508 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO.
4, NOVEMBER 2006
Standardization and Discretion: Does the
Environmental Standard ISO 14001 Lead to
Performance Benefits?
Sharon Link and Eitan Naveh
Abstract—This study sought to determine if the environmental
management standard ISO 14001 helps organizations reduce the
negative impact their business activities may have on the environ-
ment, and as a result, also improves their business performance.
Forty organizations participated in the study and described how
they implement ISO 14001 requirements. They also reported
how the standard impacts on their environmental and business
performance. The results show that if ISO 14001 requirements
become part of the organization’s daily practices, then standard-
ization of the organization’s handling of environmental issues
follows—leading, consequently, to better organizational envi-
ronmental performance. In addition, standardization augments
its effect on organizational environmental performance through
its positive impact on employee discretion. Allowing employees
discretion further improves environmental performance. We saw
that discretion partially mediates the effect of standardization on
environmental performance. Analysis of survey and financial data
did not reveal any support for the hypothesis that achieving im-
provement in environmental performance as result of ISO 14001
implementation leads to better business performance; on the other
hand, we saw that business performance was not harmed.
Index Terms—Business performance, discretion, environmental
management systems, environmental performance, ISO 14001,
standardization.
T HE ISO 14001 standard for environmental management,
launched by the International Organization for Standard-
ization in Geneva in October 1996, reflects a global consensus
on good environmental management practices that can be realis-
tically applied by organizations all over the world and matched
to their particular situations. Up to the end of 2004, at least
90 569 certificates had been issud (annual growth of 24 499 cer-
tificates) in 127 countries, with many other organizations con-
sidering certification in the near future [39]. In practice, how-
ever, studies have been unable to definitively show that ISO
14001 either leads or does not lead to improvements in envi-
ronmental and business performance [12], [19], [57], [72], [79].
We assert that the reason for the inconsistent results is that re-
searchers have not explored the mechanism through which im-
plementation of ISO 14001 accomplishes/does not accomplish
Manuscript received June 1, 2005; revised October 1, 2005 and December 1,
2005. Review of this paper was arranged by Department Editor F Damanpour.
S. Link is with the Faculty of Industrial Engineering and Management,
Technion—Israel Institute of Technology, Haifa 32000, Israel (e-mail:
link@tx.technion.ac.il).
E. Naveh is with the Faculty of Industrial Engineering and Manage-
ment, Technion—Israel Institute of Technology, Haifa 32000, Israel, (e-mail:
naveh@ie.technion.ac.il).
Digital Object Identifier 10.1109/TEM.2006.883704
0018-9391/$20.00 © 2006 IEEE
what it is intended to do. ISO 14001 aims to help organizations
take a more pro-active approach to managing environmental
performance, and reducing the negative impact their business
activities may have on the environment. Under this standard,
the organization is required to implement a management system
for minimizing harmful effects on the environment caused by
its activities, and to institute continual improvement of its en-
vironmental performance. A management system refers to the
organization’s structure for managing the processes and activi-
ties that transform its input of resources into a product or service
meeting the organization’s objectives. These may be satisfying a
customer’s quality requirements, complying with governmental
regulations, and/or meeting environmental objectives.
Being ISO 14001 certified, then, does not necessarily deter-
mine how the standard is implemented on a daily basis. In our
opinion, up to now studies have treated the process as a discrete
phenomenon, neglecting variations in its use. In contrast, we
maintain that being ISO 14001 certified and using it in daily
practices lead to standardization in environmental activities,
which has a positive influence on organizational environmental
performance. We, furthermore, assert that standardization also
influences environmental performance because it increases
employee discretion in managing the organization’s environ-
mental issues. Personal discretion, thus, partially mediates
standardization’s influences on environmental performance;
i.e., standardization leads to personal discretion, which leads
to improved organizational environmental performance. In
addition, we claim that environmental and business perfor-
mances are positively correlated, and improvement gained in
environmental performance as a result of ISO 14001 will also
produce enhanced business performance. The research model
is illustrated in Fig. 1. In Section I, we elaborate on the factors
presented in the model and the relationships among them.
I. THEORY AND HYPOTHESES
ISO 14001 obliges organizations to fulfill several basic re-
quirements that are similar to the ISO 9001 quality standard1
requirements. Organizational experience with ISO 9001 accel-
erates the diffusion of ISO 14001 since ISO 14001 is comple-
mentary to certain aspects that lead to good operations, which
are not included in ISO 9001 [21].
Specifically, organizations that implement the ISO 14001
standard, and receive certification from the certification body
meet five main sets of requirements. First, they must develop
1ISO 9001’s aim is to ensure organizations consistently deliver the product
or services that meet the customer’s quality requirements [63].
LINK AND NAVEH: DOES THE ENVIRONMENTAL STANDARD ISO 14001 LEAD TO PERFORMANCE BENEFITS?
Fig. 1. The mediation effect of discretion on the relationships between standardization and performance.
and adopt an environmental policy to which top management
is committed. Second, they must fashion a planning process
that identifies all of the environmental issues (legal and other
requirements) of a facility’s operations, which results in a set
of clearly defined objectives and targets for environmental
improvement as well as a set of environmental programs. Third,
they must set up a clear chain of responsibility for environ-
mental management, and programs for training and raising
awareness and competencies among all employees. Fourth, the
organization must put into place a system for checking and
taking corrective action, monitoring, reporting and prevention.
ISO 14001’s fifth requirement is to establish a management
review process through which top management reassesses
the suitability of the environmental management system at
appropriate intervals to assure continuous improvement.
ISO 14004, which is the general guideline on environmental
management principles, systems and supporting techniques,
supplements ISO 14001. It discusses five approaches, which
are required by and refer to ISO 14001, designed to prevent
pollution: 1) source reduction; 2) in-process recycling or reuse;
3) other recycling or reuse; 4) treatment and recovery; 5)
control. Through its requirements described here above, ISO
14001 leads to the implementation of these five approaches.
