The mediating effect of information availability between organization design variables and environmental practices in the Canadian hotel industry

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

* Correspondence to: Sanjay Sharma, Dean, The John Molson School of Business, Concordia University, 1455 de Maisonneuve Boulevard West, Montreal, QC H3G 1M8, Canada. E-mail: [email protected] The 2006 Random House Unabridged Dictionary defi nes proactive as ‘serving to prepare for, intervene in, or control an expected occur-rence or situation; anticipatory’. The word is used here in the sense of an anticipatory action designed to control future business scenarios or environmental practices that go beyond regulatory compliance (Sharma and Vredenburg, 1998).

Business Strategy and the EnvironmentBus. Strat. Env. 18, 266–276 (2009)Published online 25 October 2007 in Wiley InterScience(www.interscience.wiley.com) DOI: 10.1002/bse.603

The Mediating Effect of Information Availability Between Organization Design Variables and Environmental Practices in the Canadian Hotel Industry

Sanjay Sharma*The John Molson School of Business, Concordia University, Montreal, QC, Canada

ABSTRACTThis study examines whether providing employees with information about environmental impacts, industry practices, technologies, regulations and benchmarking of environmental practices mediates the infl uence of organization design variables on environmental impact reduction. The study fi nds that both organization design variables (discretionary slack, coordination mechanisms and performance evaluation) and information availability have a direct infl uence on environmental impact reduction practices in the Canadian hotel indus-try. However, information availability partially mediates the infl uence of organization design variables, indicating that effecting changes in organization design alone may be less effec-tive in generating proactive environmental practices without providing employees with information and benchmarking of industry environmental practices. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.

Received 26 April 2007; revised 24 August 2007; accepted 27 August 2007

SUCCESSFUL IMPLEMENTATION OF PROACTIVE1 ENVIRONMENTAL PRACTICES BY FIRMS REQUIRES THE INCLUSION

of environmental criteria in managerial decision-making. Performance on the chosen environmental cri-

teria needs to be measured, monitored and reported (Gladwin et al., 1995). However, managers face

multiple strategic choices and have to bear the opportunity costs of devoting resources on environmental

practices such as waste reduction, recycling, energy effi ciency and renewable energy versus others such as new

product development, new market entry and cost reduction initiatives. There are costs associated with developing

and deploying processes and routines to undertake one practice relative to developing and deploying other pro-

cesses and routines (referred to from here on as capabilities) for undertaking a different organizational practice at

a particular point of time (Zott, 2002).

Arguably, managers will fi nd it easier to develop and deploy capabilities for undertaking environmental practices

when the outcome of such practices is congruent with the fi rm’s desired core business or economic outcomes. If

Organization Design, Information Flow and Environmental Practices 267

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employees can link environmental practices directly to positive fi nancial or business outcomes, the motivation to

undertake is likely to be higher. Indeed, studies have shown that reduction in waste and energy effi ciency translates

into superior fi nancial performance via cost savings and improved process effi ciencies (e.g. Hart and Ahuja, 1996;

Judge and Douglas, 1998; Russo and Fouts, 1997). However, such a connection between environmental and eco-

nomic performance may not be apparent to employees. In any case, the overall evidence for a relationship between

environmental practices and fi nancial performance is mixed (see, e.g., Griffi n and Mahon, 1997; Margolis and

Walsh, 2003). This may be due to the complexity and contingent nature of the relationship between environmen-

tal and fi nancial performance, and the diffi culty of controlling for all the major infl uences in examining this

relationship. In the ultimate analysis, solutions for reconciling a fi rm’s environmental and economic performance

lie with employees. Therefore, changes need to be made in organization design to empower and motivate the

employees to fi nd such solutions.

Extant research shows that certain organizational drivers motivate and empower employees to undertake pro-

active environmental practices even when the link with fi nancial performance is not clear. These include those

drivers that increase employee motivation and infl uence their environmental attitudes and values (Bansal, 2003;

Cordano and Frieze, 2000) via strategic leadership (Egri and Herman, 2000; Ramus and Steger, 2000), oppor-

tunity framing of environmental issues via changes in organization design variables (Sharma, 2000; Sharma

et al., 1999), managerial attitudes toward the natural environment, and the role of organizational champions

(Andersson and Bateman, 2000). However, these studies do not examine the infl uence of these drivers directly

on the implementation of environmental practices or whether the changes in attitudes lead to changes in

environmental practices.

