of a business entity without foreign establishments

0 / 1 Nominal §1.1

Subsidiary of a business entity without foreign establishments

0 / 1 Nominal §1.1

Subsidiary of business entity with foreign establishments

0 / 1 Nominal §1.1

Independent organization 0 / 1 Nominal §1.1

3.3.3 The operationalization of independent strategy variables

The second set of independent variables focus on the firm’s strategy. Strategy has been divided into three dimensions. The first dimension, product differentiation, is indicated by the ranking of the importance of ‘Innovative products’, amid five other factors (i.e. ‘Product price’, ‘Product quality’, ‘Customization to customers’ demands’, ‘Adherence to delivery times/short delivery times’, and ‘Service’). This survey question shows the perceived

importance of innovation for distinguishing the manufacturer positively from its competitors. In the case ‘Innovative products’ scores a one, it means that Innovative products is the most important for differentiating the firm/factory from competitors. When ‘Innovative products’ scores a six, it means that ‘Innovative products’ out of the six precoded factors is least important for differentiating the manufacturer from competitors.

The second dimension, price-competitiveness, is similar to the first dimension. It is reflected by the survey item that ranks the factors for firm competitiveness. Just as the previous

dimension, respondents can choose the degree in which their firm considers product-pricing to be an important factor for firm competitiveness. The scoring is the same as with the previous dimension.

The final dimension in this set is ideology. It is indicated by the firm’s motivations for environmental innovation, other than revenue increase and cost reduction. The survey item that is used for this variable presents the reduction of greenhouse gasses (CO2) as a motive for

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and/or heat. This survey item allows for four possible answers related to the reduction of greenhouse gasses. The first option for respondents is that they engage in environmental innovation to generate energy. The second option is that the respondents innovate to generate heat. The third option is that the respondents engage in environmental innovation to generate both energy and heat. The final possible answer is that the reduction of greenhouse gasses does not play a role in a respondent’s engagement in environmental innovation. These four options result in a minimum and maximum score of zero and three, with a score of one being energy, a score of two being heat, a score of three meaning both energy and heat generation, and a zero-score meaning neither. The operationalization of this item differs from its

construction in chapter 4.3.2. The original measurement level is nominal.

 Table 2.2 The independent variables of strategy

Variable Indicator Survey item Min score /

max score Measurement level Question § in the survey Product

differentiation Product innovation

Importance of product innovation for firm competitiveness

1 / 6 Ordinal §2

Price-competitiveness Product prices

Importance of product pricing for firm competitiveness 1 / 6 Ordinal §2 Ideology Motivations for environmental innovation Reducing greenhouse gasses 0 / 3 Nominal §8.3

3.3.4 The operationalization of independent environment variables

The third and final set of independent variables are focused on the firm’s environment. Three dimensions are within this set. The first dimension is the geographic location of the

respondent. This is measured by using the respondents’ IP addresses to locate the firm. This information cannot be taken from the survey and must be gathered manually. Please refer to chapter 4.3.2 for a description of this process. This process results in a minimum and

maximum score of one and two. A score of one means that a firm is located in a rural area, i.e. outside the Randstad, and two means that the firm is located in an agglomeration, i.e. the Randstad. An exception is the Eindhoven region, which is regarded as an agglomeration, thus has a score of two.

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with the ideology variable in chapter 3.3.3, the respondents can answer that they engage in environmental innovation on the field of energy, warmth, both or neither. This gives four options, which results in a minimum and maximum score of zero and three, with a score of one being energy, a score of two being warmth, a score of three meaning energy and warmth, and a zero-score meaning neither. The operationalization of this item differs from its

construction in chapter 4.3.2. The original measurement level is nominal.

 Table 2.3 The independent variables of environment

Variable Indicator Survey item Min score /

max score

Measurement level

Question § in the survey

Location Geographic location

of the firm

IP address of the responding

firm (geographical variable) 1 / 2 Nominal

(not asked in the survey) Regulations Motivations for environmental innovation

Political or legal provisions 0 / 2 Nominal §8.3

3.3.5 The operationalization of control variables

The control variables (see Table 3 below) considered in this research are the number of research and development employees, the education level of the employees, firm age, firm size, and industry sector. These control variables aim to exclude alternative explanations for the found results stemming from the variable analyses. However, as will be explained below, only the percentage of research and development employees and the firm size is presented in chapter 4.

