Journal of Cleaner Production 133 (2016) 812e825

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

The driving forces of process eco-innovation and its impact on

performance: Insights from Slovenia
Jana Hojnik*, Mitja Ruzzier
University of Primorska, Faculty of Management, Cankarjeva 5, 6000 Koper, Slovenia

a r t i c l e i n f o a b s t r a c t

Article history: This study endeavors to explore the driving forces of process eco-innovation and its effect on company
Received 29 January 2016 performance by adopting an integrative approach. We focus on process eco-innovation, which pertains to
Received in revised form technological and non-technological solutions that result in a reduction of material and energy costs for
13 May 2016
companies. In this regard, the study sheds light on the drivers and outcomes of process eco-innovation
Accepted 1 June 2016
adoption, using data collected from 223 Slovenian companies. The results reveal that certain de-
Available online 3 June 2016
terminants (i.e., competitive pressure, customer demand, managerial environmental concern, command-
and-control instrument, and economic incentive instrument) are conducive to the deployment of process
Keywords:
Process eco-innovation
eco-innovation. Empirical evidence reveals competitive pressure as the most influential driving force of
Drivers process eco-innovation, followed by managerial environmental concern and customer demand. Effec-
Company performance tiveness in spurring process eco-innovation is also found to be a command-and-control instrument and
Profitability an economic incentive instrument, while expected benefits do not spur process eco-innovation. Per-
Growth taining to the outcomes of process eco-innovation adoption, we can conclude that it pays to be eco;
Competitive benefits process eco-innovation is worthwhile in terms of company profitability, growth, and competitive ben-
efits. These findings suggest several courses of action for both policy makers and companies. Hence, we
conclude by providing implications for both.
© 2016 Elsevier Ltd. All rights reserved.

1. Introduction environmental issues among consumers as well. In addition, we

Economic trends that occur in one country, internationalization
of production, and international trade all affect other national
economies (Strange and Bayley, 2014). The same is true of resource
management, pollution control, and climate phenomena, all of
which by their nature reach beyond geographic borders, thus
making challenges of sustainability a priority shared by countries
and communities worldwide (Strange and Bayley, 2014). Moreover,
scarce resources and increasing population are becoming salient
issues and thus the conservation of environmental quality has
become essential (Govindan et al., 2015). Due to the environmental
and social concerns, eco-innovation is gaining more and more
attention among researchers and practitioners and its importance
is now recognized worldwide.
Many efforts (e.g., regulatory pressure, non-governmental or-
ganization (NGO) pressure, customer pressure) have been directed
toward companies to motivate them to adopt eco-innovation and
various campaigns have emerged to raise awareness regarding
* Corresponding author. Tel.: þ386 31 872 990.
E-mail addresses: jana.hojnik@fm-kp.si, jana.hojnik@gmail.com (J. Hojnik),
mitja.ruzzier@fm-kp.si (M. Ruzzier).
can observe an increase in research publications and journals
devoted to this topic; also, platforms such as the Eco-innovation
Observatory and actions of policy makers and various commu-
nities share the same goal of exposing the issue of climate change
and fighting against it. Similarly, Europe 2020 objectives indicate
the same orientation by including the following objectives: shift
toward a low-carbon economy, climate change adaptation, risk
prevention and management, environmental protection, and
resource efficiency (Doranova et al., 2013). Eco-innovation may
contribute to the renovation of the whole innovation system by
taking into account ecological and economic aspects and thereby
creating sustainable economic processes (Carrillo-Hermosilla et al.,
2010). All these objectives eloquently demonstrate the importance
of and the need for eco-innovation adoption to pursue sustain-
ability. Therefore, eco-innovation has received substantial interest
from academics, entrepreneurs, and policy makers. Eco-innovation
is defined as the “production, application or exploitation of a good,
service, production process, organizational structure, or manage-
ment or business method that is novel to the firm or user and which
results, throughout its lifecycle, in a reduction of environmental
risk, pollution and the negative impacts of resources use (including
energy use) compared to relevant alternatives” (Kemp and Foxon,

