The effect of external practices on triple bottom line
performance: considering the role of internal practices
Master Thesis Supply Chain Management
University of Groningen, Faculty of Economics and Business
June 20, 2016
T.T. van Leeuwen
Student number: 1907700
e-‐mail: t.van.leeuwen.1@student.rug.nl
Supervisor/ University of Groningen
Xuan Zhang
Co-‐assessor/ university
J. Drupsteen
Acknowledgments: Firstly, I want to thank Christina Sancha Fernandez for being my
supervisor for the first 5 months of the research. Secondly, I would like to thank Xuan Zhang for taking over as first supervisor on such short notice and helping me with problems that I faced until the deadline. Thirdly, I want to thank Justin Drupsteen for giving me additional
The effect of external practices on triple bottom line
performance: considering the role of internal practices
ABSTRACT
This master thesis focuses on how external practices affect triple bottom line (TBL) performance while considering the role of internal practices. The TBL concept considers environmental, economic and social sustainability performance. This master thesis uses sustainable supply chain management (SSCM) theory to develop its hypothesis. Survey research was selected as the research method. The findings of the paper illustrate that external practices do not improve TBL performance. External practices do positively influence internal practices, and internal practices significantly improve environmental and social performance, however they do not improve economic performance. This master thesis contributes to the literature by increasing the knowledge on SSCM; furthermore it includes the relatively new social dimension of the TBL. It explains how external practices indirectly improve TBL performance by positively influencing internal practices. This master thesis encourages managers to implement external and internal practices in order to
improve sustainability performance.
TABLE OF CONTENTS
TABLE OF CONTENTS ... 3
1. INTRODUCTION ... 4
2. THEORETICAL BACKGROUND ... 6
2.1 External practices ... 6
2.2 The relationship between external practices and internal practices ... 8
2.3 Internal practices: ... 8 3. METHODOLOGY ... 11 3.1 Survey Design ... 11 3.2 Data collection ... 11 3.3 Factor analysis ... 13 4. RESULTS ... 16 5. DISCUSSION ... 19
5.1 External practices and TBL performance ... 19
5.2 Internal practices and TBL performance ... 19
5.3 External practices influencing internal practices ... 20
6. CONCLUSION ... 21
6.1 Theoretical implications ... 21
6.2 Managerial implications ... 21
6.3 Limitations and future research ... 22
7. REFERENCES ... 23
(Aldi Nederland, 2016) ... 23
Appendix A: ... 26
1. INTRODUCTION
Sustainability is a well known topic in the business world and has recently started to appear in the operations and supply chain management literature (Gimenez & Tachizawa, 2012). Sustainability performance is often expressed in the triple bottom line(TBL), which embraces environmental, economic and social performance(De Giovanni, 2012). A key challenge lies in extending sustainability to suppliers, in so doing buying firms need to implement supplier development (external) practices such as assessment and collaboration to ensure that their suppliers are sustainable(Sancha, Gimenez, & Sierra, 2016). However, the effectiveness of these external practices on the TBL performance of the buyer firm is still unclear. For example, Aldi claims on their website to incorporate external practices by auditing suppliers, using a periodic Business Social Compliance Checklist (BSCI) and that it collaborates with suppliers by implementing training programs in order to improve the working conditions (Aldi Nederland, 2016). However quite recently (December 2015) Aldi got caught up in a child labor scandal in Thailand with one of its seafood suppliers (Danckert, Sarah, 2015). Even though Aldi did not receive any fines, it did damage their brand image and reputation. This example illustrates that companies implementing external practices are not always successful in extending sustainability to suppliers, and that it is therefore important to find out what are the causes for this problem. This research paper will be further investigating this problem.
