Green Information Technology Energy Efficiency and Profits- Evi

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Green Information Technology, Energy Efficiency,and Profits: Evidence from an Emerging EconomySunil MithasUniversity of Maryland, [email protected]

Jiban KhuntiaUniversity of Maryland, [email protected]

Prasanto K. RoyPresident and Chief Editor ICT Publications, [email protected]

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Recommended CitationMithas, Sunil; Khuntia, Jiban; and Roy, Prasanto K., "Green Information Technology, Energy Efficiency, and Profits: Evidence from anEmerging Economy" (2010). ICIS 2010 Proceedings. Paper 11.http://aisel.aisnet.org/icis2010_submissions/11

Thirty First International Conference on Information Systems, St. Louis 2010 1

Green Information Technology, Energy Efficiency, and Profits: Evidence from an Emerging Economy

Completed Research Paper

Sunil Mithas Robert H. Smith School of Business

4357 Van Munching Hall University of Maryland

College Park, MD 20742 ([email protected])

Jiban Khuntia Robert H. Smith School of Business

Van Munching Hall University of Maryland

College Park, MD 20742 ([email protected])

Prasanto K. Roy President and Chief Editor

ICT Publications B-35 Sector 32, Gurgaon,

Haryana 122001, India ([email protected])

Abstract

Prior studies argue that information technology (IT) can play an important role toward sustainable and greener growth, yet few studies have empirically assessed the adoption and efficacy of green information technology initiatives at the firm level. This study investigates the factors that influence green IT implementation in organizations; and the consequences of the green IT implementation in terms of energy conservation and profit. Based on a survey of 293 organizations in India, we find that top management commitment plays an important role in influencing perceived importance of green IT in an organization. In turn, the perceived importance of green IT initiatives within an organization influences the green IT spending as a percentage of overall IT spending. Among consequences of green IT implementation, green IT implementation is positively associated with higher reductions in IT equipment energy consumption and higher profit impact. We discuss the implications of the study for further research, policy, and managerial practice to design and encourage implementation of green IT initiatives for environmental sustainability.

Keywords: Green information technology, business value of green IT, sustainability, top management commitment, energy efficiency, profit, emerging economies

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2 Thirty First International Conference on Information Systems, St. Louis 2010

Introduction Sustainability is emerging as a major issue that concerns top managers, institutional investors, and policy-

makers around the world. Top managers are concerned about sustainability because of its implications for future profitability and company image among relevant stakeholders such as environmentally conscious customers, employees or investors (Eilperin 2009a). Institutional investors such as Calpers, members of the Carbon Disclosure Project (group representing institutional investors managing $10 billion in assets) and other pension funds are asking firms to become more responsible in managing their carbon footprint (Grobbel et al. 2004). Policy-makers from developed and developing countries are negotiating institutional arrangements and monitoring mechanisms to balance the need for reduced carbon footprint while meeting the growth needs of the large segments of the population at the bottom of the pyramid in the developing world.

Information technology has significant importance for managing and containing carbon emissions. According to a study by McKinsey (Boccaletti et al. 2008), IT related production and consumption accounted for only about 2% of overall carbon emissions in 2007 (about 0.86 gigatons of emissions a year). However, the share of ITs footprint is likely to go up to about 3% by 2020 (about 1.54 gigatons of emissions a year), an increase of about 80% from the current levels. Much of this anticipated increase is because of the high growth rate of computing needs in developed world and large scale adoption of PC, mobile phones and proliferation of data centers in developing economies. In fact, carbon emissions from production and use of IT in 2020 will form a substantial portion of the total carbon emissions, exceeding the total carbon emissions of UK; and raise concerns regarding climate impact and sustainability. Fortunately, offsetting this concern, IT has the potential to help curb the carbon emissions in the general economy (e.g., buildings, power, transport and manufacturing) by about 7.8 gigatons (i.e., 15% of the global emissions in 2007) thereby potentially contributing, on the whole, to sustainable growth (Boccaletti et al. 2008). CIOs consider green IT as one of the most strategic technologies and Forrester estimates green IT services market to reach nearly $5 billion by 2013 (see Watson et al. 2010b)

The realization that information technology has significant importance for managing and containing carbon emissions, and therefore is vital for sustainable development, has resulted in a movement to promote deployment of environmentally conscious practices in managing IT under the rubric of green information systems (IS) or green IT. Melville (2010) defines green information systems or information system for environmental sustainability as IS-enabled organizational practices and processes that improve environmental and economic performance.