http://dx.doi.org/10.1016/j.jclepro.2016.06.002
0959-6526/© 2016 Elsevier Ltd. All rights reserved.
 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
2007, p. 4). Moreover, researchers (Figge and Hahn, 2012) have
stressed that the aim of environmental strategies is to use less
environmental resources per unit of production, in order to arrive
at a more efficient use of environmental resources, which is re-
flected in the concept of eco-efficiency.
The most discussed topic was the eco-innovation peculiarity,
which was the starting point for the majority of research and dis-
cussion pertaining to eco-innovation,e beginning with the double
externality problem (Rennings, 2000) and resulting in two positive
externalities (i.e., production of the common knowledge spillovers
of innovations and environmental spillovers). Researchers (Porter
and van der Linde, 1995; Rennings, 2000) have emphasized the
importance of regulations as a driving force of eco-innovation,
which if properly designed may offset the costs of improving the
environmental impact related to innovations that stem from more
efficient use of raw materials, labor, energy, or improved product
quality. However, several researchers have pointed out that com-
panies, which comply with the most stringent rules and exceed
them pioneer in innovation and can seize the first mover advantage
(Nidumolu et al., 2009; Porter and van der Linde, 1995). Companies
through time have acknowledged that eco-innovation does not
need to be only a cost that a company bears; rather, it can present a
new business opportunity or exploitation of a niche market. Porter
and van der Linde (1995) stressed that many companies deploy
eco-innovation to demand a higher price for the green products,
enter new markets, and address new market segments comprising
especially more environmentally conscious consumers. Eco-
innovation development in eco-industries thus presents a busi-
ness opportunity, leading to cost reduction, improving capacity to
seize new growth opportunities, and strengthening the company's
image in the eyes of customers (Doranova et al., 2013). Doranova
et al. (2013) further pointed out the growing markets for environ-
mental goods and services, for technologies for pollution man-
agement, and cleaner production, where market volume for 2020 is
estimated to 2.2 trillion V, as well as the growing opportunities in
the market for more pervasive and systemic eco-innovation
designed to reduce resource use across all aspects of the economy.
Therefore, eco-innovation is desperately needed in the
manufacturing industries, which account for a significant part of
the world's consumption of resources and generation of waste and
are close to a third of global energy usage (OECD, 2009). However,
the manufacturing industries have the potential to become a
driving force in the creation of sustainable society by developing
and implementing products, services, and other integrated sus-
tainable practices to improve environmental performance (OECD,
2009). Our study pertains to process eco-innovation, which re-
flects novel technological and non-technological solutions resulting
in reduction of material and energy costs for companies (European
commission, 2012), and is commonly divided into end-of-pipeline
solutions and integrated cleaner production technologies
(Demirel and Kesidou, 2011; Rennings et al., 2006). End-of-pipeline
solutions are incorporated into the final stages of existing
manufacturing processes, leaving the production process mostly
unchanged, and are thus not the essential part of the production
process, thereby pertaining to incremental innovations. The inte-
grated cleaner production technologies include environmental
protection as an integral part of manufacturing processes and refer
to new or modified production facilities which are more efficient
than previous technologies, thus contributing to pollution reduc-
tion by cutting down the volume of inputs used for production and/
or by substituting the inputs with more environmentally friendly
alternatives (Demirel and Kesidou, 2011; OECD, 2009). End-of-
pipeline technologies are typically add-on measures implemented
to comply with regulations, while the cleaner production tech-
nologies directly reduce the adverse impacts through the
813
production process (Rennings et al., 2006). End-of-pipeline solu-
tions pertain to incremental innovations because they do not
contribute to the implementation of essential technology or modify
fundamentally the production processes (OECD, 2009; Rennings
et al., 2006). Therefore, end-of-pipeline solutions are perceived as
a cost burden, hampering companies' competitiveness and leading
to negative outcomes (Ghisetti and Rennings, 2014). In contrast,
integrated solutions have the potential to save costs by reducing the
materials and/or energy costs, as well as costs related to compliance
with regulations (OECD, 2009; Rennings et al., 2006).
Cleff and Rennings (1999) found that the motive, which spurs
companies to invest in end-of-pipeline technologies lies in
compliance with regulations, while the cleaner production tech-
nologies are driven by market share and cost reduction. The reason
is that implementation of these typical end-of-pipe technologies is
normally associated with higher costs; thus, the command-and-
control regulations still play a more important role in spurring
these investments (Horbach et al., 2012). On the other hand, solu-
tions that are more resource or energy efficient can lead to gains in
competitive advantage and have a positive influence on companies'
profitability (Ghisetti and Rennings, 2014); thus, for energy con-
sumption, cost savings were the main motivation (Horbach et al.,
2012). Related to the outcomes of process eco-innovations,
Ghisetti and Rennings (2014) found that innovations, which lead
toward reductions in the use of energy or materials per unit of
output positively affect companies' competitiveness, while
externality-reducing innovations hamper companies' competi-
tiveness. Cleaner production technologies are therefore alleged to
be superior to end-of-pipeline technologies not only regarding
environmental issues (the former follows a preventive approach to
environmental problems by reducing emissions at the source,
while the latter follows a reactive approach by dealing with emis-
sions after they have been generated), but also with regard to
economic reasons (Del Río Gonz! alez, 2009). Cleaner technologies
usually demand significant up-front investments but lead to in-
creases in efficiency in the production process and may also result
in economic benefits (e.g., reduced energy bills, material cost sav-
ings, greater revenues), while this is not the case when adopting
end-of-pipeline technologies, which include only sunk costs and do
not deliver economic benefits (Del Río Gonz! alez, 2009).
The main aim of this study is to examine the drivers (i.e., mo-
tivations) of process eco-innovation implementation and their
impact on company performance. Even though the role of regula-
tory pressure as a driver of process eco-innovation has been
pointed out many times due to the double externality problem
deriving from eco-innovation (Rennings, 2000), process eco-
innovation does not result only from regulatory pressure. It also
stems from market inspirations and health, environmental, and
ethical concerns (Van den Bergh, 2013). However, not many
research works focused on exploration of drivers and outcomes of
process eco-innovation, even though that this type of eco-
innovation can represent one of the most relevant responses to
salient environmental issues, due to the manufacturing industries,
which account for a significant part of the world's consumption of
resources and generation of waste. Moreover, even less research
has been undertaken by employing an integrative approach to
explore the drivers and outcomes of process eco-innovation (e.g.,
Agan et al., 2013; Li, 2014). In addition, only a few (e.g., Agan et al.,
2013; Eiadat et al., 2008; Yen and Yen, 2012) incorporated in their
research the managerial environmental concern, which is expected
to play an important role in developing the environmental inno-
vation strategy of the company.
In our research, we focus on process eco-innovation in order to
identify which motives spur companies into implementation of
process eco-innovation and we explore the outcomes of process
814 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
eco-innovation in terms of company profitability, company growth,
and competitive benefits. The main questions/issues addressed in
this paper are therefore as follows: Do command-and-control in-
strument, economic incentive instrument, customer demand,
managerial environmental concern, competitive pressure, and ex-
pected benefits work as the driving forces that trigger the imple-
mentation of process eco-innovation? If so, what are their relative
strengths? Which driver is the most effective for inciting imple-
mentation of process eco-innovation in companies? Last, what is
the relationship between process eco-innovation and company
performance (in terms of company growth, company profitability,
and competitive benefits)? Our main endeavor is to examine the
drivers and outcomes of process eco-innovation to provide impli-
cations for policy makers and companies. With the results of this
study, we aim to deepen the understanding of process eco-
innovation, including where it originates and whether its imple-
mentation is worthwhile for companies.
In answering the aforementioned research questions, we provide
three principal contributions to the current literature in the field of
eco-innovation. First, one of the study's main contributions is
adopting an integrative approach to explore the drivers and outcomes
of process eco-innovation. Second, the study also contributes through
the use of both objective data (the secondary data) and subjective
data (obtained through an online survey) with regard to company
performance. When exploring the effects of eco-innovation adoption
on company performance, researchers have come to mixed
conclusions; therefore, the use of various measures of company per-
formance in our study is an innovative approach that offers added
value and provides a more comprehensive understanding of the effect
of process eco-innovation on company performance, by combining
the data obtained through the online survey and secondary data.
Third, testing environmental policy instruments as two individual
components (i.e., command-and-control instrument and economic
incentive instrument) also leads to valuable insights and various
implications for researchers and policy makers.
The paper is organized as follows: Section 2 describes the theo-
retical framework to develop hypotheses on specific determinants
and outcomes of eco-innovation. Section 3 presents the data and
methodology. Section 4 presents the main results of our study and
leads to the discussion, while section 5 concludes the paper, notes
limitations of the study, and offers suggestions for future research.
2. Hypotheses development
Historically, regulation has been the major driving force to which
companies responded (Agan et al., 2013). The role of regulations as a
driver of eco-innovation has been emphasized especially because of
eco-innovation's peculiarity e the double externality problem, lead-
ing to knowledge and environmental spillovers (Rennings, 2000).
Therefore, the win-win situation underlying the Porter hypothesis
suggests that regulations pressure companies to invest in environ-
mental R&D to cut down the costs of complying with environmental
regulation standards (Kesidou and Demirel, 2012). However, com-
panies that undertake eco-innovation should be able to reduce their
production costs and/or exploit the new business opportunity of
marketing eco-products (Kesidou and Demirel, 2012). Imposed reg-
ulations force companies to act in a more environmentally friendly
manner and, therefore, eco-innovation results as a response to those.
Many researchers have pointed out that companies' temptation is to
achieve minimum compliance with regulations, obeying legislation to
the lowest possible level just to demonstrate compliance with it
(Nidumolu et al., 2009). The other side reveals that companies that are
more environmentally aware and whose aim is to not only comply
with the most stringent rules, but also to exceed them are pioneering
in innovation and enjoy first-mover advantages (Nidumolu et al.,
2009; Porter and van der Linde, 1995). Therefore, properly designed
environmental regulations can trigger innovations, which lower the
total cost of a product or improve its value (Porter and van der Linde,
1995). On the other hand, the basic lesson from ecological economics
for a long time was that an economic incentive instrument was more
effective in spurring eco-innovation and superior to command-and-
control instrument (Rennings et al., 2006), while Kemp and
Pontoglio (2011) stressed that the literature contains evidence to
sustain the hypothesis that regulations motivate more radical inno-
vation than market-based instruments. Thus, we can conclude that
the effect of regulations on eco-innovation is not always straightfor-
ward. Eiadat et al. (2008) reported significant negative effects of
environmental regulations on eco-innovation, while Li (2014) found
that the command-and-control instrument works as a driver of eco-
innovation, and the economic incentive instrument does not. On
contrary, Murovec et al. (2012) found positive effect of policy in-
struments on environmental investments. Previously, we mentioned
that the common wisdom suggests that market-based instruments
are superior in soliciting innovative responses. Oltra and Saint Jean
(2009) argued that economic incentive instruments cannot be com-
plete substitutes and by themselves are not sufficient to induce eco-
innovation; the use of different instruments may vary based on
context and the most effective is a combination such instruments. In
our study, we explore environmental policy instruments by dividing
them into two individual components: command-and-control in-
strument and economic incentive instrument. In line with the
aforementioned, we propose the following hypotheses:
Hypothesis 1a. Command-and-control instrument is positively
associated with a company's implementation of process eco-
innovation.
Hypothesis 1b. Economic incentive instrument is positively
associated with a company's implementation of process eco-
innovation.
The majority of companies implement the minimum of eco-
innovation just to fulfill regulatory requirements. While com-
panies that exceed minimum compliance can enjoy first mover
advantages by pioneering in the innovation. Such companies see
in eco-innovation a market niche and perceive such innovations as
a business opportunity e customers that demand and are willing
to pay more to enjoy ecologically sound products and thus sup-
port a company in its environmentally friendly operation. Several
benefits convince companies to invest in eco-innovation; among
those are better image, reduced costs, and new market opportu-
nities (Nidumolu et al., 2009). Both the environment and company
can benefit from eco-innovation implementation; therefore, its
