benchmarking

You should start by reading the original article:

Paul Hong, James Jungbae Roh, Greg Rawski, (2012),"Benchmarking sustainability practices: evidence from manufacturing firms", Benchmarking: An International Journal, Vol. 19 Iss: 4 pp. 634 – 648

http://dx.doi.org/10.1108/14635771211258052

Critically evaluate the arguments made there: this should provide a core component of your essay. Make sure that you understand what the authors mean by ‘sustainability’ – this is a word that’s meaning varies in different contexts.

You are being asked to consider whether benchmarking ‘sustainability practice’ will be helpful when examining different contexts. Essentially, then, this essay is asking you to consider how important context is – and whether practices are likely to be comparable from one context to another. As part of this you might like to evaluate what practices, or elements of practices, are sufficiently interchangeable

to be comparable, and which are not. This then should take your essay to examining the principles of benchmarking. As part of this, you may wish to consider what benchmarking systems are successful in practice, and you could draw upon your own experiences here.

You should avoid quoting excessively from material published by consultants and practitioners that is widely available on the Internet unless you critically evaluate the claims that are made.You are likely to find much more relevant material in academic journals.

This assignment will ideally show students ability to critically evaluate an academic article, and their ability to relate theory to practice.

Benchmarking sustainability

practices: evidence from

manufacturing firms

Paul Hong

Department of Information Operations and Technology Management,

University of Toledo, Toledo, Ohio, USA

James Jungbae Roh

Rohrer College of Business, Rowan University, Glassboro, New Jersey, USA, and

Greg Rawski

Schroeder Family School of Business Administration, University of Evansville,

Evansville, Indiana, USA

Abstract

Purpose – With increasing emphasis on the environment, firms are required to include sustainability

practices at all levels – strategic, operational, and outcome measures. The purpose of this paper is to

present a research model that defines sustainability practices in the context of the competitive business

environment, strategic driver, operational and supply chain practices, and performance outcomes.

Design/methodology/approach – This paper identifies research gaps in the areas of integration of

sustainability practices across functional levels within firms and across networks. In total,

379 companies were analyzed in structural equation modeling.

Findings – This study has three important findings: First, firms striving for responsiveness to

market and customers also improve environmental performance; second, this study confirms lean

practices as an important mediator to achieve excellent environmental performance; third, the focal

company takes the lead in achieving environmental performance, and suppliers are in the supportive

circle of influence.

Originality/value – This study provides a research model based on rich theoretical support.

It further provides reliable measures of sustainability practices as benchmark tools.

Keywords Responsive product strategy, Environmental performance, Lean practices,

Supply chain restructuring, Empirical study, Manufacturing industries, Supply chain management,

Sustainable development

Paper typeResearch paper

Introduction

Increasingly, firms have wrestled with sustainability practices at all levels – strategic,

operational, and outcome measures – for their competitive advantage (Zhu and Sarkis,

2004). Benchmarking is also important in improving sustainability practices. A vast

majority of firms reportedly use benchmarking in their companies for competitive

analyses, implementation of improvement programs, performance assessment, and

organizational change practices (Rigby, 2001; Gurumurthy and Kodali, 2009). Effective

benchmarking requires a shared understanding of its nature, causal relational chains,

and outcome measures useful for both small and large organizations with a reliable,

large set of data (Meybodi, 2009; Wong and Wong, 2008). Thus, benchmarking

sustainability practices requires intra- and inter-organizational practices with a set

of environmental and business performance outcomes. However, such benchmarking

has not been adequately explored (Klassen and McLaughlin, 1996; Soni and Kodali,

2010; Yanget al., 2011).

In response to research needs in this area, this study presents a research model that

defines sustainability practices in the context of the business environment, strategic

goal setting, operational improvement, supply chain restructuring (SCR) practices,

and performance outcomes. It examines the following research questions:

RQ1. What are some of the key constructs related to sustainability practices?

RQ2. What are the causal relational chains of sustainability practices?

RQ3. In the causal relationships, how are lean practices (LP), SCR, environmental

performance (EP), and firm performance (FP) related?

