Individual and situational factors that influence sustainable
supply chain decision-making:
competition, supply chain relationships and financial
responsibility
By Rob van Herwaarden S2218909
r.m.j.m.van.herwaarden@student.rug.nl Master Thesis
Theme: Competition and Sustainable Supply Chain Management June 22nd
2018 Supervisor: N. Pulles Second Assessor: P. Buijs
Abstract
Purpose – In a time of increasing attention for sustainable supply chain decision-making, a more
comprehensive understanding of which individual and situational factors have what effect on sustainable decision outcomes is in place. Competition (high/low), the direction of the decision (upstream/downstream) and financial responsibility is tested with regards to socially and environmentally sustainable outcomes. Furthermore, new factors are identified that affect decision-making behaviour of financially responsible managers. These factors are compared to competencies that enhance sustainable decision-making.
Design/Method
A vignette study (96 participants) is used to collect data surrounding the topics competition, the direction of the decision, financial responsibility and sustainable decision outcomes. An inductive multiple case study (13 participants) was in place to identify factors that influence decision-making behaviour of financially responsible managers.
Findings
Significant differences appear in sustainability outcomes in situations with high and low competition and towards upstream and downstream relation. Financial responsibility is no predictor of sustainable decision-making. Social pressure, personal development and propagated expectations by an organization affect decision-making behaviour of financially responsible managers. Personal development is aligned with the factor ‘delivery’ that enhance sustainable behaviour
Keywords
Supply chain sustainability, competition, supply chain relations, contingency theory, financial responsibility, decision-making
1. Introduction
In March 2018 the CEO of ING, Ralph Hamers, received a 50% salary increase from two million euros to three million euros annually. ING argued that Hamers deserved this increase, since in comparison with the competition, his financial compensation was less than other CEO’s of for example ABN AMRO and Rabobank. Furthermore, ING justifies its decision by mentioning that they score 89 out of 100 in the Dow Jones Sustainability Index 2017, making them one of the highest scoring companies in the banking sector. On the other hand, critics argued that it was not taken into account what this message emits towards ‘regular’ employees of ING and for INGs position in the society. The salary increase lasted for two weeks, before ING reversed its decision due to fierce reactions from politicians and critics in society.
organizations is one part of the dilemma (Canto de Loura, 2014), whilst the synchronization of these goals throughout the supply chain is a second part of the dilemma (Blome, Paulraj, & Schuetz, 2014). This synchronization can be enhanced by actively engaging in sustainable supply chain management. Carter and Rogers (2008, p. 361) define sustainable supply chain management as “the strategic integration and achievement of an organization’s social, environmental and economic goals in the systemic coordination of key internal business processes for improving the long-term performance of the individual form and its supply chain.”
Recently, studies have investigated the effect of competition on strategic choices in supply chains. For example, Cachon and Kok (2010) studied the impact of competition between manufacturers selling contracts to a common retailer and Zhao (2008) investigated how competition among retailers affects the pricing strategy of one single manufacturer. In both these studies, the direction of the decisions (towards upstream relations or towards downstream relations) and the degree of competition (high/low) are taken into account to measure financial consequences. Although competition can lead to societal benefits, such as lower prices for customers, a higher quality of goods and higher productivity (Bresnahan & Reiss, 1991; Spence, 1975), for focal firms and competing organizations it can be a burden. As for focal firms it becomes harder to guarantee the preferred quality and price, especially when the importance of environmental and social sustainability increases.
Heer, & Veenswijk (2014). However, every decision that is made is susceptible to various individual and situational factors. For example, the level of competition, the different relationships and directions of decisions are situational factors that influence decision-making behaviour, while a specific responsibility is an individual factor that influences decision-making behaviour (Federico, 1997; Harrison, 1996).
decision-lack the intention to act in a social and environmental sustainable manner (Wieland & Flavel, 2015) can (partially) be justified. In this research, financial responsibility is the chosen responsibility that is investigated, since the perceived economical importance of these managers contradicts the increasing importance of social and environmental sustainability from society. It is expected that the decision-making behaviour of these managers is influenced by other factors than managers with other responsibilities. This contradiction is interesting, as the identification of factors that influence decision-making behaviour of financially responsible managers can explain the extent to which sustainability is acknowledged in their decision-making, even if their responsibilities lie at a contradicting, financial interest.
Specifically, this research contains two research questions:
- Are there differences in environmentally and socially sustainable decision outcomes if the degree of competition (high/low) or the direction of the decision (upstream/downstream) is different and how does the degree of financial responsibility affect environmentally and socially sustainable decision outcomes?
