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Abstract

  1. Top of page
  2. Abstract
  3. Results
  4. Conclusions
  5. References
  6. Biographies

Economic measures still lead as most frequently used performance measurements

Service organizations are operational systems that interact dynamically with their competitive environments to satisfy the needs of their customers. Over the past few years, however, customer preferences for services and their expectations regarding organizations’ social and environmental interactions and performance have altered the overall context in which these organizations must operate.

Within this new context, measuring and improving the performance of service organizations’ operational systems requires a systematic approach that takes into account dimensions of performance that include social and ­environmental practices as well as economic ­performance. To accomplish this, performance measurement systems and related processes must be carefully designed to incorporate these different dimensions of organizational performance. However, due to the difficulties associated with the measurement of certain aspects of performance, some service organizations tend to ­emphasize or value some performance measures at the expense of others.

In general, there are several difficulties associated with efforts to measure performance in any organization. However, these difficulties are even more pronounced in service organizations’ operational environments. Although customer satisfaction and service quality are considered critical dimensions of performance, our research shows that executives of service organizations need to pay more attention to some of the new dimensions of service performance, such as the environmental and social aspects, as part of their corporations’ sustainability.

About This Article

Given the recent emphasis on sustainability and its influence on organizational performance measurement and management, we examined the current views of service organization ­executives regarding key aspects of performance measurement. Specifically, the research that we conducted—and that is the subject of this article—focuses on the frequency of use, predictive value, and availability of information of 74 separate performance measures within the economic, social, and environmental dimensions.

Operating Sustainably Poses Challenges

In the past decade, business organizations have been increasingly under pressure to embrace a sustainable management approach. In doing so, however, business organizations are facing three significant challenges:

  • The dichotomy between people and their natural environment as they seek to meet present-day aspirations (Barkemeyer, Holt, Preuss, & Tsang, 2014);
  • Intergenerational justice to promote future development and establish temporal equity (Sikdar, 2003); and
  • The assumption that the world is interconnected and that responses should be on a global level and as though the earth is a single, interconnected unit (Blasco, 2006).

To overcome these challenges and incorporate sustainability into their activities and processes, executives of business organizations should cover three important dimensions:

  • The economic dimension, which is based on prosperity through value creation, tradable on markets.
  • The environmental dimension, which is based on the preservation of biodiversity by balancing human needs with the regenerative ability of the environment.
  • The social dimension, which is based on equity through inclusive processes, involving universally accepted human rights and freedoms (Blasco, 2006; Labuschagne, Brent, & van Erck, 2004; Tregidga & Milne, 2006).

Approaches to Sustainability Based on Organizations’ Conceptual Foundations

The conceptual foundation on which a business is based will have an influence on the way its managers approach and embrace sustainability. The three main conceptual foundations that can undergird a business organization's approach to the marketplace are discussed in the following paragraphs.

According to one popular conceptual foundation, business organizations should only be concerned with the creation of value by focusing on economic sustainability and shareholder satisfaction (Friedman, 1970). Business organizations that operate according to this conceptual foundation tend to integrate environmental and social sustainability concepts gradually, and often reluctantly, in response to legislation and regulations and/or the changing values or adoption of new social norms by critical stakeholder groups or the public in general.

A second conceptual foundation holds that business organizations should integrate the impacts of their activities according to critical global issues affecting ecological and social systems (Richards & Gladwin, 1999; Robèrt, 2000). Under this foundation, executives of business organizations should avoid planning and controlling their operations based solely on external pressures, for example, from customers, shareholders, or nongovernmental organizations. Instead, such organizations’ sustainable strategies should also result from internal discussion and by anticipating the changes ongoing in society and in the environment (Richards & Gladwin, 1999).

Managers of businesses operating under a third conceptual foundation believe that they should promote their operations within a framework that meets stakeholder expectations (Epstein & Roy, 2001; Hubbard, 2009; Schaltegger & Burritt, 2010; Schaltegger, Herzig, Kleiber, & Müller, 2003; Skouloudis, Evangelinos, & Kourmousis, 2009). This approach underlines the importance of dialogue with stakeholders as a means of ensuring sustainability (Tregidga & Milne, 2006; Wilson, 2003). Managers of these businesses are already primarily market driven and sensitive to their customers; however, they need to expand their focus to include other stakeholders, as well.

Sustainability Performance Measurement

Executives who want to follow a sustainability approach in the design, implementation, and utilization of organizational performance management systems may face several challenges, including:

  • The involvement of stakeholders in the analysis and formulation of corporate strategy (Borga, Citterio, Noci, & Pizzurno, 2009);
  • The consistent integration of objectives, targets, and actions in accordance with the corporate sustainability vision (Schaltegger & Wagner, 2006); and
  • The promotion of transparency in reporting compliance (Lamberton, 2005).

According to the literature, corporate sustainability performance measurement systems fall into four distinct groups:

  • Global systems, which are based on global/world sustainability indicators translated into strategic and process indicators at the enterprise level (Richards & Gladwin, 1999; Robèrt, 2000).
  • Stakeholder systems, which are based on the identification of expectations and critical issues through dialogue with stakeholders and then translated into the formulation of indicators associated with the results of the stakeholder engagement process (Bonacchi & Rinaldi, 2007; von Geibler, Liedtke, Wallbaum, & Schaller, 2006).
  • Triple bottom line systems, which are based on the methodological structure across the three dimensions of sustainability (economic, environmental, and social), including product life cycle (Bakshi & Fiksel, 2003; Hubbard, 2009; Sikdar, 2003).
  • Adapted systems, which are based on the traditional methodologies that are used in strategic and operational contexts that were not originally sustainability based (e.g., Sustainability Balanced Scorecard) and that integrate one or several aspects of corporate sustainability (Bonacchi & Rinaldi, 2007; Schaltegger & Wagner, 2006; Staniškis & Arbačiauskas, 2009).

