Profit over environment? The effect of competition on intuitive sustainable decision-making in supply chains.

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Profit over environment? The effect of

competition on intuitive sustainable

decision-making in supply chains.

Master thesis, MSc BA, specialization Supply Chain Management

University of Groningen, Faculty of Economics and Business

March 24

th

, 2019

Author: Marin Kelava

Student number: S2375125

Email: m.kelava@student.rug.nl Supervisor: Dr. Ir. N. Pulles

Co-assessor: Prof. Dr. D.P. van Donk

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ABSTRACT

Purpose – Sustainability is an important theme in supply chain management and therefore managers seek ways to improve supply chain sustainability. However, managers have difficulties in implementing sustainability practices into their business models since they have no sight on the possible outcomes. Literature suggests that intuition is leading in uncertain conditions and that competition can influence decision-making. However, whether managers are also more compliant or more willing to engage in sustainable business practices when facing competitive pressure is not extensively researched by current literature. Therefore, this study explores how managers behave in different environmental contexts when competition is present and aims to explore how intuition is involved in sustainable decision-making.

Design/Methodology/approach – A multi-method approach is used. First, a vignette study (58 managers) is developed by a written case regarding social practices and environmental sustainability. The vignette manipulated the degree of competition in the case and a survey was attached with general questions regarding intuition. Statistical tests were used to indicate if competition and intuition influence sustainable decision-making. The results are distinguished between upstream managers (sourcing decisions) and downstream managers (sharing decisions). Second, a case study approach (4 managers) is used to further investigate how intuition influences sustainable decision-making.

Findings – Downstream managers share the unsustainable decision more in a competitive environment than in a non-competitive environment, which indicates sustainable behaviour. Another finding suggests that intuition is a predictor of unsustainable sourcing decisions made by upstream managers. The case study indicates that the relationship between intuition and sustainable decision-making is influenced by three other factors: the perceived distance to a certain sustainable decision, the strategy of the firm and the amount of doubt when deciding on a sustainable subject.

Research limitations – This study’s data set is represented by mostly Dutch males. Also, the items to measure intuition were not internally reliable due to the sample size or could indicate that the participants did not perform according to what was expected in the vignette study. Increasing the sample size with small adjustments in the vignette case could increase validity and generalisability of the results. Practical implications – The findings could help downstream managers to be aware of the fact that competition can positively influence their judgement on sustainable decision-making. According to the findings of this study, testing the upstream managers’ intuition could be relevant to encourage sustainable behaviour. Also, older upstream managers make more unsustainable decisions.

Future research – Future research should develop the relationship between competition and sustainable decision-making in different management roles, relevant in a sustainability context. In addition, the case study indicates that managers might need nudges to make more sustainable decisions.

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Preface

This thesis is my final project for the Master Supply Chain Managerment at the University of Groningen. I have studied six years to come this far and therefore I hope that this graduation will give me a nice professional career. I would like to thank all managers at the company NDC Mediagroep who participated in the vignette study. Special thanks for the NDC Mediagroep managers who participated in the case study. Another special thanks for my girlfriend, who referred me into the company. I also want to thank my fellow students who did the same vignette study at other companies which provided more data for the statistical analyses. In addition, I want to thank my study friends from the supply chain master for all the motivational speeches. A special message for Rob, who gave critical comments on the statistical analyses. Finally, I want to thank my supervisor Niels Pulles who gave a lot of helpful feedback during the thesis project.

Marin Kelava

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Profit over environment? The effect of competition on

intuitive sustainable decision-making in supply chains.

Marin Kelava University of Groningen

1. INTRODUCTION

“Juan Manuel Fangio, a Formula One race driver, was leading the race in the 1950 Monaco Grand Prix as he came out of the tunnel on the second lap. Instead of maintaining speed for an upcoming straight section, Fangio inexplicably braked and so avoided crashing into a serious accident that had just occurred around the next corner. Although nothing seemed unusual when he came out of the tunnel, he experienced a disturbing feeling that caused him to slow down.”

(Matzeler, Uzelac & Bauer, 2014, p. 31)

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7 most managers make decisions based on short-term goals (Jeske & Werner, 2008) and these complex challenges causes managers to decide with their ‘often plain wrong instinct’ (Hayashi, 2001, p. 65). However, it is unknown how this ‘often plain wrong’ intuition is involved in sustainable decisions.

Strategic and operational decisions are also influenced by external pressures, such as competition. Competition in SCM is a major concern and causes managers to behave differently (Fynes et al., 2005; Nickell, 1996). Competition has become a part of life and is associated with the drive to win or defeat one’s opponent and has in general positive effects regarding lower prices, higher productivity and greater consumer surplus (Syverson, 2004; Bresnahan & Reis, 1991). Due to shorter product life cycles and globalisation, competition will be more fierce which challenges product design and service capabilities. Chan et al. (2012) argued that competition in supplier selection decisions causes uncertainty. Under such circumstances, Knemeyer and Naylor (2011) have theorised that managers rely more on their intuition. There is a gap in SSCM literature in what SCM managers actually think, how they react and how they form preferences regarding sustainable decisions, especially when confronted with competition in the industry (Matthews et al. 2016). Intuition guides decisions, but the underlying determinants that affect these decisions are not well known, especially when making sustainable decisions (Wu & Pagell, 2011). In situations in which a manager does not have reliable information on hand of a certain unsustainable supplier and is under time pressure, the manager must make crude estimations about volatile commodity prices and sustainability effects. In a competitive market, managers may feel compelled to comply faster on decisions, even if the decision is unsocial, illegal or unethical (Bennett et al., 2013). As a result, this situation can hinder analytically based predictions and makes the quality of the results of the managers’ analyses questionable. These findings raise the question if managers use their intuition to decide on environmental decisions when competition is involved. This study tries to answer this question, by investigating how intuition affects sustainable decision-making. This study will consider the following research questions (RQ):

RQ 1: Does a highly competitive environment lead to less sustainable decisions? RQ 2: How does intuition influence sustainable decision-making?