- What are factors that influence financially responsible managers in their decision-making behaviour and how do these factors relate to sustainability?
This thesis makes multiple contributions to existing literature. All contributions add to the contingency theory (Fiedler, 1964; Regier & Redish, 2015) by testing specific pre-selected factors on sustainable decision-making and the identification of new (situational or individual) factors that influences a manager with a specific responsibility (Sandman, Gustavsson, & Munthe, 2016). First, the effect of competition and the direction of the decision (both situational factors) is tested on sustainable decision-making behaviour. Secondly, the effect of financial responsibility (individual factor) on sustainable decision-making is tested and lastly situational or individual factors that affect a financially responsible manager in their decision-making are identified and compared to the sustainability competencies identified by Knight and Paterson (2017). These contributions provide clarity and insights in the type of situation and the type of manager that enhance or avoid sustainable decisions.
responsibility will be discussed with conceptualizations and operationalizations. Hypotheses for research question one will be developed in the section thereafter. Then, in the fourth and fifth section, the method and results of research question one and two are presented. Finally, in section six, the discussion is presented followed by the conclusion, the limitations and directions for further research.
2. Literature review
In this section, existing literature with regards to supply chain sustainability, decision-making, competition, supply chain relationships and financial responsibility is presented.
2.1 Sustainable supply chain management
To provide more clarity, definitions of the three dimensions that are adopted for this research are stated below:
• Economic sustainability entails “that supply chains must be economically sustainable, producing an economic return to their stakeholders” (Wilson, 2015, p. 173).
• Environmental sustainability means that supply chain managers need to be aware of the impact their business has on the exhaustion of the earth. More specifically, “environmental sustainability refers to consuming natural resources at a rate below the natural regeneration or to consuming a substitute, generating limited emissions and not being engaged in activities that can degrade the ecosystem” (Kleindorfer, Singhal, & Wassenhove, 2009, p. 484).
• Social sustainability refers to “actively supporting the preservation and creation of skills as well as the capabilities of future generations, promoting health and supporting equal and democratic treatments that allow for good quality of life both inside and outside the supply chains context” (Huq, Stevenson, & Zorzini, 2014, p. 612).
incompatible with economical sustainability issues. In practice, these dimensions are treated independently of another, whereas Carter and Rogers (2008) show that all three dimensions are interdependent and should be taken into account in relation to each other. The above researches show contradictory opinions concerning the coherence and the connection between the three components. From an organizational point of view, environmental and social sustainability are components that can be enhanced when economic sustainability is guaranteed, whereas from a supply chain perspective the impact of sustainability is much bigger than for a focal firm only and environmental and social sustainability can enhance the entire economic sustainability of the chain (Montabon, Pagell, & Wu, 2016). Although this implication gained more attention in recent years, the current tenor remains that the economic component of sustainability is superior to the environmental and social components, which are only ‘distractors’ and come sequentially after the economical component (Gao & Bansal, 2013). All in all, and especially for financially responsible managers, although the attention and importance for environmental and social sustainability increases, the economical component often remains superior.
2.2 Decision-making: individual and situational factors and sustainable competencies
According to Huber (1981, p. 516), decision-making is “the process through which a course of action is taken”. This process is influenced by multiple factors of an individual or situational nature. First of all, the contingency theory suggests that there is no best way to structure an organization, allocate responsibilities and make decisions, but that it is dependent on the internal and external factors that are applicable on a specific situation (Fiedler, 1964; Regier & Redish, 2015). Secondly, every individual has different personal traits that alter their perception, which influences their decision-making behaviour (Sandman et al., 2016). The degree of competition and the relationships with upstream and downstream organizations inside supply chains are for example situational factors that affect a manager’s decision-making behaviour, while the possession of a specific responsibility is a factor of an individual nature (Ford & Richardson, 2012). Furthermore, four competencies that engage in sustainable decision-making are identified by Knight and Paterson (2017). These competencies are
thought (showing resilience), influence (influencing people), adaptability (adapting
behaviour. In the next paragraphs, these factors will be elaborated upon. In the second part of this research, we will investigate what factors influence financially responsible managers and whether these factors can be linked to the sustainability enhancing competencies identified by Knight and Paterson (2017).