Existing performance measurement systems (PMS), such as the Balanced Scorecard, have been used as shortcuts to satisfy corporate sustainability performance measurement needs. These PMS have characteristics similar to those required to measure the performance of corporate sustainability, including the involvement of stakeholders (Lo, 2010), linkage between the needs of stakeholders and company operational activities (Blasco, 2006; Hubbard, 2009; Schaltegger & Wagner, 2006), and the integration of the three sustainability dimensions (economic, environmental, and social) (Adams & Frost, 2008; Bansal, 2005; Epstein & Roy, 2001; Hubbard, 2009; Kleine & von Hauff, 2009; Schaltegger & Burritt, 2010; Schaltegger et al., 2003; Skouloudis et al., 2009).

The preparation and publication of sustainability reports has been the most common response to sustainability performance monitoring (Hubbard, 2009). However, sustainability reports are considered to have some limitations:

  • They are not components of conventional economic reports (Hubbard, 2009; Schaltegger & Wagner, 2006);
  • They only focus on the positive aspects of performance (Hubbard, 2009);
  • They are descriptive and lack measures to be used to benchmark performance (Cooper & Owen, 2007; Lamberton, 2005);
  • Frameworks used to collect, analyze, report, and audit sustainability policies and practices have an internal orientation and do not involve other stakeholders (Hubbard, 2009; Perrini & Tencati, 2006); and
  • They are much more focused on the environmental dimension than on the social dimension (Hubbard, 2009).

Barriers to Including Some Sustainability Measures Within Organization Performance Management Systems

Despite the progressive integration of sustainability approaches on the part of business organizations (Bansal, 2005), managers of businesses that want to be competitive in the global market—and that want to use their gains in sustainability practices to increase their attractiveness to customers and other stakeholders—still find it difficult to change their traditional performance measurement systems to add social and environmental parameters that can be meaningfully measured and expressed.

There are, however, several significant barriers to achieving such integration. For example, not only does value creation continue to be assessed along the financial performance dimension (Bansal, 2005), but the perception persists that measuring financial value is more important than measuring other dimensions of a business's operations (Robinson, Anumba, Carrillo, & Al-Ghassani, 2006). Another important barrier is the lack of experience within business organizations of how to measure nonfinancial performance aspects (Perez & Sanchez, 2009).

To overcome these barriers, those responsible for selecting sustainability measures need to tailor them specifically to their business organizations. In addition, measures must be:

  • Consistent and reproducible;
  • Complementary to legislation and regulations;
  • Useful in decision making; and
  • Capable of providing data on each stage in a product's life cycle (Staniškis & Arbačiauskas, 2009; Székely & Knirsch, 2005; Tanzil & Beloff, 2006).

Considering all of these factors, the objective of our study is to gain an understanding of practices related to corporate sustainability performance measures and measurement based on 12 major sustainability indicator guidelines. Exhibit 1 lists these guidelines. For this study, we looked at performance measurement practices in terms of data utilization, relevance, and the availability of information as reported by a respondents group comprising executives of Portuguese service organizations.

Exhibit 1. Major Sustainability Indicator Guidelines

GuidelineOrganization
Guidance on Corporate Responsibility Indicators in ­Annual ReportsUNCTAD—United Nations Conference on Trade and ­Development
KPI's (key performance indicators) for ESG (environmental, social, and governance)—A guideline for the integration of ESG into financial analysis and corporate valuationEFFAS—European Federation of Financial Analysts ­Societies/DVFA—Society of Investment Professionals in Germany
Sustainability Reporting GuidelinesGRI—Global Reporting Initiative
Indicadores Ethos de responsabilidade Social Empresarial (Ethos indicators on corporate social responsibility)Instituto Ethos (Ethos Institute)
ESI, The Ethibel Sustainability IndexForum ETHIBEL
DJSI, Dow Jones Sustainability IndexSAM—Sustainable Asset Management AG/DJS—Dow Jones Indexes
IRI, The Initiative for Responsible InvestmentThe Hauser Center and Initiative for Responsible Investment
Measuring eco-efficiency—a guide to reporting company performanceWBCSD—The World Business Council for Sustainable Development
FTSE4Good indexFTSE Group
The Sigma Guidelines—Putting Sustainable Development into Practice—a guide for organizationsUK Department of Trade and Industry
Sustainable Development Progress Metrics—Recommended for use in the Process IndustriesIChem—Institution of Chemical Engineers
ISO 26000:2010, Guidance on social responsibilityInternational Organization for Standardization (ISO)

Methodology

Sample and Research Instrument

The data for this exploratory investigation were obtained from a convenience sample of ­participants who were willing and available to participate in the study. Participants were recruited from the marketing database of the consulting firm Process Advice. For purposes of this research, 33 completed responses from executives of Portuguese service organizations were used.

According to the European Union's classification system, almost all of the service organizations whose executives participated in the study are small- to medium-sized enterprises. In addition, 67% of these organizations have implemented at least the International Organization of Standardization's (ISO) 9001 certification. Profiles of respondents’ organizations in regard to size, classification, and certifications are presented in Exhibit 2.

Exhibit 2. Respondents Profile

ItemFrequencyPercentage
Number of employees
 From 1 to 91648.50
 From 10 to 491339.40
 From 50 to 24926.05
 From 250 to 49926.05
 From 500 or more00.00
 Total33100.00
European Union classification
 Micro enterprise1545.45
 Small enterprise1339.40
 Medium enterprise39.10
 Big enterprise26.05
 Total33100.00
Certification
 Not implemented1133.35
 ISO 90012266.65
 ISO 1400139.10
 OHSAS 18001515.15
 Corporate Social Responsibility ­Standard (SA 8000, NP 4469-1, etc)26.05
 Other certifications (e.g., product)00

Based on an analysis of the 12 major sustainable measuring guidelines listed in Exhibit 1, 74 frequently used performance measures were listed within the research instrument (survey). The 74 performance measures along with notation of the guidelines in which they appear are listed in Exhibit 3.

