1
How Competition Influences Sustainable Decision-Making
Distinguishing between the upstream and downstream supply chain and
exploring how managers can be influenced to be more sustainable
Master thesis, MscBA, specialization Supply Chain Management University of Groningen, Faculty of Economics and Business
January 28, 2019 JAN DE VRIES Student number: 2782375 Email: j.k.de.vries.3@student.rug.nl Supervisor/university Dr. ir. N.J. Pulles Co-assessor/university Dr. ir. S. Boscari
2 ABSTRACT
Purpose: The objective of this thesis is to investigate whether the competitive intensity in a market makes supply chain managers more susceptible to making unsustainable decisions. In addition, this thesis attempts to discover if firms can make use of coopetition, decision philosophies, governmental legislation, and reward systems to influence managers to become more sustainable.
Methodology: The potential relationship between the level of competition and sustainable decision-making is addressed with a vignette research that is conducted among upstream and downstream managers from multiple B2B firms. Additionally, a multiple case study is used to examine how managers can be influenced to become more sustainable.
Findings: The results show that downstream managers are significantly more sustainable under high competition. In contrast, there is no significant difference for the upstream supply chain. Additionally, the case study revealed that managers see governmental legislation and decision philosophies as the most effective means to influence managers to be more sustainable. Conversely, coopetition seems infeasible and bonus systems are considered less appropriate. Originality and Contributions: This thesis discerns itself from earlier research by making a distinction between the upstream and downstream supply chain, and environmental and social sustainability. Additionally, this study has attempted to gauge how existing phenomena like coopetition, governmental legislation, decision philosophies and reward systems can be used to influence managers to be more sustainable.
Practical Implications: Additional knowledge about the effect of competition on sustainable decision-making by supply chain managers can be beneficial for firms in order to explain certain behaviour or why some objectives have not been achieved. Additionally, firms might be able to improve their sustainability performance based on coopetition, decision philosophies, governmental legislation or reward systems.
3 TABLE OF CONTENT
1. INTRODUCTION……….……….. 4
2. THEORETICAL BACKGROUND………..….. 7
2.1. Sustainable Supply Chain Management………... 7
2.1.1. Defining sustainable supply chain management………... 7
2.1.2. Triple bottom line……….. 7
2.1.3. Reporting Sustainability decisions...………. 8
2.2. Competition... 9
2.2.1. Defining competition... 9
2.2.2. Downstream competition………. 9
2.2.3. Upstream competition……….. 9
2.2.4. Benefits and drawbacks……… 10
2.2.5. Competition and sustainability………... 10
2.3. Making Supply Chain Managers Prioritize Sustainability……….. 11
2.3.1. Decision-making philosophies……… 12
2.3.2. Coopetition………. 13
2.3.3. Management bonus system……….. 14
2.3.4. Governmental policies………. 14
3. STUDY 1………. 15
3.1. Methodology………... 15
3.1.1. Vignette design……….. 15
3.1.2. Vignette procedures……….. 16
3.1.3. Vignette data analysis……….. 17
3.2. Results………. 18
3.2.1. Manipulation checks………. 18
3.2.2. Hawthorn checks………... 18
3.2.3. Cronbach’s alpha……….. 19
3.2.4. Downstream competition and sustainable decision-making………. 19
3.2.5. Upstream competition and sustainable decision-making………….. 20
3.2.6. Reporting sustainability decisions...…... 20
4. STUDY 2………. 22
4.1. Methodology……… 22
4.1.1. Case selection criteria……….. 22
4.1.2. Data collection……….. 23 4.1.3. Data analysis………. 24 4.2. Results………... 25 4.2.1. Governmental legislation………. 25 4.2.2. Coopetition………. 26 4.2.3. Decision philosophies……….. 27 4.2.4. Bonus systems……… 28 5. DISCUSSION………. 30 5.1. Discussion Study 1……….. 30
5.1.1. Reporting sustainability decisions………... 31
5.1.2. Environmental versus social case……….. 31
5.2. Discussion Study 2……….. 31
6. LIMITATIONS AND FUTURE RESEARCH………... 33
7. CONCLUSION………... 34
8. REFERENCES……… 35
4 1. INTRODUCTION
Sustainability has been one of the most controversial topics of the last few decades. While there is an increasing number of advocates for a more sustainable world, some claim that the detrimental impact on the environment is exaggerated (Schlosser, 2018). Despite this, it is apparent that sustainability is no longer an obscure subject in supply chain research or the society at large. As a result, a growing number of firms dedicate increasingly more resources to their pursuit of sustainability (Bové, D’Herde, & Swartz, 2017). However, academics indicate that firms are still far from accomplishing truly sustainable supply chains (Pagell & Shevchenko, 2014). Although sustainable supply chain management can lead to increased performance (Ortas, Moneva, & Álvarez, 2014), recent scandals like the 2015 Volkswagen “Dieselgate” and the collapse in 2013 of a Bangladeshi clothing factory illustrate that firms do still not completely embrace the concept (Torrence, 2018). Remarkably, the disaster with the clothing factory is related to social sustainability and occurred in the upstream supply chain, while the Volkswagen scandal is more related to environmental sustainability and the downstream supply chain. This raises the question of why supply chain managers make unsustainable decisions in the first place and whether this depends on the direction of the supply chain. Additionally, these are interesting examples of disasters that firms can prevent by making their managers value sustainability.
5 reduces profitability and thus lessens the resources available for investments in social responsibility. Academics have also introduced concepts that could positively influence sustainable decision-making. For instance, coopetition, which is characterized by simultaneous cooperation and competition, could diminish the negative effects of competition (Kilduff et al., 2016) and stimulate sustainability (Christ, Burritt, & Varsei, 2017).