The paper is organized as follows. First, based on literature review, this article presents

a research model that shows how sustainability issues are approached in

manufacturing firms. Hypotheses articulate the nature of relationships between key

variables. This paper examines the interrelationships that involve responsive product

strategy (RPS), LP, supply chain innovation, EP, and performance outcomes.

This research extends the work of Dobrzykowskiet al.(2011), who found that green

innovation goals are positively related to supply chain redesign, which models the

influence of value co-creation and absorptive capacity. Second, results from

379 companies worldwide add insight to practitioners to benchmark their own

organization and see how they use sustainability practices to achieve financial growth.

Third, the research results and their implications are discussed.

A model of causal chains of sustainability practices

A key driver for implementing new organization-wide practices (e.g. sustainability

practices) for any firm is its strategic initiatives (e.g. business strategic practices) that

respond to the pressures of the external environment (e.g. market requirements,

societal expectations, and government regulations). Such strategic initiatives influence

firms to adopt internal response practices that reflect the similar features of

sustainability practices (Honget al., 2009; Yanget al., 2011). Since sustainability

requirements cover all the component parts that suppliers provide, external network

configurations that involve suppliers and customers are critical for sustainability

implementation (Liaoet al., 2010; Rohet al., 2011). Internal response practices and

external network configurations will result in desirable sustainability outcomes

(Zhu and Sarkis, 2004; Soni and Kodali, 2010; Honget al., 2010a, b). Figure 1 shows

a general model of causal chains for sustainability practices.

Literature review

Figure 2 shows the research model of sustainability practices of manufacturing firms.

This integrative research model specifies the above general model including strategic

driver (i.e. RPS), internal response practices (i.e. LP), external network configurations

(i.e. SCR), and sustainability outcomes (i.e. EP and FP). In this section, the domain of

each construct is defined with adequate literature support. The essential nature of each

construct is explained in the next section.

Responsive product strategy

Identifying a strategy can take various forms. A stream of researchers has examined

competitive priorities (Christopher and Towill, 2001; Slack and Lewis, 2002).

Competitive priorities of firms are to pursue RPS that focuses on offering products with

competitive elements in terms of innovativeness, flexibility, and frequent offerings

(Fisher, 1997; Lee, 2002). Considering the dynamic nature of business environments

(e.g. a downturn or upturn of the global economy), competitive firms are flexible

enough to make constant strategic adjustments and policy changes. Thus, RPS is

defined as a set of order winners that aim to increase market responsiveness by

reflecting customers’ needs for innovative product features, wider product

assortments, and timely product delivery.

Lean practices

LP aim to empower the workforce with enhanced sets of skills and expertise while

continuously streamlining the entire business process from sourcing to delivery. This is

accomplished by minimizing wastes and increasing quality and productivity

exemplified in the Toyota Production System (Womack and Jones, 2003; Holweg,

2007). Major LP include cellular manufacturing, continuous improvement programs,

cross-functional work force, lot size reductions, preventive maintenance, kanban, and

quick changeover techniques (Yanget al., 2011). In this study, LP are defined as a series

of organizational actions designed to achieve more with less through continuous

improvement, employee empowerment, and consistent sets of decisions.

Supply chain restructuring

SCR becomes important with an increasing availability of outsourcing (Lei and Hitt,

1995), large numbers of suppliers with manufacturing and service capabilities

(Kopczak, 1997; Cammet al., 1997), and globalization (Friedman, 2005). In a broad

context, SCR goes beyond improvements in business routines and involves strategic

policy shifts to implement group purchasing, reverse e-auction, time-based logistics,

different supply chain relationships, and employee redeployment. Effective

coordination of the flow of goods and information throughout a thoughtfully

developed supply chain can enhance a firm’s ability to respond to customer needs for

green innovative products (Dobrzykowskiet al., 2011). In this research, SCR refers to

the extent of implementing action programs that will bring about significant changes

in the supply chains including changes in the suppliers’ portfolios, supplier

Figure 1.

A general model of causal

chains for sustainability

practices

Figure 2.

Research model

development, and the coordination of flow of goods (Croom, 2001; Grant, 2005; Kopczak,

1997; Rohet al., 2011).