Although green IT may be considered narrower than green IS, frequently the terms do not have a precise definition and are used interchangeably. Murugesan (2008) defines green IT as the study and practice of designing, manufacturing, using, and disposing of computers, servers, and associated subsystemssuch as monitors, printers, storage devices, and networking and communications systemsefficiently and effectively with minimal or no impact on the environment. He further elaborates that green IT also strives to achieve economic viability and improved system performance and use, while abiding by our social and ethical responsibilities. Watson et al. (2010b) argue that focusing on information technologies only under the matrix of green IT may lead to a narrow scoping of green IS area of research. They suggest focusing on green information systems, and define it as an integrated and cooperating set of people, processes, software, and information technologies to support individual, organizational, or societal goals. Watson et al (2010b) argue that extending the scope from technology centric green IT to green IS would facilitate a greater variety of possible initiatives to support sustainable business processes, and include various aspects of the organizational actions along with the exclusive green IT initiatives. This argument seems to find expression in Murugesan (2008)'s definition in which green IT includes the dimensions of environmental sustainability, the economics of energy efficiency, and the total cost of ownership, which includes the cost of disposal and recycling. Further, green IT spans a number of focus areas and activities, including design for environmental sustainability, energy-efficient computing, power management, data center design and development, server virtualization, responsible disposal and recycling, regulatory compliance, green metrics, assessment tools, and methodology, environment-related risk mitigation, use of renewable energy sources, and eco-labeling of IT products. Therefore, in practice and general usage of the terms, both green IT or green IS would involve activities related to directly adopting green IT practices (e.g., purchasing servers that use less power, or implementing shut-off policies of computers) and indirectly investing in augmented IT activities that would govern business processes towards energy saving, electronic waste management, or providing IT recycling avenues (Melville 2010; Velte et al. 2008; Watson et al. 2010b). Hence, we use the terms green IS to green IT interchangeably in the rest of the paper.

Mithas et al. / Green Information Technology, Energy Efficiency, and Profits


Despite the importance of green initiatives to contain or reduce the environmental impact of firms actions, and the call for research on how IS can contribute to environmental sustainability (Melville 2010; Watson et al. 2010b); few empirical studies inform what drives implementation of green IT initiatives, and what, if any, is the business value of investments in green IT initiatives. Although the business value of IT literature has made impressive strides to explicate whether and how IT contributes to performance at multiple levels (see Dedrick et al. 2003; Dewan and Kraemer 2000; Han et al. 2010; Kauffman and Weill 1989; Kohli and Grover 2008; Melville et al. 2004; Tallon et al. 2000; Wade and Hulland 2004), we know very little how green IT contributes to a firms success. Furthermore, given the importance of sustainable development in emerging economies (O'Neill and Poddar 2008; Wilson and Purushothaman 2003), it is important for managers to know the determinants of adoption and success of green IT initiatives in these economies.

This study examines the antecedents to and the consequences of green IT implementation in firms and organizations. We pose the following questions: what influences the importance of green IT in organizations? In addition, what are the perceived benefits from green IT? We draw on the belief-action-outcome theory and related arguments to derive several hypotheses. To test the hypotheses, we collected data from a research firm on a field survey of 293 organizations in India. The insights drawn from the findings of the study are informative to formulate green IT strategy and provide an assessment of its economic benefits.

Background Sustainability has particular salience for emerging economies (Boccaletti et al. 2008), even though

sustainability is best viewed as a global issue. This is because sustainability has positive and negative externalities, and supply chains of many contemporary firms cut across country boundaries. While developed nations presently account for a large percentage of global carbon emissions and are likely to continue doing so for quite some time, emerging markets are likely to show significantly higher growth rates in carbon emissions in future due to their higher rates of economic growth and large populations. For example, while countries belonging to the Organization for Economic Co-operation and Development (OECD) are likely to maintain their current emissions, about 97% of the growth in energy-related carbon emissions by 2030 is likely to come from the developing countries (i.e., non-OECD countries); the latter accounting for about 63% of the worlds energy-related carbon emissions in 2030 (Eilperin 2009b). Without adopting sustainable practices, carbon footprint of China and India will likely surpass that of other developed countries in the next few years. As a result, top managers in emerging markets appear to show significant interest in sustainability issues than is the case in developed markets, as evidenced in their response to questions relating to sustainability in global surveys (Enkvist and Vanthournout 2007).

Arguably, developed economies have contributed significantly more to the carbon emissions of the past and because they will continue to be major polluters in the years to come, they bear responsibility for mitigating the environmental impact of their actions. At the same time, emerging economies can learn from the mistakes of developed economies and take proactive measures to discharge their responsibility towards containing carbon emissions without jeopardizing their legitimate growth aspirations and prospects. Furthermore, to the extent green IT can lead to creation of new opportunities, it is in the interest of organizations in the emerging economies to be proactive in implementing green IT initiatives (Enkvist and Vanthournout 2007).