Internal practices are implemented in order to gain sustainability performance within a firm’s boundaries(Gimenez, Sierra, & Rodon, 2012). Internal practices are concerned with internal environmental and internal socially-‐orientated programs(Gimenez et al., 2012).The effect of internal practices on buyer firm sustainability performance has been extensively discussed (De Giovanni, 2012; Gimenez et al., 2012; Golicic & Smith, 2013; Luzzini, Brandon-‐ Jones, Brandon-‐Jones, & Spina, 2015; Pullman, Maloni, & Carter, 2009; Rao & Holt, 2005; Rao, 2002; Q Zhu, Sarkis, & Geng, 2005; Qinghua Zhu & Sarkis, 2004). Most of the researchers that studied internal practices found a positive and significant relationship between internal practices and environmental performance(De Giovanni, 2012; Gimenez et al., 2012; Pullman et al., 2009; Rao, 2002; Q Zhu et al., 2005; Qinghua Zhu & Sarkis, 2004). Furthermore most research also finds a positive and significant relationship between internal practices and economic performance(De Giovanni, 2012; Gimenez et al., 2012; Golicic & Smith, 2013; Rao & Holt, 2005; Qinghua Zhu & Sarkis, 2004).Moreover most research also found a positive and significant relationship between internal practices and social performance(De Giovanni, 2012; Gimenez et al., 2012). This indicates that the relationship between internal practices and TBL performance is well established in the literature and that most studies confirm a positive effect of internal practices on TBL performance.
Kazeminia, 2015; Luzzini et al., 2015; Rao & Holt, 2005; Richey, Roath, Whipple, & Fawcett, 2010; Sancha et al., 2016). However in contradiction to the literature on internal practices, the literature on external practices shows mixed results. While there are some papers that show that external practices improve environmental performance (De Giovanni, 2012; Gimenez et al., 2012; Luzzini et al., 2015; Q Zhu et al., 2005) economic performance(Gimenez et al., 2012; Golicic & Smith, 2013; Luzzini et al., 2015; Rao & Holt, 2005; Q Zhu et al., 2005) and social performance (De Giovanni, 2012; Gimenez et al., 2012; Kazeminia, 2015; Sancha et al., 2016); others have found negative results for the relationship between external practices and TBL performance. For instance, de Giovanni (2012) found that external practices do not directly improve economic sustainability performance. Furthermore, the research of Gimenez et al., (2012), illustrated that not all external practices significantly contribute to TBL performance, as supplier assessment was found to not significantly impact the TBL. These literature examples indicate that there are mixed results between the relationship of external practices and TBL performance. The question is how to best explain these mixed results. The research of Q Zhu, Sarkis, & Lai, (2012), has shown that internal practices mediate the relationship between external practices and environmental and economic performance outcomes. Therefore it can be argued that internal practices have an effect on the relationship between external practices and TBL performance. This indicates that internal practices could clarify the mixed results of external practices on TBL performance. Previous research has not investigated this relationship. Therefore this research will investigate the relationship between external practices and TBL performance by considering the role of internal practices. Logically the research question will be:
“How do external practices effect on TBL performance by considering the role of internal practices?”
To answer this research question survey research will be used. In this research, the sustainability of companies in the Netherlands will be investigated. This research will contribute to the theory because it extends the knowledge on sustainable supply chain management. Furthermore, it will contribute to the literature by investigating the entire TBL, which includes the relatively unstudied social dimension of TBL performance. The contribution for practitioners will be that they will get more insight in which practices are needed in order to improve the TBL performance.
2. THEORETICAL BACKGROUND
Sustainable supply chain management (SSCM) is “a firm’s plans and activities that integrate environmental and social issues into SCM in order to improve its environmental and social performance and that of its suppliers and customers without compromising its economic performance”(De Ron, 1998; Gimenez et al., 2012; Pagell & Gobeli, 2009; Seuring & Müller, 2008). SSCM contributes to the development of unique resources and capabilities which could create a competitive advantage(Wolf, 2014). It is important for organizations who incorporate SSCM to recognize social and environmental efforts and link these efforts to the organization’s strategy so that the social, environmental and economic goals are aligned(Craig & Dale, 2008). The social, environmental and economic dimensions are the three sustainability performance dimensions which are included in the TBL. The main idea behind the TBL is that companies should measure their sustainability performance not only with the environmental and economic dimensions of sustainability, but also consider the social dimension(Markley & Davis, 2007).
Throughout the literature the SSCM practices are divided into two categories, namely the internally focused and externally focused sustainability practices. The empirical evidence indicates that there is a need for companies to coordinate between external and internal practices to realize the best sustainability performance(Q Zhu, Sarkis, & Lai, 2012). Therefore, this master thesis will focus on the role played by internal practices on the relationship between external practices and TBL performance. In the first paragraph the relationship between external practices and TBL performance will be discussed, in the second paragraph the relationship between external and internal practices will be discussed, in the third paragraph the relationship between internal practices and TBL performance will be discussed. The theoretical background will finalize with the conceptual model and an explanation of the research direction of this master thesis.