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8 Carter et al. (2017), which enables statistical testing of several outcome measures in this study, most notably sustainability performance. Previous literature has been focusing chiefly on rational decision-making, even though studies have shown that managers rely on routines rather than rational decision-making (Kirchoff et al., 2016). The explicit use of intuition in a sustainability context has been largely neglected. By focusing explicitly on intuition coupled with competition, this study constitutes a unique approach within the SSCM literature. Another key insight provided by this study is given by the differentiation of study group participants by their management roles within a firm. Pedersen & Neergaard (2009) showed that managers should not be treated as a homogenous group, as managerial decisions on sustainable practices can vary widely contingent a variety of factors. This study contributes by distinguishing the results of the managers between upstream managers, who tend to make sourcing decisions, and downstream managers who tend to make sharing decisions (Markman et al., 2009; Sarkis et al., 2011). Lastly, this study sheds light on how intuition is influencing sustainable decisions.

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2. THEORETICAL BACKGROUND

2.1 Sustainable supply chain management

Sustainability in SCM is discussed in SSCM literature, which is defined as “The strategic, transparent integration and achievement of an organisation’s social, environmental, and economic goals in the systemic coordination of key inter organisational business processes for improving the long-term economic performance of the individual company and its supply chains” (Carter and Rogers, 2008, p. 368). The definition includes the triple bottom line, which emphasises the need to simultaneously consider the three main pillars of sustainability: economic growth, environmental protection and social equality (Brundtland, 1987). The overall goal of the triple bottom line is to meet the needs of the present without damaging the future needs of others. In addition, the SSCM definition also includes the conversion from social and environmental responsibility to a sustainable business strategy which decision-makers can use to address sustainable organisational performance (Hahn et al., 2015).

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10 more compliant or more willing to engage in sustainable business practices when facing competitive pressure is however not extensively researched by current literature.

2.2 Competition and SSCM

According to Chen and Hambrick (1995), competition in a market arises when a detectable action is observed by a company to enhance or defend its competitive advantage over their other competitors. The initiatives to respond to these actions by rival companies all together, represent the competition in a specific market. The market provides “signals to market participants on what courses of action to take and from which to refrain” (Lamberg et al., 2009, p.48). Therefore, competition can be measured as the amount of initiatives companies present as a response to certain competitive signals from other companies within the same market. So, depending on the market, the amount of initiatives in this research can be perceived by either a high degree of competition or a low degree of competition.

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11 developments can have major consequences, because supplier selection decisions are one of the most important decisions in SCM and determine the future competitiveness of the firm (Gualandris et al., 2014). Therefore, sustainability in supplier selection can add to a stronger brand recognition and competitor differentiation (Brammer and Walker, 2011). Hence, it would make economic sense that companies invest in sustainability practices in their supply chains to remain a competitive advantage over other suppliers or buyers.

However, some studies show that sustainability does not always lead to better financial performance (Albertini, 2013). Hahn et al. (2015) attributes this to myopia on the part of the managers. Managers perceive sustainable decision-making as complex, since possible financial outcomes are not easily calculated nor estimated. Due to this complexity, managers could rely more on intuition when judging on sustainable business practices. A feeling about a certain supplier can thus constitute a decisive factor (Carter et al., 2017). However, the underlying determinants that affect these decisions within a competitive market is unknown in literature.

2.3 Intuition and SSCM

As the example in the introduction of Fangio shows, humans have an ‘instinct’ for guessing key issues quickly and cannot always reason behind these decisions which may just ‘feel right’ (Sadler-Smith & Shefy, 2004). According to Huber (1986), decision making is ‘the process through which a course of action is taken” (p.516). This ‘process’ of action is influenced by situational factors from the environment, most notably competition, and from individual factors from the decision maker.

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12 stored in the memory. Applying the memory when a similar decision situation occurs can guide the current decision if the earlier decision was successful. Automatic processing refers to making decisions rapidly without much awareness or reasoning. Emotional processing, in contrast, is described as the “gut feeling” managers experience when making decisions under uncertain situations (Sinclair & Ashkanasy, 2005; Hayashi, 2001). Carter et al. (2017) labelled this dimension as positive gut feelings and negative gut feelings. For example, making the decision to do business with a more sustainable supplier can bring up positive gut feelings. For the purpose of this study, the counterpart of intuition is rationality. Rationality in SCM literature emphasises one important direction that relates to information processing, which is procedural rationality (Wouters et al., 2009). Procedural rationality is “the extent to which the decision process involves the collection of information relevant to the decision, and the reliance upon analysis of this information in making the choice” (p.373) (Dean & Sharfman, 1996). Another rationality dimension is decomposing (Mueller et al., 2007), which is related to breaking down problems into sub problems. However, all the decisions taken, either more rational or more intuitive, are influenced by the individual factors of the decision maker which could influence sustainability decisions.

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3. HYPOTHESES DEVELOPMENT

In the theoretical background, different concepts and state of the art literature are provided relevant for the research questions. In this section, the theory is used to provide three hypotheses. First, a hypothesis is developed to discover the effect of competition on sustainable decision-making to answer RQ 1. Second, two hypotheses are provided to partly answer RQ 2. The effect of intuition on sustainable decision-making and the moderating effect of intuition between the relationship of competition and sustainable decision-making are developed.

3.1 Effect of competition on SSCM

Regarding the effect of competition on sustainable decision-making by managers, it is expected that in situations with high competition a manager is more likely to accept a less sustainable option than in situations with low competition. Bennett et al. (2013) provided evidence that high competition can increase corruption and illegal practices to attract and retain customers. In addition, Kilduff et al. (2016) provided evidence that rivalry, which is a subset of competition, can increase unethical behaviour. Therefore, managers within the supply chain who suffer from high competition could show the same corrupt and unethical behaviour regarding social practices and environmental sustainability decisions. As mentioned before, the environmental and social decisions require more information on the topic to give clear possible outcomes and this costs time (Gao & Bansal, 2013; Wu & Pagell, 2011). This delay causes costs that would not have been made if the decision was taken on the more economic choice. On the other hand, in the situation wherein the competition is low it could be that the manager behaves more according to its individual preferences or organisational preferences since the manager does not feel any competitive pressure to decide quicker. Due to the importance of sustainability, many businesses accept it as a board-level concern which should be incorporated into strategic and operational levels, such as supplier selection activities (Hopkins et al., 2011; Ghayebloo et al., 2015). Therefore, implementing more sustainable activities becomes a more strategic decision which are less focused on short term economic profits when competition is present (Brammer & Walker, 2011). In addition, managers are somehow influenced the recent years to behave more environmental (Klassen & Vereecke, 2012). Concluding, managers act more sustainable in situations with low competition compared to situations in which competition is high.

