From efficiency‐driven to low‐carbon operations management: Implications for labor productivity

• Author: Antonio Sartal,Xosé H. Vázquez,Miguel Rodríguez
• Published date: 01 April 2020
• DOI: http://doi.org/10.1002/joom.1060
• Date: 01 April 2020

RESEARCH ARTICLE

From efficiency-driven to low-carbon operations management:

Implications for labor productivity

Antonio Sartal | Miguel Rodríguez | Xosé H. Vázquez

Faculty of Economics and Business,

University of Vigo, Vigo, Spain

Correspondence

Antonio Sartal, Faculty of Economics and

Business, University of Vigo, Vigo, Spain.

Email: antoniosartal@uvigo.es

Funding information

Galician Government, Grant/Award

Number: ED431C 2018/46; Ministerio de

Educación, Cultura y Deporte, Grant/Award

Number: ECO2016-76625-R

Handling Editor: Alan Mackelprang

Abstract

We use 9 years of dynamic panel data (4,090 observations) to explore how deca-

rbonization moderates the association between a selection of efficiency-driven

shop-floor initiatives and labor productivity. The results are mixed: the relationship

between materials efficiency and labor productivity is positively moderated by

decarbonization, but the relationship between increases in inventory turnover or the

average firm wage as a multiple of average sector wages are negatively moderated

by decarbonization. Overall, we find that decarbonization leads to an average drop

in sales of 1.8% per worker. This evidence therefore suggests that climate change

goals impacting industrial firms might be difficult to accomplish if managers

expect to achieve decarbonization for free with current organizational best

practices.

KEYWORDS

climate change, decarbonization, efficiency wages, industry, labor productivity, low-carbon operations

management, materials efficiency, stock turnover

1|INTRODUCTION

Industrial plants are responsible for 30% of greenhouse gases

(GHG; IPCC, 2014). Specifically, in countries where the

commitment to international agreements has stimulated

increasing regulations on GHG emissions, managers need to

be aware of the possible trade-offs they may find between

plant productivity and decarbonization, which refers here to

individual firms minimizing energy and resource consump-

tion to reduce CO

2

emissions.

Corporate responses to climate change in terms of opera-

tions management have been analyzed in earlier research by

dealing with the alleged greenness of operational excellence

philosophies, such as lean manufacturing (Garza-Reyes,

2015), or by observing several determinants and effects of

low-carbon initiatives from a broad perspective, at both a

strategic level (Weinhofer & Busch, 2013; Weinhofer &

Hoffmann, 2010) and an operational level (Böttcher &

Müller, 2015; Zhang, Wang, Yin, & Su, 2012). All this

literature has helped us advance our knowledge on why

some business firms are more likely to show a higher con-

cern for CO

2

emissions reduction and what relation it could

have with general management practices or performance

indicators. In this article, we build on this research with two

empirical concerns in mind.

To begin, far from the general approaches linking envi-

ronmental initiatives with management philosophies or

broad performance measures at the company level, we

(a) work with individual production plants; (b) consider how

decarbonization moderates three specific operational prac-

tices; and (c) assess a specific output variable: labor produc-

tivity. These three issues are relevant to gain precision in our

claims. When empirical research is carried out at the com-

pany level, which often includes several plants with very dif-

ferent products, the wide variety of technological and

organizational characteristics raises the possibility of con-

flicting or ambiguous predictions (Shaw, 2009). On the other

hand, we have worked with very specific management

Received: 8 March 2017 Revised: 3 August 2019 Accepted: 8 September 2019

DOI: 10.1002/joom.1060

310 © 2019 Association for Supply Chain Management, Inc. J Oper Manag. 2020;66:310–325.wileyonlinelibrary.com/journal/joom

routines because it reduces the likelihood of omitted variable

bias. Furthermore, the relation that decarbonization may

maintain with two specific organizational routines in the

same management paradigm—say, Just in Time and Jidoka

in Lean Manufacturing, for instance—may be the opposite.