2.3 Competition and decision-making
The degree of competition can be measured as the concentration of organizations operating in the same industry, competing for a higher percentage of market share (Mallik & Harker, 2004). Research shows that in highly concentrated industries (with many competing firms), an organization with a high market share generates more profit, further increasing their market share (Feeny & Rogers, 2000). The degree of competition then is multi-interpretable. Since there are many competitors in the industry, a high degree of competition can be assumed, while when one dominant organization for the greater part owns market share, a low degree of competition can be perceived for this dominant organization. The degree of competition can also be measured by the amount of competing organizations for scarce resources (Eso, Nocke, & White, 2010). The allocation of resources from suppliers are considered crucial, since in times of scarcity, the organization with access to the right resources can gain a competitive advantage over others (Mallik & Harker, 2004). In this research a combined definition is adopted by stating that competition is the degree to which organizations compete with each other for resources to gain market share. In this research, the competition is scaled either high or low.
survival of the business can be ensured (Weigelt & Camerer, 1988). Policy makers and other regulating organizations can influence the degree of competition to limit this unethical or less sustainable decision-making. Their task is to consider how to mitigate the risk of companies engaging in unethical behaviour, while efficiency benefits can still be present (Bennett et al., 2013).
2.4 Supply chain relationships and decision-making
2.5 Financial responsibility and decision-making
Especially managers with financial responsibility are perceived to use rationally oriented tools to make decisions in a changing environment (Roosevelt, 1991). Rationally analytic tools that are commonly used are discounted cash flows, net present value calculations and other capital budgeting techniques (Lockhard & Nellis, 1991). Moreover, Brouthers, Brouthers and Werners (2000) found several significant differences between managers with financial responsibility and other managers in the type of information that they use to establish an opinion and ultimately make a decision. The author suggests that managers with financial responsibility tend to restrict their information search to financial information only, while managers with more general management backgrounds use a broader range of information. In fact, Melone (1994, p. 452) found that “CFOs appear to place greater emphasis on their evaluation of financial characteristics in forming their overall evaluation”. In no other domain of decision-making has the measurement of risk, the understanding and theorization of risk, and the weighing of the consequences of risk received as much attention as it has in the area of financial decision-making. It is said that the managers with financial responsibility are primarily focused on profitability and that social and environmental issues increase risk and thus play a less significant role in their conduct of business (Roberts & Dowling, 2002). It is further noted that especially for these managers, bonus structures that foster the achievement of pre-destined financial goals and internal competition are more apparent than for other managers (Murray, Manrai, & Manrai, 2017). This financial and rational perspective implies that from their perspective, decisions that are made regarding economical outcomes are thought through and of primary importance, while other outcomes, for example on sustainable (environmental or social) issues, are of secondary importance. In this research a manager financial responsibility entails the extent to which a managers perceives to have a financial impact on an organization and supply chain.
3. Hypotheses development
competition is assessed and third, the influence of financial responsibility on sustainable decisions is hypothesized.
3.1 The effect of competition on the decision to accept an unsustainable supplier (upstream)
Regarding the effect of competition on the decision to accept a less sustainable supplier, we expect that in situations with high competition, a focal firm is significantly more likely to accept a less sustainable supplier, than in situations with low competition. The following argumentation is in place. In situations with high competition, the survival of a company is expected to be of a higher importance than behaving in a sustainable manner with regards to the acceptance of sustainable suppliers. This statement is supported by Vitell and Festervand (1987). In situations with low competition, we expect companies to pay significantly more attention to the supplier selection process by judging multiple suppliers on their sustainable behaviour. On the other hand, it can be expected that no differences will arise between upstream sustainable decisions. This assumption is applicable when it is expected that, regardless of the level of competition, focal firms will only accept the preferred supplies to guarantee a higher quality of their product or service. However, this depends on the focal firm’s attitude towards sustainability, their strategy (price or quality) and their position in the market. In situations with high competition, we expect that most firms tend to focus less on sustainability and that their position in the market is not strong enough to (always) ensure the preferred quality of supplies. Concluding, we expect that significant differences arise between situations with high and low competition when it comes to the acceptance of less sustainable suppliers, because the survival of the company and the insurance of supplies is of a higher importance than the focus on sustainability. Moreover, most focal firms are not in the position to always ensure sustainable supplies.
H1: Towards upstream relations, situations with a high degree of competition will lead to significantly less sustainable decisions compared to situations with a low degree of competition.