In addition, ISO 14001 requires a third party certification
body to evaluate the organization’s procedures and carry out site
visits to certify the organization. Once certification is gained,
routine audits are conducted to verify that the organization keeps
the standard’s requirements.
A. The Evidence So Far
By August 2005, based on a search of the ABI Inform Index,
there were 1304 journal papers and articles about ISO 14001.
Almost all were in practitioner’s journals. The early publica-
tions, mostly from 1994 to 1996, describe the development of
the new standard and its future requirements. These are basic
introductory papers [36], [45], [46]. The most common theme
in the papers that appeared in 1996–2002 dealt with the stan-
dard’s requirements – their meaning and how to implement them
[1], [75], [82]. In recent years, ISO 14001 publications have de-
scribed examples of implementation, emphasizing performance
improvement as a result of the standard’s adoption. The ques-
tions being asked were: What facilities, in terms of trade and
size, were involved in certification? What were the reasons for
509
obtaining certification? What were the keys factors in gaining
certification? What were certification’s benefits and limitations?
Based on the existing literature, it is difficult to draw general
conclusions regarding ISO 14001’s effect on performance [2],
and moreover, even with more than 1000 publications, the liter-
ature on ISO 14001 does not draw an overall explanatory model
[12], [18], [30].
B. Standardization
A fundamental principle in the above literature is that ad-
hering to the requirements of the ISO 14001 implies standard-
ization of organizational activities in regard to environmental is-
sues [43], [44], [77]. ISO 14001 prescribes organizational stan-
dardization by specifically stating in regard to each of its re-
quirements that “the organization shall establish and maintain
documented procedures…” [40], since documented procedures
are the foundation of standardization.
Standardization is derived from scientific management [76],
a perspective that suggests that routinization is the key to coping
with complexity. It is often assumed that standardization leads
to uniformity, and is to some degree a typical requirement in
today’s business world [31]. The term standardization refers
to the degree to which rules, policies, and procedures govern
the managing of organizational environmental issues [17]. This
codex, which incorporates past knowledge and experience of
both the particular organization and of other organizations, is
considered good, and generally applicable to a broad range of
environmental issues. Standardization guides the organization
toward homogeneity in management of its tasks, aiming to
reduce the variance associated with each task, and thereby
improve overall effectiveness [51], [55]. Standardization refers
to adherence to procedures such as routine operations, well-de-
fined responsibilities and priorities, careful and analytical
performance, coordination, precision, and accuracy [60]. The
components that are embedded in standardization—consis-
tency, co-ordination, control, and cooperation on a global
scale—relate positively to performance [80].
Furthermore, standardization leads to a more qualified and
knowledgeable workforce, better able to cope with events on
an ad hoc basis [15]. Thus, although standardization and em-
ployee discretion may on the surface appear to be contradictory,
an argument can be made that organizations should benefit from
both, as will be discussed below.
510 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO. 4, NOVEMBER 2006
1) Used in Daily Practice: The ISO 14001 standard, as any
other administrative innovation, can be implemented in an or-
ganization without having to be used in daily practice [49]. A
company can be ISO 14001 certified even if a gap is exists be-
tween its planned environmental system and its daily activities
[61]. However, for ISO 14001 to become an organization’s op-
erating standard, it must be a part of daily work. Used in daily
practice means regular application of the standard’s require-
ments to the point that they become part of an organization’s
everyday activities. Employees have to consider them necessary
for performing their operational activities, and pay attention to
them. Findings from ISO 14001 audits have to be incorporated
into training and top management have to use the data collected
to find solutions to problems. “Doesn’t that certification certifi-
cate look good on the wall?” represents the lowest level of daily
practice.”2
Diffusion of innovation theory supports the above division
into different levels of daily use and suggests that some organi-
zations would use practices on a daily basis while others would
not since individuals and organizations do not adopt new ideas
at the same time [73].
The literature on tacit knowledge and routines supports the
claim that the more a rule is used in daily practice, the higher
the standardization gained. Nonaka suggested that organiza-
tional knowledge is created through a continuous dialogue
between what is explicitly known, and what is tacitly under-
stood [50], [65]. Explicit knowledge contains understandings
that are in concrete and communicable form [66], [71]. This
knowledge—expressed in words, numbers, diagrams, figures,
formulas, and blueprints—can be more easily shared than tacit
knowledge. Constituting subjective insights or emotions, tacit
knowledge, embedded in everyday routines, exists in non-artic-
ulated, personal, and hard to verbalize or communicate forms
[66], [71]. Thus, daily use of management practice require-
ments leads to continuous dialogue between explicit and tacit
knowledge, which will articulate and amplify knowledge. As a
result, a clear standard for how to perform processes and tasks
will be set.
Thus, with the support of the diffusion of innovation and
knowledge creation theories, our first hypothesis claims the fol-
lowing.
Hypothesis 1: Among ISO 14001 certified organizations,
the more ISO 14001 requirements are used in daily prac-
tice, the higher will be the standardization in managing or-
ganizational environmental issues.
2) Environmental Performance: By environmental perfor-
mance we refer to following the governmental environmental
regulations, reducing emission of pollutions (e.g., and
CFC), increasing usage of recycled materials, and controlling
the usage and storage of hazardous materials [32]3, [53], [72].
Standardization of organizational environmental activities
leads to better environmental performance. This occurs because
2Claims are made that the fact that this may happen is also related to insuffi-
cient functioning of certification oversight [63].
3The Global Reporting Initiative (GRI) [32], which defines organizational
environmental performance, was launched in 1997 as a joint initiative of the
U.S. non-governmental organization “Coalition for Environmentally Respon-
sible Economies” and the United Nations Environment Program, with the goal
of enhancing the quality, rigor, and utility of sustainability reporting.
a work process, based on past experience, coupled with over-
sight, coordination, and periodic reviews, provides guidelines
and a sense of structure and sequence to the work, as well
as reduces ambiguity [60]. Standardization provides a clear
sequence of steps to be followed in order to perform a task. It
improves processes of organized data analysis and knowledge
transfer among team members. Standardization is a control
mechanism, a basic method leading to objective achievement
[17].
