Abstract
Purpose
This study presents evidence of the role of performance measurement and management (PMM) in sustainable supply chain governance. This study tests a model hypothesizing whether it is the PMM itself or the mediating effect of supply chain governance that is essential for both business and sustainability performance.
Design/methodology/approach
This study builds on a survey of 274 SMEs in Finland.
Findings
The findings indicate that PMM does not directly contribute to SMEs’ business or sustainability performance. Supply chain governance mediates the relationship between PMM and business performance. Business performance also enhances sustainability.
Practical implications
These findings can guide managers in managing company relationships with customers and suppliers. The mediating role of supply chain governance highlights the potential of PMM to enhance performance. Without supply chain governance, the PMM, while efficient in traditional business practices, may lose its effectiveness because of the pressure to advance sustainability values within firm operations.
Originality/value
The role of PMM in enhancing supply chain sustainability is frequently overlooked in the existing research, necessitating an empirical evaluation of PMM’s impact on supply chain sustainability. This study addresses this gap by focusing on the SME context, where the pressure to adopt sustainable practices is increasing, yet SMEs employ PMM less frequently than larger firms.
Keywords
Citation
Saunila, M., Ukko, J. and Jääskeläinen, A. (2024), "The importance of performance measurement and management in sustainable supply chain governance among SMEs", International Journal of Operations & Production Management, Vol. 44 No. 13, pp. 229-250. https://doi.org/10.1108/IJOPM-06-2023-0492
Publisher
:Emerald Publishing Limited
Copyright © 2024, Minna Saunila, Juhani Ukko and Aki Jääskeläinen
License
Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Introduction
This study presents evidence on the role of performance measurement and management (PMM) in sustainable supply chain governance and focuses on small- and medium-sized enterprises (SMEs), which play a critical role in the growth of global economies (Ates et al., 2013; Pešalj et al., 2018; Yacob et al., 2019). Moreover, SMEs’ contributions are necessary to achieve sustainability performance (Álvarez Jaramillo et al., 2019; Yacob et al., 2013). However, numerous barriers such as limited resources and expertise impede SMEs’ sustainability performance (Álvarez Jaramillo et al., 2019; Tsalis et al., 2013). Supply chain governance supported by the PMM (Asiaei et al., 2021; Hahn and Figge, 2018; Mio et al., 2022), offers a potential avenue for SMEs to attain performance improvements and overcome the barriers and limitations associated with their bargaining power.
The first gap addressed in this study relates to the perspective of SMEs on supply chain governance for sustainability performance. Supply chain governance involves practices that firms employ to manage relationships with partners (Um and Kim, 2019) and is increasingly recognized as vital for sustainability performance (Belhadi et al., 2021). These relationships are leveraged to develop strategies for improving sustainability performance in supply chains (Blome et al., 2014). However, research on how supply chain governance enhances sustainability performance is limited (Adesanya et al., 2020; Bové and Swartz, 2016), and many studies are exploratory (Gimenez and Sierra, 2013). Although SMEs have been identified as conveyors of sustainability performance in supply chains (Ayuso et al., 2013), their role in supply chain governance remains underexplored.
The second gap addressed in this study relates to the perspective of SMEs regarding the role of PMM in sustainability performance. Research on the sustainability performance implications of supply chain governance (e.g. Yildiz Çankaya and Sezen, 2019), has not adequately addressed the aspect of PMM (Maestrini et al., 2018a, b). While supply chain governance is critical in shaping sustainability performance, other approaches are also important. PMM is crucial for guiding goal-oriented activities, thereby enhancing potential sustainability performance. How firms practice supply chain governance through PMM raises significant research avenues.
The role of PMM is often neglected in sustainability research, and an empirical assessment of PMM’s impact on supply chain sustainability is warranted (Seuring and Gold, 2013). Additionally, the effects of PMM are not universally similar, but depend on the context (Parisi, 2013). The literature identifies specific characteristics of PMM in the SME context (Ates et al., 2013), indicating that findings from large firms may not be universally applicable (Bititci et al., 2012; Pešalj et al., 2018). For instance, SMEs traditionally use less PMM than large firms because of their lack of resources and expertise (Cocca and Alberti, 2010; Garengo et al., 2005), yet face similar sustainability pressures (Ayuso et al., 2013). SMEs may benefit from flexibility and openness to change (Esty and Winston, 2009; Yacob et al., 2019) when introducing PMM for sustainability performance. However, they also face typical SME challenges. Hence, new empirical findings are required to complement the scarce literature in this area (Aykol and Leonidou, 2015; Ayuso et al., 2013).
Building on organizational control theory, this study aims to provide evidence of PMM’s role in sustainable supply chain governance in the SME context. The study investigates this issue among SMEs as focal firms in supply chains to complement knowledge from large company settings. The term “focal firm” refers to the party that governs the supply chain, for example, by providing direct contact with customers and suppliers and designing the offering. This study tested a model to understand whether PMM or the mediating influence of supply chain governance is crucial for sustainability performance. An enhanced understanding of the direct and indirect influences of PMM and supply chain governance will aid in developing a robust understanding of sustainability performance. These results indicate that supply chain governance fully mediates the relationship between PMM and business performance. Business performance also contributes to improved sustainability. The controls for firm size and exports did not significantly influence either performance dimension.
Theoretical underpinning
This study builds upon organizational control theory, which views an organization as a dynamic entity operating in an ever-changing environment. This necessitates a fundamental control system structure for measuring, comparing, analyzing, correcting, and preventing (Bititci et al., 2018). Consequently, PMM is deeply rooted in organizational control theory and is described as a process or a set of processes essential for various operations. These include setting objectives, creating performance metrics, and collecting, analyzing, interpreting, reporting, revising, and responding to performance data (Bititci et al., 2012; Melnyk et al., 2014).