2.1 External practices
According to the literature, extending sustainability to suppliers can be achieved by using assessment and collaboration, where assessment entails evaluating the supplier (Gimenez et al., 2012; Govindan, Khodaverdi, & Jafarian, 2013; Klassen & Vachon, 2009). Collaboration with suppliers is focused upon the cooperation between a buyer and a supplier and aims to jointly achieve performance improvements (Sancha et al., 2016). Supplier collaboration encompasses activities such as site visits, training and education of suppliers’ personnel, personnel exchange, technical assistance and undertaking joint applied research(Klassen & Vachon, 2009; Sancha et al., 2016). Supplier evaluation encompasses identifying and prioritizing opportunities for improving their sustainability performances(Govindan et al., 2013), the evaluation of suppliers’ sustainability performance(Sancha et al., 2016) and any other activity related with evaluating suppliers(Gimenez & Tachizawa, 2012).
consequently improves the social performance of the buying firm(Kazeminia, 2015; Sancha et al., 2016). Consequently, this leads to the following hypotheses:
H1A: External practices positively influence environmental performance H1B: External practices positively influence economic performance H1C: External practices positively influence social performance
2.2 The relationship between external practices and internal practices
The previous section discussed the relationship between external and TBL performance. This section discusses the relationship of external practices with internal practices. Research has found that there is a relationship between external practices and internal practices(S.-‐Y. Lee, 2015; Q Zhu et al., 2012). Research has found that external practices impact internal practices, as the supply chain’s awareness and its efforts to improve its environmental performance are mainly induced by buyers’ activities such as monitoring and supporting the supplier(S.-‐Y. Lee, 2015). Furthermore, external practices facilitate in the adoption of internal practices with the purpose of improving supply chain wide environmental performance(Vachon, 2007; Q Zhu et al., 2012).Moreover, research of Rao & Holt (2005), indicates that reducing suppliers pollution is a key practice in their pollution prevention efforts. This means that for example, the external practice “making joint efforts with suppliers to improve our sustainability performance” (Qinghua Zhu & Sarkis, 2004) would benefit the internal practice “our company has pollution emission reduction programs”(Qinghua Zhu & Sarkis, 2004). Furthermore, implementing external practices could lead to a higher commitment to sustainability, making it a competitive priority of the company and thereby positively influencing internal practices(Luzzini et al., 2015). These examples illustrate that external practices have a positive relationship with internal practices. Consequently, this leads to the following hypothesis:
H2: External practices positively influence internal practices 2.3 Internal practices:
Where external practices are aimed at assessment and collaboration with supply chain partners in order to improve TBL performance, internal practices are practices that are aimed at improving the internal processes in order to improve TBL performance(De Giovanni, 2012; Gimenez et al., 2012). Gimenez et al., (2012), define internal practices as practices that are concerned with internal environmental programs such as energy/waste/pollution reduction programs and internal socially-‐oriented programs such as formal occupational health and safety management systems aimed at improving TBL performance. This definition will be used throughout this thesis.
increase the environmental performance in terms of reduced waste (Pullman et al., 2009) or reduced waste and other pollutants (Qinghua Zhu & Sarkis, 2004). Furthermore, research has found that Internal practices positively influence economic performance by improving economic performance via indirect effects, as internal practices improve economic performance in the long term through environmental and social performance(De Giovanni, 2012; Rao & Holt, 2005). This is illustrated by companies that green their production in terms of minimization of pollution and recycling, which leads to savings in materials and recourses, that in turn leads to improved competitiveness and economic performance(Gimenez et al., 2012; Rao & Holt, 2005). Moreover research has found that internal practices positively influence social performance by for instance the adoption of a new internal production process that causes less pollution(Gimenez et al., 2012). A reduction in pollution leads to the improvement of the working conditions of the plant employees and it improves the community’s quality of life(Gimenez et al., 2012). Consequently, the social reputation of the factory is improved which, in turn, increases the social performance of the plant(Gimenez et al., 2012). Another example would be firms that involve the community in certain internal socially-‐oriented programs such as the recycling of end of life products, this means a positive contribution to society and an improvement of social reputation(De Giovanni, 2012). Consequently, this leads to the following hypotheses:
FIGURE 1 Conceptual model
TBL performance External practices Internal practices
H1
H3
H2
The conceptual model shown in figure 1 and the previous sections indicate that there are relationships between external practices and TBL performance, external practices and internal practices and internal practices and TBL performance. These relationships indicate that a internal practices could serve as a mediator, and if these relationships hold (are significant), mediation would be possible(Baron & Kenny, 1986).
