The relation between a firm’s sustainability motive and
sustainability management control system design
‘If sustainability is only seen as a responsibility, sustainable development will be treated as an issue to be managed, rather than as a business opportunity to be pursued’ (Carpenter & White, 2004)
Student: K. van de Vegte (S2764512) Assignment: Master Thesis
Topic: Sustainability
University of Groningen Faculty of Economics and Business
Supervisor: Dr. H. J. van Elten 2nd Assessor: Dr. Y. Karaibrahimoglu
Date: 23 January 2017 Word count: 10,820
Abstract
Despite the growing popularity of sustainability within research, only a small number of studies have examined how motives impact the way to sustainability is handled within the company. Management control systems can be a supporting factor in the integration of sustainability in strategic management (Engert, Rauter & Baumgartner, 2015). Engert, Rauter and Baumgartner (2015) have also identified several internal and external drivers. However, the relation between these drivers and the design of management control systems remains unexplored.
Using the motives from the research of Brønn and Vidaver-Cohen (2009), this research relates internal and external drivers to the design of management control systems. It was expected that sustainability motives would lead to an increase in sustainability management information being made available and used. The results did confirm part of this expectations. Sustainability motives were shown to have a significant impact on the formal and informal use of sustainability management information, whereas profitability and legitimacy motives had no significant impact on the formal and informal use of sustainability management information.
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Introduction
The number of companies incorporating a sustainability section in their annual report has grown significantly in recent years. According to a KPMG Survey from 2015, the percentage of N100 companies publishing Corporate Responsibility data has increased from 4% (2008) to 56% (2015) (KPMG, 2015). A large portion of this increase is due to new legislation that
requires companies to include non-financial information within their financial statements. This increasing interest in sustainability was a result of criticism from the public and from politicians for companies’ lack of responsibility for the problems that they caused (Waddock, 2008).
Companies were accused of several social and ecological problems, including the erosion of democracy; the destruction of native industries in developing nations; the fostering of excessive materialism; polluting the environment; the destruction of land and forest; the abuse or
abrogation of labor rights; the erosion of national sovereignty; and a lack of sustainability, accountability, responsibility and transparency (Cavanagh, 2004).
This criticism regarding the lack of responsibility led to more awareness about the importance of corporate sustainability, which in turn changed authors’ focus when conducting research about sustainability. The focus changed from ‘why companies should be concerned with sustainability’ to ‘how companies can engage with sustainability,’ resulting in an increase in research about the role of management controls in the implementation of a sustainability
strategy within a company (Crutzen & Herzig, 2013). This role has also been explained by Gond, Grubnic, Herzig and Moon (2012), who argue that ‘Management Control Systems (MCS) are seen to play a critical role in influencing the process of strategy-making throughout the organization and thereby guiding organizational learning.’ Moreover, Engert, Rauter and Baumgartner (2015) have added one element to this relation. Within their literature review, they claimed that
companies’ motivations for being concerned with corporate sustainability are the driving forces of the integration of corporate sustainability within the company (Engert et al., 2015). They have also identified the MCS as one of the factors which could support or hinder the integration of corporate sustainability.
The importance of the MCS has been emphasized by several authors. One of these authors, Epstein (1996) stated: “the success of an environmental strategy implementation depends on accumulating, aggregating, measuring and reporting information related to corporate
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The aim of this study is to identify how the different motives concerned with corporate sustainability influence the several elements of the sustainability MCS. Several studies have revealed that MCS plays an important role in the integration of sustainability into strategic management. However, it is uncertain whether the motivation to integrate sustainability into the strategic management influences the design of the MCS. By comparing the effects of
sustainability motives with legitimacy motives and profitability motives on the design of the sustainability management information, this paper provides a number of practical contributions. This paper further identifies the differences between the design of the MCS caused by intrinsic motivated sustainability and stakeholder-driven sustainability. Rodrigue, Magnan and Boulianne (2013) have already explained how the pressure of stakeholders groups differently influences the design and use of MCS. By identifying the influence of the different motive groups to engage in sustainability on the sustainability management information, this study contributes to the discussion surrounding whether intrinsically motivated sustainability has different implications for the design than stakeholder-driven sustainability. Subsequently, the results fill a theoretical gap in the process: From the motive to engage in sustainability to the integration of
sustainability within the strategic management. Thus, the results will help managers to identify the role of the motives on the design of the sustainability information system and therefore, increase their awareness of the influence of their motives on their MCS design.
To answer the research question, a survey was conducted with 40 middle managers. These middle managers each represented an organization in the Netherlands that was listed on the transparency benchmark. The data from the survey was structured with a factor analysis; Then, a correlation analysis was performed to identify the relationships before running a regression analysis to test the hypothesis.
This paper is structured in the following way: In the first chapter, a literature review is presented. This literature review provides information on sustainability in general, the motivation to be concerned with sustainability and the role of sustainability management information within a company. Chapter 2 discusses the methodology, while Chapter 3 presents the results. Finally, Chapter 4 includes a discussion of the implications with the limitations of this research and suggestions for future research.
Literature Review
Sustainability
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of clarity about the definition of sustainability, as much depends upon the person being asked what is and what is not supposed to be a part of sustainability.
Van Marrewijk (2003) has explained that corporate sustainability refers to
"demonstrating the inclusion of social and environmental concerns in business operations and in interactions with stakeholders.” According to Steurer, Langer, Konrad and Martinuzzi (2005), the notion of sustainability is the “situation wherein a business seeks to fulfill the demands of current generations without compromising the ability of future generations to meet their needs and aspirations.” As a result of this increase in interest in sustainability, different definitions for sustainability have arisen, which makes it difficult to determine which definition should be used. Van Marrewijk (2003) has attempted to solve this problem by identifying several possible solutions; However, he concluded that the search for ‘a definition-fits-all-approach’ needs to be abandoned, because every definition can display a number of characteristics of a company that engages in sustainability.
