Leveraging Environmental Information Integration to Enable Environmental Management Capability and Performance

Authors


  • Acknowledgments: The author is grateful to the Editor-in-Chief, the Associate Editor, and the four anonymous reviewers for their helpful comments on earlier versions of this manuscript. This research is partially supported by the Research Grants Council of Hong Kong Special Administrative Region, China (GRF PolyU 5500/10H).

Abstract

Although environmental sustainability has emerged as an important organizational capability to protect the environment and sustain businesses, there is little knowledge on how it is developed. This is of particular importance when environmental management no longer relies solely on an individual firm's efforts, but on its supply chain partners as well. Building on dynamic capabilities theory, environmental information integration (EII) is defined as the organizational capacity of sharing information on environmental management with supply chain partners to facilitate coordination of environmental management practices. This study examines how EII contributes to environmental management capabilities in terms of corporate environmental innovativeness and adaptability. The research model is empirically tested using data collected from 230 firms. The findings show that supplier EII is insufficient in improving environmental management capabilities. Internal EII contributes to corporate environmental adaptability, while customer EII engenders both corporate environmental innovativeness and adaptability. This study suggests that strategic values of EII go beyond the sharing of environmental management information between supply chain partners, simultaneously contributing to the environmental management capabilities of firms. This study contributes substantially to environmental management research by providing empirical evidence on the specific dimensions of EII in supply chains that contribute to environmental management capabilities and business values.

Introduction

Environmental protection is an important and timely organizational issue that affects long-term development of businesses (Madsen, 2009). While firms are actively engaging in practices, ranging from cleaner production (Rothenberg, Pil & Maxwell, 2001; Yang, Hong & Modi, 2011) to eco-product design (Toffel, 2004), there is growing attention to the significance of supply chain collaboration in environmental protection, such as closed-loop supply chains and reverse logistics (Parmigiani, Klassen & Russo, 2011). As a result, many industry leaders, such as Nike, Hewlett-Packard and S.C. Johnson, share information with their supply chain partners in support of their efforts to eliminate the use of toxic materials, reduce energy consumption and avoid waste production throughout their supply chain processes. However, the Carbon Disclosure Project Supply Chain Report (2011) and Green Chemistry & Commerce Council (2009) suggest that coordination of environmental management practices in a supply chain is fraught with challenges. Such challenges are induced by the complexity of supply chain communication and coordination, suggesting the importance of developing an information sharing mechanism to support environmental management beyond an individual firm. For example, PepsiCo shares information and integrates with its suppliers to successfully reduce their greenhouse gas emissions in the supply chain as a whole (ATKearney, 2011). Drawing in part on extant findings from both the information systems and supply chain management disciplines (Flynn, Huo & Zhao, 2010; Lee, 2000; Wong, Boon-itt & Wong, 2011c; Wong, Lai & Cheng, 2011a), this study explores the effects of environmental information integration established internally across business units and externally with suppliers and customers on the environmental management capabilities of firms.

Environmental information integration (EII) is defined as the information sharing infrastructure that supports environmental information exchange and coordination across business functions and partner firms (Almotairi & Lumsden, 2009; Bajwa et al., 2008; Grover & Saeed, 2007; Lai, Wong, Cheng & Yeung, 2006). While it differs from the traditional supply chain information integration that is confined to supporting such activities as shipment coordination, order fulfilment and so forth (Lai, Wong & Cheng, 2010; Lai et al., 2006; Lau, Hui, Chan & Wong, 2002; Wong, Lai & Cheng, 2009a; Wong, Lai & Ngai, 2009b), it also differs from vertical integration that is concerned with corporate ownership. EII reflects organizational electronic connectivity with supply chain partners that enables firms to acquire and disseminate information to coordinate environmental management practices, ranging from eco-product design, asset recovery, components disassembly and recycling, to reuse, with the aim of mitigating the environmental impact of products throughout their life cycle (Elliot, 2011). For example, by sharing information on product design and material composite with downstream customers (e.g., distributors and retailers), firms enable their customers' participation in such asset recovery tasks as returned product inspection and separation. On the other hand, information related to the condition and amount of retrieved components and materials enable upstream partners (e.g., component suppliers and manufacturers) to identify opportunities for product and process improvement, and plan for inventory.

However, there is limited empirical evidence on how EII may contribute to the environmental management capabilities of firms. This omission in the literature is undesirable because there are few managerial insights into how firms may develop their environmental management capabilities through leveraging their supply chain efforts in environmental protection. The concept of environmental management capabilities is concerned with conserving natural capital, whereby firms reduce their environmental impact by such means as reducing waste in operations, using renewable inputs, and continuously improving their operations to sustain yield with minimum adverse impact to the environment (Goodland, 1995; Klassen & Whybark, 1999). It refers to the ability of firms to integrate environmental issues into business operations (Lee & Klassen, 2008) and is related to the organizational characteristics and management system that facilitates and supports a firm's environmental protection efforts and initiatives. Although there is little empirical evidence of its performance impact and knowledge on how it is developed, a few prior studies have provided anecdotal evidence and discussion on the potential performance impact of environmental management capabilities in terms of corporate environmental innovativeness and adaptability in mitigating environmental damage, preempting future environmental requirements and satisfying customer needs (Handfield, Sroufe & Walton, 2005). The objective of this study is to answer two critical research questions related to the development of environmental management capabilities and its performance impact: (1) How does EII influence environmental management capabilities in terms of corporate environmental innovativeness and adaptability? and (2) What are the implications of developing environmental management capabilities for financial and environmental performance? To answer these research questions, we draw on dynamic capabilities (DC) theory to examine the environmental management capabilities of firms in innovating new environmental practices and adapting to new market environmental demands and expectations, while EII facilitates environmental management capabilities by providing the relevant information.

Literature Review

Environmental Management Capabilities as Dynamic Capabilities

Noting the limit of natural resources that requires economic and environmental goals to be pursued within these limits (Farrell & Hart, 1998), firms require proactive problem solving and innovation to improve traditional, inefficient business processes and products (Ramus, 2001). Firms also need to be adaptive to changing environmental requirements (e.g., new environmental regulations) (Elliot, 2011; Milne, Kearins & Walton, 2006). In line with organizational dynamic capabilities (DC) theory, which advocates the ability of firms to continually build and develop organizational practices to sustain business growth (Teece, Pisano & Shuen, 1997), environmental management capabilities is characterized by the capabilities of firms to innovate and adapt to changing market needs (Beske, 2012; Elliot, 2011). It extends beyond corporate strategic goals (Farrell & Hart, 1998; Parris & Kates, 2003), environmental protection initiatives (Jacobs, Singhal & Subramanian, 2010) and environmental management practices (Matos & Hall, 2007).