The motivation for sustainability in emerging economies can be viewed from at least three perspectives. First, firms in emerging economies are realizing that they can approach sustainability from a return on investment perspective. The incremental investments in greener technology can be financially recouped, besides other positive externalities such as better image among customers, employees and other stakeholders. Second, reducing energy consumption and requirement for back-up power generation (emerging economies often have electric power shortages necessitating use of back-up power generation facilities) can also lower capital expenditure costs significantly. For example, firms can substitute laptops for desktops to reduce energy consumption and to avoid use of uninterrupted power supply systems. Third, in some sectors such as telecom and banking, energy consumption costs are a significant fraction of the total revenues, and any initiatives to reduce energy consumption in these sectors can have significant bottom-line impact.

Although green IT has significant implications for climate change, it is relatively a nascent area of research in IS discipline and has so far attracted very few empirical studies, with notable exceptions of recent conceptual and case study research (Melville 2010; Watson et al. 2010a; Watson et al. 2010b). Recent research points to research opportunities in IS area to apply the transformative power of IT to provide solutions to environmental issues, and make contributions to sustainability (Melville 2010; Watson et al. 2010b). Melville (2010) proposes that IS can play

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a critical role in shaping beliefs about the environment, in enabling and transforming sustainable processes and practices in organizations, and in improving environmental and economic performance. Watson et al. (2010) argue that organizations can take the advantage of the emerging and upcoming green IT research to tackle sustainable development while improving productivity, reducing costs, enhancing sustainability and avoiding poor environmental practices to reduce waste, energy inefficiency, and carbon emissions.

Amongst other studies, Molla et al. (2009) propose a green IT readiness model to operationalize and measure the green IT adoption in an organization. Chen et al. (2009) explore green IT adoption due to institutional pressures and strategic foci on pollution prevention, product stewardship, and sustainable development. Hedwig et al. (2009) emphasize that reducing variable expenses, such as energy cost, has become a top priority for organizations, and report a saving potential of up 25 percent of the total energy cost with prudent use of IT. Beyond IS research, researchers in other areas such as strategy (Hart and Ahuja 1996; Porter 1991), operations (Kleindorfer et al. 2005; Linton et al. 2007) have also pointed to the importance of focusing on sustainable management of organizational resources toward greener planet.

We draw on prior conceptual work and extend that by assessing the business value of green IT in India, an emerging economy and a major producer of IT services for the world markets.

Theoretical Framework Conceptually, green IT can be viewed as an organizational change process, which requires integrating

technology with people and processes (Joshi 1991; Lapointe and Rivard 2007). Like any other change management process in the organization (Van de Ven and Poole 1988; Van de Ven and Poole 1995), the green IT implementation includes creating (or acquiring) relevant knowledge related to green IT, disseminating the knowledge in the organization, and mobilizing the knowledge to address issues associated with the green IT. Green IT implementation aims to reduce the overall carbon footprint and require changes to business processes. These changes range from switching off computers when not being used, to design of energy efficient data warehouses for the organizations. Typically, such IT-enabled change processes pose challenges because of the need for human and systems integration within the organizational context. The successful implementation of green IT demands that organizations possess expertise and prudence in dealing with the issues related with the implementation process (Joshi 1991).

Figure 1: Conceptual Model

We articulate the antecedents and consequences of green IT implementation in organizations by anchoring our arguments in the belief-action-outcome (BAO) framework proposed by Melville (2010). The BAO framework links macro-level constructs (society, natural environment, organizations) with micro-level constructs (individuals) to study the role of IS for environmental sustainability. The framework argues that managerial beliefs and commitments lead to organizational action eventually leading to outcomes. These outcomes may be subjective, such as fulfillment of corporate social responsibility, building reputation, and brand equity; or, objective, such as the reduction in energy consumption due to green IT, and net impact on profits. Figure 1 shows an adaptation and



parsimonious operationalization of BAO framework, supplementing it with insights from related conceptual framework (Watson et al. 2010b).

We next develop the hypotheses that link managerial commitment with the actions and consequences related to green IT implementation.

Antecedents of Strategic Importance of Green IT and Green IT Spending Top management can play an important role in conveying the strategic importance of green IT across the

organization and subsequent resource allocations towards green IT. The top management is defined as the the strategic apex, or dominant coalition, and typically consists of the CEO and several of his or her most senior colleagues as a shared and collective group. Top management team decisions enable the firms to cope with rapid and discontinuous changes in demand, competitors, technology and regulation (Bourgeois and Eisenhardt 1988). Prior studies suggest that top management plays a decisive role in transformational efforts across a variety of areas such as total quality management (Hoffman and Hegarty 1993), business excellence (Mithas and Lucas 2010b; Mithas et al. 2011), product development and innovation (Cooper and Kleinschmidt 1995), and IS implementation (Armstrong and Sambamurthy 1999; Earl and Feeny 2000; Jarvenpaa and Ives 1991; Markus 1983).

