Unveiling the Black Box in Retail Firms’ Supply Chain Labor Standards Performance: A Theory of Supply Chain Labor Compliance Integration

Cross-Functional Tensions in Supply Chain Labor Compliance in Retail Firms

Following prior precedent on maintaining independent and impartial legal compliance units (e.g., compliance with federal and state laws) (Parker & Nielsen, 2011), typically, retail firms designated employees within a siloed functional unit as compliance professionals to be trained, evaluated, and rewarded for the firm’s supply chain labor standards performance (Estlund, 2010). The employees in this compliance unit were expected to act as a bridge between external labor regulations (e.g., host or supplier country labor laws), the values expressed in social movements (e.g., independent social monitoring and activism), and the firm’s goals (e.g., satisfying socially conscious consumers). However, their efforts to prioritize labor compliance were often downplayed by competing priorities of the firm’s purchasing units (Amengual et al., 2020; Lim & Phillips, 2008; Ruwanpura & Wrigley, 2011).

Prior research has found evidence that the retail firm’s price and speed-to-market demands on their suppliers contradict the labor compliance criteria in the retail firm’s supplier CoC (Amengual et al., 2020; Anner, 2018; Bartley & Egels-Zandén, 2016; Lim & Phillips, 2008; Ruwanpura & Wrigley, 2011; Soundararajan, 2023). Across apparel, footwear, toy and electronics retailers, Bartley and Egels-Zanden (2016) as well as Locke and colleagues (2009, p. 326) noted that, “most compliance officers have less influence than their purchasing or sourcing colleagues when deciding whether or not to place (or continue) an order with a noncompliant factory.” Amengual and colleagues (2020, p. 20) found that “many staff involved in the purchase order process did not view monitoring labor compliance as central to their roles,” and “key compliance managers were not involved in meetings in which orders were allocated to factories at the start of the product development calendar.” Consequently, in experiments with 648 purchasing managers, Durach and colleagues (2023) found that a sourcing model that invokes competing business versus labor compliance decision frames for purchasing managers was likely to discourage responsible sourcing.

In general, the existing understanding of how such intra-organizational conflict in retail firms may relate to the firm’s supply chain performance outcomes is dispersed across several literatures. The supply chain operations literature recognizes that failure to identify trade-offs between conflicting interdepartmental goals can constrain the implementation of these goals with supply chain partners and proposes synchronizing the firm’s functional silos using information sharing, joint planning, and cross-functional collaboration (Flynn et al., 2010; O’Leary-Kelly & Flores, 2002; Pagell, 2004; Stevens, 1989). Similarly, the literature on organizational compliance management suggests that obtaining external stakeholders’ compliance with a firm’s standards and initiatives requires widespread participation of leaders and employees across functional units (Baucus & Near, 1991; Gunningham & Sinclair, 2009; Interligi, 2010; Parker & Gilad, 2011). Yet, these prior perspectives from supply chain operations and compliance management largely omitted the post-20^th-century focus on supply chain labor standards performance which manifested as an independent, ancillary function outside traditional supply chain management models (Pagell, 2004; Stevens & Johnson, 2016). Moreover, these perspectives included limited theorizing on specific organizational measures or practices to prevent different types of intra-organizational tensions experienced due to the competing functional priorities within the firm.

In general, the CSR literature has focused on understanding either institutional or inter-organizational determinants of socially responsible behavior such as industry (Waddock & Graves, 1997), tax laws (Navarro, 1988), and managers’ professional affiliations (Galaskiewicz & Burt, 1991), or organizational determinants such as firm size, financial performance (Brown & Perry, 1994; Waddock & Graves, 1997), or managerial values (Maignon & Ralston, 2002). Limited attention has been paid in this literature to explaining how conflicts in intra-organizational processes might constrain the performance of a firm’s CSR investments (Barnett et al., 2020; Fatima & Elbanna, 2023). However, some CSR scholars have emphasized the importance of the firm’s “internal structures” (Fatima & Elbanna, 2023, pp. 106) and of “the integrated approach to CSR” (Siltaloppi et al., 2021, p. 507) for substantively implementing CSR initiatives through leveraging synergies between the firm’s social and business agendas. Along this vein, one notable exception is the perspective on “CSR Tensions,” which argues that firms seeking to substantively incorporate CSR initiatives into their core business processes and practices experience tensions between internal stakeholders, such as leaders and employees (Hahn et al., 2015; Ozanne et al., 2016; Siltaloppi et al., 2021; Smith et al., 2013; Smith & Lewis, 2011).