Dynamic capabilities theory suggests that firms that are responsive and rapid in product innovation, coupled with the capabilities to effectively coordinate and redeploy internal and external competencies, would improve performance (Teece et al., 1997). It considers the capacity of firms to integrate, build and renew internal and external competencies to adapt to changing market needs (Sirmon, Hitt & Ireland, 2007). DC theory, in line with the corporate social responsibility literature, provides a theoretical grounding for the conceptualization of environmental management capabilities, which is a key component of the environmental sustainability of firms in attending and responding to changing market and societal needs (Ackerman & Bauer, 1976). Environmental management capabilities reflect firms' ability to develop innovative practices while being adaptive to market needs (Klassen & Whybark, 1999; Quak & de Koster, 2007), to address the growing concern of environmental expectations while improving environmental and financial performance (Kleindorfer, Singhal & van Wassenhove, 2005).

Based on DC theory, corporate environmental innovativeness is concerned with the development and adoption of new environmental management practices to improve the efficiency and effectiveness of firms' environmental protection efforts (Fong & Chang, 2012; Geffen & Rothenberg, 2000; Theyel, 2000). It is related to the ability of firms to make investments and seize opportunities in developing new environmentally friendly products or adopting new pollution prevention practices and technologies. Corporate environmental innovativeness requires supply chain efforts to improve end-to-end processes between a focal firm and its suppliers and customers (Lee, 2000) and to improve resource visibility and information sharing to facilitate innovation (Geffen & Rothenberg, 2000). On the other hand, corporate environmental adaptability is concerned with firms' responsiveness and flexibility in responding to new environmental requirements and needs while sustaining economic growth (Milne et al., 2006). It reflects the ability of firms to support the restructuring and reengineering of business processes to comply with new environmental principles and market demands (e.g., use of alternative energy). In the context of supply chain management, adaptability is considered a critical capability of firms in coping with the changing market needs (Lee, 2004). Thus, corporate environmental adaptability is an important environmental management capability to flexibly address future changes in environmental regulations and market expectations (Colby, 1991).

According to DC theory, these characteristics of environmental management capabilities are crucial for firms to continually integrate new resources (e.g., environmental technologies, practices or information) to the existing ones to innovate, while adapting to changing or evolving market needs. The triple bottom line literature suggests that environmental sustainability is related to a balance of economic, environmental and social goals (Carter & Rogers, 2008). To achieve these goals in a supply chain, according to the resource-based view of a firm, firms need enabling processes to acquire the relevant information and facilitate the development of environmental management capabilities (Barney, 2012; Priem & Swink, 2012). In line with this view, DC theory presumes the existence of two critical aspects: (1) the input of new resources that can be applied to modify existing organizational practices and (2) the capabilities of changing existing organizational practices (Winter, 2000). The development of such capabilities requires acquisitions of new information to understand market needs (Dillman, 2000) and collective efforts in managing cross-functional business activities to address the market needs (Fawcett, Wallin, Allred, Fawcett & Magnan, 2011). As such, information is considered an important resource input that enables firms to build and make necessary adjustments to their existing environmental knowledge and practices (Ravichandran & Lertwongsatien, 2005). EII serves as a strategically significant mechanism to facilitate information sharing amongst functions and supply chain partners (Frohlich & Westbrook, 2001). The environmental management capabilities of firms is considered as the second critical aspect of DC, which reflects the ability of firms to modify and change their existing practices to improve their environmental and economic performance.

Environmental Information Integration

The conceptualization of EII revolves around the fundamental concept of the intra- and inter-organizational systems infrastructure to facilitate timely, accurate and standardized data exchange across organization functions (Truman, 2000). In line with the notion of supply chain integration, EII provides the electronic linkages of internal and external functions to share environmental information and coordinate environmental management practices (e.g., return product collection, disassembly, recycling). It is concerned with managing the environmental impacts of business activities ranging from product development, production, delivery and consumption, to postdisposal disposition of products (Linton, Klassen & Jayaraman, 2007; Pagell & Wu, 2009). As such, EII enables the coordination of environmental protection responsibilities and tasks among supply chain partners.

From the technical perspective, EII is concerned with the electronic interconnectedness and linkages developed between partner firms to share logically compatible data (Bernstein & Haas, 2008). EII supports communication and sharing of such environmental management information as solid waste generation and carbon emission among the associated partners. It reflects the extent to which partner firms and functions are interconnected to allow timely and accurate environmental information sharing across organizational functions (Goodhue, Wybo & Kirsch, 1992). From the coordination perspective, EII is concerned with inter- and intra-organizational environmental management practices, for example, the collection of returned products and separation of reusable parts, being streamlined and coupled by information systems (Truman, 2000; Wong et al., 2009a,b). It enables coordination of inter-dependency and allocation of responsibility, ranging from end-of-life product collection and disassembly, to material recycling amongst partners to achieve environmental goals (e.g., reduce disposal to landfill) at a low cost (Rao & Holt, 2005). In line with DC theory, these perspectives highlight the importance of EII in enabling supply chain partners to collaborate in environmental management through information sharing to plan and improve decision making, with the result of having better coordination and organization in their environmental management practices.

Dimensions of Environmental Information Integration

A firm is an open social and economic system, where it is influenced by external forces and conditioned by internal processes (Astley & Van de Ven, 1983). Such a classical view of organization advocates the need to distinguish between internal and external EII and is in line with the conceptualization of supply chain integration, namely internal, supplier and customer integration (Flynn et al., 2010; Frohlich & Westbrook, 2001; Wong et al., 2011c). Supply chain integration is concerned with the extent to which (i.e. the degree of integration) a focal firm collaborates with supply chain partners and facilitates data flow across its intra- and inter-organizational processes. Adopting this line of thought, EII is divided into three dimensions: namely internal EII, customer EII and supplier EII.

Internal EII supports the coordination of internal processes to achieve corporate environmental goals. It is concerned with the extent to which a firm configures its communication and information sharing infrastructure across intra-organizational functions to facilitate organizational efforts in environmental management (Lai, Wong & Cheng, 2008). On the other hand, external EII includes supplier and customer EII to take into account the differences between upstream and downstream supply chains. Customer and supplier EII refer to the extent to which electronic linkages are developed across inter-organizational processes, which are structured to facilitate the performance of environmental management, for which each partner is responsible.

Customer EII is concerned with the information sharing infrastructure of firms sharing environmental information with customers (e.g., new eco-product introduction), while acquiring information of new customer requirements and expectations (e.g., new environmental standards and regulations). Such EII helps identify business and environmental management opportunities (Priem & Swink, 2012), while informing and educating customers about alternative products and practices. Customer EII can therefore be useful in engaging customers in participating in environmental protection (e.g., returning end-of-life products).

On the other hand, supplier EII is concerned with the information sharing infrastructure that enables information sharing between a focal firm and its suppliers to facilitate upstream supply chain operations on such aspects as materials selection and treatment of manufacturing by-products. Supplier EII enables product and process improvement by sharing information related to their material wastage, new alternative materials and manufacturing technologies, and so forth. It enables supply chain partners to align their environmental objectives while collaboratively engaging in environmental practices to reduce their adverse environmental impact.