3.2 The effect of competition on the decision to share information with (downstream) customers
in situations with low competition. The following argumentation is in place. In situations with low competition, it is more likely that information about the selection of suppliers is shared with customers, since the focal firm has made a thorough consideration on which supplier to select, not being influenced by competition. The focal firm then probably has less doubtful information to share and will thus be open in their communication. In situations with high competition, it is more likely that the focal firm was forced to settle for a less sustainable supplier, damaging their reputation. We assume that this leads to the withholding of information from customers, as the focal firm wants to avoid the loss of customers related to the acceptance of less sustainable suppliers. On the other hand it can be argued that no difference will arise between the two levels of competition. Namely, when it is expected that a focal firm will try to increase and rely on the loyalty of customers by always sharing information with them, regardless of the degree of competition. However, we expect that focal firms are more focussed on the protection of their own reputation and the insurance of suppliers over the need to increase the level of loyalty of customers. It can be argued that if the customer does not know about the unsustainable supplier, their loyalty will not be affected either. Concluding: we expect that significant differences arise between situations with high and low competition when it comes to information sharing towards customers, because in situations with low competition communication will be more open to customers since it is more likely that the selection of suppliers is more thought through than in situations with high competition and there is less information to withhold.
H2: Towards downstream relations, situations with a high degree of competition will lead to significantly less sustainable decisions compared to situations with a low degree of competition.
Additionally, it is expected that regardless of the direction of the decision, higher sustainability decision outcomes are present in situations with low competition, compared to situations with high competition.
3.3 The effect of sustainable decisions towards upstream and downstream relations in situations with high competition
Both sustainability outcomes will then decrease, which leads to no significant differences in the outcomes. On the contrary, if a focal firm in the same highly competitive environment is able to select a sustainable supplier, information will be openly shared with customers, still leading to no significant differences. If a difference is assumed, the argumentation can be as follows. If a less sustainable supplier is selected, an explanation about the decision to select this supplier is in place to justify this decision towards customers. Upstream decisions regarding sustainability will then decrease, while downstream decisions regarding sustainability will remain the same or increase. However, we expect that the focal firm will decide not to inform their customers, so no information will be shared. Concluding: no significant differences will arise between upstream and downstream decisions regarding sustainability in situations with high competition, because this competition will lead to the acceptance of unsustainable suppliers causing the withholding of information from customers to avoid loyalty and reputation loss.
H3: In a situation with high competition, no significant differences will arise between sustainable decisions towards upstream relations compared to downstream relations.
3.4 The effect of sustainable decisions towards upstream and downstream relations in situations with low competition.
H4: In a situation with low competition, no significant differences will arise between sustainable decisions towards upstream relations compared to downstream relations.
Additionally, it is expected that in general, higher sustainability decision outcomes are present towards downstream relations compared to upstream relations.
3.5 Financial responsibility and sustainable decision-making
Regarding financial responsibility and sustainable decision-making, we hypothesize that managers with financial responsibility tend to focus more on the economical outcomes of their decision than on other environmentally or socially sustainable outcomes as shown by Roberts and Dowling (2002). We follow these researchers in their opinion based on the following line of argument. First of all, the assumption is made that employees who carry financial responsibility are rationally operating people, who find themselves and their role rather important (Lockhard & Nellis, 1991). Secondly, we believe that everyone is susceptible for financially positive results, since eventually an organization stops to exist without proper financials. Combine this last argument with the fact that financial managers consider themselves and their roles valuable intangible resources in organizations (Surroca, Tribó, & Waddock, 2010), we assume that managers with financial responsibility will make significantly less sustainable decisions, because the importance of their desired financial outcomes weighs heavier than their need to perform in a sustainable manner. It can also be argued that financial performance lead to more corporate social responsibility initiatives and sustainable behaviour (Margolis & Walsh, 2003). However, we believe that financial managers believe that the relation between economical performance and social and environmental sustainability has a more sequential nature. By sequential nature we mean that positive financial results can be used to invest in more sustainable practices and this is the task of other managers. Concluding: The higher the degree of financial responsibility of a manager, the less sustainable decisions are made.
4. Study 1: Method and Results Method
4.1 Participants and setting
Participants were 96 employees of organizations working in a business-to-business supply chain. 85 of the participants were male, 8 were female and 3 did not answer that specific question. 70 of the participants were from the Netherlands, whereas the other 26 are from various countries (Sweden, USA, Brazil, Germany, Spain, Denmark). The youngest participant was 19 years of age and the oldest 61. The average age is 39 and the median lies at 38 years old. The participants had functions in different domains: sales (26), risk (12), operations (12), logistics (12) and other functions such as supply chain management, purchasing, transportation or asset valuation (25). The participants could decide to participate in a hard-copy experiment or in an online experiment. 51 of the participants participated in an upstream case, whereas 45 participated in a downstream case. Of all cases, 44 were manipulated to have a high degree of competition and 52 were manipulated to have a low degree of competition.
