How does sustainability-oriented innovation effect on customer and financial performance?

The long-standing discussion on whether sustainability pays off has yielded mixed results. However, many influential papers have come to the understanding that a virtuous circle is created between business sustainability and financial performance through the mediation of reputation enhancement, employee satisfaction and retention, etc (e.g., Surroca et al., 2010). In the case of sustainability-oriented innovation (SOI), market performance has not been a major area of scholarly discussion. However, several previous studies have identified several contingencies in which SOI may not financially pay off (e.g. Przychodzen & Przychodzen, 2015; Pujari, 2006). This leads us to examine the relationship between SOI and performance also from the angles of customer performance and market performance.

We collected data from November 2015 to April 2016 through a phone and online survey. Our sample was composed of companies of 50 or more employees in the Basque Country (Spain). The questionnaire was based on close-ended, multiple-choice questions. We obtained full data from 170 companies (19.5% response rate). We obtained already developed scales for the dependent variables: customer and financial performance (Hooley et al., 2005). Its reliability as a reflective measure was tested for each of them, resulting in a Cronbach α of over 0.8. As for the independent variables, they are self-developed measure covering five dimensions of sustainability-oriented innovation, each with three formative items, which after factor rotation result in three categories (process, product and service). We measured the reliability of each of the categories, obtaining a Cronbach α of above 0.9 for all of the cases. We used the variables size (measured in turnover), degree of sustainability orientation of the firm, industry and R&D intensity as controls. We performed structural equation analysis.

The results show that sustainability-oriented innovations particularly in the process category result in increased financial as well as customer performance. Furthermore, SOI innovation in product category increases customer performance. In addition, sustainability-oriented innovation in services was not related to either type of performance, which may be related to the fact that this is still underdeveloped (it was not prevalent among the surveyed companies). Finally, we did further tests with sub-samples of firms representing different strategic archetypes (as defined in the classic categorization by Miles & Snow, 1978). We found that firms representing prospectors, analyzers, defenders and reactors had distinctively different performance profiles as it comes to SOI. These results show that SOI related benefits are dependent on the firms’ strategic alignment with the markets, some strategies being more adept to particular type of SOI than others.