The existing literature has established the general idea that competition makes managers more susceptible to unethical decisions (Bennett et al., 2013 & Kilduff et al., 2016). According to this reasoning it seems plausible that managers in a competitive market are more likely to make unsustainable decisions as well. Studies of this area have been few and far in between, focused only partly on sustainability, considered mostly downstream competition, and provided contradicting results. This thesis addresses this gap and builds on the existing literature about the effect of competition on decision-making. However, it distinguishes itself by focusing specifically on sustainability in both upstream and downstream supply chains. Apart from questioning whether competition has a negative influence on sustainability decisions, this thesis tests if certain phenomena mentioned by academics can be used to influence managers to be more sustainable. Apart from coopetition, firms might be able to adopt a certain decision philosophy (Montabon, Pagel, & Wu, 2016). Other options are bonus systems (Merriman et al., 2016), and governmental regulations (Giunipero, Hooker, and Denslow, 2012). Considering the above, two explorative studies are conducted on the basis of the following research questions:
i) How does competition influence sustainable decision-making and reporting for supply chain managers?
ii) How can supply chain managers be influenced to make more sustainable decisions?
7 2. THEORETICAL BACKGROUND
2.1. Sustainable Supply Chain Management
This section will discuss, define, and explain all relevant constructs and phenomena regarding sustainable supply chain management.
2.1.1. Defining sustainable supply chain management
The concept of sustainability as it is known today was first introduced in the UN Burndtland Commission. It was described as a form of development in which present needs are fulfilled without harming the ability of future generations to fulfil theirs (Brundtland, 1987). Since then the subject of sustainable supply chain management has been steadily growing in popularity and is nowadays one of the most discussed topics by academics. Over the years the concept has evolved and has become more complex due to trends like globalisation and global competition (Hsuan, Skjott-Larsen, Kinra, & Kotzab, 2015). Consequently, it has been defined in varying manners, with each definition focusing on a different aspect or dimension. Most research considers sustainable supply chain management as a concept that is separate from regular supply chain management. However, they should be seen as one and the same, because only then the goal of accomplishing truly sustainable supply chains can achieved (Pagell & Shevchenko, 2014). A truly sustainable supply chain can be defined as a “[s]upply chain that would at worst do no net harm to natural or social systems while still producing a profit over an extended period of time; a truly sustainable supply chain could, customers willing, continue to do business forever” (Pagell & Wu, 2009: 38).
2.1.2. Triple bottom line: environmental and social sustainability
8 Most literature focuses on the environmental dimension of sustainability, and the social aspect has only recently started to garner more attention (Huq, Stevenson, & Zorzini, 2014). Environmental sustainability revolves around any initiative that attempts to reduce the impact of supply chain practices on the natural environment (Bask et al., 2018). Social sustainability concerns the formation and preservation of fair management practices in relation to labour, regions and communities in or associated with a supply chain (Sloan, 2010). Child labour is an example of socially unsustainable behaviour, while pollution is environmentally unsustainable.
Green packaging, distribution, warehousing and transportation
Code of conduct Financial performance and competitive
advantage
Environmental Social Economic
Green design and life cycle concept
Employee rights, welfare, and working
conditions Incentives, low interest loans, quick
payback periods
Reuse and recycling Social equity
Business transparency
Green procurement strategies Public awereness and ethics Logistics optimization
Reverse logistics
Corporate socal responsibility (CSR) Strategic collaboration and information
sharing Environmental standards (ISO 14000,
14001) Supplier support
Efficient resouce utilization
Figure 2.1. – Popular SSCM tools/techniques
2.1.3. Reporting sustainability decisions
9 2.2. Competition
This section defines competition and elaborates on upstream and downstream competition. It further discusses its drawbacks and benefits, and the relation between competition and sustainability.
2.2.1. Defining competition
Dealing with competition has always been an integral part of conducting business, but trends like globalization have increased the scale and intensity of competition significantly (Ralston, Lemay, & Opengart, 2017). In economics, the potential impact on prices is the main focus of research about competition (Dafny, Duggan, & Ramanarayanan, 2012). Competition can essentially be defined as “[a] rivalry between individuals, groups, or nations and it arises whenever two or more parties strive for something that all cannot obtain” (Stigler, 1988: 531-536). However, in terms of economics, competition can better be defined as a “[d]ynamic situation that occurs when several actors in a specific area (market) struggle for scarce resources, and/or produce and market very similar products or services that satisfy the same customer need” (Osarenkhoe, 2010: 345).
2.2.2. Downstream competition
The downstream supply chain concerns the activities and functions that are related to the end customers (Svensson, 2003). In terms of competition, firms can compete for the necessary resources for their production processes or for customers in overlapping product markets. The latter can be defined as downstream or product market competition, and relates to situations where firms compete through marketing practices and try to offer the most value to their customers (Osarenkhoe, 2010). The products offered by firms have to be at least somewhat substitutable for competition to occur (Syverson, 2004b). Product market competition can act as a mechanism within a firm that prevents managers from prioritizing individual gain over firm success (Boubaker, Saffar, & Sassi, 2018). On the other hand, intense competition can just as well instigate manager-shareholder conflicts because managers feel discouraged by the low profit margins resulting from competition (Dhaliwal, Huang, Khurana, & Pereira, 2014).
2.2.3. Upstream competition
10 production they are engaging in factor market competition (Markman et al., 2009). As a result of globalization, there are now more parties competing over the same amount of resources that is controlled by fewer firms (Ellram, Tate, & Feitzinger, 2013). This increased demand and consumption have already led to supply uncertainty for a lot of raw materials, like some forms of metal (Velkavrh, Asquith, Ribeiro, & Lung, 2015). Resources do not have to be rare, non-substitutable or valuable for competition to occur (Markman et al., 2009). Moreover, factor market competition can occur on a global scale and includes goods and services (Ellram et al., 2013). Upstream competition for resources is known to be essential for effective downstream competition (Stern, 2012). Although most firms monitor their competitors in product and factor markets separately, they often do not follow a non-product market competitor in the factor markets (Hunt & Davis, 2012). This can be harmful for a firm because new competitors can appear instantaneously at unexpected places (Ellram et al., 2013).
