Accepted Manuscript

The effects of corporate social responsibility on organizational performance in the

Iranian pharmaceutical industry: The mediating role of TQM

Gholamhossein Mehralian, Jamal A. Nazari, Leila Zarei, Hamid Reza Rasekh

PII: S0959-6526(16)30795-8
DOI: 10.1016/j.jclepro.2016.06.116
Reference: JCLP 7487

To appear in: Journal of Cleaner Production

Received Date: 25 February 2016

Revised Date: 5 June 2016
Accepted Date: 20 June 2016

Please cite this article as: Mehralian G, Nazari JA, Zarei L, Rasekh HR, The effects of corporate social
responsibility on organizational performance in the Iranian pharmaceutical industry: The mediating role
of TQM, Journal of Cleaner Production (2016), doi: 10.1016/j.jclepro.2016.06.116.

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 ACCEPTED MANUSCRIPT

The Effects of Corporate Social Responsibility on Organizational Performance in the

Iranian Pharmaceutical Industry: The Mediating Role of TQM

Abstract

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In recent years, society and many organizations have been paying increasing attention to the

social responsibilities of organizations towards various stakeholder groups. To ensure the

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fulfillment of social responsibilities of organizations towards society, corporate social

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responsibility should be embedded in day-to-day operations and managerial decision-making.

Total quality management is also a commonly used managerial tool that takes into considerations

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the interests of various stakeholder groups. This paper investigates how the relationship between
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corporate social responsibility and total quality management affect the organizational

performance measured by the Balanced Scorecard. The results of the analysis, using structural
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equation modeling on 933 completed questionnaires sent to the pharmaceutical companies in

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Iran, suggest that social responsibility is significantly associated with the integration of this

responsibility into quality management programs. Quality management, in turn, has a significant
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and positive effect on organizational performance.. The results provide contribution to the earlier
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studies that have found inconsistent results on the direct association between social responsibility

and organizational performance by demonstrating that quality management mediate the

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relationship between social responsibility and organizational performance. Managers can

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strengthen their relationships with stakeholders and ultimately improve organizational

performance if social responsibility towards stakeholders is embedded in operational routines

and processes.

Keywords: Total Quality Management, Corporate Social Responsibility, Organizational

Performance, Pharmaceutical Industry

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The Effects of Corporate Social Responsibility on Organizational Performance in the

Iranian Pharmaceutical Industry: The Mediating Role of TQM

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1. Introduction

Corporate social responsibility (CSR) is generally viewed as voluntary activities conducted

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by an organization to operate in an economic, social, and environmentally sustainable manner.

The concept of CSR is based on the interdependencies between organizations and society on the

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one hand and the variables that influence this relationship on the other (McWilliams and Siegel,

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2001). Total quality management (TQM) is a holistic managerial approach that seeks to integrate
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all organizational functions to continuously fulfill customer requirements and enhance system

quality in organizations to increase profitability and productivity (Kumar et al., 2009; Wang et
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al., 2012; Mehralian et al., 2016). When implemented together, TQM and CSR have the potential

to create a sustainable competitive advantage in today’s dynamic business environment (Wang et

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al., 2012). The implementation of TQM enables organizations to deliver superior value to
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customers, and subsequently achieve organizational objectives.

Quality management is one of the most important commitments to society and consumers by
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companies in general and the pharmaceutical industry in particular. The pharmaceutical industry
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faces a diverse group of stakeholders, including patients, health professionals, the media,
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regulators, political authorities, and the general public, all of which increasingly expect

companies to recognize their social and environmental responsibilities to mitigate the negative

impacts of their operations and, ultimately, to contribute to the communities in which they

operate (de Grosbois, 2012; Esteban, 2008; Juholin, 2004). As stakeholders and consumers

become more concerned about social issues, companies realize that their CSR cannot be ignored

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if they seek to sustain their competitive advantage. Hence, these ethical and operational

responsibilities towards various stakeholders have prompted many global corporations to adopt

CSR policies (Herremans et al., 2016).

CSR, however, is a broad concept, and there is no consensus on its definition and boundaries.

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The definition of CSR can vary depending on economic and business environments (Berger et

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al., 2007; Carroll and Shabana, 2010). In the last decade, there has been an interest towards

adopting more elaborate forms of CSR, which aims at producing more sustainable benefits for

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the communities (Mory et al., 2015). Generally, CSR is often considered as a management

philosophy (Berger et al., 2007; Carroll and Shabana, 2010) that can be defined as the integration

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of social and environmental issues in company operations and continuous voluntary interactions
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with a company’s stakeholders on CSR issues (Herremans and Nazari, 2016; Herremans et al.,

2016; Omidvar, 2009). It should be embedded in the organizational culture and, from this
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perspective, social practices should be taken into account even if they are not directly related to
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financial outcomes (Wry, 2008). There are several reasons for an organization to implement
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CSR, including responding to specific demands of stakeholders, improving the firm’s

performance, enhancing corporate reputation, generating customer loyalty, and avoiding legal
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sanctions (Basu and Palazzo, 2008; Doh and Guay, 2006).