4.2 A Vignette study: design and procedure
Using vignettes has a long history of measuring simulated behaviour and norms in a variety of contexts, including decision-making for managers (Rytina, Rossi, & Nock, 1983). A key advantage of vignette studies is that specific factors and variables can be investigated in a pre-designed 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 towards upstream and downstream relations under a high or low degree of competition. These manipulations lead to eight different vignettes as can be seen in table 1.
All managers were given an environmental and a social case with the same conditions in terms of the degree of competition and the upstream or downstream effects of the decision. Participants with an upstream function were given the upstream case as much as possible. For participants in the downstream domain, the downstream case was in place as much as possible. The order of the cases differed around the participants to statistically ensure that the order of the cases did not influence the decisions regarding sustainability. The environmental and the social case have a different content. A short description of the cases can be found below.
Environmental case: BatteriesCo.
You are the Supply Chain or Marketing Executive of BatteriesCO, a leading battery manufacuter in the automotive industry, which has great plans to invest in electric cars in 2019. You are responsible for the sourcing process and BatteriesCo promised growth to their customer base. One of your important supplies is Nickel, which you now source from Australia. BatteriesCo experiences quick growth and the mines in Australia are not sufficient. Another supplier, Asiamining, can provide the solution. Asiamining however, obtains the nickel with more environmentally disturbing effects such as deforestation, polluting the ecosystem and releasing toxic substances in the air. According to the legislation of the local governments, Asiamining is compliant.
Social case: HotFashion
You are the Supply Chain or Marketing Executive of HotFashion, a clothes fashion brand which experiences quick growth and expansion (to Scandinavia) now that the economy is doing better. You are responsible for the denim sales, which is desired in Scandinavia. Currently, your main supplier is in Asia, but since wages are increasing, you moved a substantial part of your supplies to Bangladesh, where you help to guarantee quality and working conditions. Still, there is insufficient capacity. An unknown subcontractor presents himself, guaranteeing the appropriate quality. There is however no time to check the working conditions according to your protocol and the area where the subcontractor operates is know for poor working conditions, child labour and there is no overview of the supply chain.
important questions for this research is shown below. All questions are measured on a Likert scale from one till seven, where a score of one is regarded as not sustainable and seven is regarded as sustainable.
• Three questions regarding sustainable decisions about the likeliness of going into business/acceptance of less sustainable supplier for the upstream cases.
• Three questions regarding sustainable decisions about the likeliness of sharing sensitive information of a less sustainable supplier with customers for the downstream cases.
• Two questions to check is the manipulation of the level of competition is recognized. • Two questions to check if there is no other manipulation in place for the participant
(Hawthorn check).
• One questions regarding the level of financial responsibility.
• Four general questions regarding the age, nationality, gender and function of the participant.
4.3 Reliability and manipulation
SPSS Statistics 25 is used to statistically analyse the data. To test if the questions regarding the same variable are reliable, Cronbach’s alphas are computed. Statistics show that the three questions regarding sustainable decision-making are internally reliable with a Cronbach’s alpha of 0.932. Also for all specific situations (decisions towards upstream relations (α = 0.936), towards downstream relations (α = 0.921), in situations with high competition (α = 0.907) and in situations with low competition (α = 0.953)), reliability is ensured. In table 2 an interpretation of the Cronbach’s alphas is presented.
Cronbach’s alpha (α) Reliability
To test the manipulations, independent sample t-tests were performed. A p-value less than 0.05 was regarded as significant. The manipulation effects show positive results. There is no significant difference in the sustainable decision outcomes if the environmental case is made first or second (µ-1 = 4.95, µ-2 = 4.31, T = 1.844, P = 0.068). There is also no significant difference in the sustainable decision outcomes regarding order of the social case (µ-1 = 4.11, µ-2 = 3.90, T = 0.491, P = 0.625). Concluding: there are no significant differences between the outcomes of sustainability scores of cases that are made first or second. Also the manipulation of the degree of competition was successful, since significant differences are present between the cases regarding the results of the manipulation questions about competition (µHIGH = 5.365, µLOW = 3.456, T = 9.346, P = 0.000). This means that the degree of competition is recognized by the participants. The Hawthorn manipulation was successful as well, since no significant differences are present between the answers regarding the Hawthorn check in the cases with high competition and low competition (µHIGH = 5.090, µLOW = 4.888, T = 1.266, P = 0.207). Concluding: both manipulations are successful.