Synthesis of the Extant Literature

Upon conducting an extensive literature review, we summarized the seminal works on environmental management capabilities in Table 1 and observed the following limitations in the literature. First, the definition and conceptualization of environmental management capabilities varies across studies. While some studies take organizational environmental management capabilities as the accountability and control of natural resources consumption (Elliot, 2011; Linton et al., 2007; Parmigiani et al., 2011), some consider environmental management capabilities as business practices (Montabon, Sroufe & Narasimhan, 2007; Wu & Pagell, 2011). A few studies have provided empirical evidence that is confined to specific practices, such as announcing corporate environmental initiatives (Jacobs et al., 2010) and incorporating life-cycle assessment into product design (Matos & Hall, 2007). This study responds to the call for empirically investigating environmental management capabilities as an organizational ability to achieve sustained competitive advantage (Hart, 1995).

Table 1. Summary of Literature Related to Environmental Sustainability
StudyConceptualization of Environmental Management CapabilitiesTheoretical FocusAntecedents of Environmental Management CapabilitiesConsequences of Environmental Management CapabilitiesMethodologyFindings
Handfield et al. (1997)Reduce all forms of waste, including solid waste and air pollutionOperations focus

Environmental regulations

Customer expectations

Environmental performanceCase studiesEnvironmental management practices must be integrated into all stages of the value chain, spanning product design, procurement, manufacturing, packaging, logistics and distribution.
Farrell and Hart (1998)“Improving the quality of human life while living within the carrying capacity of supporting ecosystems”Corporate value focusSocial, economic and institutional factors

Economic growth

Amount of nonrenewable energy used

ConceptualizationDevelopment of sustainability indicators, which include basic needs, community, the quality of the environment and the use of resources.
Klassen and Whybark (1999)Environmental management orientation (i.e., system analysis and planning, organizational responsibility and management controls) and environmental technology investment (i.e., pollution prevention and pollution control) to address environmental issuesOperations focus Toxic release inventorySurvey

Three distinct environmental management configurations of firms: compliance, opportunism and proactive orientation

Proactive orientation firms have greater reductions in toxic pollutants than the compliance orientation firms.

Parris and Kates (2003)“Vital environmental systems are maintained at healthy levels, and to the extent to which levels are improving rather than deteriorating”Corporate value focus Health of environmental systemConceptualizationThe composite index of environmental sustainability.
Quak and de Koster (2007)Distribution network structure and logistic planning that affect the environmental impact of distribution activitiesOperations focus

Time-access restrictions, as a policy to improve social sustainability. This policy forces the distribution activities to take place within a specified time period of the day.

Network structure and logistic planning

Financial and environmental performanceCase studiesWhen few cities are affected by the policy, costs and emissions increase moderately. When more cities are affected, costs and emissions increase significantly.
Linton et al. (2007)Using resources to meet present needs without compromising future generations' ability to meet their own needsOperations focusProduct design, manufacturing by-products, by-products produced during product use, product life extension, product end-of-life and recovery processes Literature reviewShould consider sustainability in different supply chain activities.
Matos and Hall (2007)

Life-cycle assessment to optimize closed-loop supply chains

Operations focus

Product design and stewardship

Uncertainties — economic, environmental and social uncertainties

Air emissions, water discharge quality, energy consumption, land disturbanceCase studiesIntegrating sustainable development in the supply chain by incorporating the life-cycle assessment approach to optimize a closed-loop supply chain.
Montabon et al. (2007)Environmental management practices — recycling, proactive waste reduction, remanufacturing, environmental design, specific design targets, surveillance of the marketOperations focus 

Product innovation

Process innovation

Environmental performance

Financial performance (ROI and sales growth)

Content analysisSix key environmental management practices: recycling, proactive waste reduction, remanufacturing, environmental design, specific design targets, and surveillance of the market for environmental issues (which are positively associated with firm performance).
Carter and Rogers (2008)Integration of social, environmental, and economic responsibilitiesOperations focusExternal resources, vertical coordination and social and environmental knowledgeTriple bottom line: environment, society, and economic performanceConceptual developmentSustainability is considered as an integration of environmental, social, and economic performance.
Jacobs et al. (2010)Corporate environmental initiatives, environmental awards and certifications, ISO 14000 certificationsStrategy focusOrganizational initiativesMarket valueEvent studies

Philanthropic announcement of giving gifts for environmental causes brings significant positive market reaction.

Voluntary emissions reduction has negative market reaction.

ISO 14000 certification is positively associated with market reaction.

Martin, Guide and Craighead (2010)The choice of in-house vs. contracted remanufacturing operationsOperations focusSpecificity of operational assets, intellectual property, frequency of remanufacturing, brand reputation, technological uncertainty, condition uncertainty, product complexity and volume uncertainty Survey and case studies

Specificity of operational assets, intellectual property, and frequency of remanufacturing are significant drivers of in-house remanufacturing.

Brand reputation, technological uncertainty, condition uncertainty, product complexity and volume uncertainty are not drivers of in-house remanufacturing.

Guide and Li (2010)The marketing of remanufactured productsOperations focusConsumer perception and experiencesCannibalization of new product sales by remanufacturing red productsField study and laboratory studies

For consumer products, the risk of cannibalization is minimal.

For commercial products, there is a potential risk of cannibalization.

Elliot (2011)“Stakeholder behavior impacting on the natural environment that meets the needs of the present without compromising the ability of future stakeholders to meet their own needs”Operations focus

Stakeholders: society, government, industry and alliances, organizations, individuals and groups in organizations

Human behaviors

EnvironmentConceptual developmentDeveloped an integrative framework for IT-enabled business transformation to improve business efficiencies and effectiveness.
Wu and Pagell (2011)Environmental sustainability means that business activities are conducted in a way that protect natural resources and the environment, while serving the common good of society.Strategy focusEnvironmental strategies and posturesEnvironmental and economic performanceCase studiesOrganizations with different business modes and priorities tend to have different environmental strategies and postures. Different environmental postures exhibit trade-offs in their economic and environmental aspects.
Parmigiani et al. (2011)Control and take accountability for environmental impactOperations focusEfficient vs. market responsive supply chain configurationEconomic, social, and environmental performanceTheoretical developmentStakeholder exposure determines how social/environmental, technical and relationship capabilities impact social and environmental outcomes.

Second, although prior studies acknowledge the importance of supply chain efforts in environmental protection (e.g., Handfield et al., 2005; Matos & Hall, 2007; Quak & de Koster, 2007), they focus on the environmental practices at various supply chain stages (e.g., product design and procurement stage) and their performance impact, neglecting how the supply chain collective efforts are developed. While information integration facilitates coordination of cross-firm activities and enables joint efforts in environmental protection, this study is novel in advancing knowledge on how firms may develop their environmental management capabilities by forming EII across internal functions and with supply chain partners (Kleindorfer et al., 2005; Wong, Lai, Cheng & Lun, 2011b). Such an approach is in line with the process-based perspective of corporate social responsibility that suggests that environmental issues are related to organizational capacity in meeting market and societal needs (Ackerman & Bauer, 1976). To cope with such needs, firms require enabling processes, such as EII, that provide environmental information and a coordination mechanism (Wong et al., 2011a).