In the literature, it has been found that internal practices significantly mediate the relationship between external practices and environmental performance(Q Zhu et al., 2012). For example, the internal environmental management (in this research called: Management on reduction and recycling programs, see appendix A) completely mediates the external practice customer cooperation (in this research called: Making joint efforts with the supplier to improve sustainability performance, see appendix A)(Q Zhu et al., 2012).Moreover in the literature it has been found that internal practices mediate the relationship between external practices and economic performance, this is shown in the research of Q zhu et al., (2012) where the relationship between green purchasing, which is an external practice is mediated by the internal financial policies, which is an internal practice(Q Zhu et al., 2012). Finally, internal practices also mediate the relationship between external practices and social performance, as firms that have implemented internal social practices will achieve a higher social performance(Sancha et al., 2016). Therefore, it is evident that internal practices could serve as a mediator to external practices and TBL performance. This will be further elaborated upon in sections 4 and 5 of this research paper.
3. METHODOLOGY
In this section the research methodology will be discussed which includes the survey design, data collection and the factor analysis.
3.1 Survey Design
The measures used were derived or adapted from the SCM literature. Using previous work of Krause et al., (2000) and Large & Gimenez Thomsen (2011), which focused on green supplier assessment of suppliers and green collaboration with suppliers, 6 measurement items for evaluating external practices are introduced (see details in table 3). Furthermore, using previous work of Gimenez et.al., (2012), which focused on internal practices such as environmental & social action programmes 10 measurement items for internal practices are introduced (see details in table 3). The measurement items, organized in a survey questionnaire for measuring both external and internal practices, were designed for response using a five-‐point likert scale based on the level of implementation of the practices in the company, i.e. 1= None; 5=high.
The items for evaluating economic, environmental and social performance were adopted from two previous studies. Using previous work from Zhu & Sarkis (2004), which focused on the sustainability performance of early adopters of green supply chain management practices in China, 7 measurement items for economic and 5 measurement items for environmental performance were adapted. Furthermore, using previous work of Sancha et.al., (2016), which focused on the social performance of the buyer and supplier firm, 5 measurement items for social performance were adapted (see details in table 3). These items were operationalised in the survey questionnaire to evaluate their plant’s performance compared to their main competitors using a 5 point scale (1=far worse; 3=similar; 5=far better)
3.2 Data collection
During a seven week period between the 4th of April and 20th of May a total of 515 firms
located in the Netherlands, retrieved from the NACE code lists, were contacted by phone. A total of 350 firms agreed to participate and fill in the survey. Finally, 98 out of 350 firms provided unique and usable manufacturing enterprise respondents. The key informants responding to this survey had to be a plant manager or someone with similar experience and knowledge of the companies practices. Targeting respondents at this organizational level is supported by other research such as from Lai, Cheng, & Yeung (2005), who state that managers at the mid-‐level management such as a supply chain manager or purchaser will have the necessary knowledge to answer questions about internal and external practices (for more detail on the company positions of the respondents see table 2).
In order to see whether a difference in respondent’s reaction time affected the research results an independent sample t-‐test was carried out. Respondents were marked as “early” when they filled in the survey before the first reminder. Respondents were market as “late” when they filled in the survey after the first reminder. In total there were 64 early
respondents and 34 late respondents. In the independent t-‐test, the Levene’s test for
equality showed that there is no significant relationship between early, late respondents and the research results.