Environmental performance

Firms take notice that EP is a key aspect of their competitive profiles

(Rothenberg et al., 2005). The 1997 Kyoto Agreement urges industrialized nations to

reduce carbon dioxide by an average of 5.2 percent below1990 levels by 2012. In response,

firmslikeWal-Mart and IBMhave communicated their green initiatives across all areas of

their business suppliers. Still, EP management in a supply chain context is a relatively

newarea of theory development (ShawandGrant, 2010; Zhu and Sarkis, 2004).This study

extends the measures used by Honget al.(2009) and defines EP as the extent to which

a firm enhances EP, social reputation, employee satisfaction, and employee knowledge.

Firm performance

Researchers have utilized FP as one of the key measures of firms’ effectiveness and

efficiency (Yaminet al., 1999). Firm growth measures such as sales, market share,

return on sales (ROS), and return on investment (ROI) are useful in assessing

effectiveness in meeting customer demands (Koufteroset al., 2007). Thus, for the

purpose of this study, FP is defined as the extent of an organization’s achievement in

terms of sales and market share.

Hypotheses development

Responsive product strategy and lean practices

RPS aims to meet customers’ changing requirements by developing innovative

products and services and delivering them from suppliers to distributors (Hill, 2000).

A RPS is a good fit for innovative products. This requires practices that embody short

production and delivery cycles, cost reductions, and customer responsiveness

(Reichhart and Holweg, 2007). To thrive in emerging market conditions, a company has

to be capable of rapidly responding to market trends and operating as an efficient

member of an extended and increasingly global supply network (Saad and Gindy, 2007).

LP help firms align their processes to changing customer demand and trim costs in

wastes and inventory level (Honget al., 2010a). As firms try to curtail time to market,

they will focus on LP to reduce waste and slash lead times. Thus, we hypothesize that:

H1a. The extent of RPS is positively associated with LP.

Responsive product strategy and supply chain restructuring

RPS also intends to shorten the new product development cycle while achieving

innovative processes and a wide variety of product offerings, which naturally involves

a high level of coordination and collaboration with suppliers (Hill, 2000). In a supply

chain context, new product design frequently entails searching for the right suppliers

for changing components and platforms. Firms that seek to offer more innovative,

environmentally sound products more frequently, regardless of service/product focus,

likely need to redesign and improve their supply chain (Dobrzykowskiet al., 2011).

Effective implementation of a RPS thus requires trust-based ties with suppliers and

explores the possibility to develop symbiotic relationships with suppliers. In this

process, a firm may have to reconfigure its supplier base and rediscover new networks

(Cammet al., 1997; Lei and Hitt, 1995). A focal company alone may not be able to

increase the extent of responsiveness to the needs of ultimate customers. Instead, the

entire supply chain partners need to get involved in improving the complex set of

responsive requirements. RPS naturally involves restricting the supply chain for

effective collaboration of all the supply chain partners. Therefore, we hypothesize that:

H1b. The extent of RPS is positively associated with SCR.

Responsive product strategy and environmental performance

The goal of RPS is to satisfy the increasing environmental requirements. The recent

incidents such as the BP spills in the Gulf of Mexico and Toyota’s global recall

amplified consumers’ concern about the environment. Firms look for ways to enhance

creativity and idea generation to integrate environmental aspects into product design,

to bring eco-design closer to the attention of the designer in general, and to achieve

“green flagship products” by reducing toxic substances and enhancing recyclability

(Weaver et al., 2007). Thus, firms attain EP as they approach their strategic directives

(Rao, 2002). Increasingly, firms plan their RPS to achieve the EP requirements

(e.g. designing, producing and delivering environmentally safe products). EP is not the

result of mere operational or product managers. Rather, it is the result of the

organization-wide effort for a long period of time. Naturally, such RPS shows a very

strong strategic orientation toward EP (Honget al., 2009). Thus, we hypothesize that:

H1c. The extent of RPS is positively associated with EP.