Top management commitment is necessary for the green IT efforts to be successful, and to enable the new patterns in the organizational practice that come with a change or transformation in the organization. Meyer and Herscovitch (2001) define commitment at workplace or in organizations as a force that binds an individual to a course of action that is of relevance to a particular target, and can be accomplished by different mind-sets that play a role in shaping behavior. For example, in the context of service quality and performance improvement in the organization, management commitment is defined as consciously choosing quality initiatives as operational and strategic operations for the organization, and engaging in activities such as providing visible quality leadership and resources for the adoption and implementation of quality initiatives (Ahmed and Parasuraman 1994).

The top management can influence institutionalization of new patterns of behavior in several ways, starting from the influence on organizational policies and directives. Top management has the power to appoint key personnel at the department or smaller units to implement new practices and behaviors. This process might involve signification, legitimization, and domination; or can provide rewards or punishments to the organizational members (Lewis et al. 2003; Purvis et al. 2000). The endorsement from the top management signals the importance of the strategic decision about the technology adoption to the organization through funding, resources provisions, and blue prints for action plans to local or departmental management. Furthermore, the middle management reinforces such decisions and top management commitment through day-to-day processes and operations (Leonard-Barton and Deschamps 1988). Prior work suggests that the success of enterprise wide IT systems needs investments of complementary resources in the organization, which is possible only when the top management is committed and incorporates the IT implementation process in the broader strategies and activities of the organization (Liang et al. 2007). Thus, the top management commitment towards green IT implementation is likely to lead to greater strategic importance being accorded to green IT and eventually reflect in concrete actions across the organization.

More specifically, the top management commitment can influence green IT implementation through their involvement, championship, governance and performance-monitoring activities; some of which are mentioned in prior work on IT systems governance or implementation efforts (Basu et al. 2002; Reichers 1985; Weill and Ross 2005). The top management can bring a sharper focus on energy saving as a metric in performance evaluation in the organization. Further, top management can try to influence the effort that employees devote to managing green IT in operations (Leonard-Barton and Deschamps 1988). Some of these efforts include sourcing energy efficient products from suppliers, designing green products and processes, benchmarking the firms processes with respect to energy consumption, using energy audit procedure and adhering to the auditing frameworks, empowering subordinates, acquiring and providing environmental responsible training, and implementing involvement and participation strategies for green IT.

In summary, based on the foregoing discussion, we posit that firms with higher levels of top management commitment are more likely to accord a higher strategic priority to green IT. In turn, the higher strategic importance to green IT will reflect in concrete organizational actions such as higher budgetary allocations to green IT. Therefore, we propose the following hypotheses:

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Hypothesis 1a (H1a): Organizations with explicit and vigorous top management commitment to energy efficiency will accord higher strategic importance to green IT, than those organizations without top management commitment to energy efficiency. Hypothesis 1b (H1b): The perceived strategic importance accorded to green IT in an organization has a positive association with green IT related spending (or, resource allocation for green IT).

Reduction in IT Equipment Energy Consumption due to Green IT

To the extent green IT reduces the energy consumption for the IT equipments, a plausible way to quantify the impact of green IT implementation in organizations is to assess whether green IT leads to energy saving. The association between sustainable information systems use and energy consumption is largely an empirical issue (Melville 2010). At an aggregate level, there is a debate whether IT is associated with a net increase or decrease in energy use (Koomey 2008; Laitner 2002). Koomey (2007) found that the electricity use in IT has almost doubled over the period of 2000 to 2005 both in the U.S. and worldwide. However, the overall percentage of power consumption due to IT is still relatively small and does not exceed more than 3% of the total power consumption of US. Furthermore, this small power consumption is leading to a tremendous economic growth and unprecedented opportunities. Collard et al. (2005) in their study of French service sector, found that electricity usage intensity of production increases with increased use of computers and software, while it decreases with the diffusion of communication devices.

At the firm level, green IT implementation has the potential to reduce energy consumption in several ways. First, green IT might induce organizations to focus on recycling of waste and other waste management measures that may lead to reduced power consumption. Second, green IT may lead to purchasing of energy efficient computer systems, or replacing current systems with energy efficient systems. For example, desktops consume more energy compared to laptops. Firms might decide to replace desktops with laptops. Third, following the top management commitment to green IT, organizations might embrace lean management principles in the activities and processes of the organization. Lean management helps in achieving same output with less resources and higher efficiency, thus reducing total energy consumption by maximizing the efficiency of internal processes such as job scheduling, procurement, order fulfillment, engineering change, design optimization, and other day-to-day operations (Grover and Markus 2008).