Wempe and Kaptein (2002) have further argued that: “Corporate Sustainability is built on corporate social responsibility which consists of three pillars: People, Profit, Planet.” These pillars are also referred to as the triple bottom line. According to Linnanen, Panapanaan, Karvonen and Phan (2003), these three pillars are part of corporate social responsibility and that corporate social responsibility is part of corporate sustainability. One of the approaches used by Van Marrewijk (2003) to clarify the different concepts is the identification of several motives of the company to be concerned with sustainability. These concepts are used later within this paper when the motives of engaging in sustainability are discussed.
The second problem surrounding sustainability is the different terms used for
sustainability, such as corporate social responsibility, corporate responsibility and corporate sustainability. However, it is important to note that sustainability is also referred to as a strategy like: environmental strategies, ethical strategies, green strategies, responsibility strategies, social strategies, sustainable strategies and a number of papers even refer to sustainability as a way of management like: environmental strategic management, social strategic management and sustainable strategic management. In this study however, the term ‘sustainability’ is used, because as explained by Wempe and Kaptein (2002) and Linnanen et al. (2003), this term covers all three elements: social, environmental and economical responsibility.
Motives
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development for the emergence of sustainability accounting (Unerman & Bennett, 2004)
(Sharma & Henriques, 2005). However, as Unerman and Bennett (2004) have already concluded, it is rather difficult to obtain insight into the expectations of all of the stakeholders and to meet all of these expectations. Also, Meixell and Luoma (2015) have emphasized the importance of the stakeholder influence, because stakeholders can exert pressure on all three phases of the
sustainability process (awareness, adoption, implementation). Frooman (1999) has argued that the influence of the pressure from stakeholders is limited by the dependency of the company on the external resources of the specific stakeholder groups. Moreover, Rodrigue et al. (2013) have discovered a difference in the effect of pressures of different stakeholders that influence the design and use of MCS. Indeed, they found a number of significant differences between the influence of the different stakeholder groups, but these differences were explained by the firm’s environmental impact of the company’s business activities on the stakeholders. Both studies, however, support stakeholder influence as an important driver of sustainability. Searcy (2012) has further suggested a number of additional motives that influence the decision-making
process surrounding sustainability, such as image, reputation, cost savings, competitiveness and reduced risk. These suggested items are included within the sixteen motives identified by Brønn and Vidaver-Cohen (2009), which are further discussed within the methodology section.
The views regarding the motives and pressures companies are subjected to are numerous, and indeed, these different views have certain differences and similarities in the motives. Some theorists have used the stakeholder theory to explain the influence of the government, although the institutional theory and legitimacy theory can also explain the influence of government. Motivation can come from external and internal pressures, can be ethical or instrumental in nature and guided by moral values as well as profitability and legitimacy ones (Brønn & Vidaver-Cohen, 2009). Another possibility is that motives are combined, which leads to variety of
different views regarding the way in which motives should be categorized. For instance, Van Marrewijk (2003) has divided the different motives concerned with corporate sustainability into five different categories: compliance-driven, profit-driven, caring, synergistic and holistic. Brønn and Vidaver-Cohen (2009) have taken an alternative approach and used a factor analysis to narrow down sixteen different motive statements to three groups: sustainability motives, profitability motives and legitimacy motives.
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primarily come from inside the company, which is reflected by the social or organizational responsibility the companies experience. Therefore, sustainability motives can be seen as intrinsic motives. Profitability motives are those than managers believe the company can benefit from by engaging in sustainability, because it can assist them in obtaining a competitive
advantage, leading to new business opportunities and even help shareholder demands (Hahn & Scheermesser, 2006). Van Marrewijk (2003) has emphasized the role of pressure from the stakeholder groups (customers, employees and shareholders) in the profit-driven motives. Hahn and Scheermesser (2006) have further referred to legitimacy motives as the company engaging in sustainability, because of institutional pressures by government regulations. Suchman (1995) refers to legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions.” Profitability motives and legitimacy motives both refer to the role of stakeholders (customers, employees, shareholders and the government) and these two motive groups can also be seen as stakeholder-driven motives.
Management Control Systems
Simons (1987) has defined MCS as “formalized routines and procedures that use information to maintain or alter patterns in organizational activity.” Green and Welsh (1988), however, have described MCS as information feedback systems. In a majority of cases, the systems are primarily used as tools for management-by-exception, also known as diagnostic control systems. However, Simons (1991) noticed an increase in the amount of research that claimed that control systems were not always used to manage by exception. Several managers used the systems more on a day-to-day basis as well as to personally involve themselves in decision-making; In this approach, the tools were used as interactive control systems. Later, Simons (1995) identified two additional uses of control systems: belief systems and boundary systems. Simons (1995) grouped diagnostic control, interactive control, belief and boundary systems together as the levers of control (1995). The levers of control were not the only emergent themes in management control, Berry, Coad, Harris, Otley and Stringer (2009)
conducted a literature review, in which they found that three models of integrated performance measurement systems are commonly used: levers of control, balanced scorecard (Kaplan & Norton, 1995) and the performance management and control framework (Ferreira & Otley, 2005).
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more “on the existence and potential configurations to support strategy-making,” while the use of controls refers more to “the adoption, utilization and/or implementation of such control mechanisms.” This division was the starting point of the framework used within the literature review of Crutzen and Herzig (2013).