Exhibit 3. Frequently Used Performance Measures Included in Study Survey

MeasureGuideline
 UNCTADEFFAS/DFVAGRIETHOSESIDJSIIRIWBCSDFTSE4 GOODSIGMAIChemISO 26000
Economic Dimension
1. Turnover
2. Cash flows
3. Revenues from ­financial investments
4. Return on assets
5. Revenues from sales of ­assets
6. Return on investment
7. Operating costs
8. Financial costs
9. Costs per unit produced
10. Employee wages and benefits
11. Gross taxes
12. Return on equity
13. Net profits
14. Community investments
15. Environment externalities costs (CO2, water treatment costs)
16. Social contributions value
17. Value of insurance premiums for employees benefits
18. Financial assistance value received from ­government
19. Range of ratios of standard entry level wage compared to local ­minimum wage
20. Value spending on ­locally based suppliers
21. Proportion of ­workers hired from the local ­community
22. Value of investments provided primarily for ­public benefit
23. Indirect economic impacts (e.g., number of indirect jobs, products use impact)
Environmental Dimension
24. Materials used by weight or volume
25. Percentage of ­materials used that are ­recycled input materials
26. Direct energy ­consumption by primary energy source
27. Total water withdrawal
28. Location and size of land owned
29. Impacts of activities, products, and services on biodiversity
30. Total direct and ­indirect greenhouse gas emissions
31. Other relevant indirect greenhouse gas emissions
32. Emissions of ­ozone-depleting ­substances
33. NOx, SOx, and other significant air emissions
34. Total water discharge by quality and destination
35. Total weight of waste by type
36. Total number and ­volume of significant spills
37. Initiatives to mitigate environmental impacts of products and services, and extent of impact ­mitigation
38. Products sold and their packaging materials that are reclaimed by weight
39. Value of fines and sanctions for noncompliance with environmental laws and regulations
Social Dimension
40. Percentage of investment agreements and contracts that include clauses incorporating human rights concerns
41. Percentage of suppliers and contractors that have undergone human rights screening, and ­actions taken
42. Total number of ­incidents of discrimination
43. Total number of ­operations identified in which the right to exercise freedom of association and collective bargaining
44. Total number of child labor detected on operations (including ­subcontractors)
45. Total workforce by employment type
46. Employee turnover by age group, gender, and region
47. Percentage of employees covered by collective bargaining agreements
48. Minimum notice period(s) regarding significant operational changes
49. Rates of employee accidents, injuries, and occupational diseases
50. Accidents and/or ­occupational diseases occurrences (e.g., rate severity, frequency, ­absenteeism)
51. Total of health and safety training
52. Agreements with unions on health and safety issues
53. Total number of ­training
54. Total number of external training and education
55. Reconciling work and family life (e.g., time off work to care for children)
56. Employee ­performance evaluation
57. Professional ­composition (e.g., number of technical staff, plant staff)
58. Distribution of salary by gender and function
59. Product risk assessment
60. Nonconformities ­detected in the production cycle
61. Compliance with ­product information
62. Nonconformities ­detected after sale
63. Number of complaints
64. Level of customer ­satisfaction
65. Marketing ­communications (including advertising, promotion, and sponsorship)
66. Monetary value of fines related to use of the product (product problems)
67. Impact assessment of operations in the ­community
68. Risks assessment ­related to corruption
69. Anticorruption training 
70. Actions taken in ­response to incidents of corruption
71. Public policy positions and participation in ­public policy for sustainable ­development
72. Value of contributions to public policy
73. Number of legal ­actions for unfair competition
74. Monetary value of fines for legal no compliance

The performance measures cover three dimensions or categories: economic, environmental, and social. Using a Likert-type scale with a range from 1 to 5, executives of Portuguese service organizations were asked to classify the nature and characteristics of each measure in regard to how they used it in their organizations.

Models, Variables, and Data Analyses

The data obtained from the participants were analyzed using cluster analysis, regression analysis, and gap analysis. The objective of the data analysis was to obtain a profile of how the participating executives used each economic, social, and environmental measure to assess various aspects of their organizations’ performance.

Cluster Analysis

In the first phase, cluster analysis was used to evaluate the survey responses. In this context, performance measures were classified according to their extent of utilization, their predictive value, and the availability of performance measure information as reported by the participants.

Regression Analysis

The second phase of the data analysis utilized multiple regression analysis to evaluate the profiles of the respondents in terms of their relative utilization of financial and nonfinancial measures. (Note: Measures 1–13 are financial measures; 14–23 are considered nonfinancial, even though they are listed within the economic category.)

The linear relationship tested was based on the variables included in the instrument. The frequency of utilization of the performance measures, abbreviated FU, was assumed to be a function of its predictive value (PV) and of the ease with which information for the measure could be acquired (ease of acquisition—EA). Therefore, the model tested was

  • display math(1)

The linear function that was estimated is

  • display math(2)

where inline image is the mean frequency of use score on the ith measure, inline image is the mean predictive value score on the ith measure, inline image is the mean ease of acquisition score on the ith measure, inline image is a variable that represents the residual, and α0, α1, α2, are linear parameters.

The observation unit for this model was the average of the responses of all the executives for each measure. The use of regression analysis in this manner was consistent with Hair, Black, Babin, and Anderson (2009). For purposes of the regression analysis, all relevant regression assumptions were verified and found to be satisfied.