In summary, we argue that the top management commitment will lead to energy efficiency through the impact of top management on general organizational discipline and through higher resource allocation for the green IT. In turn, increased resource allocation toward green IT will lead to higher reductions in IT equipment energy consumption. Therefore, we posit the following hypotheses:

Hypothesis 2a (H2a): Organizations with explicit and vigorous top management commitment to energy efficiency will achieve higher reductions in IT equipment energy consumption, than organizations without top management commitment to energy efficiency.

Hypothesis 2b (H2b): Green IT related spending is positively associated with higher reductions in IT equipment energy consumption.

Profit Impact of Green IT Like other IT investments (Mithas et al. 2008), green IT has the potential to impact firm profitability

through its impact on revenue growth, cost reduction, risk reduction or a combination of these (Ambec and Lanoie 2008; Cramer 1998; Molina-Azorn et al. 2009). Firms can improve profitability through revenue growth by green IT through preferential access to certain markets (e.g., public sector, green products market) by adopting green strategies (Bonini et al. 2009). Prior studies argue that by increasing firms corporate environmental consciousness, eco-initiatives and activities, firms enhance their corporate image and reputation (Hart 1995; Russo and Fouts 1997). This leads to achieving higher revenues by winning in the environmentally conscious segments of the market. In addition, firms with higher green IT spending can differentiate their products from that of their competitors based on their environmental-friendly features (Bonifant et al. 1995; Shrivastava 1995). Firms can reach consumers with higher willingness to pay for such differentiated and higher quality products. Firms can increase their revenue through production of greener products with less carbon footprint using green IT. Implementation of green IT can create a mindset and climate in the organization to move towards greener products across the value chain.



Furthermore, firms with higher amounts of green IT spending can make use of their waste products and gain revenue from their usage or sale. Firms research and development processes also undergo a change to think through greener options, and result in differentiated products (Ambec and Lanoie 2008). Further, once the firm achieves expertise in green IT; the expertise can be sold to other firms to gain revenue.

Firms with higher green IT spending can save cost through green IT implementation measures. These cost saving measures include lower energy and utility costs (Watson et al. 2010a), lower waste disposal costs, reduced usage of paper and other costly supplies, and many more tangible cost savings and resources (Hedwig et al. 2009; Russo and Fouts 1997). Firms might decide to use thin clients, which use less energy, in place of high-end computers. Organizations may use collaboration tools, telecommuting, telepresence and video conferencing tools to reduce costs due to travel. Furthermore, firms with higher amounts of green IT spending are likely to rationalize their production and operational processes to reduce environmental impacts. The rationalization involves reengineering the production processes, eliminating unnecessary processes, or streamlining business processes to reduce the environmental impact and simultaneously lower the cost of the inputs and waste disposal (Cordano and Frieze 2000; Porter and Class van der Linde 1995). All these cost savings measures will reflect in the higher revenue (through reduced prices if cost benefits are passed on to consumers and price declines are more than offset by revenue growth) or direct impact on the bottomline of the firms.

In summary, going green or implementing green IT can lead to more efficient and cost effective business operations. Prior research has provided evidence that, in general, environmental efforts can reduce cost and improve profitability (Esty and Porter 1998; Hart 1995; Nehrt 1996). Further, studies have also found that in manufacturing sector, pollution prevention and waste reduction practices enhance operational efficiencies and lead to better firm performance (Clelland et al. 2000). Studies also suggest that firms with better environmental consciousness will have higher profits (Ahmed et al. 1998; King and Lenox 2001). Thus, based on the foregoing discussion, we argue that green IT related spending, and the reduction in the IT equipment energy consumptions will result in increased profits. Hence, we posit the following hypotheses:

Hypothesis 3a (H3a): Green IT related spending is positively associated with higher profit impact of green IT.

Hypothesis 3b (H3b): Higher reductions in IT equipment energy consumption are positively associated with higher profit impact of green IT.

Method We obtained the archival data used in this study from a highly reputed and leading information technology

publication group operating in India. Prior academic research has also used data provided by this publication group (Mithas 2008), similar to other studies that use data collected by InformationWeek or other similar sources (Bharadwaj 2000; Dewan et al. 1998; Mithas and Lucas 2010a; Tafti et al. 2007; Whitaker et al. 2010). A professional market research firm conducted the survey during 2008. The survey questionnaire was designed to elicit information regarding green readiness of firms and organizations (including foreign companies) across a wide range of industries operating in India. Because green IT does not have a precise definition, the survey provided flexibility to respondents to express the meanings they assign to green IT in an unprompted manner but also then tried to elicit from them the dominant meanings by prompting then using some preassigned categories. The market research firm collected the survey data through face-to-face interviews from senior employees of the organizations (many of them were CIOs, IT heads and other senior IT executives) following a structured protocol.