Lean practices and environmental performance

The link between LP and EP has been widely supported in the literature (Womack and

Jones, 2003; Yanget al., 2011). LP are organizational actions that minimize or eliminate

wastes in all forms. Thus, LP are helpful for firms to remove pollutant and harmful

emissions by means of reduction in product shipment volumes and thus waste

reductions (King and Lenox, 2001; Rothenberget al., 2001). Apple’s 21.5-inch iMac is

designed with 50 percent less material and generates 35 percent fewer carbon

emissions than the first generation, 15-inch iMac (Apple, 2010). LP contribute

to enhanced EP (King and Lenox, 2001; Shah and Ward, 2003). The rationale behind

this link is that effectiveness means environmental soundness. Making continuous

improvements is also necessary to augment EP. Thus, we hypothesize that:

H2a. The extent of LP implementation is positively associated with EP.

Lean practices and supply chain restructuring

LP start with the focal company in a supply chain. They impact activities in the supply

chain through continuous improvements, elimination of wastes, and commitment for

quality and innovation, which require active participation of globally dispersed

suppliers and distributors. Honda USA has endeavored to implement a comprehensive

program for its suppliers to increase the knowledge base of each supplier and broaden

cross-functional teamwork for achieving overall supply chain productivity (MacDuffie

and Helper, 2002). LP thus are extended to include suppliers with long-term partnerships

and expand supplier bases for robust network flexibility (Liaoet al., 2010; Honget al.,

2010a). Such broad implementation of LP across the supply chain lead firms to reorient

and restructure supply chains and establish competitive advantage (Liker and Wu, 2006;

Womack and Jones, 2003). Thus, we hypothesize that:

H2b. The extent of LP implementation is positively associated with SCR.

Lean practices and FP

The association between LP and FP has gained support in the literature (Shah and

Ward, 2003; Yanget al., 2011). Minimizing or eliminating wastes in the value chain is

helpful for firms to reduce unnecessary spending. Such savings enable the firm to

spend resources in more strategic and needed aspects of the business. LP allow firms to

achieve cost savings and thus increase profitability. LP are useful to enhance FP. Thus,

we hypothesize that:

H2c. The extent of LP implementation is positively associated with FP.

Supply chain restructuring and environmental performance

SCR encourages supply chain participants to work toward overall supply chain

effectiveness. Firms try to increase the levels of coordination and implement supplier

development programs and select suppliers that are capable to meet up-to-date

environmental regulation standards. Such SCR is directed to ensure environmentally

safe component parts are processed, distributed, and delivered to customers. Such SCR

initiatives are conducive to reducing environment-hazard materials and emissions and

to increasing employees’ satisfaction and knowledge to do more with less (Cammet al.,

1997; Grant, 2005). Thus, we hypothesize:

H3a. The extent of SCR is positively associated with EP.

Supply chain restructuring and FP

SCR helps firms meet corporate objectives better than before. Firms restructure their

supply chains to compete based on network capabilities beyond individual organizational

competencies. SCR also facilitates firms’ ability to eliminate wasteful elements and

promote overall process effectiveness in the supply chain. Suppliers with enhanced

competence stemming from SCR better serve customers, achieve cost competitiveness

and tailor supply chain outcomes to the market requirements (Kopczak, 1997). Thus,

we hypothesize:

H3b. The extent of SCR is positively associated with FP.

Environmental performance and FP

Karpoff et al.(2005) report that violating environmental laws resulting in fines, damage

awards, and remediation costs damages a firm’s reputation and causes market

value loss. Additionally, a study that examined 430 announcements of corporate

environmental initiatives and 381 announcements of environmental awards and

certifications finds that the shareholders positively react to positive EP

(Jacobs et al., 2010). Environmentally responsible firms do manage cost and quality

targets in plant levels and improve their corporate public image (Rothenberget al.,

2005). Several other studies have shown positive relationships between environmental

efficiency and other performance metrics such as quality, cost, and sales (Klassen and

McLaughlin, 1996; Rothenberget al., 2001). Thus, we hypothesize that:

H4. The extent of EP is positively associated with the firm’s performance.