In recent years, the concept of CSR has been adopted by many business sectors such as the
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pharmaceutical industry. This growth in attention to social responsibilities is not limited to

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developed countries. Rather, due to globalization, many business sectors in developing countries

are adopting CSR practices in their operations. Although there is not much academic and

practical research on CSR in developing countries such as Iran, some recent studies have found

that managers of Iranian firms are paying increasing attention to CSR as they perceive CSR to be

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associated with organizational performance (Saeidi et al., 2015). One of the sectors in Iran that is

of particular importance by the nature of its operation is the pharmaceutical sector.

Pharmaceutical distribution companies act as an important intermediary in the drug supply chain

as they connect manufacturers to pharmacies either through community pharmacies or through

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hospitals in the pharmaceutical sector (Mehralian et al., 2015). With this in mind, the role of

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efficient management in such companies that paves the way for the purchase of materials from

reliable suppliers and maintains appropriate conditions to deliver medicines to pharmacies is

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undeniable. These circumstances make this sector socially accountable to final consumers and

necessitate the implementation of quality management practices. Such an approach will protect a

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company’s brand and reputation among consumers and other stakeholder groups (Kumar et al.,
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2009). In addition, lack of proper care about and attention to these responsibilities can jeopardize

the operations of pharmaceutical companies in today’s competitive market environment.

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Despite the fact that TQM and CSR and the benefits of adopting these practices to address
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current challenges in the pharmaceutical industry are interrelated, earlier research has focused on
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investigating the individual impact of TQM and CSR on organizational success. For example,

some earlier studies have analyzed the impact of TQM on performance, including financial and
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non-financial, in the pharmaceutical industry (Andersen et al., 2004; Hoque, 2003; Kumar et al.,

2009). The findings from this earlier research indicate that TQM can significantly improve
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customer related performance (Kumar et al., 2009). Other studies found the positive effect of
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TQM on the internal processes of organizations (Kumar et al., 2009). Recent literature notes that

TQM has a positive effect on learning and growth in an organization (Fotopoulos and Psomas,

2010; Kumar et al., 2009; Mehralian et al., 2013).

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There is a dearth of research on this important sector, and in developing countries, on how

TQM and CSR can simultaneously affect performance. The recent literature on TQM and CSR

calls for empirical research on how TQM and CSR interact to affect organizational outcomes

(e.g. Tarí, 2011). The present study responds to this call by investigating how TQM mediate the

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relationship between CSR and performance on the one hand and how TQM and CSR

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individually affect performance on the other. In measuring performance, a more holistic

approach was taken by using the balanced scorecard approach (BSC). The BSC approach uses

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financial and operational measures on customer satisfaction, internal processes, organizations’

innovation, and improvement activities (Kaplan and Norton, 2005). This study offers a

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contribution to the literature by using and integrated approach in studying how embedding CSR
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in day-to-day operations can influence the development of TQM, and thus improve

organizational performance.
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This paper is structured as follows. The next section develops the research background,
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followed by the research model and research hypotheses regarding the link between the two
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management practices and the impact that these approaches have on the performance of

pharmaceutical companies, using the BSC approach. Next, the paper explains the methodology
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employed in this empirical study and presents its findings. The final section discusses the results

and draws conclusions. Theoretical and managerial implications, limitations, and

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recommendations for future research are outlined last.

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2. Literature Review

The literature review in this section focuses on three main constructs of interest in this

research: total quality management, corporate social responsibility, and organizational

performance.

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2.1. Total Quality Management

TQM is a managerial tool through which managers and employees may continuously

improve the value added processes of an organization in order to prevent rather than detect the

defects (Mazumder et al., 2011). TQM is considered as a highly acceptable solution to address a

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variety of product and process quality issues. Although the concept of quality has evolved over

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many years, various approaches to TQM have led to different definitions (Martínez-Costa and

Jiménez-Jiménez, 2009; Tena et al., 2001). Its effects on company product quality and other non-

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financial results have thus been investigated, using different parameters (Mehralian et al., 2013;

Zhang, 2000). Prajogo and Sohal (2003, p. 910) examined manufacturing firms by measuring

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and assessing TQM, using the following six dimensions: leadership, strategic planning, customer
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focus, information technology and analysis, people management, and process management. Most

of the previous studies suggest that the most influential dimensions of TQM include top
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management support, employee involvement, continuous improvement, and customer focus

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(Prajogo and Sohal, 2003). Earlier literature recognizes TQM as an integrated management
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philosophy and a set of practices that lead to a change in business processes. In the current study,

the earlier dimensions of TQM introduced in the literature serve as a base to develop the survey
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instrument and items.

2.2. Corporate Social Responsibility

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In today’s global environment, accountability towards various stakeholder groups and

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society and abiding by the terms of social license to operate through addressing social and

environmental concerns in day-to-day operation is paramount to organizational survival.

Particularly in the pharmaceutical industry, social responsibilities of this sector are outlined in

the 1946 WHO constitution, under human rights section. Hemingway and Maclagan (2004)

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define CSR as the “extent to which companies should promote human rights, democracy, social

and community improvement and sustainable development objectives through the world.” There

are various other definitions for CSR offered in the business ethics literature (e.g. Maon et al.,

2009), but there is no single definition that is universally agreed upon. Therefore, it may

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sometimes be considered a vague and intangible term which makes it open to various

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interpretations (Lee and Kohler, 2010). Many firms in developing countries define CSR

according to philanthropic rather than business case for CSR (Jamali, 2010).