A higher level of standardization in managing organizational
environmental issues means that the different aspects of man-
agerial control can be formalized and perpetuated. The principle
“we say what we do, we do what we say,” which is at the heart
of the implementation of ISO 14001, reflects the rationale of
perpetuating the practices in place so as to ensure work method
continuity [15]. Standardization represents “the way things are
done around here” [8] and it guides the way members of the
organization interpret and respond to situations. We, thus, hy-
pothesize the following.
Hypothesis 2: The higher the standardization in managing
organizational environmental issues among ISO 14001
certified organizations, the better will be the organiza-
tional environmental performance.
3) Business Performance: refers to gross profit margin,
market share, sales, and sales per employee4. Thus, it refers to
both the cost of production and the market positioning indicated
by sales [4], [28], [62].
Traditionally, academicians as well as practitioners have
claimed that achieving good environmental performance is
negatively associated with good business performance [19],
[53]. Most companies found that they had to increase their
expenditures to change their operations in response to en-
vironmental practices, yet ended up with less efficient work
processes [41]. The idea that expenditure on environmental
activities positively affects organizational efficiency, and as a
result, positively affects business performance is a new idea
percolating through industry [41].
The contemporary argument is that pollution, similar to
quality defects, reveals inefficient use of input and flaws in
product design and production [53]. The practices that lead to
better environmental performance include redesigning produc-
tion processes to be less polluting, substituting less polluting
input, recycling by-products of processes, and innovating less
polluting processes. These are intended to reduce the cost of
production by increasing the efficiency of production processes
and reducing input and waste disposal costs [19]. Many compa-
nies have changed their perception in regard to environmental
performance and today claim that the relationships between
environmental aspects and business performance are positive.
Among the supporters of this notion are Ford, Coca Cola, Nike,
Unilever, ABB, Danona, and Motorola.5
The literature on corporate performance and corporate social
performance supports the claim that achieving good environ-
mental performance is positively associated with business per-
4Investment
in R&D is occasionally added.
5These companies report their environmental performance based on the GRI
Sustainability Reporting Guidelines [32] and present annual improvement.
LINK AND NAVEH: DOES THE ENVIRONMENTAL STANDARD ISO 14001 LEAD TO PERFORMANCE BENEFITS?
formance [53], [83]. In addition to decreasing the cost of pro-
duction by increasing its efficiency, the literature suggests that
good environmental performance leads to a better market posi-
tion as a result of increasing legitimacy among customers with
an awareness of environment issues [35], [56].
ISO 14001 is claimed to be a cost-saving tool and that a re-
turn-on-investment case could be made for justifying an organ-
ization’s becoming certified [68]. In addition, with the growing
awareness of how the environment is being affected by human
activities, there are also marketable advantages in presenting
good environmental performance, and several major companies
have announced that they require their suppliers to be ISO 14001
certified. Thus, we make the following hypothesis.
Hypothesis 3: Environmental and business performance
are positively correlated among ISO 14001 certified orga-
nizations.
C. Discretion
Standardization is the template around which discretion may
be applied. Discretion in managing environmental issues means
the ability to adapt rules to fit changing conditions. Discretion
connotes having the flexibility to rework pre-composed mate-
rial owing to the emergence of unanticipated ideas, which are
conceived, shaped, and transformed in the process of imple-
mentating rules [11]. Employee discretion in managing envi-
ronmental issues refers to the extent to which employees have
the freedom and autonomy to plan, schedule, and carry out their
jobs as they see fit [34]. Discretion refers to divergent thinking,
experimentation, and improvisation [60].
We claim that a paradoxical relationship exists between stan-
dardization and discretion, in which standardization in man-
aging environmental issues can lead to discretion. This posi-
tive effect of standardization on discretion occurs in real life
and many examples can be found. In sports (football, basket-
ball, etc.), first there are set plays, which are the standards, and
only afterward are there many discretionary actions executed as
a result of the specific conditions that develop during a game.
Thus, though there are given set plays, players have the au-
tonomy to play in many different ways. In the military, prior to
war, an army prepares by obeying rules and repeating routines,
but when a battle begins, rules may be discarded in favor of in-
dependent initiatives [23]. With respect to inherently dangerous
technologies, such as nuclear power and aviation, normal ac-
tivities are governed by detailed and precise rules; but in emer-
gencies, the rules should assist discretionary action [70]. Even
regarding the routine operation of nuclear power stations, em-
ployees who know the rules are allowed discretion in carrying
out their work so that teams can attain better safety performance
[54].
Accordingly, though discretion in general may exist without
being based on standardized behavior, and since we are inter-
ested in the effect of implementation of a standard (i.e., the ISO
14001), in this study discretion refers to discretion that is trig-
gered by standardization. By setting clearly defined objectives,
defining responsibilities, and providing authority, the ISO 14001
standard allocates responsibility to employees and encourages
them to plan, schedule, and carry out their jobs as they see fit.
511
Employees have the flexibility to define the scope of issues they
would like to analyze from an environmental point of view since
an ISO 14001 certified organization is required to identify the
environmental aspects of its activities, products, and services
[21], [22]. Therefore, we make the following hypothesis.
Hypothesis 4: Among ISO 14001 certified organizations,
standardization following ISO 14001 leads to employee
discretion in managing organizational environmental is-
sues.
Follet [29] claimed that without independent organizational
thinking and without employees taking the initiative, a new
practice would most likely be implemented poorly. Researchers
have calculated that independent thinking and initiative taking
will have a positive effect on the attitudes of those imple-
menting the standard [78], [26]. In their opinion, these actions
should assist in overcoming “performance routine” and “me-
chanical operation” of the standard, which can jeopardize the
implementation [27].