The focus is on PMM, but a broader approach to organizational control theory is adopted, following Dekker et al. (2019). They assert that organizational control encompasses all mechanisms to ensure that actions and decisions align with organizational goals. Similarly, supply chain governance comprises mechanisms that enable the control of external relationships through joint targets, operational reviews, feedback mechanisms, and dedicated collaborative practices (Dekker et al., 2019). Mura et al. (2018) stated that, particularly in sustainability, various partners such as customers and suppliers play a crucial role in shaping the design, implementation, and utilization of PMM, making them an integral part of the measurement process. Previous research has limited sustainability to better business performance (Hart and Dowell, 2011; Wang and Sarkis, 2013), without detailing the mechanisms for achieving such outcomes. Studies on supply chain governance and sustainability performance (e.g. Yildiz Çankaya and Sezen, 2019) have not specifically examined the role of PMM. We adopt organizational control theory to address this gap and consider organizational control mechanisms, specifically PMM, used in supply chain governance.
Introduction of the key concepts
PMM
PMM is shaped by the organization’s, people’s, and society’s ideas, beliefs, and values, which collectively function (Bourne et al., 2002; Chenhall et al., 2017; Nudurupati and Bititci, 2005). PMM can enhance employee involvement in firms (Bourne et al., 2013) and improve communication by gauging an organization’s performance against its specific goals and mission (Magretta and Stone, 2002). Simultaneously, PMM is recognized as a crucial tool for directing target-oriented activities. Despite widespread recognition of SMEs’ unique characteristics and their impact on PMM’s role, research in this area remains limited (Ates et al., 2013; Cocca and Alberti, 2010; Rojas-Lema et al., 2021; Sardi et al., 2020). This is particularly true for studies on PMM within supply that focus on sustainability. Therefore, leveraging PMM to maximize the benefits of different governance structures is pertinent.
Supply chain governance
Corporate governance encompasses a range of formal and informal external and internal actions that align the interests of various stakeholders (Gillan, 2006). “Governance” indicates the organizational frameworks in which firms develop strategies to manage their partnerships. Supply chain governance involves firms’ management of partner relationships (Um and Kim, 2019). It addresses the structures and mechanisms that guide activities within the supply chain context (Gimenez and Sierra, 2013). Firms engage in two types of governance partnerships: supplier and customer (Borella et al., 2018). These governance mechanisms can be categorized as supply- or demand-side governance. To attain superior sustainability performance, firms must simultaneously concentrate on supply- and demand-side practices concerning sustainability (Blome et al., 2014). In this study, supply-side governance pertains to a firm’s structure and practices in managing supplier relationships. With supply-side information, the focal firm can trace the origins of material flows to assess specific risks (Swift et al., 2019) and build confidence and trust in suppliers (e.g. Wagner et al., 2011; Wang et al., 2011). Demand-side governance relates to a firm’s structure and practices in managing customer relationships. Access to demand-side information enables the focal firm to better comprehend customer needs and determine ways to improve performance (Blome et al., 2014).
Sustainability and business performance
Dubey et al. (2015) determined that superior organizational performance encompasses both environmental and business performance. Environmental performance involves reducing air emissions, wastewater, and solid waste; transforming waste into more useful products; reusing or recycling post-use; enhancing product quality; and increasing customer satisfaction (Dubey et al., 2015, 2019). Numerous studies have also recognized the importance of social sustainability, including employment, wages, equality, non-discrimination, and quality of working life, as critical elements of organizational performance (Boons and Lüdeke-Freund, 2013; Dubey et al., 2019). Business performance pertains to increased market share, profitability, productivity, average return on investment, and improved inventory turnover (Dubey et al., 2015; Gunasekaran et al., 2017). In this study, “sustainability performance” denotes environmental and social performance, and “business performance” signifies the economic aspect of organizational performance.
Linking the key concepts
SMEs play a crucial role in supply chain sustainability, and evidence suggests that despite challenges, SMEs can transfer customer requests to their suppliers (Ayuso et al., 2013). Supply chain governance is instrumental in achieving sustainability performance while maximizing benefits for partners (El Baz et al., 2020). Firms are expected to excel in sustainability performance, which necessitates a more proactive approach (Blome et al., 2014). Beyond economic factors, the environmental and social dimensions of sustainability performance demand governance efforts within the supply chain context, challenging the focal firm’s governance mechanisms to achieve sustainability throughout the supply chain (Belhadi et al., 2021; Wong et al., 2015). This complexity necessitates SMEs to effectively orchestrate governance mechanisms and implement supportive measures. In this study, PMM is crucial for directing target-oriented activities, such as supply chain governance, thereby enhancing potential sustainability performance.
Hypotheses development
PMM and performance
Effective PMM can yield a range of performance benefits, both financial and non-financial (Franco-Santos et al., 2012; Grafton et al., 2010). However, managing these measures is essential for achieving these performances (Henri, 2006). PMM can serve as a learning system and platform for knowledge sharing, informing staff about performance gaps and the current state of the company, and forthcoming enhancement strategies (Bititci et al., 2012; Franco-Santos et al., 2007; Garengo et al., 2005). Consequently, we propose the following hypothesis:
PMM directly affects business performance.
PMM may also enhance sustainability performance (Asiaei et al., 2021; Baumgartner, 2014; Gond et al., 2012; Hahn and Figge, 2018; Melnyk et al., 2003; Mio et al., 2022). It enhances a firm’s comprehension of sustainability objectives (Collins et al., 2016; Singh et al., 2009), performance evaluation (Johnson and Schaltegger, 2016), and sustainability management (Staniškis and Arbačiauskas, 2009). It is posited that by clarifying the current situation (e.g. sustainability expectations) and the desired outcome (sustainability performance), a well-crafted PMM can aid decision-makers in addressing sustainability (Searcy, 2012; Silva et al., 2019).