Management Control & Sustainability Strategy
In their literature review, Crutzen and Herzig (2013) divided the studies that concerned the relation between management control and sustainability strategy into two groups: one group of papers explored the role of management controls within the integration of the sustainability practices, while the other group of papers tried to identify the effects of the
sustainability strategy on MCS. Tucker et al. (2009) have made this distinction by stating that the first group views sustainability strategies as a process and the second group only observes the content of sustainability strategies. Thus, the first group of papers helps to identify why this research is important, while the second group helps identify the gap within the extant literature
Several authors from the first group, who see sustainability strategies as a process, have argued that MCS is an important element of the integration of sustainability. Cramer (2005) used a monitoring, quality and management systems in a case study to help several Dutch companies influence the integration of sustainability in their daily practices. Epstein and Wisner (2005), however, have referred to more formal controls, finding that management commitment, planning, belief systems, measurement systems and rewards are positively associated to
compliance with environmental regulations. White (2009) has further referred to more informal controls within his case study at the company of Proctor & Gamble; One of his conclusions was: “Sustainability needs to part of the organization culture to become integrated in everyone’s daily work.” Engert et al. (2015) conducted a literature review which identified management control as one of the supporting or hindering factors of the integration of corporate sustainability into the strategic management. They also identified transparency and communication, organization culture and manager attitude as possible supporting or hindering factors in the process of sustainability integration.
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control as a concept to reflect MCS. Arjaliès and Mundy (2013) also used the levers of control to conclude that the CSR strategy of the company influenced the design and use of MCS. The companies in their research used the levers of control in different situations and for different purposes. They used standardized CSR reporting processes in a diagnostic way to manage critical performance variables; Meetings were interactively used to manage strategic opportunities and uncertainties; Mission statements were used as belief systems to
communicate the core values and guidelines were made as boundary processes to manage the risks.
In addition to the levers of control, the balanced scorecard was also used as a
representation of MCS. For example, Van der Woerd and Van den Brink (2004) have linked the motives mentioned by Van Marrewijk (2003) to the elements of the balanced scorecard, allowing them to propose that a responsive scorecard include community-driven and synergy-driven corporate sustainability in the MCS. In order to prevent restrictions, this study uses a more general approach for the concept of MCS. Instead of using a specific management control like the balanced scorecard, this study examines the characteristics of the system. In order to identify these characteristics, two previous studies were used. Parego and Hartmann (2009) used four components to characterize MCS: scope, timeliness, financial quantification and non-financial quantification. The last two characteristics did not meet the requirements of the present study and therefore, were replaced with two concepts from the study of Pondeville, Swaen and De Rongé (2013). Pondeville et al. (2013) have distinguished between formal environmental MCS and informal environmental MCS and these two concepts were used as the last two characteristics of MCS within this study.
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examples of informal controls. This last example is interesting because organizational culture was also mentioned in the research of Engert et al. (2015) as one of the supporting or hindering factors. The decision to use formal and informal controls has been supported by Durden (2008). He built a social responsibility framework for the integration of social responsibility goals, in which he mentioned two steps between stakeholder pressure or the social responsibility goals and the integration of social responsibility goals: formal measurement and informal control of social responsibility. With regard to formal measurement, he stated that it helps to “recognize the need for explicit measures and a systematic monitoring approach that reflects social
responsibility aspects,” whereas informal controls recognize “how monitoring should ideally be imbedded as part of the organization culture.” He also stated these two dimensions should be used in conjunction with one another, because they are not sufficient individually. Since formal measurement is not always able to reach all of the employees, the desired awareness is not achieved because it fails to be integrated into the organizational culture. On the other hand, informal controls provide too many uncertainties for the management because it remains voluntary when formal pressure is lacking.
Hypothesis development
Perego and Hartmann (2009) have performed research in which they found that companies with a proactive approach concerning the environmental strategy had a positive influence on the scope, timeliness and quantification of the performance management system (PMS). Moreover, Pondeville et al. (2013) found a positive relationship between corporate environmental proactivity and the scope of the environmental information system. Therefore, the following two hypothesis were formulated with regard to the availability of SMI.
H1a: A high level of sustainability motives leads to a broader scope of SMI available in the MCS
than a high level of profitability or legitimacy motives
H1b: A high level of sustainability motives leads to a higher level of the timeliness of SMI in the
MCS than a high level of profitability or legitimacy motives
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following hypothesis concerning the use of formal and informal sustainability information were formulated.
H1c: A high level of sustainability motives leads to a higher use of formal SMI in the MCS than a
high level of profitability or legitimacy motives.
H1d: A high level of sustainability motives leads to a higher use of informal SMI in the MCS than
a high level of profitability or legitimacy motives.
Methodology
Data was collected from 40 Dutch companies. From each of these companies, a business unit manager with responsibility over at least 20 employees were asked to answer a
questionnaire. The statements in the questionnaire were presented in English and the surveys were conducted on location. This approach had three advantages: First, it provided the study with higher reliability because it is clear that the business unit manager himself answered the statements. Second, this allowed the respondent to ask any questions to clarify the statements. Finally, this provided the opportunity to ask the respondents additional questions after
completing the questionnaire.
The research population consisted of 252 Dutch companies participating in the 2015 transparency benchmark. The benchmark was created by the Ministry of Economic Affairs and the participating companies comprise: public interest entities (PIEs) with more than 500 employees, companies listed in Amsterdam’s stock exchange, companies with substantial activities in the Netherlands related to revenue and/or number of employees, (partly) state-owned organizations, universities and university medical centers (UMC) and large companies (more than 250 employees) that have been included in the participants group on a voluntary basis in the past. This benchmark list was used to ensure that the respondents are working in companies, where sustainability is part of the daily practices.