Results
4.4 Statistical analysis
difference apparent, so hypothesis three is accepted. Hypothesis four states that in a situation with low competition, no significant difference will arise between sustainable decisions towards upstream relations compared to downstream relations. The results are as follows: µ-UP = 4.30, µ-DOWN = 5.40, T = -3.228, P = 0.002. This means that a significant difference is apparent, so hypothesis four is rejected. Hypothesis five states that the higher a manager’s degree of financial responsibility, the lower the sustainable decision outcomes are. The results are as follows: F = 1.108, T = 1.053, P = 0.294, B = 0.095. The p-value is higher than than 0.05, which implies that financial responsibility is no predictor of sustainable decision-making. Hypothesis five is therefore rejected. Additionally, it is recognized that the upstream results in general have lower means than the downstream results and that the difference between them is significant (µ--UP = 4.06, µ-DOWN = 4.85, T = -3.001, P = 0.003). In general, in situations with low competition, higher means are recognized regarding sustainable decisions compared to situations with high competition, with a significant difference between them (µ-LOW = 4.80, µ-HIGH = 4.01, T = -2.981, P = 0.003).
5. Study 2: Method and Results Method
5.1 An inductive multiple case study: research setting & unit of analysis
5.2 Case selection
The cases are selected based on the following criteria: (1) the managers have a financial impact on their supply chain and organization and (2) the managers are in the position to affect sustainability in the supply chain. These criteria allow for an analysis of ‘why’ certain decisions are made, which provides insights in behavioural decision-making. All interviewees have contact with customers or suppliers, which implies that the supply chain impact is present. Ultimately, every decision that these managers make has a financial consequence, which implies that they are financially responsible for their business. That is why these specific 13 managers are selected.
5.3 Data collection & analysis
For this research an inductive multiple case study is adopted. This method is used since the phenomenon ‘decision-making’ is investigated, which is different across individuals. A multiple case study is used to generate more data than from a single case, which allows for comparison between the cases and pattern recognition. An inductive approach holds that data is collected and analysed inductively using grounded theory (Glaser & Strauss, 1967). An inductive approach furthermore holds that first data is gathered around a specific level of focus (financially responsible managers and their decision-making), before analysing the data (looking for patterns) and contributing on a more general level of focus (theory development). An overview of this approach can be found in figure 2. An inductive approach is appropriate in this setting, as it is recognized that the understanding of the decision-making factors of financially responsible managers regarding sustainability is limited.
Figure 2: Inductive research approach
indicators that are used to interpret the findings. This allows for an iterative approach of open-minded data analysis with a constant comparative focus. First, multiple indicators that affect decision-making that are common in decision-making literature are identified and taken into account before conducting the interviews as a first presumption of the findings. Experience, trustworthiness and communication are examples of indicators that are mentioned in literature (Sandman et al., 2016). After the interviews were conducted, the researcher identified more indicators that were commonly mentioned and added these to the list of indicators that was found in literature. After conducting the interview, the interviews were transcribed. Thereafter, additional commonly mentioned indicators were once more added to the list of already identified indicators. Then, coding was in place to generate first-order quotes, highlighting anything that could provide interesting outcomes. Next, these first-order codes were linked to our list of identified indicators. Then, these codes and the indicators were linked to and grouped in specific categories based on certain mechanisms that were similar for the code groups. This lead to the construction of the final factors that influence decision-making behaviour of financially responsible managers. After the identification of the factors that influence decision-making of financially responsible managers, theory is studied to identify if new or remarkable findings are generated and how these findings develop theory. An example of the quotes, the link to the list of indicators and unified factors that influence decision-making is attached in Appendix A.
Results
1. Social Pressure
a. Internal competition b. Rewards and sanctions
2. Personal Development
a. Knowledge and expertise b. Experience
c. Emotional feeling
3. Expectations
a. Organizational strategy b. Job pressure & responsibility
Table 3: Final coding template
5.4.1. Social pressure
The first factor that influences decision-making behaviour of financially responsible managers is social pressure. The underlying indicators both have the same mechanism towards this social pressure, namely that they encourage an individual to change their attitudes, values or behaviour conform to the norm and standards of the peer group. This social pressure is a factor that has a situational nature, since the underlying indicators are present in specific situations, whether an individual wants it or not.
5.4.1.1. Internal competition
5.4.1.2. Rewards and sanctions
Rewards and sanctions are actively present in the organization that was studied. If a certain goal is achieved, a bonus structure is in place to stimulate managers to achieve a pre-destined goal. Nearly all interviewees say that this personal goal is the most important guideline that affects their decisions. They find that every decision that does not contribute to achieve this goal is a useless one. Interviewee eight for example mentioned that every month he “[I] check the status of my performance based on my personal goal, since if I do not make that goal I must alter my decisions to somehow achieve that goal.” Furthermore, interviewee nine mentioned that he is “fed up with not getting rewarded for [my] work, whereas my colleagues do get this reward.” This supports that especially rewards and bonuses alter decision-making behaviour based on social pressure.