Gap Analysis

Finally, the third phase of the data analysis utilized gap analysis to gain a better understanding of the relative importance of the nonfinancial measures. The differences between the predictive value and the ease of information acquisition for each of the 74 measures were examined. The equation below was used:

  • display math(3)

The differences were multiplied by their predictive values to provide scores that reflect the relative importance of the predictive value on the measure utilization (Dempsey, Gatti, Grinnell, & Cats-Baril, 1997; Foster & Gupta, 1994; Gomes, Yasin, & Lisboa, 2004, 2008). As such, the larger this indicator is, the greater the disparity between the usefulness of the measure and the availability of information.

Results

  1. Top of page
  2. Abstract
  3. Results
  4. Conclusions
  5. References
  6. Biographies

Cluster Analysis Results

The results of the cluster analysis for each of the performance measures are reported in regard to frequency of utilization, predictive value, and ease of information acquisition in Exhibits  46. The first column in each table presents the cluster number, the second column designates the performance measure, and the third column designates the category to which the measure belongs (i.e., economic [EC], social [SO], and environmental [EN]). The fourth column presents the average of the executives’ responses, the fifth, standard deviation, and finally, the last column reports the coefficient of variation.

Frequency of Utilization

The frequency of utilization results (Exhibit 4) show that the measures with the highest frequency of use (FU) by service organization executives are from the economic category, with four measures represented, and from the social category, with one measure represented. Environmental performance measures were not present among the highest-frequency-of-use cluster. Instead, the executives of service organizations included in the study show a preference for using economic-related measures in their performance measurement processes. Their highest preferences include data regarding operating cost control, turnover, and net profit. Unsurprisingly, customer satisfaction is at the top of their preferences as far as utilization of measures.

Exhibit 4. Cluster Analysis Results for Frequency of Use Measures

ClusterMeasureCategoryAverageStandard ­DeviationCoefficient of Variation
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category.

  2. Note: Clusters were predefined to 5 to provide an analogy with the scale used on the survey.

1Level of customer satisfactionSO254.1211.050.255
 Operating costsEC74.0911.420.347
 TurnoverEC13.971.330.335
 Net profitsEC133.9391.30.33
 Employee wages and benefitsEC103.8181.240.325
2Financial costsEC83.6061.430.397
 Employee performance evaluationSO173.4241.50.438
 Cash flowsEC23.3941.340.395
 Gross taxesEC113.2421.170.361
 Total number of trainingSO143.2421.20.37
 Number of complaintsSO243.2421.70.524
 Professional composition (e.g., number of technical staff, plant staff)SO183.1821.40.44
 Return on investmentEC63.031.360.449
3Total workforce by employment typeSO62.971.490.502
 Costs per unit producedEC92.9391.430.487
 Proportion of workers hired from the local communityEC212.9391.580.538
 Total number of external training and ­educationSO152.9091.40.481
 Distribution of salary by gender and functionSO192.8481.350.474
 Compliance with product informationSO222.8481.620.569
 Return on assetsEC42.7881.240.445
 Nonconformities detected in the ­production cycleSO212.7581.620.587
 Reconciling work and family life (e.g., time off work to care for children)SO162.751.50.545
 Nonconformities detected after saleSO232.7271.570.576
 Value spending on locally based suppliersEC202.6971.530.567
 Total of health and safety trainingSO122.6971.550.575
 Marketing communications (including ­advertising, promotion, and sponsorship)SO262.6971.130.419
 Revenues from financial investmentsEC32.6671.380.517
 Revenues from sales of assetsEC52.6671.430.536
 Rates of employee accidents, injuries, and occupational diseasesSO102.5761.620.629
 Social contributions valueEC162.5451.420.558
 Value of insurance premiums for ­employees benefitsEC172.5451.440.566
 Product risk assessmentSO202.4851.50.604
 Total water withdrawalEN42.4551.440.587
 Financial assistance value received from governmentEC182.3641.270.537
 Return on equityEC122.3331.160.497
4Employee turnover by age group, gender, and regionSO72.1521.390.646
 Direct energy consumption by primary ­energy sourceEN32.0911.350.646
 Accidents and/or occupational diseasesSO112.0911.510.722
 Community investmentsEC142.0611.20.582
 Initiatives to mitigate environmental ­impacts of products and services and ­extent of impact mitigationEN142.0611.50.728
 Range of ratios of standard entry level wage compared to local minimum wageEC192.031.330.655
 Indirect economic impactsEC231.9391.250.645
 Environmental externalities costsEC151.8791.410.75
 Products sold and their packaging ­materials that are reclaimed by weightEN151.8181.40.77
 Impact assessment of operations in the communitySO281.8181.330.732
 Total weight of waste by typeEN121.7881.390.777
 Value of investments provided primarily for public benefitEC221.7581.170.666
 Materials used by weight or volumeEN11.7581.250.711
 Percentage of investment agreements and contracts that include clauses incorporating human rights concernsSO11.7581.320.751
 Percentage of suppliers and ­contractors that have undergone human rights ­screening and actions takenSO21.7271.260.73
 Risks assessment related to corruptionSO291.7271.180.683
5Total direct and indirect greenhouse gas emissionsEN71.6361.170.715
 Public policy positions and participation in public policy for sustainable developmentSO321.6361.190.727
 Location and size of land ownedEN51.6061.030.641
 Total number of operations identified in which the right to exercise freedom of ­association and collective bargainingSO41.6061.140.71
 Value of contributions to public policySO331.6061.140.71
 Percentage of employees covered by ­collective bargaining agreementsSO81.5761.170.742
 Monetary value of fines related to the use of the product (product problems)SO271.5761.150.73
 Total water discharge by quality and ­destinationEN111.5451.20.777
 Total number of child labor detected on operationsSO51.5451.280.828
 Minimum notice period(s) regarding ­significant operational changesSO91.5451.120.725
 Total number and volume of significant spillsEN131.5151.150.759
 Value of fines and sanctions for ­noncompliance with environmental laws and regulationsEN161.5151.150.759
 Total number of incidents of discriminationSO31.5151.090.719
 Percentage of materials used that are ­recycled input materialsEN21.4850.870.586
 Impacts of activities, products, and ­services on biodiversityEN61.4240.870.611
 Other relevant indirect greenhouse gas emissionsEN81.4241.030.723
 Monetary value of fines for legal no ­complianceSO351.4240.90.632
 Emissions of ozone-depleting substancesEN91.3640.930.682
 NOx, SOx, and other significant air emissionsEN101.3640.930.682
 Agreements with unions on health and safety issuesSO131.3640.860.63
 Anti-corruption trainingSO301.3640.860.63
 Actions taken in response to incidents of corruptionSO311.2730.720.566
 Number of legal actions for unfair ­competitionSO341.1820.580.491