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3.2 Effect of intuition on SSCM

Regarding the effect of intuition on sustainable decision-making, it is expected that in situations in which the manager relies more on intuition in sustainable decision-making the manager is more likely to accept the sustainable decision. Intuition is drawn from diverse experiences, emotions and feelings and can act fast when outcomes of the decisions are unknown (Crossan et al.,1999; Carter et al. 2017). Due to the fact that sustainability is important in firm survival (Carter and Easton, 2011), it is expected that managers behave according to a more sustainable way (Klassen & Vereecke, 2012). The study of Bear and Rand (2016) showed that intuitive decision makers tend to cooperate more when under time pressure. Therefore, managers within the supply chain who act according to their intuition can show the same behaviour to cooperate with the trend to act more sustainable regarding social practices and environmental sustainability (Gualandris et al., 2014). In contrast, when the manager uses more rationality in sustainable decision-making it is expected that the decision maker becomes more selfish. This proposition is extracted from the Prisoner’s Dilemma study of Axelrod & Hamilton (1981) wherein people tend to betray other people more when they get better themselves. In addition, the study of Rand et al. (2012) also showed that people will give less money away if people decide more rational compared to people who decide more with intuition. Therefore, it is expected that managers perform the same behaviour when they must decide about social practices and environmental sustainability improvements. Thus, managers tend to be cooperative to act more sustainable, unless they think more rational on the decision because sustainable decisions can be more difficult to implement (Hahn et al., 2015; Rand, 2016).

H2: Intuition is positively associated with sustainable decision-making.

3.3 Moderating effect of intuition on the relationship between competition and SSCM

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15 to decide with intuition (Tversky & Kahneman, 1974). As explained before, people tend to cooperate when deciding with intuition (Rand et al. 2012). The same cooperative behaviour is expected when managers are confronted with external pressures, such as competition, when managers must decide on social practices and environmental sustainability (Gualandris et al., 2014). Therefore, it is expected that the negative relationship between competition and sustainable decision-making can be weakened when a decision maker uses more intuition for their judgement. In contrast, when managers use more rationality when judging on social practices and environmental sustainability, the opposite is expected. The competitive impulse gives the rational managers even more reasons to think about the decision. As mentioned before, people who think more rational about a certain decision can be more selfish (Rand, 2016). This selfish behaviour can result in not choosing the sustainable option, since most monetary effects of implementing sustainable decisions can last long (Hahn et al., 2015). As mentioned before, people distinguish outcomes from probabilities when making decisions under uncertainty (Jeske & Werner, 2008). In this way, the same behaviour is expected for rational managers and causes the managers to choose the more economic decision because the economic option has more concrete evidence that the manager will achieve its targets. Therefore, it could be expected that the negative relationship between competition and sustainable decision-making can be strengthened when a manager uses more rationality for their judgement.

H3: In a competitive environment, the negative relationship between competition and sustainable decision-making is weakened when the decision maker uses more intuition.

Figure 1: conceptual model of developed hypotheses

Figure 1 shows a conceptual model of the three developed hypotheses which are tested in a scenario-based role-playing game (study 1). However, other variables could also influence the relationship between intuition and sustainable decision-making. Therefore, the case study (study 2) explores if any other factors should be considered into the relationship between intuition and sustainable decision-making.

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4. STUDY 1: A VIGNETTE STUDY

4.1 Research design

To answer the three developed hypotheses, a scenario-based role-playing (SBRP) experiment is performed in the form of a vignette study. A vignette study is a “scenario-based role-playing experiment in which varying versions of a descriptive vignette are deployed to convey scripted information about specific levels of factors of interest to human subjects “(Rungtusanatham, Wallin & Eckerd, 2011, p.9). A vignette study can measure simulated behaviour and norms in a variety of contexts, including decision-making for SCM managers (Rytina, Rossi, & Nock, 1983). In a vignette study, specific factors and variables can be investigated in a predesigned and manipulated setting. In this study, the vignettes are used to study the participant’s decision-making behaviour regarding environmental and social sustainability in situations wherein the manager is experiencing a high or a low degree of competition. Therefore, the manipulation in the vignette is the degree of competition. In addition, there can be a difference in sustainable decision-making by upstream and downstream SCM managers when faced with competitive pressures. Upstream managers are perceived with competition over the same resources, which are related to sourcing decisions. Downstream managers are perceived with competition over their customers, which are related to sharing decisions (Markman et al., 2009; Sarkis et al., 2011). Therefore, the analyses show a distinction between these managers because they face unique pressures from unique set of competitors. So, these manipulations lead to eight different vignettes as can be seen in table 1.

Version Upstream respondent Downstream respondent

1 High Competition / Environmental 1

st_,

Social 2nd_{/ Upstream}

High Competition / Environmental 1st_,

Social 2nd_{/ Downstream}

2 High Competition /Social 1

st_,

Environmental 2nd_{/ Upstream}

High Competition /Social 1st_,

Environmental 2nd_{/ Downstream}

3 Low Competition / Environmental 1

st _,

Social 2nd_{/ Upstream}

Low Competition / Environmental 1st_,

Social 2nd_{/ Downstream}

4 Low Competition / Social 1st_,

Environmental 2nd_{/ Upstream}

Low Competition / Social 1st_,

Environmental 2nd_{/ Downstream}

Table 1: all vignette possibilities of the SBRP experiment.

4.2 Process

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17 vignette for the upstream managers and the downstream vignette for the downstream managers. The upstream managers had to decide on purchasing from a supplier in a social context (clothes) and an environmental context (batteries). The downstream managers had to decide on sharing information decisions in, as well, a social context (clothes) and an environmental context (batteries). The managers had to make both cases: one environmental and one social. Within these cases, a sentence was added wherein the conclusion was that there were no competitors at all, or there was another company interested in the decision as well (the manipulation). Summaries of the vignette cases and the full vignette cases can be found in Appendix 1. After each case, questions were asked whether the manager would buy from the supplier (for upstream managers) or would share the information to its customers (for downstream managers). After the second case, the managers were asked to answer a collection of general questions, including questions regarding intuition (see Appendix 1). The managers with an upstream function were given the upstream cases as much as possible. The managers with a downstream function were given the downstream cases as much as possible. When a manager had a downstream function and an upstream function, the manager had the option to choose one of the cases. The order of the cases was random delivered around the participants to ensure that the order of the cases would not influence the decisions regarding the environmental case nor the social case.