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As there is no consensus among relevant stakeholders on the scope of socially

responsible practices by pharmaceutical companies (Esteban, 2008; Volodina et al., 2009) and on

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the voluntary nature of many CSR activities, any company individually develops its own CSR
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initiatives, which are often short-lived and inconsistent across various companies (Esteban,

2008). These problems mean that CSR remains a complex issue—theoretically, politically, and
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practically. However, companies are now held accountable for the social consequences of their
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actions and are expected to consider social and environmental consequences of their operations
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along with their profit-driven activities (Esteban, 2008). Although pharmaceutical companies

have configured that CSR strategies provide a competitive advantage and contribute to long-term
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organizational survival and success, CSR in the pharmaceutical sector has received limited

attention from researchers. Many academics and business practitioners categorize CSR into five
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major dimensions, including governance, employee, social, environmental, and economic

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responsibilities (Agudo Valiente et al., 2012; O’Riordan and Fairbrass, 2008; Tena et al., 2001).

Therefore, the CSR constructs developed in this study are grounded on these five dimensions.

2.3. Organizational Performance

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Organizational performance is one of the most important constructs of interest in

management studies. Continuous performance is the focus of any organization, mainly because

performance improvement enables organizations to grow (Gavrea et al., 2011). Organizational

performance is an indicator of how well an organization achieves its objectives (Ho, 2008).

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Additionally, the evaluation of organizational performance is not possible without taking

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organizational objectives into account. Hence, in today’s competitive market, organizations must

be able to evaluate their objectives (Moghaddam et al., 2015) such as product costs, profit, as

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well as subjective performances, and set up appropriate strategies to achieve their objectives

(Yunis et al., 2013) and competitive advantage (Gallardo-Vázquez and Sanchez-Hernandez,

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2014). In order for companies to measure the fulfillment of these objectives and improve
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organizational performance, there are several measurement tools available, among which the

BSC is one of the most valuable performance measurement and management tools that is widely
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known and used. Johnson and Kaplan (1987) argued that relying on traditional measures of
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financial performance will lead to short-term results. To address this deficiency in traditional
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financial performance measurement, Kaplan and Norton (Kaplan and Norton, 1992; Kaplan and

Norton, 1996) developed the BSC to include non-financial indicators in performance

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measurement and management systems. Since then, the BSC as a comprehensive performance

measurement and management tool has been widely used both in academia and in practice
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(Molina et al., 2014; Nazari, 2014).

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The BSC has a great potential to enable improvement in organizational, financial, and

non-financial performance, as it entails all dimensions of organizational performance. In prior

CSR literature, Larrán Jorge et al. (2015) echoed the importance of using a more holistic

approach toward performance measurement by taking into consideration the intangible assets

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such as organizational image, reputation, and stakeholder relationships. The BSC is a holistic

approach towards performance measurement and management that consists of four dimensions:

financial, customer, internal process, and learning as well as growth. The financial dimension

uses traditional financial measures such as profitability, risks, and growth. The customer

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dimension includes the outcome of organizational relationship with customers such as market

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share and customer satisfaction. The internal business processes dimension is concentrated on

the procedures used inside an organization to create value. Finally, the learning and growth

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dimension is focused on organizational change, innovation, and growth. Therefore, the BSC

framework allows organizations to monitor, measure, and keep track of their financial and non-

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financial performance in line with their strategy and vision.
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3. Hypothesis Development
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The prior literature leading to the development of research hypotheses for the current
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study are discussed below.

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3.1. Total Quality Management and Corporate Social Responsibility

Many organizations seek to adopt and implement a set of operational management

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practices that enables them to monitor the changes in their environment and respond proactively

to these changes through continuous improvement (Asif et al., 2013; Lozano, 2012). From
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possible operational management choices in response to these changes, CSR and TQM have
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received considerable attention over the last two decades (Akdere, 2009; Jung and Wang, 2006;

Kull and Narasimhan, 2010). The importance of developing appropriate frameworks for

corporate social practices has been emphasized in the literature (McWilliams and Siegel, 2001;

Porter and Kramer, 2006; Waddock and Bodwell, 2004). To ensure social legitimacy, both

academics and practitioners support integrating CSR into an existing business model (Castka and

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Balzarova, 2008; Castka et al., 2004). Castka and Balzarova (2008) discussed how sustainable

practices can be integrated with the current management practices such as quality management

systems. Mellat-Parast (2013) argued that considering the existing management and business

excellence models and practices, CSR can most effectively be integrated with quality

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management frameworks. Tarí (2011) did a systematic review of earlier research on CSR and

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TQM and suggested that TQM can facilitate the development of CSR. He then described how

each of the common dimensions of TQM practices, including leadership, planning, people

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management, customer focus, supplier management, process management, information analysis,

and design can support the development of CSR practices. Based on the review of the literature

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on TQM and CSR, Tarí (2011) called for empirical research that investigates the association of
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these two management practices and their integration into operations.