TABLE 2 Sample description Position N % CEO 3 3.1%
Supply Chain Manager 20 21.7%
Plant Manager 12 13%
Manager of Operations Department 37 37.8%
Manager of Environmental Department 6 6.1%
Purchaser 6 6.1% Other 8 8.2% Anonymous 6 6.1% Total 98 100% Industry
Textile Mill products
Leather and leather products
Electronic and electrical equipment components Apparel and other similar finished products Chemicals and allied products
Machinery manufacturers Car Manufacturers
Food industry and beverages Paper manufacturers
Other Anonymous Total
Number of employees Between 1 and 10 Between 11 and 50 Between 50 and 100 Between 101 and 500 More than 500 Anonymous Total 12 2 15 4 3 6 98 1 2 20 55 14 6 98 12.2% 2% 15.3% 4.1% 3.1% 6.1% 100% 1% 2% 20.4% 56.1% 14.3% 6.1% 100% 3.3 Factor analysis
In order to explore the number of constructs underlying a set of items two exploratory factor analyses (EFA) were conducted. The factors were extracted using the maximum likelihood method, followed by a varimax rotation. Both the screeplot and the initial eigenvalue (eigenvalue >1.0) test suggested two and three meaningful factors for external and internal practices and performance, respectively. These factor analyses implied grouping the internal and external practices into two factors as anticipated. A similar factor analysis was conducted for the performance items, which had three factors. We identify one factor for internal practices, one factor for external practices and three factors for the performance (economic, environmental and social performance respectively).
Olkin(KMO) values of 0.82 for internal practices and external practices and 0.77 for environmental, economic and social performance, the KMO meets the requirements (KMO should be at least 0.50) explained by Dziuban & Shirkey, (1974).
Discriminant validity was evaluated by exploring the factor correlation matrix. Correlations greater than 0,70 between factors are usually considered problematic, this is not evident in this research (see table 4). Furthermore, the squared correlations between two latent constructs were compared to their AVE estimates (Fornell & Larcker, 1981). Comparing the correlation coefficients given in table 4 with the AVE values given in table 3, confirms that not one of the squared correlations is higher than the AVE for each individual construct. Because of that comparison, discriminant validity can be guaranteed.
Further reliability analysis test confirmed the reliability of these 5 factors with Cronbach’s alphas of 0,945(External Practices) and 0,843(Internal practices) 0,827(environmental performance) 0,914(economic performance), 0,886 (social performance). All Cronbach alpha values are well above the threshold value of 0.70 for item reliability to establish internal consistency and validity of latent constructs (Nunnally & Thurstone, 1975).
TABLE 3: Rotated factor matrixa on the measurement items for evaluating TBL performance.
Survey Item Factor 1 2 3 4 5 External practices α = 0.945
We assess our supplier’s sustainability performance through formal evaluation, using established guidelines and procedure.
0.799
We perform sustainability audits for our suppliers’
internal management systems 0.913
We provide our suppliers with feedback about the results of the sustainability evaluation
0.912
We provide training related to sustainability practices
to our suppliers. 0.860
We visit our suppliers’ premises (e.g., factories) to help them improve their sustainability performance
We make joint efforts with our supplier to improve our sustainability Performance 0.879 0.911 Internal practices α = 0.843
Our company is environmentally certified(e.g. : EMAS or ISO 14001)
0.593
Our company is socially certified (e.g. : SA 8000 or OHSAS 18000)
0.562
Our company has energy consumption reduction programs 0.842 Our company has water consumption reduction programs 0.814 Our company has pollution emission reduction programs 0.827
Our company has waste recycling programs 0.711
management systems
Our company has work-‐life balance policies Our company supports employees’ quality of life
Economic performance α = 0.914 Growth in Sales
Return on sales
Growth in return on sales Growth in profit
Growth in market share Return on investment Growth in ROI
Environmental performance α = 0.827 Reduction of air Emissions
Reduction of waste water Reduction of solid wastes
Decrease of consumption for hazardous/harmful/toxic materials
Social performance α = 0.886
Safety and labor conditions in our facilities Compliance with human rights
Compliance with child labor employments Social reputation
Decrease in the number of industrial accidents Eigenvalue
Percentage of variance explained (%)
Notes: KMO of 0.82 for internal & external practices, KMO of 0.77 for economic, environmental and social performance.
5.53 31.9 0.505 0.499 3.46 28 0.740 0.806 0.839 0.825 0.703 0.862 0.869 5.07 28.9 0.855 0.850 0.760 0.668 4.02 22.25 0.350 0.688 0.888 0.859 0.832 0.799 1.8 16.84
Note: Extraction method: Principal component analysis. Rotation
method: Varimax with Kaiser normalization. a: Rotation converged in three iterations.