implementation leads to a win-win situation (Horbach, 2008).
Benefits such as improvement of firm image, enhanced reputation,
achievement of competitive advantage, and desire to strengthen
brand may stimulate companies to adopt environmental processes
(Agan et al., 2013). Shrivastava (1995) pointed out several benefits
deriving from successful eco-innovation implementation,
including cost savings, enhanced corporate image, improved re-
lationships with local communities, access to new green markets,
and a superior competitive advantage. Likewise, Sarkar (2013)
stressed that eco-innovation has a positive impact on greater
resource productivity and better logistics, followed by sales from
commercialization, better relations with customers, suppliers, and
authorities, health and safety benefits, greater worker satisfaction,
and enhanced overall innovation capability. Today, companies are
more aware of the benefits that can derive from successful
implementation of eco-innovation. Once, eco-innovation was seen
as a cost borne solely by the company that implemented eco-
innovation and the environment was the only actor to benefit,
 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
other than society. Nowadays, however, companies' acknowledge
that the greening of business by improving resource productivity
may lead to increases in their short- and long-term competitive-
ness and the creation of new markets (Sarkar, 2013).
Hypothesis 2. Expected benefits are positively associated with a
company's implementation of process eco-innovation.
Another driving force of eco-innovation is managerial environ-
mental concern, which was found to be one of the two most
important drivers for adoption of eco-innovation (Qi et al., 2010).
With eco-innovation, companies' innovativeness is improved
especially when managerial environmental attitudes are
embedded within a market-oriented company (Dibrell et al., 2011).
Therefore, managerial environmental concern positively affects the
scope and speed of a company's response to environmental issues
(Tseng et al., 2013). This means that managers who have a higher
level of environmental concern are also keener to invest time and
resources in environmental initiatives (Naffziger et al., 2003).
Managerial environmental concern as a driver of eco-innovation is
gaining in importance and pertains to one of the more relevant
internal drivers of eco-innovation. Eiadat et al. (2008) found it to be
the strongest driver of environmental innovation strategy, while
Papagiannakis and Lioukas (2012) found that it motivates corporate
environmental responsiveness and further affects a company's
green purchasing, stemming from environmental collaboration
with suppliers (Yen and Yen, 2012). Managerial environmental
concern also works as a driving force of process eco-innovation by
positively affecting an increase in implementation of environ-
mental process innovation (Triguero et al., 2013) and further results
in new environmental product development (Pujari et al., 2003).
Based on the findings of prior research, we postulate that:
Hypothesis 3. Managerial environmental concern is positively
associated with a company's implementation of process eco-
innovation.
As mentioned earlier, companies are dealing with more environ-
mentally conscious consumers who not only demand ecologically
friendly products, but also put more weight on the company's pro-
duction processes, which should not have adverse effects on the
environment. Environmentalism as a consumer attitude is gaining in
importance worldwide and, in addition, consumers are willing to
choose environmentally friendly products and are prepared to pay a
higher price for them (Chen, 2013). Companies have realized that
the market demand for environmentally friendly products is
increasing and that this segment can become profitable (Nidumolu
et al., 2009). Moreover, customer demand is critical in today's busi-
ness environment (Chiou et al., 2011), and thereby customer demands
and their preferences have the potential to influence the direction
and rate of eco-innovation (Horbach, 2008). Therefore, customer
pressure is the strongest driving force of eco-innovation, especially
when operating in product markets that are close to final customers
(Doran and Ryan, 2012; Zeng et al., 2011). Consumers are becoming
more environmentally aware about the environmental impacts of
their purchasing choices and, hence, they consequently exert more
pressure on companies to reduce the adverse impacts of their oper-
ation (Kemp and Foxon, 2007). Proper design, production, sales, and
recycling of products has to be provided on the side of companies to
respond to consumers' “green” demands (Sarkar, 2013). In conclu-
sion, customer demand is the most effective driver of process eco-
innovation that increase material efficiency and reduce energy con-
sumption, waste, and the use of dangerous substances (Horbach et al.,
2012); therefore, we propose the following hypothesis:
Hypothesis 4. Customer demand is positively associated with a
company's implementation of process eco-innovation.
815
According to the institutional theory, companies' implementa-
tion of eco-innovation can result from mimetic pressure e com-
panies may be mimicking competitors' successful actions related to
eco-innovation implementation (Spence et al., 2010). Eco-
innovation has become an area where companies have the oppor-
tunity to gain competitive advantage over competitors, including
gains in green competitive advantage through product differenti-
ation, especially when operating in a highly competitive market
(Lin et al., 2014). Lin et al. (2014) stressed that companies exposed
to fiercer competitive markets are more likely to be “greener” than
their competitors through implementing new products or man-
agement methods which may lead to extra profit in the future. In
addition, Yalabik and Fairchild (2011) found that competition can
be considered an effective driver of environmental innovation
when dealing with environmentally sensitive customers (cus-
tomers that are likely to switch due to environmental perfor-
mance). Thus, green products are gaining in importance worldwide,
while companies adopt eco-innovation to establish a green image,
increase market share, and achieve sustainable development in
increasingly intense competitive environments (Li, 2014). There-
fore, we postulate the following hypothesis:
Hypothesis 5. Competitive pressure is positively associated with a
company's implementation of process eco-innovation.
Several studies have found that eco-innovation has a positive and
significant impact on a company's performance (Clemens, 2006;
Zeng et al., 2011). Doran and Ryan (2012) found that companies
that implement eco-innovation enjoy higher levels of revenue per
employee than companies that do not introduce eco-innovation.
Moreover, technological innovation efficiency and company's per-
formance were positively associated (Cruz-C! azares et al., 2013),
while research focusing on eco-product, process, and organizational
innovation also found positive influence of those eco-innovations on
a company's performance (Cheng and Shiu, 2012). Several studies
(Ghisetti and Rennings, 2014; Rexha €user and Rammer, 2013) found
that environmental innovations which improve companies' resource
efficiency (in terms of material or energy consumption per unit of
output) exert positive and significant effects on their profitability and
competitiveness. In addition, environmental process innovation
demonstrates a positive impact on the increase in the number of
employees and turnover (Rennings et al., 2006). The results of the
study undertaken by Paraschiv et al. (2012) revealed that 35% of
participant organizations reported encouraging results, whereas
another 21% reported significant results with a strong impact on
the organization's financial performance and, finally, neither 10%
specified that the results of eco-innovation were insignificant. To
obtain more insight into the effects of process eco-innovation on a
company's performance, we broke the hypothesis pertaining to
company performance into two hypotheses concerning company
growth and company profitability.
Hypothesis 6a. Process eco-innovation is positively associated
with a company's growth.
Hypothesis 6b. Process eco-innovation is positively associated
with a company's profitability.
Successful eco-innovation implementation may also result in
gaining competitive benefits (Sharma and Vredenburg, 1998) and
lead to many other benefits (see Table 1). Chen et al. (2006) found
that investment in eco-innovation delivered positive outcomes e
the more the companies invested in eco-innovation, the stronger
was their competitive advantage. Companies' orientation toward
product, process, and managerial eco-innovation leads to cost sav-
ings, increases in companies' efficiency and productivity, better
product quality, and consequently to improved competitive
816 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
advantage. Shrivastava (1995) pointed out several benefits which
companies can seize from eco-innovation: enhanced corporate
image, cost savings, improved relationship with local communities,
access to new green markets, and superior competitive advantage.
Likewise, Sarkar (2013) pointed out the direct and indirect benefits
of eco-innovation implementation. The direct benefits pertain to
operational advantages, which may be seen especially in cost sav-
ings, and stem from greater resource productivity and better logis-
tics, followed by sales from commercialization (Sarkar, 2013). The
indirect benefits relate to better image, better relations with cus-
tomers, suppliers, and authorities, health and safety benefits, and
greater worker satisfaction and also result in an enhanced overall
innovation capability (Sarkar, 2013). Sarkar (2013) stressed that
companies are increasingly recognizing that the greening of busi-
ness through improvements in resource productivity may increase
their short- and long-term competitiveness and lead to the creation
of new markets. Therefore, we posit the following hypothesis:
Hypothesis 7. Process eco-innovation is positively associated
with a company's competitive benefits.
Table 1
Benefits derived from successful eco-innovation implementation.
Eco-innovation benefits
Cost savings
Gaining competitive benefits
Increase in companies' efficiency and productivity
Better product quality
Superior or improved competitive advantage
Enhanced corporate image
Access to new green markets and creation of new markets
Improved relationship with local communities; better relations with
customers, suppliers, and authorities; health and safety benefits
Better logistics
Increase in short- and long-term competitiveness
Greater worker satisfaction
Enhanced overall innovation capability
Sales from commercialization
See Fig. 1 for a conceptual model of the relationships among
drivers, process eco-innovation, and outcomes.
3. Research methodology
3.1. Data collection
We implemented a cross-sectional study using survey data
collected through an online questionnaire. Before collecting the
data, we pre-tested the survey instrument for content validity in
two stages. In the first stage, eight experienced researchers
reviewed and commented on the questionnaire regarding the
clarity, ambiguity, and appropriateness of the items used to oper-
ationalize each construct. Then, based on the feedback received
from these eight researchers, we modified the instrument to
enhance the clarity and appropriateness of the measures. In the
second stage, five environmental managers from five companies
that implement process eco-innovation reviewed and commented
on the questionnaire with respect to its clarity, ambiguity,
completeness, readability, and structure. Followed by pre-test of
the questionnaire with ten randomly selected companies. As
mentioned, we collected the data through an online survey. An e-
mail was sent directly to the environmental manager or director of
the company, including a cover letter (explaining the background
and objectives of the study and extending an invitation to take part
in the survey) and a link to the website containing the survey. If the
contacted person was not the most appropriate informant to
complete the survey (not the responsible or most knowledgeable
person regarding this topic in the company), we asked the con-
tacted person to pass the questionnaire to the most appropriate
informant in the company or to introduce that informant to us so
that we could complete the survey step. The survey ran from
November 2014 to January 2015. The questionnaire, with a short
description of the project and invitation to executives/environ-
mental managers to collaborate in this study, was emailed to 6564
companies in total (representing the entire Slovenian population of
companies with more than five employees), followed by three re-
minders. Since many Slovenian companies are dormant companies
or employ only one or two employees, we have excluded com-
panies with less than five employees from the sample. In total, we
have collected 223 usable responses, representing a response rate
of 3.40%. The respondents completing the questionnaire comprised
mainly top executives, environmental managers, or management
representatives for the environment or quality managers/
representatives.
Reference
Chen et al., 2006; Sarkar, 2013; Shrivastava, 1995
Sharma and Vredenburg, 1998
Chen et al., 2006; Sarkar, 2013
Chen et al., 2006
Chen et al., 2006; Shrivastava, 1995
Sarkar, 2013; Shrivastava, 1995
Sarkar, 2013; Shrivastava, 1995
Sarkar, 2013; Shrivastava, 1995
Sarkar, 2013
Sarkar, 2013
Sarkar, 2013
Sarkar, 2013
Sarkar, 2013
3.2. Sample characteristics
The sample characteristics encompass the characteristics of the
analyzed companies and are presented in more detail in Table 2.
Pertaining to the company's size, our sample, according to the Euro-
pean legislation, includes 52 micro companies (having less than nine
employees). This is followed by 68 small companies (10e49 em-
ployees), 56 medium-sized companies (50e249 employees), and 47
large companies (250 or more employees). With respect to the
company's profitability (annual sales in 2013), we can see that 41
companies reported between 1.6 million and 4 million EUR, 46
companies reported having between 4 million and 20 million EUR in
sales in 2013 and lastly, 53 companies reported above 20 million EUR
in sales in 2013. The majority of companies included in our sample is
between 21 and 50 years old (78 companies), followed by 62 com-
panies which have more than 50 years and 52 companies that have
between 11 and 20 years in operation. With regard to operating in
foreign markets, 151 companies are operating in foreign markets. Last,
pertaining to commerce transactions and type of industry, 113 com-
panies operate on a business-to-business level and 109 on a business-
to-customer level. The majority of companies operates in service in-
dustries (137 companies), followed by manufacturing (83 companies).
3.3. Measurement development
In this study, 10 latent variables were measured: command-and-
control instrument, economic incentive instrument, expected
benefits, customer demand, competitive pressure, managerial
 Environmental policy
instruments