Consistent with previous studies and responding to the earlier calls for research in the
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literature, this paper conceptualizes CSR within the quality management framework (Punter and
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Gangneux, 1998; van der Wiele et al., 2001; Waddock and Bodwell, 2004) to explore the
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relationship among CSR practices, TQM practices, and the performance of companies. This

research is mainly motivated by the assumption that extending a successful management system
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to embrace new developments would lead to a significant improvement in organizational

performance (Corbett and Klassen, 2006). The earlier literature suggests that tools, techniques,
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and methods for quality management systems can be used in support of other “improvement”
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systems such as environmental systems (Boudreau et al., 2003; Corbett and Klassen, 2006). This

parallel emphasis on quality management and CSR leads to an improvement in both environment

and quality (product/process) outcomes, and thus proposing a synergistic effect between quality,

social, and environmental management (King and Lenox, 2001; Pil and Rothenberg, 2003;

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Vachon and Klassen, 2008; Zhu and Sarkis, 2004). Therefore, consistent with the arguments in

the literature, this paper discusses that socially responsible companies will implement quality

management systems to ensure that the interests of various stakeholders are embedded in day-to-

day operations. Hence, the following hypothesis is suggested:

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H1: CSR is significantly and positively associated with TQM.

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3.2. Corporate Social Responsibility and Organizational Performance

One of the main challenges for organizations in implementing new management practices

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is the extent to which those new practices facilitate achieving short-term and long-term
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organizational objectives (Agudo Valiente et al., 2012). In this view, CSR implementation is

viewed as a strategy to gain competitive advantage through differentiating the firm from its
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competitors by emphasizing the consistency of the operation with societal expectations.

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Considering the level of ethical and environmental issues that the pharmaceutical sector may
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encounter, CSR is very relevant to pharmaceutical companies so much so that such companies

now allocate more resources than before to CSR practices and activities (Sahlin Andersson,
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2006; Salton and Jones, 2015). Companies strive to succeed, and thus the implementation of

CSR to abide by societal expectations can result in success in increasing awards, sales, and
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company reputation (Márquez and Fombrun, 2005). Despite the fact that CSR enables
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organizations to fulfill their stakeholder obligations, there is a debate as to whether companies

with elaborate CSR programs benefit financially and strategically, or otherwise. For instance,

there are conflicting findings on the relationship between the CSR and performance. For

example, Brammer et al. (2006) found a negative association between CSR and performance and

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argued that companies are at a competitive disadvantage by spending resources on CSR. Another

study by McWilliams et al. (2006) found no association between CSR and financial

performance. Some other studies (e.g. Waddock and Bodwell, 2004) found a positive association

and proposed that companies are at a competitive advantage by engaging in CSR activities.

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Another review study found a positive relationship between CSR and financial performance

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(Beurden and Gössling, 2008). Some of the more recent studies, including the study by Gallardo-

Vázquez and Sanchez-Hernandez (2014) and by Larrán Jorge et al. (2015), support a positive

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association between CSR and organizational performance. These conflicting results has led to a

conclusion that is still a “puzzle” whether or not investing in social responsibility would indeed

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produce superior returns (Renneboog et al., 2008).
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Although there are plenty of studies to investigate the financial benefits of CSR

(McWilliams and Siegel, 2001; Tsoutsoura, 2004), studies are scarce to link CSR with both
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financial and non-financial measures of organizational performance (Santhosh and Baral, 2015).
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Synthesizing the earlier literature and associating the inconsistencies with measurement and
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design issues, Beurden and Gössling (2008) proposed that, irrespective of how CSR or

performance is measured, one would expect that “Good Ethics is Good Business”. In the present
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study, a more holistic approach towards performance is taken by using the BSC, and therefore,

the following hypothesis is proposed on the relationship between CSR and performance:
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H2: CSR is significantly and positively associated with BSC.

3.3. Total Quality Management and Organizational Performance

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TQM is a management approach for enhancing organizational performance that involves

a variety of technical and behavioral issues (Rahman, 2004). It uses strategy, data, and effective

communication to integrate the quality into the culture and activities of an organization,

rendering organizations more competitive. Various studies have been conducted to test the

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relationship between quality management practices and organizational performance. For

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example, earlier research has shown the relationship between TQM implementation and various

dimensions of company performance such as financial performance, the long-run stock price

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performance (Hendricks and Singhal, 2001), employees’ work-related attitudes (Karia and

Asaari, 2006), customer performance (Choi and Eboch, 1998; Fuentes et al., 2006), innovation

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performance (Prajogo and Sohal, 2003), operational performance (Choi and Eboch, 1998), and
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organizational learning (Martínez-Costa and Jiménez-Jiménez, 2009). Based on a thorough

review and search of the prior literature, there is a dearth of research that investigates the
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relationship between TQM implementation in the pharmaceutical sector and various dimensions
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of performance, using an integrated approach towards performance. Hence, the results of this
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empirical study on the relationship between TQM and various dimensions of performance in the

pharmaceutical sector, in which the quality is a critical issue, can have a significant contribution
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to the literature. Therefore, according the following hypotheses, TQM is associated directly with

the BSC and mediates the relationship between CSR and BSC as well.
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H3: TQM is significantly and positively associated with BSC.

H4: TQM mediates the association between CSR and BSC.

4. Methods

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This section starts by describing the research model, followed by the discussion of

measures used in the survey instrument and its validation. It also comprises the description of

sampling and statistical approach.

4.1. Research Model

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Given the characteristics of the pharmaceutical industry as a suitable context in

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examining the effects of CSR on organizational performance, and considering the above

arguments for the relationship among CSR, TQM, and performance, Figure 1 visualizes the

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conceptual model used in this study to test the research hypotheses.