Third, prior studies have examined the use of such IS applications as Environmental ERP software, GaBi and SimaPro to measure, manage and report environmental data (Denzer, Shimak & Russell, 1995; Gunther, 1997). While these systems are largely confined to applications of individual organizations, little is known about how the inter-organizational environmental management efforts on such activities as green procurement (Carter & Carter, 1998), take-back activities (Atasu, Van Wassenhove & Sarvary, 2009; Lai & Wong, 2012; Lai, Wong & Cheng, 2012; Lun, Lai, Wong, Ng & Cheng, 2011) and remanufacturing (Webster & Mitra, 2007) are coordinated. This omission in the literature is undesirable for the theoretical and managerial development of environmental management, as managers lack the knowledge on how to develop environmental management capabilities by leveraging their supply chain environmental management efforts. In particular, Vachon and Klassen (2007) found that the investments made in pollution control and prevention technologies tend to increase as a focal firm integrates more with its suppliers and customers. It is therefore important to reveal the dimensions of EII that contribute to environmental management capabilities and the performance impacts of environmental management capabilities.

Hypotheses

Effects of EII on Environmental Management Capabilities

Internal EII facilitates communication and information sharing and promotes cross-functional cooperation (Mukhopadhyay, Kekre & Kalathur, 1995). It facilitates new eco-product development by integrating cross-functional efforts in sourcing, product design, production, disassembly and so forth, to ensure the product has little adverse environmental impact throughout its life cycle. Internal EII lowers the silos across functions and enables access of information and knowledge that is critical to developing new products and environmental management practices that are difficult to complete under the effort of a function in isolation. According to DC theory, such EII fuels innovative activities by providing additional information and knowledge to generate new ideas and facilitating firms in their development and adoption of new environmental management practices and technologies. While facilitating internal process coordination, internal EII improves flexibility of business functions in responding to changing market demands, expectations and regulatory requirements as it facilities cross-functional adjustments and changes in practice.

H1: Internal EII is positively associated with environmental management capabilities in terms of (a) corporate environmental innovativeness and (b) corporate environmental adaptability.

By facilitating information sharing with suppliers, supplier EII encourages supplier participation in the stages of product design, production and asset recovery, with the objective of minimizing product life-cycle costs to the environment (Hart, 1995; Wong, Lai, Lun & Cheng, 2012). Supplier EII provides firms with information and knowledge related to alternative choices of materials, designs for material waste reduction and reuse of scrap and retrieved components to reduce material consumption and disposal to landfill (Carter & Carter, 1998; Pagell, Wu & Wasserman, 2010). In addition, supplier EII supports the sharing of environmental performance, such as the amount of emission, waste water drainage and solid waste disposal in operations, enabling firms to identify areas of improvement in a supply chain. For example, in addition to innovating technologies that increase fuel efficiency when vehicles are in use, Honda Motor Co. tracks emission and environmental impacts of its suppliers' production of components and vehicle assembly to monitor and control their environmental impacts throughout its supply chain (Anonymous, 2012; Bardelline, 2011). Another example is the motorcycle manufacturing industry in Japan that establishes a voluntary recycling system by utilizing their existing information systems networks to facilitate such processes as product collection, disassembly, component inspection, recycling and so forth among partners in a motorcycle supply chain (Staff, 2004). Based on DC theory, supplier EII provides sources of information to facilitate innovation of new eco-products and environmental management practices. While promoting a collaborative and mutual understanding on partners' responsibilities and functions in environmental management, supplier EII helps develop flexibility in environmental management to adapt and respond to changes in environmental requirements and demands.

H2: Supplier EII is positively associated with environmental management capabilities in terms of (a) corporate environmental innovativeness and (b) corporate environmental adaptability.

As customer EII supports information sharing and communication with customers, it provides market intelligence and new information that enable firms to identify such opportunities as new eco-product development and environmental technology adoption. Customer EII provides information that improves the understanding of market needs, which in turn reduces uncertainties in eco-product design, asset recovery planning and reverse logistics scheduling. Such information integration enhances organizational adaptability to market needs by providing updated market information (Ettle & Reza, 1992), thus improving firms' responsiveness to new market demands and unanticipated changes in environmental requirements (Flynn et al., 2010). It also helps preempt the loss of investment in new product and process development due to failure in meeting market needs. Equally, customer EII assists customers in identifying environmentally friendly alternatives, while providing them with information to engage and participate in environmental protection activities. For example, DuPont, a major supplier of chemicals and materials, integrates with its customers and is involved in the early stages of product development, allowing it to deliver solutions that help its customers satisfy market needs (Guide & Li, 2010). Such involvement also enables DuPont to learn about new market needs, which are beneficial to its new product development and innovation. This mutual exchange of information about market requirements and environmental best practices helps develop a collaborative nature of value creation with customers, helping firms to identify market opportunities while meeting the market needs to sustain businesses.

H3: Customer EII is positively associated with environmental management capabilities in terms of (a) corporate environmental innovativeness and (b) corporate environmental adaptability.

Environmental Management Capabilities and Performance

Environmental management capabilities often correspond to the concept of the triple bottom line, which is concerned with the balance of the well-being of people and the planet, as well as viable organizational economic benefits (Kleindorfer et al., 2005). In the context of supply chain management, environmental management capabilities require the efforts and ability of firms to manage the uncertainties in a supply chain, ranging from sourcing decision to demand forecast, which have different financial and environmental impacts (Carter & Rogers, 2008). Corporate environmental innovativeness pertains to organizational and supply chain-wide efforts to initiate, develop, introduce, diffuse and implement novel environmental management practices (Roy, Sivakumar & Wilkinson, 2004). Such advanced development of environmental management capabilities often goes beyond environmental requirements and standards. Corporate environmental innovativeness enables firms to preempt and anticipate changes in environmental requirements and market expectations, avoiding a lack of compliance with environmental regulation that may lead to consequential legal fines and customer boycott. The case of Procter & Gamble's invention of Tide concentrated detergent is an exemplar of a successful innovation in environmental product development. Such effort of Procter & Gamble enabled it to cope with Walmart's new packaging reduction request in 2008 (GreenerDesign Staff, 2008), which otherwise may have stopped Tide from shelving its products in one of the biggest retail outlets in North America. Corporate environmental innovativeness protects investments in product and process development, while reducing environmental impacts by eliminating the use of hazardous materials, the consumption of new resources and raw materials, and the disposal to landfills by taking into account of the environmental impacts of products throughout their life cycle.

H4: Corporate environmental innovativeness is positively associated with (a) financial performance and (b) environmental performance.

The degree of flexibility and responsiveness in responding to new market demands constitute firms' environmental adaptability. It maintains the agility in firms' environmental practices to adjust to new environmental requirements and to take advantage of increasing knowledge about environmental protection. Having such capabilities enable firms to reduce waste of efforts and lead time in responding to new environmental requirements and commercializing new products, contributing to the triple bottom line by improving return on investment, as well as reducing waste and disposal (Carter & Dresner, 2001). As such, corporate environmental adaptability is valuable for firms in adapting to market changes and gaining investment payback in a short period of time. Such capabilities enable firms to modify their existing products and processes, and launch new products with short lead times, bringing such benefits as being the first-comers with increased market shares and returns on investment.