We draw on evidence from previous research to better understand whether PMM can assist in meeting requirements to enhance sustainability performance, while concurrently fulfilling other firm objectives (Naidoo and Gasparatos, 2018). For instance, Asiaei et al. (2021) discovered that incorporating sustainability into PMM boosts firm performance. This may be attributed to PMM facilitating the exchange of vital information that supports sustainability throughout the company’s production stages (Cavicchi and Vagnoni, 2022). Thus, we believe that PMM is beneficial for achieving sustainable performance. Therefore, we propose the following hypothesis:
PMM directly affects sustainability performance.
The mediating role of supply-side governance
Literature suggests that the relationship between PMM and performance may be indirect. Various mediators such as performance review moments (Mahama, 2006), socialization (Cousins et al., 2008), learning (Hall, 2010), and relational governance (Jääskeläinen, 2021) play a significant role in supporting performance. Supply-side governance, which relies on trust in supplier relationships, is commonly found in environments characterized by open information sharing and limited information asymmetry (Ha et al., 2011; Ireland and Webb, 2007). Information sharing is a critical precursor to the implementation of PMM. PMM can also directly support supply chain governance by promoting target orientation, reducing ambiguity, and enhancing feedback (Mahama, 2006) and supplier development activities (Zimmer et al., 2016).
Examining supply-side governance from a business performance perspective, it is widely acknowledged that supply chain integration yields increased performance for the organizations involved (Frohlich and Westbrook, 2001; Schoenherr and Swink, 2012). As supply uncertainty decreases, the need for inventory reduces, thereby improving performance (Swink et al., 2007). Supply-side governance builds structural capital, which benefits both the buyer and the supplier (Villena et al., 2011). Furthermore, supply-side governance may provide a buyer with an enhanced understanding of the requirements of the entire supply chain (Leuthesser, 1997; Ravald and Grönroos, 1996), potentially leading to improved business performance. Consequently, we propose the following hypothesis:
Supply-side governance mediates the relationship between PMM and business performance.
Supply-side governance appears integral to enhancing a buyer firm’s sustainability performance (Govindan et al., 2013; Gualandris et al., 2014; Hofmann et al., 2014; Miemczyk et al., 2012). Research also shows that supply chain integration can bolster sustainability performance (Wiengarten and Longoni, 2015). Furthermore, effective supplier relationship management has been linked to improved sustainability performance (Ashby et al., 2012). Supply-side governance can enhance the information flow among supply chain actors and help prevent coordination failures (Mayer and Argyres, 2004). Various forms of supply-side governance, such as supplier assessment and collaboration, are positively associated with sustainability (Adesanya et al., 2020; Gimenez and Sierra, 2013; Gimenez and Tachizawa, 2012; Pagell et al., 2010; Yildiz Çankaya and Sezen, 2019), underscoring its significance. Consequently, we propose the following hypothesis:
Supply-side governance mediates the relationship between PMM and sustainability performance.
The mediating role of demand-side governance
To achieve the desired results with PMM, a company must establish clear structures for collecting the necessary needs and expectations from the demand side (Hutchins et al., 2019). This necessity has arisen because customer needs and operating environments have evolved rapidly. Moreover, customers demand more comprehensive information about products and services (Silva et al., 2019), making demand-side governance a potential mediator. Without paying attention to these governance mechanisms, the PMM can only concentrate on traditional productivity and quality metrics, leaving it uncertain, for instance, how and in what environments products and services are used (Ukko and Pekkola, 2016). Therefore, demand-side governance can help create precisely tailored measures and objectives.
From a business performance standpoint, reliable and accurate information about partner expectations, particularly those of customers (i.e. demand-side governance), is crucial for generating new revenue streams. However, few companies clearly understand customer needs, attitudes, and expectations (Petersen and Brockhaus, 2017; Silva et al., 2019). Companies require advanced demand-side governance to better comprehend and quantify customer demands related to products and services, and especially their performance impacts. For instance, a multi-case study by Ukko and Pekkola (2016) demonstrates that systematically involving customers in developing and assessing a firm’s performance enhances PMM and leads to the creation of entirely new offerings. The study found that customers were more willing to engage when their specific needs were addressed, which fostered trust and prompted them to provide feedback on their operating environment, the products and services they utilized, and the interconnections among them. Thus, PMM leverages demand-side data to improve business performance (Hutchins et al., 2019; Ukko and Pekkola, 2016). Consequently, we propose the following hypothesis:
Demand-side governance mediates the relationship between PMM and business performance.
Considering demand-side governance from the sustainability performance perspective, it has been demonstrated that as a customer’s awareness of the need to preserve the world through tangible actions and behaviors that protect the environment grows, the enhancement of sustainability performance has garnered increased attention and significance (Del Río et al., 2016; Gmelin and Seuring, 2014; Häkkinen and Belloni, 2011). Companies must consider sustainability when developing new products and services to reduce environmental impacts because of rising sustainability awareness among customers (Bossle et al., 2016; Silva et al., 2019). As customers become more aware of the sustainability impacts of their consumption behaviors, their demand for sustainable products escalates, necessitating a more sustainable delivery of company offerings (Naidoo and Gasparatos, 2018; Smith and Perks, 2010). Consequently, we propose the following hypothesis:
Demand-side governance mediates the relationship between PMM and sustainability performance.