Research methodology

The International Manufacturing Strategy Survey (IMSS) V, a worldwide research

project involving more than 20 countries, was used for empirical analysis. The survey

was conducted in 2009 in the Asian Pacific, European, North American, and South

American regions. The respondents to this survey are plant managers or

manufacturing executives of manufacturing units. Initial contact was made before

sending the questionnaire to find out their willingness to take part in this study.

Although the response rate varied across countries, it exceeded 25 percent on average,

warranting an affirmative assessment. After eliminating incomplete cases,

379 responses remained for further analysis. Table I reports the profile of respondents.

Research instrument assessment

To assess the research instrument, this study follows the two-step approach

recommended by Anderson and Gerbing (1988). First, exploratory factor analysis

using principal component analysis with varimax rotation was used. A few items that

showed low loadings were dropped, resulting in 15 items. An example of excluded

items is “increasing the level of workforce flexibility following your business unit’s

competitive strategy.” We expected that it would load on the construct of LP since

Table I.

Profile of respondents

giving flexibility to employees through job sharing and variable working facilitates

firms’ ability to implement the LP. But the loading was,0.6, and it seemed necessary

to opt the item out for better convergent and discriminant validity. Similarly, the item

“rethinking and restructuring distribution strategy in order to change the level of

intermediation” was expected to cover an important dimension of SCR. However, the

loading did not significantly explain the construct and we decided to drop the item to

enhance reliability of the construct. After exploratory analysis, confirmatory factor

analysis proceeded to assess convergent and discriminant validity.

In terms of convergent validity, Cronbach’s alpha for each construct seemed

reasonable with the lowest being 0.75, which exceeds the cutoff value of 0.60 (Cronbach,

1951; Nunnally, 1978). The measurement model fits displayed in Table II show good

fits asx2divided by the degree of freedom is,2, absolute and comparative fit indices

are above 0.94, and the 95 percent of confidence level of root mean square error of

approximation (RMSEA) ranges between 0.018 and 0.047 (Byrne, 2001; Hu and Bentler,

1998). Standardized item loadings from confirmatory factor analysis were statistically

significant at the 0.001 level and the loadings were also deemed adequate because the

lowest loading was 0.625 (Bagozziet al., 1998). Discriminant validity assesses

idiosyncrasy of each construct from another. Table III shows the evidence of

discriminant validity because:

.composite reliability exceeded 0.77; and

.the average variance extracted values are greater than the squared correlation

between the construct and the other constructs (Fornell and Larcker, 1981).

Structural model results

Verifying the robustness of the measurement model led us to test the proposed

structural equation model. Figure 2 shows the directions and significances of the

hypothesized relationships (g) between the exogenous variable, RPS (j), and the

endogenous variables (h), LP, SCR, and EP. It also portrays the structural relationships

(b) between LP, SCR, EP, and FP. Fit indices for the structural model shows good

model fit to the data forx2/df¼1.58, which is,2; absolute and comparative indices

are.0.94, and RMSEA is 0.039, which is significantly less than the suggested limit of

0.08 for good model fit (Browne and Cudeck, 1993).

The test results reveal that all hypotheses fromH1 toH4are strongly supported

except for three hypotheses (H1c,H3a, andH3b), the relationship between RPS and EP

and that between SCR and environmental and FP. In regards toH1, the influence of

RPS on LP and SCR turned out to be very strong with theirt-values 4.51 and

3.72, respectively. As hypothesized, achieving responsiveness to customers requires

firms to imbue lean principles in the organization and supply chains and also to

reconsider their supply chain strategy. However, RPS did not have a direct impact on

EP (H1c). The reason behind the insignificant relationship suggests that in many firms

RPS might not have taken environmental effects into the strategy formulation process

yet. Manufacturers might not have translated the urgency of EP down to the individual

plant level to the extent necessary to tackle corporate social responsibility. It is

noteworthy that RPS does not affect EP directly but indirectly via LP. The magnitude

of the indirect effect is 0.16, which is a significant impact. The impact of RPS realizes

when lean principles and practices permeate through the organization and supply

chains (Figure 3).

Table II.