2.2.4. Benefits and drawbacks
Competition is generally associated with positive effects as it leads to greater economic efficiency and customer being (Ford & Hãkansson, 2013). This improved customer well-being translates into lower prices, higher productivity, and more innovation (Syverson, 2004a). However, competition can also lead to corruption if firms are not closely monitored (Singh, 2017). In addition to corruption, competition can lead to illegal activities and unethical decisions. Depending on the intensity of the competition, some firms are willing to engage in illegal activities to deliver the desired quality. In their study Bennett et al. (2013) found that firms feel like they have to be lenient towards regulations to make sure they do not lose their customers. Their research considers only one source of competitive pressure in the form of consumer demand with regard to leniency, but acknowledges there might be many more. Research conducted by Kilduff et al. (2016) yielded that employees experience greater personal insecurity when their firm competes intensively with a rival. This more relational form of competition threatens their feeling of self-worth and status (Blader & Chen, 2011). This pressure means that people are more likely to engage in unethical practices (Kilduff et al., 2016). This phenomenon applies to negative communication between competitors in a similar fashion (Yip, Schweitzer, & Nurmohamed, 2018).
2.2.5. Competition and sustainability
11 on the fact that their product is sustainable. However, from the perspective of a non-sustainable firm this does not have to be detrimental. While they lose the potential customers that prefer the sustainable product, they are now essentially in another market segment (Galbreth & Ghosh, 2013). Studies on the effect of competition on sustainability within firms have been far and few in between and resulted in conflicting ideas. Some suggest that downstream competition can lead to increased social responsibility in firms due to pressure from stakeholders and potential negative publicity (Fernández-Kranz & Santaló, 2010). This is contradicted by other research that found that downstream competition will lead to lower profitability, which will result in fewer investments in social responsibility (Bagnoli & Watts, 2003). The relation between factor market competition and sustainability has not yet been considered by the existing literature.
2.3. Making Supply Chain Managers Prioritize Sustainability
Nowadays firms are taking sustainability more serious than ever, as illustrated by the increasing amount of invested resources (Bové et al., 2017). This transition is fuelled by pressure from stakeholders (Seuring & Müller, 2008) and the need to stay competitive (Haanaes, 2016). A committed supply chain management team is essential for making sustainable initiatives a success (Panigrahi et al., 2018 & Haanaes, 2016). The literature has suggested several phenomena that could potentially be utilized by firms to make their managers prioritize sustainability. This thesis discusses decision philosophies, coopetition, management bonus systems, and governmental legislation.
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Phenomena Article Relation to Sustainability
Decision philosophies
(Markman & Krause, 2016)
Managers often prioritize the financial plane over the social and environmental plane.
(Gao & Bansal, 2013) Managers generally use instrumental logic when making
decisions about sustainability.
(Montabon et al., 2016) Proposes the ecological dominant logic for making decisions about sustainability.
Coopetition
(Kilduff et al., 2016) Suggests coopetition might be a way to diminish the adverse
effects of competition.
(Christ et al., 2017) Proposes how coopetition can be used to stimulate
sustainability.
Management bonus systems
(Sieger et al., 2013) Firms can make use of bonuses or profit sharing to align
interests within a firm. (Bulan & Sanyal,
2011)
Argue that these measures can also be used to stimulate other aspects within a firm.
(Merriman et al., 2016) Found that employees are generally more motivated to engage
in sustainability when they are rewarded.
(Walker et al., 2008) Argue that commitment from firm owners/top management to a
certain aspect will motivate others.
Governmental legislation
(Walker et al., 2008) A lot of literature suggests that governmental regulations can stimulate sustainability.
(Min & Galle, 2001) A firm’s involvement in some sustainable activities is positively related to their perception of environmental regulations. (Walker et al., 2008)
(Giunipero et al., 2012)
A proactive attitude towards environmental regulations works as a stimulus for sustainability.
Table 2.1 – Overview of articles linking the phenomena to sustainability
2.3.1. Decision-making philosophies
All firms have, either consciously or unconsciously, adopted some sort of logic for dealing with sustainability issues. Firms generally favour financial performance over social and environmental performance when addressing sustainability (Markman & Krause, 2016). According to Gao & Bansal (2013) this is caused by the fact that most managers rely on instrumental logic when making sustainability decisions. The managers prioritize the economic dimension of sustainability over the social and environmental dimension (Hahn, Pinkse, Lutz Preuss, & Figge, 2015). As a result of the multi-faceted nature of sustainability there might be tension between the objectives for the different dimensions (Hahn, Figge, Pinkse, & Preuss, 2018). This means that firms ignore sustainable opportunities that will not bring immediate financial gain, even though they might be tremendously beneficial on the social or environmental dimension (Montabon et al., 2016).
13 logic. This way of thinking prioritizes the environment above everything else, followed by the societal, and finally the financial dimension. The argumentation behind this reasoning is that the survival of the current society depends on a functioning environmental ecology, where the financial system is just a part of the overall social system (Markman & Krause, 2016).
2.3.2. Coopetition
The existing literature defines coopetition as the simultaneous competition and cooperation between firms (Luo, 2007). According to Blomqvist, Hurmelinna, and Seppänen (2005), a firm’s willingness to engage in cooperation instead of competition is based on the vicinity of that activity to the customers. Coopetition is more likely to occur between two firms if they have complementary resources and similar goals (Gnyawali & Park, 2009). Similar to competition, coopetition can occur both downstream and upstream in a supply chain. In upstream coopetition firms predominantly share immaterial resources like knowledge and information. Contrastingly, downstream coopetition mostly creates business opportunities through the removal of external obstacles (Osarenkhoe, 2010).
Firms engage in coopetition because it can lead to better innovative abilities and additional influence in a market (Gnyawali & Park, 2011). Additionally, it can speed up R&D activities through additional knowledge and resources (Mccutchen & Swamidass, 2004). Smaller firms in particular can benefit from the additional resources (Bengtsson & Johansson, 2014). However, a coopetitive relationship also involves some risks. Developing a coopetitive relationship costs a considerable amount of time and money, and it could all be in vain if the relationship is not properly managed (Osarenkhoe, 2010). Moreover, it is possible that conflicts arise between or within the organizations (Bengtsson & Kock, 2000).
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2.3.3. Management bonus system
Organizations often struggle to align the interests of owners and managers within a firm because of their diverging interests and information asymmetries (Bosse & Phillips, 2016). The literature on agency theory has proposed a variety of approaches to deal with this issue (Sieger et al., 2013). The underlying idea is that no one values the firm as much as the owners. The owners or principals have to ensure that all hired non-owners or agents in the firm have the same interests (Bosse & Phillips, 2016). To align these interests firms have made use of bonuses, profit sharing and stock ownership (Sieger et al., 2013). These measures can lead to increased firm performances and can be used to stimulate different firm aspects, such as innovation (Bulan & Sanyal, 2011).