5.4.2. Personal development
A second factor that influences decision-making behaviour of financially responsible managers is personal development. The underlying indicators all have the same mechanism towards this personal development, namely that all underlying indicators add value to a person’s life on an individual level. Personal development is therefor an individual factor that influences decision-making behaviour, since the underlying factors are all applicable to individuals and not on situations. It is argued that if personal development is enhanced, managers are more confident about the decisions they make, influencing their behaviour towards these decisions.
5.4.2.1. Knowledge and expertise
to see if I am able to find a proper solution.” These statements underpin the greediness to acquire knowledge and to learn from every single situation, altering the decision-making behaviour based on personal development.
5.4.2.2. Experience
Where knowledge and expertise can be actively invested in, experience is something that is gathered unconsciously. With every decision that is made, experience increases. It is argued that this experience enables decision-makers to recognize certain situations and remember the effect that a previous decision had on that situation. Therefore, experience adds to ones personal development and alters decision-making behaviour. Interviewee twelve for example mentioned that he is “in the business for over fifteen years, so in certain situations I just know what to do and how to act.” A less experienced interviewee (ten months in the business) further adds that he “lacks the experience to perform just as quick as my colleagues, since I need to investigate every aspect of a specific case, whereas my colleagues understand some cases from inside out.” Based on all statements surrounding experience, it is argued that the more experienced a certain manager is, the more easy a future decision is made and the more confident a manager is about this decision.
5.4.2.3. Emotional feeling
linked to personal development since it is susceptible for change and applicable at an individual level, regardless of the situation.
5.4.3. Propagated expectation from the organization
The propagated expectation from an organization is a third factor that influences decision-making behaviour. Organizations and the top-management expect (specific) results from their managers. Especially financially responsible managers know that they are judged on their financial results, making them aware of the expectations the organizations has set. It is argued that these expectations can alter decision-making behaviour. In organizations, multiple indicators shape these expectations, which is the mechanism that links the underlying indicators with the main factor. The expectation of an organization is a situational factor that influences the decision-making of managers, since the expectations are set by a specific organization, not by the individual.
5.4.3.1. Organizational strategy
The organizational strategy of an organization is the first and most important indicator that shapes expectations (Merkus et al., 2014). For example if an organization has a cost reduction strategy to keep prices low for their customers, it can be assumed that a lower quality of supplies is being bought, since this aligns with the strategy of that organization. A manager will thus make decisions according to the strategy of the firm, since it is expected from him. In this research, managers are well aware of the strategy of the organization. For example interviewee two mentioned that he is “guided by the strategy and the vision of [Company X]”. Interviewee eleven adds that “every day, the strategy of [Company X] is communicated to us through broadcasted e-mails, in team meetings and even through slogans on the walls. So everyone knows what we are here for.” These statements support that when it comes to decision-making, the strategy of an organization is of influence and employees know what is expected from them.
5.4.3.2. Job pressure & responsibility
achieved. These goals are therefor expected to be achieved and increase the pressure to perform. Financially responsible managers frequently recognize this job pressure and personal responsibility or accountability. This does not only shape expectations from an organizational perspective, but also from an individual perspective. The managers do not want to disappoint the organization and they want to achieve their goal to obtain the reward that is promised. Interviewee four for example says that he is “hired to generate a certain amount of income, that is where I am responsible for and thus that is what I will do” and “that [the generation of income] is the most important goal there is to achieve, not only for the organization, but for myself as well.” Interviewee seven further adds that “sometimes you simply do everything in your power to achieve the goals that are expected of you, even if these expectations are way higher than you would set them yourself. If you like it or not; that’s the way it works and that’s how it will always work.” The statements regarding job pressure imply that this indicator alters decision-making behaviour based on expectations.