A survey was constructed to reflect upon the three elements of sustainability in the business unit. The survey began with a number statements about the use of SMI, in which the respondents were asked to score the extent to which the information was used on a 7-point Likert scale, ranging from 1 (to a small extent) to 7 (to a large extent). The survey then focused on the motives for sustainability. In this part, the respondents were asked to rate each “motive statement” on a 7-point Likert scale, ranging from 1 (strongly disagree) to 7 (strongly agree).
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data protection reduces the respondents’ concerns and improves the quality of the responses (Krumpal, 2013). The replies to the questionnaire covered a very wide range, which indicates the respondents were willing to give a low score. Thus, it can be concluded that the risk of social desirability is minimized within this study.
Measurements Sustainability Management Information
In order to create variables from the responses to the statements within the survey, an exploratory factor analysis was conducted. Before the factor analysis was performed, it was first determined whether or not it was suitable to use the factor analysis. The Kaiser-Meyer Olkin (KMO) score and the Bartlett’s test of sphericity were used to test the suitability of the factor analysis. The KMO-score must be higher than 0.6 according to Pallant (2010), whereas the Bartlett’s test should be lower than the significance level of 0.05.
Within the factor analysis, the factor loadings of the items need to be higher than 0.5 to be included in the variable. In the final part of the factor analysis, Cronbach’s alpha was used to determine the reliability of the construct. The Cronbach’s alpha must be approximately 0.8 to exhibit adequate internal consistency (George & Mallery, 2013). During the factor analysis, the average variance extracted (AVE) was tested; The AVE is defined as the amount of variance in the item explained by the construct relative to the amount as a result of measurement error (Fornell & Larcker, 1981). Fornell and Larcker (1981) have recommended a value of the AVE above 0.5.
Scope
In order to measure the availability of SMI used within the business unit, six questions developed by Chenhall and Morris (1986) were used. Four of these questions concern the broadness of the SMI available, where a low scores refer to a narrow MCS and high scores refer to broad MCS. The first confirmatory factor analysis suggested that the questions about ‘non-economic information’ and ‘the quantification of the likelihood of future sustainability-related events’ be removed. For the scope of SMI, the KMO scored 0.5, which was caused by the factor consisting of two statements. Moreover, the Bartlett’s test of sphericity is significant with 0.039. Pallant (2010) has argued that a KMO below 0.6 is questionable. However, Norusis (1993) has stated that a KMO above 0.5 is still acceptable. Thus, the second confirmatory analysis exhibited satisfying factor loadings. Together, this resulted in the variable ‘scope of the SMI’ (two items, α = 0.55, AVE = 69.2%). The Cronbach’s alpha is questionable, but accepted due to the fact that George and Mallery (2013) have stated that a Cronbach’s alpha between 0.5 and 0.6 is
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The remaining two questions were about the availability of information and the timeliness of the SMI. Timeliness concerns “the provision of information … and the frequency of reporting systematically collected information” (Chenhall & Morris, 1986). For the timeliness of SMI, the KMO-score is 0.5. This score is questionable according to Pallant (2010), but acceptable according to Norusis (1993). Bartlett’s test of sphericity is significant with 0.008. This resulted in the variable: ‘Timeliness of the SMI’ (two items, α = 0.58, AVE = 73.9%). Just as with the previous variable, the Cronbach’s alpha was questionable, but accepted.
Formal
Formal SMI was measured using nine statements created by Pondeville et al. (2013). The nine statements about sustainability objectives and sustainability procedures in the business unit were used to measure the formal SMI. These nine items together exhibit a KMO-score of 0.775 and the Bartlett’s test of sphericity scored 0.00. Both are sufficient to perform a
confirmatory factor, which revealed that all of the statements had loadings on the factor higher than 0.500. This resulted in the variable: ‘formal SMI,’ which was created using the mean of the nine items (α = 0.87, AVE = 49.4%). The AVE is just slightly below the threshold of 50% and therefore, is addressed within the limitations section of this paper.
Informal
Informal SMI was measured using eight statements created by Pondeville et al. (2013). These eight statements asked about the involvement of employees in sustainability, which is seen as a representation of informal SMI. These eight items have a KMO-score of 0.728 and the Bartlett’s test of sphericity scored 0.00. Both are sufficient to perform a confirmatory factor, which indicated that one question be deleted due to a factor loading lower than 0.5. The question that was removed referred to the Business Unit (BU) management having enough freedom to manage sustainability issues. This elimination resulted in a variable ‘informal SMI,’ created using the mean of seven items (α = 0.83, AVE = 54.3%)
Measurements motives
The motives concerned with sustainability were measured using sixteen statements developed by Brønn and Vidaver-Cohen (2008). These sixteen statements consisted of
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Statement Expected motive Mean Std. Deviation
Q3.1b - Improve Image Sustainability 6.133 0.7761
Q3.1a - Serve Long-term Company Interests Profitability 5.667 0.8023
Q3.1e - Fulfill Stakeholder Expectations Legitimacy 5.233 1.2780
Q3.1c - Remain Competitive Profitability 5.067 1.5522