Brown and Eisenhardt [16] and Bodewes [14] maintained that
successful organizations have tightly structured processes, yet
they still allow for the free flow of responsibilities, priorities,
and communication. Brown and Eisenhardt [16] used the term
“semi-structures” to refer to the states in-between structure and
freedom.
Naveh and Marcus [61], who studied the ISO 9001 quality
standard, found that the extent to which ISO 9001 is associ-
ated with performance improvement depends, on one side, on
the degree to which organizations establish the rules that allow
an organization to effectively adhere to ISO 9001. However, on
the other side, the extent to which ISO 9001 is associated with
performance improvement also depends on the degree to which
organizations go beyond what the standard literally demands.
The researchers claimed that though the standard has extensive
formal requirements and routine use is demanding, ISO 9001
can also become a springboard for rethinking the way a com-
pany does business and a point of departure for additional inno-
vation.
Jobs that call for a great deal of discretion make the people
filling them feel personally responsible and accountable for their
work. When employees have discretion in how they do their
jobs, they feel more accountable for the results, whether good or
bad [33], and as a result, performance is improved. We believe
that the greater the number of alternatives within a situation of
constraints, the better the results are likely to be. We, thus, hy-
pothesize the following.
Hypothesis 5: Among ISO 14001 certified organizations,
the higher the discretion in managing organizational en-
vironmental issues, the better will be organizational envi-
ronmental performance.
Following (1) Hypothesis 2, which claims that standardiza-
tion influences environmental performance, (2) Hypothesis 4,
which asserts that standardization influences discretion, and (3)
Hypothesis 5, which suggests that discretion influences environ-
mental performance, we arrive at our sixth hypothesis.
Hypothesis 6: Among ISO 14001 certified organizations,
discretion in implementing ISO 14001 partially mediates
the effects of standardization on environmental perfor-
mance.
512
This partial mediation [7] means that standardization influ-
ences environmental performance through two mechanisms; 1)
through direct effect: 2) through indirect effect by the nurturing
of discretion. In other words, if discretion is not developed as
result of ISO 14001, the effect of the standard on environmental
performance is weakened. This is because organizations operate
in uncertain and changing conditions while standards incorpo-
rate past knowledge and experience and, thus, they should be
adapted and reworked to fit new and changing conditions. Dis-
cretion suggests adaptation and using standards, such as of ISO
14001 as springboards for rethinking the way a company does
business [16], [17], [60]. Thus, unless standards are adopted,
organizations would reply to new conditions with inappropriate
solutions. In addition, as stated above, discretion is an employee
motivational need for self-expression and autonomy, when in-
volving rules [33], [48].
II. METHODS
A. Participants
At the time of the study there were 77 ISO 14001 certified
organizations in Israel, all of whom were asked to participate
in the study6. The 1996 version of ISO 14001 standard was in
effect when the study was carried out. Forty organizations, a
response rate of 52%, eventually participated.
The organizations came from different sectors. Seven compa-
nies were from the chemical industry, 12 companies were from
hi-tech, 15 companies were from food and beverages, and six
companies were from the services sector. Twenty-three organi-
zations are privately owned and the rest are publicly held. The
smallest organization that participated had employs fifty people
and the largest 3350. The mean number of employee was 773.
All companies were ISO 9001 certified.
In each participating organization five managers filling dif-
ferent functions responded to our questionnaires—a 100% re-
sponse rate among the organizations that agreed to participate
in the study. Among all ISO 14001 certified organizations, we
could not find statistically significant differences in the distribu-
tion of sectors, annual sales, and number of employees among
the organizations that agreed to participate in the study and those
that did not.
B. Measures
The Appendix lists our measures and scales.
1) Independent Variables: Used in daily practice describes
the degree to which the standard requirements are regularly em-
ployed to the point that they become part of an organization’s
everyday activities. It was assessed with three items adapted
from the Concept of Procedures of Brunsson [17] and Naveh
and Marcus [61] ( ).
Standardization, the degree to which ISO 14001 rules, poli-
cies, and procedures govern the managing of organizational en-
vironmental issues, was assessed with six items adapted from
Naveh and Marcus [61] ( ).
6The market of Israel is a good microcosm from which to sample for this
study since the organizations that are certified to the ISO 14001 coming from
different sectors and are in different size, thus, enable generalization of the study
results to other countries.
IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO. 4, NOVEMBER 2006
2) Mediating Variable: Discretion, the flexibility to rework
pre-composed material owing to the emergence of unanticipated
ideas, was measured with nine items drawing on Naveh and
Marcus’s [61] Catalyst for Change concept ( ).
3) Dependent Variables: Environmental performance, emis-
sion of pollutions, use of recycled materials and other environ-
mental aspects, was assessed with eight items adapted from Ma-
jumdar and Marcus [53], Potoski and Prakash [72], and based
on guidelines of the GRI 2002 Sustainability Reporting Guide-
lines [32] ( ).
Business performance was assessed using five measures
adapted from Flynn et al.[28], and Naveh and Marcus [61].
Since we hypothesized that ISO 14001 could lead both to lower
costs and better market positioning, the business measures
included the measures of annual gross profit margin, invest-
ment in R&D, sales, sales per employee, and business with
foreign organizations (K$). Gross profit margin is defined as
sales minus the cost of goods sold divided by sales, and is an
indicator of the decreasing cost of goods sold [5], [6]. Annual
sales are a good indicator of better market positioning [5], [6].
In regard to the above measures, respondents to the research
questionnaire were asked to what extent ISO 14001 improved
each measure. For the purpose of analyses we used the mean
of the five above mentioned measures as it represented some
aspect of the business performance trend ( ); however,
we also used each of the measures separately as each has its own
meaning, independent of the others.