A similar strategy could be designed to incentivize managers to make more sustainable decisions. Employees are more likely to value sustainability if it leads to a reward (Merriman et al., 2016). Firm could use this knowledge to set certain sustainability goals and reward their managers once these are accomplished. A major drawback of these bonus systems is that they are expensive (Sieger et al., 2013). However, the rewards do not have to be monetary. Managers can also be influenced by leaders’ personal commitment to sustainability (Walker et al., 2008).
2.3.4. Governmental legislation
15 3. STUDY 1
As mentioned in the introduction, this thesis consists of two studies. Study 1 serves the purpose of finding whether the level of competition in a market influences the sustainable decision-making by supply chain managers. Study 1 is based on the following research question:
i) How does competition influence sustainable decision-making and reporting for supply chain managers?
3.1. Methodology
This study is focused on isolating the effects of competition on sustainable decisions from supply chain managers. This is accomplished with an experimental vignette study that provides a scenario in which the competitive intensity is manipulated. Vignette studies are extremely suitable for researching decision-making behaviour (Wainwright, Gallagher, Tompsett, & Atkins, 2010). A vignette design offers a glimpse into how a person’s behaviour and decisions are affected by certain factors by manipulating some predetermined variables of a written case, while others are controlled (Evans et al., 2015). Studies like these are difficult to conduct in real-life as a lot of variables cannot be controlled. Moreover, a vignette-based study enables an investigator to look specifically at the effect of one variable, while the variability from other variables that would be present in a real-world scenario can be excluded (Evans et al., 2015). As can be deduced from the research question, this study is related to decision-making processes and requires the level of competition to be manipulated. This means that the description of the strengths of vignette studies is very applicable to the question of this study. Potential downsides from experimental studies are that the subjects might not behave as they would in the field, or that the results might not be generalizable because subjects take on a foreign role (Mir, Aloysius, & Eckerd, 2017). This thesis attempts to prevent the first from occurring by relying on subjects that are actually active in the relevant field. This means that they are comfortable with the setting of the experiment and can behave as they would in the field. This simultaneously increases the generalizability of this study because the subjects are not forced in a foreign role.
3.1.1. Vignette design
16 social sustainability. After reading the case the respondent is faced with questions about how he or she would act in the given scenario based on a Likert scale from 1 to 7.
Overall, there are eight different versions of the vignette, which are illustrated in Table 3.1. The results of the vignettes will be compared on the bases of the independent variable, which is the level of competition. This variable will be manipulated and therefore half of the respondents receive a version of the vignette that describes a scenario in which their firm deals with intense competition, while the other half describes a market without any competition. The upstream managers have to decide whether to source from an unsustainable supplier and the downstream managers have to choose if they will inform their customer about their dealing with an unsustainable supplier. In the high competition scenario there is another, competing, firm that could deal with the supplier or customer while this firm is not mentioned in the scenario with low competition. Additionally, the vignettes distinguish between social and environmental sustainability. Each respondent is provided with two cases, where one case addresses the societal dimension of sustainability and the other addresses the environmental dimension, because the respondents might think differently about environmental pollution as opposed to, for instance, child labour. Some vignettes address the environmental case prior to the societal one, while others address them in the opposite order. This ensures that the results will not be influenced by the order of the cases. Finally, there are different versions for upstream and downstream supply chain managers because it is possible that upstream competition has other effects than downstream competition. Appendix 3 provides an example of the scenarios and questions for the varying versions of the vignettes.
Version Downstream Participant Upstream Participant
1 High Comp/EnvSoc/Down High Comp/EnvSoc/Up
2 High Comp/SocEnv/Down High Comp/SocEnv/Up
3 Low Comp/EnvSoc/Down Low Comp/EnvSoc/Up
4 Low Comp/SocEnv/Down Low Comp/SocEnv/Up
Example: XX/XX/XX: level of competition/order cases/participant
Table 3.1 – Different versions of the vignettes 3.1.2. Vignette procedures
17 meant to measure the effect of competition on sustainable decision-making. Instead the respondents were told that the vignettes aim to study managerial decision-making in a general way. The respondents were instructed not to discuss the vignettes before everyone has completed them. Someone was present to answer potential questions from respondents. Only afterwards the respondents were told that sustainability was actually the main focus of the research.
3.1.3. Vignette data analysis
After collecting all vignettes the upstream and downstream data was digitalized in separate databases using Microsoft Excel. Table 3.2 provides an overview of the characteristics of all participants. The relevant data from the vignettes that is used to conduct the various tests are illustrated in Table 3.3. The actual statistical analyses are conducted using IBM SPSS 25. As suggested by Table 3.3, several analyses, such as manipulation checks, have to be conducted for the upstream and downstream data. These, along with the actual tests for the relationship between sustainable decision-making and the level of competition, will be discussed in the results section.
Characteristic Downstream Upstream
Respondents 31 27 Gender Female: 10% Male: 90% Female: 30% Male: 70% Age Average: 42 20-29: 23% 30-39: 16% 40-49: 32% 50-59: 23% 60-69: 06% Average: 40 20-29: 26% 30-39: 19% 40-49: 22% 50-59: 30% 60-69: 3%
Nationality Dutch: 100% Dutch: 100%
Table 3.2 – Characteristics participants Study 1 Construct Version Explanation
Information sharing
Down The respondent is a marketing director for a company that has recently started purchasing from an unsustainable supplier. Three statements that inquire how likely the subject is to share that info with their customer who greatly values sustainability. A higher score means more sustainable.
Example item: HotFashion will be open about its use of the subcontractor in
Bangladesh to the Nordic retailer.
Sourcing Up The respondent is a supply chain executive for a company that considers buying
supplies from an unsustainable supplier. Three statements concerning the probability that he will buy from this supplier. A higher score is less sustainable.
18
Reporting Decision
Both Three questions that inquire how likely the subjects are to report their decisions to
their direct colleagues, supervisors, and subordinates.
Example item: How likely are you to report on this decision to your supervisor?
Manipulation check
Both Two questions that are used to check whether the manipulation regarding the level
of competition has worked.