Command-and-
control instrument

H1a Company performance

Economic
incentive
instrument Company
H1b growth
H6a

Company
Expected benefits H2 profitability
H6b
Process eco-
innovation
H3
Managerial H7
environmental
concern
H4

H5 Competititve
Customer benefits
demand

Competitive
pressure

Fig. 1. Conceptual model of relationships among drivers, process eco-innovation, and outcomes.

environmental concern, process eco-innovation, company growth,
company profitability, and competitive benefits. Multi-item scales
were deployed to measure each construct in the model, and a 7-
point Likert scale ranging from “strongly disagree” (1) to
“strongly agree” (7) was utilized for the questionnaire. Moreover,
the validity and reliability of the survey instrument were supported
with a comprehensive literature review and pilot tests by con-
ducting in-depth managerial interviews in Slovenian companies
that implement eco-innovation. Based on feedback and insights
from the managerial interviews, the wording of some items was
slightly modified to tailor the items to the Slovenian environment.
The construct command-and-control instrument was measured
by four items adapted from Li (2014), followed by the economic
incentive instrument measured with three items also adapted from Li
(2014). Four items were used to measure managerial environmental
concern and were adapted from Eiadat et al. (2008). Six items for ex-
pected benefits were adapted from Agan et al. (2013), while four items
were selected to measure customer demand (Agan et al., 2013) and

Table 2
Sample characteristics.