The firms’ engagement in research and development is a necessary control variable, because the more engagement in research and development (R&D), the higher the probability that there is engagement in environmental innovation as well, since both activities are knowledge intensive. For example, Rennings et al. (2003) used survey data to show that the existence of a specialized R&D department as an input variable triggers engagement in environmental innovation. The percentage of R&D-workers in the responding firm is asked in the questionnaire (§21 of the survey).

Firm age is another necessary control variable, because there is some expectation that older firms are probably less innovative compared to younger firms (Huergo and Jaumandreu, 2004). The age of the responding firm can be easily calculated based on the year of the firm’s

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Appendix). The minimum score would be zero, starting from the year in which the survey was distributed (2015), and the maximum score of age is endless.

The control variable industrial sector of the responding firm is a traditional variable of importance in previous literature regarding the determinants of environmental innovation (Malerba, 2005; Mazzanti and Zoboli, 2006; Wagner, 2007; Frondel et al., 2007; Horbach, 2008; Horbach et al., 2013). Sectoral influences might explain firms' behavior regarding the engagement in environmental innovation, thus will be controlled for during data analysis. The survey distinguishes seven sectors, see table 4.1 for a description. However, after thorough analyses, it became apparent that the industrial sector did not matter sufficiently to be reported in the analysis chapter of thesis.

The data will also be controlled for the education level of employees, because the expectation is that firms with a larger proportion of higher educated employees will engage more in environmental innovation, considering that this is a knowledge intensive activity. Higher educated employees have more resources and skills (i.e. knowledge) to carry out such innovation activities compared to lower educated employees, who do not have the same resources and skills. The survey item (§15.1 of the survey) presents a percentage of the personnel belonging to a higher education level. However, like with the previous control variable, the education level of employees was insufficiently impactful to be reported. The research and development control variable is deemed sufficient instead.

 Table 3. The control variables

Variable Indicator Min score /

max score Measurement level Question § in the survey Research and development

Proportion of research and development employees

Percentage

(0 / 100) Ratio §15.2

Firm age Date of registration with

Chamber of Commerce 0 / ∞ Ratio §21

Firm Size Number of employees 10 / 7800 Ratio §21

3.4 Validity and reliability

The survey used for this thesis is a detailed questionnaire regarding Dutch industrial firms’ modernization of their production processes, with the main purpose to examine the current

Going green? Examining Sustainability in Dutch Industrial Firms

Going Green?

Examining Sustainability in Dutch

Industrial Firms

Contents

1. Introduction

2. Theory and Model

2.1 Introduction

2.2 Determinants of organizational operations: strategy, structure, environment

2.3 Innovative operations of organizations

2.4 Strategic characteristics of environmental innovation laggards

 2.4.1 Product differentiation and the engagement in environmental

innovation

 2.4.2 Price-competitiveness and firm engagement in environmental

innovation

 2.4.3 Ideological motives and firm engagement in environmental

innovation

2.5 Structural characteristics of environmental innovation laggards

 2.5.1 Firm size and engagement in environmental innovation

 2.5.2 Group membership versus firm autonomy in environmental

innovation engagement

2.6 Environmental characteristics of environmental innovation laggards

 2.6.1 Firms’ geographic location and engagement in environmental

innovation

 2.6.2 Regulations and engagement in environmental innovation

Conceptual Models

Environmental

Product

Innovation

Product

differentiation

Ideology

Size

membership

Group

Agglomeration

Regulations

Environmental

Process

Innovation

Price-competitiveness

Ideology

Size

membership

Group

Rural location

Regulations

3. Data and Methodology

3.1 Introduction

3.2 Research method, research unit and data collection

3.3 Operationalization

3.4 Validity and reliability

_membership

_membership