Seventeen of the organizations that participated were publicly
held and, thus, their financial data was publicly available in the
Dan & Bradstreet database [24], [25]. Regarding these organiza-
tions, to augment the results vis-à-vis their business performance,
we also collected the business performance measures of annual
gross profit margin (K$), sales (K$), and sales per employee (K$)
from the Dan & Bradstreet database [24], [25].
These measures were collected at three periods of time: at the
time the organizations received their ISO 14001 certification;
at the time of the survey; and two years after the survey was
conducted. The data from two years after the survey intended to
test the effect of ISO 14001 over a longer period of time, since a
short period of time might be insufficient for ISO 14001 to have
any effect on business performance [37].
Using the financial database we calculated the change in the
three measures—annual gross profit margin, sales, and sales per
employee (K$)—by taking the value of the measure after ISO
14001 certification minus the measure at the time of certifica-
tion. We divided this result by the value of the measure at the
time of certification, to eliminate the effect of the organization’s
size. Thus, change in gross profit margin, sales and sales per em-
ployee measures were calculated twice, first for the value of the
second period of collection (i.e., at the time of the survey), and
second for the third period of collection (i.e., two years after the
survey). The values for ’after certification’ were corrected for
inflation.
4) Control Variables: We used two control variables. One
was number of employees, since it may be correlated with the
dependent variable, organization’s annual sales [5], [6]. In ad-
dition, to some extent it also represents the size of the organi-
zations, which might be correlated with the success of the ISO
LINK AND NAVEH: DOES THE ENVIRONMENTAL STANDARD ISO 14001 LEAD TO PERFORMANCE BENEFITS? 513

14001, as some researchers have claimed that the standard better .72 and .97, with median of .92. These results suggested justifi-
fits large organizations [61]. The second control variable was the cation of subscale aggregation [3].
time since the organization received ISO 14001 certification (in
years). This control is important because time since certification III. RESULTS
was found to be correlated with better use of the standard and,
thus, improved performance, after the organization gains expe- A. Construct Validation
rience using it [61]. To demonstrate that the two independent (used in daily
practice and standardization) as well as the mediator
C. Procedure (discretion) variables are three distinct factors, we conducted a
Confirmatory Factor Analysis (CFA) on the individual level of
We received a list of all ISO 14001 certified organizations in
analysis [10]7. The CFA was conducted on the three factors
Israel, as well as the contact information of the environmental
(used in daily practice, standardization and discretion), and
management representative, from the Standards Institute of Is-
each factor included all its questionnaire items as described
rael. Prior to sending out the questionnaires, telephone calls
in the measures section above (see the Appendix )8. The
were made to each organizational environmental management
CFA yielded an acceptable and good fit level ( ,
representative. We invited the organization to participate in the
, ,
study, assured confidentiality, and clarified issues regarding the
,
research targets and instructions about the questionnaires. After
we sent the questionnaires, telephone follow-ups were made.
). All the standardized factor loadings in the model were
Each organization received five questionnaires for five dif-
above .64, the majority of the loadings were in the .70 s and
ferent respondents. The environmental management represen-
.80 s, and all were significant ( ).
tative and another senior executive in the organization replied
We compared the three-factor model to one- and two-factor
to the questionnaires on organizational environmental and busi-
models in order to check whether either model better fit the
ness performance. The environmental management representa-
data [3]. In the two-factor model discretion served as one factor
tive, quality management representative (or other quality man-
and used in daily practice and standardization were aggregated
agement staff member), and operation manager replied to the
into one factor [52]. We first developed a nested one-factor
questionnaires on used in daily practice, standardization, and
model by setting a covariation among the three variables that
discretion.
equaled one [52]. This one-factor model yielded a poor fit
We had different responders in order to eliminate common
( , ,
method bias. Recent studies have adopted this method for this
,
reason [48]. Common method bias may exist when a responder
replies to both the independent and the dependent variables. The
). In addition, the two-factor model yielded
bias may arise given that responder’s opinion in regard to the
a lower fit than that of the three-factor model
independent variable may affect the way s/he replies to the de-
( , ,
pendent variables.
,
The control measure time since the organization received the
ISO 14001 certification was collected from the Standards Insti-
).
tute of Israel.
Chi-squared difference tests showed that the fit of the one-
Financial data from the Dan & Bradstreet database [24], [25]
factor and two-factor models was significantly lower than that
was collected for the 17 publicly held organizations, as was de-
of the three-factor model ( , , ;
scribed above in the section on business performance.
, , , respectively).
These findings regarding the one- and two-factor models in
D. Level of Analysis comparison to the three-factor model support the argument that
The analysis was conducted at the organizational level, since the two independent (used in daily practice and standardization)
the environmental and business performance data were rele- and the mediator (discretion) variables are three distinct factors.
vant only at the organizational level. Individual responses to the
questionnaires were aggregated to the organizational level [42] B. Hypotheses Testing
by calculating for each organization the mean scores of each of The means, standard deviations, and correlations among the
the variables. variables at the organizational level of analysis are summarized
We tested for the homogeneity of responses at the organiza- in Table I. Environmental performance was correlated with stan-
tional level by calculating the coefficients [42] of each vari- dardization ( , ) and discretion ( ,
able for each of the 40 participating organizations. We based the 7Since the study drew on scales already used in other studies and did not use a
calculations on a uniform expected variance distribution [42]. totally new scale, CFAs better fit our objective than Exploratory Factor Analysis
The s for used in daily practice were between .75 and .99, [38].
with a median of .93; for standardization between .73 and .99, 8In order to eliminate common source bias, responders who replied to the

with a median of .96; for discretion between .70 and .99, with questionnaires on the independent and mediator variables did not reply to the
environmental and business performance questionnaires. Thus, since the CFA
median of .95; for environmental performance between .71 and was made at the individual level, it did not include the environmental and busi-
.94, with median of .94; and for business performance between ness performance measures [52].