Example item: Other fashion brands actively seek to sell similar quantities of denim
brands to the Nordic retailer. Hawthorn
check
Both Two additional questions that are used to check whether there are no additional manipulations present in the case.
Example item: Securing sufficient supplies of nickel is of high importance for the
success of BatteriesCo.
Table 3.3 – Relevant data from the vignettes and for what it is used
3.2. Results
This section provides the results for all analyses of Study 1 starting with the manipulation check, followed by the Hawthorn check, Cronbach’s Alpha, and the analysis of the relationship between competition and sustainable decision-making and reporting.
3.2.1. Manipulation checks
The manipulation of the level of competition is considered on the basis of independent-samples T-tests, which compare the mean values for the manipulation questions. The difference between these values is significant if the test results in a P-value of less than 0.05. Table 3.4 provides an overview of the mean results for the manipulation checks, their T-statistic and P-values. The manipulation of the level of competition was successful as all P-values are smaller than 0.05.
Item Competition Downstream Data Upstream Data
Mean T-score P-value Mean T-score P-value
Manipulation Check 1 High 5.97 5.785 0.000 5.42 4.511 0.000 Low 3.53 3.53 Manipulation Check 2 High 5.47 5.137 0.000 4.92 3.612 0.001 Low 3.41 3.20
Table 3.4 – Results manipulation checks 3.2.2. Hawthorn checks
19
Item Competition Downstream Data Upstream Data
Mean T-score P-value Mean T-score P-value
Hawthorn 1 High 5.90 0.655 0.516 5.67 -1.152 0.254
Low 5.72 6.10
Hawthorn 2 High 3.67 -1.249 0.217 4.63 0.058 0.954
Low 4.19 4.60
Table 3.5 – Results Hawthorn checks 3.2.3. Cronbach’s alpha
Cronbach’s alpha is used as a measure of internal consistency and the higher the alpha, the higher the correlation between the set of items from a construct. Table 3.6 provides the alpha for all relevant constructs. Overall the alphas indicate a good level of internal consistency (Yang & Green, 2011). The alpha is somewhat lower for the ReportDecision construct, but this is explained by the fact that reporting a decision to a subordinate differs from reporting to a supervisor. Therefore, the questions measure slightly different things, resulting in a lower alpha.
Downstream Upstream Construct Cronbach’s alpha Internal consistency Construct Cronbach’s alpha Internal consistency
SharingInfo 0.924 Excellent Sourcing 0.933 Excellent
ReportDecision 0.707 Acceptable ReportDecision 0.631 Questionable
ManipulationCheck 0.913 Excellent ManipulationCheck 0.876 Good
Table 3.6 – Cronbach’s alpha for constructs vignettes
3.2.4. Testing how competition affects downstream sustainability decisions
This section discusses if the level of competition affects the sustainability decisions made by downstream managers. In this case a higher score represents a more sustainable decision. Table 3.7 shows that downstream managers make significantly more sustainable decisions in a situation with high competition than in a situation with low competition (i.e., P < 0.05). Additionally, Table 3.8 illustrates how downstream managers do not make a significant distinction between social and environmental sustainability (i.e., P’s > 0.05).
Dependent Variable Independent Variable
N Mean T-statistic P-Value
SharingInfo High competition 30 5.1222 2.857 0.006
Low competition 32 3.9896
Table 3.7 – Downstream data: results independent-samples T-test
Dependent Variable Competition Independent Variable N Mean T-statistic P-Value
SharingInfo High competition Environmental 15 5.0000 -0.493 0.626 Social 15 5.2444 Low competition Environmental 16 4.0208 0.100 0.921 Social 16 3.9583
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3.2.5. Testing how competition affects upstream sustainability decisions
The results for the tests concerning the relationship between the level of competition and the sustainability decisions made by upstream supply chain managers are illustrated in Table 3.9. In this case a higher score represents a more unsustainable decision. It shows how the sustainability decisions made by upstream managers are not significantly affected by the level of competition (i.e., P > 0.05). However, Table 3.10 illustrates that upstream managers are significantly more environmentally unsustainable than socially unsustainable in a situation with low competition (i.e., P < 0.05).
Dependent Variable Independent Variable
N Mean T-statistic P-Value
Sourcing High competition 24 4.4028 0.757 0.453
Low competition 30 4.0333
Table 3.9 – Upstream data: results independent-samples T-test
Dependent Variable Competition Independent Variable N Mean T-statistic P-Value
Sourcing High competition Environmental 12 4.8056 -1.236 0.232 Social 12 4.0000 Low competition Environmental 15 4.8000 -2.375 0.025 Social 15 3.2667
Table 3.10 – Upstream data: results independent-samples T-test social vs. environmental 3.2.6. Testing how competition affects the reporting of sustainability decisions
This section discusses the results of all tests associated with the reporting of the sustainability decisions. Table 3.11 provides an overview of the results for the downstream managers. These results show that downstream managers are significantly more likely to report their sustainability decisions to their supervisors under high competition (i.e., P < 0.05). A similar relationship is not apparent for direct colleagues and subordinates.
Dependent Variable Independent Variable
N Mean T-statistic P-Value
ReportDecision1: direct colleagues High competition 30 5.43 0.378 0.378 Low competition 32 5.03 ReportDecision2: supervisor High competition 30 6.73 3.345 0.002 Low competition 32 5.88 ReportDecision3: subordinates High competition 30 4.33 0.989 0.327 Low competition 32 3.81
Table 3.11 – Downstream data: results independent-samples T-test ReportDecision 1, 2 and 3
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Dependent Variable Independent Variable
N Mean T-statistic P-Value
ReportDecision1: direct colleagues High competition 24 5.54 -1.544 0.129 Low competition 30 6.10 ReportDecision2: supervisor High competition 24 6.63 1.034 0.306 Low competition 30 6.40 ReportDecision3: subordinates High competition 24 4.25 -1.332 0.189 Low competition 30 3.93
22 4. STUDY 2
In contrast to Study 1, which researches how competition might make supply chain managers more unsustainable, Study 2 attempts to find how these managers can be made more sustainable. It discusses how governmental legislation, decision philosophies, management reward systems, and coopetition might be successfully utilized to accomplish this objective, and is based on the following research question:
ii) How can supply chain managers be influenced to make more sustainable decisions? 4.1. Methodology
A multiple-case study was conducted by collecting feedback, opinions and perceptions from six supply chain professionals on the expected effectiveness of coopetition, governmental legislation, decision philosophies, and reward systems as tools to make managers more sustainable. As these concepts have only recently been linked to sustainability there is not a lot of knowledge about their effectiveness yet. Case studies allow for an explorative lens and are therefore appropriate for this research (Karlsson, 2009). The study will be deductive as the existing literature has already established the idea that the phenomena could be used to influence managers to be more sustainable.