Business performance and sustainability performance
Regarding cross-performance effects, previous studies suggest that sustainability performance can be enhanced through improved business performance (Saunila et al., 2018; Song et al., 2017). This is particularly relevant for SMEs, which often possess limited resources to invest in sustainability. For instance, Saunila et al. (2018) examine the determinants of sustainable technology investment in SMEs. They discovered that firms that prioritized the economic dimension of organizational performance were also the most inclined to invest in sustainable technology. This suggests that superior business performance, as evidenced by profitability and productivity, may facilitate greater sustainability, especially within SMEs. Based on these considerations, we propose the following hypothesis:
Business performance affects sustainability performance.
Research model
Building on prior literature, we propose the research model shown in Figure 1. H1 and H2 address direct effects, whereas H3–6 focus on mediating effects. The former hypotheses examine the impact of PMM on two types of performance: business and sustainability. The latter hypotheses explore the mediating role of supply chain governance between PMM and business or sustainability performance. H7 investigates the relationship between business and sustainability performance. These hypotheses aim to determine whether PMM directly influences business and sustainability performance or whether the mediating effect of supply chain governance is pivotal.
Research methodology
Sample and data collection
A cross-sectional survey was conducted on Finnish SMEs in 2020 to collect data and test the research model. Of the 20,000 Finnish SMEs, 6,889 were randomly selected for the survey, representing more than 30% of the total SME population. These firms were contacted via email, which included a cover letter detailing the basic information of the study and an assurance of confidentiality and anonymity. The unit of analysis is a single company. The questionnaire, distributed through a web link, targeted individuals in managerial positions to ensure that they possessed the requisite knowledge to answer questions on PMM and governance practices. To promote informed responses, respondents were instructed to forward the survey to other individuals within their firms if they felt they lacked the necessary information to answer. This approach, along with follow-up reminder messages, helped increase the response rate. After two reminders, 329 responses were received. However, due to missing values, 3 responses with incomplete data, and inappropriate respondent positions (52 responses from non-managerial staff were excluded), and 55 responses were deemed invalid and were removed from the dataset. Consequently, 274 valid responses were included in the final analysis.
Table 1 presents the descriptive statistics of responses. Most firms had fewer than 20 employees (39.4%). Small and medium-sized companies represented 33.9% and 25.9% of the sample, respectively. Most respondents (85%) reported an export share of less than 50% of their revenues, whereas 14.2% indicated that exports accounted for 50% or more. The responses encompassed a variety of sectors such as building and construction, real estate, production, IT, and trade.
Measures
The survey collected data on managerial assessments of SMEs’ supply chain governance, PMM, and business and sustainability performance. This study adopted a survey of multi-item scales based on prior research, as presented in Table 2. Based on previous studies, these scales were developed for this study through a pretest conducted by experienced researchers. After refining item wording, we adapted the items to facilitate easy and convenient responses. Consequently, the wording of the items did not exactly mirror their sources, but the content reflected the original concepts presented in the references.
The independent variable, PMM, encompasses the organization’s goals, measurement of goal implementation, notification of the measures for tracking goals, and communication of the importance of adhering to agreed-upon procedures. This variable is measured using four items derived from Magretta and Stone (2002), Garengo et al. (2005), Franco-Santos et al. (2007), Kaplan and Norton (2008), Bititci et al. (2012), Bourne et al. (2013), Koufteros et al. (2014), and Melnyk et al. (2014). The first two items (PMM1 and PMM2) draw on studies by Magretta and Stone (2002), Kaplan and Norton (2008), and Melnyk et al. (2014), which emphasize the importance of aligning PMM with organizational goals. The third item (PMM3) is informed by research that underscores the need to share measurement information to identify gaps between current performance and target levels (e.g. Bititci et al., 2012; Franco-Santos et al., 2007; Garengo et al., 2005). The fourth item (PMM4) reflects research emphasizing the significance of employee involvement and communication in applying PMM (e.g. Bourne et al., 2013; Koufteros et al., 2014; Magretta and Stone, 2002). The PMM items were assessed using a five-point Likert scale ranging from “strongly disagree” to “strongly agree.”
The mediator variables comprise two dimensions of supply chain governance: supply- and demand-side governance. Supply-side governance, encompassing the rarity of material deficiencies, confidence in suppliers, and the identifiability of materials, was assessed using three items. These items were based on Wagner et al. (2011), Wang et al. (2011), and Swift et al. (2019). For instance, SSG1 and SSG3 drew on Swift et al. (2019), which emphasized the importance of tracing material origins to mitigate risks. SSG2 incorporates insights from Wagner et al. (2011) and Wang et al. (2011), who underscore the significance of supply-side information in fostering supplier trust. Demand-side governance, which includes setting targets and action plans to meet customer expectations and monitor customer fulfillment, was evaluated using three items. These items were described by Blome et al. (2014), Petersen and Brockhaus (2017), and Silva et al. (2019). For example, DSG1 and DSG2 reflect Petersen and Brockhaus (2017) and Silva et al. (2019), which found that accurate information on partner expectations is crucial for generating new revenue sources. DSG3 was underpinned by Blome et al. (2014), which highlights the importance of demand-side information in understanding customer needs and enhancing performance. All supply- and demand-side governance items are measured using a five-point Likert scale ranging from “strongly disagree” to “strongly agree.”