While the strategy implementation process is critical to the success of an environmental strategy (Aragón-

Correa et al., 2004; Maxwell et al., 1997), only a few studies have focused on factors or variables that facilitate

implementation. Epstein and Roy (2006) focus on the formalization of organization structure in multinational

corporations depending on the complexity of the business environment faced by the managers. They argue that

as technologies evolve the array of possible solutions to remedy the negative environmental impacts of a fi rm

increases and a decentralized organization structure encourages effective experimentation by employees to fi nd

such solutions. Therefore, decentralized structures are likely to facilitate the making of decisions by employees

to move their fi rm’s environmental practices from end-of-pipe measures to pollution prevention approaches.

However, they fi nd that in the case of multinational corporations, there is a tendency to centralize environmen-

tal standards to control diversity of regulations and to manage risk. Similarly, Russo and Harrison (2005) focus

on the organization structure and compensation systems. They argue that formal reporting by environmental

managers to plant managers in manufacturing facilities and compensation systems for both environmental and

plant managers that are tied to environmental performance would be associated with improved environmental

practices. This argument is based on the assumption that these variables would determine how and where infor-

mation fl ows within an organization and ultimately impacts decision making (Sharma et al., 1999). However,

Russo and Harrison (2005) did not fi nd support for their arguments in their data. Sharma (2000) and Sharma

et al. (1999) found that organization design variables in the form of increased managerial discretion over

resources and time, legitimization of environmental issues in corporate identity, information availability to

employees and inclusion of environmental criteria in decision-making create an organizational context within

which employees perceive environmental issues as opportunities rather than threats. Their unstated and untested

assumption was that this would enhance the motivation of employees to undertake proactive environmental

practices.

Currently, neither the arguments of Sharma et al. (1999) about upward and lateral information fl ows improv-

ing environmental decision-making nor the arguments of Russo and Harrison (2005) that formal reporting

relationships and compensation systems will similarly improve practices has been supported by these authors

or via other studies. This relationship remains untested in the context of environmental practices. Moreover, we

do not know the interaction effects between these variables. For example, does empowering employees with

relevant information to facilitate decision-making about environmental practices supplement and/or mediate the

infl uence of organization design variables on their undertaking of proactive environmental practices? Extant

research does not address these questions. Hence this study focuses on the following: (1) what infl uence does

providing employees with information about environmental impacts affect environmental practices within fi rms

268 S. Sharma

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and (2) does the provision of such information strengthen or weaken (that is, mediate) the infl uence of organi-

zation design variables?

The study has been undertaken in the Canadian hotel industry. Hotels, similar to other service industries, usually

face lower pressure for proactive environmental practices as compared with the highly visible pollution generated

by manufacturing industries such as chemicals and petroleum and the habitat destruction by mining companies.

At the same time, customers fi nd it easy to make their choices based on whether or not to stay in a hotel based

on their environmental practices due to the high degree of transparency of practices. Therefore, this is an interest-

ing context within which research on environmental management practices is growing and the research gaps

identifi ed can be addressed.

A considerable variation has been observed in the environmental practices of Canadian hotels. Generally, this

variation has been found in other contexts such as the UK hotel industry as well (Chung and Parker, 2006). It is

possible that some of this variation may be due to the wide variety of contexts the hotels operate in and the clien-

tele they serve, ranging from urban versus rural locations to business versus holiday travel. These practices may

also vary depending on the degree of centralization or decentralization (Epstein and Roy, 2006), which may in

turn depend on whether the hotel is independent or belongs to a chain, or the size of the hotel. However, this

study focuses on the infl uence of internal organizational design infl uences as discussed above.

The next section draws on the literature examining the infl uence of organizational design on environmental

strategies of organizations to develop hypotheses for testing. The following sections explain the research design,

describe the results of the study and end with a discussion of fi ndings, contribution, limitations and direction for

future research.