TABLE 4
univariate statistics and Pearson correlations among the variables
Variable Mean SD 1 2 3 4 5 6 Annual turnover 3.66 1.03 -‐ Economic performance 3.27 0.62 0.138 -‐ Environmental performance 3.30 0.54 -‐0.107 0.145 -‐ Social performance 3.56 0.62 -‐0.067 0.056 0.420** -‐ Internal practices External practices 3.30 1.80 0.83 0.94 0.001 0.141 -‐.001 -‐.039 0.370** 0.094 0.202* 0.053 0.226* -‐ -‐
Note: * correlation is significant at the 0.05 level (two-‐tailed) **correlation is significant at the 0.01 level (two-‐
4. RESULTS
Multiple linear regression analysis was applied to analyze the proposed relationships and directions. Annual turnover was used as a control variable in the analysis. The data analysis had four main objectives. The first objective was to investigate the relationship between external practices and TBL performance. The second objective was to investigate the relationship between external practices and internal practices. The third objective was to investigate the relationship between internal practices and TBL performance. The fourth objective was to test whether a mediating effect of internal practices on the relationship between external practices and TBL performance was evident. Baron and Kenny (1986) suggested that testing of mediating effects involves three steps. First, the independent variables must relate to (affect) the mediating variables, second, the independent variable must affect the dependent variable and third, the mediator must affect the dependent variable (Baron & Kenny, 1986).
TABLE 5
the relationship between external practices, internal practices and TBL performance
Independent factor
Dependent factor ( TBL performance)
Environmental Economic Social
Annual turnover External practices R2 Adj R2 F Change in R2 Change in F Annual turnover Internal practices R2 Adj R2 F Change in R2 Change in F 0.46 0.46 0.01 -‐0.01 0.57 0.01 0.54 0.39 0.001*** 0.14 0.12 6.53* 0.13 11.97*** 0.11 0.69 0.03 0.01 1.34 0.002 0.16 0.20 0.74 0.02 -‐0.002 0.90 0.001 0.113 0.31 0.37 0.019 -‐0.004 0.83 0.010 0.81 0.515 0.035* 0.056 0.034 2.51 0.051 4.616*
Note: The regressions are performed separately between one independent factor and one dependent factor. Standardized regression coefficients are reported *P≤0.05**P≤0.01 ***P≤0.001.
TABLE 6
the relationship between external practices and internal practices Independent factor Dependent factor Internal practices Annual turnover External practices R2 Adj R2 F Change in R2 Change in F 0.64 0.035** 0.07 0.03 2.32 0.05 4.61*
Note: The regressions are performed separately between one independent factor and one dependent factor. Standardized regression coefficients are reported *P≤0.05**P≤0.01 ***P≤0.001.
Table 5 shows the results of the regression analysis regarding the relationship between external practices and TBL performance. Firstly, the results indicate that there is no significant direct relationship between external practices and environmental performance (p>0.05, β=0.082). Secondly, the results indicated there is no significant direct relationship between external practices and economic performance (p>0.05, β=-‐0.043). Thirdly, the results indicated that there is no significant relationship between external practices and social performance (p>0.05, β=0.098). According to these results, external practices do not show a significant direct relationship between external practices and TBL performance. This means that H1A, H1B and H1C are not supported.
Table 6 shows the results of the regression analysis regarding the effect of external practices on internal practices. The result indicates that there is a significant relationship between external practices and internal practices (p<0.05, β=0.229). This means that H2 is supported. The results are shown in figure 2, an overview of the hypotheses are given in table 6.
dependent variable, which leads to the conclusion that mediation is not possible, as for mediation to be possible it is necessary that the independent variable has a significant effect on the dependent variable (Baron & Kenny, 1986).
FIGURE 2
Results model (*p<0.05;**p<0.01;***p<0.001)
TABLE 6
Overview of hypotheses
Hypotheses: Supported/not supported
H1 External practices positively influence:
H1a Environmental performance Not Supported H1b Economic performance Not Supported H1c Social performance Not Supported H2 External practices positively influence internal practices Supported H3 Internal practices positively influence:
H3a Environmental performance Supported H3b Economic performance Not Supported H3c Social performance Supported
5. DISCUSSION
The discussion will be focused on the results of the data analysis. Firstly, the external practices and their effect on TBL performance will be discussed. Secondly, the internal practices and their effect on TBL performance will be discussed. Finally, the relationship between external practices and internal practices will be discussed.