Variables

Table 1 provides a description of variables we used in this study (Appendix shows the exact wording of the key variables and related questions). We discuss here some of the key variables and how we operationalized them, consistent with their correspondence with theoretical constructs subject to data availability. Although ideally we would like to objectively measure increase in profits attributable to green IT initiatives, it is almost impossible to get such data for all entities in our sample. Hence, we make use of a subjective measure of the impact on profits. Similarly, we measure reduction in IT equipment energy consumption using a subjective measure (we control for firm size to account for changes in business scale in our empirical models). Furthermore, we use top management commitment to energy efficiency as a proxy for top management commitment to implementation of green IT.

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Although energy efficiency is not same as use of green IT, to the extent energy efficiency involves use of IT solutions (e.g., smart meters and smart distribution arrangements), such an approximation appears reasonable given the archival nature of our data.

Table 2 provides descriptive statistics, and shows that surveyed organizations report allocating about 5-10% of their IT budget to green IT initiatives, reduction of about 5-10% in their IT equipment energy consumption and about 10-15% impact on profits. About 42% organizations report top management commitment by the top leadership team for green IT initiatives.

The total sample of firms in our study is 293. Due to missing values, we have less than 293 values for some variables (e.g., PROFITMP has 221 observations, REDITENCONS has 228 observations, PCITBUDG has 252 observations, and others have 293 observations). Since the missing values are at random, we took the complete cases only for each of our estimation models in the empirical analysis.

Table 3 provides pair-wise correlations among key variables.

Estimation Models

This study uses several dependent variables and we use appropriate econometric models depending on the nature of dependent variable: we use ordinary least squares (OLS) for interval scale variable IMPGIT and ordered probit for ordered dependent variables (e.g., PROFITIMP, REDITENCONS, PCITBUDG).

We used the ordinary least squares approach to estimate the green IT importance model because the IMPGIT is an interval scale variable.

IMPGIT = Xi + (1) Where Xi is a set of explanatory variables, is a vector of parameters and are disturbances.

We use the ordered probit approach for dependent variables PROFITIMP, REDITENCONS, PCITBUDG because this approach does not assume equal intervals between levels in the dependent variable. The ordered probit model is shown by:

Yi*= Xi +ei,

Where, Yi* is the propensity of respondents to indicate higher levels of PROFITIMP, REDITENCONSM, PCITBUDG respectively, Xi is a set of explanatory variables, is a vector of parameters and ei are disturbances.

We do not observe Yi*, instead we observe the ordinal dependent variable Yj, j=1,2,m depending on the values of thresholds or cutoff points j-1 and j as follows:

Yi = j if j-1 < Yi* < j where j are constants with 0 = - , m = + , and 0< 1



We tested for multi-collinearity by computing condition indices. The mean variance inflation factor (VIF) was less than 7 in our models, indicating that multi-collinearity is not a serious concern in our analyses.

Because the dependent and independent variables came from the same survey instrument, we conducted Harman's one-factor test to assess the sensitivity of our results to common method bias. The principal component analysis for key variables yielded multiple factors, some with eigen values exceeding one. Because no single factor emerged as a dominant factor accounting for most of the variance, common method variance does not seem to be a serious problem.

Results Table 4 provides parameter estimates of green IT implementation models, and Table 5 provides parameter

estimates of organizational performance models.

We find support for H1a which predicted that top management commitment is positively associated with the importance accorded to green IT in an organization (refer to column 1 of Table 4; 11=0.582, p

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context of implementation of IT projects (DeLone and McLean 1992; Markus and Tanis 1999) and organizational change management (Andersson and Bateman 2000; Ramus and Steger 2000) underscores the importance of top management commitment; our findings suggest that top management commitment also plays a role in greater resource allocation to green IT, and subsequently, for the steps leading to the implementation of green IT. Future research should investigate the drivers of top management commitment to green IT, particularly the ones that can be exogenously influenced by government or other mechanisms (i.e., changes in educational curriculum). In this regard, corporate governance mechanisms that are mostly influenced by prevalent regulation and societal expectations can play an important role. CEOs of leading organizations such as WalMart, UPS and GE can play an important role to influence other top leaders by committing to and initiating green IS initiatives in their organizations.

Second, this study provides evidence for the effect of green IT implementation on firms profits. This is an important finding because prior research, with a few notable exceptions (Esty and Porter 1998; Porter and Class van der Linde 1995), has been skeptical about the effect of environmental initiatives with profit outcome. Our findings suggest that green IT need not be viewed merely as another politically correct fad or management fashion without any economic rationale (Abrahamson 1996), instead green IT can be evaluated like any other resource or value-adding initiative with positive profit implications (Hart 1995; Russo and Fouts 1997). Future research should investigate other performance implications of green IT such as customer satisfaction, stock market reaction, stock returns and stock risk that are important considerations when top managers decide on how much strategic importance to attach to green IT (Luo and Bhattacharya 2006; Luo and Bhattacharya 2009). For example, future research should investigate the extent to which green IT can improve a firms image among its customers, thereby improving its customer satisfaction and lead to higher stock returns with reduced risk (Fornell et al. 2009; Fornell et al. 2006).