Organizational Design Infl uences on Proactive Environmental Practices

The core outcomes that fi rms seek to achieve are competitive advantage, growth and long-term survival. In order

to achieve these outcomes, fi rms undertake strategies and practices for differentiation and cost reduction. When

fi rms undertake practices by deploying capabilities of waste reduction (Hart, 1995) to reap the ‘low hanging fruit’

of savings by improving effi ciencies in use of material and energy or processes, they can clearly see the congruence

between the outcomes of the environmental practices and their competitive objectives via cost savings (see, e.g.,

Hart and Ahuja, 1996; Judge and Douglas, 1998; Russo and Fouts, 1997). Firms may also be aware of these savings

within their institutional context. For example, fi rms in the chemical industry are aware that waste reduction

programs such as 3M’s 3P (Pollution Prevention Pays) or Dow’s WRAP (Waste Reduction Always Pays) have saved

these companies $1.5 billion and $1 billion respectively during the last 25 years. This motivates them to benchmark

their waste reduction and energy effi ciency practices to industry best practices. Such benchmarking involves an

audit of the fi rm’s environmental practices to compare it with the industry leaders and the standard industry

practices as advocated by the industry association.

However, fi rms also undertake environmental practices such as habitat or biodiversity protection or recycling,

where the link to competitive advantage or growth is uncertain or non-existent except perhaps in the form of long-

term strategies and unquantifi able reputation improvement. In such cases, the cost reduction or differentiation

rationale does not apply.

When investments in environmental practices appear to be in confl ict with, or at least not contributing to, core

organizational goals, managers face a decision-making dilemma. This dilemma is compounded when undertaking

certain processes and deploying certain capabilities leads to cognitive biases among managers due to their irratio-

nal risk aversion or risk-seeking propensity (Amit and Schoemaker, 1993; Kahneman and Tversky, 1979). In

dealing with complexity, ‘managers may simplify by bounding out important futures, competitors, or new tech-

nologies; dictate reference points for valuable capabilities, and specify yardsticks to measure strategic assets’ (Amit

and Schoemaker, 1993, p. 41). The biases can be reinforced as each decision to deploy a capability can potentially

cause intra-organizational confl ict by adding to the power base of one set of managers and negatively affecting

others (Amit and Schoemaker, 1993). These biases affect managerial expectations of future strategic value of

capabilities and therefore the investments managers may make to deploy them (Barney, 1986). Intra-organizational

confl ict emerging from inadequate communication across functions which are focused on their own goals decreases

Organization Design, Information Flow and Environmental Practices 269

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cooperation required between, for example, environmental, production, engineers, R&D and marketing managers,

to identify holistic solutions to environmental problems (Cordano and Frieze, 2000).

To manage such biases and intra-organizational confl icts, organizations need structures, rewards and culture

to channel capability deployment in desired directions (Amit and Schoemaker, 1993). Societal knowledge about

sustainability is evolving, ambiguous, complex and still being codifi ed. Therefore, due to the multiple social and

environmental impacts of a fi rm’s operations, rich information fl ows and exchange including face-to-face contact

(Daft and Lengel, 1986) for joint problem solving by managers in different functional areas helps facilitate the

transfer of sticky knowledge (Szulanski, 1996; von Hippel, 1994). Holistic environmental solutions are possible

when managers are able to exchange ideas that reside in different thought worlds (Dougherty, 1992) and are able

to identify the capabilities required to be deployed. Therefore, changes in organization design must be supple-

mented by rich information availability to help managers make informed decisions.

Marcus and Geffen (1998) and McEvily and Marcus (2005) show that fi rms acquire (and deploy) pollution

prevention capabilities when they acquire information and knowledge during joint problem solving with lead sup-

pliers. The suppliers also enable the fi rms to benchmark their practices against other fi rms in the industry. More-

over, information related to benchmarking of a fi rm’s environmental practices against its competitors and

industry standards allows performance to be monitored and improved, whether the goal is to achieve industry

standards or exceed them. Therefore, information about environmental standards, practices, regulations, tech-

nologies and societal expectations provides managers with the capacity to undertake proactive environmental

practices. Moreover, local information about technologies, products, markets, customers, habitats and communi-

ties helps managers identify environmental solutions that are effective within their context and acceptable to their

stakeholders. Therefore, we have the following.