514 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO. 4, NOVEMBER 2006
). The questionnaire-based and financial-based business per-
formance measures were not correlated with environmental per-
formance. The existing correlations between the questionnaire-
based and financial-based business performance measures pro-
vide evidence of the construct validity of the study measures [3].
To test our hypotheses we ran regression models at the organi-
zational level of analysis (Table II presents the four models that
were statistically significant). First, we regressed the models, in-
cluding the two control variables. Results demonstrated that the
effects of the two control variables were not significant (
; ). Since, they had a near zero magnitude insignifi-
cant effect, we regressed the models again without the controls
and, thus, strengthened the power of the models [20]9.
To test the first hypothesis about the direct effects of used in
daily practice on standardization, we regressed standardization
on used in daily practice (Table II, Model 1). Results demon-
strated the expected significant effect for used in daily practice
( , ), which confirmed the first hypothesis.
To test our second hypothesis we regressed environmental
performance on used in daily practice and standardization, si-
multaneously (Table II, Model 2). Results demonstrated a sig-
nificant effect of standardization ( , ), which
confirmed this hypothesis.
The third hypothesis on the correlation between environ-
mental and business performance was not supported. Regres-
sion models in which we regressed business performance on
environmental performance were not significant (the values
ranged between . to , ). We ran twelve
different models in which business performance was the overall
mean of the five measures of the survey; we ran five separate
regression models for each of the five survey measures; as
well as three regression models for each of the three measures
collected from the Dan & Bradstreet financial date base for
each of the two periods of measures [24], [25]. Furthermore, the
correlations between environmental performance and business
performance operationalized by the different business perfor-
mance measures were not significant (see Table I; ranged
between to , ).
To test the fourth hypothesis we regressed discretion on stan-
dardization (Table II, Model 3). Results demonstrated that dis-
cretion has a significant effect ( , ), thereby
confirming the fourth hypothesis.
To test our fifth hypothesis we regressed environmental perfor-
mance on used in daily practice, standardization, and discretion,
simultaneously (Table II, Model 4). Results demonstrated a sig-
nificant effect at the level of .10 for discretion ( , ),
which confirmed the fifth hypothesis. This level of significance,
though not high, is, however, acceptable in studies [47]10. In ad-
9Rerunning the models without controls having a near zero magnitude in-
significant effect is recommended because: first, the risk in relatively small sam-
ples is in not identifying phenomena that exist; saving degrees of freedom by not
including variables with a near zero magnitude insignificant effect in the model
decrease this risk; and second, since some sort of relationships between the in-
dependent and control variables might improve the significance effect of the
independent variables on the dependent variables, running the models without
the controls improves the confidence in the significance of the effect of the in-
dependent variable on the dependent variables [20].
10The study sample size is relatively small and, thus, makes it difficult to
identify phenomena; as a result, a .1 level of significance can be acceptable for
indicating a real phenomenon [20].
dition, the adjusted measure significantly improved from .135
(Model 2) to .18 (Model 4, , ), which
further supported the significant effect of discretion [47].
To test hypothesis six, and determine if there is a mediation
effect, three regression models were needed [7]11: one model
in which the dependent variable was regressed on the indepen-
dent variables to demonstrate a direct effect (Model 2); a second
model in which the mediated variable (discretion) was regressed
on the independent variables (Model 3); and a third model in
which the dependent variable was regressed on both the inde-
pendent variables and the mediator (Model 4). To establish that
the mediator completely mediates the relationship between the
independent and dependent variables, the effect of the indepen-
dent variables on the dependent variable, when controlling for
the mediator, should be non significant. If the independent vari-
able remains significant, there is partial mediation.
Overall, Models 2 to 4 demonstrated that discretion partially
mediated the effects of standardization on environmental perfor-
mance. In Model 4, discretion had a significant effect on envi-
ronmental performance ( , ) over and above stan-
dardization ( , ). The measure significantly
improved from .135 (Model 2) to .18 (Model 4,
, ), which further supported the mediation hypoth-
esis for environmental performance. Thus, Hypothesis 6 was
confirmed.
1) Multicollinearity Tests: None of the correlations between
variables that were used in the same regression model had levels
higher than .80 (Table I; nor were they near), which would have
triggered concern about multicollinearity [9], [47]. However, we
conducted a collinearity diagnostic for each of the regressions
we ran.12 The condition indices for all models were , and
the variance explained by the variables was , a situation that
indicates no collinearity.
IV. DISCUSSION
Three main features of the study’s findings need to be dis-
cussed in regard to standardization in general, and specifically,
in relation to management of environmental requirements.
First, ISO is derived from the Greek isos, meaning equal. The
word ISO is used to denote the fact that organizations using a
standard such as ISO 14001 have basic systems that are com-
parable to each other [63]. This is not to say that they imple-
ment the same way. We found that there are significant differ-
ences among ISO 14001 certified organizations in the way they
run their environmental operations. This is an important finding
since the tendency in the literature on ISO management stan-
11Supporting mediation can be done by two alternative statistical procedures.
One procedure fits the situation in which a mediational model involves only
measured variables. The basic analysis approach in this case is multiple regres-
sion. A second alternative procedure suits a mediational model that involves
latent constructs. In this case, structural equation modeling provides the basic
data analysis strategy. Regardless of which data analysis method is used, the
steps necessary for testing mediation are the same [7], [61].
12A collinearity problem exists when a component associated with a high
condition index (the square root of the ratio of the largest eigenvalue to each
individual eigenvalue) contributes strongly to the variance of two or more vari-
ables [9], [47], [74]. The rule is that collinearity exists when the condition index
>
of a variable is 10. Mild collinearity exists when the condition index is 10 to
30; it is moderate when the condition index is 30 to 100, and severe when the
condition index is > 100.