Moreover, a case study is the ideal method for a detailed and in-depth study of contemporary phenomena in their natural setting and applies well to situations where boundaries between phenomena and context are not always clear (Yin, 1981). This means that this method is very suitable for this research because it is difficult to identify the boundaries of this study. The aim is to find ways to influence managers to make more sustainable decisions. Topics that are likely to be touched upon are competition, coopetition, decision philosophies, governmental legislation, management rewards and sustainable decision-making. However, it is difficult to consider these as the exact boundaries as some other phenomena might turn up that have to be discussed as well.
4.1.1. Case selection criteria
23 companies and the supply chain as a whole” (Mentzer, Keebler, Nix, Smith, & Zacharia, 2001: 18). This study does not limit itself to one single industry or firm in order to combine as much knowledge as possible. Instead, it considers supply chain managers from multiple firms from varying industries.
This case study relies on three selection criteria to identify the cases. Firstly, it is important to consider whether the supply chain professional’s function is related to the upstream or downstream supply chain. Secondly, the cases should have been active in a supply chain related function for at least two years to ensure there was sufficient time to gain experience and knowledge. Finally, the cases should have experience with sustainability because this is highly relevant to the study. Overall, this study considers six cases that are showcased in Table 4.1, while Table 4.2 provides some characteristics of the firms from which the cases originate.
Selection Criteria Up 1 Down 1 Up 2 Down 2 Up 3 Down 3
Supply chain function
Purchaser Product
manager
Purchaser Director Development
engineer
Sales
Experience 10+ years 10+ years 4 years 12 years 6 years 36 years
Sustainability Yes Yes Yes Yes Yes Yes
Table 4.1 – Cases and selection criteria
Characteristics Firm A Firm B Firm C Firm D
Case Up 1, Down 1 Up 2, Down 2 Up 3 Down 3
Industry Food processing Fences Tailored transport Agricultural supplier
Business system B2B Mainly B2B B2B B2B
Size ± 1300 ± 20 ± 49000 ± 100
Involvement with sustainability
High Low Medium Medium
Secondary data Annual reports,
firm magazine, and website
Website Annual reports and
website
Website
Table 4.2 – Firm characteristics 4.1.2. Data collection
24 interviewees to suggest relevant but unexpected information. All interviews started with an explanation of the purpose and the assurance that the transcriptions of the interviews could be reviewed. Each interview started with some relatively general questions concerning the subject’s job and was followed by a set of questions that discusses competition and sustainability. This part is included because it serves as a good introduction for the part that addresses the question of how managers can be influenced to be more sustainable. However, it might also provide some valuable insights for Study 1. The main part is about the respondents’ experience with and perceptions of coopetition, decision philosophies, governmental regulations and bonus systems. See Appendix 1 for the interview protocol.
The interviews are not the only source of data in this study. To increase the rigor of the case study this article relies on triangulation, meaning that additional data from different sources is utilized to support the results. In this case, the vignette study from Study 1 is used as an additional data source for the case study. The vignettes that are distributed under upstream and downstream supply chain managers for Study 1 incorporate some additional survey questions. One of these questions inquires if the respondents think that firms are interested in concepts or tools that they can use to influence their management to be more sustainable. This question is displayed in Appendix 2. In addition, some secondary data originates from company documents that relate to the constructs of this study.
4.1.3. Data analysis
The interviews were recorded, transcribed and collected in a database, with permission from the interviewees. This process allows an accurate rendition of what has been said during the interview. Along with the notes from the interviews this is a first step of the actual data analysis and provides the basis for more in-depth analyses (Karlsson, 2009). Table 4.3 provides an overview of the duration of the varying interviews. It also shows how the interview with Upstream 2 is not taken into account for the analyses. This is done because the quality of the interview was lacking and did not provide enough relevant insights.
25 sustainability. The results discuss the different views of how these phenomena could be used by firms to influence their managers to be more sustainable.
Case Function Supply Chain Duration Interview
Downstream 1 Product Manager Downstream 41:22 Min
Upstream 1 Purchaser Upstream 41:20 Min
Downstream 2 Director Downstream 24:17 Min
Upstream 2 Purchaser Upstream NOT TAKEN INTO ACCOUNT
Downstream 3 Sales Downstream 34:47 Min
Upstream 3 Development
Engineer
Upstream 42:37 Min
Table 4.3 – Overview durations interviews
4.2. Results
This section discusses the results of the analyses and comparisons of the interviews. It starts with a summary of the main findings followed by a more in-depth description of the outcomes per phenomena. Table 4.4 summarizes the perceived importance that the interviewees assign to the different phenomena used to influence managers. The table shows that governmental legislation seems to be the most important phenomenon, followed by decision philosophies, coopetition, and finally bonus systems. Each of these phenomena is analysed more closely.
Cases Governmental
Legislation
Coopetition Decision
Philosophies
Bonus Systems
Upstream 1 High Medium High Low
Downstream 1 High Low Medium Low
Downstream 2 Medium Low Medium Low
Upstream 3 Medium Medium Medium Low
Downstream 3 Medium Medium Medium Medium
Table 4.4 – Perceived importance according to interviewees 4.2.1. Governmental legislation
The interviews show that the government could play a major role in making managers more sustainable. Both the upstream and downstream professionals think that legislation could be an important driver of sustainability. Governmental legislation can, for instance, move industries in certain direction as: “The moment a regular practice gets prohibited you are forced to search for more sustainable alternatives” (Upstream 1, 2018: 4). This view is shared by all cases, although they do stress the importance of varying aspects.