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“Insert Figure 1 About Here”
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4.2. The Instrument and Measures
To increase the external validity and generalizability of the research findings, this
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research adopts a cross-sectional field survey approach to collect the data. A five-point Likert
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type scale ranging from one (strongly disagree) to five (strongly agree) were used to measure
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CSR, BSC, and TQM practices. Based on the relevant CSR literature and earlier studies (Agudo

Valiente et al., 2012; Tseng et al., 2010; O’Riordan and Fairbrass, 2008), the five components of
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CSR—employee relations, CSR corporate governance, social responsibilities, economics and

financial responsibilities, and environmental responsibilities—were developed, using 6, 4, 3, 3,

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and 3 items, respectively.

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Using the relevant studies in the area of TQM practice (Hassan et al., 2012; Powell, 1995;

Ross and Perry, 1999) the six dimensions of TQM—top management support, employee

involvement, employee training, quality information availability and usage, supplier quality, and

customer focus—were measured, using 7, 4, 6, 4, 6, and 4 items, respectively. To measure

performance, the BSC items were developed, using both the literature (Andersen et al., 2004;

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Hoque, 2003) and experts’ opinion. Using the instruments from the earlier literature, four BSC

dimensions—financial, customer, internal process, and learning as well as growth—were

measured, using 3, 3, 3, and 4 items, respectively. Although the conceptual model of the study

has a dimension called “customer” in both TQM and BSC, these play different roles in shaping

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the latent variable. Specifically, in TQM, the “customer” variable acts as a key process indicator,

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which enables companies to manage the requirements that are critical for them to be satisfied,

while, in the BSC approach, “customer” perspective is a variable by which companies will be

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able to evaluate the satisfaction level of customers. The latter variable is, thus, a key result

indicator, while the former is a process indicator. Similarly, ”employee training and

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involvement” incorporated in the CSR construct encompasses how an organization creates an
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atmosphere in which employees are satisfied in terms of required knowledge, social welfare, and

hearing their voice; while the “employee” dimension in the TQM construct attempts to measure
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the extent to which an organization is committed to involve its employees in quality issues. The
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final questionnaire consists of 15 dimensions: six TQM factors, five CSR factors, and four BSC
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factors. In addition, some questions were designed to gather demographic and organizational

information.
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4.3. Questionnaire Validation

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The initial questionnaire was delivered to ten experts from academics and managers, all
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of whom were specialized in the field of pharmaceutical distribution. During meetings held with

them, the validity of the questionnaire, including clarity, comprehensiveness, and the relevance

of the questions were examined. After the modification of some questions for clarity and content,

a questionnaire with 15 dimensions and 63 questions was finalized for the next step.

4.5. Sampling and Data Collection

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This research focuses on the Iranian pharmaceutical distribution companies as the

primary population. This industry was chosen for the context of this research because the

implementation of socially responsible practices is industry-dependent (King et al., 2005), and

the pharmaceutical industry is expected to implement socially responsible practices. Therefore, it

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provides a suitable context for this research.

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The data for this study was gathered using a questionnaire that was distributed to 30 large

pharmaceutical companies throughout the country. This sample was drawn from a population of

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45 companies in this sector. Our sample companies are the largest companies in this sector and

comprise 90% of the market share. They are also geographically diverse, as they operate

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throughout the country. The main sampling targets were senior managers, department managers,
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and personnel who were involved in decision-making. The questionnaire was sent to a sample of

50 potential respondents in each of the 30 firms. 933 completed questionnaires were returned,
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providing an adequate sample size for the subsequent statistical analysis. Table I summarizes the
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demographic data of the respondents. Because some respondents were hesitant to complete the
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demographic data, this data for a small percentage of the sample remains unknown.
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“Insert Table 1 About Here”

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4.6. Statistical Approach

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After checking the normality of data distribution, Structural Equation Modeling (SEM)

was used as the primary method to validate and analyze the research model and framework. SEM

was also used to test two models: the measurement model and the structural equation model

(SEM). The measurement model determines how latent variables depend upon or are affected by

the observed variables. The model accounts for the measurement features (reliabilities and

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validities) of the observed variables. Meanwhile, the SEM allows for testing the causal relations

among the latent variables, explains the causal direct and indirect effects, and describes the

explained and unexplained variance (Joreskog and Sorbom, 1996).

To test the hypothesized model, the LISREL version 8.52 statistical package was used.

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The LISREL structural model was used to estimate and test the hypothesized model and

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specified causal relationships. In addition, SEM allows for testing the linear relations among

latent (unobserved) constructs and manifest (observed) variables. One of the unique

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characteristics of SEM is its ability to make available parameter estimates for relationships

among unobserved variables. Ultimately, SEM creates path analysis that provides parameter

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estimates of the direct and indirect relations among observed variables.
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5. Results
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Results on the reliability of measurement model used, hypothesis testing, and the analysis

of mediating effect are described under this section.

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5.1. Assessment of the Reliability of Measurement Model

To test the reliability of the instrument, Cronbach’s alpha -as an acceptable approach -
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was used both for the reliability of total questionnaire items and for the three constructs of the
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questionnaire separately- the coefficient of all the sections were above the conservative threshold
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of 0.70. In addition, the criterion for selecting factors was tested based upon the approach

proposed by Kaiser (1958), Eigenvalues greater than one, and an absolute value of factor

loadings greater than 0.50, with all the measures confirming the reliability of the questionnaire.

