Environmentally Friendly Practices and Management Control Systems

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Environmentally Friendly Practices and

Management Control Systems

The use of the Management Control System when organizations

implement environmentally friendly

practices

By

Teun Wendt

Master Thesis

University of Groningen

Faculty of Economics & Business

MSc Business Administration

Specialization Organizational & Management Control

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Environmentally friendly practices & Management Control Systems

The use of the Management Control System when organizations

implement environmentally friendly practices

Master Thesis Teun Wendt

University of Groningen

Faculty of Economics & Business

Master of science Business Administration

Specialization Organizational & Management Control

Supervisor: M. Paping MSc

Teun Wendt

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Preface

This report is the result of the thesis of the master Business Administration at the University of Groningen. I started studying at this university in September 2010, after completion the BSc Business Economics at the Windesheim University of Applied Sciences.

My thesis focuses on the use of the Management Control System when organizations implement environmentally friendly practices. Corporate social responsibility, sustainability and being environmentally friendly are topical subjects within the society. The subject of environmentally friendly practices triggered me and I have linked this with management control, my specialization within the master.

The result of this thesis is partly realized thanks to the support and assistance of my university supervisor Martijn Paping MSc. His critical feedback was valuable for the process and this final result. The interviewees were important for my case studies. I would like to thank them for their collaboration. Finally, I would like to thank my family and fellow students for their support and feedback during my entire study.

Teun Wendt

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1. Introduction

Being responsible for the environment is increasingly considered as important. Insulation of houses and the separate collection of waste are examples for households. Organizations also pay increasingly attention to the society, which is known as Corporate Social Responsibility (Lehtimäki et al., 2011; Mabry, 2011). A core subject of Corporate Social Responsibility (CSR) is ‘environmentally friendly practices’ (ISO 26000 project overview, 2010). Examples of practical issues in this theme are the prevention of pollution, the sustainable use of resources, the mitigation and adaptation of the climate change, and environmental protection and rehabilitation of natural habits (ISO 26000 project overview, 2010). These issues result in more environmentally friendly aspects in the business processes of organizations, such as a reduction of CO2 emissions, a more fuel efficient fleet and reduction of paper usage. These practices can have a direct effect on costs and sustainability of the organization. On the other hand, it is not only the activities of organizations which affect the environment; organizations are also seriously affected by environmental changes (Sampedro, 2010).

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Recent studies also stated that a strategic approach towards the protection of the environment is vital for organizations to survive (Marcus & Fremeth, 2009; Pfeffer, 2010). If organizations want to remain competitive, they need to undergo a strategic change. The environment is in addition a critical factor to control for achieving financial success (Klassen & McLaughlin, 1996). The types of control and the way they are used may be critical to the success of the strategy (Langfield-Smith, 1997). Kober, Ng & Paul (2007) found that the interactive use of MCS mechanisms helps to facilitate a change in the strategy of the organization. They also concluded that MCS mechanisms change, to match a change in strategy. Chenhall (2003) and Pertusa-Ortega et al. (2010) confirm this statement by considering that the design of the MCS is influenced by the strategy of organizations. The role of the MCS when the strategy changes is consequently very important. Organizations integrate sustainability increasingly in their strategies (Balkenende et al., 2012). If this development is put into the perspective of this study, there can be suggested that the MCS needs to change when environmentally friendly practices are implemented. Combined with the fact that the environment is an important factor to survive in contemporary organizations, this is a topic that could be further researched. That is why this study investigates the use of Management Control Systems when organizations adopt environmentally friendly practices. The following research question has been developed:

How is the Management Control System used within organizations to implement their environmentally friendly practices?

The research question is further divided in three subparts. The first subquestion addresses the necessary criteria in order to define environmentally friendly practices. The four subparts of the ISO 26000 standard and the definition of environmentally friendly are explained in this question. This is done in the literature review. The second question deals with the fact that the MCS changes when processes or the strategy within an organization change. This relationship is also considered in the literature review. The third question answers how the MCS changed in organizations which implemented environmentally friendly practices. This question is discussed in the case description and analysis section.

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friendly practices. The data is used and analyzed in order to find how the MCS is used when the environmentally friendly practices are implemented. This can be interesting for the case organizations, but this study contributes furthermore new insights for organizations that want to implement environmentally friendly practices. These organizations can observe the usage of the MCS when the practices are implemented.

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2. Literature review

2.1 Corporate Social Responsibility & environmentally friendly practices

Corporate Social Responsibility (CSR) is a popular subject in the society and in the business sector. There are some business models that assist organizations in their development of CSR (Robinson, 2004). A relatively new model is introduced by the International Organization for Standardization (ISO). This organization has launched the ISO 26000, a standard with guidelines for CSR. ISO develops solely standards that are required and demanded in the market (ISO 26000 project overview, 2010). The organization encourages the implementation of best practices in the field of CSR by ISO 26000 (Hahn, 2012). ISO 26000 can be used in any private or public organization. The objective of CSR is the contribution to sustainable development (ISO 26000 standard, 2010). CSR refers to the requirement of organizations to take responsibility for their actions that negatively affects the society (Ngoc, 2011). There are several reasons to implement CSR and they are mentioned in the next paragraph.

2.1.1 Reasons for CSR

Three motives can be distinguished to implement CSR (Moratis & Cochius, 2010). A first reason is because of the pressure of stakeholders like customers, governments, consumers, associations and the society. If these stakeholders demand a more sustainable organization, the management is more likely to implement CSR. This pressure can also negatively affect the attitude of organizations. Moratis & Cochius (2010) argued that the attitude of organizations which are mandatory to implement CSR is defensive, reactive and compliance-oriented. A second motive for the implementation of CSR is the ambition and morality of the organization to be responsible for the society. The management has the opinion that the organization is part of the society and that they have to account for the effects the organization has on that society. The rewards for an organization are the third motive to implement CSR. It can save costs, but also provide a new, sustainable market position (Moratis & Cochius, 2010).

