Purpose: The purpose of this study is to develop a performance measurement system of environmental sustainability in service settings and to empirically examine the relationship between the measured environmental sustainability and operating performance.Design/methodology/approach: This study applies exploratory factor analysis (EFA) to a six-year panel dataset of 984 US hotels to construct a two-factor standardized measure of environmental sustainability. The authors then conduct a stochastic frontier analysis (SFA) to investigate the relationship between the measured environmental sustainability and the operating performance frontier, considering the impact of operating structure.Findings: Customer behavior and operational decisions are two key drivers of environmental sustainability. There is a positive link between environmental sustainability and operating performance. Operating structure has a significant impact on the operating performance. The performance frontier varies across market segment and location characteristics such as degree of urbanization and climate condition.Practical implications: The findings indicate that service providers should actively involve customers, and manage both front-office and back-office operations in environmental sustainability initiatives. Operating structures that favor the alignment of multiple service supply chain partners’ interests contribute positively to performance. The managers should be mindful of varying best-in-class performance due to operating unit characteristics such as market segment, and location characteristics.Originality/value: This study is among the first attempts to develop a performance measurement system of environmental sustainability. The resulted standardized measure of environmental sustainability considers both the revenue and cost impacts in service operations.This research is among the first generation of papers that bring the unique characteristics of service operations, particularly service co-production, into sustainability research.
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