Hypothesis 1. The greater the degree of information on environmental impacts and practices available to

managers of a fi rm, the greater the degree to which it will undertake proactive environmental practices.

However, organizations must also manage and reduce inter-manager and inter-departmental confl icts to enable

the productive use of information for proactive environmental practices. To understand how organizations manage

such confl icts we turn to the literature that describes the internal organizational factors that motivate the develop-

ment of proactive environmental strategies by fi rms.

One stream of research that examines environmental practices focuses on the role of strategic leadership (Egri

and Herman, 2000), of organizational champions (Andersson and Bateman, 2000) and of supervisors (Ramus

and Steger, 2000) to reduce confl ict between managers and focus them on environmental solutions. Another

stream of research emphasizes the role of managerial perceptions and values (Bansal, 2003; Bansal and Roth,

2000; Cordano and Frieze, 2000). A third stream of research offers more concrete organizational variables and

processes that can shape employee behaviors and help change how managers interpret environmental issues and

infl uence organizational environmental practices. These variables include changes in organization design such

as legitimization of environmental issues in organizational policies, mission, and in corporate identity, control

systems that include environmental indicators in employee performance evaluation and coordination mechanisms

that bring together staff and line managers to exchange information and develop innovative solutions for nega-

tive environmental impacts of the organization (Sharma, 2000; Sharma et al., 1999). These design changes help

create an opportunity-seeking rather than a threat-averting decision-making mindset for managers, so that they

interpret environmental issues as positive, as avenues for generating gain, and perceive themselves in control of

decisions (Dutton and Jackson, 1987; Jackson and Dutton, 1988; Sharma, 2000; Sharma et al., 1999). Organi-

zational design variables such as these help overcome managerial bounded rationality. This enables managers

to channel their creative energies to reconcile the seemingly confl icting objectives of enhancing profi tability and

preserving the environment simultaneously.

The extant literature has not examined the direct effects of organization design on environmental practices.

Rather, Sharma (2000) and Sharma et al. (1999) showed how incentives and control systems, coordination

mechanisms and discretionary slack in resources and time available to managers helped them frame environ-

mental issues as opportunities rather than as threats. While it is known that organization design helps change

managerial interpretations of environmental issues, the direct effects of organization design variables on

270 S. Sharma

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environmental practices are unclear. For example, Sharma (2000) found no direct effects of control systems or

other organization design variables environmental strategy – only an indirect effect via managerial interpreta-

tions of environmental issues. This seems counter-intuitive in view of the arguments made for designing

managerial incentives to encourage proactive environmental actions (Gable and Sinclair-Desgagne, 1993; Holland

and McCartney, 1988; Ilinitch et al., 1998). The lack of confi rmation of these relationships in extant studies

may be due to the fact that the infl uence of design variables on environmental practices has been examined

without examining the mediating effect of information that empowers employees to respond to organization

design variables. Without benchmarking their fi rm’s performance against competitors and industry standards,

employees are unable to respond to design variables such as incentives, discretion and coordination mechanisms.

However, if they are empowered with information about the environmental impacts of their fi rms and about

potential technologies and industry practices that can solve environmental problems, the infl uence of organiza-

tion design variables on environmental practices will be positive or stronger. Therefore, a mediating effect of

information and benchmarking is proposed.

Hypothesis 2. The provision of information and benchmarking on environmental impacts and practices avail-

able to managers of a fi rm will have a positive mediating effect on the relationship between organization design

variables and a fi rm undertaking proactive environmental practices.