26 nudged by the government to engage in more sustainable activities by providing subsidies and assistance with research. Although all cases acknowledge the effectiveness of prohibiting unsustainable practices, they all prefer the less drastic measures: “I think it would be even more effective if the governments would focus on stimulating sustainable innovations instead of regulations that ban current practices. They could subsidize research or make the sustainable alternatives more attractive to customers” (Upstream 3, 2018: 4).
Additionally, there is a difference in the scale on which the cases consider the governmental regulations. Where Case A, B, and E all consider the regulations on an international or global scale, Case C and F are mostly concerned with the legislation on a national scale. This is stressed by the fact that some of the cases are actively trying to influence the regulations on a European scale: “We are a member of the European Starch Industry Association whose mission is to protect and promote the interests of starch producers and products to EU and international stakeholders” (Downstream 1, 2018: 4). In contrast, Case C is only concerned with the possible subsidies on sustainable practices on a much smaller scale: “I know we might be eligible for certain subsidies, but I do not have the time to investigate this. I would appreciate it if the municipality would organize yearly meetings in which they would explain the possibilities” (Downstream 2, 2018: 4).
Finally, the interviewees identified certain areas where governments have to be wary with their legislation. In general, the government should try limit the amount of legislation: “In my opinion the government should not intervene too much in a market. Instead they should focus on stimulating sustainable initiatives and research” (Upstream 3: 2018:5). Moreover, they should try to align their legislation with other countries as much as possible: “Over sixty percent of my products are being sold outside Europe and therefore I have to deal with countless forms of legislation” (Downstream 1, 2018:4).
4.2.2. Coopetition
27 general aversion against working with competitors: “I think the theoretical benefits are clear for everyone, especially concerning transport, warehousing and purchasing. However, I think that few firms actually want to share these with a competitor” (Upstream 3, 2018: 6)
However, this does not mean that the interviews do not provide some interesting insights concerning coopetition and sustainability. Most of the cases do describe some scenarios that seem to be heavily related to coopetition: “Two years ago we became part of a group of companies that also includes a competitor. We have now started to exchange some basic parts and within the group we engage in collaborative purchasing. This is likely to result in some sustainable benefits in terms of transport as well” (Upstream 3, 2018: 5). In other industries the cooperation often resulted in acquisitions: “In this region there are only two main firms in our industry, and therefore we do not have a lot of competition. However, there used to be a lot of other firms. Slowly but surely these firms were bought or they fused. I think this is actually similar to what you describe and it has resulted in sustainability benefits as well (Downstream 3, 2018: 5). In all these scenarios the cases describe that the risk was mitigated by the shared ownership.
Moreover, the interviewees wonder whether it would be more effective if a third party were to initiate the cooperation between competitors. One of the interviews proposed that: “It might be better if these collaborations between competitors would be initiated by a third party. For instance, if we were contacted by a company that is planning to develop a new railroad we would not have the volume to make it profitable by ourselves. However, we could then advise that third party to contact one of our competitors and add their volume” (Upstream 1, 2018: 6). One of the other cases described a similar scenario which is actually already in progress: “We are currently investigating if we can join a project in which transport companies can list trucks that will have to drive a certain route empty. We might have some goods that need to be moved along this route. This would be more sustainable and we could be sharing trucks with competitors without even noticing” (Upstream 3, 2018: 6).
4.2.3. Decision philosophies
28 these policies within their firms. They all note how they are actively concerned with these policies in their function: “I think it makes sense that you try to take your firm values into account during your work” (Downstream 1, 2018: 6). Incorporating sustainability into the firm strategies seem to be one of the basic things that all firm should do.
This should result in an atmosphere where people do not focus solely on the financial aspect, but also the environmental and social aspect. One of the cases described a good starting point for this idea: “It is important that managers consider the environmental or social aspect when they are choosing between two seemingly identical options in terms of the financial aspect” (Downstream 1, 2018: 6). The cases generally share the idea that this mind-set is steadily developing and becoming more apparent in businesses: “I think this development is already in progress. An increasing amount of firms is incorporating sustainability in their policies and I am fairly certain that managers take this into account when making decision” (Upstream 3, 2018: 6). However, some of the interviewees noted how they hope that people will show some more intrinsic effort concerning sustainability. This means that they do not just focus on it because their firm deems it important, but also because they themselves think it is essential: “For instance, at the moment I often stress to the guys in production how they should carefully separate the waste and recycle. I think a better world starts with yourself” (Downstream 2, 2018: 5).
4.2.4. Bonus systems
29 representative, but personally I do not feel like I would need a bonus to value sustainability” (Upstream 1, 2018: 7). Finally, one of the cases noted how it might be hard to correctly measure the performance: “Especially when you link the bonuses to sustainability, I expect problems regarding the measurement of the performance. How are you going to measure sustainability?” (Upstream 3, 2018:7).
30 5. DISCUSSION
The studies in this thesis produced several interesting results that will be discussed in more detail in this section. Firstly, Study 1 will be discussed, followed by study 2.
5.1. Discussion Study 1
The purpose of the vignette research was to examine if the level of competition in a market has an effect on sustainable decision-making by supply chain managers. The existing literature on this subject proved to be contradictory and focused only on the downstream supply chain. On one hand, intense competition is generally expected to lead to more unethical decisions (Bennett et al., 2013). On the other hand, competition can also cause firms to behave more sustainable (Fernández-Kranz & Santaló, 2010). The results for Study 1 show that there is no significant relation between competition and sustainable decision-making by upstream supply chain managers. However, the results further show that this relation does exist for the downstream managers. Downstream supply chain managers are significantly more sustainable when they are faced with intense competition.1
There are various reasons for considering these results surprising. For the downstream managers the sustainability decision concerned a dilemma where they had to decide whether to inform their customer about the fact that they are sourcing from an unsustainable supplier. Under intense competition the downstream managers were expected to withhold their collaboration with this unsustainable supplier from their sustainable customer. This would align with the findings of Bennett et al (2013), who found that competition makes managers increasingly unethical. Similarly, Schreck (2015) found that managers are likely to become less honest when there is more competition. The reasoning behind these ideas are based on the fact that firms faced with intense competition are focused on avoiding liquidation (Ruzzier, 2018). Therefore, the downstream managers would not have the luxury to inform their customers of the situation. However, on the other hand, it is possible that downstream managers feel like they have to be honest towards their customers under high competition. They are inclined to explain the situation with the aim of resolving it as quickly as possible. Otherwise they risk the customers finding out by themselves. Based on the results the latter explanation seems to hold for the downstream managers.