H5: Corporate environmental adaptability is positively associated with (a) financial performance and (b) environmental performance.

Methodology

Sample and Data Collection

We selected a random sample of 1,000 firms participating in voluntary environmental management schemes of environmental excellence and green label schemes in Hong Kong to serve as our empirical setting for the following reasons. First, firms' participation in these environmental management schemes reflects their commitment to environmental protection. These firms conduct and report their environmental management practices and results voluntarily. As one of our research questions is to examine EII as antecedents of environmental management capabilities in terms of corporate environmental innovativeness and adaptability, and their performance impact, this sample is appropriate for providing the relevant information due to the initiatives taken in environmental protection. Second, these groups consist of firms in different industries, which offer different products and services, enabling us to improve the generalizability of the findings of firms operating in different supply chains with different EII arrangements. Third, our sample aims at achieving environmental protection goals through resource conservation, waste and carbon footprint reduction, improvement in air quality, and product development with environmental attributes. Such coverage of environmental initiatives provides information about organizational efforts in these aspects by collaborating with their supply chain partners.

Following the procedures recommended by Gerbing and Anderson (1988), we first conducted interviews with 10 senior managers in the areas of environmental, supply chain and information systems management in industries including manufacturing, construction and retailing to understand industry practices. These interviews revealed that environmental management is prevalent and vital to businesses, and the participation of supply chain partners is important to its success. Many firms are working closely with their supply chain partners to reduce their environmental impact, while encouraging innovation and change to embed environmental management into business activities. Second, we developed a pool of measurement items from the literature and amended the items systematically to reflect organizational efforts in environmental protection. Third, we pre-tested the survey items with five managers and five academics in the field to assess the clarity, relevancy and comprehensiveness of the measurement scales. We refined the measurement based on their feedback and conducted a pilot test with 40 managers. We then conducted an exploratory factor analysis to purify the scales, and on the basis of the pilot test results, we refined and finalized the questionnaire.

A survey package containing the questionnaire, a self-addressed prepaid reply envelop and a cover letter explaining the purpose of this research (assuring the answers of respondents are reported in aggregate and their company details are kept confidential) was mailed to each of them (Dillman, 2000). We made follow-up telephone calls 5 days after the first mailing to seek acknowledgment of the receipt of the survey package and to stress the importance of their response in this research. Two weeks after the follow-up calls, we sent another survey package to the nonrespondents. We then sent another survey package to the nonrespondents 3 weeks after the second mailing. Our data collection was concluded 3 weeks after the final mailing with a total of 238 returned questionnaires. We eliminated eight returns due to significant missing data. The resulting response rate is 23 percent, which is comparable to other survey-based environmental management studies (Ramus & Steger, 2000).

Measurement Development

We operationalized the constructs using the reflective measures based on the guidelines recommended by Jarvis, MacKenzie and Podsakoff (2003). We adopted measurements that have been employed previously to improve the reliability and validity of the measures. A five-point Likert scale was used for all the measures, where a higher value indicates a higher level of integration and environmental management capabilities, or better performance.

Environmental Information Integration

We adopted the measure of internal information integration from previous studies (Gold, Malhotra & Segars, 2001; Rai, Patnayakuni & Seth, 2006). The scale captures the extent to which firms encourage and provide infrastructure to facilitate employees' access to environmental management information. Similarly, we adopted the measurement for customer and supplier information integration from the literature (Frohlich & Westbrook, 2001; Rai et al., 2006). These two constructs reflect the relationships between a focal firm and its customers and suppliers in the collaboration and sharing of environmental information. They measure the extent to which a focal firm has developed mechanisms and infrastructures to exchange environmental information. The respondents were asked to indicate the frequency of occurrence of each measurement item on a five-point Likert scale with 1 = almost never to 5 = almost always.

Environmental Management Capabilities

For the environmental management capabilities measures, we developed the measure of corporate environmental innovativeness based on Wang and Ahmed (2004). The scale assesses the innovativeness of firms in developing environmentally responsible products and services and adopting new environmental management practices to sustain the growth of businesses with low levels of environmental impact. On the other hand, we developed the measure of corporate environmental adaptability based on Gold et al. (2001). The measure was rephrased systematically to reflect the extent to which firms have flexibility to respond to new and changing market demands and environmental requirements. The respondents were asked to indicate the frequency of occurrence of corporate environmental innovativeness and adaptability on a five-point Likert scale with 1 = almost never to 5 = almost always.

Performance

For the performance variables, we adapted the measure of financial and environmental performance from the study by Montabon et al.(2007). The measure assesses financial performance with regard to returns on investment, market share growth, profit growth and profit growth rate generated from environmentally friendly products relative to their industry's average on a five-point Likert scale with 1 = significantly below average to 5 = significantly above average. The environmental performance measure evaluates the extent to which firms reduce their environmental impact through a reduction in hazardous materials, resource consumption, greenhouse gas emission, waste disposal and waste water drainage.

Control Variables

We included firm size (i.e. number of employees) and primary product/service type (i.e., multiple industry categories) as control variables. Larger firms tend to be more resourceful in supporting the development of information integration (Zhu, 2004), while product type affects the coordination amongst supply chain partners (Fisher, 1997) due to differences in market demands and environmental requirements. The model analyses with the control variables are discussed in Appendix 1.

Analyses and Results

Sample Profiles

To ensure the qualification of the respondents, we collected information about their knowledge and involvement in environmental management in their organizations, and the number of years they have worked in their organizations. The informants indicated average to high (3.8 of a five-point scale) level of involvement and knowledge about environmental management, and 56.5 percent of informants have worked in their organizations for more than 5 years. Their positions include CEO, COO, Director and Manager of Environmental Department. Table 2 summarizes the respondents' profiles in terms of industry, firm size and annual sales.

Table 2. Profiles of Sample
Sample CharacteristicsPercentageSample CharacteristicsPercentage
IndustriesAnnual Sales (USD)
Banking/insurance/financial service5.2Below $10M16.5
Construction9.1$10M–$20M6.1
Engineering and technical service3.0$20M–$50M41.8
Hotel/hostel4.3$50M–$100M11.7
Retail and trading4.3$100 and above23.9
Transport and logistics6.5  
Government department2.2Number of employees
Electricity and gas utilities4.31–103
Hospital/health services4.811–509.6
Manufacturing10.451–10013
Property management25.7101–50029.2
School/Education services2.2500 and above45.2
Others17.8  

Bias Issues

We checked potential problems of common method variance in three steps. First, we followed the marker method suggested by Lindell and Whitney (2001) to check for common method variance with the marker variable, which is theoretically unrelated to at least one construct. We used years of employment of respondents by the sampled firms as the marker variable. As shown in Table 3, we found that the years of employment was not significantly related to four variables in the research model, indicating that common method variance was not a concern in our study. Second, we conducted Harmon's one-factor test (Podsakoff, MacKenzie, Lee & Podsakoff, 2003), where we examined the chi-square difference between a single latent factor and the hypothesized model with seven constructs and found a significant difference between the chi-square values (∆χ2 = 1745.54, ∆df = 21, < 0.05). These results indicate that common method variance was not an issue in our study. Third, we collected the financial data of 27 respondent firms, which made their financial data publicly available, to test the relationships between corporate environmental innovativeness and adaptability and net profit using regression analysis. The results suggest that both corporate environmental innovativeness and adaptability are positively related to financial performance (< 0.05). These results provide further evidence that common method variance should not be an issue in this study.