Q3.1o - Be Recognized for Moral Leadership Legitimacy 4.900 1.5833
Q3.1l - Personal Satisfaction Sustainability 4.900 1.4468
Q3.1h - Share Resources with Society Sustainability 4.833 1.6626
Q3.1m - No Good Reason Not To Sustainability 4.733 1.3112
Q3.1d - Avoid Regulation Legitimacy 4.600 1.3544
Q3.1p - Learn from Social Agencies Sustainability 4.500 1.3582
Q3.1f - Meet Shareholder Demands Profitability 4.464 1.4778
Q3.1k - Concern for Society’s Future Sustainability 4.433 1.4065
Q3.1i - Create Financial Opportunity Profitability 4.400 1.6318
Q3.1j - Prevent Future Business Problems Profitability 4.333 1.7087
Q3.1n - Strengthen Global Networks Profitability 3.900 1.9713
Q3.1g - Solve Social Problems Better Sustainability 3.862 1.6631
Table 1 Descriptive Statistics Motives
Sustainability motives
These motives overlap with the three highest ambition levels described by Van Marrewijk (2003): caring, synergistic and holistic corporate sustainability(CS). According to Van Marrewijk (2003), these three ambition levels are mainly driven by social responsibility or sustainability, in contrast to the profit-driven and compliance-driven ambition levels. For example, Van
Marrewijk (2003) has stated the following about caring CS: “caring corporate sustainability initiatives go beyond legal compliance and profit considerations.” As Brønn and Vidaver-Cohen (2009) have already stated, these motives can come from the entire business-unit or
corporation. However, it is also possible that the motive come from the managerial values. A clear example of this is the statement about 'personal satisfaction', which asks about the satisfaction of the BU-manager. ‘Concern with society’s future,’ ‘Learn from social agencies,’ ‘No good reason not to,’ ‘Personal Satisfaction,’ ‘Share resources with society,’ ‘Solve Social problems better’ and ‘No good reason not to’ were expected to be representative statements for the BU’s sustainability motives. First, the statements were tested if it would be suitable to use a factor analysis. The KMO is 0.783 and the Bartlett’s test of sphericity is 0.00. Both were sufficient to perform the factor analysis. The factor analysis exhibited a weak loading for one statement: ‘No good Reason not to.” Therefore, this statement was excluded from the created variable,
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Factor analysis Sustainability Motives Profitability Motives Legitimacy Motives
Concern for Society's Future 0.778
Solve Social Problems Better 0.729
Learn from Social Agencies 0.699
Personal Satisfaction 0.688
Share resources with Society 0.683
No Good Reason Not To 0.261
Remain Competitive 0.790
Create Financial Oppurtunity 0.784
Prevent Future Business Problems 0.754
Meet Shareholder Demands 0.572
Strengthen Global Networks 0.559
Serve Long-term Company Interests 0.420
Improve Image 0.337
Fulfill Stakeholder Expectations 0.773
Be Recognized for Moral Leadership 0.765
Avoid Regulation 0.355
Cronbach's Alpha 0.835 0.816 0.733
Variance Explained 60.80% 58.75% 79.50%
Table 2: Factor Analysis Motives
Profitability motives
These motives correspond with the profit-driven corporate sustainability mentioned by Van Marrewijk (2003). In the companies where these motives are highly ranked, profitability is the foremost issue. The BU-managers, who state that these motives are important in their BU, are only concerned with sustainability if it will give them a financial advantage. ‘Create financial opportunity,’ ‘Improve Image,’ ‘Remain competitive,’ ‘Meet shareholder demands,’ ‘Prevent future business problems,’ ‘Serve Long-term interests’ and ‘Strengthen global networks’ were selected as profitability motives within the questionnaire. Also for this motive group, the tests to determine the suitability of the factor analysis were performed first. The KMO is 0.730, whereas Bartlett’s test of sphericity is significant with 0.00. In this case, the factor analysis had a weak loading on two statements (Improve Image and Serve Long-term Interests), which resulted in a variable ‘Profitability motives’ consisting of five statements (α = 0.82).
Legitimacy motives
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statements form the legitimacy. The KMO-score for the legitimacy motives is 0.585 and the Bartlett’s test of sphericity exhibits significance (0.002). The confirmatory factor analysis indicated that ‘Avoid Regulation’ had a weak loading on this motive and therefore, this
statement was removed from the analysis. This resulted in ‘Legitimacy motives’ consisting of two items (α = 0.73)
As can be seen in Table 2, the largest motives according to the analysis in Table 1 (‘Improve Image’ and ‘Serve Long-term interests’) are not used in further analysis. A possible explanation for this result can be the broad scope of both motives. For instance, the
improvement of the image can be linked to all three groups of motives. The versatility of this motive may have led to this motive fitting, to a relatively small extent, within all of the
categories. However, none it did not fit well enough to take the motivation ‘Improve Image’ into consideration within one of these groups. Therefore, this motive remains excluded from further investigation. When comparing the outcomes of the three factor analyses with the factor analysis conducted by Brønn and Vidaver-Cohen (2009), two differences can be observed. ‘Strengthen Global Networks’ was part of the sustainability motives within their research, whereas it was shown to be part of the profitability motives in the present factor analysis. The opposite is true for the motive ‘Solve Social Problems better:’ This item was part of the sustainability motives in this research, whereas it was strongly loaded on the profitability motives in the research of Brønn and Vidaver-Cohen (2009). The other used items are all within the same motive group as they were in the Norwegian research.