As Exhibit 4 shows, cluster 5, which includes the least-used measures, is composed of 13 measures belonging to the social category and 10 measures belonging to the environmental category. The least-used environmental performance measures are related to gaseous emissions. This result can be justified by the relatively low relevance of air emissions to service organizations’ operations. The least-used social performance measures are related to corruption issues, union agreements, and fines or legal noncompliance. It should be noted that no measures from the economic performance category were included in this cluster of least-used measures.

Predictive Value

The cluster analysis results related to the executives’ perceptions of the predictive value of each of the 74 measures are presented in Exhibit 5. The analysis of the measures with the highest predictive value shows that, once again, measures from the economic category dominate, with four of the five performance measures included in cluster 1. Thus, a consistency between measures with elevated PV and elevated FU was found. These results also show that executives assign high predictive value to financial performance measures.

Exhibit 5. Cluster Analysis Results for Predictive Value

ClusterMeasureCategoryAverageStandard DeviationCoefficient of Variation
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category

  2. Note: Clusters were predefined to five to provide an analogy with the scale used on the survey.

1Level of customer satisfactionSO254.2731.040.243
 Net profitsEC133.971.210.305
 Operating costsEC73.9391.320.335
 Financial costsEC83.8481.280.333
 Employee wages and benefitsEC103.8481.180.307
2Employee performance evaluationSO173.6671.340.365
 Net salesEC13.4551.330.385
 Cash flowsEC23.4551.30.376
 Number of complaintsSO243.4551.620.469
 Total number of trainingSO143.3331.270.381
 Professional composition (e.g., number of technical staff, plant staff)SO183.3331.430.429
 Return on investmentEC63.3031.330.403
 Gross taxesEC113.3031.290.391
 Costs per unit producedEC93.2421.350.416
3Total number of external training and ­educationSO153.0911.440.466
 Compliance with product informationSO223.0611.560.51
 Nonconformities detected after saleSO233.0611.560.51
 Return on assetsEC42.971.190.401
 Nonconformities detected in the production cycleSO212.9391.60.544
 Total workforce by employment typeSO62.9091.490.512
 Distribution salary by gender and functionSO192.9091.470.505
 Reconciling work and family life (e.g., time off work to care for children)SO162.9061.380.475
 Revenues from financial investmentsEC32.8791.470.511
 Revenues from sales of assetsEC52.8791.430.497
 Total of health and safety trainingSO122.8791.490.518
 Product risk assessmentSO202.8181.490.529
 Value of insurance premiums for employees benefitsEC172.7881.540.552
 Proportion of workers hired from the local communityEC212.7881.520.545
 Marketing communications (including ­advertising, promotion, and sponsorship)SO262.7881.290.463
 Social contributions valueEC162.7271.460.535
 Value spending on locally based suppliersEC202.7271.510.554
 Return on equityEC122.6971.290.478
 Rates of employee accidents, injuries, and occupational diseasesSO102.6971.630.604
 Total water withdrawalEN42.6671.450.544
4Employee turnover by age group, gender, and regionSO72.4851.580.636
 Financial assistance value received from ­governmentEC182.3331.240.532
 Direct energy consumption by primary energy sourceEN32.3331.450.622
 Accidents and/or occupational diseases occurringSO112.3331.610.69
 Range of ratios of standard entry level wage compared to local minimum wageEC192.3031.450.63
 Initiatives to mitigate environmental impacts of products and services and extent of impact mitigationEN142.3031.550.673
 Community investmentsEC142.2421.410.629
 Indirect economic impacts (e.g., number of indirect jobs, products use impact)EC232.2421.410.629
 Products sold and their packaging materials that are reclaimed by weightEN152.2121.600.723
 Impact assessment of operations in the ­communitySO282.1521.480.688
 Total weight of waste by typeEN122.1211.520.717
 Public policy positions and participation in public policy for sustainable developmentSO322.1211.520.717
 Total number of incidents of discriminationSO32.0911.510.722
 Value of investments provided primarily for public benefitEC222.0611.460.708
 Risks assessment related to corruptionSO292.0611.430.694
5Materials used by weight or volumeEN12.01.500.75
 Total direct and indirect greenhouse gas ­emissionsEN72.01.320.66
 Percentage of suppliers and contractors that have undergone human rights screening, and actions takenSO22.01.460.73
 Environmental externalities costsEC151.971.40.711
 Total number of child labor detected on ­operations (including subcontractors)SO51.971.690.858
 Percentage of employees covered by ­collective bargaining agreementsSO81.971.530.777
 Percentage of investment agreements and contracts that include clauses incorporating human rights concernsSO11.9391.410.727
 Total number and volume of significant spillsEN131.8791.390.74
 Total number of operations identified in which the right to exercise freedom of association and collectiveSO41.8791.450.772
 Monetary value of fines related to use of the productSO271.8791.340.713
 Percentage of materials used that are recycled input materialsEN21.8481.350.731
 Total water discharge by quality and destinationEN111.8481.350.731
 Minimum notice period(s) regarding significant operational changesSO91.8481.370.741
 Value of contributions to public policySO331.8481.280.693
 Other relevant indirect greenhouse gas ­emissionsEN81.7881.270.71
 Value of fines and sanctions for noncompliance with environmental laws and regulationsEN161.7881.340.749
 Anticorruption trainingSO301.7881.270.71
 Location and size of land ownedEN51.7581.250.711
 Impacts of activities, products, and services on biodiversityEN61.7581.170.666
 Emissions of ozone-depleting substancesEN91.7271.210.701
 NOx, SOx, and other significant air emissionsEN101.7271.210.701
 Agreements with unions on health and safety issuesSO131.7271.230.712
 Actions taken in response to incidents of ­corruptionSO311.6971.240.731
 Monetary value of fines for legal no complianceSO351.6671.190.714
 Number of legal actions for unfair competitionSO341.5761.200.761