Additionally, as mentioned earlier, Cronbach’s alpha was calculated separately for each

dimension of the questionnaire. The Kaiser-Meyer-Olkin (KMO) value was used to determine

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the appropriateness of the data sets for factor analysis; a value greater than 0.5 represents an

acceptable threshold (Mehralian et al., 2014; Valmohammadi, 2011). Confirmatory factor

analysis was also run to test the reliability and convergent validity of each variable forming the

constructs of interest. Table 2 illustrates the fit indices for the study variables. Convergent

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validity can be judged by considering the significance of the factor loading and t-values. All of

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the multi-item constructs met these requirements, and the factor loadings were significantly

related to their underlying factors (t-values greater than 1.96 or less than 1.96). Overall, the

SC
results provide strong support for the convergent validity and reliability of individual variables

forming each of the constructs.

U
The average variance extracted (AVE) shared between the construct and measures were
AN
all greater than 0.50, which indicates an acceptable convergent validity. Table 2 shows that using

AVE also provides evidence of convergent validity for the constructs. The composite reliability
M

measured by the average variance extracted (AVE) provides evidence for the reliability and
D

convergent validity of the latent constructs. All the reliability indices were greater than 0.60 and
TE

the average variance shared between the construct and measures were all greater than 0.50.

Furthermore, Fornell and Larcker (1981) approach was used to assess discriminant validity.
EP

Consequently, the AVE for each construct is higher than the squared correlation between the

construct and any of the other constructs, indicating discriminant validity.

C
AC

“Insert Table 2 About Here”

Figure 2 illustrates parameter estimates for the structural model used in this study. The

figure reflects the results of running the SEM to validate and analyze the research model.

18
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“Insert Figure 2 About Here”

The goodness-of-fit of the statistical model describes how well it fits into a set of

PT
observations. The goodness-of-fit indices summarize the discrepancy between the observed

values and the values anticipated according to a statistical model. The absolute fit indicators,

RI
incremental fit indicators, and goodness-of-fit index (GFI) are reported for the validation of the

SC
overall fit. The results are shown in Table 3.

U
“Insert Table 3 About Here”
AN
M

Among the absolute fit indicators, ( ℎ )/ ( ) is 2.7,

the GFI value is 0.92, root mean square residual (RMR) value is 0.04, and root mean square error
D

of approximation (RMSEA) value is 0.05. All of the fit indices reported met the acceptable range
TE

suggested by the literature (Bollen, 2014; Carmines and McIver, 1981). In terms of incremental

fit indicators, the adjusted GFI value of the model is 0.96, normed fit index (NFI) value is 0.94,
EP

comparative fit index value is 0.96, and incremental fit index value is 0.93. All the values

demonstrate acceptable levels as suggested in earlier literature. Among the GFIs, the
C

parsimonious NFI (PNFI) value of this model is 0.07 and parsimonious GFI value is 0.08. They
AC

are both greater than 0.05, exceeding the threshold suggested by previous statistical references

(Hair et al., 2006).

5.2. Hypothesis Testing Results

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Table 4 presents the results of the analyses on the causal relationships among three key

constructs. CSR directly influences TQM (β = 0.32), and TQM has a direct effect on BSC (β =

0.91). While a positive relationship between CSR and BSC (β = 0.04) was found, the relationship

was not statistically significant. These results indicate that being socially responsible (CSR)

PT
promotes TQM implementation, and subsequently the implementation of TQM improves

RI
organizational performance. These results provide support for the association between CSR and

TQM (H1), the association between TQM and BSC (H3), but do not provide support for the

SC
direct association between CSR and BSC (H3).

U
AN
“ Insert Table 4 About Here”
M

Finally, the total effects of CSR on TQM and BSC were examined, using path analysis.
D

According to Table 5, the effect of CSR as an exogenous variable on BSC was significantly

increased through indirect effect, while through direct effect, it is very low and is not significant
TE

according to H3.
EP

“Insert Table 5 About Here”

C
AC

5.3. Mediating effect

As mentioned earlier, in this research, the effect of CSR on BSC was investigated, using

two different approaches, both direct and indirect effects. Accordingly, the results of this study

suggest that CSR significantly and positively contributes to TQM (SPC = 0.81, p < 0.001).

20
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Moreover, TQM positively influences BSC (SPC = 0.55, p < 0.0001), but CSR does not

significantly contribute to BSC (SPC = 0.27, p < 0.0001), as the direct effect of CSR on BSC

was 0.04. The indirect effect of CSR on BSC through TQM increased to 0.29 after considering

the mediating impact of TQM. Consequently, based on Baron and Kenny (1986), TQM has a

PT
mediating impact on the relationship between CSR and BSC, and the results support H4 on the

RI
mediating impact.

SC
6. Discussion

U
In the current competitive environment, companies strive to thrive and adapt to the
AN
changes in the business environment by creating a sustainable competitive advantage through

managerial approaches such as TQM and CSR (Gallardo-Vázquez and Sanchez-Hernandez,

M

2014; Larrán Jorge et al., 2015). Therefore, the main purpose of this study was to examine the

relationship between CSR activities on organizational performance, using a sample of Iranian

D

pharmaceutical companies. Another purpose of this study was to find the impact of TQM
TE

directly on the BSC and through its mediating role on the relationship between CSR and BSC.