4.3 Data collection

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Upstream managers Downstream managers

Number of

observations 54 62

Average age M = 41.10, SD = 12.20 M = 42.3, SD = 12.36

Nationality 100% Dutch 100% Dutch

Gender Male/Female 70% Male, 30% Female 90% Male, 10% Female

Competition High/Low 55.6 % Low, 44,4% High 51.6% Low, 48.4% High

Profession Purchaser 70.4% -

Marketeer 18.5% 3.2%

Sales - 61.3%

Supply chain 7.4% 22.6%

Remaining 3.7% 12.9%

Table 2: sample description of the managers participated in the SBRP experiment.

4.4 Validity analyses

In a vignette study, it is essential that the specific factors and variables are recognised by the participants to do further analyses. Two validity checks are performed to measure if the manipulation in the case description has been recognised by the managers: a manipulation check and a Hawthorne check. A manipulation check ensures that the participants have experienced competition in the cases. A Hawthorne check confirms if the manipulation did not have an unintentional effect on the assumed independent measure (Bachrach & Bendoly, 2011). The results are calculated with the software of SPSS and are presented here below.

4.4.1 Manipulation check

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19 downstream group, the Mann-Whitney U-test calculated that there is a statistically significant difference between the means of the competitive group and the non-competitive group. Concluding, there is enough evidence that the manipulation of the competition variable was successful. p-value Group Dependent variable Independent variable

N Mean T-value Independent samples t-test Mann-Whitney U-test Upstream MCV (1 = completely disagree, 7 = completely agree) High competition 24 5.167 3.036 0.004*** 0.001*** Low competition 30 3.617 Downstream MCV (1 = completely disagree, 7 = completely agree) High competition 30 5.717 5.704 0.000*** 0.000*** Low competition 32 3.469

Note: * p-value significant at the 0.1 level (2-tailed), ** p-value significant at the 0.05 level (2-tailed), *** p-value

significant at the 0.01 level (2-tailed).

Table 3: results of the statistical tests to check whether managers recognised competition in the cases.

4.4.2 Hawthorne check

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20 _p-value Group Dependent variable Independent variable

N Mean T-value Independent samples t-test Mann-Whitney U-test Upstream Hawthorne 1 (1 = completely disagree, 7 = completely agree) Hawthorne 2 (1 = completely disagree, 7 = completely agree) High competition 24 5.670 -1.152 0.056 0.254 0.955 0.418 0.929 Low competition High competition Low competition 30 24 30 6.100 4.630 4.600 Downstream Hawthorne 1 (1 = completely disagree, 7 = completely agree) Hawthorne 2 (1 = completely disagree, 7 = completely agree) High competition 30 5.900 0.664 -1.249 0.509 0.217 0.211 0.263 Low competition High competition Low competition 32 30 32 5.720 3.670 4.190

Table 4: results of the statistical tests of Hawthorne check variables on competition.

4.5 Results

In this section, the results of the factor analyses and the tests to answer the three hypotheses are presented.

4.5.1 Factor analysis

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21 cases indicate that the manager decides more sustainable and a higher mean in the upstream cases indicate that the manager decides more unsustainable.

To validate that intuition and sustainability are two different constructs and to indicate if the newly developed sustainability scales are reliable, an exploratory factor analysis is performed. Table 5 and table 6 present the results of the factor analysis (varimax rotation). Items with loadings greater than or equal to 0.4 were regarded as significant (Nunnaly, 1988). In both groups, the newly developed sustainability items show internal reliability. The Cronbach’s Alpha (α > 0.9) suggests that the three questions of sustainability in the downstream cases and the upstream cases can be merged into one sustainability variable by using the mean of these three items, henceforth referred as ‘SourcingMean’ for upstream sustainability and ‘SharingMean’ for downstream sustainability.

To do the factor analyses for intuition, item 1 and item 4 are recoded using reverse scaling, reversing the previous order. A value of one on the Likert-scale refers to solely relying on rationality, whereas a value of seven refers to solely relying on intuition. Table 5 and table 6 show that the four intuition items as suggested by Carter et al. (2017) are not applicable, as the four intuition items are not internally reliable. Tests showed that dropping intuition item 2 in both data groups yield the best improvement in the measurement model. When deleting intuition item 2 in the upstream file, the Cronbach’s Alpha rises to 0.700, the KMO rises to 0.770 and Bartlett’s Test of Sphericity is still highly statistically significant (0.000). When deleting intuition item 2 in the downstream group, the Cronbach’s Alpha rises to 0.042, the KMO rises to 0.667 and Bartlett’s Test of Sphericity is still highly statistically significant (0.000).1 Intuition item 2 will be ignored and only the means of intuition items 1, 3, and 4 together will be considered. Loadings of the intuition items 1 and 3 are also significant for the sustainability factor of upstream managers (> 0.4) and intuition item 3 loads also on the sustainability factor in the downstream file (> 0.4). For both groups, an explanation of these loadings can be found in the questions regarding intuition and sustainability since these questions show similarity in the subject of supplier selection decisions and sharing decisions.

1_{The Cronbach’s Alpha for downstream managers (sharing decisions) is still below cut off point of 0.6 and can}

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Factor

Items 1 2

Factor 1: Upstream Sustainability (SourcingMean), N = 54, α = 0.933, (Please assess the following statements on your decision of sourcing from the subcontractor)ᵃ

Item 1: It is likely that Company X will make use of Company Y’s subcontractor 0.975 -0.014

Item 2: Company X will use denim products from the subcontractor in

Bangladesh to serve the new markets

0.969 0.113

Item 3: Company X will make use of the opportunity to collaborate with

Company Y’s subcontractor

0.955 0.140

Factor 2: Upstream Intuition, N= 27, α = 0.328, (Please assess the following statements)ᵃ

Item 1: In making these cases, before I made the decision, I re-read the

information from the case relevant for the decision (Wouters et al., 2009). ᵇ

0.439 0.656

Item 2*: In making these cases, I did not know what to choose, that is why I

trusted on my gut feeling (Carter et al., 2017).

0.186 -0.788

Item 3: In making these cases, I immediately knew which supplier was the right

one for the company’s requirements (Carter et al., 2017).