Table 3. Descriptive Statistics and Correlations
 MeanSD1234567
  1. *p < 0.05, **p < 0.01 (two-tailed).

1. Internal EII3.750.82.      
2. Customer EII3.370.920.785**      
3. Supplier EII3.210.930.708**0.831**     
4. Corporate environmental innovativeness3.190.880.686**0.742**0.658**    
5. Corporate environmental adaptability3.520.860.698**0.645**0.556**0.744**   
6. Financial performance3.440.620.375**0.408**0.405**0.457**0.479**  
7. Environmental performance3.520.650.628**0.624**0.583**0.646**0.653**0.478** 
8. Year of employment (marker variable)3.031.520.197*0.1310.1610.1070.180**0.0130.167*

We also took two steps to check whether nonresponse bias posed any problems in this study. First, we randomly selected 30 nonresponding firms, phoned them and asked a random selection of items in the questionnaire covering all the variables. We found no significant differences (> 0.05) in the answers between the responding and nonresponding firms. Second, we followed Armstrong and Overton (1977) and verified that the response of the early and late respondents to the questionnaire items did not differ significantly at the p < 0.05 level, suggesting that nonresponse bias was not an issue in the collected data.

Measurement Validation

We performed confirmatory factor analysis (CFA) using AMOS 18.0 to assess the psychometric properties of the factor structures. Following Gerbing and Anderson (1988), we used the maximum likelihood estimation with covariance to test measurement scales. We assessed their reliability and validity with an overall confirmatory measurement model, where each measurement item loads onto its respective latent constructs. All factor loadings were statistically significant (p < 0.01). The composite reliability of each construct exceeded the recommended 0.70 threshold, ranging from 0.87 to 0.94. As shown in Table 4, the average variance extracted (AVE) from each construct was greater than the threshold of 0.5 (Fornell & Larcker, 1981), indicating strong convergent validity. Table 4 summarizes the item loading, and the Cronbach's alpha, composite reliability and AVE of each construct. We assessed discriminant validity by conducting chi-square difference tests between nested CFA models for all pairs of constructs. We compared the chi-square between the unconstrained model (i.e., the model with two constructs that vary freely) and the constrained model (i.e., the model with the correlations between two constructs constrained to 1) (Bagozzi, Yi & Phillips, 1991). Table 5 summarizes the chi-square different test results and the chi-square of the constrained and unconstrained models. The significant chi-square differences between all pairs of constructs suggest discriminant validity of our measurement.

Table 4. Measurement Scale and Standardized Loadings
ConstructsMeasurement ItemsStandardized Loadings (p < 0.01)

Internal EII (Gold et al., 2001; Rai et al., 2006)

(Cronbach's alpha = 0.93; Composite reliability = 0.94; AVE = 0.73)

IEII1. Employees are informed of environmental management issues quickly.0.80
IEII2. Employees can obtain the needed information on environmental management easily.0.86
IEII3. Environmental management information is accessible by all work parties inside our company.0.88
IEII4. Tools (e.g., IT system) are used to communicate environmental management information across internal business functions.0.88
IEII5. Employees are encouraged to search for new information related to environmental management.0.86
IEII6. Employees are required to keep a record of environmental management information.0.83

Customer EII (Frohlich & Westbrook, 2001; Rai et al., 2006)

(Cronbach's alpha = 0.91; Composite reliability = 0.87; AVE = 0.64)

CEII1. Tools (e.g., IT system) are used to obtain environmental management information from customers.0.75
CEII2. Environmental management information is shared with customers.0.63
CEII3. Environmental management information related to product/service promotion is communicated to customers via electronic means (e.g., IT systems).0.87
CEII4. Environmental management information from customers is used for improving our products/services.0.92

Supplier EII (Frohlich & Westbrook, 2001; Rai et al., 2006)

(Cronbach's alpha = 0.93; Composite reliability = 0.93; AVE = 0.77)

SEII1. Tools (e.g., IT system) are used to communicate environmental management information with our suppliers.0.86
SEII2. Environmental management information is shared with our suppliers.0.92
SEII3. Environmental management information from suppliers is used for improving our products/services.0.84
SEII4. Environmental management information from suppliers is required to be updated regularly.0.89

Corporate environmental innovativeness (Wang & Ahmed, 2004)

(Cronbach's alpha = 0.90; Composite reliability = 0.90; AVE = 0.70)

EPI1. We have developed new environmental management products/services in the past two years.0.90
EPI2. We adopt new environmental management practices when conventional methods fail.0.76
EPI3. We take risky growth opportunities for environmentally friendly product/service development.0.84
EPI4. We seek novel solutions to environmental problems.0.83

Corporate environmental adaptability (Gold et al., 2001)

(Cronbach's alpha = 0.92; Composite reliability = 0.91; AVE = 0.78)

EPA1. Our company is responsive to new market demands for environmentally friendly products/service.0.84
EPA2. Our company adapts quickly to unanticipated changes in environmental requirements.0.99
EPA3. Our company reacts quickly to new environmental information about the industry.0.80

Financial performance (Montabon et al., 2007)

(Cronbach's alpha = 0.89; Composite reliability = 0.92; AVE = 0.65)

BP1. Increase in return on investment.0.82
BP2. Increase in market share.0.80
BP3. Increase in total profit from products/services.0.89
BP4. Increase in profit from environmentally friendly products/services.0.71
BP5. Greater investment return on new product development.0.69

Environmental performance (Montabon et al., 2007)

(Cronbach's alpha = 0.92; Composite reliability = 0.92; AVE = 0.59)

EP1. Reduction in hazardous/harmful materials used in product manufacturing/service delivery.0.78
EP2. Reduction in the use of electricity.0.69
EP3. Reduction in total fuel consumption used during transportation of products/services.0.81
EP4. Reduction in total papers used.0.66
EP5. Reduction in total packaging materials used.0.74
EP6. Reduction in air emissions.0.82
EP7. Reduction in solid waste disposal.0.81
EP8. Reduction in waste water drainage.0.83
Table 5. Discriminant Validity Analysis
Construct PairsUnconstrainedConstrained 
χ2dfχ2df∆χ2
  1. a

    p < 0.001.