Four basic hypotheses were proposed to carry out the research objectives.
EP

Some previous studies in the CSR literature have identified the positive impact of CSR
C

on quality management (Mellat-Parast, 2013). Similarly, the findings of this study reveal that
AC

CSR positively and significantly affects TQM (β=0.32, p<0.05). Although there is no legal

requirement for CSR implementation in the Iranian pharmaceutical sector, some companies are

involved in such activities as supporting education, issues related to employees, and

environmental protection activities, all of which are due to the philanthropic responsibilities of

these companies to society and the nature of their operations. The results suggest that these

21
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activities subsequently improve their quality management systems, and thus provide support for

the hypothesis on the positive relationship between CSR and TQM (H1). The support for this

hypothesis also provides additional empirical evidence to the earlier literature that suggested

improvement in quality management and that CSR leads to an improvement in the outcomes of

PT
both the environment and quality, confirming a synergistic effect between quality, social, and

RI
environmental management (Zhu and Sarkis, 2004).

Moreover, the result did support the mixed results in the literature for the indistinctive

SC
direct effect of CSR on performance, and thus, the need for comprehensive studies across various

industries (Renneboog et al., 2008). In this regard, the costs of practices perceived to be socially

U
irresponsible, such as pollution or unreasonable pricing policies, might not necessarily outweigh
AN
the short-term benefits that can be obtained from investment in CSR practices in the

pharmaceutical industry (Volodina et al., 2009). The findings show that CSR activities do not
M

have a clear direct effect on organizational performance. The findings are consistent with the
D

previous research that does not show any direct relationship between CSR and performance (Luo
TE

and Bhattacharya, 2006; McWilliams et al., 2006).

The relation between TQM and organizational performance has been investigated in the
EP

literature. For example, Akdere (2009) reported that TQM implementation has a substantial

positive effect on both operational and organizational performance. Based on the results of the
C

present study, TQM positively and significantly influences BSC (β=0.91, p<0.05); therefore, H3
AC

is supported. These findings are consistent with the work of Kumar et al. (2009) that TQM has a

positive effect on all investigated dimensions of company performance, including employee

relations, operating procedures, customer satisfaction, and finances. According to Huarng and

Chen (2002), the TQM implementation has a positive relationship with the business performance

22
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of small and medium companies in Taiwan. They argue that integration of TQM philosophy and

other tools positively influence both cost reduction and business performance of their studied

sample. The results of this study provide support for this earlier literature, using data from a

developing country and from the pharmaceutical industry.

PT
Finally, the results supported that TQM mediates the effect of CSR on organizational

RI
performance (β=0.29, p<0.05), providing support for H4. This finding indicates that the full

implementation of the CSR concept in the pharmaceutical sector can indirectly increase

SC
organizational performance and can affect organizational performance if it is embedded in

organizational management systems such as TQM (Volodina et al., 2009). This finding shows

U
that the commitment of a company to CSR practices encourages the company to improve its
AN
quality management systems and practices, such as TQM. As a result, company performance

would improve significantly over time by embedding CSR into operational practices. More
M

specifically, the CSR approach can inspire a great atmosphere in a company such that all the
D

members of the company act responsibly towards society, finding effective ways to achieve their
TE

tasks as long as it is incorporated into operational practices (Choi and Eboch, 1998; Santhosh and

Baral, 2015).
EP

Previous studies note that, by focusing on practices associated with CSR, managers are

able to develop a culture and atmosphere that facilitates cooperation and employee involvement
C

at different levels of the organization (Mehralian et al., 2013; Mory et al., 2015), promoting the
AC

firm’s reputation (Agudo-Valiente et al., 2015; Gallardo-Vázquez and Sanchez-Hernandez,

2014), and thus differentiating their brand by appealing to ethics-conscious consumers

(McWilliams and Siegel, 2001; Salton and Jones, 2015). Likewise, if companies integrate CSR

policies into their activities during the early stages of development when corporate culture and

23
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the reputation among the industry are being shaped, it should help them improve their image

among a wide range of stakeholders (Herremans et al., 2016), including intermediary and

immediate suppliers and distributors. This also helps them avoid potentially harmful actions both

to themselves, as an industry, and to society at large. In this regard, it is suggested that CSR be a

PT
source of competitive advantage to firms in today’s business environment.

RI
7. Conclusion

SC
The results suggest that organizations perceive CSR as a valuable resource that leads to a

sustainable competitive advantage by promoting and supporting TQM implementation. Two

U
complementary aspects linking CSR and performance were identified: first, CSR promotes a
AN
firm’s image and reputation, which will ultimately attract more qualified and loyal employees,

consumers, and other stakeholders, leading to social license renewal; thus, helping the
M

organizations to achieve a sustainable quality advantage. In other words, improving ‘moral

D

capital’ as a result of implementing practices associated with CSR, promotes and supports
TE

practices such as employee involvement as well as employee participation, consumer and other

stakeholders’ approval of the operations.

EP

Second, TQM mediates the relationship between CSR and organizational performance.

Increased awareness of CSR issues in the pharmaceutical industry is helpful in implementing

C

managerial practices that lead to improved image about the company’s operation. Increased
AC

awareness of these social issues can be achieved by being attached to relevant stakeholders,

society at large, employees and managerial involvements in setting the social and environmental

goals. The results for the mediation effect provide contribution to the earlier scientific body of

knowledge that has found inconsistent results on the direct association between social

24
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responsibility and organizational performance. The results show that this association is indirect

and demonstrates that quality management mediates the relationship between social

responsibility and organizational performance.