All performance items were gauged using four-point Likert scales ranging from “weak” to “excellent.” The dependent variables—business performance (encompassing productivity and profitability) and sustainability performance (covering social and environmental sustainability)—were assessed using two items. The performance items were derived from studies that advocated a balance between optimal overall performance (e.g. low costs and convenience) and improved social performance, including adherence to labor laws, and environmental performance, such as waste reduction (e.g. Boons and Lüdeke-Freund, 2013; Choi and Ng, 2011). There has been criticism of scales with one or two items; however, several findings indicate no significant difference in validity between single- and multiple-item measures (Drolet and Morrison, 2001; Bergkvist and Rossiter, 2007, 2009), or that the difference is marginal (Sarstedt and Wilczynski, 2009). For instance, Drolet and Morrison (2001) discovered that the information gained from each additional item was minimal. Similarly, Baumert et al. (2014) observed that short two-item scales captured a comparable amount of consistent and systematic variable variance compared to ten-item scales. Multiple-item scales do not inherently exhibit greater reliability than scales with fewer items and expanding the length of a scale can either enhance or diminish its external validity of the scale (Niemi et al., 1986). Consequently, the two-item measures can be deemed acceptable, particularly when the ambiguity of the measured construct is low. This is the case in this study, as respondents in managerial positions are expected to assess business and sustainability performance in a straightforward manner. The clear definitions of each item further supported the respondents by providing them with informed responses. Thus, a two-item scale was appropriate for this study.
The control variables are company size and exports. The number of employees gauged the company size, whereas company exports were quantified as a percentage of revenue derived from international sales.
Bias
Analysis of variance (ANOVA) was conducted to investigate non-response bias. The responses of early respondents were compared with those of late respondents for each study item (Armstrong and Overton, 1977). The results showed no statistically significant differences in the responses of the two groups. Consequently, no nonresponse bias was observed.
Utilizing a single respondent from one company may pose challenges related to common method variance. However, single-respondent designs are acceptable in SME research (Flynn et al., 2018; Kull et al., 2018). Kull et al. (2018) argue that SMEs are likely to have a single key informant because top managers often assume multiple roles. Moreover, tasks involving multiple actors in larger firms are typically managed by one decision-maker who oversees various supply chain functions in a small firm. Additionally, obtaining secondary data on SMEs is often not feasible (Kull et al., 2018). Using statistical and procedural remedies, we addressed the potential for common method variance (Podsakoff et al., 2003). Procedurally, we ensured the anonymity and confidentiality of the collected information concerning potential respondents. Respondents were informed that the data would be used exclusively for research purposes and asked to complete the survey honestly to mitigate social desirability bias. We conducted a Harman one-factor test on all study variables: supply-side governance, demand-side governance, PMM, sustainability performance, and business performance. The test did not reveal a one-factor solution (five factors had eigenvalues greater than one), and the first factor explained 33.4% of variance. Therefore, it is unlikely that common method bias was present.
Results
Measurement model
The convergent validity, discriminant validity, and construct reliability of the measurement model were assessed before testing the structural model. A confirmatory factor analysis was conducted to estimate convergent validity. Table 2 presents the test results. The standardized loadings in Table 2 demonstrate that each item is significantly loaded onto its designated construct, supporting convergent validity (Fornell and Larcker, 1981). Additionally, the AVEs for each construct exceeded the 0.50 threshold (Fornell and Larcker, 1981), further supporting convergent validity. Discriminant validity was confirmed by comparing the square roots of the AVEs, as shown in Table 3, with their correlations with other constructs. The square roots were higher, which supports discriminant validity. The high internal consistency of the items within each construct indicated the reliability of the measurement model. Cronbach’s alpha values surpassed 0.60 for all constructs (De Vellis, 1991), and the CRs for each construct exceeded the 0.70 threshold (Fornell and Larcker, 1981), indicating construct reliability. Additionally, the strong model fit indices suggest convergent validity and unidimensionality. The measurement model exhibited robust goodness of fit (RMSEA = 0.056, TLI = 0.951, CFI = 0.964, SRMR = 0.056) for path modeling.
Structural model testing
Interpreting the direct paths (PMM → sustainability performance and PMM → business performance) in the model revealed that both sustainability performance (path coefficient 0.147, p > 0.05) and business performance (path coefficient −0.020, p > 0.05) had non-significant path coefficients (Table 4). Consequently, H1 and H2 were rejected.
Regarding the mediated relationships, the model demonstrates that PMM positively influences supply- and demand-side governance, with path coefficients of 0.461 (p < 0.001) for supply-side governance and 0.958 (p < 0.001) for demand-side governance. Additionally, the model shows that both supply- (path coefficient 0.175, p < 0.01) and demand-side governance (path coefficient 0.194, p < 0.001) positively affect business performance. However, neither supply-side governance (path coefficient 0.059, p > 0.05) nor demand-side governance (path coefficient −0.019, p > 0.05) had a significant impact on sustainability performance. The analyses of the indirect effects, shown in Table 4, confirm this. The path from PMM to sustainability performance was not significant (path coefficient 0.045, p > 0.05), whereas the path from PMM to business performance was significant (path coefficient 0.266, p < 0.001), confirming the mediation effect for business performance but not for sustainability performance. These findings suggest that supply chain governance fully mediate the relationship between PMM and business performance. Therefore, hypotheses H3 and H5 were accepted, while hypotheses H4 and H6 were rejected.
Finally, the direct path from business performance to sustainability performance (path coefficient = 0.142, p < 0.01) is significant. Thus, H7 is supported, which indicates that business performance affects sustainability. The model also examined the influence of two control variables—company size, as measured by the number of employees and company exports—on business and sustainability performance. The analysis revealed that neither company size nor exports affected business or sustainability performance.
Two competing models were analyzed. The first model accounted solely for the direct relationships among PMM, supply chain governance, and two types of performance (business performance and sustainability performance). This model exhibited a less satisfactory fit (RMSEA = 0.087, TLI = 0.849, CFI = 0.881, SRMR = 0.157) than the hypothesized model (RMSEA = 0.056, TLI = 0.936, CFI = 0.951, SRMR = 0.056).