1 Study 1 is a part of a larger research and this is the second year the study is being conducted. This allows for a
31
5.1.1. Reporting sustainability Decisions
Additionally, Study 1 investigates how likely supply chain managers are to report their sustainability decisions to their direct colleagues, subordinates, and supervisors. The results show that downstream managers are significantly more likely to share their decision with their supervisor under high competition. This contradicts the findings of Schreck (2015), who suggests that managers are more likely to lie when there is more competition. This relationship does not hold for direct colleagues and subordinates. This might be because managers would rather discuss controversial discussions with their supervisors. Additionally, unlike the study conducted by Schreck (2015), post-hoc analyses show that there are no significant differences based on gender when it comes to reporting. These analyses are provided in Appendix 5.
5.1.2. Environmental versus social case
Finally, Study 1 also considered the difference between social and environmental sustainability. Remarkably, when there is no competition upstream managers make more environmentally unsustainable decisions than socially unsustainable decisions.2 This implies that upstream managers would rather harm the environment than engage in business that is associated with child labour. This difference is also noticeable under high competition, however it is not significant in that case. That this difference is only apparent for the upstream managers might be caused by the fact that, unlike upstream managers, downstream managers have no control over the suppliers. Any unsustainable behaviour from a supplier can lead to major reputational damage for the focal firm (Roehrich, Grosvold, & Hoejmose, 2014). Moreover, some unsustainable activities are more condemnable than others (Hartmann & Moeller, 2014). Therefore, the upstream managers might prefer pollution over child labour. That the difference is only significant under high competition can be explained by the fact that firms are solely focused on survival under high competition (Ruzzier, 2018).
5.2. Discussion Study 2
Study 2 revolves around phenomena that can be used to influence supply chain managers to be more sustainable. The theoretical background introduced four main concepts in the form of governmental legislation, coopetition, bonus systems, and decision philosophies. With the help of interviews with three upstream and three downstream supply chain professionals this study attempts to find the best options and how they can be utilized. The results indicate that the
2 These results are based on a small sample because the tests required the data to be divided often. To counter
32 professionals see the most potential in governmental regulations, followed by decision philosophies, coopetition and lastly bonus systems.
Generally, the results concerning the role of governmental regulations in influencing managers to be more sustainable showed a lot of similarities with the literature. Similar to the findings of Walker et al. (2008), the professionals think that firms should look at regulations in a proactive way. The interviewees feel that managers could be forced to move in a certain direction through prohibitions or could be lured by attractive subsidies or regulations. These ideas are shared by the upstream and downstream managers and correspond with the view of Giunipero et al (2012). An observation that was not mentioned in the literature was that some respondents consider regulations on a global scale, while others consider only their nation or municipality. Naturally, the managers that are focused on the international regulations are those from the big firms. Additionally, the respondents all see the theoretical benefits of coopetition as mentioned by Gnyawali & Park (2011) and Mccutchen & Swamidass (2004). However, none of them is likely to engage in coopetition anytime soon as they consider the risks and feelings of competition to be too great a barrier. The risks perceived by the interviewees align with those proposed by Bengtsson & Kock (2000) and mostly concern conflicts between the parties. However, some indicated that they would consider coopetition if it was initiated by a neutral third party. Furthermore, all respondents found the decision philosophies fairly important. As suggested by Markman & Krause (2016), most interviewees admitted that the financial aspect is currently leading when making decisions concerning sustainability. According to the interviewees firms should formalize their perspective on sustainability in their corporate policies. From thereon they should actively communicate that sustainability is just as important as the financial aspect. This appears to be the first step from an instrumental decision logic towards an ecological dominant logic, as proposed by (Montabon et al., 2016). All interviewees share the idea that this is a simple but effective way to influence managers.
33 6. LIMITATIONS AND FUTURE RESEARCH
The studies in this thesis are subject to some limitations. First and foremost, the number of participants in Study 1 was somewhat limited. Therefore, it is possible that the results for Study 1 are somewhat dependent on a few firms. Additionally, the vignettes describe scenarios that are based on firms that operate on a global scale. This is not the case for most respondents and thus this might be a foreign scenario to them. Moreover, the participating firms are mostly located in the Netherlands. It is possible that a similar study on another continent would result in different outcomes due to different cultures and values. Additionally, Study 2 includes only four phenomena that can be utilized to influence supply chain managers to be more sustainable. Naturally, there are other concepts that could be used, like supplier integration (Sancha, Longoni, & Giménez, 2015). Moreover, the study only considers the perspectives from the managers themselves. It is possible that they dislike certain practices that would actually be quite effective.
34 7. CONCLUSION
In the end, this thesis has led to three main theoretical contributions. First of all, downstream managers appear to be significantly more sustainable when they are faced with intense competition. Moreover, they are also more inclined to report their decisions to their supervisors under high competition. Remarkably, these findings contradict the leading ideas in the literature, which generally expects managers to behave more unethical (Bennett et al., 2013) and dishonest (Schreck, 2015) under intense competition. On the other hand, upstream managers are not affected by the level of competition when it comes to sustainable decision-making. Secondly, in a situation with no competition, upstream supply chain managers would rather be associated with environmentally unsustainable activities than socially unsustainable activities. This likely has something to do with the fact that some unsustainable activities are perceived to be more condemnable than others (Hartmann & Moeller, 2014). Finally, the best way for firms to influence their managers to become more sustainable is to assume a proactive attitude towards governmental regulations concerning sustainability. This is followed by promoting a more sustainable decision philosophy, engaging in coopetition with competitors, and bonus systems linked to sustainability objectives.
The findings from this thesis could have some implications for firms and managers. Several practices are explained that could stimulate managers and firms to become more sustainable. These practices might be adopted by some firms to influence their managers. Furthermore, the results show that downstream managers become increasingly sustainable when faced with intense competition, while upstream managers are not affected. By building on this knowledge some firms might be able to stimulate sustainable initiatives and prevent some unethical behaviour.
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