The Relationship between Leadership Commitment, Environmentally

Sustainable Operations and Firm Performance: Evidence from a

Survey of Ghanaian Manufacturing Firms

Benjamin Agyei-Owusu, Ebenezer Okpoti

Department of Supply Chain and Information Systems, Kwame Nkrumah University of Science and Technology, Kumasi

Keywords: Green practices, Leadership commitment, Environmentally sustainable operations.

Abstract: The last decade has seen growing interest in environmentally sustainable operations in emerging economies.

However research into the drivers and outcomes of environmentally sustainable operations of

manufacturing firms in Africa has been largely lacking. This study develops a research model which

proposes that environmentally sustainable operations are driven by a leadership commitment to green

practices and results in improved firm performance. Data to test to the research model was derived from a

survey of 334 manufacturing firms operating in Ghana and was analyzed using partial least squares

structural equation modeling. The results of the study confirmed that leadership commitment had a

significant effect on environmentally sound operations, which in turn significantly impacted firm

performance. The implications of the study are discussed.

1 INTRODUCTION

The past two decades have witnessed considerable

growth in the concerns for the environment. There

have been growing calls for firms to minimize the

environmental effects of their business operations as

a result of environmental challenges such as global

warming, climate change, land, water and air

degradation, and renewable natural resource

depletion (Morelli, 2013). Research into

environmentally sustainable business operations has

also grown considerably over the past decades, with

the majority of recent studies exploring green

practices not only in individual firms but across the

entire supply chain (Srivastava, 2007).

Whilst the research into the adoption of

environmentally sustainable operations has been

growing in recent years, it is still not clear what

causes some firms to better implement

environmentally sustainable operations compared to

others. Existing literature has also not properly

explored the outcomes of adopting environmentally

sustainable operations within an African context.

This study attempts to address these research gaps

by proposing the firm’s leadership commitment to

green practices plays a vital role in the level of

environmentally sustainable operations achieved,

which subsequently translates into significant firm

performance gains. Leadership commitment refers to

the managerial preparedness to assign resources and

take behaviors that lead to the advance of

capabilities in-line with the anticipated results

(Noble et al., 2002). Thus in the context of this

study, leadership commitment to green practices

refers to the willingness of top management to lead

the firm’s green implementation. Firm performance

is a measure of the ability of the firm to meet its

functional and financial performance objectives.

The study is significant in a number of ways.

First, the study provides an explanation for why

some firms are able to outperform others in their

green practices outcomes, by confirming that firms

with a stronger top management commitment to

green practices achieve higher levels of

environmentally sustainable operations. The study

also establishes that higher levels of environmentally

sustainable operations result in higher firm

performance within an African context. The study as

well provides insights for leaders of firms to help

guide them in their efforts to achieve higher levels of

environmentally sustainable operations.

The rest of the paper is presented as follows. The

theoretical and research model are presented next,

followed by a discussion of the methodology. The

results of the study are then presented and discussed.

260

Agyei-Owusu, B. and Okpoti, E.

The Relationship between Leadership Commitment, Environmentally Sustainable Operations and Firm Performance: Evidence from a Survey of Ghanaian Manufacturing Firms.

DOI: 10.5220/0009445902590264

In Proceedings of the 1st International Conference on Industrial Technology (ICONIT 2019), pages 260-265

ISBN: 978-989-758-434-3

The study concludes with a discussion of the

implications of the study, limitations of the study,

and directions for future research.

2 CONCEPTUAL FRAMEWORK

AND HYPOTHESES

The study is grounded on the resource-based view of

the firm, which proposes that firms are able to

outperform their rivals when they possess superior

resources, competences, and capabilities.

Specifically, firms that possess resources and

capabilities that are valuable, rare, and not easily

imitable resources and capabilities are able to gain a

competitive advantage over their rivals (Barney,

1991). Capabilities refer to bundles of skills,

competences, and resources that are used to perform

a task (Barney, 1991). Effective leadership has been

explored as competence in previous studies (Preston

et al., 2008). This study views leadership

commitment to green practices as an important

competence that influences the level to which firms

achieve environmentally sustainable operations.

Environmentally sustainable operations then serve as

valuable capabilities that firms can use as a basis for

achieving superior performance.