2.1.2 Examples of environmentally friendly practices

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Prevention of pollution has different forms. The first form includes emissions to air, such as lead, volatile organic compounds, dioxins and particulates. All these emissions may result in environmental impacts and are (in)directly a result of the organization’s activities. Another effect of the activities can be the discharge of water, for example the infiltration to ground water. Contamination of air, water, land and soils are the result of waste. Responsible waste management aims to avoid this liquid or solid waste. In organizations that utilize chemicals, these toxic and hazardous chemicals can affect the eco-system and human health. Finally, noise, odor, vibration and radiation can influence the environment.

A sustainable use of resources means that a resource is used at a rate that is less than or equal to its rate of natural replenishment, to ensure the availability of resources in the future. An area for efficiency is energy. To reduce the energy demand for buildings, transportation, production processes and electronic equipment, an organization should implement energy efficiency programs. This can be done by the use of renewable sources as solar energy or biomass. Another approach towards more sustainable business processes is the reuse of water and the stimulation of water conservation within the operations. In addition, the use of raw materials demands an efficiency program in the sphere of influence of the organization. Such a program can reduce the impact of ecosystems on mining and forestry, and the emissions of usage, transportation and processing raw materials.

Climate change mitigation and adaptation is the third subpart of ´the environment´. A number of trends in the climate can be observed, like rising temperatures, changes in rainfall patterns and more frequent occurrences of extreme weather events (IPCC, 2007). Each organization is directly or indirectly responsible for the climate change. Organizations can both minimize their own emissions (mitigation) and plan for the climate change (adaptation). To mitigate its impact on the climate change, an organization can measure, record and report its emissions, followed by the implementation of measures and actions to reduce the emissions. To adapt climate change conditions, the planning for land use, zoning and infrastructure design need to consider the implications of the climate change. Finally, resources which are essential for human health, like agricultural and medical resources, need to be ensured.

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significant influence on the ecosystem. Furthermore, agricultural techniques, transport systems, building and construction need to take into account the protection of the environment.

The environmentally friendly practices are described. The impact of activities on the environment are discussed in the next section.

2.1.3 Impact of activities on the environment

The decisions and activities of an organization do have an impact on the environment, regardless the location (ISO 26000 standard, 2010). These impacts may be associated with the organization’s use of living and non-living resources, the generation of pollution and wastes, the location, and the implications for natural habits. To reduce these environmental impacts, it is important to adopt an integrated approach in order to become an environmentally responsible organization. Relevant tools for such an approach are greenhouse gas emissions reporting, life cycle assessment, environmental labeling and environmental performance evaluation (ISO 26000 standard, 2010). All these tools are part of becoming or being environmentally friendly. The concept of environmentally friendly is discussed in the forthcoming paragraph.

2.1.4 Environmentally friendly defined

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environmental and economic perspectives of an organization need to be integrated. The advantages of such an integration are mentioned in the next section.

2.1.5 Competitive advantages and effects of environmentally friendly practices

Lawrence et al. (2005) identified four competitive advantages of being environmentally friendly. The first one is cost saving, including the reduction of waste and pollution. Second, the use of technical innovation leads to new ways of reducing pollution and increasing efficiency. Third, organizations can take advantage of ‘green-marketing’, which results in attracting the ‘green and sustainable’ consumers. Fourthly, the implementation of environmentally friendly practices will result in competitive advantages and profitability (Lawrence et al., 2005).

Organizations that introduced environmentally friendly practices indicate that the introduction influenced their sustainable development efforts completely (Cetindamar & Husoy, 2007). Ethical performance showed the highest impact, followed by network opportunities and corporate image. The relationship with stakeholders also deepens when an organization develops environmentally friendly practices. Mishra & Suar (2010) concluded that a well-developed CSR policy leads to more involved stakeholders. These more satisfied stakeholders provide efficiency gains and cost advantages, that ultimately improves firm performance. Investments in environmentally friendly practices reduces costs, wastage and inefficient production processes.

Another study concluded that the leading motivator for organizations to implement environmentally friendly practices is the saving of costs, mainly in electricity, heating and cooling, paper and water costs (IOFM, 2011). For 78% of the organizations these cost savings are the main reason, followed by the creation of goodwill (58%) and employee engagement (56%). This survey furthermore concluded that 69% of the organizations already implemented green programs. Recycling and the reduction of paper usage are the most favorable practices. The impact of the economic downturn last years did not affect the expansion of environmentally friendly practices. The majority of the organizations do not offer compensation plans that include green objectives. Some firms offer awards, employee recognition or prize incentives to encourage green behavior in their organization (IOFM, 2011). To implement the environmentally friendly practices successfully, some conditions need to be obtained. In the forthcoming paragraph these conditions are discussed.

2.1.6 Factors that influence the implementation of environmentally friendly practices

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thereafter be integrated in policies, strategies, operations and culture. To become a successful sustainable organization, the MCS needs to change at that moment. Building internal competency, internal and external communication and regularly reviewing these actions are other important factors in a successful implementation of CSR.

There is a relationship between the size of an organization and the degree of implementation of environmentally friendly practices (Zhu & Sarkis, 2004). Small and medium sized companies do have a lack of resources and expertise to integrate sustainable strategies (Tilley, 1999). The executives of such organizations are reluctant to change the practices and to invest in practices and environmental management systems. Independently of size, the tone at the top management is a crucial factor for the implementation of environmentally friendly practices (Kasim & Ismail, 2012). The greater the emphasis of the top, the better the rate of successful implementation. Top management can provide the ultimate or decisive viewpoint of the establishment. Environmental education and training are other important conditions in the movement towards a more sustainable organization. The behavior can be changed by environmental techniques, programs and strategies (Kasim & Ismail, 2012). Furthermore, implementation of effective practices relies on good governance.

A research conducted in the furniture industry suggests that in order to be successful with environmentally friendly practices, these practices must be integrated in all stages of the value chain (Handfield et al., 1997). Activities in manufacturing companies that directly influence the amount of waste are purchasing, operations management and logistics. Examples in these activities are new product design, supplier selection, process choice and quality control. By using better supplier environmental metrics, the buying company is likely to improve its environmental performance. Recyclable packaging and reusable containers might be used to reduce the negative impact on the environment. Identifying potential buyers for waste is another way to influence environmental performance. Managers must be aware of the opportunities for environmentally friendly initiatives within their functional area and integrate them with the common goals of organizational survival and profitability.