LINK AND NAVEH: DOES THE ENVIRONMENTAL STANDARD ISO 14001 LEAD TO PERFORMANCE BENEFITS? 515

TABLE I
MEANS, STANDARD DEVIATIONS, AND CORRELATIONS

dards is to believe that certification for management standards
assures implementation uniformity across organizations [63]. It
would be interesting, then, to identify the organizational factors
that differentiate implementations. The literature on ISO certifi-
cation has focused on the question of whether ISO leads to better
performance [63]. However, both in regards to the ISO 9001
quality and IS0 14001 standards, different studies have come
to contradictory results about their effect on performance [62].
The present study suggests that the challenge in determining the
benefits of the ISO standards, as in other management practices
516 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO. 4, NOVEMBER 2006

TABLE II
RESULTS OF MEDIATED REGRESSION ANALYSES (STANDARDIZED  COEFFICIENTS)
[48], is not whether their effect on performance is positive but
whether we can identify the implementation mechanisms and
the different variables that affect implementation.
Second, while it is commonly believed that standardization and
adherence to rules decrease employee discretion [14], which is
vital for achieving good performance, this study showed that a
standard such as ISO 14001 could paradoxically increase discre-
tion when personal responsibility is allocated. This study is the
first to introduce the concept of discretion into the paradigm. The
literature, in regard to the adherence to standards, tends to discuss
improvisation, which is the gap between the time in which com-
position of an activity occurs and its implentation or execution
[59]. The claim is that, in improvisation, the time gap between
these events narrows so that at the far end, composition converges
with execution [59]. Theories of improvisation use jazz bands as a
metaphor of the concept [59], [81]. These theories point out that
in a jazz band, there is both freedom and structure. Musicians
begin with intense preparation, but end up experimentation and
learning [69]. Orlikowski and Hofman [67] made similar points
about technology and improvisation—the preconditions of cre-
ativity and innovation are order and control [58], [81].
While improvisation is an interesting phenomenon, we argue
that the new conceptualization of discretion suggested in the cur-
rent study better describes the organizational context in which
standards are used. The concept of discretion connotes the ex-
tent to which employees have the freedom and autonomy to plan,
schedule, and carry out their jobs as they see fit, whether or not
composition converges with execution. While it is not clear how
to design management systems for such convergences, and its ef-
fect on performance is not clear, this study shows the practicality
of discretion and its positive effect on performance.
Third, our results do not support a positive relationship
between environmental and business performance. We have up-
ended the accepted wisdom about organizational environmental
issues supported by the literature on corporate performance and
corporate social performance that claims that better environ-
mental performance leads to better business performance [36],
[53], [68], and specifically, that the ISO 14001 standard takes a
business oriented view [21], [22]. As far as concerns the dispute
about whether the investment in environmental issues improves
or harms business performance, our results do not identify a
particular predisposition. The study results suggest that while
improvement in business performance was not achieved, the
establishment of an environmental management system and a
significant improvement in environmental performance were
gained without harming business performance. We believe
that the improvement in environmental performance without
harming business performance can be motivation enough for
organizations to carefully manage their environmental issues.
In this aspect, this study also showed that by following the
requirements and guidelines of ISO 14001, organizations
could improve their environmental performance. This is also
an important result since, until recently, the methodology for
how to improve environmental performance was limited. The
current study differs from studies on corporate performance
and corporate social performance [35], [56], [83] that do not get
into detail about the mechanisms organizations use to improve
environmental performance.
Another possible explanation for the different results between
the current study and studies on corporate social suggests a
positive effect of environmental performance on business per-
formance rooted in the organizations that participated in these
studies. While studies on corporate social results compared or-
ganizations with high and low environmental orientation [21],
[36], [53], [68], the entering point of organizations to the current
studies was their possession of ISO 14001 certification. Pos-
sessing ISO 14001 certification suggests at least some sort of
organizational attention to environmental issues. Thus, if the fu-
ture belongs to organizations that emphasis environmental man-
agement [21], [22], among these organizations it might be dif-
ficult to identify a significant positive effect for environmental
performance on business performance.
A. Limitations and Future Research
A major advantage of this study is that we varied the sources
of the data. Different managers in the participating organizations
responded about the independent, mediator and dependent vari-
ables. In addition, we verified our results with objective business
performance data measured in three periods of time. Future re-
search should replicate and develop other sources of data for stan-
dardization, and discretion and not just rely on self-reporting.
Though we used three points of time for the business results,
another methodological concern could be that the research was
conducted over a relatively short period. Though this period is
LINK AND NAVEH: DOES THE ENVIRONMENTAL STANDARD ISO 14001 LEAD TO PERFORMANCE BENEFITS?
longer in comparison to all earlier studies, and it consists of two
periods of time for the business performance with a two year dif-
ference, it may be that business performance implications had not
yet appeared. A popular truism states that wealthy organizations
can allow themselves to invest in the environment. A longer lon-
gitudinal design would strengthen the ability to infer causality.
A longitudinal design is also required because of the revision
made in 2004 to ISO 14001. Our study was based on the 1996
version of the ISO 14001 standard. The ISO 14001 2004 version
focused on two goals: to increase compatibility with the latest
version of quality standard ISO 9001 in terms of terminology,
format and structure; and to improve clarification to assist users
in understanding the requirements, thereby easing implementa-
tion and enhancing environmental protection without additional
or diminished requirements [12], [79]. In light of these changes
our findings may be expected to also apply to the modified stan-
dards since the issue of standardizations and discretion remains.
Future study, however, should explore the effects of the ISO
140012004 version.
Though the power of the study [20] is high13, another limita-
tion is its sample size. There is place to replicate the study on
a larger sample and in different countries, since the context of a
country may have an impact on results. Nevertheless, the fact that
the current study suggests a theory about the mechanism of im-
plementation of a standard makes it a possible initiator for future
works on ISO 14001.
Checking the results of the current study on other manage-
ment practices, including ISO 9001, would strengthen its results
as well as might increase our understanding of the implementa-
tion of management practices in general.