Third, this study investigated how the effect of green IT spending on profits is mediated through reduction in IT equipment energy consumption and found evidence for partial mediation. Future research should study other mechanisms for the effect of green IT on profits. Some of the likely candidates may be reduction in capital costs and thereby saving interest costs, responsible disposal and recycling, reduction in operating efficiencies in areas other than energy consumption (e.g., less use of other scarce resources such as water or other coolants), reduced need for workspace, reduced waste and improved productivity of employees (e.g., use of energy efficient laptops instead of power-hungry desktops can make employees more productive by enabling greater mobility and allow them to work anywhere anytime).

Finally, our study focused on green IT, which is one among many manifestations of a firms commitment to corporate social responsibility and citizenship. There is a growing realization that firms need to consider a wider variety of stakeholders in their decision-making, than maintaining a narrow focus on shareholder value. This thinking is evident in some of the normative models of performance excellence such as the model of performance excellence laid out in the Baldrige guidelines and criteria (http://baldrige.nist.gov/) and other similar models in Europe and Japan. Archival data on broader corporate social responsibility (CSR) activities and related performance can help to generalize the findings of this research to distinguish between CSR as a distinctive firm resource that substantively contributes to revenues or reduces costs (Hart 1995; Russo and Fouts 1997) and CSR as a signal or appearance of doing good (Margolis et al. 2007; Ruf et al. 2001).

Managerial Implications

Our findings have several managerial and policy implications. First, the findings imply that top managers can play an important role to ensure higher strategic importance for green IT initiatives and higher resource allocation towards green IT in the overall IT budget. If a firm is serious about sustainability, then it needs to make it an item on the boardroom agenda, as happened during the Y2K period and for implementation of many enterprise resource planning (ERP) projects in firms.

Second, policymakers, regulators and institutional investors need to demand disclosure of firms sustainability initiatives including those related to green IT to highlight the importance of sustainability initiatives. Governments can encourage early and wider adoption of green IT initiatives through tax policies and rebates. Regulatory bodies such as Securities and Exchange Commission (SEC), Environmental Protection Agency (EPA) and industry associations can play an important role by mandating or encouraging disclosure of information related to greenhouse gas emissions and green IT.



Finally, managers need to view green IT not merely as a responsible corporate citizen, but they should also realize that green IT can be financially rewarding. By assessing their IT initiatives in terms of sustainability, managers may be able to spot opportunities to reduce waste, while improving product quality and perceived customer satisfaction; and all these opportunities can more than make up for any upfront investments in green IT.

Limitations and Suggestions for Further Research We acknowledge the following limitations of the study that future research should seek to overcome. First,

while we controlled for important variables that are likely to be correlated with the focal variables and dependent variables, other omitted factors may affect the relationships in the model. Because of these data limitations and the use of a cross-sectional design, our results are associational in nature, and do not establish any causality. Second, the data for this study were collected from firms and organizations in India. This may be a concern for relating the study to other countries, and generalizing the findings globally.

The study opens several opportunities for future research. First, future studies might look at objective firm and industry level data on performance influence due to green IT. There is a need for a longitudinal study with the objective data, to establish the impact of green IT on carbon emissions; and subsequent impact on the firm performance. Second, future research should consider the lifecycle approaches to assess the impact of green IT initiatives. A life cycle approach enables product designers, service providers, government agents, and individuals to make choices for the longer term and with consideration of all environmental impacts (Hendrickson et al. 2006). Life cycle approaches avoid shifting problems from one life cycle stage to another, from one geographic area to another and from one environmental medium (for example, air quality) to another (for example, water or land). Such studies in the green IT area would help us to assess the long-term impact of IT on the sustainability in a more complete way.

Third, there is a need to understand how implementation of green IT is different from implementing other IT projects. While one clear difference is that green IT is broader in its objectives and encompasses many more business processes and relatively new metrics such as the impact on carbon footprint or energy efficiency, the extent to which such differences make implementing green IT more difficult and challenging needs further study. The BAO framework may be a useful starting point in such studies.

In conclusion, this study provides one of the first empirical tests to assess how green IT efforts and investments at the firm level are associated with cost reductions and profit impact. The study argued that the firms with higher top management commitment to IT are likely to accord higher strategic importance to IT, which in turn will lead to increased resource allocations toward green IT and favorable outcomes in terms of reduced energy consumption and higher profits. We found that top management commitment is a key antecedent to green IT implementation; and higher green IT investments result in better outcomes such as savings in energy costs, and higher profitability. The study provides evidence that there is need for top management commitment and credible action in terms of resource allocation to green IT for the sustainability efforts to be successful and financially rewarding. In other words, firms can do well in terms of profitability by doing good in terms of green IT practices.