The conceptual framework of the study proposes

that firms’ leadership commitment to green practices

impacts the level of environmentally sustainable

operations they achieve, which in turn impacts their

firm performance. Leadership commitment is also

proposed to directly influence firm performance.

The conceptual framework is presented in Figure 1

below.

Figure 1: Conceptual framework

The pursuit of environmentally sustainable

operations demands certain capabilities to help in the

implementation. It has been contended that robust

commitment and outstanding leadership are required

to improve competitiveness and sustainability of

supply value chains (Defee et al., 2009; Gosling et

al., 2017). A well trained top management team

committed to implementing green practices in an

organization is vital for high levels of

environmentally sustainable operations to be

achieved (Dubey et al., 2015; Zhu et al., 2005;

Pagell and Wu, 2009). The study, therefore,

proposes that firms with high leadership

commitment to green practices will have higher

levels of environmentally sustainable operations. It

is therefore hypothesized that:

H1: Higher levels of leadership commitment to

green practices lead to higher levels of

environmentally sustainable operations

The study additionally hypothesizes that firms

with high leadership commitment to green practices

attain higher firm performance. According to the

resource-based view, firms possessing superior

resources, competences, and capabilities that are

able to attain a superior competitive advantage

(Barney, 1991). Leadership commitment to green

practices represents one such competence and is

expected to result in firm performance gains in the

form of minimization of cost on resource utilization

and increased efficiency in operations (Overstreet et

al., 2013; Birasnav 2013). Thus it is hypothesized

that:

H2: Higher levels of Leadership commitment

lead to higher levels of firm performance

Firms that have high levels of environmentally

sustainable operations are able to minimize resource

usage, utility bills, fines through non-compliance to

environmental laws, and resource wastage (Emmett

and Sood, 2010). This is expected to result in

considerable cost savings for the organization,

thereby improving the financial performance of the

organization. Thus, the study hypothesizes that:

H3: Higher levels of environmentally sustainable

operations lead to higher levels of firm performance

3 METHODOLOGY

Measurement items for the constructs were sourced

from items previously used in literature. The items

were modified slightly to fit the context of the study.

The items were also submitted to two academics and

three business leaders who were experts in

environmentally sustainable operations for content

validation. Their inputs were used to refine the

questionnaire items.

Data for the study was obtained through a survey

of selected manufacturing firms in Ghana, an

emerging West African country. A directory of

The Relationship between Leadership Commitment, Environmentally Sustainable Operations and Firm Performance: Evidence from a

Survey of Ghanaian Manufacturing Firms

261

manufacturing firms operating in Ghana was

obtained, and 640 manufacturing firms were

randomly selected for the survey. The research

questionnaire, including a cover letter, was delivered

to each selected firm through email, and some were

delivered by hand. After two rounds of follow-ups, a

total of 334 usable questionnaires were retrieved,

representing a response rate of 52.18%. The analysis

was done using Partial Least Squares Structural

Equation Modeling (PLS-SEM).

4 RESULTS

4.1 Demographic Results

Analysis of the demographic data revealed that there

was a fair representation of firms of different sizes,

with the majority (25.7%) of the responding firms

having 500 to 1000 employees. In terms of industry

groups, classical manufacturing firms (42.5%) and

wood/furniture firms (35.3%) were strongly

represented. The full demographic data is presented

in Table 1 below.

Table 1: Demographic results

Number of employees Frequency Percent

Up to 30 18 5.4

30 to 100 60 18.0

101 to 500 59 17.7

501 to 1000 86 25.7

More than 1000 46 13.8

Missing 65 19.5

Total 334 100.0

Industry Frequency Percent

Manufacturing 142 42.5

Wood/Furniture 118 35.3

Mining/Extraction 2 0.6

Construction 3 0.9

Other 54 16.2

Missing 15 4.5

Total 334 100.0

4.2 Measurement Model Results

To assess the measurement model, we followed the

guidelines proposed by Hair et al. (2019). First,

indicator loadings were assessed to determine if they

exceeded the minimum cut-off criteria of 0.708. This

serves as an indication that the construct explains

more than 50 percent of the indicator's variance, thus

providing acceptable item reliability. All items

possessing factor loadings less than 0.708 were

dropped, with the remaining item loadings (in bold)

meeting this threshold, as can be seen from the

results in bold in Table 2.