B. Implementation for Practice
The study has several implications for managers. First, we have
seen that the ISO 14001 standard is a beneficial practice for im-
proving organizational environmental performance. This is an
important finding for managers who are hesitant about imple-
menting the standard because they are skeptical about its benefits.
Second, there are significant differences among organizations
that are certified to ISO 14001 in the way that they manage
their environmental issues. Standardization exists when the ISO
14001 requirements are used in daily practice. Managers should
conduct audits, training and use other means to verify the daily
use of the standard.
Third, we believe that perhaps the most important implication
for managers is that applying standardization can lead to discre-
tion, which is vital for performance achievement. Managers can
implement standards without losing the important performance
contributor—employee discretion.
V. CONCLUSION
In this study, we moved toward a theory that explains environ-
mental performance improvement and made an updated case for
the effect of organizational environment performance on busi-
ness performance. We believe that the contribution of this study
is practical as well as theoretical.
13High power means that with a relatively small number of organizations (i.e.,
sample size), a phenomena should be substantial to result in significant regression
coefficients [20].
517
Organizations that would like to be environmentally friendly
should adopt ISO 14001. The evidence provided in this study for
its usefulness in managing environmental performance is clear.
Nevertheless, we could not find support for the claim that there
is a positive relationship between environmental and business
performance, and could not bring evidence to the claim that en-
vironmentalism can make good business sense. Operating in an
era that promotes the environment as a value on its own, and
when corporate responsibility emphasizes the fact that taking
care of the environmental aspects of the organization does not
harm business, might be sufficient motivation for adopting en-
vironmental standards.
Operations managers can adopt ISO 14001 as a practice that
improves performance – however, gaining improvement de-
pends on implementation. Management theory in general sug-
gests that employee discretion positively affects performance.
Organizations should not hesitate to increase standardization,
fearing that it would harm employee discretion. The study
findings suggest that higher levels of standardization relate
to discretion positively, and as a result, better performance
is gained. Simply put, unexpectedly by many organizations,
standardization can be used for promoting employee discretion.
The ISO 14001 standard allows employees to be responsible
for making choices about how to meet the organization’s envi-
ronment goals; they encounter more constraints to which they
are likely to develop innovative solutions.
APPENDIX
MEASUREMENT SCALES
Responses for used in daily practice, standardization and dis-
cretion were given on a 5-point Likert scale, from (1) – “to a very
slight extent” to (5) – “to a very large extent”, and for environ-
mental and business performance from (1) – “not at all or even
got poorer” to (5) – “to a very large extent.”
Used in Daily Practice: After being certified to the ISO
14000 standard, to what extent:
• are environmental issues taken into consideration in daily
work in the production?
• are the environmental issues taken into consideration in
daily work by company management?
• are environmental issues taken into consideration in the
decision making process?
Standardization: After being certified to the ISO 14000
standard, to what extent:
• do employees receive refresher courses on the usages of
the standard?
• are the ISO 14000 activities dictated by formal rules?
• are there procedures that dictate “what should be done”
regarding environmental issues?
• are there procedures that dictate “how to do what has to be
done” regarding environmental issues?
• is the response to environmental issues pre-set for all de-
partments?
• are there guidance and encouragement to learn from mis-
takes?
518 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 53, NO. 4, NOVEMBER 2006
Discretion: Concerning the ISO 14000 standard, to
what extent:
• is personal initiative regarding environment issues encour-
aged?
• is discretion being used in the daily implementation of the
standard?
• is personal discretion regarding environment issues being
encouraged?
• is there departmental flexibility in molding solutions for
environmental issues?
• can employees and managers decide what is the needed
reaction regarding environmental issues?
• is the department’s manager/operator allowed discretion
when s/he has to decide what the response to environmental
damage/s should be?
• is there departmental discretion in setting the approach for
dealing with environmental issues?
• do departments decide what the follow-up checks re-
garding environmental issues will be?
• are the ways for dealing with environmental issues being
set based on a departmental characteristic?
Environmental Performance: To what extent did ISO
14001 improve/have an effect on the following?
• following the authorities’ environmental regulations;
• environmental performance of the organization;
• entering oversight and supervising mechanisms for pro-
tecting the environment;
• emission of pollutions (e.g., and CFC);
• usage of recycled materials;
• amplification of workers’ and managers’ awareness of en-
vironmental issues;
• control over the usage and storage of hazardous materials;
• safety performance of the organization.
Business Performance: To what extent did ISO 14000
improve the following:
• gross profit margin (K$);
• investments in R&D (K$);
• sales (K$);
• sales per employee (K$);
• business with foreign organizations (export, K$).
ACKNOWLEDGMENT
The authors would like to thank A. Zonnenshain for his contri-
bution to this research. They would also like to thank A. Fiegen-
baum for his comments on an earlier version of the paper.
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Sharon Link received the B.A. degree in political
science and human services from Haifa University,
Haifa, Israel, and the M.Sc. degree in behavioral and
management sciences from the Technion – Israel In-
stitute of Technology (Technion – IIT), Haifa. He is
currently working towards the Ph.D. degree at the
Technion – IIT, Israel.
His main fields of research interests are be-
havioral aspects of managerial processes, quality
management, mass disasters and crisis management,
preparedness, risk perception, social networks,
information flows and survival decision making. His current research deals
with economic evolutional models which explain survival of communities
subdue to an on going terror threats.
Eitan Naveh received the B.Sc. degree in industrial
engineering and management, and M.Sc. and D.Sc.
degrees in quality assurance and reliability from the
Technion – Israel Institute of Technology (Technion
– IIT), Haifa, Israel.
He is an Assistant Professor at the Faculty of
Industrial Engineering and Management, Technion
– IIT, Israel. His research focuses on the integration
between engineering and management aspects in
hi-tech organizations. His articles have appeared in
Management Science, the Academy of Management
Journal, and the Journal of Operations Management among other places.