Operating Performance Effects of Service Quality and Environmental Sustainability Capabilities in Logistics

• DOI: http://doi.org/10.1111/jscm.12185
• Published date: 01 July 2019
• Author: Cuneyt Eroglu,Sebastián García‐Dastugue
• Date: 01 July 2019

OPERATING PERFORMANCE EFFECTS OF SERVICE

QUALITY AND ENVIRONMENTAL SUSTAINABILITY

CAPABILITIES IN LOGISTICS

SEBASTI

AN GARC

IA-DASTUGUE

University of Arkansas

CUNEYT EROGLU

Northeastern University

Resource allocation decisions in the areas of service quality and environ-

mental sustainability can be challenging because ex ante it is difficult to

assess the potential performance benefits of such investments. This study

investigates the operating performance implications of service quality and

environmental sustainability in the context of logistics. Specifically, using

the resource-based view of the firm as the theoretical framework, we exam-

ine future operating performance of firms that won service quality and

environmental sustainability awards in logistics between 2004 and 2013.

Awardees include firms that are logistics service providers and firms that

operate in other industries; in all cases, these awards recognize firms’

logistics capabilities. Our results reveal that firms’service quality and envi-

ronmental sustainability capabilities, as recognized by winning awards in

the respective categories, are associated with improved operating perfor-

mance during the 3-year post-award period. Additionally, the performance

benefits associated with service quality awards are greater than those asso-

ciated with environmental sustainability awards. Our analysis further

shows that whereas environmental sustainability relates to better future

operating performance by enhancing only sales growth, service quality is

positively associated with enhanced sales growth as well as cost efficiency.

Finally, our results also indicate that positive operating performance

implications of these awards are not contingent on the industry competi-

tive intensity or innovative intensity. Implications for research and prac-

tice are discussed.

Keywords: logistics; sustainability; customer service; archival data analysis; event

studies

INTRODUCTION

Investing in areas like service quality and environ-

mental sustainability can be contentious for many

companies because it is not always clear if such invest-

ments will ever pay off. For instance, service quality

has been a constant theme in the business literature

since the early 1980s (e.g., Deming, 1982). It is widely

considered an effective way to attain competitive

advantage and improve firm performance―an argu-

ment supported by well-publicized success stories such

as Home Depot (Marcus, Blank & Andelman, 2001),

Disney (Kinni & The Disney Institute, 2011) and

Zappos (Hsieh, 2013). Research, however, suggests that

the link between customer service and firm perfor-

mance may be nuanced. Rust and Huang (2012) pro-

vide evidence that illustrates how over-engaging in

customer service does not always yield sufficient eco-

nomic returns. Empirical studies further demonstrate

that the performance benefits of customer service

depend on industry and firm characteristics (e.g., Cruz-

Ros & Gonzalez-Cruz, 2015; Hogreve, Iseke, Derfuss &

Eller, 2017; Rust & Huang, 2012). Hence, it is difficult

to assess the potential performance benefits of firms’

investments in superior service quality ex ante.

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Journal of Supply Chain Management

2019, 55(3), 68–87

©2018 Wiley Periodicals, Inc.

Similar to service quality, sustainability has emerged

as an important concern in the past few decades. Sus-

tainability initiatives are expected to yield not only

social and environmental but also economic benefits

for firms. These benefits are collectively referred to as

the “triple bottom line” (Elkington, 1994; Tate, Ellram

& Kirchoff, 2010). However, empirical studies have

shown that sustainability investments do “not neces-

sarily pay off over the short term, can have a high

degree of uncertainty, and their ultimate value

depends upon future states of the world that cannot

be predicted” (Eccles & Serafeim, 2013, p. 8). In fact,

several meta-analyses that review a large number of

studies on the relationship between environmental

sustainability and firm performance provide mixed

results (e.g., Ambec & Lanoie, 2008; Horv

athov

a,

2010; Dixon-Fowler, Slater, Johnson, Ellstrand &

Romi, 2013; Salzman, Ionescu-Somers, & Steger,

2005). Thus, environmental sustainability invest-

ments, which can involve a significant amount of risk,

are not clear-cut decisions for firms.