Characteristics Number of companies Percentage of companies

Company's size Micro company 52 23.32%

Small company 68 30.49%
Medium-sized company 56 25.11%
Large company 47 21.08%
Company's profitability (annual sales in 2013) 400,000 EUR or less 27 12.11%
Between 400,000 and 800,000 EUR 27 12.11%
Between 800,000 and 1.6 million EUR 29 13.00%
Between 1.6 million and 4 million EUR 41 18.38%
Between 4 million and 20 million EUR 46 20.63%
Above 20 million EUR 53 23.77%
Company age Less than 2 years 2 0.89%
Between 2 and 5 years 9 4.04%
Between 6 and 10 years 20 8.97%
Between 11 and 20 years 52 23.32%
Between 21 and 50 years 78 34.98%
More than 50 years 62 27.80%
Internationalization Operating in foreign markets 151 67.71%
Operating only in the domestic market 72 32.29%
Commerce transactions Business-to-business level (B2B) 113 50.67%
Business-to-customer level (B2C) 109 48.88%
Both (B2B and B2C) 1 0.45%
Type of industry Service-related industry 137 61.43%
Manufacturing industry 83 37.22%
Other (not specified) 3 1.35%
818 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
three items were used to measure competitive pressure (Li, 2014). We
measured process eco-innovation with five items adapted from Chen
et al. (2006). Pertaining to the eco-innovation outcomes, four items
were adapted from Sharma and Vredenburg (1998) to measure
competitive benefits. Last, related to the constructs for measuring
company performance, company profitability (return on assets (ROA),
return on equity (ROE), and return on sales (ROS)) and company
growth (number of employees and growth in sales through two
business years), the secondary data were obtained from the database
GVIN (a commercial firm database, part of the international business
group Bisnode AB that is Europe's largest provider of business and
credit information, operating in 17 European countries).
3.4. Common method variance assessment
In our study, most of the data (with the exception of data related to
the company's growth and profitability) were gathered from a single
informant from each of the companies, moreover, data were collected
through the same questionnaire during the same period of time with
a cross-sectional research design. Therefore, concerns about common
method variance (CMV) should be addressed (Podsakoff et al., 2003).
In this study, CMV is examined by Harman's single factor test.
Podsakoff and Organ (1986) stressed that if CMV exists, a single factor
will emerge from the factor analysis of all survey items. Therefore, we
used all survey items from the 223 questionnaires to conduct an
exploratory factor analysis in SPSS, and the un-rotated principal
components factor analysis results demonstrate that no single factor
accounts for most of the variance and the first factor captures only
31.233% of the variance, which suggests the absence of a CMV prob-
lem. This test indicated a low threat of common method variance.
3.5. Construct validity of process eco-innovation model
Table 3 depicts all measurement items and latent variables, the
items' loadings, composite reliability, average variance extracted, and
the values of Cronbach's alpha. Moreover, construct validity is assessed
with confirmatory factor analysis (CFA) by using EQS 6.1. The overall fit
of the model was assessed by multiple fit criteria. The model fit in-
dexes are as follows: chi-square ¼ 1101.954; df ¼ 620; NNFI ¼ 0.906;
CFI ¼ 0.918; IFI ¼ 0.919; RMSEA ¼ 0.064, which suggests that the
measurement model is acceptable. Also, the chi-square/df statistics
(1101.954/620 ¼ 1.77) indicate a good fit to the data (should be lower
than 2). In addition, the Cronbach's alpha is estimated to be 0.935. We
can conclude that the indexes suggest a reasonable fit to the data and a
workable model from which parameter estimates can be estimated
and interpreted reliably. Moreover, from Table 3, we can see that all
factor loadings are greater than 0.50 and the p-values are significant at
the 0.05 level, except one item pertaining to the company's growth
(“Net sales e growth through 2 business years”), and convergent
validity is ensured (Fornell and Larcker, 1981). In addition, the com-
posite reliability of all the constructs, except construct growth, is
greater than 0.70, indicating acceptable reliability (Hair et al., 2009).
Additionally, the square root of average variance extracted (AVE) for
each construct is greater than 0.50, except for construct growth, for
which only the correlation has been calculated.
Table 4 depicts correlations between latent variables; we can
observe that all correlations among the different constructs are
statistically significant.
4. Results with discussion
All constructs were assessed by using exploratory and confir-
matory factor analyses. Results related to the construct validity for
the process eco-innovation model with its determinants and con-
sequences have also been assessed (see Section 3.5). Reliability
statistics for all construct dimensions were good (over 0.70), as were
the goodness-of-fit measures, which indicated an acceptable model
fit for all constructs. In this section, we use structural equation
modeling (SEM) to test all the hypothesized relationships. We
deemed SEM as the most appropriate statistical technique to use,
because it allows simultaneous evaluation of multiple related
dependent and independent relationships (in our case, relationships
between drivers and outcomes of process eco-innovation) and takes
into account measurement error (estimates) in the evaluation pro-
cess (Hair et al., 1998). In more detail, SEM is a family of statistical
models that seeks to explain the relationships among multiple var-
iables and thus examines the structure of interrelationships
expressed in a series of equations, similar to a series of multiple
regression equations (Hair et al., 2009). These equations depict all of
the relationships among constructs (the dependent and independent
variables, which can be unobservable or latent factors represented by
multiple variables) involved in the analysis (Hair et al., 2009).
The resulting process eco-innovation model with estimated re-
lationships (standardized solution) is depicted in Fig. 2. The goodness-
of-fit indexes are as follows: chi-square ¼ 1461.873; df ¼ 646;
NNFI ¼ 0.833; CFI ¼ 0.846; IFI ¼ 0.848; RMSEA ¼ 0.082; Cronbach's
alpha ¼ 0.934; thus, the model shows a moderate fit to the data. All the
hypotheses, apart from one (pertaining to the expected benefits as a
driver of process eco-innovation), are supported, demonstrating
positive and significant relationships. The structural equation model
and the standardized coefficients of each path are shown in Fig. 2. The
results of the structural equation modeling offer empirical evidence
and provide support for hypotheses H1a, H1b, H2, H4, H5, H6a, H6b,
and H7, meaning that all the hypotheses except H3 are supported.
The results of this study indicate a positive and significant in-
fluence of both the command-and-control instrument and the
economic incentive instrument on process eco-innovation
(p < 0.05), offering empirical support to hypotheses 1a and 1b,
and being in line with prior research, which found positive impact
of policy measures on environmental investments (Murovec et al.,
2012). Moreover, the standardized coefficients of both drivers are
quite high and regarding their size really close to each other,
indicating almost equal importance in spurring process eco-
innovation (Fig. 2). Therefore, based on our results we have not
found support for the alleged superiority of economic incentive
instruments over command-and-control instruments.
Furthermore, we found strong support for the relationship be-
tween managerial environmental concern and process eco-
innovation. Managerial environmental concern has a positive and
significant influence on process eco-innovation (p < 0.05) and was
found to be the second most influential driving force of process eco-
innovation. Managers, who are environmentally concerned and
aware of the adverse effects on the environment, related to the com-
pany's operation, dedicate more attention and care to the environ-
ment and are keener to adopt process eco-innovation. These findings
are consistent with prior research (Agan et al., 2013; Qi et al., 2010).
We found that customer demand exerts a positive and signifi-
cant impact on process eco-innovation (p < 0.05). Today's con-
sumers who are critical of a company's operation are also more
environmentally aware and conscious when making their pur-
chasing decisions. This means that consumers are demanding
environmentally friendly products that are produced in environ-
mentally friendly way; and it further significantly affects com-
panies' decision to invest in process eco-innovation. The pursuit of
sustainability is thus reflected in customers' behaviors, which
dedicate more attention to the ecological aspects of companies'
production processes. Our results support the findings of previous
research (Agan et al., 2013; Doran and Ryan, 2012).
We have inferred that companies from process eco-innovation
expect several benefits (e.g., in terms of improving profitability,
Table 3
Measurement items, Cronbach's alpha for latent variables, and measurement model of latent variables.