Research Method

The sample for this study was drawn from the Canadian hotel industry, with hotels from all of the Canadian

provinces responding to the survey. The Canadian hotel industry is highly fragmented, ranging from those small

motels to large hotels and resorts that are individually owned and operated to those that are operated by franchisees,

and those operated as part of a large chain. The research questions developed above were addressed in the service

sector, given the rapid growth and importance of this sector in developed economies, the low attention that services

have traditionally received from the organization and the natural environment literature, and the differences

between services and manufactured goods (see, e.g., Skaggs and Youndt, 2004). As discussed in the fi rst section,

service operations impact the natural environment in complex ways, even though these impacts are less visible

than those of, for example, the chemical and utility industries. However, due to their close and direct interface

with consumers and other stakeholders in the service industry, fi rms in such industries may also face different

intensities of external pressures for adopting proactive environmental strategies. As regards the choice of the hotel

industry, this industry was chosen as representative of the service industry. While the specifi c environmental

practices in each service industry may vary depending on the type of industry, the strategic issues across most

service industries such as skiing, hotels and restaurants are similar. The extant literature does not provide any

rationale to suggest that the variables examined in this study, information availability/benchmarking and organi-

zation design, would vary by the type of the service industry examined, even though individual practices may.

In terms of practices, the study is interested in examining the degree of proactivity rather than specifi c practices

per se.

Data Collection

A set of exploratory interviews was conducted with eight hotels in the province of Ontario, Canada. The objective

of these interviews was to help understand the research context and the types and variations of environmental

impact reduction practices in the industry. The hotels for the exploratory interviews were selected to include two

small, two medium sized, two large independent and two large chain owned hotels. The sampling was intended

to see whether environmental practices varied based on size or ownership. Letters were sent to each of the hotels

outlining the general focus of the research and the voluntary nature of participation. The letters were followed by

phone calls to identify whether the hotel would like to participate in the exploratory interviews and to set up

appointments to conduct the interviews.

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The interviews were mainly unstructured and the interviewee had discretion to direct the conversation. However,

if the interviewee did not address the key areas that needed to be highlighted (such as organizational processes

and design variables for adopting proactive environmental practices), guiding questions were asked. During the

interviews, notes were taken and the interview transcripts were later made available to the interviewee to ensure

the accuracy of the notes taken. The interview notes supplemented by the literature review were the foundation

for the items in the questionnaire that was to be mailed out to a larger sample of hotels across the country.

For administering the survey, a dataset of the entire population of Canadian hotels/motels/resorts was obtained

from Dun and Bradstreet. This dataset included 1410 hotels, motels and resorts. Hotels from all ten provinces in

Canada, including those from both rural and urban environments, were included for participation in the study.

Some of the smaller motels and hotels were called by telephone and asked whether they would be willing to respond

to a short survey. The responses received during the telephone calls from the small hotels and motels were similar.

They stated that they did not have either the time or the resources to respond to surveys. Since sales data were not

available for all hotels, especially for individual properties that were members of a larger chain, we used the number

of employees to generate a list of hotels who would be likely to respond based on time and resource availability.

The employee cut-off we adopted was 25 employees. This cut-off emerged as a standard (based on our phone calls)

for hotels with at least one offi ce staff member who could respond to external communications such as surveys.

This generated a list of 317 individual properties (rather than head offi ces of hotel chains). Our exploratory inter-

views revealed that individual properties that belonged to the same hotel chain varied signifi cantly in their envi-

ronmental practices, indicating infl uences at the organizational level rather than corporate level.

A survey was mailed out with a cover letter explaining the objectives of the study to the 317 individual hotel

properties. The survey consisted of 13 questions designed to explore the relationship between organizational design,

information and benchmarking and their effect on environmental impact reduction practices of individual hotels.

The questionnaire used a fi ve point Likert type scale with responses ranging from 1 = strongly disagree to 5 =

strongly agree, with 3 representing a neutral rating of ‘neither agree nor disagree’. Table 1 shows the questions in

the survey and the factor separations of the items.

Responses were received from 87 hotels representing all ten provinces in Canada. This represented a response

rate of 27.44%. The average number of employees in a hotel was 144.84 (s.d. = 124.21) employees. There were no

signifi cant differences between the respondents and the original population in terms of their location, size or range

of activities, or between early and late responders. The survey data was also subjected to sample t-tests to assess

any signifi cant differences between the responses received from the urban and rural hotels. We ran this test to

because hotels in urban areas catered more to business travelers and those in rural areas catered more to vacation-

ers and tourists. The latter were more likely to also host eco-tourists. Table 2 indicates that the t-tests for the

differences in means for the two groups were not statistically signifi cant.