In the second model, PMM did not function as an independent variable but as a mediating variable. This model exhibited a less satisfactory fit (RMSEA = 0.062, TLI = 0.924, CFI = 0.876, SRMR = 0.081) than the hypothesized model (RMSEA = 0.056, TLI = 0.936, CFI = 0.951, SRMR = 0.056). Consequently, the analyses bolster the conceptualization of PMM as an independent variable.
The results reveal significant support for the relationship between supply chain governance and PMM and between PMM and sustainability performance. Conversely, the analysis did not directly link supply chain governance to sustainability performance. These findings suggest that PMM fully mediates the relationship between supply chain governance and sustainability performance (Figure 2).
Discussion
This study examines the role of PMM in sustainable supply chain governance. By investigating the direct and indirect influences of PMM on performance, this study contributes to a more comprehensive understanding of the management of sustainability performance in SMEs. This study identified two research gaps from the SME perspective: supply chain governance for sustainability performance and the role of PMM in sustainability performance. The findings of this study, in connection with these gaps, are discussed below.
Regarding the first gap, previous research has highlighted the importance of supply chain governance in sustainability performance (Belhadi et al., 2021). However, empirical studies demonstrating the benefits of supply chain governance and explaining in detail how these benefits are achieved are scarce (Adesanya et al., 2020; Bové and Swartz, 2016). Particularly, the potentially varying performance implications of supply-demand-side governance and the specific SME context have received very little attention. This is surprising, as SMEs are expected to play an increasing role in sustainability endeavors and are simultaneoulsy often highly reliant on external resources (cf. Álvarez Jaramillo et al., 2019; Yacob et al., 2013).
The results indicate that demand-side governance is particularly crucial for directly enhancing business performance and indirectly improving sustainability. Consequently, these findings corroborate the view that supply chain governance enables SMEs to meet sustainability requirements while maximizing the benefits for their partners (El Baz et al., 2020). However, they also demonstrate that the impact of demand-side governance is more pronounced than that of supply-side governance. The results support the notion that for a company to achieve the desired outcomes, well-defined structures are required to capture the necessary needs and expectations of the demand side (Blome et al., 2014; Hutchins et al., 2019). As customer awareness of the need to preserve the world through tangible actions and environmentally friendly behaviors has increased, the enhancement of sustainability performance has garnered greater focus and significance (Del Río et al., 2016; Gmelin and Seuring, 2014; Häkkinen and Belloni, 2011). This implies that customers also demand more detailed performance information, including sustainability impacts (Silva et al., 2019). This study substantiates this trend by demonstrating that customers set sustainability goals, as demand-side governance is more effective in boosting both business and sustainability performance. This also exemplifies the different roles of customers and suppliers. Customers serve as standard or target setters, whereas suppliers may primarily provide the necessary information requested by customers (cf. Silva et al., 2019) having more limited impact on performance. Moreover, the pronounced role of demand-side governance may be partly attributed to the SME context in this study, as the literature suggests that customers impose more demands on SMEs regarding sustainability (Ayuso et al., 2013).
As a final note on the role of supply chain governance, it is important to acknowledge that the sustainability performance benefits of supply chain governance are achieved only upon attaining sufficient levels of business performance. This is a new finding compared with those of earlier studies. Earlier study indicates that both supply- and demand-side governance may directly enhance sustainability performance, for example through supplier assessment and collaboration (Adesanya et al., 2020; Gimenez and Tachizawa, 2012; Gimenez and Sierra, 2013; Pagell et al., 2010; Yildiz Çankaya and Sezen, 2019) and by incorporating customers’ sustainability concerns into new offerings (Bossle et al., 2016; Silva et al., 2019). This finding may be explained by the specific context of the study. Prior SME research has indicated that sustainability can be enhanced by improving business performance (Saunila et al., 2018; Song et al., 2017). Therefore, SMEs with limited resources for sustainability investments must improve their business to achieve sustainable performance.
The second research gap addressed in this study relates to the role of PMM in sustainable performance. Surprisingly, few studies have empirically investigated how PMM contributes to enhanced performance in the supply chain context (Jääskeläinen, 2021; Maestrini et al., 2018b). This research gap is particularly pronounced in the context of SMEs. The findings show that supply chain governance fully mediates the relationship between PMM and business performance.
Findings on the benefits of PMM are somewhat inconsistent (Cousins et al., 2008; Maestrini et al., 2017), which may be due to the indirect performance effects of PMM (Jääskeläinen, 2021; Maestrini et al., 2018a) and the influence of contextual characteristics. This study provides additional evidence of the indirect performance implications of PMM on sustainability and business performance, particularly in the SME context.
The results of this study indicate that utilizing PMM does not directly lead to higher sustainability performance in SME. This finding is at odds with previous research, which suggests that the appropriate use of PMM helps companies achieve sustainability performance (Asiaei et al., 2021; Baumgartner, 2014; Gond et al., 2012; Hahn and Figge, 2018; Mio et al., 2022). One possible explanation for this is the limited capability of SMEs to implement PMM effectively (Ates et al., 2013; Cocca and Alberti, 2010). Additionally, SMEs often pursue sustainability for market survival rather than long-term growth (Centobelli et al., 2021), which may influence the effectiveness of PMM. Thus, sustainability can be pursued using alternative methods.
Alternative methods may take the form of supply chain governance. This study demonstrates that the relationship between PMM and performance necessitates distinct governance mechanisms for success. PMM influences SME business performance through governance mechanisms on both the supply and demand sides, which is consistent with previous studies that emphasize the performance impacts of supply-side governance (Schoenherr and Swink, 2012; Villena et al., 2011) and demand-side governance (Petersen and Brockhaus, 2017; Silva et al., 2019). This study confirms the indirect effect of PMM on SMEs’ business performance through governance mechanisms.