0.621 0.464

Item 4: In making these cases, It took me a while to decide on which supplier was

better for the situation (Mueller et al., 2007). ᵇ

0.199 0.774

Eigenvalue 3.801 1.551

Percentage of variance explained (%) 54,32 22.15

Notes: KMO = 0.728, Bartlett’s Test of Sphericity (χ2 (21) = 159.507, p < .000. ᵃScale = completely

disagree - completely agree (1-7), ᵇScale = items are mirrored in scale (1 = 7, 7 = 1), * Item deleted to get the

best improvement in measurement model.

Table 5: results of factor analyses of upstream managers group.

Factor

Items 1 2

Factor 1: Downstream Sustainability (SharingMean), N = 62: α = 0.924, (Please assess the following statements on your decision of sharing the information to the retailer)ᵃ

Item 1: It is likely that Company X will inform the Manufacturer Y on its decision to

start sourcing from Company Y

0.952 -0.052

Item 2: Company X will be open about its use of nickel from the Philippines and

Indonesia to Manufacturer Y

0.924 0.149

Item 3: Company X will share information on its new source for nickel with

Manufacturer Y

0.926 -0.213

Factor 2: Downstream Intuition, N= 31, α = -0.301, Please assess the following statements)ᵃ

Item 1: In making these cases, before I made the decision, I re-read the information

from the case relevant for the decision (Wouters et al., 2009). ᵇ

0.036 0.978

Item 2*: In making these cases, I did not know what to choose, that is why I trusted

on my gut feeling (Carter et al., 2017).

0.058 -0.292

Item 3: In making these cases, I immediately knew which supplier was the right one

for the company’s requirements (Carter et al., 2017).

0.592 0.140

Item 4: In making these cases, It took me a while to decide on which supplier was

better for the situation (Mueller et al., 2007). ᵇ

0.007 -0.219

Eigenvalue 2.985 1.585

Percentage of variance explained (%) 42.64 22.65

Notes: KMO = 0.588, Bartlett’s Test of Sphericity (χ2 (21) = 118,731, p < .000. ᵃScale = completely

disagree - completely agree (1-7), ᵇScale = items are mirrored in scale (1 = 7, 7 = 1), * Item deleted to get the

best improvement in measurement model.

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4.5.2 Testing hypotheses

Table 7 and table 8 display the means, standard deviations and correlations of the variables which are used for hypothesis testing. In every hypothesis, a distinction is made in the analyses between upstream managers and downstream managers since two different data groups were used. Upstream Mean SD Correlation 1 2 3 4 5 1. Gender (dummy) (0 = Female, 1 = Male) 0,7 0,47 - 2. Age 41,11 12,36 -0,28 - 3. Competition (dummy) (0 = Low, 1 = High) 0,44 0,5 0,09 0,14 - 4. SourcingMean (1 = completely disagree, 7 = completely agree) 4,2 1,78 -0,16 0.42** 0,1 - 5. Intuition (1 = completely disagree, 7 = completely agree) 3,75 1,62 -0,08 0,24 0,12 0.55*** -

Note: **Correlation is significant at the 0.05 level (2-tailed) *** Correlation is significant at the 0.01 level (2-tailed)

Table 7: Univariate statistics and Pearson correlations among the variables for the upstream manager group.

Downstream Mean SD Correlation 1 2 3 4 5 1. Gender (dummy) (0 = Female, 1 = Male) 0,9 0,3 - 2. Age 42,29 12,2 0,1 - 3. Competition (dummy) (0 = Low, 1 = High) 0,48 0,5 0,32 0,21 - 4. SharingMean (1 = completely disagree, 7 = completely agree) 4,54 1,65 0,08 0,2 0.35*** - 5. Intuition (1 = completely disagree, 7 = completely agree) 4,49 0,97 -0,1 0,16 0,2 0,23 -

Note: **Correlation is significant at the 0.05 level (2-tailed) *** Correlation is significant at the 0.01 level (2-tailed)

Table 8: Univariate statistics and Pearson correlations among the variables for the downstream managers group.

4.5.2.1 Hypothesis 1

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24 non-parametric Mann-Whitney U-test is performed to account for possible non-normality. The Mann-Whitney U-test confirms the findings of the independent sample t-test for the upstream group and the downstream group. Concluding, H1 is rejected for downstream managers since a higher mean in the downstream cases indicates more likeliness to share the unsustainable information and indicates a more sustainable decision. Also, H1 is rejected for sourcing decisions of upstream managers since both the t-test and the Mann-Whitney U-test show no statistical significance. _p-value Group Dependent variable Independent variable

N Mean T-value Independent samples t-test Mann-Whitney U-test Upstream SourcingMean 1 = sustainable, 7 = unsustainable High competition 24 4.403 0.757 0.453 0.457 Low competition 30 4.033 Downstream SharingMean 1 = unsustainable, 7 = sustainable High competition 30 5.122 2.857 0.006*** 0.008*** Low competition 32 3.989

Table 9: results of the statistical tests of the influence of competition on sustainable decision-making. 4.5.2.2 Hypothesis 2 and hypothesis 3

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25 negative ß was hypothesised and H2 is rejected for downstream managers since the coefficient is not significant and the regression model has no explanatory power. The conclusions of the base model do not change when controlling for age and gender. Gender does not seem to play a role, yet one must bear in mind that the great majority of subjects were male and as such there was low variation.

Hypotheses 3 is tested following the approach of Baron and Kenny (1986). First, a dummy variable was created of competition by taking the low competition cases as 0 and the high competition cases as 1. Second, the mean of the moderating variable intuition and the independent variable competition dummy were standardized. Third, the variables were multiplied with each other (interaction variable). To discover whether competition has a direct effect on sustainability, a regression analysis is performed including the control variables and the competition dummy variable (Model 2b). Lastly, the interaction variable is added in the regression (Model 3). As can be seen in table 10a and table 10b (Model 3), the interaction variable does not have a significant moderating effect on neither sourcing decisions (ß = -0.438, ns) nor sharing decisions (ß = -0.182, ns). Thus, H3 is rejected for sourcing decisions made by upstream managers and for sharing decisions made by downstream managers.