5.1 External practices and TBL performance
The empirical evidence illustrated in table 4 indicates that external practices do not always lead to a better sustainability performance; the results indicate that external practices do not have a significant relationship with any of the TBL performance dimensions. By further investigating the sample and the answers that were given to the questions corresponding with external practices, there was found that the way in which the answers were given for the external practices construct were not distributed normally. The distribution indicated that from question one, 38 of the 98 respondents filled in “not at all”. For questions two until six there were 51,52,62,53 and 49 respectively who filled in “not at all”. This indicates that almost 50 percent of the companies do not engage in external practices towards their suppliers. This could be one of the reasons why external practices were insignificantly related to all performance indicators of the TBL. This issue is discussed in the research of Gimenez et. al., (2012) where is argued that before taking any action, the level of adoption of internal practices might be higher than the implementation of external practices. This would infer that the companies investigated in this master thesis were in the beginning stage of implementing sustainability improvements. Moreover, a previous study in the Korean electronics industry showed that the companies in that industry are still at the beginning of developing external practices and improving their suppliers’ sustainability (K. Lee & Kim, 2009). Koplin, Seuring, & Mesterharm (2007), found that suppliers in the German automotive industry are rarely subjected to environmental and social standards when selected. These examples indicate that the low level of implementation of external practices is something that happens more often and would possibly explain why in this research, external practices did not have a direct significant impact on TBL performance. Additional research on this topic with companies that acquire a higher implementation of external practices could give more insight into the direct relationship between external practices and TBL performance.
5.2 Internal practices and TBL performance
Qinghua Zhu & Sarkis, 2004). Therefore it is not surprising that internal practices improve environmental performance. The fact that internal practices improve the social bottom line is in line with the research of de Giovanni (2012) and Gimenez et.al. (2012). Moreover, the fact that internal practices do not improve the economic bottom line is not in line with most of literature on the relationship between internal practices and economic performance(De Giovanni, 2012; Golicic & Smith, 2013; Rao & Holt, 2005; Qinghua Zhu & Sarkis, 2004). However, some of the literature on internal practices argue that internal practices do not significantly improve economic performance (Pullman et al., 2009; Q Zhu et al., 2005). The reason for this could be that economic performance is not reaped in short term profitability and sales performance(Q Zhu et al., 2005). This is explained by Giovanni et.al, (2012), who argues that achieving economic performance improvements by using internal practices is not achieved in the short term; rather it is achieved in the long term by indirect effects of environmental management. In addition, it could be that firms targeting costs improvements from sustainability practices have difficulties in recovering the initial investment costs in sustainability programs and the ROI of these programs may be very difficult to calculate(Pullman et al., 2009). In this thesis, however, the construct for economic performance consisted mainly of direct effects on the economic bottom line. For example, constructs such as sales and ROI which are focused on direct economic performance and not on indirect cost savings. These examples show why in this thesis, internal practices do not improve the economic bottom line. Furthermore,
5.3 External practices influencing internal practices
positively related to the environmental and social dimensions of the TBL, this would mean that external practices positively influence the environmental and social dimensions of TBL performance indirectly through their positive relationship with internal practices.
6. CONCLUSION 6.1 Theoretical implications
There are several research implications with respect to the external practices, internal practices and TBL performance. Firstly, the empirical evidence showed that external practices are not positively related to any of the dimensions of TBL performance. Secondly, the empirical evidence shows that external practices positively influence internal practices. Thirdly, internal practices significantly contribute to the environmental and social dimensions of the TBL; however they do not contribute to economic performance.
Based on these results it can be concluded that external practices do not contribute to TBL performance directly. However external practices do positively influence internal practices. As internal practices have shown to successfully improve the environmental and social bottom line, it can be argued that external practices affect TBL performance indirectly by positively influencing internal practices. The results also showed that the implementation of external practices is very low compared to the implementation of internal practices. Further investigation into the relationship between external practices and TBL performance should be done. Especially, because of the low implementation of external practices, future research could study the relationship between external practices and TBL performance with a sample requirement that companies need to have internal and external practices in place. 6.2 Managerial implications
6.3 Limitations and future research
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