In the next section, the results of the final analysis are presented. First, a Pearson
correlation test was conducted. This test is not used to support or reject a hypothesis, but does provide an indication of the relationships between the variables by showing the correlation(s) between the motives and the elements of the SMI system. However, it is not useful for our hypothesis, because the Pearson correlation test does not consider the side-effects of the other motives. When a company with a legitimacy-driven motivation scores higher on the formal use of SMI than sustainability-driven motivation, it may be due to the company having slightly legitimacy-driven motives. In summary, a company with a high score in sustainability-driven motivation does not preclude the company from having profitability-driven or legitimacy-driven motives. Therefore, an extra analysis is needed. To take into account these side effects, a
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Results
Descriptives
First, the descriptive statistics were analyzed. The sample as a whole is relatively highly motivated for all of the identified motivation groups. Legitimacy motives were the largest drivers of sustainability in the business unit (M = 5.07, SD = 1.27); the means of sustainability motives and profitability motives have an insignificant difference. The average score of the sustainability motives is 4.51 (SD = 1.17) and the score of profitability motives is 4.44 (SD = 1.25). The dependent variables show lower means, ranging from 3.66 to 4.33. The Skewness and Kurtosis were used to determine if the data is normally distributed (Wright & Herrington, 2011). The z-value of these two values need to be higher than -1.96 or lower than 1.96 to consider the variable as normally distributed; The z-value is calculated by dividing the Skewness-value or Kurtosis-value by the standard error (SE) of Skewness or Kurtosis (Ghasemi & Zahediasl, 2012). Only the values of the Legitimacy motives are not within the acceptable range. However, before these two values were divided by the standard error, both values scored lower than 3 or higher than -3, which makes these values acceptable according to Kline and Santor (1999). This discrepancy is addressed in the limitations section.
Variable Mean Std. Deviation Skewness (SE = .427) Kurtosis (SE = .833)
Legitimacy Motives 5.07 1.28 -3.57 3.24 Sustainability Motives 4.52 1.18 -1.86 0.42 Profitability Motives 4.44 1.26 -1.82 -0.38 Informal SMI 4.33 1.25 -1.85 -0.11 Scope of SMI 4.25 1.38 -0.40 -0.93 Timeliness of SMI 3.80 1.58 0.43 -1.10 Formal SMI 3.66 1.21 -1.09 -0.10
Table 3: Descriptive Statistics Variables
The first interesting result from Table 3 is the difference between the use of informal SMI and the use of formal SMI. These result is correspond with the answers given during the
interviews. One respondent argued:
“Formal goals in the area of sustainability are more focused on the long term but relatively difficult to control, because in our opinion it is difficult to measure the performance on the most elements of sustainability. Therefore, we have more trust of creating awareness of sustainability by stimulating employees to think about sustainability. By using this approach, we think our company becomes more sustainable than by looking at the goals and the objectives only.”
Another respondent stated that:
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decisions are usually made by higher-level managers, the management or the specifically designed sustainability department. These core objectives are used as a basis to the design the available sustainability information. For me as a BU manager this means that I am more concerned with the informal aspect of sustainability management information. I have influence on this type of
information, because this is more bottom-top.”
Both respondents emphasize their influence as a BU-manager on the informal SMI, in contrast to the decisions about the formal SMI, which are made by the higher-level managers.
Correlation matrix
Subsequently, the correlations between the motives concerned with sustainability (independent variable) and the elements of the SMI were analyzed.
Variable 1 2 3 4 5 6 7 1. Sustainability Motives - 2. Legitimacy Motives ,545** - 3. Profitability Motives ,356 ,536** - 4. Informal SMI ,703** ,444* ,317 - 5. Formal SMI ,584** ,365* ,386* ,609** - 6. Timeliness SMI ,374* ,340 ,413* ,361* ,606** - 7. Scope SMI ,345 ,216 ,164 ,385* ,628** ,568** -
**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).
Table 4: Correlation Matrix
Table 4 provides an overview of the correlations between the seven variables used within the analysis. First, it can be observed that the correlation between the motives and scope of the SMI is not significant for all of the motives. In case of the correlation between sustainability and the scope of the SMI, there is a positive relation which is nearly significant. The next correlation between legitimacy motives and the scope of the SMI has a smaller positive relationship; However, this relation is not significant. The final correlation analysis examined the effect of profitability motives. There is also an insignificant positive relationship in this case.
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motives exhibit a very high positive significant correlation (r = .703, P = < 0.01) with the use of informal SMI. Moreover, profitability (r = .317, P = < 0.05) and legitimacy motives (r = .444, P = < 0.01) exhibit positive correlations with informal SMI. However, as stated earlier, these
correlations only provide an indication of the relations between the three motive groups and the dependent variables. To compare the influences of the several motive groups, a multiple
regression analysis was subsequently conducted.
Regression analysis
The final analysis was the multiple regression analysis. In the regression analysis, the three motivation groups were linked as predictor variables to a dependent variable, which is one of the elements of the SMI. However, before the results of the regression analysis could be interpreted, the multicollinearity and the autocorrelation needed to be considered. To test the multicollinearity, the variance inflation factor (VIF) was used. This value needs to be lower than 10 to be acceptable. The VIF-scores remain within the range of 1.4 – 1.8 and therefore, there is no reason for concerns about the multicollinearity. The Durbin-Watson test was used to measure the autocorrelation within each regression analyses. A score between 0 and 2 means that there is a positive autocorrelation, whereas a score between 2 and 4 represents a negative autocorrelation. A score of 2 means that there is no autocorrelation; However, Hair, Anderson, Tatham and Black (1998) have argued that a score between 1.5 and 2.5 is acceptable. In the regression-analysis for scope of SMI and timeliness of SMI, the Durbin-Watson-score is outside this range. However, the scores are inside the range of 1 – 3, as proposed by Field (2009)
Table 5a: Regression Analysis (Scope SMI) Table 5b: Regression Analysis (Timeliness SMI)
The regression analysis of the dependent variables “Scope of SMI” and “Timeliness of SMI” have comparable outcomes. Neither of the two analyses exhibits a significant relationship from one of the predictor variables on the dependent variable and the R2 . This indicates that what percent of the dependent variable is explained by the predictor variables, is rather low in
Model 1 Model 1
Step and Variables B SE VIF Step and Variables B SE VIF Intercept 2,264* 1,21 Intercept 0,361 1,299
Main effects
Main effects
Sustainability Motives 0,373 0,257 1,434 Sustainability Motives 0,323 0,276 1,434 Legitimacy Motives 0,023 0,262 1,756 Legitimacy Motives 0,058 0,282 1,756 Profitability Motives 0,042 0,239 1,415 Profitability Motives 0,38 0,257 1,415 R Square 0,121 R Square 0,231 Durbin-Watson 1,398 Durbin-Watson 1,305 * P < 0,10 * P < 0,10 ** P < 0,05 ** P < 0,05 *** P < 0,01 *** P < 0,01
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both cases. Due to the insignificant relationships, it is not possible to support hypothesis H1a and H1b. The results even give no opportunity to state that there is a relationship between one of the motives and the ‘Scope of SMI’ or the ‘Timeliness of SMI.’