Upstream group (SourcingMean)

Variables Model 1 Model 2a Model 2b Model 3

Gender (dummy) _-0.041 _-0.032 _-0.042 _-0.035 _(0.755) _(0.661) _(0.778) _(0.682) Age of employees 0.409** 0.297* 0.408* 0.283 (0.028) (0.026) (0.029) (0.027) Intuition _0.481*** 0.500*** _(0.187) _(0.193) Competition (dummy) _0.002 _0.362 _(0.693) _-1.563 Intuition × Competition (interaction variable) _-0.438 _(0.377) N 27 27 27 27 R² 0.178 0.396 0.178 0.426 Adj R² 0.110 0.318 0.071 0.290 F 2.604* 5.036*** 1.664 3.121**

Notes: Standard errors in parentheses. Standard regression coefficients are reported, * p<0.10, ** p<0.05, *** p<0.01

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Downstream group (SharingMean)

Variables Model 1 Model 2a Model 2b Model 3

Gender (dummy) _0.058 _0.083 _0.019 _0.097 _-1.006 _-1.007 _-1.067 _-1.116 Age of employees _0.199 _0.163 _0.175 _0.153 _(0.025) _(0.025) _(0.026) _(0.026) Intuition _0.216 _0.256 _(0.316) _(0.347) Competition (dummy) _0.131 _0.062 _(0.642) _(0.665) Intuition × Competition (interaction variable) _-0.182 _(0.683) N 31 31 31 31 R² 0.045 0.090 0.060 0.125 Adj R² -0.023 -0.011 -0.044 -0.050 F 0.662 0.889 0.574 0.714

Notes: Standard errors in parentheses. Standard regression coefficients are reported, * p<0.10, ** p<0.05, *** p<0.01

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5. STUDY 2: A MULTIPLE CASE STUDY

5.1 Method

Using SBRP experiments and vignettes are rather new in the field of social-economic research and are therefore discussed in literature on its validity (Antonakis, 2017). According to Aguinis and Bradley (2014), these experiments lack external validity and could not always explain the effects in the real world. To increase external validity for study 1 and to answer RQ 2: ‘How

does intuition influence sustainable decision-making?’, a multiple case study is developed.

Study 1 gives indications that upstream managers differ from downstream managers when intuition is present in sustainable decision-making. The case study allows exploring on a subject that is unknown and can provide reasons why managers differ in sustainable decision-making (Yin, 2003). The exploration on intuition could explain the proposing results between upstream managers and downstream managers in study 1, since other variables could also influence the relationship between intuition and sustainable decision-making. With this approach, a comparison can be made between cases and allows looking for patterns to shed light on how intuition is influencing sustainable decisions and to validate whether results of the SBRP experiment are also applicable in the real world (Aguinis & Bradley, 2014). Therefore, the only way to answer RQ 2 is by doing a case study wherein different downstream managers and upstream managers are interviewed. The aim of the case study is to explore other factors which could be relevant in the relationship between intuition and sustainable decision-making.

5.2 Case selection

Managers were interviewed who also played in the SBRP experiment of study 1. Based on what the managers answered in study 1 on the general questions, a selection could be made based on two criteria relevant for RQ 2. The unit of analysis are managers with a downstream or an upstream function working in a B2B company. First, the manager must have had a clear distinction on which decision approach was leading (intuition/rational) by looking to their mean scores on the intuition items in the vignette (study 1). An average score on the three intuition items2 below 3,5 indicates that the manager has used more rationality when making decisions in the SBRP experiment and a score above 4,5 indicates that the manager has used more

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28 intuition when making decisions in the SBRP experiment. Only these managers have been contacted for an interview. Secondly, the manager must have had a downstream or upstream function (see table 11). In this situation, four different cases were selected. The goal is to explore what motives these managers had to act sustainable or unsustainable and how intuition is related to their (un)sustainable decisions.

Function of manager Score on intuition items in study 1

Upstream Mean > 4.5

Upstream Mean < 3.5

Downstream Mean > 4.5

Downstream Mean < 3.5

Table 11: selection criteria of managers for the case study.

5.3 Data collection

Interviews were held at the location where the managers worked or done during a conference call. Only managers working in a B2B company were interviewed, because within a supply chain B2B firms are in the ‘chain’. The employees with a management function could have a downstream function or an upstream function in B2B companies, which provided more interviews compared to business to consumer (B2C) companies wherein the firms only have upstream suppliers since the ‘chain’ ends at the consumer. All interviewed managers worked in a Dutch publisher group. To protect the managers’ privacy, the names of the managers are not published. Some characteristics are given in table 12. All questions during the interviews were open-ended and semi-structured. To answer RQ 2, quotes are collected to investigate how intuition influences sustainable decision-making. The full interview guide can be found in Appendix 4. The interviews were recorded and during the interview the researcher took notes about the body language, attitude and tone of the voice of the manager.

Characteristics of managers Manager 1 (M1) Manager 2 (M2) Manager 3 (M3) Manager 4 (M4)

Management function Upstream Upstream Downstream Downstream

Gender Female Female Male Male

Work experience 6 years 2 years 16 years 13 years

Leading decision system in the SBRP experiment (and score)

Intuition (5) Rational (2) Intuition (6) Rational (3)

Option chosen in study 1 Sustainable Sustainable Unsustainable Unsustainable

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5.4 Data analysis

The four interviews were spoken in Dutch and recorded by phone. The interviews were transcribed in Microsoft Word and translated in English. The interviews delivered a lot of raw unstructured data, while structure was needed to look for patterns which could be compared between cases. The translated transcripts were organised by uploading the files in the software program Atlas.ti 7 to use coding. This software program was used to label the data to get an overview of quotes which are important for RQ 2 to uncover important themes about intuition and underlying meanings of the managers’ (un)sustainable decision in the SBRP experiment. The two coding techniques of Hsieh and Shannon (2005) were used which is a more direct approach, since some information is known on the specific relationships between the constructs of intuition and decision-making. Therefore, more directed topics concerning intuition were asked. Coding the data along the key constructs (intuition and decision-making), is the first technique. Second, the remaining data is used to discover underlying meanings regarding sustainably.

5.5 Results study 2

Three main factors were recognised that could have influenced the relationship between intuition and sustainable decision-making and could explain the proposing results of the upstream managers and downstream managers in study 1. In the discussion, the three discovered factors are rephrased to testable propositions and motivated. Here beneath, quotes of different managers from the interviews are collected to answer RQ 2.