This study provides insight for managers in the pharmaceutical distribution industry and

PT
similar industries about how to improve their performance by embedding social issues into

RI
operational practices such as TQM. Similar to previous studies, this study underlines the

importance of TQM in improving performance. With respect to CSR, it would be beneficial for

SC
managers in pharmaceutical distribution companies and possibly other industries to emphasize

CSR practices, particularly those that might directly influence internal quality practices. In

U
addition, managers should be aware of the positive impact of CSR on such practices as employee
AN
involvement and participation, which may ultimately improve organizational performance.

This study also provides some opportunities for future research. The sample was limited
M

to one of the environmentally and socially sensitive sectors, the pharmaceutical companies.
D

Future studies can investigate if the model proposed in this study can be applied to other
TE

environmentally and socially sensitive industries such as oil and gas, chemical, forestry, pulp and

paper, and utilities. TQM was used as a measure of operational practice. Future studies can
EP

investigate the effect of CSR on other operational practices and processes. The focus of this

study was on internal operational processes. Future studies can investigate how some business,
C

environmental, and contextual variables can motivate these internal operational processes.
AC

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Figure 1
Research model and summary of the research hypotheses.

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Figure 2
Structural equation modeling parameters.

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Table 1

Demographic profile of the survey respondents.

Title Description Number of respondents Percent

25-35 476 51.1

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36-45 313 33.5

Age 46-55 82 8.8

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More than 55 16 1.7

unknown 46 4.9

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Stock clerk 47 5
Accountant/Employee 187 20

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Visitor/ Marketer 453 48.6
Job title
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Supervisor 102 10.9

Manager 93 10
Unknown 51 5.5
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0-5 years 307 32.9

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6-10 years 269 28.8

11-15 years 153 16.4
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Job experience
16-20 years 61 6.5
More than 20 years 91 9.8
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Unknown 52 5.6
Diploma 176 18.9
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Technician 90 9.6
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Bachelor 501 53.7

Education
Master 88 9.4

More than master 20 2.1

Unknown 58 6.2

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Table 2
Factor analysis results.
Number of Cronbach’s KMO Factor AVE
Dimensions t-value
items alpha value loading %

Top management
7 0.91 0.91 0.58-0.76 27.92* 66.1

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commitment

Quality
Information
4 0.85 0.81 0.75-0.84 30.1* 69.6

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availability and
TQM usage

Employee training 6 0.91 0.91 0.69-0.88 27.2* 69.94

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Employee
4 0.81 0.79 0.59-0.83 28.43* 63.97
involvement

Supplier quality 6 0.85 0.87 0.60-0.76 28.7* 58.20

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Customer focus 4 0.88 0.80 0.76-0.91 29.15* 73.34
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Employee relations 6 0.89 0,90 0.75-0.83 33.66* 76.78
Corporate
4 0.88 0.83 0.81-0.86 34.88* 72.56
CSR governance
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Social concern 3 0.85 0.73 0.87-0.89 9.40* 73.56

Economic and
3 0.96 0.77 0.96-0.98 11.95* 82.93
financial concern
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Environment 21.75* 69.93

2 0.70 0.50 0.86-0.86
concern
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Financial
2 0.82 0.50 0.92 17.13* 85.1
perspective
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Customer
3 0.72 0.68 0.79-0.81 23.51* 64.7
perspective
BSC
Internal process
3 0.75 0.65 0.73-0.87 25.2* 67.21
perspective
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Learning and
2 0.55 0.50 0.83 22.82* 69.5
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growth perspective

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Table 3
Goodness of fit measures.

Fitness indicator Suggested criteria Validation value Result

Absolute fit indicators

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C2/df <3 2.7 Compliant
GFI >0.90 0.92 Compliant

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RMR <0.05 0.04 Compliant
RMSEA <0.05-0.08 0.05 Compliant

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Incremental fit indicators
AGFI >0.90 0.96 Compliant

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NFI >0.90 0.94 Compliant
CFI >0.90 0.96 Compliant
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IFI >0.90 0.93 Compliant
Goodness of fit index
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PNFI >0.5 0.07 Compliant

PGFI >0.5 0.08 Compliant
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Table 4

SEM results for hypothesis testing.

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Standardized Hypothesis t-value Result

regression
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weight

CSR → TQM 0.32 H1 15.99* Supported

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TQM → BSC 0.91 H2 21.75* Supported

CSR → BSC 0.04 H3 -0.97 Not

Supported

* denotes p < 0.05.

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Table 5.
Effects of CSR on TQM and BSC. This table shows the mediating impact of TQM on the
association between CSR and BSC (H4).

Dependent variable (endogenous variables)

Independent variable

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TQM BSC
Exogenous variables CSR Direct Effect 0.32* 0.04*

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Indirect Effect - 0.29*
Total Effect 0.32* 0.33*

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Endogenous variables TQM
Direct Effect 0.91*

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Indirect Effect
0.91*
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Total Effect

* denotes p<0.05.
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We examine the impact of integrating corporate social responsibility in decisions.

CSR interacts with total quality management to affect organizational performance.
Performance was measured using a comprehensive balanced scorecard approach.
Integrating CSR in decision-making improves performance significantly.

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