Internal EII
Supplier EII119.7534142.803523.05*
Customer EII110.6134133.233522.62*
Corporate environmental innovativeness108.4134118.543510.13*
Corporate environmental adaptability83.482697.572714.09*
Financial performance135.6443226.714491.07*
Environmental performance190.3676229.327738.96*
Supplier EII
Customer EII64.381976.472012.09*
Corporate environmental innovativeness57.861980.292022.43*
Corporate environmental adaptability44.181380.091435.91*
Financial performance101.7026204.3427102.64*
Environmental performance164.6453213.275448.63*
Customer EII
Corporate environmental innovativeness28.581951.092022.51*
Corporate environmental adaptability21.671331.11149.44*
Financial performance84.4926145.722761.23*
Environmental performance130.8853153.645422.76*
Corporate environmental innovativeness
Corporate environmental adaptability37.691348.311410.62*
Financial performance101.7126188.932787.22*
Environmental performance138.4753174.385435.91*
Corporate environmental adaptability
Financial performance72.5719142.032069.46*
Environmental performance122.7643151.574428.81*
Financial performance
Environmental performance228.4864271.096542.61*

Hypothesis Testing

We established a structural equation model with maximum likelihood estimation to test the hypotheses; the study constructs were estimated simultaneously. Figure 1 summarizes the results of the structural model. Consistent with prior environmental management and supply chain integration studies (e.g., Flynn et al., 2010; Jarvis et al., 2003; Klassen & Whybark, 1999), the fits of the structural models are good with CFI, TLI and IFI equal to or above the recommended threshold of 0.90 and RMSEA <0.08 (χ2 = 1110.19, df = 574, χ2/df = 2.01, p < 0.01; GFI = 0.92; IFI = 0.92; TLI = 0.90; CFI = 0.92; RMSEA = 0.06). The Bollen-Stine bootstrap test was performed with 2000 bootstrap replicates. The Bollen-Stine bootstrap p-value of the overall model fit is 0.12 (>0.05), indicating that there is insufficient evidence to reject the hypothesized model and given its fit with the data (Bollen & Stine, 1992).

Figure 1.

Empirical Results

The R2 of corporate environmental innovativeness and adaptability is 70 percent and 57 percent, respectively, indicating significant data variation explained by EII. Similarly, environmental management capabilities explain 24 percent of financial performance and 55 percent of environmental performance. The results indicate that supplier EII does not affect environmental innovativeness (β = 0.13, > 0.05) and adaptability (β = 0.27, > 0.05), failing to lend support for H2a and H2b. On the contrary, customer EII has a significant and positive relationship with both environmental innovativeness (β = 0.83, p < 0.001) and adaptability (β = 0.64, < 0.01), lending support for H3a and H3b. Internal EII has a significant and positive relationship with environmental adaptability (β = 0.38, p < 0.001), but not environmental innovativeness (β = 0.14, > 0.05), providing support for H1b but not H1a. These results suggest that firms with a higher level of customer EII achieve a higher level of environmental management capabilities, in innovating environmental management practices and products and adapting to new market needs.

The two key functions of environmental management capabilities, corporate environmental innovativeness and adaptability, have a significant and positive impact on both business and environmental performance. As shown in Figure 1, corporate environmental innovativeness is positively and significantly associated with financial performance (β = 0.26, p < 0.05) and environmental performance (β = 0.44, p < 0.001), lending support for H4a and H4b. Corporate environmental adaptability is also positively and significantly related to financial performance (β = 0.25, p < 0.05) and environmental performance (β = 0.32, p < 0.01). As suggested by these results, firms with a greater ability in developing new environmentally friendly products, environmental practices and novel solutions to environmental problems achieve better business and environmental performance.

Discussion

Major Findings and Theoretical Implications

First, customer EII engenders environmental management capabilities of firms in terms of corporate environmental innovativeness and adaptability. The findings reveal that customer EII contributes to the environmental management capabilities of firms, in particular through effective information sharing and communication with customers. Such EII improves the ability of firms to innovate new environmental management products and practices to tackle environmental problems, while being adaptable and responsive to new environmental demands and requirements. This finding is consistent with the theoretical conjectures of DC theory, where customer EII provides new information and knowledge that integrate with the existing environmental management practices, enabling firms to manage the changing environmental requirements. This provides insight into the information integration and environmental management literature, by suggesting the usefulness of integrating with customers and probing into customer information to improve the environmental management capabilities of firms (Elliot, 2011). In addition, from the perspective of supply chain management, the importance of customer EII suggests that environmental management capabilities stem from market intelligence that is collected through sharing information and communication with customers (Tate, Ellram & Kirchoff, 2010). This is in line with the literature that emphasizes the importance of acquiring from customers the latest market information and requirements (Frohlich & Westbrook, 2001). The study results show that customer EII plays the strongest role among the three types of EII. The importance of customer EII can be attributed to rising market expectations and demands on environmental protection.

Second, internal EII significantly contributes to corporate environmental adaptability, but not corporate environmental innovativeness. The study findings reveal that internal EII is critical for firms to respond quickly to new environmental requirements, but is not significantly related to the ability of firms to innovate new environmental products and practices. That is, according to DC theory, internal EII provides an information sharing infrastructure, which improves cooperation across functions and the capabilities of firms to adapt to changes in organizational processes. There was no evidence that such EII contributed to the ability of firms to innovate new environmental products and practices. This finding advances the knowledge of DC theory concerning information integration. Although internal EII can improve the effectiveness of business functions in responding to new challenges, new market intelligence, such as customer expectations and market trends, collected from customer EII, is important in supporting corporate environmental innovativeness. In other words, internal EII is insufficient to support innovation for environmental management. This is consistent with prior DC studies that indicate the importance of having information acquisition routines to enable knowledge creation and innovation processes (Helfat, 1997).

Third, supplier EII does not contribute to corporate environmental innovativeness and adaptability. Although DC theory advocates that EII can be beneficial to rendering organizational performance advantage by providing information sharing capacity, the theory is less clear about what specific type of EII may lead to environmental management capabilities in the context of supply chain management. The study findings suggest that supplier EII is not significantly associated with environmental innovativeness and adaptability. Although supplier EII enables efficient coordination with suppliers, it fails to support innovation and agile adaptations on environmental processes. Further interviews with some of the respondents suggest that although their suppliers are important in providing information related to sustainable sources of materials and components, their suppliers rarely play a strategic role in new product and process development for environmental protection. This lack of strategic positioning of supplier EII hinders its contribution to corporate environmental innovativeness and adaptability. Firms rely on themselves to design their new environmental management practices, to ensure the new environmental management practices are compatible with their existing practices and processes, and to avoid disruption to their operations. This results in a lack of recognition of the benefits of establishing information sharing infrastructure with suppliers. On the contrary, customer EII has significant influence on environmental management capabilities, as firms are often market oriented, addressing market needs by acquiring information from customers. This study advances the knowledge of environmental management by revealing the dimensions of EII that are useful in facilitating supply chain collective efforts in environmental management for firms to achieve corporate environmental innovativeness and adaptability.