Based on the results shown in Exhibit 5, cluster 5, which includes performance measures with the lowest predictive values of the 74 measures, the social category is the most represented with 13 measures. The environmental category, with 11 measures, is the second most represented. Only one measure from the economic category (costs of environmental externalities) is included in this cluster. The lowest predictive values are assigned to performance measures related to labor and market practices (social category), along with impacts of operational activities on the environment (environment category). The lack of importance assigned to these performance measures may be related to the nature of service activities.

Ease of Information Acquisition

The cluster analysis results related to ease of acquisition of information for the studied measures are presented in Exhibit 6. In cluster 1, we observed that respondents perceived the availability of information of measures of the economic category (five measures) to be the highest of the 74 measures included in the survey instrument. The measures with the highest ease of information acquisition correspond to data available through organizational accounting information systems.

Exhibit 6. Cluster Analysis Results for Ease of Information Acquisition

ClusterMeasureCategoryAverageStandard ­DeviationCoefficient of Variation
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category.

  2. Note: Clusters were predefined to 5 to provide an analogy with the scale used on the survey.

1Operating costsEC73.9091.420.363
 Employee wages and benefitsEC103.8481.300.338
 Net profitsEC133.8481.300.338
 Financial costsEC83.8181.330.348
 Level of customer satisfactionSO253.7581.250.333
 Net salesEC13.6971.420.384
2Gross taxesEC113.4241.300.38
 Employee performance evaluationSO173.3641.480.44
 Professional composition (e.g., number of technical staff, plant staff)SO183.3641.370.407
 Cash flowsEC23.3031.360.412
 Total number of trainingSO143.3031.240.375
 Number of complaintsSO243.1821.610.506
 Revenues from financial investmentsEC33.0911.490.482
 Return on investmentEC63.0611.390.454
 Total workforce by employment typeSO63.0611.660.542
 Proportion of workers hired from the local ­communityEC213.0301.530.505
 Total number of external training and ­educationSO153.0301.420.469
 Distribution salary by gender and functionSO193.0301.400.462
 Value of insurance premiums for employees benefitsEC173.0001.540.513
 Gross taxesEC113.4241.300.38
3Revenues from sales of assetsEC52.9391.540.524
 Costs per unit producedEC92.9391.340.456
 Value spending on locally based suppliersEC202.9391.430.487
 Compliance with product informationSO222.9091.510.519
 Social contributions valueEC162.8481.560.548
 Total water withdrawalEN42.8481.460.513
 Return on assetsEC42.8181.260.447
 Nonconformities detected in the production cycleSO212.8181.490.529
 Rates of employee accidents, injuries, and occupational diseasesSO102.7881.600.574
 Non conformities detected after saleSO232.7881.520.545
 Total of health and safety trainingSO122.7581.480.537
 Reconciling work and family life (e.g., time off work to care for children)SO162.7191.440.53
 Return on equityEC122.6671.310.491
 Marketing communications (including ­advertising, promotion, and sponsorship)SO262.6361.110.421
 Financial assistance value received from ­governmentEC182.6061.430.549
 Employee turnover by age group, gender, and regionSO72.5761.620.629
 Product risk assessmentSO202.5761.410.547
4Range of ratios of standard entry level wage compared to local minimum wageEC192.3031.420.617
 Accidents and/or occupational diseases ­occurringSO112.2731.510.664
 Community investmentsEC142.2121.320.597
 Direct energy consumption by primary energy sourceEN32.1521.440.669
 Initiatives to mitigate environmental impacts of products and services and extent of impact mitigationEN142.1521.460.678
 Percentage of employees covered by ­collective bargaining agreementsSO82.1211.560.736
 Value of fines and sanctions for noncompliance with environmental laws and regulationsEN162.0611.580.767
 Monetary value of fines related to use of the productSO272.0301.420.7
 Total weight of waste by typeEN122.0001.520.76
 Indirect economic impacts (e.g., number of indirect jobs, products use impact)EC231.9701.190.604
 Location and size of land ownedEN51.9701.210.614
 Percentage of investment agreements and contracts that include clauses incorporating human rights concernsSO11.9701.590.807
 Environmental externalities costs (CO2, water treatment costs)EC151.9391.410.727
 Total number of operations identified in which the right to exercise freedom of association and collectiveSO41.9091.490.781
 Total number of child labor detected in ­operations (including subcontractors)SO51.9091.610.843
 Value of investments provided primarily for public benefitEC221.8791.190.633
 Products sold and their packaging materials that are reclaimed by weightEN151.8791.360.724
 Minimum notice period(s) regarding significant operational changesSO91.8791.390.74
 Value of contributions to public policySO331.8791.360.724
 Total number and volume of significant spillsEN131.8481.390.752
 Impact assessment of operations in the ­communitySO281.8481.300.703
5Materials used by weight or volumeEN11.7581.150.654
 Percentage of suppliers and contractors that have undergone human rights screening, and actions takenSO21.7271.400.811
 Total number of incidents of discriminationSO31.7271.350.782
 Total water discharge by quality and ­destinationEN111.6971.260.742
 Public policy positions and participation in ­public policy for sustainable developmentSO321.6971.260.742
 Agreements with unions on health and safety issuesSO131.6671.240.744
 Risks assessment related to corruptionSO291.6671.080.648
 Monetary value of fines for legal no ­complianceSO351.6671.270.762
 Actions taken in response to incidents of ­corruptionSO311.6361.140.697
 Percentage of materials used that are recycled input materialsEN21.6061.060.66
 Anti corruption trainingSO301.6061.120.697
 Number of legal actions for unfair competitionSO341.6061.220.76
 Total direct and indirect greenhouse gas ­emissionsEN71.5761.000.635
 Other relevant indirect greenhouse gas ­emissionsEN81.3940.860.617
 Impacts of activities, products, and services on biodiversityEN61.3640.740.543
 Emissions of ozone-depleting substancesEN91.3640.780.572
 NOx, SOx, and other significant air emissionsEN101.3640.780.572
 Monetary value of fines for legal no ­complianceEN11.7581.150.654
 Actions taken in response to incidents of ­corruptionSO21.7271.400.811
 Percentage of materials used that are recycled input materialsSO31.7271.350.782