Specifically, this study extends the literature in the SME context by demonstrating how supply- and demand-side governance leverage the performance benefits of PMM in supply chains. This study provides strong evidence that SMEs can attain sustainability performance by utilizing PMM to enhance supply chain governance despite numerous obstacles, such as limited resources and expertise impeding SMEs’ sustainability initiatives (Álvarez Jaramillo et al., 2019; Tsalis et al., 2013) and the application of PMM (Cocca and Alberti, 2010; Garengo et al., 2005). SMEs can employ PMM to direct demand-side governance and enhance their business and sustainability performances. PMM facilitates this by collecting reliable and accurate information about partner expectations, particularly those of customers, and by ensuring the proper visibility of customers’ needs, attitudes, and expectations (e.g. Petersen and Brockhaus, 2017; Silva et al., 2019). Therefore, the performance benefits of PMM in SMEs are predicated on a clear definition of demand-side expectations (e.g. Hutchins et al., 2019), followed by effective governance of supply performance (e.g. Adesanya et al., 2020; Schoenherr and Swink, 2012; Yildiz Çankaya and Sezen, 2019). Although it is well established that both supply- and demand-side integration enhance traditional operational performance in supply chains (Frohlich and Westbrook, 2001; Schoenherr and Swink, 2012; Wiengarten and Longoni, 2015), the role of PMM in facilitating sustainability performance through supply chain governance, particularly in SMEs, is yet to be explored.
Conclusion
Theoretical implications
This research contribution resides at the intersection of PMM and sustainable supply chain governance among SMEs. Despite abundant research on PMM and sustainable supply chain governance, studies exploring their interplay are scarce. Specifically, this study diverges from previous research by concurrently examining the relationships between PMM, supply chain governance, and performance. It is among the first to investigate the impact of PMM on business and sustainability performance, and to empirically demonstrate the mediating effect of supply chain governance on the relationship between PMM and these performance measures. Therefore, this study elucidates the role of PMM in sustainable supply chain governance, using data from Finnish SMEs. By integrating PMM, supply chain governance, and performance into a single model, this study demonstrates that PMM mediates supply chain governance rather than PMM itself, which is pivotal to business and sustainability performance.
This research enhances organizational control theory by adopting it in the SME context and adapting its core assumptions to identify the factors that bolster sustainability performance. The findings clarify the role of PMM as a significant enabler of embedding sustainability within supply chain relationships. Moreover, this study advances the research on the efficacy of distinct supply chain governance mechanisms in SMEs to achieve superior sustainability performance. Particularly within SMEs and regarding sustainable development, stakeholders such as customers and suppliers significantly influence the design, implementation, and integration of PMM into the measurement process (cf. Mura et al., 2018). Supply chain governance mechanisms that facilitate external relationship management through common objectives, performance evaluations, feedback systems, and collaborative practices must be connected to PMM to achieve sustainability performance in SMEs (cf. Dekker et al., 2019).
Practical implications
From a practical perspective, the findings provide managers involved in company-customer and company-supplier relations with actionable guidance. The mediating role of supply chain governance highlights the potential of PMM to enhance sustainability performance. Without supply chain governance, PMM’s effectiveness of PMMs may diminish when established in traditional business practices because of the impact of sustainability pressures on firm operations. Therefore, the mere application of PMM does not guarantee improved business performance. Supply chain governance is necessary to fine-tune the relationship between PMM and business performance. Consequently, this study advises SME managers to invest in PMM to boost their business and sustainability performance. To achieve this, PMM must be integrated with supply- and demand-side governance practices. In SMEs’ PMM, suppliers and customers are central to the measurement process. This includes assessing and collaborating with suppliers, and gathering data on customer needs, attitudes, and expectations. It is crucial to communicate customer needs and expectations effectively to suppliers. This approach enables SMEs to enhance their business and sustainability performance. The results also suggest that achieving sustainable performance may be challenging in the absence of adequate business performance, particularly for SMEs. This consideration is vital for establishing sustainability improvement goals.
Limitations and future research directions
Several limitations are apparent and present opportunities for further research. First, the study was conducted on SMEs in a single country. Replicating this study in different contexts, countries, and firm types would improve the generalizability of the findings. Secondly, this study used cross-sectional data. Future studies could employ qualitative case studies to delve deeper into the relationships between the variables. Third, while we believe our model and measures are robust and well-founded on previous research, we rely on subjective measures for business and sustainability performance. These can be supplemented by objective performance metrics to offer alternative perspectives.
Additionally, the use of two-item scales for these constructs can be considered a limitation they can affect the reliability, validity, and overall effectiveness of the research. Using more than two items has been considered important, especially when these limitations are considered insurmable against the benefits and if a more comprehensive assessment of the construct is necessary. Although the authors acknowledge these limitations of two-item scales, their use was considered appropriate under certain conditions that were met in the study, despite the limitations previously mentioned. The appropriateness of a two-item scale depends on the research context, objectives, and constraints. They are suitable in (1) resource-constrained settings, for example, SME top managers have limited time and possibilities to answer surveys; (2) for simple constructs, the constructs were easy to define for the respondents at the beginning of the survey and, as the respondents in the current study were top managers, they had sufficient knowledge to respond to items reliably; and (3) to minimize respondent burden, the surveys included items for PMM, supply chain governance, and performance, which resulted in a significant number of items. After carefully considering these factors, we decided to balance the trade-offs between two-item and multiple-item measures, and believe that the two-item scales were the best fit for performance measures in our study.