Fourth, corporate environmental innovativeness and adaptability are positively associated with business and environmental performance. Consistent with DC theory, the study findings suggest that innovativeness and adaptability of firms in environmental management are critical organizational capabilities that are valuable to business and environmental performance. While environmental management capabilities improves firms' ability to develop environmental products and practices that may preempt new and future environmental regulations and requirements (Handfield, Walton, Seegers & Melnyk, 1997; Handfield et al., 2005), it is also important for firms to sustain businesses by capturing additional market share, increasing returns on investment, and so forth. This study provides empirical evidence concerning environmental sustainability, which shows that environmental management capabilities, in terms of corporate environmental innovativeness and adaptability, are important to business and environmental performance improvement.

Managerial Implications

This paper offers several implications for managers. First, our findings show that customer EII is critical for environmental management capabilities. Firms are recommended to strengthen their customer EII to achieve a seamless information flow to develop their environmental management capabilities. Even when facing limited resources, it is important that managers allocate resources to develop customer EII that provides an information sharing mechanism to facilitate firms in acquiring the latest market information for product or process improvement.

Second, managers should bear in mind that internal EII is important for firms in improving corporate environmental adaptability to the changing environmental demands and requirements. Firms facing uncertainties in coping with environmental management requirements in their marketplace should proactively develop internal and customer EII to increase flexibility, so as to respond quickly to new environmental standards and customer expectations.

Third, managers should note the importance of environmental management capabilities in achieving both business and environmental performance. The capabilities of firms in innovating environmentally responsible practices and products and adapting to changing environmental requirements not only play a role in the reduction in resource consumption, waste and disposal, but also enable firms to improve their returns on investment, profit and market share.

Limitations and Directions for Future Research

This study has some limitations, and they are discussed below with avenues for future research. First, this study attempts to advance understanding of the roles of EII in contributing to environmental management capabilities in the context of supply chain management. Although internal, supplier and customer EII are key factors that affect environmental operations in a supply chain, future studies may consider other supply chain factors, such as information technology adoption, and supply chain relational aspects and structures, which may affect the ability of firms to achieve environmental management capabilities. Also, the finding of the insignificant impact of supplier EII implies that there might be mediating variables, such as strategic partnerships with suppliers for environmental management, that enable firms to reap the benefits of supplier EII. Future studies may consider investigating the mediating factors that may facilitate or impede the relationship between supplier EII and environmental management capabilities. For example, supplier EII may contribute indirectly to corporate environmental innovativeness through internal EII. Second, two dimensions of environmental management capabilities are considered in this study based on DC theory and the corporate social responsibility literature. Other organizational capabilities, such as stakeholder integration and continuous operations improvement, may be included in the study to explore environmental management capabilities from another theoretical perspective. Third, the insignificant impact of internal EII on corporate environmental innovativeness may imply the existence of precursors. An extension of this study may include such internal EII precursors as supplier EII, customer EII and consultation with stakeholders (e.g., communities and NGOs). Fourth, although we have carefully assessed the possibility of common method bias by using multiple methods, future studies may collect more objective data to further minimize the potential for this bias. Lastly, the cross-sectional design of this study did not provide empirical data to examine causal relationships. Also, DC theory implies that capabilities change. The measurement of environmental management capabilities in terms of corporate environmental innovativeness and adaptability provides an indirect measure that could not assess the change in the underlying capabilities over time. A future longitudinal study would be desirable to complement this research study by revealing the evolution of the associations between the dimensions of EII, corporate environmental innovativeness and adaptability, and business and environmental performance.

Conclusion

Recognizing the importance of being environmentally sustainable, this study has offered insight to firms to achieve environmental management capabilities in terms of corporate environmental innovativeness and adaptability. While prior studies are confined to specific environmental management practices, for example, eco-product development and sustainable supply management (Paulraj, 2011; Russo & Harrison, 2005), and their impact on organizational performance, this study considers corporate environmental innovativeness and adaptability as organizational capabilities of environmental management to achieve financial and environmental performance. Based on DC theory, the findings extend prior research by suggesting that corporate environmental innovativeness and adaptability are valuable to firms in achieving their environmental objectives, as well as improving financial performance.

Furthermore, this study revealed that EII facilitates information sharing across internal and external business processes, enabling collaboration across functions and supply chain partners. Acknowledging the differences of different dimensions of integration in supply chain management (Wong et al., 2011c), this study reveals the value of internal, customer and supplier EII in contributing to environmental management capabilities. Although supplier EII is found to be insufficient in enabling corporate environmental innovativeness and adaptability, the finding suggests the importance of customer EII in providing valuable information related to environmental expectations and requirements. The study also suggests that internal EII is useful for firms to orchestrate business processes and respond to new environmental requirements. Firms should therefore make deliberate efforts to establish internal EII and collaborate with customers to share environmental information, to facilitate environmental sustainability in their operations.

Appendix 1: Control Variables Testing

Firm size (i.e., number of employees) and primary product/service types of firms (i.e. industry categories) are included as control variables. Steps were taken to test the impact of these control variables on the endogenous variables, namely corporate environmental innovativeness, corporate environmental adaptability, financial performance and environmental performance. First, we form dichotomous variables for primary product/service types, yielding 12 variables, where 1 represents the specific primary product/service (e.g., retail and trading) and 0 represents the other primary product/service. Second, due to the large number of control variables, we are unable to model them all at once to be tested with structural equation modeling. We therefore tested the impact of the control variables on the endogenous variables by regression analysis. The results summarized in Table A1 suggest that, except for firm size, the primary product/service types have no impact on the endogenous variables. We therefore include only firm size in the structural model for hypotheses testing.

A1 Control Variable Regression Analysis Results

Control VariablesCorporate Environmental InnovativenessCorporate Environmental AdaptabilityFinancial PerformanceEnvironmental Performance

Note

  1. ***p < 0.001.

Firm size0.298*** 0.291*** 0.296*** 0.272***
Banking/insurance/financial service−0.032−0.040−0.0410.023
Construction0.0710.014−0.0840.107
Engineering and technical service0.0510.004−0.094−0.071
Hotel/hostel0.0510.0950.0640.092
Retail and trading0.0630.0950.1170.137
Transport and logistics0.1270.0750.0770.159
Government department0.0630.027−0.050−0.031
Electricity and gas utilities0.1140.0570.0240.032
Hospital/health services−0.035−0.150−0.1200.027
Manufacturing−0.047−0.0030.0720.026
Property management0.0240.0500.1630.208
School/education services0.1110.0590.0240.087

Biography

  • Christina W. Y. Wong (Ph.D.) is an associate professor in the Business Division of the Institute of Textiles and Clothing at the Hong Kong Polytechnic University in Hong Kong, China. Her research focuses on the management and performance of supply chain integration, information integration and environmental practices. Dr. Wong's research has appeared in a variety of peer-reviewed journals including, most recently, Journal of Operations Management, Journal of Management Information Systems, Omega, Information & Management, and International Journal of Production Economics.

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