Based on the results shown in Exhibit 6, cluster 5, which includes the measures with the lowest perceived information availability, we observed the existence of nine measures from the social category and eight measures from the environmental category. These results may be explained by the difficulties inherent in identifying and measuring social and environmental impacts.

Regression Analysis Results

To investigate the profile of the study respondents in relation to their extent of utilization of financial and nonfinancial measures, the linear function to be estimated is

  • display math(4)

The regression results shown in Exhibit 7 indicate a high R2 (coefficient of determination) of 98.0%. This means that 98% of the total variability in the frequency of utilization has been explained by the predictive value and ease of information acquisition responses. The estimated regression coefficients were found to be significant (α = 0.01).

Exhibit 7. Regression Results Relating Profile of Service Executives

 RR2Adjusted R2Standard Error of Estimate 
  1. Abbreviations: PV, predictive value; EA, ease of information acquisition.

 0.9900.9800.9800.1115 
 Unstandard Coefficients Standard Coefficient  
 βStandard ErrorβTSignificance
(Constant)–0.5280.051–10.4160.000
PV0.7390.0700.64110.6170.000
EA0.3930.0660.3585.9410.000

Because we are analyzing a behavior profile, it is important to evaluate the deviations from that profile. In this context, it is important to evaluate the measures used in this study to assess their departure from the profile. To accomplish this, the regression model below is used:

  • display math

Exhibit 8 reveals a set of measures with positive signs, which represent the measures most used in relation to the respondent profile. It also reveals a set of measures with negative signs, which represent the least-used measures in relation to the respondent profile.

Exhibit 8. Departure of Residual Errors From the Estimated Profile

MeasureCategoryStandardized Residual
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category.

  2. Note: Measures with significant standardized residuals (α = .1).

Significant positive residuals (more use)
 Net salesEC14.40355
 Proportion of workers hired from the local communityEC211.92973
 Environmental externalities costs (CO2, water treatment costs)EC151.69092
 Operating costsEC71.53390
 Total workforce by employment typeSO61.29658
Significant negative residuals (less use)
 Revenues from financial investmentsEC3–1.3273
 Value of insurance premiums for employees benefitsEC17–1.49747
 Employee turnover by age group, gender, and regionSO7–1.5191
 Return on equityEC12–1.62175
 Total number of incidents of discriminationSO3–1.62769
 Percentage of employees covered by collective bargaining agreementsSO8–1.66749
 Financial costsEC8–1.89124

Among the five measures used more than predicted by the model, four belong to the economic category. These measures are related to costs accounting, employee performance, and environmental externalities. There is only one noneconomic measure, which is related to the human resources structure (social category). The greatest use of these measures is perhaps associated with annual reporting to government authorities and certification reporting.

Among the measures used less than predicted by the model, the economic category dominates (four measures). The underutilization of these measures can be explained by the difficulty of obtaining information regarding these measures. In fact, these measures, in particular for small-to-medium-sized enterprises (SME), require financial data analysis. For a large number of service organizations, such analysis is performed by external accounting services. Less-used social measures are related to staff turnover, discrimination in the workplace, and union collective bargaining. The low utilization of these measures may be related to the stability of the workforce in Portuguese SMEs and to a lack of labor conflicts in these organizations.

Gap Analysis Results

To understand the reasons behind the apparent lack of relative utilization of nonfinancial measures on the part of service organization executives, the relationships among the predictive value and the ease of information acquisition scores for each of the 74 measures were ­examined using the indicator (GAP) equation given below:

  • display math

As we mentioned earlier in the Methodology section, the larger this indicator (GAP) is, the greater the disparity between the usefulness of the measure and its ease of information availability to the executives. Negative or relatively small values for this indicator indicate a surfeit of information. The measures studied were divided into two groups. The first group includes those measures with negative indicators, which are shown in Exhibit 9.

Exhibit 9. Measures With a Negative Gap Indicator

RankMeasureCategoryGAP
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category.