Research conducted in India showed that stock-listed firms performed better CSR practices (Mishra & Suar, 2010). Stock-listed firms do have a board of directors which monitors and provide resources (Hillman & Dalziel, 2003). These functions can be important in implementing CSR and environmentally friendly practices.

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implementation, like activities in the value chain and the tone at top management. To achieve the desired implementation of environmentally friendly practices, an organization has to change some internal processes, for instance in its purchasing or packaging activities. This change can be performed with the use of the MCS. Before describing the effect of environmentally friendly practices on the MCS, the concept of control and control systems is discussed in the forthcoming part.

2.2 Control and Management Control Systems

Control can be divided into two main subjects: strategic control and management control (Merchant & van der Stede, 2007). Strategic control is about the external environment. Management control involves the internal environment. This research focuses on the internal processes of organizations (i.e. environmentally friendly practices) and that is why the focus will be on management control. A thorough and many used definition of management control is the one developed by Anthony (1965, p. 17): ‘the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objective’ (Langfield-Smith, 1997; Birnberg, 1998; Otley, 1999). The collection of control mechanisms that are used within an organization, is generally called a Management Control System (Merchant & van der Stede, 2007). Simons (1995) describes an MCS as the means used by senior managers to successfully implement their intended strategies. Related to environmentally friendly practices, this definition means that all subjects and activities an organization performs to implement the practices, can be seen as part of the MCS. Control is necessary, because without control the managers may make decisions that favor themselves and diverge from corporate objectives (Fisher, 1998).

2.2.1 Control theories

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2.2.2 Four types of control

Management control can be classified in four types of control (Merchant & van der Stede, 2007). Results controls involve rewarding the employees for generating good results or for adding value. Action controls ensure that the employees perform certain actions which are beneficial to the organization. It also involves that employees do not perform actions which are harmful to the organization. Personnel controls exist to ensure that the employees will perform the desired tasks individually. Cultural controls are designed to encourage employees to monitor each other’s behavior. These four types will be discussed in more detail.

Results controls link working and results, to remind employees what result areas are important for them and the organization. Purpose of the results controls is to influence the actions of the employees. People are empowered to make the decisions that they believe will best produce the desired results. Results controls can be used when it is not clear what behavior is appropriate and are only effective when three conditions are present. The results need to be known, influenceable and measurable by the employees. A result measure can be called effectively when it is precise, objective, timely and understandable (Merchant & van der Stede, 2007). Results controls are particularly dominant in controlling the behaviors of employees with decision authority, like managers. They are controlled by the incentive system, for example ‘pay for performance’. Managers who are responsible for waste, pollution, emissions and other subjects in the field of environmentally friendly practices can be controlled by results controls. In order to be effective, the desired results of the environmentally friendly practices should be known, can be influenced and measurable. A way to implement results controls is the use of key performance indicators (KPI´s). KPI´s are variables which measure the performance of the organization (McGee et al., 2010). With the use of short-term KPI´s an organization aims to implement its long-term strategy.

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machines to a task than necessary. This is done to increase the probability of the successfulness of the task. Most action controls aim at preventing undesirable behavior, but it is in many cases difficult to determine which actions are undesirable or desirable. That limits the use of action controls. Action controls are most effective if the desired goals are sufficiently communicated. In implementing environmentally friendly practices behavioral constraints and action accountability should be the most appropriated action controls. For example, the reduction of emissions can be achieved by setting constraints, while holding employees accountable for their actions makes them conscious.

Personnel controls builds on employees’ natural tendencies to control and involve the motivation of employees themselves. This type of control has three purposes: ensure that each employee understands what the organization wants, help each employee to be able to do a good job, and increase the likelihood that each employee will engage in self-monitoring. These purposes can be achieved by implementing a selection and placement procedure of employees. This means that when an organization hired the right people, the probability that a job will be done properly increases. In the implementation of environmentally friendly practices this form of personnel control will probably not used. Training is another method to implement personnel controls. With the use of training the employees can be learned about what actions or results are expected and how the environmentally friendly practices can best be performed. Job design and provision of necessary resources is another method for achieving the personnel control purposes. This involves the assurance that the job is designed to allow motivated and qualified employees a high probability of success. Self-monitoring is altogether a very important concept in personnel controls.

Cultural controls are designed to encourage mutual monitoring. Culture builds on shared traditions, norms, beliefs, values, ideologies, attitudes and ways of behaving. Cultural controls are most effective in organizations where group members have emotional ties to one another. The culture of an organization remains relatively fixed over time, even when the goals and strategy change due to business conditions. Consequently, for organizations that shift to environmentally friendly practices it is difficult to change the culture. Examples of cultural controls are codes of conduct, group rewards, intra-organizational transfers, physical and social arrangements, and tone of the top management.

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decisive effects which contribute to the achievement of the objectives. The achievement of objectives is set in the strategy. Strategies can be seen as the means by which an organization has decided that its aims can be achieved (Otley, 1999). This section continues with theory about the relationship between the MCS and strategy. This relationship is of significant importance, because the types of control may be critical to the success of the strategy (Langfield-Smith, 1997).

2.2.3 MCS and strategy

The relationship between MCS and strategy is a two-way relationship (Kober, Ng & Paul, 2007). The interactive use of the MCS helps to facilitate a change in strategy. On the other hand, MCS mechanisms change, to match a change in strategy. The Dutch Sustainable Growth Coalition is a collaboration of eight large Dutch companies. They regard CSR as the key to market leadership (Balkenende et al., 2012). This means that these organizations implement CSR in their strategy. According to the theory, this implementation should change the MCS. Langfield-Smith (1997) suggests that different types of organizational plans and strategies leads to different control systems. In the next paragraph a theoretical answer on the question how the MCS is used to implement environmentally friendly practices is given.

2.3 The effect of environmentally friendly practices on the MCS

Environmentally friendly practices might result in a different work environment for employees. This can influence the activities the employees perform. That can result in new forms of controls or another use of the MCS. The described control types can be used to clarify the changes and the use of the MCS of the companies in the case studies. When an organization adopts a new strategy that considers the relationship with the environment as a priority, it is maybe necessary to specify some completely new internal processes (Sampedro, 2010).