F1 We have reduced purchases of Styrofoam, PVC and other materials that cannot be recycled/biodegraded F1 Our purchases incorporate environmental criteria (e.g., bulk packaging, energy effi ciency, disposal)F1 We have reduced energy consumption via retrofi tting (e.g. timers, dimmers, LED lighting, fuel effi ciency etc.) F1 We have invested in alternative energy equipment (solar or wind energy) to reduce fossil fuel use

F2 We have a written environmental policyF2 We have detailed guidelines/checklists for environmental practicesF2 We continuously update our knowledge about environmental impacts of our industryF2 We undertake regular audits of the hotel’s environmental impactsF2 We publish regular external reports about our environmental impacts or provide information on a websiteF2 We follow an external environmental certifi cation system

F3 Our managers have discretion (time and funds) to undertake initiatives for environmental improvementsF3 We have committees and task forces across functional departments that meet regularly to discuss solutions for reducing

environmental impactsF3 We include environmental performance indicators in our employee evaluation systems

Table 1. Survey questions indicating factors

272 S. Sharma

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Measures

Organization DesignConsistent with extant literature (Sharma, 2000; Sharma et al., 1999), three elements of organization design

variables were measured. These represented three items asking about degree of discretion in time and resources

available to managers, the coordination mechanisms (committees and task forces) for solving environmental

impacts of the fi rm and inclusion of environmental performance criteria in employee performance evaluation.

Information and BenchmarkingThis measure was developed based on a review of extant environmental management literature and includes items

related to internal environmental audits, external audits and reporting, environmental management systems and

certifi cation, industry benchmarking, environmental policies and guidelines for employees.

Environmental Impact ReductionThe measure was drawn from the studies in the extant literature with a specifi c focus on the proactive practices

in the hotel industry that emerged from the exploratory interviews. While almost all hotels seemed to have paper

and plastic recycling programs and water use reduction via re-use of towels and bed linen, they varied considerably

in terms of coordinated energy effi ciency practices, purchase of alternative energy such as solar and wind and

greening of supply chain and purchasing practices.

Data Analysis and Results

The data were subject to a principal component analysis with a varimax rotation. The principal component analy-

sis reduces the information from many measured variables into a smaller set of orthogonal components. Measured

variables with factor loadings of 0.5 or higher were then grouped together into a total of three factors. The factors

were labeled as organizational design (F3), information generation and benchmarking (F2) and environmental

impact reduction (F1).

A confi rmatory factor analysis (CFA) using AMOS 6TM was then undertaken. The results showed an adequate

fi t for the overall model proposed (Kline, 2004) with a comparative fi t index (CFI) = 0.906, RMSEA = 0.083 (p <

0.001) and chi-square of 228 (p < 0.001) based on 118 degrees of freedom. After confi rmation of the basic model,

an analysis of variance (ANOVA) was used to assess the direct infl uence of the two independent variables, orga-

nizational design, and information generation and benchmarking, on the dependent variable, environmental

impact reduction. The mediation effect of information and benchmarking on the relationship between organiza-

tion design and environmental practices was tested using the Baron–Kenny (1986) method using the results of

the ANOVA as follows.

Organizational design Information generation and Environmental impact benchmarking reduction

Rural Urban Rural Urban Rural Urban

Mean 0.8496 1.8639 1.0648 1.0444 2.0964 2.218SD 0.7211 0.7409 0.112 0.0745 0.7619 0.6734p-value 0.9349 0.8819 0.4663N 30 57

Table 2. Rural and urban hotel response analysis

Organization Design, Information Flow and Environmental Practices 273

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1. The main effect of organizational design on environmental impact reduction was assessed fi rst as per the

Baron–Kenny (1986) mediation test. The results of the ANOVA showed a signifi cant relationship at F = 40.463

(p < 0.001) and an R2 of 0.323. This indicated that the direct infl uence of organization design on environmen-

tal impact reduction was statistically signifi cant.

2. The second step was the assessment of the effect of organizational design on information generation and

benchmarking. The results for this regression were signifi cant at F = 80.705 (p < 0.001) and an R2 of 0.490.