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Figures and Tables

Table 1: Variables

Variable Definition/ Operationalization

PROFITIMP Effect of green IT on a companys profit 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

REDITENCONS Reduction in IT equipment energy consumption in last financial year 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

PCITBUDG Percentage of IT budget on green IT initiatives 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

IMPGIT Importance of green IT for your organization Question: How important is Green IT for your organization? 1=Not important, 2=Little important, 3=Important, 4=Very important, 5=Most important

TMTCOMMIT Explicit and vigorous commitment to energy efficiency by top executives Question: Have the leadership team/top executives (e.g., the CEO, CIO) made an explicit and vigorous commitment to energy efficiency in your organization? 1=Yes, 0=No.

MNC Whether the organization is a multi-national company (MNC)

PVTIND Whether the organization is an Indian private sector company

PSU Whether the organization is an Indian public sector undertaking

GOVTINST Whether the organization is a government entity or institution

SIZSALE Organization size in terms of sales 1=no fair idea, 2=upto Rs 10 crores, 3=10-50 crores, 4=50-100 crores, 5=100-500 crores, 6=500-1000 crores, 7= above 1000 crores

Table 2: Descriptive Statistics

Variable Obs Mean Std. Dev. Min Max PROFITIMP 221 2.17 0.97 1 4 REDITENCONS 228 1.96 0.93 1 4 PCITBUDG 252 1.81 0.69 1 3 IMPGIT 293 3.78 0.96 1 5 TMTCOMMIT 293 0.42 0.49 0 1 MNC 293 0.21 0.41 0 1 PVTIND 293 0.58 0.49 0 1 PSU 293 0.09 0.28 0 1 GOVTINST 293 0.11 0.31 0 1 SIZSALE 293 3.87 2.14 1 7



Table 3: Pair wise Correlations among Key Variables

1 2 3 4 5 1 PROFITIMP 1.00 2 REDITENCONS 0.66 1.00 3 PCITBUDG 0.49 0.40 1.00 4 IMPGIT 0.25 0.24 0.25 1.00 5 TMTCOMMIT 0.14 0.21 0.10 0.31 1.00

All correlations greater than or equal to 0.14 are statistically significant at p

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Table 5: Ordered Probit Models for Effect of Green IT Initiatives on Organizational Performance

(3) (4) REDITENCONS PROFITIMP

Ordered Probit

Ordered Probit TMTCOMMIT 11 0.371**

(0.160) 21 -0.111

(0.177) IMPGIT 12 0.146

(0.103) 22 0.104

(0.111) PCITBUDG 13 0.560***

(0.121) 23 0.551***

(0.133) REDITENCONS 24 1.014***

(0.114) MNC 14 0.518

(0.650) 25 0.864

(0.710) PVTIND 15 0.368

(0.636) 26 0.704

(0.688) PSU 16 0.406

(0.687) 27 0.904

(0.748) GOVTINST 17 0.495

(0.666) 28 0.940

(0.719) Observations 228 218 Pseudo R-squared 0.105 0.304

Standard errors in parentheses * significant at 10%; ** significant at 5%; *** significant at 1% Models control for firm size.



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Appendix: Questionnaire for Green IT Audit

This survey is being done to study the adoption and implementation of Green IT in your organization.

PROFITIMP What is the effect of Green IT on your companys bottom line/profit (increase in profit because of Green IT initiatives)? (Single choice) : 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

REDITENCONS How much has your organization reduced IT equipment energy consumption in last financial year? (Single choice) : 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

PCITBUDG What percentage of the IT budget is allocated to Green IT initiatives in your company? (Single choice) : 1= less than 5%, 2=5-10%, 3=10-15%, 4=more than 20%

IMPGIT How important is Green IT for your organization on a five-point scale where 5 is Most Important and 1 is Not Important? (Single Choice): 1. Not important, 2. Little important, 3. Important, 4. Very important, 5. Most important

TMTCOMMIT Have the leadership team/top executives (e.g., the CEO, CIO) made an explicit & vigorous commitment to energy efficiency in your organization? (Single Choice) : 1. Yes, 2: No.

MNC/ PVTIND/ PSU/ GOVTINST/

Please indicate whether your organization falls into any of the following categories: 1.Multi national company (MNC), 2. Indian private limited company (PVT), 3. Public sector undertaking (PSU), 4. Government organization, 5. Institution, 6. Others.

Association for Information SystemsAIS Electronic Library (AISeL)1-1-2010

Green Information Technology, Energy Efficiency, and Profits: Evidence from an Emerging EconomySunil MithasJiban KhuntiaPrasanto K. RoyRecommended Citation

Green Information Technology Energy Efficiency and Profits- Evi

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