Finally, by modeling a specific production process, it is eas-

ier to choose a logical dependent variable for that process

(Ichniowski & Shaw, 2009): sales volume for salesmen,

calls for call center workers, and flight delays for airline

carriers, among others. Our choice to focus on labor produc-

tivity is consistent with previous studies dealing with high-

performance work systems (Datta, Guthrie, & Wright, 2005;

Guthrie, 2001) and with manufacturing operational perfor-

mance (e.g., Heim & Peng, 2010; Melville, Gurbaxani, &

Kraemer, 2007).

Second, compared to the bulk of the literature, which

addresses strictly conceptual evaluations (Carvalho & Cruz-

Machado, 2011; Dües, Tan, & Lim, 2013), case studies

(Sertyesilisik, 2014) or the particularities of certain sectors

(Böttcher & Müller, 2015; Weinhofer & Hoffmann, 2010),

our work is based on unique dynamic panel data covering

9 years and including data on 988 manufacturing plants

(SIC 20–39). These data further draw from two official reg-

isters to which companies are legally required to offer truth-

ful information: the Spanish Business Register (SBR) and

the European Pollutant Release and Transfer Register (E-

PRTR). A dynamic analysis of these firms not only is useful

at times of great change but also minimizes the problems of

endogeneity that are so frequent in similar estimates using

cross-sectional data (Ketokivi & McIntosh, 2017; Wintoki,

Linck, & Netter, 2012). Moreover, since decarbonization is

a novel issue for which respondents will like to avoid

looking bad, a typical survey would make participants feel

compelled to answer when they do not actually have an

opinion, misjudge their own views, or even lie consciously

to comply with accepted behavior (Bertrand & Mul-

lainathan, 2001; Vázquez, 2018).

By taking these two empirical guidelines into account,

our contribution lies in showing how decarbonization in

industrial plants interacts with efficiency-driven initiatives

reflecting three fields in which typical high-performance

shop floors must strive: flow management, waste reduction

and workforce commitment (Hines, Holweg, & Rich, 2004;

Schmenner & Swink, 1998; Womack, Jones, & Roos,

1990). Inventory turnover reflects improvements in flow.

The ratio of the total manufacturing cost to the cost of mate-

rials reflects how efficiently the firm makes use of materials

(“materials efficiency”). The average wage to the average

sector wage gives insight on the degree of firm commitment

to employees. The first two initiatives emerge from the The-

ory of Swift Even Flow (Schmenner & Swink, 1998). The

third follows from Akerlof's (1982) theory of “efficiency

wages,”in which above-average wages are expected to

result in above-average employee performance.

Next, we present the arguments to support our hypothe-

ses. In Section 3, we describe the sample and variables.

Section 4 covers the methodology and econometric analysis,

and Section 5 presents and discusses the results. Finally,

Section 6 closes with the conclusions.

2|BACKGROUND AND

HYPOTHESES DEVELOPMENT

The increasing awareness of climate change has fostered

international agreements that have led companies to inte-

grate decarbonization goals into their efficiency-driven oper-

ations, giving rise to low-carbon operations management

(Böttcher & Müller, 2015; Zhu, 2014). Firms have thus

implemented both cleaner technologies and different organi-

zational strategies with various degrees of commitment

(Weinhofer & Hoffmann, 2010; Wright & Nyberg, 2017).

Nevertheless, a relevant issue that remains underdeveloped

is how decarbonization requirements alter shop-floor perfor-

mance. Our particular concern is whether typical process

improvement initiatives, which exemplify targets of com-

mon efficiency-driven initiatives (Hines et al., 2004;

Schmenner & Swink, 1998), can be expected to enhance

labor productivity and make room for decarbonization.

With this background in mind, below, we develop three

hypotheses evaluating how decarbonization moderates the influ-

ence that inventory turnover, materials efficiency and efficiency

wages have on labor productivity. The flow of our arguments

will follow a two-step pattern. First, we describe the direct

effect of each on these initiatives on labor productivity. Then,

in a second step, we argue how decarbonization moderates each

direct effect, giving rise to the three hypotheses in Figure 1:

The first efficiency-driven measure is inventory turnover,

an indicator widely used to estimate the adoption of

FIGURE 1 Hypothesized framework: expected moderating effect

of decarbonization on the association between efficiency initiatives and

labor productivity [Color figure can be viewed at

wileyonlinelibrary.com]

SARTAL ET AL.311