Measurement Completely standardized p Composite AVE Cronbach's

items loading reliability alpha

Managerial environmental concern 0.856 0.60 0.836

Eco-innovation is an important component of the 0.63
company's environmental management strategy.
Most eco-innovations are worthwhile. 0.83 *
Eco-innovation is necessary to achieve high levels 0.81 *
of environmental performance.
Eco-innovation is an effective environmental 0.81 *
management strategy.
Expected benefits 0.923 0.67 0.914
To improve profitability. 0.77
To increase productivity. 0.79 *
To increase market share. 0.89 *
To enter new markets. 0.83 *
To strengthen the brand. 0.76 *
Competitive advantage. 0.85 *
Command-and-control instrument 0.942 0.80 0.946
Our products should meet the requirements of national 0.87
environmental regulations.
Our products should meet the requirements of international 0.91 *
and/or EU [European Union] environmental regulations.
Our production processes should meet the requirements of 0.90 *
national environmental regulations.
Our production processes should meet the requirements of 0.90 *
international and/or EU environmental regulations.
Economic incentive instrument 0.848 0.66 0.838
The government provides preferential subsidy on 0.84
environmental innovation.
The government provides preferential tax policy on 0.97 *
environmental innovation.
The government's propagations on environmental protection. 0.59 *
Customer demand 0.949 0.82 0.940
The environment is a critical issue for our important customers. 0.91
Our important customers often bring up environmental issues. 0.93 *
Customer demands motivate us in our environmental efforts. 0.88 *
Our customers have clear demands regarding environmental issues. 0.91 *
Competitive pressure 0.933 0.83 0.933
We establish the company's environmental image by comparing 0.90
to competitors through green concept.
We increase the company's market share through green concept. 0.89 *
We improve the company's competitive advantage over competitors 0.95 *
through green concept.
Process eco-innovation 0.922 0.70 0.912
Low energy consumption such as water, electricity, gas, and petrol 0.79
during production/use/disposal.
Recycle, reuse, and remanufacture material. 0.72 *
Use of cleaner technology to create savings and prevent pollution 0.83 *
(such as energy, water, and waste).
The manufacturing process of the company effectively reduces the 0.92 *
emission of hazardous substances and waste.
The manufacturing process of the company reduces 0.91 *
the use of raw materials.
Competitive benefits 0.949 0.82 0.946
Increased process/production efficiency. 0.87
Increased productivity. 0.92 *
Increased knowledge about effective ways of managing operations. 0.92 *
Improved process innovations. 0.93 *
Company performance e growth n.a. n.a. 0.249**
Number of employees - growth through 2 business years 0.55
Net sales - growth through 2 business years 0.44 *
Company performance e profitability 0.804 0.59 0.681
Return on assets (ROA) 0.96
Return on equity (ROE) 0.74 *
Return on sales (ROS) 0.56 *

Note:
* p-values are significant at the 0.05 level.
** correlation between two items pertaining to the construct growth is significant at the 0.01 level.
n.a. stands for not applicable because the construct growth is composed of only two items.

increasing productivity and market share, and establishing a
competitive advantage). Therefore, companies decide to commit
their resources to adopt process eco-innovation to exploit those
benefits after successful process eco-innovation implementation.
The results of our study do not provide empirical support for the
hypothesis suggesting that expected benefits work as a driver of
process eco-innovation. The association between expected benefits
and process eco-innovation was negative and significant (p < 0.05),
which is opposite to what we expected. The reason for this may lie in
the fact that companies are aware that certain types of process eco-
innovation can lead to several benefits; cleaner technology can result
in cost savings and gradually lead to improved profitability and
improved competitiveness, while end-of-pipeline technology de-
livers only sunk costs and thus companies do not generally expect to
Table 4
Results of correlations between latent variables.

MEC EXB CCI EII CD CP PREI CB GRO PROF

MEC 1
EXB 0.56* 1
CCI 0.26* 0.22* 1
EII 0.23* 0.29* 0.21* 1
CD 0.38* 0.40* 0.54* 0.19* 1
CP 0.46* 0.47* 0.37* 0.30* 0.49* 1
PREI 0.44* 0.22* 0.46* 0.22* 0.51* 0.55* 1
CB 0.28* 0.29* 0.36* 0.18* 0.45* 0.49* 0.49* 1
GRO 0.07* 0.03* #0.38* #0.10* #0.12* #0.07* #0.15* #0.07* 1
PROF 0.06* 0.07* #0.12* 0.05* #0.00* #0.00* 0.05* #0.04* 0.38* 1

Note: MEC ¼ managerial environmental concern; EXB ¼ expected benefits; CCI ¼ command-and-control instrument; EII ¼ economic incentive instrument; CD ¼ customer demand;
CP ¼ competitive pressure; PREI ¼ process eco-innovation; CB ¼ competitive benefits; GRO ¼ growth (company performance); PROF ¼ profitability (company performance).

seize benefits from it. Moreover, regarding cleaner technology, in the
short term, companies expect higher up-front investments and long-
term payoff, which can indeed be obtained after several years' lag.
Further on, we examined the relationship between competitive
pressure and process eco-innovation, for which we found strong
support. This supports the findings of Brunnermeier and Cohen
(2003), who found that eco-innovation is more likely to occur in
competitive environments. Results of our study reveal that compet-
itive pressure exerts a positive and significant influence on process
eco-innovation (p < 0.05), which is consistent with findings of pre-
vious research (Li, 2014; Lin et al., 2014). Competitive pressure in our
study was the strongest driver of process eco-innovation, this may be
due to the European common market and to it related easier entry on
foreign markets, valid for both Slovenian companies when inter-
nationalizing as for the foreign companies entering Slovenian market.
These findings led us to the conclusion that fierce competition, and
consequently the pressure exerted by competition, work as a driving
force of eco-innovation worldwide.
When testing hypotheses with regard to the outcomes, we found
that it is worthwhile to implement process eco-innovation. Process
eco-innovation has a positive and significant influence on all three
outcomes concerning company performance (company growth,
company profitability, and competitive benefits). Regarding the rela-
tive strengths of each relationship (p < 0.05), we can see that process
eco-innovation exerts the strongest influence on competitive benefits,
followed by company profitability and company growth. These results
reveal that companies that adopt process eco-innovation gain
competitive benefits and enjoy higher profitability and increased
growth. Based on this study, we can conclude that process eco-
innovation does pay off and benefits the company's performance.
5. Conclusion
This study investigates the drivers and outcomes of process eco-
innovation through a large-scale study of Slovenian companies.
Based on the literature, we developed and empirically tested the

Environmental policy
instruments

Command-and-
control
instrument

Company performance
Economic 0,13*
incentive
Company
instrument
growth
0,12*
0,29*

Company
-0,20* profitability
Expected benefits 0,30*
Process
eco-innovation
0,29*
0,41*
Managerial
environmental Competititve
0,20*
concern benefits

0,34*

Customer
demand

Competitive
pressure

Fig. 2. Structural equation model result for the conceptual model.