This indicated that organization design affected the generation and availability of information about environ-

mental practices to employees.

3. The third step conducted in accordance with Baron and Kenny (1986) was the regression of organizational

design and information generation and benchmarking variable on environmental impact reduction resulting

in a signifi cant effect with F = 53.764 (p < 0.001) and an R2 of 0.39. The results are shown in Table 3.

4. The fi nal step outlined by Baron and Kenny (1986) is intended to identify mediation effects. We examined

whether information generation and benchmarking fully mediated the relationship between organizational

design and environmental impact reduction. Our logic was to examine whether organization design variables

on their own would lead to environmental impact reduction without providing employees with the information

and knowledge for decision-making. According to Kenny et al. (1998), the fourth step as outlined by Baron and

Kenny (1986) does not have to be met unless the expectation is for complete mediation. In our relationship we

did not expect full mediation of the organizational design on environmental impact reduction relationship

because we anticipated that employees would have suffi cient existing knowledge of operations to undertake

proactive practices even though fresh information and knowledge would help them become more proactive. In

a fully mediated relationship the effect of organizational design on environmental impact reduction should

fall to zero controlling for the mediating variable information. Using the Aroian version of the Sobel test

(MacKinnon et al., 2002; Sobel, 1982) advocated by Baron and Kenny (1986), we found a signifi cant effect of

2.65 (p = 0.008). This showed that the mediator variable, information generation and benchmarking, carried

the infl uence of organizational design to environmental impact reduction. However the relationship between

organizational design and environmental impact reduction did not fall to zero, indicating a partially mediated

relationship.

The results support our hypotheses that information availability about environmental impacts and industry

benchmarking will increase the likelihood of employees in a fi rm undertaking practices for environmental impact

reduction. Moreover, such information availability will strengthen the infl uence of organization design variables

of managerial discretion, performance evaluation and coordination mechanisms on environmental impact reduc-

tion. That is, even though organization design variables have a direct infl uence on environmental impact reduction,

the availability of information about environmental impacts and industry practices will mediate this relationship

and make it stronger.

Discussion

The objective of the study was a fi ner grained examination of the impacts of organization design variables and

information and benchmarking on proactive environmental practices undertaken by fi rms in the Canadian hotel

Baron and Kenny (1986) steps R2 F p

1. Organizational design on environmental impact reduction 0.323 40.463 <0.0012. Organizational design on information generation and benchmarking 0.49 80.705 <0.0013. Organizational design and information generation and benchmarking on 0.390 53.764 <0.001 environmental impact reduction

Table 3. Analysis of mediation

274 S. Sharma

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industry. The study showed that internal motivating factors are important in facilitating the deployment of orga-

nizational capabilities for undertaking proactive environmental practices. While both organization design variables

and information and benchmarking directly infl uenced proactive environmental practices, the direct effect of

organization design variables was stronger in the presence of environmental impact information and benchmark-

ing. This indicates that the availability of information and benchmarking about environmental technologies,

practices, regulations, societal expectations etc. partially mediates the direct infl uence of organization design

variables in driving proactive environmental practices in organizations.

At the same time, organization design variables also affected information availability. Therefore, it is likely that

internal organizational design variables, information and benchmarking and capability deployment are integrated

in a dynamic virtuous process. As organization design changes, managers begin to integrate environmental issues

as salient. As they are evaluated, rewarded and empowered to generate creative solutions to reconcile their orga-

nization’s economic goals with social/environmental goals, they are increasingly motivated to invest in, and

strengthen, the deployment of capabilities for a proactive environmental strategy. Once such a proactive strategy

becomes an integral part of a fi rm’s competitive strategy, it is very diffi cult to reverse or stop deploying capabilities

because sustainability is likely to become embedded in the corporate culture.

These fi ndings confi rm theoretical arguments about the importance of information fl ows and availability.

Studies in this domain, such as the arguments of Sharma et al. (1999) about upward and lateral information fl ows

improving environmental decision-making and the arguments of Russo and Harrison (2005) that formal reporting

relationships and compensation systems will similarly improve practices, have not been supported by these authors

or via other studies.