Exploratory factor

analysis and

reliability results

With respect toH2a,H2bandH3c, the structural model results disclose strong

influences of LP on SCR, EP, and FP. The relationship between LP and EP has been

advocated by earlier studies. To the authors’ best knowledge, however, its effect on

SCR has been empirically shown for the first time in this study. LP need to be adopted

in the supply chain context and this permeation results in SCR. The magnitude of the

impact turned out to be the strongest in this study (t-value is 7.11). The path coefficient

suggests the importance of synchronization of LP both in an organization and in its

Table III.

Descriptive statistics

and inter-correlations

Figure 3.

Structural equation model

results: standardized

coefficient (t-value)

periphery networks. The link between LP and a firm’s profitability was strongly

supported in this study, confirming the results of earlier studies such as the work of

Shah and Ward (2003).

When it comes toH3aandH3b, SCR surprisingly appeared to have no statistically

significant impact on EP and FP. We anticipated positive associations between SCR

and EP and between SCR and FP. The proposed rationale was that suppliers play

an important role in increasing EP. The infamous product recall of SONY in 2001

and Toyota’s global recall were partly related to poor suppliers’ performance (Lee and

Klassen, 2008; Ohnsmanet al., 2010). However, this study presents that SCR does not

improve EP or FP. One possible interpretation is that restructuring the supply chain

may not necessarily mean making efforts to perk up EP and FP. Despite the reported

significant influence of suppliers on EP and FP, most responsibility for dealing with

environmental issues falls on the focal company. At the point of this study in 2010,

it seems that managing and guiding suppliers and supply chains is the secondary

responsibility for firms to improve EP; their primary responsibility is spreading LP

successfully at the organization level. This study shows that the path to increasing EP is

via organizational implementation of LP.

Finally, the link between EP and FP emerged strong in this study. It is significant at

the 0.001 level. There has been much debate about this relationship. Some studies

showed that the relationship is negative (Wagner and Schaltegger, 2004), some others

positive (Zhu and Sarkis, 2004), and still others inconsistent (Jacobset al., 2010).

This study adds support for a positive association to this line of study.

Concluding remarks

The majority of respondents are mostly plant managers or senior managers from

European countries. Their knowledge about strategic and operational practices is at

the plant level. Thus, interpreting the results requires caution. In spite of the limitations

inherent in the survey instruments, this study makes several contributions to the body

of the literature.

First, this paper defines sustainability practices by 2009 IMSS V by extending the

previous papers by “supply chain coordination” (Rohet al., 2011), LP (Yanget al., 2011),

and “strategic green orientation” (Honget al., 2009), which are all based on 2005 IMSS

IV. These previous studies did not examine broad sustainability practices. On the other

hand, this article examines sustainability practices in terms of EP, social reputation,

and employee satisfaction and knowledge. The results of this study suggest that firms

implement sustainability practices not only at the strategic level, but also at the

employee level, to achieve greater social reputation.

Second, these reliable measures of sustainability practices are useful for

benchmarking purposes. Firms may learn how to be responsive to the market and

customers and thus improve EP. This study shows how RPS addresses the

environmental aspects at the manufacturing plant level. Manufacturers that aim to be

responsive to customers may examine how their products reflect the environmental

dimension in order to gain competitive advantage.

Third, this study also shows how firms use LP and SCR to achieve excellent EP. LP

are an important baseline that enables firms to connect their RPS to arrive at EP. The

results confirm a stream of literature that lean leads to green (King and Lenox, 2001;

Rothenberg et al., 2001). This study contributes to this study by showing that LP

mediate the RPS to progress toward EP. Firms that aim to enhance EP should take LP

into consideration and endeavor to spread the principles throughout the interand

intra-organization level. The results also suggest that firms participate in SCR and

the effect of SCR does not significantly affect EP yet. The focal company and suppliers

might not strive to improve EP to the same extent. Thus, there should be caution that

restructuring the supply chain may automatically turn into improved EP in the

short term.

Finally, this study suggests future research issues in the area of improving

sustainability practices. Benchmarking is a valuable tool that provides an opportunity

to learn from other organizations (Soni and Kodali, 2010). Benchmarking

sustainability practices in diverse contexts in terms of industries and country

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