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is that in order to be successful with environmentally friendly practices, the effect on the MCS should be higher in production companies.

In this literature review the four subparts of ISO 26000´s theme ‘the environment’ are discussed. There are several examples of environmentally friendly practices, like the reduction in paper usage, recycling of materials, waste management and lower emission rates. These practices can be controlled in many ways. Based on the findings in the literature, mainly action controls (behavioral constraints) and results controls are used. Consequently can be expected that the action and results controls will change. In order to achieve the prevention of pollution and the desired reduction in paper usage, waste and emission rates, organizations should introduce some constraints and limits, like action controls. Next to action controls, organizations could use results controls to make clear what is desired. This can be part of the performance evaluation of departments, managers and employees. The climate change mitigation can be measured and this is also a results control. The protection of the environment and biodiversity leads to a consideration in the organization. Each decision needs to be assessed on its impact on the environment. This is a pre-action review and part of the action controls.

Cultural and personnel controls can also be used to implement environmentally friendly practices. The sustainable policy, purposes and timeframe must be communicated. Internal communication is part of the personnel controls. Another personnel control is training. For some environmental activities (i.a. plant work or waste reduction) the employees need to be trained. An important factor in the implementation is the tone at the top. It is necessary that top management supports the ideas about environmentally friendly practices completely. The culture in the organization has to change to more environmentally friendly and cultural controls are useful for that.

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3. Methodology

In this study the use of the MCS within organizations which implemented environmentally friendly practices is investigated. The literature review answered the first two sub questions. Empirical evidence is needed in order to answer the third sub question, which explains how the MCS changes due to the implementation of environmentally friendly practices. The methodology of answering this third sub question and the research question is discussed in this section.

3.1 Type of research

Research can be divided in qualitative and quantitative research (Blumberg et al., 2008). Quantitative research focuses on numbers and figures, while qualitative focuses on words and sentences. Qualitative research explores new or unknown phenomena which lead to a theory or conclusion that can be tested in the future by quantitative research. This study investigates a relatively new phenomenon and can consequently be classified as qualitative. Within qualitative research, secondary data analysis and experience from persons are appropriated methods (Blumberg et al., 2008).

This research can also be considered as an exploratory research. Within such a research one or more case studies are conducted. A case study is described as ‘investigating a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used’ (Yin, 2003 p.23). The objective of this study is to gain insight in the use and change of the MCS when real-life practices (i.e. environmentally friendly practices) are implemented. A case study fits with this purpose.

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theoretical framework for all case organizations (Yin, 2003). The framework of this study satisfies this requirement.

3.2 Data collection for case studies

The case studies in this research can be divided in two sources: organizational documents and interviews. The documents are part of desk research and the interviews are field research.

First, documents of the case organizations are analyzed. The most important example of such a document is a sustainability report. This is a yearly report, especially published by larger organizations next to their general annual report. A sustainability report is usually smaller and discusses the goals and progress of organizations on sustainable development. Most of the larger companies in the Netherlands publish these sustainability reports. The reports are used for this study to consider whether the organization implemented environmentally friendly practices, what they implemented and how it is implemented. Next to the sustainability reports, other information like external documents and reports of the case organizations are used.

Second, semi-structured interviews are conducted with employees of the chosen organizations. Interviews provide specific information that cannot be collected with the reports or with surveys. By interviewing people, the ´how and why´ questions can be asked. This results in a more in-depth case study and research.Within each case study, at least one employee of the control and one employee of the sustainability department are interviewed. A controller or finance employee does have knowledge about the control system of the organizations and can be interviewed about that system. An employee of the sustainability department can provide information about the sustainability policy. In addition to these two people, one employee or manager of each organization is questioned about his or her observation about the environmentally friendly practices. Before interviewing, some semi-structured open-questions are compiled and send to the interviewee. These questions are based on the literature review and the sustainability reports. The interviewee could prepare the interview and think about the answers. The interviews started with some general questions and became more specific. During the interview, unstructured questions are asked to clarify situations and ambiguities. At the end of the interview, the interviewee had the opportunity to add other aspects which were not discussed. The interviews are conducted by phone and at location. The questionnaire of the interviews can be found in the appendix of this study.

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3.3 Selection of case organizations

The organizations are selected on the following criteria:

 The organization has to report about environmentally friendly practices for at least 3 years. This is important, because the consequences of the implementation are more visible. In former sustainability reports organizations mention the intended practices. In the reports of the following years the implementation and effects are described. The development of the environmentally friendly practices can consequently be identified.

 The organization describes the new policy and changes of the business operations in documents.

 The organization is present in the top 100 of the Dutch ´Transparantiebenchmark´. This is a yearly investigation which provides an overview of the content and quality of sustainability reports. A high position in this benchmark means that the organization reported satisfactory. The chosen organizations differ from each other. The focus of this study is to describe the change of control and the dissimilarity between organizations becomes rather useful for that purpose. Sectors and industries differ from each other. This also affects the MCS and could result in different conclusions of the research question. In addition, this is a relatively wide research and wants to explore a new phenomenon. Mutually different organizations fit with that purpose.

3.4 Content and structure of the case studies

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The second part of the case studies contains observations about the effect of environmentally friendly practices on the MCS. This effect is investigated by focusing on the (un)consciously changes in the organization due to environmentally friendly practices and the use of the MCS when the practices are implemented. This is done with the use of the different parts of the MCS; the four types of control (Merchant & van der Stede, 2007). The control types are a guide in the selection for searching control within the case organizations. The results controls are linked in the questions with environmentally friendly practices. This is done to ensure that the effect of environmentally friendly practices on the results control can be described. For action, personnel and cultural controls this is done in the same way.

The results controls are described by using the definition stated in the literature review. The distribution of control between results and actions and the effect of environmentally friendly practices on this distribution are described. The motivation and rewarding of the results are also mentioned. According to the theory, the desired results should be known, can be influenced and measurable. These three conditions are examined for the environmentally friendly practices within the organizations.