48Number of legal actions for unfair competitionSO34–0.05
49Percentage of investment agreements and contracts that include clauses ­incorporating human rights concernsSO1–0.06
50Total number of operations identified in which the right to exercise freedom of association and collectiveSO4–0.06
51Minimum notice period(s) regarding significant operational changesSO9–0.06
52Value of contributions to public policySO33–0.06
53Professional composition (e.g., number of technical staff, plant staff)SO18–0.10
54Revenues from sales of assetsEC5–0.17
55Employee turnover by age group, gender, and regionSO7–0.23
56Rates of employee evolved on accidents, injury, and occupational diseasesSO10–0.25
57Monetary value of fines related to use of the product (product problems)SO27–0.28
58Percentage of employees covered by collective bargaining agreementsSO8–0.30
59Social contributions valueEC16–0.33
60Distribution salary by gender and functionSO19–0.35
61Location and size of land ownedEN5–0.37
62Gross taxesEC11–0.40
63Total workforce by employment typeSO6–0.44
64Total water withdrawalEN4–0.48
65Value of fines and sanctions for noncompliance with environmental laws and regulationsEN16–0.49
66Value spending on locally based suppliersEC20–0.58
67Value of insurance premiums for employees benefitsEC17–0.59
68Revenues from financial investmentsEC3–0.61
69Financial assistance value received from governmentEC18–0.64
70Proportion of workers hired from the local communityEC21–0.67
71Net salesEC1–0.84

The largest group of measures with negative indicators in this exhibit is from the social category, with 12 measures. Six of the measures with negative indicators are from the economic category, whereas only three measures from the environmental category show negative indicators. Overall, only 28.4% of the measures listed in the survey show negative values.

The second group includes those performance measures with positive GAP values above the average (0.50). Exhibit 10 shows the performance measures with the largest disparity between their usefulness and their information availability, thus reflecting the measures having the lowest availability of valuable information. The lack of information focuses primarily on measurement of customer satisfaction. However, despite the relative lack of information pertaining to customer satisfaction, it is the most used performance measure. This may indicate that, despite the difficulty of acquisition, managers promote efforts to obtain such data.

Exhibit 10. Measures With Gap Indicators Above Average of the Positive Values

RankMeasureCategoryGAP
  1. Abbreviations: EC, economic category; SO, social category; EN, environmental category.

1Level of customer satisfactionSO252.20
2Employee performance evaluationSO171.11
3Costs per unit producedEC90.98
4Number of complaintsSO240.94
5Public policy positions and participation in public policy for sustainable developmentSO320.90
6Total direct and indirect greenhouse gas emissionsEN70.85
7Nonconformities detected after saleSO230.84
8Risks assessment related to corruptionSO290.81
9Return on investmentEC60.80
10Total number of incidents of discriminationSO30.76
11Products sold and their packaging materials that are reclaimed by weightEN150.74
12Other relevant indirect greenhouse gas emissionsEN80.70
13Impacts of activities, products, and services on biodiversityEN60.69
14Product risk assessmentSO200.68
15Impact assessment of operations in the communitySO280.65
16Emissions of ozone-depleting substancesEN90.63
17NOx, SOx, and other significant air emissionsEN100.63
18Indirect economic impacts (e.g., the number of indirect jobs, products use impact)EC230.61
19Percentage of suppliers and contractors that have undergone human rights screening, and actions taken.SO20.55
20Reconciling work and family life (e.g., time off work to care for children)SO160.54
21Cash flowsEC20.53

Conclusions

  1. Top of page
  2. Abstract
  3. Results
  4. Conclusions
  5. References
  6. Biographies

The objective of this study is to gain an understanding of current practices related to corporate sustainability performance measurement and measures used by service organizations. Specifically, the extent of use, importance, and availability of information for a group of 74 economic, social, and environment measures are examined. The results of this study, which are derived from cluster analysis, regression analysis, and gap analysis, point to some important conclusions. These conclusions have both practical and future research implications.

First, the cluster analysis results point to a higher valorization of measures from the economic category than from the environmental and social categories. The analysis also shows a low value assigned to social measures related to global issues such as corruption, freedom of association, and human rights.

Second, the regression analysis results appear to indicate that executives of service organizations are emphasizing financial and customer-related performance measures. These results can be justified by the intense interaction with customers that occurs in service organizations (Chen, 2009). On the other hand, an underutilization of social- and environmental-related measures is also noted.

Third, the gap analysis results indicate a lack of information related to environmental global issues. Perhaps service organization executives are not sufficiently valuing these performance dimensions. As such, they are not willing to pay to have this information.

Overall, it appears that Portuguese service organizations are following a closed-system performance measuring model, with an unbalanced approach to corporate sustainability performance measurement. Executives of these organizations need to reorient their organizational cultures and processes to promote the utilization of environmental and social performance measures. They also need to use information technology/information systems mechanisms to ensure the availability of information to inform their decision-making processes.

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  4. Conclusions
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  6. Biographies
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Biographies

  1. Top of page
  2. Abstract
  3. Results
  4. Conclusions
  5. References
  6. Biographies
  • Pedro Mamede is a senior manager at Process Advice and board member of Innovation & Competitiveness Advice Group. He received a BA (honors) in international relations, MBA and master's degree in management, all from the University of Coimbra. As a student of the PhD program in management IAE Paris Panthéon Sorbonne (France), his research focused on corporate sustainability performance, and stakeholders’ engagement. Professionally, he provided consultancy on the private and public sectors in several countries.

  • Carlos F. Gomes is an assistant professor with tenure in the School of Economics at the University of Coimbra and a researcher at the Institute of Systems and Robotics, Coimbra. He received a PhD in industrial management, an MS in industrial management, a postgraduate certificate of advanced studies in industrial quality and international business, and a BS in electrical engineering, all from the University of Coimbra. His main research interests are performance management, operations strategy, and improvement of production systems. He has published in many refereed journals and the proceedings of professional meetings. He can be contacted via e-mail at cfgomes@fe.uc.pt.