5.5.1 Nimby and Yimby

During the interviews, stories were told which were coded as the term ‘Nimby’ and ‘Yimby’. Nimby is an acronym of “Not In My Backyard”. According to this view, people who live closest to energy infrastructure, for example windmills, are the least likely to support development (Dorshimer, 1996). However, it is noticed that downstream managers used more the argument of “reverse-nimby’ about why they decided on the unsustainable option, which means that the managers will support the sustainable decision if the situation is nearby and is called in literature ‘Yimby’ (Yes In My Backyard) (Devine-Wright, 2009). M4 explained after asked why he would choose the unsustainable option anyway: “I do not know.. I always think.. How

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happens there and that is really hard to say, but in fact it is the truth..” M4 gave the reason that

he “can not influence everything”, but when was asked if he could make a difference in his own region he said that he “would attach more value to such a decision” and that he would decide “less fast”. The other downstream manager (M3) agrees: “I knew that my answer was

politically incorrect and very honestly said.. I did not feel very guilty of it because of the hypocrisy of sustainability nowadays.” He continued that “the amount of impact and organisational interest” are most important and that he would reconsider the decision if it

affects “personal life”. One upstream manager (M2) admitted that she could sympathize less with the environmental case of study 1, since that case was “less concrete” and that she would

“think little less about the consequences.” 5.5.2 Organization strategy (CSR)

Another aspect that stood out in the interviews, was the CSR strategy of the firm. All managers agreed that sustainability is a hot topic. However, the downstream managers acted unsustainable in study 1. Arguments from the downstream managers were that they could not cope with the hypocrisy of the businesses nowadays. According to M3, “everybody is standing in line to shout

how sustainable they are, but in fact they are not”. On top of that, M4 admitted that “If you ask me if I would go for the money.. Yes, I have been hired for that.” This is in contrast with M2,

who said: “the sustainable decision simply outweighs the company goals. I do not want to be

responsible for large-scale purchasing of this kind of clothes and that others have to sell it.”

M1 added that “this is not a decision I need to take on my own.” and that “..we can do it at a

company that does a better job, then we can put ourselves in the market differently. Then we have an extra hook that you can include in your company story, your philosophy and your marketing.”

The company wherein these managers work do not follow a CSR strategy. What strikes out, is that the downstream managers will make decisions according to the strategy of the firm, since it is expected from them to “go for the money”. Both intuitive managers, M1 and M3, were suggesting that they want to care more about sustainability, but that the company does simply not allow it, because upstream managers should not spend their budget on ‘extra things’ and downstream managers need to ’getting in money’. M1 contributed: “I would at least convince

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individual cases, that organisation interest is most important... then this is the right solution I think. But afterwards I would sit down with the policy makers and would say ok guys .. if this was the case when you talk about sustainable policy then this is not it.” M2 gave a firmer

statement: “.. it is a non-sustainable solution and that weights heavier than a growth target,

because these growth objectives are usually way too optimistic.” M4 added: “If I had to do it alone, I would always go for the commercial opportunity .. I have certain objectives and I want to get them.”

5.5.3 Cognitive dissonance

The last factor discovered is linked to cognitive dissonance, since different contradictory solutions were given by the managers to act unsustainable. Cognitive dissonance means that “persons are uncomfortable in maintaining two seemingly contradictory ideas” (Akerlof & Dickens, 1982, p. 309). In light with this study, cognitive dissonance is related to thinking the good thing but doing the bad thing for sustainability. Both downstream managers could therefore say that “going for the money” is the right choice and can discard other information that would suggest that the decision is not sustainable. For example, M4 said that he “cannot

stop global warming on his own” and therefore convinces himself that if everyone does not do

it, he will also not do it. M3 noted that he did not act completely consistent: “Well, if you look

at that case of those batteries, that does not feel right. You make a decision.. I than choose yes we will just do it. But I do want shared responsibility for that, but of course the feeling is not entirely right.” However, M2 stated that “if someone asks me to produce clothes in a factory where children can work, then I need 0 seconds to think about it because I cannot live with the feeling that other people are hurt” and did also not act unsustainable in study 1. So, the

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6. DISCUSSION

The aim of this paper is to investigate how intuition and competition can influence sustainable decision-making. After the literature review, several hypotheses were developed which could be tested in a SBRP experiment (study 1). To investigate reasons for the findings in study 1, a case study has been performed by interviewing managers who participated in study 1. Both studies discovered several findings which contribute to theory and are discussed here beneath.

6.1 Discussion results study 1

Regarding the first hypotheses, the SBRP experiment has shown that competition can affect sustainable decision-making. Downstream managers tend to share the unsustainable decision more in a competitive environment than in a non-competitive environment and is seen as sustainable behaviour. This finding was not hypothesised since a negative relationship was developed according to the studies of Bennett et al. (2013) and Kilduff et al. (2016) who showed that due to high competition managers could become more willing to comply to unethical behaviour. Therefore, the positive effect of competition on downstream managers is surprising and indicates that downstream managers behave more honest on sustainability. This finding is in line with the study of Rajeev et al. (2017) who emphasises that sustainability is becoming of more importance for the customer and thus the business. Downstream managers are more in contact with the customers and know the needs and wants of the customer. Therefore, the risk of losing the customer by withholding information outweighs the goals of profit maximisation for the company. In contrast, upstream managers acted slightly more unsustainable in a competitive environment, but statistical analyses show no significance. This finding aligns with Roehrich et al (2014) that upstream managers have more focus on securing supply than emphasis on sustainability and underlines that sourcing decisions require different cognitive attributes than information sharing decisions.

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33 products covering both domestic and foreign markets may experience more intensive competition than those covering only domestic markets, which could also have influenced the perception of competition by the managers.