The action controls are discussed by looking at the behavior of the employees and the organization. This is delineated by focusing on describing the choice between promoting good behavior or protecting negative actions and ensuring that the required behavior will happen. Also the way the desired behavior is communicated is explained. Furthermore, the way the organization handles with undesirable and counteracting behavior is mentioned. Another point is the question to which extent the employees are judged on the environmentally friendly goals.

In the personnel controls the topics training, selection and communication are discussed. Training of employees can be a helpful tool to implement the practices successfully. The communication of the environmentally friendly practices to the employees can be critical and is a main part of personnel control. The clearness of the environmental goals is discussed, even as the extent to which the employees can perform the environmentally friendly practices independently.

Within the cultural controls the role of the top management in the entire process of becoming environmentally friendly is discussed. Furthermore, each organization is questioned to which degree the practices are part of the culture in the organization and how the organization ensures that the practices become part of the culture.

3.5 Questions details

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organizational documents, the information is used for the case description and analysis. For each organization the environmentally friendly practices are described. Each practice is analyzed and linked to a control type. This is done with the use of the description of the four control types in the literature review and the answers of the interview questions. The third sub question ´how did the MCS change in organizations which implemented environmentally friendly practices?´ can be answered with the information collected by interviews and documents. The four different control types of the MCS are discussed in the interviews. As described in the previous section, the content of the four control types are subdivided in questions. These questions answer the third sub question, because all the questions are based on the description and characteristics of the control types. For example, training and education are part of the personnel controls. The organizations are questioned about the use of trainings in their implementation of environmentally friendly practices and if they use them, there can be stated that personnel controls are used.

The case descriptions and analyses also contain an explanation of the responsibilities of the environmentally friendly policy, tone of the top management towards environmentally friendly practices, motivation of the employees to perform environmentally friendly and whether a change in the culture can be observed. The implementation process of the practices and the role in the strategy are described. Specific information which is only applicable to one organization is discussed at the end of the analysis. These topics are discussed to find out whether they influence the MCS and which conditions are necessary in the implementation of environmentally friendly practices.

To provide a conclusion, the research question is answered. The research question is ‘how is the Management Control System used within organizations to implement their environmentally friendly practices?’. This question is answered by analyzing the four control types. The use of each control type at the case organizations is discussed and compared with the expectation of the literature review. In addition, areas for improvement are given.

All this information indicate the use of the MCS when environmentally friendly practices are

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4. Case description & analysis

4.1 ANWB

The ANWB is a Dutch membership organization for recreation, tourism, traffic and transport. Its headquarter is situated in Den Haag. The organization has nearly four million members, 4,700 employees and its turnover exceeded one billion euro in 2011. The ANWB is known for its ´Wegenwacht’, which is a business unit that deals with road assistance. Other business units are the Alarmcentrale, Retail (69 stores), Media and Insurance. For several years now the ANWB publishes a sustainability report. For this study the reports of the years 2007 up until 2011 are analyzed. Next to that, three employees are interviewed: the CSR-advisor, a group controller and the manager internal communication. They are questioned about the control system, the environmentally friendly practices and its effect on the daily processes.

In its statutes the ANWB promises to strive for environmental conservation. The reason why the ANWB strives for this goal is because of the fact that they also demand environmentally friendly actions of other organizations and they feel responsibility towards employees. The ANWB informs and advises its members i.a. about CSR in the field of mobility, spatial planning and nature conservation. A pioneering position in CSR is therefore necessary, according to the ANWB.

Within the ANWB a development of the environmentally friendly practices can be observed. Examples of this development that can be related to the ISO 26000 standard are their lease arrangement, their efforts in reducing paper usage, waste management, a CSR data module and the introduction of CSR-ambassadors. These environmentally friendly practices are related to another goal; the reduction of the CO2-footprint. The ANWB strives to reduce its CO2-footprint by 3% each year.

In 2007 the ANWB started with an environmentally friendly lease arrangement. Lease car drivers were only permitted to lease a car with energy label A, B, C or D and by 2008 they reduced the number of energy labels to the lowest pollution labels, A, B and C. The lease arrangement is consequently part of the ISO 26000 subpart ´prevention of pollution´. In 2011 this arrangement was still holding strong, and nowadays the lease car drivers were also motivated to choose the most environmentally friendly car as possible, because of the financial benefit they receive through governmental taxes. The lease arrangement is partly a behavioral constraint and partly an encouragement of positive behavior. Both are action controls.

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the enormous reduction of the number of printers. Instead of 1500 printers, which came down to one in each room, 80 printers were situated in the corridors. With this action the behavior of employees changed. They became less attached to ´having everything on paper´ and realized that what they printed daily could be reduced. These two decisions reduced the use of paper with 33% in 2007 and 37% in 2008. Also in following years the reduction in paper usage is achieved. The reduction of paper usage is a form of prevention of pollution. A side-effect of the reduction of the number of printers is a reduction of energy use, which is part of a sustainable resource use. Printing duplex is a way of preventing negative behavior, while reducing the number of printers is a way to stimulate positive behavior. Both actions are part of action controls. Next to the reduction in the amount of paper usage, the degree of paper quality was also questioned. This resulted in a new type of recycled paper which was used for the member magazine ‘Kampioen’.

In 2010 the development of a CSR-datamodule started. This module collects and consolidates CSR data. It is used to measure the results of the environmentally friendly practices and can therefore be seen as part of ISO 26000 theme ´climate change mitigation and adaptation´. The data is collected and processed in the CO2-footprint. The first time that they used this model was in 2011. It measures and registers data, so the model can be categorized as results control. Another method to measure the results of practices is the ‘environmental barometer’. This barometer manages the reduction of waste. To achieve this reduction of waste ANWB searched for a new waste processor. ANWB wants to collect the waste of the offices in five different bins. Education about these five bins is necessary, because interviews indicate that employees do not know enough about the separation of waste at the moment. Training and education are part of personnel controls. Other environmentally friendly practices are the use of green power, biogas and HR++ windows. These practices are one-off investments and do not need a lot of effort to implement.

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freedom in environmentally friendly practices, this means that the ANWB chooses to implement an environmentally friendly culture by influencing the employees.