 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
proposed hypothesized relationships between several determinants,
process eco-innovation, and company performance. One of the
study's main contributions is adopting an integrative approach to test
the drivers and outcomes of process eco-innovation. A second
contribution pertains to the use of both objective and subjective data
with regard to company performance. While a third contribution
concerns exploring environmental policy instruments as two indi-
vidual components, command-and-control instrument and economic
incentive instrument. The insights and findings pertaining to drivers
and outcomes of process eco-innovation are noteworthy and, more-
over, offer several implications for companies and policy makers.
5.1. Main findings
Our research questions can be divided into two groups. The first
group to the drivers of eco-innovation, while the second relates to
the outcomes of process eco-innovation implementation. This leads
us to a twofold set of findings. First, we aimed to address the
following research questions concerning the drivers of process eco-
innovation: Do command-and-control instrument, economic
incentive instrument, customer demand, managerial environ-
mental concern, competitive pressure, and expected benefits work
as the driving forces that trigger process eco-innovation? If so, what
are their relative strengths? Which driver is the most effective for
inciting implementation of process eco-innovation in companies?
Therefore, in the first set of findings, we summarize the findings
related to the driving forces of process eco-innovation.
Today, eco-innovation has become critical for the creation and
evolution of companies' competitive advantage and thus is
considered a tool for coping with strong competition (Chassagnon
and Haned, 2014). The results of the current study provide empir-
ical evidence and reveal competitive pressure to be the main
driving force in adoption of process eco-innovation, followed by
managerial environmental concern and customer demand. Com-
panies' orientation toward sustainability, expressed in their ob-
jectives, actions, and behavior, leads to a competitive advantage,
which is hard for competitors to imitate (Nidumolu et al., 2009).
Competitive pressure triggers companies toward implementation
of process eco-innovation to improve their market position (i.e.,
gain market share and competitive advantage by implementing
energy- and material-efficient production processes and thus
becoming more competitive worldwide) and to maintain their
image untouched to demonstrate their environmental care. Per-
taining to the present study, 151 out of 223 analyzed companies
were internationalized; this means that companies not only oper-
ate in a highly competitive environment, but they also face global
competition and enter new markets where an ecological orienta-
tion can be of greater importance. Ruzzier et al. (2014) found that
more innovative companies are also more internationalized. In our
study, more than a half of the analyzed companies is internation-
alized and competitive pressure is found to be the strongest driving
force of process eco-innovation. Hence, we can infer that operating
in foreign markets leads to even greater competitive pressure with
which companies must cope. As a future research direction, it
would be interesting to explore whether a higher level of process
eco-innovation implementation contributes to entering new mar-
kets (in terms of internationalization): Are companies with more
eco-innovations also more internationalized or do more inter-
nationalized companies also become more eco-innovative?
Second, we found that managerial environmental concern was
the second most important driving force of process eco-innovation
implementation in the Slovenian business environment. Thus, we
concluded that employing managers who are more environmentally
sensitive and ecologically aware/conscious lead companies to better
environmental performance (i.e., implementation of process eco-
821
innovation). Subsidies in terms of new hires (“green” human re-
sources) with knowledge and expertise in environmental issues and
topics related to eco-innovation can greatly contribute to a com-
pany's implementation of eco-innovation (having in mind com-
panies' financial constraints). New hires can deliver new insights and
knowledge pertaining to eco-innovation and contribute to intellec-
tual resources, which then do not need to be recruited elsewhere.
The third most important driving force of process eco-innovation
based on the sample of Slovenian companies was customer demand,
suggesting that the analyzed companies are market oriented and
thus adapt to market demands. When dealing with environmentally
conscious customers, companies can choose either to adapt and
become more environmentally friendly or lose their customers. In an
environment where competitive pressure is in first place among the
driving forces of process eco-innovation, companies are also more
determined to follow the needs and demands of their customers.
These results shed light on an important issue. The literature strongly
emphasized the importance of regulatory forces to induce eco-
innovation and that such regulations are needed either to force
companies to implement the minimum environmental requirements
or to offset the cost of innovation that lowers the environmental
burden. In contrast, the findings of this study suggest that environ-
mental policy instruments are not the primarily drivers of process
eco-innovation due to changes that occur though time. Those
changes stem from competition being more environmentally ori-
ented; companies are searching business opportunities in eco-
innovation, a way to differentiate themselves from the competition
and acquire a competitive advantage. Followed by managers who are
keen to adopt eco-innovation and express higher environmental
concern, and customers who pursue the same trend by demanding
more environmentally friendly products and services and thus
becoming more environmentally conscious.
As mentioned earlier, regulation is a low-level driver of eco-
innovation, triggering mostly a reactive response (Agan et al., 2013);
while in the current study, regulation seems to work as a driver of
process eco-innovation; however, compared to other driving forces,
regulation has less influence. The results indicate that both the
command-and-control instrument and the economic incentive in-
strument work as driving forces of process eco-innovation. However,
the superiority of the first over the second is almost negligible.
The present study does not provide empirical evidence for ex-
pected benefits as a driver of process eco-innovation, which is
contrary to the findings of other researchers (Agan et al., 2013) who
reported expected benefits to be the strongest driving force of
environmental processes. However, in the second set of research
questions, we focused on the outcomes of process eco-innovation.
We were interested in how process eco-innovation and company
performance (in terms of company growth, company profitability,
and competitive benefits) relate. We found positive effects of pro-
cess eco-innovation on a company's performance in terms of
competitive benefits, company profitability, and growth. Common
for eco-innovation is uncertainty and generally a long period of
payoff (which is not necessary for some types of eco-innovation,
e.g., end-of-pipeline technologies). Based on the results of the
present study, we conclude that process eco-innovation pays off; in
short, being eco is worthwhile. Companies can acquire competitive
benefits by engaging in process eco-innovation; moreover, their
outcomes also result in higher company growth and profitability.
5.2. Implications for companies and policy makers
The aforementioned empirical findings also provide implica-
tions for companies and policy makers. First, for a long time com-
panies have believed that eco-innovation is only a burden,
demanding investments and bringing only sunk costs to the
822 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825
company to decrease its adverse effects on the environment.
However, this mentality has changed. Companies recognized the
potential in eco-innovation and acknowledged the business op-
portunities to seize. Our findings demonstrate that companies that
implement process eco-innovation can reap several benefits from
doing so, such as a gain in competitive benefits and higher company
growth and profitability. Process eco-innovation based on the re-
sults of our study is worthwhile for companies.
Moreover, regarding the implications for policy makers and the
results of current study indicating that process eco-innovation is
mostly motivated by competitive pressure, managerial environ-
mental concern, and customer demand, the environmental policy
instruments (both the command-and-control instrument and eco-
nomic incentive instrument) should be adapted to those circum-
stances. A combination of both with an orientation toward market
needs would enhance the capacity and performance level of process
eco-innovation in companies. This means that for a successful
enforcement of policies a combination of command-and-control in-
struments and economic incentive instruments with a market
orientation should be developed. Feed-in tariffs, subsides, and other
types of public grants would draw investments in renewable energy,
benefiting the company and the environment, as well as the economy.
With regard to the important role of managers, which they play
in enforcing process eco-innovation implementation, grants for
additional education and training related to environmental issues
can raise awareness regarding the need for and importance of eco-
innovation implementation, pursuing sustainability goals, and also
the benefits that those can deliver to the company. Knowledge
transfer and better, tighter collaboration between public authorities
(universities and research institutes) and companies could also
contribute to companies' efforts to implement or develop eco-
innovation. Considerable knowledge potential is hidden in
research institutes and not applied in practice, which companies
could also successfully exploit. Moreover, subsidies for employing
managers with environmental background, expertise, or knowl-
edge are another suggestion to steer companies toward eco-
innovation implementation and to dedicate more attention to
environmental issues. Managerial environmental concern seems to
spur process eco-innovation in companies and, as previously
mentioned, subsidies for new green employments can deliver an
added value to the company and to the environment.
Last, green public procurement, which is not yet well grounded
and practiced in the Slovenian environment, can facilitate com-
panies' commercialization and sales and thus support companies in
their environmental efforts. In summary, environmental policy in-
struments should offer assistance to companies through the whole
life cycle of eco-innovation and should be adapted to the market and
companies' needs. Market-oriented instruments (such as tradable
permits and green taxes) and regulations, as well as environmental
standards, can hamper companies' operations that are not in line
with the legislation, but many times they can also hinder companies
that are trying to present a breakthrough innovation. Policy makers
should take this issue into consideration. Tax exemptions also
represent a good option, especially for companies that are imple-
menting significant process eco-innovations and decreasing the
environmental burden. These exemptions can either be applied for
the company or assigned to the eco-products or services.
5.3. Limitations and future research directions
Several limitations of the present study warrant consideration.
The main limitation concerns collecting data only from Slovenia.
This implies that the findings are context-specific and may apply or
be generalizable only to countries similar to Slovenia. However,
application of this research and a multi-sample analysis in which
we include companies from several countries would enable us to
compare the similarities and differences among them. This issue
remains subject to further research. The second limitation, which is
quite common to this type of research, is the use of a cross-sectional
research design, which is screening the current state and hinders
the possibility of identifying causative implications. Therefore, a
longitudinal study would enable us to follow companies through a
certain period and observe how different drivers affect process eco-
innovation over time and how process eco-innovation affects
company performance. Successful and breakthrough innovations
demand large investments and pay off several years after their
implementation. This means that company performance is initially
hampered, while through time it improves. The third limitation
concerns considering only process eco-innovation and measuring
only this type of eco-innovation. In our study, we strictly focused on
process eco-innovation and omitted other types of eco-innovation,
such as product and organizational eco-innovation, which remains
a topic for future research. Lastly, prior to the current study, we
conducted a qualitative study (for pre-testing the survey instru-
ment), in which we found that some variables (such as EMS) could
play an important role in facilitating adoption of process eco-
innovation in companies. However, because of the model
complexity (which also requires a certain number of observations
in order to provide stability and reliable results) and the small
subsample size, we were unable to include and test these variables
in the current study. Thus, this remains a topic for future research,
and the same is true for other variables (e.g., company size, type of
industry and internationalization), which could lead to interesting
findings when such variables are included in the model as
moderator or mediator.
Future research can distinguish and explore the drivers and
outcomes of incremental and radical eco-innovation or distinguish
different types of process eco-innovation, such as end-of-pipeline
technologies and cleaner technologies. We could as well differen-
tiate among different stages of eco-innovation (i.e., adoption and
development), as Hojnik and Ruzzier (2015) emphasized in their
literature review. Therefore, more attention should be paid to
research, which would deepen the understanding of the motiva-
tions that lead companies to adopt process eco-innovation and
focus on its development. Moreover, the effects of EMS (such as ISO
14001 and EMAS accreditation) on process eco-innovation should
be considered, since many researchers (Rehfeld et al., 2007; Ziegler
and Rennings, 2004) have found positive effects on both product
and process eco-innovation. As a final recommendation, we suggest
that future research should include differentiation between hard
and soft environmental policy instruments.1 Cleff and Rennings
(1999) have found that hard environmental policy instruments
elicit mainly process eco-innovation, while product eco-innovation
is significantly determined by soft regulation. Moreover, soft and
voluntary environmental policy measures may be sufficient for
pioneers (i.e., environmentally innovative companies), while hard
measures (command-and-control regulation, duties) seem to be
necessary for the non-innovative companies (Cleff and Rennings,
1999; Rennings, 2000). Hard instruments (i.e., market-based and
regulatory instruments) tend to impose explicit obligations, while
soft instruments rely more on (and seek to stimulate) voluntary
activities (Ekins, 2010). Therefore, soft environmental policy in-
struments (e.g., eco-audits, voluntary commitments, liability law,
voluntary industry agreements, green procurement practices and
environmental certification schemes; Camiso ! n, 2010; Cleff and
Rennings, 1999) should be included in future research.
1
We thank an anonymous reviewer for this remark.
 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825 823