Regarding the second hypotheses, the regression models 2a and 3 indicate that intuition is a good predictor of unsustainable sourcing decisions by upstream managers. This contradicts with the findings of Rand (2016) who showed that people tend to be cooperative when deciding with intuition. Therefore, when deciding on sustainable issues, upstream managers do not cooperate with the trend to implement more sustainable solutions into their supply chain (Gualandris et al., 2014). Knemeyer and Naylor (2011) already theorised that upstream managers rely more on their intuition when making sourcing decisions. The results of this study indicate that these intuitive sourcing decisions are indicators of unsustainable behaviour. Therefore, using more rationality into sourcing decisions can add to better sustainable sourcing decisions. A possible explanation is that the personal characteristics are differently developed of rational decision makers which are more beneficial for sustainability considerations (Riedl et al., 2013). In contrast, the regression of intuition on sharing decisions made by downstream managers was not statistically significant and this is probably due to the unreliability of the intuition items used to measure intuition for downstream managers. This unreliability may have risen by not paying enough attention by the downstream managers when filling in the questionnaire or could indicate that the intuition questions developed by Carter et al. (2017) could not be used for sharing decisions. Another cause that could have influenced the results, is that intuition and rationality are not the opposites. This remark aligns with the study of Evans (2014) and the study of Brocas and Carrilo (2014) wherein they suggested that intuition and rationality should not be seen separately because of the lack of understanding. This remark only aligns for sharing decisions made by downstream managers, since the intuition questions for sourcing decisions made by upstream managers were internally reliable.

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34 Regarding the control variables in the regression models, this study found a relationship between age and sourcing decisions made by upstream managers. The older the upstream manager, the more unsustainable the sourcing decision. The coefficients seem to be rather high, adding more than 0.4 on the Likert-Scale for each additional year (Model 1 & Model 2a). This finding can be explained by the status quo bias from Samuelson and Zeckhauser (1988) that older people are less agile regarding sustainability practices.

All in all, the results of this study are in line with the study of Markman et al. (2009) and Sarkis et al. (2011) who argued that differences can occur in decision-making by different management roles when faced with competitive pressures.

6.2 Discussion results study 2

First, the Nimby phenomenon is mentioned by the managers when making sustainable decisions. Nimby implies selfishness, ignorance and irrationality because of diverse motivations and concerns people can experience when such environmental solutions, for example a large factory, are planned to be built in ‘their backyard’ (Schively, 2007). However, the quotes imply that upstream and downstream managers are more willing to cooperate with a sustainable decision when the consequences are in their ‘backyard’. Managers provided reasons that they would reconsider their decision if the decision would affect their own hometown, which implies Yimby (Yes in my backyard). In contradict with the study of Rand (2012), wherein people become more selfish when thinking more about a certain decision, the opposite is shown when making sustainable decisions. Therefore, similarities between the Nimby phenomenon and intuition were found, since Nimby acts fast in uncertain situations and is heavily influenced by emotions (Dane & Pratt, 2007). In addition, reconsidering a decision is a more conscious process which implies rationality. Therefore, Yimby could be related to rationality, since the decision is slower and more conscious (Sadler-Smith & Shefy, 2004; Gino & Pisano, 2008). Concluding, the collected quotes by the managers of Nimby and Yimby are related to the perceived amount of distance to a certain (un)sustainable decision. This topic needs further work to predict managerial behaviour regarding sustainable decisions and can be addressed in the following proposition: The perceived distance to an environmental solution is

positively related to sustainable decision-making.

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35 strategy is linked to intuition. This is in line with the study of Tversky and Kahneman (1974) that people create mental shortcuts when decisions must be made. Therefore, when a CSR strategy is followed, choices made by managers are also more sustainable because they could get rewarded for more sustainable behaviour. The quotes indicate that managers are aware of the fact that their decisions are sometimes not consistent, which is needed for sustainability (Stanovich & Westen, 1998). Thus, it seems that the strategy of the firm is linked to intuitive decision-making by managers because less conscious reasoning for the decision is asked to make a certain decision. The choice has already been determined by the strategy developers in the company and therefore creates consistency. In addition, Jeong et al. (2018) found that temporary CSR activities are “likely to hurt firm’s earnings and thereby firm value” (p.221). However, the quotes suggest that downstream managers are more willing to do these temporary CSR activities when deciding with intuition in order to, as M3 mentioned, “just do a marketing

trick”. Concluding, the collected quotes of strategy from the managers are related to specific

attitudes towards sustainable decision-making if a certain strategy is followed. Especially, the quotes of the downstream managers indicate that they act more according to what is expected from them than upstream managers when making sustainable decisions. This topic needs further work to discover which psychological factors of managers can encourage sustainable decision-making and can be addressed in the following proposition: The CSR strategy of the firm

positively influence psychological factors which encourage sustainable decision-making behaviour.

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36 research should investigate if nudges can help managers to deal with doubt to make more sustainable decisions and this can be addressed in the following proposition: Doubt is negatively

related to sustainable decision-making.

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7. CONCLUSION

This research adopted a multi-method approach to expand understanding on how competition and intuition influence sustainable decision-making. By performing a quantitative vignette study and a qualitative case study, this study did interesting findings.

7.1 Theoretical contributions

First, the unique method in this study resulted into new findings. Building on the findings of Bennett et al. (2013) and Kilduff et al. (2016), this study hypothesised that high levels of competition can increase unsustainable behaviour. However, through a SBRP experiment, strong evidence is found that downstream managers act even more sustainable in a competitive environment than in a non-competitive environment. Although upstream managers acted slightly more unsustainable in the SBRP experiment, the results are not statistically significant. Elaborating on the findings of Pedersen & Neergaard (2009), this study finds its contribution in that sourcing decisions by upstream managers require different cognitive attributes compared to sharing information decisions by downstream managers. In addition, elaborating on the findings of Markman et al. (2009) and Sarkis et al. (2011), this study finds its contribution that competition can be perceived differently by managers in the supply chain.

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7.2 Managerial implications

The findings of this study could help managers to be aware of the fact that competition can influence their judgement on sustainable manners. Besides, the findings can help upstream managers to critically think about how their gut feeling can lead to unsustainable sourcing decisions. Therefore, testing the upstream managers intuitive behaviour in sustainability contexts would not be a wrong idea since intuition is a predictor of unsustainable behaviour. According to the findings in the case study, managers need help with sustainable decision-making by the strategy of the firm, coping with doubt and framing the consequences of the unsustainable decision in a closer distance.

7.3 Limitations

The findings have some limitations. First, the four intuition items in the questionnaire were not internally reliable. In order to test the second and third hypotheses, the decision is made to delete the second item to create the highest reliability of the intuition variable. Another limitation is that the competitive degree in the cases was measured by introducing one competitor. In retrospect, it might have been better to add more companies to represent more initiatives by competitors in the market to emphasise that competition is high. Lastly, a limitation of this research is the sampling bias, since most managers are Dutch males which undermines external validity and limits generalisability.

7.4 Future research