There are no bonuses or other rewards related to environmentally friendly practices. The employees are motivated by the CSR department and CSR-ambassadors to handle environmentally friendly. Being environmentally friendly needs to become a standard attitude of employees and does not need extra attention like rewards. It is the individual responsibility of each employee and manager. Each manager can be corrected to improve the environmental goals of his or her department, but there are no standard consequences linked to wrongdoing acts.

The environmentally friendly practices and other parts of the CSR targets are not obligatory for each department. Before implementing environmentally friendly practices in a department, the employees of that department are questioned about their opinion on these practices. Agreement of the department is very important; there should be support for the plans. When this support lacks, the CSR department aims to convince the specific department to create the necessary support. The intended environmentally friendly practices are not imposed to the employees. With this method, an integrated approach to become environmentally friendly is adopted, which is a condition mentioned in the literature. Managers and CSR-ambassadors are required to draw attention to the environmental goals. The environmental goals are not converted to the departments. They are now overarching goals. It is a purpose for the future to transform the overarching goals in specific goals for each department.

The 26 CSR-ambassadors play a crucial role in the implementation of the environmentally friendly practices. They meet on a monthly basis and discuss ideas and findings in the field of CSR. The ambassadorship is on a voluntary basis, but within the regular working hours. Another task assigned to the ambassadors is to motivate the colleagues of their own departments to perform the environmentally friendly practices. CSR-ambassadors are rewarded with small gifts and do not have any special privileges. The ambassadorship encourages mutual monitoring for environmentally friendly practices and can therefore be classified as a cultural control.

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The tone of the top management changed during the last years. In 2008 they formulated CSR as ‘an important theme’. To shape the CSR ambition, ANWB hired a CSR-manager in 2009. In that year, the top management decided to pay extra attention to CSR in their ‘Vision 2009-2011’. This is partly the result of conflicting signals out of the top management. The extra attention leaded to appointing ‘Energy and CO2’ as a CSR-priority. In 2010 the CSR-advisor completed the CSR department. ANWB as a whole succeeded the ´Vision 2009-2011’ with ‘Ambition 20/20’. Environmentally friendly practices are with ‘Ambition 20/20’ integrated in ANWB´s strategy and the regular businesses. A quote of the members- and marketing director Mirjam Sijmons accentuates the vision of the top management: ‘CSR is a part of taking responsibility as an organization for the society. I cannot imagine that I would want to work at a company that does not cover a concrete CSR policy’. The tone of the top management is a necessary condition to implement the practices successfully, which is also found in the literature by Kasim & Ismail (2012). The tone does have an effect on the employees and the shared ways of behaving. Tone at the top is therefore part of the cultural controls.

The environmentally friendly practices are communicated by the staff magazine, intranet, posters, the sustainability report and by organizing the CSR-days. Internal communication and CSR are the responsible departments for these communication channels. Communication is an important aspect of implementing practices, as mentioned in the literature. It is a way of cultural control.

Within the ANWB there are some doubts about the clearness of the environmental purposes. The purposes are clearly formulated, but employees do not know or ignore them. Some employees do not read instructions, articles or other information about the environmental purposes. The purposes are maybe only one way to the awareness of becoming environmentally friendly. More communication is not strictly necessary, because an excessive focus on the purposes is maybe not the best way for creating awareness. Employees are for ‘large’ practices (such as the choice for recycled paper) dependent of the organization. Smaller practices as printing can be performed by the employees without dependency of the organization.

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some time. Younger aged employees are more open for it compared to the older ones. Culture is a way of controlling the implementation and therefore part of the MCS.

The choice for suppliers is influenced by the sustainability policy of the supplier. CSR-criteria are included in the general purchase conditions of the ANWB. In the ISO 26000 standard the sustainable procurement is argued as an environmentally friendly practice. A code of conduct for suppliers is another example of the new policy and can be seen as preventing negative actions and behavior. In addition, investments are prevented for negative behavior. Investments in for example child labor are prohibited. Other CSR practices are used by promoting positive behavior. These are all part of the action controls.

In 2008 a code of conduct is introduced. This code describes the general conduct that guides the actions and decisions. Subjects are bribery, honesty, clearness, respect for human rights and the core values of the ANWB. CSR and sustainability are also part of the code. In the code is stated: ‘The ANWB aims to contribute to a sustainable society and implements a sustainable policy’. A code of conduct is part of the cultural controls. The development of such a code cannot directly be related to the development of environmentally friendly practices. It can be seen as a way to control the implementation of a more sustainable policy.

The accounting & control department of ANWB aims to control on financial data and performance. The planning & control cycle is an important part of the MCS. The price and quantity of products and services are measured and analyzed. These data can give indications to inform the management about badly performing products or services. Other elements of the control system are cashflows, the balance sheet and the performance of the several business units. Each business unit does have an own controller. Cost management is the only task of the control department in the environmentally friendly policy. Sustainable solutions are generally more expensive and a qualitative substantiation is therefore necessary. The control department calculates a cost price or expenditure for an environmentally friendly practice on an ad hoc basis. There can be concluded that environmentally friendly is not a reason in the decision processes so far.

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department with its own (sustainable) report. A next step can be an own planning and control cycle for the CSR department and an integration of the sustainable report and general annual report.

The implementation of environmentally friendly practices did not result in a change of the control department. Environmentally friendly is part of the strategy. This is transformed in some practices which are non-committal for the business units and employees. There are no Key Performance Indicators (KPI´s) related to CSR or environmentally friendly practices for the top management and for the business units. It is the opinion of the ANWB that when they implement these related KPI´s for top management and business units, the control system will be used more thoroughly. These two steps can be made in the future, to make environmentally friendly practices part of the culture. Combining rewards and environmentally friendly practices will also be more useful with the use of related KPI´s. Another possibility is a transformation of the environmentally friendly practices into the code of conduct. This is already done for implementing a sustainable policy. Employees who do not follow the environmentally friendly practices can be reprimanded with such a code of conduct.

In the literature review many environmentally friendly practices are mentioned, but they are not all used by the ANWB. That´s because ANWB is mainly a service organization and its impact on the environment is lower compared to production organizations. ANWB uses for some part lifecycle thinking. The entire organization is screened and environmentally unfriendly processes are restructured, for example paper usage, waste and car lease emissions. The competitive advantage of this adaptation is cost savings and reduction of emissions. Another effect which is also mentioned in the literature is the deepened relationship with stakeholders due to the implementation of CSR.