Table 2: Items loadings and cross-loadings

ESOP LDCOM PERF

ESOP1

0.833

0.245 0.406

ESOP2

0.834

0.233 0.287

ESOP3

0.806

0.288 0.295

ESOP5

0.809

0.220 0.336

ESOP6

0.813

0.275 0.343

LDCOM1 0.236

0.835

0.302

LDCOM2 0.270

0.890

0.316

LDCOM3 0.266

0.915

0.335

LDCOM4 0.281

0.884

0.370

LDCOM5 0.295

0.840

0.272

PERF1 0.293 0.270

0.819

PERF3 0.367 0.286

0.855

PERF4 0.387 0.278

0.906

PERF5 0.325 0.307

0.904

PERF6 0.410 0.312

0.913

PERF7 0.335 0.405

0.783

PERF8 0.336 0.332 0.820

Next, the internal consistency reliability of the

constructs was assessed by examining the

Composite Reliability and Cronbach Alpha values.

Composite reliability values ranged from 0.911 to

0.951, whilst Cronbach Alpha values ranged from

0.877 to 0.940, both meetings recommended

benchmarked thresholds (Hair et al., 2019). The

convergent validity of the constructs was then

assessed. Convergent validity is the extent to which

the construct converges to explain the variance of its

items. The metric used for evaluating a construct's

convergent validity is the average variance extracted

(AVE) for all items on each construct, with an AVE

0.50 or higher deemed acceptable. The AVE values

ranged from 0.671 to 0.763, meeting this

requirement. The summary of the tests for

convergent validity is presented in Table 3 below.

Table 3: Attributes of constructs

Constructs Cronbach’s

Alpha

Composite

Reliability

AVE

ESOP 0.877 0.911 0.671

LDCOM 0.922 0.941 0.763

PERF 0.940 0.951 0.737

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262

Next, the discriminant validity of the constructs

was assessed, which is the extent to which a

construct is empirically distinct from other

constructs in the structural model. Discriminant

validity can be assessed by comparing the square

root of the AVE for each factor against the

correlation of constructs against each other, with the

former required to be higher than the latter (Fornell

and Larcker, 1981). In Table 4, the bold diagonal

figures represent square roots of AVEs whilst the

off-diagonal figures represent correlation among

constructs. It can be seen that the bold diagonal

values are all greater than the off-diagonal ones,

confirming adequate discriminant validity.

Table 4: Fornell-Larcker criterion

ESOP LDCOM PERF

ESOP

0.819

LDCOM 0.309

0.873

PERF 0.411 0.367

0.859

Hair et al. (2019) and Henseler et al. (2015)

argue that the Fornell-Larcker criterion is not a

strong metric of discriminant validity, with the

heterotrait-monotrait (HTMT) ratio of the

correlations proposed as a more stringent alternative

(Voorhees et al., 2016). The HTMT is defined as the

mean value of the item correlations across constructs

relative to the (geometric) mean of the average

correlations for the items measuring the same

construct, with HTMT values of less than 0.90 and

below recommended for constructs that are

conceptually similar and HTMT values of 0.85 and

below recommended for constructs that are

conceptually dissimilar (Henseler et al., 2015). From

Table 5, the model passes this test, confirming

discriminant validity.

Table 5: HTMT results

ESOP LDCOM PERF

ESOP

LDCOM 0.342

PERF 0.446 0.390

4.3 Structural Model Results

After confirming the soundness of the measurement

model, we proceeded to analyze the structural model

and hypothesized relationships. Before assessing the

structural relationships, collinearity was examined to

ensure it does not bias the regression results. This

was done by assessing the variance inflation factor

(VIF) of the latent variables. The VIF values ranged

from 1 to 2.093, which meets the requirement of

being less than 3 (Hair et al., 2019). Next, the

model's in-sample explanatory power was assessed

by examining the R

values of the endogenous

variables. R

for the endogenous variables were

quite low, with Environmentally Sustainable

Operations having R

of 0.095 and Firm

Performance having R

of 0.233. A check of the

predictive relevance of the model using the Q

however confirmed the predictive relevance of the

model since they were larger than 0.

