The Impact of Sustainability Practices on

Company Performance (Manufacturing Industry)

Pranav Wadhwa(118)
Samanyu Jain(19)

Introduction:

The manufacturing business is more concerned with sustainability than ever before. In
addition to dealing with intense competition, factories must increasingly focus on
resource use, waste treatment, air emissions, water contamination, employee
well-being, and so on. Failure to address these sustainability challenges can
significantly harm the company's image and thus its performance. For example, Apple
Inc. has been accused of using child labor in the production of its iPhones and
Macintosh computers; the Coca-Cola Company has been accused of polluting local
water resources in India; Dell Inc. has been chastised for disposing of electronic waste
in an environmentally unfriendly manner (Parmigiani et al., 2011); and Chinese dairy
manufacturers have faced environmental and safety issues (Chen et al., 2014).
Misbehaviors in environmental and social management by these organizations have
harmed their business performance and, in some cases, destroyed their reputation.
These instances highlight the necessity of knowing sustainability management and its
impact on a company's reputation and success.

There are various methods for measuring corporate performance. Performance is

commonly classified as either financial or non-financial (Ittner, 2008). Traditional
accounting metrics for financial performance have included sales growth, return on
equity (ROE), earnings before interest and taxes (EBIT), and return on investment
(ROI), among others (Eldenburg et al., 2010; Orlitzky, 2011; Zahra, 1995). Such
financial statistics frequently reflect an organization's profitability. Non-financial
performance is typically measured using operational key performance indicators (KPIs),
such as innovation performance and market share (Hyvönen, 2007). Furthermore, in the
sustainability research literature, scientists have proposed that firm performance should
be broadened to encompass a triple bottom line, rather than focusing solely on one
component of company success, such as financial performance. More specifically, firm
performance encompasses environmental performance, social performance, economic
performance, operational performance, and innovative performance.
Several studies have found that sustainable practices lead to improved firm success.
Spicer (1978) found a medium to strong relationship between financial indicators, such
as profitability, and some environmental indicators, such as pollution control, particularly
in the pulp and paper industry. Further study by Zhu et al. (2012) and others (e.g., Hart,
2005; Shrivastava, 1995) has validated this conclusion, implying that improved
environmental and social practices can help organizations achieve a competitive edge
and, as a result, enhance their performance. Hart (1995) explained the aforesaid link in
terms of natural resources.

Some research have corroborated the contrary claim, indicating a negative association
between sustainability activities and firm performance. The main argument here is that
sustainable initiatives frequently raise operational costs and product prices, negatively
impacting financial performance and market share (Brammer and Millington, 2008;
Cornell and Shapiro, 1987; Friedman, 2007; Tang et al., 2012; Walley and Whitehead,
1994; Williams et al., 1993). However, just a few studies have focused on the
manufacturing industry, despite its major contribution to the global economy.

The purpose of this dissertation is to investigate the relationship between sustainability

and firm performance in the manufacturing industry via the lens of operations
management. Operations management is described as "the activities that transform
inputs into finished goods and services" (APICS, 2005, p.76). The overarching research
goal is to investigate the links between sustainability improvement techniques and a
company's performance in terms of the triple bottom line (economic, environmental, and
social performance), as well as operational and innovative performance. These linkages
are studied both inside a single organization and across the supply chain. In order to
reach this goal, sustainability criteria and general approaches to implementing
sustainable practices must be recognized and understood. Furthermore, the distinction
between developed and emerging countries and regions, various sectors of the
manufacturing industry, and supplier engagement should all be explored.
Review of Literature:

Our review of literature is based on the 5 cited papers based on relation with our topic.
You will find them in our “References Section”

Brief Presentation of the cited 5 papers is as follows:

Paper Number Main Topic Research Data Source

Methods

Paper 1
Manufacturing Literature review 81 related articles
facility location and
sustainability

Paper 2
Environmental Secondary data 37 manufacturing
management analysis companies in
practices and Sweden, China,
company and India
performance

Paper 3
Disclosure of Secondary data 75 manufacturing
corporate social analysis companies in
performance and automotive, metal
financial products, forest and
performance paper, chemical,
and health care
products

Paper 4
Sustainable Survey 101 Swedish
operations manufacturing
practices and companies
performance in the
Swedish
manufacturing
industry
Paper 5
Moderating role of Survey 101 Swedish
supplier manufacturing
involvement in the companies
focal companies’
initiatives

Paper 3 builds on the ideas and methods of Paper 2, but uses GRI reports to study if
corporate social behavior influences financial performance in the manufacturing
industry. This third research examines the relationship between a company's social
performance disclosures and its financial performance. Furthermore, social practices in
various manufacturing sectors are explored. In this approach, Paper 3 sheds light on
the intrinsic interrelationships between the many areas of CSR studied.

Papers 4 and 5 are based on data collected from a survey of the Swedish
manufacturing industry using a questionnaire created in response to the results of
Paper 1. Paper 4 seeks to investigate the relationships between the three bottom lines,
meaning the environmental, social, and economic components of sustainability, and
corporate performance. The article examines how different firms apply sustainability
improvement techniques, as well as the relationship between a company's strategy,
sustainable practices, and performance. Papers 2 and 3 have resulted in a greater
emphasis on technology innovation and technology strategy. Paper 4 might be
considered as a triangulation study, as it aims to corroborate some of the conclusions
obtained in Papers 2 and 3. However, Paper 4 relies on empirical data from the
Swedish manufacturing industry rather than secondary data (GRI reports), as in the
prior two studies.

Paper 5 investigates the indirect effects of supplier involvement on the focus company's
sustainability measures. Partial least squares structural equation modeling is used to
verify the causal link between sustainability drivers, sustainable behaviors, and
performance. Meanwhile, this paper investigates suppliers' indirect consequences. This
study aims to examine and expand on previous studies on sustainability and firm
performance, particularly with regard to supplier involvement. Paper 5 validates the
preceding research findings from Papers 2, 3, and 4, confirming the causal relationship
between sustainability drivers, sustainability improvement practices, and overall
sustainable performance.
Despite its thorough examination, this dissertation does have certain drawbacks. First,
this study takes a static approach to the research topics; a longitudinal analysis is
missing from both the content analysis of the GRI reports (Papers 2 and 3) and the data
collection in the survey (Papers 4 and 5). This delay is primarily due to the PhD
program's restricted time resources. In other words, the study is based on a snapshot
inquiry. More in-depth investigation is required to adequately investigate the themes.
More supporting evidence should be collected, for as through a longitudinal survey
study.

Second, the sample selection may be another study drawback in this dissertation. The
survey data (Papers 4 and 5) only include intermediate and large enterprises; small
manufacturers are excluded. Furthermore, the study results are based on the Swedish
manufacturing industry. Thus, the inferences and interpretations taken from the study
results should be carefully reviewed. It is still uncertain whether the research findings
may be extrapolated to other sectors and nations. Nonetheless, these findings provide
guidance for further research.

Third, while various statistical tests were run to ensure data bias, reliability, and validity,
some data flaws, such as self-report response bias, may still remain. In both the survey
study and the GRI reports, respondents may have presented a more positive view of
their company's sustainability than was actually the case.

Finally, the measuring of sustainability behavior and performance remains a contentious

issue in the literature. The metrics for Papers 4 and 5 were chosen based on the results
of the literature study in Paper 1. One potential drawback could be the measuring
scales in this newly constructed questionnaire. To address this shortcoming, the
questionnaire was pilot tested with academic experts and industry practitioners.
Furthermore, rigorous statistical approaches were utilized to determine the
questionnaire's reliability and validity.