6. Discussion
relations (customers). It is more likely that a focal firm will make less sustainable decisions towards upstream suppliers than towards downstream customers. Reasons for this can be that (1) the strategy of a focal firm can be cost reduction, which makes is more difficult and less attractive to ensure a sustainable supplier, since the costs (and quality) of these supplies are often higher (Ruamsook, Russell, & Thomchick, 2009) and (2) focal firms value the importance of customer involvement and satisfaction more than they value supplier involvement and satisfaction. In the end, customers generate turnover, which provides market share. Moreover, open communication with customers increases loyalty of customers.
sustainable decisions are made. In these situations, organizations focus on customer involvement, since no competitor is apparent in the market. The main and foremost goal of organizations in this situation is the binding of customers to increase recognition by and loyalty from customers. This increases profit and market share, before potentially competitors enter the market. Lastly, it is shown that in general, regardless of the level of competition and the direction of the decision, financial responsibility cannot be used as a predictor of a manager’s sustainable decision-making behaviour. So the thrive for financially positive results from these managers affect their sustainable decision-making behaviour neither in a positive nor a negative way. This contradicts the notion of Roberts and Dowling (2002) that financially responsible managers tend to have less attention for social and environmental sustainability issues. An explanation for this can be the increased importance and pressure that is exerted from the society in terms of sustainable behaviour over the years.
positive factor leading to the delivery of the desired results, but the motivation, personal opinion and persuasion that an individual possesses can be suppressed. If the organization for example operates in a top-down, bureaucratic manner, employees lose the perception that they add value to the organization, since they get the feeling their opinion is denied and they are simply operating tools of an organization. Especially when a situation with social pressure is created, where comparisons between colleagues and reward systems are in place to provide direction for both managers and a company, an individual’s (perception of) added value can decrease, since he/she just ‘follows the rules and guidelines’ to claim his reward. Hence, there is no incentive to look further than your personal goal. Although this internal competition can be stimulating to achieve goals, it can decrease the confidence and motivation of managers. This might lead to managers making less valuable or less sustainable decisions as they get the feeling they need to keep op with their colleagues in terms of the pre-set financial goals, set by the organization. Especially when certain colleagues get rewarded for their work, while others do not receive a bonus, the motivation of these employees decreases, as they have the feeling they worked just as hard. Also other opinions on for example sustainability issues are denied by the organizations, since outcomes in terms of circularity are not rewarded. Therefor managers can be discouraged to act sustainable. We argue that when organizations invest in the co-creation of value with their employees, personal opinions can be recognized, which can be used to reconsider or refine the direction of the organizations. This can be of value for the long-term vision and the success of the organization.
7. Conclusion, limitations and direction for further research
on the internal and external factors that are applicable on a specific situation (Fiedler, 1964; Regier & Redish, 2015). Insights in these specific situations are now added. The factors ‘competition’ and ‘the direction of the decision’ are shown to influence on sustainable decision-making behaviour, whereas ‘financial responsibility’ is not of influence on sustainable decision-making behaviour. A second contribution to the contingency theory is the identification of the factors ‘personal development’, ‘social pressure’ and ‘expectations’ that affect the decision-making behaviour of financially responsible managers. It is argued that the individual factor ‘personal development’ can be aligned with the competency ‘delivery’ that Knight and Paterson (2017) identified. ‘Delivery’ is argued to have a positive influence on sustainable decision-making. A managerial implication can be that, while structuring and rewarding certain outcomes might lead to the desired results, the personal opinion and thoughts of managers are more likely to be suppressed. A more organic approach might lead to new insights for organizations, since input from managers can be used to provide direction.
This research has multiple limitations. First of all, both the cases that are used to assess sustainable decision-making can be argued to be too straightforward in terms of social and environmental sustainability. The topics that are used, child-labour and the exhaustion of the earth, are extremes in the broad range that social and environmental decision-making contains. An adjustment of the sustainable topics could alter the decisions that are made. Secondly, for the inductive research, only the opinion of one researcher is taken in consideration. It could be that another researcher would interpret the interviews and the transcripts in a different manner, leading to different indicators and factors. Third, the interviews regarding financially responsible managers were done at the same organization. This means that the identified factors are not generally applicable to all financial managers; since they can be dependent on the specific situation those managers are in. Lastly, the vast majority of the participants operate in European countries, which makes this research applicable to Europeans only. For further research, it is interesting to see if only financially responsible managers actually and significantly possess the newly identified factors or that other managers possess the factors as well.
responsibility in the market now recognize the need to act sustainable. In the Financieel Dagblad in the Netherlands, on the 1st of June 2018, Kees van Dijkhuizen, the CEO of ABN AMRO Bank, mentioned that “although uncertainty proliferates in the financial sector, circularity and diversity are topics of great interest. At financial institutions, that constantly search for direction and the achievement of financial results, circularity and diversity are not the words that are accepted easily, but for us sustainability is a topic of great interest.” If all financially responsible managers are able to think the way van Dijkhuizen does, the future is hopeful in terms of sustainability.
Appendix A