The hypothesized paths were analyzed by

examining their path coefficients and t-values. The

results of the tests of hypotheses are presented in

Figure 2 and Table 6.

Figure 2: Structural model results

Table 6: Summary of hypotheses results

Hs Hypothe-

sized

Path

Coeffi-

cient

Statistics

Support

H1 LDCOM

→ ESOP

0.309 6.421 Supported

H2 LDCOM

→

PERF

0.266 5.146 Supported

H3 ESOP →

PERF

0.329 6.238 Supported

The findings of the study revealed that all three

hypotheses were supported. Higher levels of

leadership commitment resulted in higher,

environmentally sustainable operations. This means

that one-way firms can improve their

environmentally sustainable operations is to get

leaders of the firm to commit to green initiatives.

This supports the assertions of Dubey et al. (2015)

and Gosling et al. (2016) that leadership

commitment is essential to achieve sound

environmental practices. Also, firms with higher

leadership commitment to green practices had higher

The Relationship between Leadership Commitment, Environmentally Sustainable Operations and Firm Performance: Evidence from a

Survey of Ghanaian Manufacturing Firms

263

levels of firm performance as hypothesized,

supporting the assertions of Dubey et al. (2015).

This means that firms with high levels of leadership

commitment to green practices can expect both

improved environmentally sustainable operations

and improved firm performance. Finally, high,

environmentally sustainable operations lead to

higher firm performance (Emmett and Sood, 2010).

High commitment to green practices enables firms to

minimize costs and become more efficient, which

ultimately reflects positively on firm performance.

5 CONCLUSION

The study explored the effect of leadership

commitment to green practices on environmentally

sustainable operations and firm performance in a

Sub-Saharan African country. Analysis of data from

a survey of 334 firms revealed that higher levels of

leadership commitment to green practices enhance

both environmentally sustainable operations and

firm performance. Additionally, higher levels of

environmentally sustainable operations enhance firm

performance.

There were some implications of the study. The

study presents new insights into the relationship

between leadership commitment, environmentally

sustainable operations, and firm performance, a

subject that has not been properly explored in

previous studies. Further, prior research suggests

that the outcomes of supply chain management

initiatives in Sub-Saharan African countries may be

different from outcomes observed in developed

regions from where most of the current studies

originate (Asamoah et al., 2016; Agyei-Owusu et al.,

2016). The study thus provides context-specific

insights into the positive outcomes of both high

leadership commitment to green practices and

environmentally sustainable operations in a Sub-

Saharan African country. By way of implications for

practice, the study provides insights that can guide

firms that want to achieve higher levels of

environmentally sustainable operations in Sub-

Saharan Africa.

There were some limitations to the study. First,

the findings of the study may not be supported in

other regions of the world as the study was

conducted within the Sub-Saharan African context.

More studies on the antecedents and outcomes of

leadership commitment to green practices from

different regions are needed. Further studies are also

needed to explore the effects of leadership

commitment on other dimensions of sustainability.

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APPENDIX

Measurement Items

Leadership Commitment (LDCOM)

We hold regular meetings to discuss

environmental management issues and initiatives

We allocate substantial budgets for solving

environmental problems

Our management spend substantial time and

effort on solving environmental problems

Our management devote a lot of energy to

learning and understanding emerging environmental

concerns

Our company has been engaging industry

business partners and industry experts on how to be

environmentally friendly

Environmentally Sustainable Operations (ESOP)

Compared to management’s expectations, how

much cost savings has your company made from the

following over the past 3 years?

energy/power consumption

water usage

raw material usage

fines for non-compliance with environmental

regulations and laws

fuel consumption

materials for product/service design/packaging

Firm performance (PERF)

Compared to expectations, how satisfied are you

with your company’s most recent performance in

terms of…

sales revenue

return on sales

return on investment

profit margin

growth in sales

growth in profit

growth in number of employees

growth in market share / customer size

The Relationship between Leadership Commitment, Environmentally Sustainable Operations and Firm Performance: Evidence from a

Survey of Ghanaian Manufacturing Firms

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