Empirical research on service quality and environ-

mental sustainability indicates that the performance

effects of these initiatives vary greatly across different

contexts (e.g., Eroglu, Kurt & Elwakil, 2016; Lu & Tay-

lor, 2016; Ullmann, 1985; Yeung, Cheng & Lai,

2005). In the context of logistics, Eroglu et al. (2016)

have shown that a firm’s stock price increases upon

the announcement of a service quality, environmental

sustainability, or safety award. In particular, firms win-

ning service quality and environmental sustainability

awards realize, on average, $78.7 and $275.4 million

rise in market value, respectively. Apparently, investors

interpret these awards as a positive signal that a firm

possesses a unique and difficult-to-imitate capability,

which will improve its operating performance and

future cash flows. However, no evidence exists

whether firms winning a service quality or an environ-

mental sustainability award in logistics actually

achieve better firm performance during the post-award

period. That is, there has not been an attempt to

assess whether investors’ expectations regarding the

future performance of award-winning firms are justi-

fied by the expected improvement in the operating

performance of the firm.

In light of these highlighted gaps in the literature,

the purpose of this research was to address the follow-

ing question: Does a firm’s superior performance (ca-

pability) in service quality and environmental

sustainability in logistics improve its future operating

performance, as measured by operating income and

operating cash flows? Accordingly, we formulate four

hypotheses based on the resource-based view (RBV)

of the firm and test them using a data set of 195

award announcements made over a 10-year period

between 2004 and 2013. Our focus is logistics

capabilities of firms operating on any industry; that is,

firms that are logistics service providers and firms that

require logistics capabilities to compete in their mar-

ket. Consequently, our data set includes awards that

recognize customer service and environmental sustain-

ability in logistics; awardees are companies operating

in several industries, some are logistics services provi-

ders, others are firms in other industries such as elec-

tronics and textiles. In all cases, the awards recognize

exceptional logistics operations. We measure the oper-

ating performance effects of service quality and envi-

ronmental sustainability in logistics for 1, 2, and 3

years after the award announcement. Our focus on

the longer-term (multi-year) effects stands in contrast

to the event study approach used by Eroglu et al.

(2016), who studied the short-term stock market reac-

tion to the same award announcements.

We find that service quality and environmental sus-

tainability awards are associated with improved per-

formance during the 3-year period following the

award announcement. The performance benefits asso-

ciated with service quality awards are greater than

those associated with environmental sustainability

awards. We also test whether the documented positive

performance effects of awards depend on the innova-

tive intensity or competitive intensity in an industry.

The results, however, did not reveal any significant

interaction effects. In a post hoc analysis, we examine

two possible mechanisms―sales growth and cost effi-

ciency―through which service quality and environ-

mental sustainability can influence operating

performance. Our results show that service quality

awards relate to better future performance via both

sales growth and cost efficiency. In contrast, environ-

mental sustainability awards contribute only through

sales growth.

Our research contributes to the literature in three

important ways. First, we document that firms’ recog-

nized capabilities in service quality and environmental

sustainability in the context of logistics are associated

with positive, albeit unequal, long-term operating per-

formance outcomes. This finding helps better under-

stand financial outcome of service quality and

environmental sustainability resources. This is particu-

larly interesting in light of the sample we used. Our

results show that long-term operating performance is

associated with recognized logistics capabilities in

logistics-service providers. More interestingly, our

results show that this association exists in firms whose

main business is not logistics; thus, recognizing that

logistics capabilities are associated with the main busi-

ness of the firm. Second, we demonstrate that while

service quality capabilities facilitate both higher rev-

enue growth and better cost management, environ-

mental sustainability capabilities translate into only

higher revenue growth with no cost management

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Logistics Capabilities and Performance

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