Model 1 Model 1
Step and Variables B SE VIF Step and Variables B SE VIF Intercept 0,47 0,894 Intercept 0,677 0,828
Main effects
Main effects
Sustainability Motives 0,541*** 0,19 1,434 Sustainability Motives 0,691*** 0,176 1,434 Legitimacy Motives -0,038 0,194 1,756 Legitimacy Motives 0,060 0,179 1,756 Profitability Motives 0,211 0,177 1,415 Profitability Motives 0,052 0,164 1,415 R Square 0,378 R Square 0,502 Durbin-Watson 1,803 Durbin-Watson 2,468 * P < 0,10 * P < 0,10 ** P < 0,05 ** P < 0,05 *** P < 0,01 *** P < 0,01
Dependent variable: Formal SMCS Dependent variable: Informal SMCS
Table 5c: Regression Analysis (Formal SMI) Table 5d: Regression Analysis (Informal SMI)
For the regression analyses of the dependent variables ‘Formal SMI’ and ‘Informal SMI’, the Durbin-Watson scores are within the range identified by Hair et al. (1998). Moreover, the percentage of the dependent variable explained by the independent variables is higher than for the previous dependent variables. The regression analysis of the dependent variable ‘Formal SMI’ does have one predictor with a significant effect. Sustainability motives also have a significant effect on formal SMI (B = .541, P = < 0.01). The effects of legitimacy motives and profitability motives are insignificant and therefore, these effects are zero. The same results are visible in the regression analysis of the dependent variable ‘Informal SMI.” Sustainability motives, again, is the only predictor variable with a significant effect on the dependent variable (B = .691, P = < 0.01). This indicates that a change in sustainability motives is related to a change in use of ‘Formal SMI’ and ‘Informal SMI.” The insignificant findings for legitimacy and
profitability motives suggest that a change in these variables is not associated with a change in the dependent variables. Therefore, hypothesis H1c is supported, which stated that a high level of sustainability motives leads to a higher use of formal SMI in the MCS than a high level of profitability or legitimacy motives and support for hypothesis H1d, which stated a high level of sustainability motives leads to a higher use of informal SMI in the MCS than a high level of profitability or legitimacy motives.
Discussion and Conclusion
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helps understand how the motives concerned with sustainability influence the design of the MCS. Numerous studies have examined the role of MCS in the integration of sustainability in the strategic management (Engert, Rauter et al. Baumgartner, 2015), (Cramer, 2005), (White, 2009), (Epstein and Wisner, 2005). However, the influence of the motive to be concerned with
sustainability on the MCS remained scarce. Parego and Hartmann (2009) and Pondeville et al. (2013) have only examined the impact of a sustainability strategy or environmental proactivity on the design of the MCS. However, Van der Woerd and Van den Brink (2004) have used several motives in their research, although they did not relate these motives to MCS in general. They researched the relation of the motive with the design of the balanced scorecard.
To determine whether there is a relation between the motive to engage in sustainability management and the design and use of the SMI, an overview of the possible motives was presented first. The sixteen main motives were then divided into three groups, which were previously identified by examining Bronn and Vidaver-Cohen (2009) based on a factor analysis. These groups are: sustainability, legitimacy and profitability. In this process, the two highest-rated motives ("Improve image" and "Serve long-term results company”) were removed,
because they did not relate strongly enough to the three groups. Secondly, a way to measure the design and use of sustainability information was identified. These measures were a result of research by Pondeville et al. (2013). Subsequently, a regression analysis was conducted. Through this analysis, no significant predictors were found for the scope and timeliness of SMI. Conversely, with regard to the use of formal and informal SMI, a significant predictor was identified. In both cases, sustainability motives is the significant predictor, whereas legitimacy and profitability motives are insignificant predictors. These findings reveal that the motives of the company do influence parts of the use of SMI.
Therefore, this study provides evidence that the motive to be concerned with
sustainability influences the design of the MCS, especially the use of formal and informal SMI. The findings that intrinsic motivated sustainability has a higher impact on the design than stakeholder-driven sustainability are consistent with the research of Van der Woerd and Van den Brink (2004). Their research stated companies with higher ambition levels than
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In theoretical perspective, these findings contribute also to the discussion surrounding the influence of stakeholders on sustainability and their influence on the design of MCS. Rodrigue, Magnan and Boulianne (2013) mentioned several pressures of stakeholders groups influencing the design and use of MCS, this research provides additional knowledge by identifying the influence of the motivations on the design and use of MCS. The results also fill the gap in the process from motive to engage in sustainability to the integration of sustainability within the strategic management. Previous researches emphasized the role of MCS in the integration of sustainability within the strategic management and this study gives new explanations for possible influencers on the design and use of MCS.
Limitations
First, during the factor analysis, it became clear the two main motives – as indicated by the respondents – should be excluded from further analysis, because neither of them loaded enough on any of the motivation groups. Other scores which limit this study are the low
Cronbach’s alpha scores on the variables scope and timeliness, the high Kurtosis and Skewness-scores for legitimacy motives and the low average variance of the Formal SMI variable.