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4.2 FrieslandCampina

FrieslandCampina is a Dutch dairy cooperative and the result of a merger between FrieslandFoods and Campina. These two organizations merged in 2008 and integrated its activities in 2009 to become the world’s largest dairy cooperative. Main brands are Optimel, Chocomel, Fristi, Campina, Mona, Appelsientje and Milner. FrieslandCampina has dozens of plants all over the world, but mainly in the Netherlands. The cooperation consists of more than 14,000 member-dairy farmers and 20,000 employees. In 2011 FrieslandCampina achieved a turnover of nearly ten billion euros. The organization obtained the ISO 26000 standard in 2011.

This study analyzes the years 2009-2012. In 2009, the first sustainability report of FrieslandCampina is published. FrieslandFoods and Campina published independently sustainable reports in the years before 2009. Interviews are conducted with the manager sustainable dairy, the production manager of the plant Balkbrug and an employee of the finance & accounting department of the plant Balkbrug.

The purpose of FrieslandCampina is to produce and trade dairy products, in such a way that sustainable value can be created for all its stakeholders during a long-term. This is transformed in a new strategy, which is called ‘Route 2020’. In this new strategy, Corporate Social Responsibility is an important subject. After an analysis, FrieslandCampina concluded that CSR is the only way to retain support of its stakeholders. Being environmentally friendly is not a new topic in this organization. The precursors of FrieslandCampina were already paying attention to environmentally friendly practices since 1990, which is partly the result of legislation. The government is an important stakeholder in the environmentally friendly practices of FrieslandCampina. In collaboration with the local government, each plant is mandatory to develop a new environmental plan every four years. FrieslandCampina implemented environmentally friendly practices because of the pressure of stakeholders, but also cost savings are an important reason.

FrieslandCampina set some targets to become more environmentally friendly. One target is to use 100% renewable energy for the Dutch plants in 2020. In 2009 FrieslandCampina purchased 7% renewable energy and in 2010 15%. Renewable energy, such as biogas, wind and solar energy, can be purchased from member dairy farmers. It is a part of sustainable resource use and a combination of results control (target of 100% renewable energy) and action control.

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new packaging strategy is developed. This includes material reduction, stimulation of the use of renewable raw materials, stimulation of recycling and elimination of unwanted materials like PVC. According to the ISO 26000 standard, the packaging procedure is part of a sustainable resource use. These motivational and inhibitory regulations can be seen as action controls.

The merger between FrieslandFoods and Campina resulted in a new central office in Amersfoort. The merged company made a deliberate choice for an existing office. This building includes glass insulation, green energy and a thermal storage system. Waste management is an important practice in the offices. The central office is situated in the area of Amersfoort railway station, so the location is suitable for public transport, which is stimulated. All these practices are part of climate change mitigation.

For managers who do not have the opportunity to travel by public transport, a lease car arrangement is set up. In 2012 a new sustainable lease car policy is implemented. Starting point in this policy is the CO2 emission of a car and not its lease amount. Lease car drivers can also use an NS Businesscard and rent a larger car for holidays. The new lease car policy is a form of prevention of pollution and part of the action controls (behavioral constraints).

CO2 reduction for the logistical activities is another environmentally friendly practice. Collaboration with the transporters is therefore essential. Practical actions are improving the efficiency of transport routes, searching for combinable loads, introducing ‘Het Nieuwe Rijden’ and using biofuels. The reduction of emissions is part of prevention of pollution, but also of a sustainable resource usage. It can be seen as a form of action controls.

One of the environmentally friendly purposes is the reduction of energy with 2% each year. This percentage is divided in 1,5% for the plant and 0,5% for actions in the supply chain. To reach this purpose, each plant needs to develop an environmental plan for the coming fourth years. The plans are submitted to the government. The government assesses the plans, issues the licenses and monitors the implementation. Besides the environmental plans, each plant uses an environmental management system that meets the requirements of ISO 14000. The plants report yearly about the results. With the use of internal and external audits, the management system is assured. This environmentally friendly purpose is a results control.

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penalty payments. There is consequently a financial reason to follow the norms for wastewater. Together with water suppliers, some new technologies are developed that helps to reuse water. The discharge of water is part of the ISO 26000 subpart prevention of pollution. The prevention of excessive wastewater is a way of action controls and the improvement teams are cultural controls. With these teams, employees are encouraged to collaborate.

Dairy farmers are also supported to become more environmentally friendly. A long term target is to reduce the greenhouse emissions with 30% in 2020, with respect to 1990. Another target is the reduction of the use of antibiotics with 50% in 2013. The use of sustainable energy sources is also part of the policy, even as the conservation of nature and biodiversity. Dairy farmers can also participate by using and selling sustainable energy to FrieslandCampina.

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There is always a particular dependency of the organization; employees cannot perform their tasks without the organization. FrieslandCampina believes that only an integrated approach in the operations can limit the consequences for the environment. Environmental aspects are therefore part of all business processes, like marketing, sales, purchase, technical, logistics and research & development. Environmental legislation of nations or the EU is the starting point for the environmentally friendly practices within FrieslandCampina. The internal agreements and targets can go beyond the legislations. The CSR policy is partly realized with KPMG Sustainability and the TiasNimbas Business School.

FrieslandCampina collaborates together with its stakeholders to become more environmentally friendly. Stakeholders are member dairy farmers, employees, NGO’s, governments and consumers and customers in the industry and market.

All environmentally priorities have been developed in KPI’s, targets and action plans. The implementation of the environmentally friendly practices is guaranteed by a combination of agreements, codes of conduct, organizational documents, covenants, reports and certificates. Next to these formal documents, there are groups to support the implementation. The CSR governance board, the sustainability coordination team and four implementation teams are created to implement the strategy. Another team of water and energy experts support plants with composing reduction plans. Being environmentally friendly is a component of the strategy and visible in the ‘CSR-strategyhouse’. All components of the CSR policy are constructed with a thoughtful vision. This vision is the long-term value creation for all its stakeholders.