Appendix. Questionnaire on eco-innovation in Slovenia.

ENVIRONMENTAL CONCERN
Please indicate to what extent you agree or disagree with the following statements (1-strongly disagree to 7-strongly agree):
Eco-innovation is an important component of the Strongly disagree 1 2 3 4 5 6 7 Strongly agree
company’s environmental management strategy.
Most eco-innovations are worthwhile. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
Eco-innovation is necessary to achieve high levels of Strongly disagree 1 2 3 4 5 6 7 Strongly agree
environmental performance.
Eco-innovation is an effective environmental Strongly disagree 1 2 3 4 5 6 7 Strongly agree
management strategy.
EXPECTED BENEFITS
Please indicate to what extent you agree or disagree that the following expectations regarding eco-innovation have
motivated you to implement eco-innovation (1-strongly disagree to 7-strongly agree):
To improve profitability. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
To increase productivity. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
To increase market share. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
To enter new markets. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
To strengthen the brand. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
To gain competitive advantage. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
ENVIRONMENTAL POLICY INSTRUMENTS
Please indicate to what extent you agree or disagree with the following statements (1-strongly disagree to 7-strongly agree):
Our products should meet the requirements of national Strongly disagree 1 2 3 4 5 6 7 Strongly agree
environmental regulations.
Our products should meet the requirements of Strongly disagree 1 2 3 4 5 6 7 Strongly agree
international and/or EU environmental regulations.
Our production processes should meet the requirements Strongly disagree 1 2 3 4 5 6 7 Strongly agree
of national environmental regulations.
Our production processes should meet the requirements Strongly disagree 1 2 3 4 5 6 7 Strongly agree
of international and/or EU environmental regulations.
The government provides preferential subsidy for Strongly disagree 1 2 3 4 5 6 7 Strongly agree
environmental innovation.
The government provides preferential tax policy on Strongly disagree 1 2 3 4 5 6 7 Strongly agree
environmental innovation.
The government promotes environmental protection. Strongly disagree 1 2 3 4 5 6 7 Strongly agree
CUSTOMER DEMAND
Please indicate to what extent you agree or disagree with the following statements (1-strongly disagree to 7-strongly agree):
The environment is a critical issue for our important Strongly disagree 1 2 3 4 5 6 7 Strongly agree
customers.
Our important customers often bring up environmental Strongly disagree 1 2 3 4 5 6 7 Strongly agree
issues.
Customer demands motivate us in our environmental Strongly disagree 1 2 3 4 5 6 7 Strongly agree
efforts.
Our customers have clear demands regarding Strongly disagree 1 2 3 4 5 6 7 Strongly agree
environmental issues.
COMPETITION
Please indicate to what extent you agree or disagree with the following statements (1-strongly disagree to 7-strongly agree):
We establish the company’s environmental image Strongly disagree 1 2 3 4 5 6 7 Strongly agree
compared to competitors through green concepts.
We increase the company’s market share through green Strongly disagree 1 2 3 4 5 6 7 Strongly agree
concepts.
We improve the company’s competitive advantage over Strongly disagree 1 2 3 4 5 6 7 Strongly agree
competitors through green concepts.
PROCESS ECO-INNOVATION
Please indicate to what extent you agree or disagree with the following statements (1-totally disagree to 7-totally agree).
Has your company ever taken the following action in the production process:
Low energy consumption such as water, electricity, gas, and Totally disagree 1 2 3 4 5 6 7 Totally agree
petrol during production/use/disposal.
Recycle, reuse, and remanufacture material. Totally disagree 1 2 3 4 5 6 7 Totally agree
Use of cleaner technology to generate savings and prevent Totally disagree 1 2 3 4 5 6 7 Totally agree
pollution (such as energy, water, and waste).
The manufacturing process of the company effectively Totally disagree 1 2 3 4 5 6 7 Totally agree
reduces the emission of hazardous substances or waste.
The manufacturing process of the company reduces the use Totally disagree 1 2 3 4 5 6 7 Totally agree
of raw materials.
COMPETITIVE BENEFITS
Please indicate the extent to which the company's environmental practices have led to any of the following competitive
benefits (1-no contribution to 7-very large contribution):
Increased process/production efficiency. No contribution 1 2 3 4 5 6 7 Very large contribution
Increased productivity. No contribution 1 2 3 4 5 6 7 Very large contribution
Increased knowledge about effective ways of No contribution 1 2 3 4 5 6 7 Very large contribution
managing operations.
Improved process innovations. No contribution 1 2 3 4 5 6 7 Very large contribution
824 J. Hojnik, M. Ruzzier / Journal of Cleaner Production 133 (2016) 812e825

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