This study also contributes to the organization and the natural environment literature by confi rming the direct

effect of organization design variables on environmental practices. The effect of organization design variables has

been confi rmed on managerial interpretation of environmental issues by Sharma (2000) and Sharma et al., (1999),

but the direct effect of these variables on environmental practices has not been studied or confi rmed. While this

study has been undertaken in the context of the Canadian hotel industry, there is no reason to assume that the

infl uence of organization design variables and information availability on environmental impact reduction is

not generalizable to other industrial and service sectors. The following discussion is undertaken with this

assumption.

Research Implications

Even though the interaction between motivations and capability deployment for a proactive environmental strategy

may lead to a self-reinforcing process, we still do not have adequate knowledge about the catalysts that spark this

process. That is, what motivates the changes in organization design by an organization and the adoption of proac-

tive environmental practices? Answering such questions requires longitudinal studies that follow paradigm shifts

in organizations (such as Halme’s work, more specifi cally her 2002 study of two fi rms in Finland). It is also likely

that the catalysts may differ in individual fi rms. Strategic leadership may play a pivotal role in legitimizing sustain-

ability in one fi rm and thus set in motion organizational changes and capability deployment. In another fi rm,

middle managers may identify opportunities and champion environmental practices. In some companies that

undertake proactive practices, a change in strategic leadership may discourage champions of environmental proj-

ects when the focus changes toward maximizing short-term profi ts. Even if such companies have in the past

empowered managers with information about environmental impacts and made changes to the organization

design to encourage environmental practices, managers may fi nd it very diffi cult to undertake any actions of prac-

tices that go against the dominant philosophy of the changed strategic leadership.

Perhaps there is a logical sequence of changes? Do changes in organization design lead to changes in issue

interpretation (e.g. Sharma, 2000) or is it the other way around? Or do managers accidentally deploy organizational

capabilities to manage a short-term confl ict between economic goals and compliance with regulatory and stake-

holder pressures for social and environmental performance, and develop innovative solutions that kick start a

positive cycle of issue interpretation, organization design changes, capability deployment and sustainability per-

formance? We also need in-depth ethnographic case studies to identify a sequence of steps for managers to follow

on a sustainable path.

Organization Design, Information Flow and Environmental Practices 275

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 266–276 (2009) DOI: 10.1002/bse

Managerial Implications

The study shows, building on the extant literature, that motivating employees to undertake proactive environmen-

tal practices is a complex process involving several multi-level changes in the organization. If employees are pro-

vided with incentives and the time to undertake these practices, they will not necessarily be successful in

environmental impact reduction. They need to know how different aspects of their fi rm’s operations impact on

the environment. For example, for a hotel, depending on its range of activities, the impacts may range through

energy, laundry, solid/organic/toxic waste, chemical use, supply chain impacts, building materials used etc. What

are the practices followed by other fi rms in the industry and in industries in other countries? What technologies,

processes, products and services can help reduce negative environmental impacts? What is the impact of adopting

proactive practices on the core objectives of the organization; that is, how will such practices affect their profi t/

revenue/output goals? Unless employees are empowered with such information via training, external consultants,

conferences, seminars, audits and internal exchange of information, leadership and organization design initiatives

may not have the intended effect.

Public Policy Implications

For public policy makers, this study’s results indicate that environmental impact information for each specifi c

industry needs to be developed in coordination with industry associations and leading fi rms. The impact informa-

tion needs to be followed by the development of environmental indicators that the individual fi rms can benchmark.

The federal and provincial industry roundtables in Canada around various sectors such as forestry, oil and gas,

chemicals and manufacturing are designed to seek multi-stakeholder input for developing industry specifi c envi-

ronmental indicators. Indeed, Darnall (2003) found that state government initiatives in the US had a signifi cant

effect in building the technological and process capabilities of small and medium sized fi rms to undertake proac-

tive environmental practices. Therefore, multi-stakeholder green networks (such as those in Denmark), sectoral

roundtables (such as those in Canada), state environmental agencies and other public policy bodies can help fi rms

progress in environmental impact reduction by creating processes to provide them with information about envi-

ronmental impacts, standards, benchmarking, indicators and technologies.

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