The environmental targets are all transformed in KPI’s. Related KPI’s for the plant Balkbrug are EEI and wastewater. EEI means Energy Efficiency Index and measures the amount of kilojoules per ton production. This should not exceed a maximum standard, especially because the EEI is related to the budget. When the EEI is within the standard, it is also within the budget. Energy saving is solely a financial benefit. The index of wastewater is an important target within the plant Balkbrug and therefore a KPI, that is measured with the amount of polluters units. FrieslandCampina has to pay for the polluter units and should not exceed them. The KPI is therefore a maximum amount of polluters units.

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The only change in the planning & control cycle is the implementation of environmental related KPI’s. These KPI’s are as specific as possible; they are implemented for each machine and department. However, they are not converted to a personal level. This is very difficult for the most environmental purposes of FrieslandCampina.

After the merger between FrieslandFoods and Campina, a new code of conduct is compiled in 2009. This code can be compared with the code of the ANWB. A code of conduct is part of the cultural controls. Even as the ANWB, supplier standards are applicable. Environmental subjects are furthermore part of these ‘Business Practices for Suppliers’. This is an action control.

Environmental aspects are also part of the Foqus quality system. These aspects are based on international standards and regulations.

FrieslandCampina developed a Balanced Business Plan, in which the realization of the sustainability targets is formulated. This plan monitors on performance management. Results are the main subject in the CSR policy. The Balanced Business Plan is compiled on a corporate level. The head quarter created a framework and the plants have to design this framework for their own, on the basis of the issues of the specific location.

Environmental targets are increasingly part of the bonuses for the top managers. The top managers of the central office are judged on their environmentally friendly performance. Managers and employees of the plant Balkbrug are not judged and rewarded on their environmental performance. There is consequently a distinction between the central office and the plants.

FrieslandCampina uses group rewards. These rewards assist the organization in creating team spirit and encourages the sharing of best practices. The FrieslandCampina Academy is also used to share the best practices. Teams that performed excellently receive attentions and are put in the spotlights, for example the website or staff magazine. Group rewards are a form of cultural controls.

When employees do not perform the required environmental tasks, this is discussed in the performance evaluation. Employees at the central office are monitored on their environmental performance and undesirable behavior is seen as a problem. Monitoring is also necessary for the bonuses.

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The change in the MCS of FrieslandCampina is visible. The introduction of KPI’s that are directly related to environmentally friendly practices measure the environmental performance. FrieslandCampina is engaged in environmentally friendly practices for many years, due to legislation. That engagement is a reason for its environmentally friendly development. The fact that FrieslandCampina is a very large production company can be another reason for its developed policy.

FrieslandCampina uses all four control types to implement environmentally friendly practices, but most commonly results and action control.

4.3 NS

The Nederlandse Spoorwegen (NS) is a Dutch railway company and uses the railway system to transport 1.1 million people each day. The NS belongs to the top-three of energy users in the Netherlands. This semi-public company has 26,500 employees and its headquarter is situated in Utrecht. The operating profit amounted to 272 million euro in 2011, on revenues of 3.6 billion euro. The NS consists of multiple subsidiaries, such as Nedtrain, NS Stations, NS Poort and NS Energy. This last subsidiary focuses on sustainable energy at the NS stations, mainly by Warm Cold Storage.

For this study, the years 2009-2011 are analysed. This is done with the use of sustainability reports and interviews. A management trainee, sustainability employee and controller are interviewed.

Public transport is a sustainable solution for mobility problems in densely populated countries like the Netherlands. The NS contributes to this solution by delivering railway services. However, the NS uses 1.5% of the total Dutch energy consumption. CSR is therefore an integral subject within the business processes of the NS. According to the sustainability reports, CSR is the key to realise the ambition of the NS to be a customer focused, national and European service provider. NS wants to be the frontrunner in sustainable mobility. To realize this ambition a Sustainable Business Program 2010-2012 is introduced. The reason to implement CSR is mainly because of the ambition and morality of the organization to take responsibility for the society. A competitive advantage is the fact that travelling by train is around 75% more energy efficient compared to travelling by car. This can be used as ´green marketing´ and is visible at the website. The Sustainability Business Program contains three priorities that are related to environmentally friendly practices: energy, noise and waste.

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trains. The new type of ‘Sprinters’ consumes 30% less energy compared to its predecessor. Furthermore, the new train type of the ‘Koploper’ is more environmentally friendly. The investment in energy efficient trains is a combination of sustainable resource use (reduction of energy consumption) and climate change mitigation (minimization of emissions). It can be classified as a form of pre-action review, which is part of the action controls.

Energy efficient driving is another way to reduce the emissions. Train drivers are instructed in the simulation centre in Amersfoort to drive energy efficient. For example, rolling instead of braking and another way of accelerating affects the usage of energy. NS is controlling on actions with this approach and consequently action controls are used. The training for train drivers can be seen as personnel control.

In 2009 and 2010 the NS purchased green power for 10 % of its energy consumption. In 2011 this increased to 11 % and NS is therefore one of the largest purchasers of green energy in the Netherlands. The usage of green power is a form of sustainable resource use and can be classified as an action control.

Despite the fact that noise emissions are within the standards, NS tries to reduce the noise of trains. This is the second environmentally friendly priority. Forthcoming legislation is an important reason to reduce noise. NS aims to categorize all its trains as ´quiet´ by 2030. New trains are provided with plastic disc brakes, which are more silent. This action can be categorized as an action control, but the purpose of categorizing the trains as quiet by 2030 is a results control. Noise is part of ISO 26000´s subcategory prevention of pollution.

Waste is the third priority of the environmentally friendly practices. Waste can be categorized in industrial waste of the workplaces, office waste and consumer waste of stations and trains. Paper and packages are the most important types of waste for NS. The waste is separated at the ‘source’ and most of the time recycled. To reduce the amount of waste, NS focuses on the prevention of waste as much as possible. Campaigns at stations, offices and workplaces are therefore introduced. The purpose is to use waste as a raw material in 2016, for example the use of old timetables as serving trays in the offices. This is an example of sustainable resource usage and a results control. The other waste activities are implemented to prevent pollution and can be seen as action controls.

Environmentally Friendly Practices and Management Control Systems