Finally, our study focuses on the supply chain governance of focal firms, specifically SMEs, rather than the contributions of collaborators to sustainability performance. Future research could examine multi-tier supply chain collaborations and incorporate perspectives from various supply chain members to enhance the understanding of PMM in sustainable supply chain governance.
Figures
Figure 1
Research model and hypotheses
Figure 2
Results of the structural model
Descriptive information of the respondents (n = 274)
| n | % | ||
|---|---|---|---|
| No. of employees | Less than 20 | 108 | 39.4 |
| 20–49 | 93 | 33.9 | |
| 50 or more | 71 | 25.9 | |
| Not known | 2 | 0.7 | |
| Exports percentage | Less than 50% | 233 | 85.0 |
| 50% or more | 39 | 14.2 | |
| Not known | 2 | 0.7 |
Source(s): Authors’ own creation
Measures and their reliability and validity
| Construct | Items | Std. weight | α | CR | AVE | |
|---|---|---|---|---|---|---|
| Supply-side governance (adapted from Wagner et al., 2011; Wang et al., 2011; Swift et al., 2019) | SSG1 | Rarity of material deficiencies | 0.60 | 0.744 | 0.862 | 0.676 |
| SSG2 | Credence/confidence in suppliers | 0.76 | ||||
| SSG3 | Identifiability of materials | 0.80 | ||||
| Demand-side governance (adapted from Blome et al., 2014; Petersen and Brockhaus, 2017; Silva et al., 2019) | DSG1 | Set targets to meet stakeholder expectations | 0.86 | 0.916 | 0.945 | 0.856 |
| DSG2 | Defined action plans to meet stakeholder expectations | 0.93 | ||||
| DSG3 | Monitoring the fulfillment of stakeholder expectations | 0.86 | ||||
| PMM (adapted from Magretta and Stone, 2002; Garengo et al., 2005; Franco-Santos et al., 2007; Kaplan and Norton, 2008; Bititci et al., 2012; Bourne et al., 2013; Koufteros et al., 2014; Melnyk et al., 2014) | PMM1 | Notification of the organization’s goals | 0.74 | 0.797 | 0.872 | 0.631 |
| PMM2 | Measurement of the implementation of the goals | 0.75 | ||||
| PMM3 | Notification of the measures used for tracking goals | 0.74 | ||||
| PMM4 | Communication of the importance of following the agreed procedures | 0.59 | ||||
| Business performance (adapted from Choi and Ng, 2011; Boons and Lüdeke-Freund, 2013) | BUS1 | Productivity | 0.79 | 0.923 | 0.858 | |
| BUS2 | Profitability | 0.90 | ||||
| Sustainability performance (adapted from Choi and Ng, 2011; Boons and Lüdeke-Freund, 2013) | SUS1 | Social sustainability of operations (e.g. equality, non-discrimination, and compliance with labor laws) | 0.59 | 0.837 | 0.719 | |
| SUS2 | Environmental sustainability of operations (e.g. decreasing emissions, complying with environmental legislation, and minimizing waste) | 0.75 |
Source(s): Authors’ own creation
Correlation matrix with variable means and standard deviations
| Mean | St. Dev | 1 | 2 | 3 | 4 | 5 | |
|---|---|---|---|---|---|---|---|
| 1 Supply-side | 3.98 | 0.711 | 0.822 | ||||
| 2 Demand-side | 3.38 | 0.990 | 0.233*** | 0.925 | |||
| 3 PMM | 3.85 | 0.707 | 0.282*** | 0.508*** | 0.794 | ||
| 4 Sustainability performance | 3.30 | 0.466 | 0.179** | 0.174** | 0.224*** | 0.848 | |
| 5 Business performance | 2.87 | 0.648 | 0.253*** | 0.288*** | 0.176** | 0.126* | 0.926 |
Note(s): Sign. ***p ≤ 0.001, ** 0.001 < p ≤ 0.01
The diagonal italic values show the square roots of AVE
Source(s): Authors’ own creation
Hypothesis testing results
| Structural paths | Coefficient | SE | z-value |
|---|---|---|---|
| Direct effects | |||
| Company size → Sustainability performance | −0.009 | 0.016 | −0.59 |
| Company exports → Sustainability performance | 0.050 | 0.082 | 0.61 |
| Company size → Business performance | −0.012 | 0.022 | −0.51 |
| Company exports → Business performance | −0.054 | 0.097 | −0.56 |
| Supply-side governance → Sustainability performance | 0.059 | 0.060 | 0.99 |
| Demand-side governance → Sustainability performance | −0.019 | 0.040 | −0.46 |
| Supply-side governance → Business performance | 0.175 | 0.083 | 2.12* |
| Demand-side governance → Business performance | 0.194 | 0.055 | 3.55*** |
| PMM → Supply-side governance | 0.461 | 0.094 | 4.86*** |
| PMM - > Demand-side governance | 0.958 | 0.121 | 7.91*** |
| PMM → Sustainability performance | 0.147 | 0.080 | 1.83 |
| PMM → Business performance | −0.020 | 0.099 | −0.20 |
| Business performance → Sustainability performance | 0.142 | 0.057 | 2.50* |
| Indirect effects | |||
| Supply-side governance → Sustainability performance | 0.025 | 0.015 | 1.65 |
| Demand-side governance → Sustainability performance | 0.027 | 0.014 | 2.03* |
| PMM → Sustainability performance | 0.045 | 0.049 | 0.91 |
| PMM → Business performance | 0.266 | 0.076 | 3.50*** |
Note(s): Sign. ***p ≤ 0.001, ** 0.001 < p ≤ 0.01, * 0.01 < p ≤ 0.05
Source(s): Authors’ own creation
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