Second, within the questionnaire, the business managers were asked to assess their opinion about the business unit in terms of sustainability. These answers were not verified by quantitative data from the company. Thus, at times, the views of a manager can be different than the reality since the answer is a reflection of the ambition level of the manager. This limitation is reinforced by the fact that the interview was conducted with only one employee of every
company. However, it is assumed that the respondent has sufficient knowledge and thereby, has the desire to faithfully present of his business unit. Third, when searching for participants for the survey, several interview requests were sent to companies on the transparency benchmark list. This can lead to a non-respondent bias, because this can cause companies that think they will score well to respond to this request. In addition, these companies can present a manager of a business unit who often deals with sustainability. Thus, the completed questionnaire may not be an accurate representation of the entire company.
Third, sustainability is an exceedingly broad concept, as was evident within the literature, which referenced a number of different terms regarding the same concept. This can cause differences in the interpretation of sustainability by the different interviewees. These
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Fourth, the generalizability of the results is limited. Due to a small sample size it was not possible to perform a cross-industry analysis. However, it would be interesting to examine because the differences in interpretations between business sectors. The research also focuses on large companies and these companies are not always directly influenced by the government to engage in sustainability. However, regulations forced large companies to include non-financial information in their annual reports. However, the SMEs, which form the largest portion of the economy, are not captured within the research. These companies have to deal with pressure from the government less and thus, these type of companies are engaged with sustainability more voluntarily. Lastly, the survey was conducted in the Netherlands, which further limits the generalizability of the results.
Suggestions for further research
In line with the specified limitations, it may be interesting to conduct this study again with a larger sample, companies from different countries, cross-industry or in the small and medium enterprise in order to increase the generalizability of the results.
It may also be interesting for future research to examine, for instance, the effect of a combination of the use of formal SMI and the use of informal SMI on the integration of
sustainability. Furthermore, a more detailed look on the specific tools used in the formal SMI or informal SMI is recommended. For example, in the group of formal controls, there are companies with high profitability motives that possibly tend to make more use of formal performance information, whereas companies with high sustainability motives are more concerned with the establishment of procedures to influence employee behavior. These differences also reflect the difference between diagnostic use and interactive use of formal controls, which is another possible research topic.
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Appendix 1: Survey Questions
Motives
1. Engaging in social initiatives serves our company’s long-term interests (Motive Label: Serve Long-term Company Interests)
2. Engaging in social initiatives can improve our image (Motive Label: Improve Image) 3. We must engage in social initiatives to maintain our position against competitors
(Motive Label: Remain Competitive)
4. If we do not engage in social initiatives, regulators will force us to do so (Motive Label: Avoid Regulation)
5. People inside and outside our company expect us to engage in social initiatives (Motive Label: Fulfill Stakeholders Expectations)
6. Our shareholders demand that we engage in social initiatives (Motive Label: Meet Shareholder Demands)
7. As a private firm, we can solve social problems better than non-profit agencies (Motive Label: Solve Social Problems Better)
8. Our company has valuable resources that can be used to solve social problems (Motive Label: Share Resources with Society)
9. Our company can earn money by solving social problems (Motive Label: Financial Opportunity)
10. If we do not take action to address social problems, they could harm our primary business (Motive Label: Prevent future business problems)
11. People in our company are concerned about social problems want to help (Motive Label: Concern for Society’s future)
12. It makes us feel good to work on social problems (Motive Label: Personal Satisfaction) 13. There are no good reasons not to engage in social initiatives (Motive Label: No Good
Reason Not To)
14. Engaging in social initiatives can build networks in foreign cultures (Motive Label: Strengthen Global Networks)
15. We wish to be seen at the forefront of society’s legal, moral and ethical standards (Motive Label: Be Recognized for Moral Leadership)
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Design of MCS
Scope
1. Sustainability information that relates to possible future events (e.g., new environmental regulations, that can affect your operations)
2. Sustainability information on broad factors external to your business unit (e.g., technological developments, mobility policy)
3. Non-economic information that can affect your operations, such as employee and governmental attitudes regarding environmental or social issues, customer preferences, etc.
4. Quantification of the likelihood of future sustainability-related events occurring, that can affect your operations (e.g., scenario relative to climatic changes, probability estimates)
Timeliness
1. Sustainability information is provided frequently on a systematic, regular basis: e.g., daily reports, weekly reports (for less frequent reporting, mark lower end of scale).
2. The Sustainability Information that I need in my job is made available when I need it (in other words: the information is timely available)
Formal Sustainability Management information (To which extent is these following
formal sustainability management information used in your business unit?) 1. Integrated sustainability objectives in the planning systems
2. Integrated sustainability performance indicators in compensation/rewarding systems
3. Integrated sustainability performance indicators in promotion/career advancements
4. Comparison of results to sustainability objectives 5. Environmental of social information on employees
6. Integrated sustainability criteria in the investment decisions 7. Documented sustainability rules and procedures
8. Detailed description of sustainability functions 9. Procedures of external sustainability communication
Informal Sustainability Management Information (To which extent is these following
informal sustainability management information used in your business unit?)
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2. All BU employees are encouraged to make suggestions for improvements in the sustainability of our BU’s primary products/services
3. All BU employees are encouraged to make suggestions in the field of sustainability
4. BU Management is really involved in the sustainability process of the BU
5. Sustainability issues are discussed during formal and informal periodic meetings at BU level
6. BU Management has enough freedom to manage BU sustainability issues 7. Work teams at the BU level are built to manage sustainability problems 8. Persons from different BUs/parts of your organization (as a whole) work in