The CSR tensions perspective originates in prior paradox research (Smith & Lewis, 2011, p. 381; Smith et al., 2013) which argues that, “long-term sustainability requires continued efforts to meet multiple, divergent demands” without “choosing among competing tensions [to] aid short-term performance.” CSR tensions are defined as intra-organizational paradoxes or tensions, “that arise from efforts to implement the ideas, policies, and practices associated with CSR simultaneously with the pursuit of business targets” (Siltaloppi et al., 2021, p. 509). For instance, intra-organizational tensions may arise from paradoxes experienced by employees during core organizational activities including acquiring new competencies and innovative routines while abandoning previous ones (“learning paradoxes”), developing a sense of belonging among distinct individual versus collective roles and groups (“belonging paradoxes”), balancing participation in collaborative versus competing organizational designs and structures (“organizing paradoxes”), and satisfying conflicting demands or inconsistent outcomes/metrics (“performing paradoxes”; Smith et al., 2013; Smith & Lewis, 2011).

SCLC Integration in the Retail Firm

We apply the CSR tensions perspective specifically within the context of the retail firm’s supply chain labor compliance mission where the actions of the retail firm’s compliance unit in embedding labor compliance criteria in the firm’s sourcing decisions gives rise to cross-functional tensions with other functional units with competing product purchasing priorities (e.g., price, lead time). For example, low-price targets issued by the purchasing unit contradicts the compliance units’ CoC requirement for suppliers to pay at or above legal minimum wage (Lund-Thomsen & Lindgreen, 2014). Similarly, purchasing units’ last-minute increases in order volume due to seasonal or consumer demand fluctuations would conflict with compliance units’ CoC requirement for suppliers to minimize their use of overtime work as well as provide stable work hours (Ruwanpura & Wrigley, 2011).

We extend CSR tensions research by conceptualizing, for the first time, CSR tensions within the retail firm context, to identify four distinct types of cross-functional tensions that constrain the degree to which a firm’s supply chain labor compliance mission is shared and supported across the firm’s units, thereby limiting supply chain labor standards performance. We also expand the theory on how firms may manage and prevent CSR tensions by identifying specific organizational practices that determine the degree of SCLC integration in a retail firm by reducing the four types of cross-functional tensions.

Cross-functional human capital tensions occur due to competing and non-overlapping knowledge and skill demands between purchasing and compliance units. Typically, compliance professionals in retail firms solely comprise the human capital relevant to the labor compliance mission, including knowledge of the labor compliance criteria and skills for monitoring and evaluating compliance. Purchasing unit leaders and employees possess only “a vague notion that their employer is socially responsible,” lack the knowledge for inspecting and utilizing labor compliance data as well as the skills to assess how price or lead time targets pressure suppliers to trade-off minimum wage and overtime compliance requirements (Bhattacharya et al., 2008, p. 38).

Cross-functional identity tensions arise because employees and leaders across functions may identify with and take ownership of divergent functional roles, values, and loyalties to functional priorities. These “opposing yet coexisting roles, memberships, and values” within the retail firm (Smith & Lewis, 2011, p. 383) can drive resistance among purchasing employees in internalizing labor compliance criteria as being central to procurement decisions while honoring their unit’s bottom line-driven mission. Similarly, leaders in compliance units may struggle to articulate “who we are” and “what we do” in response to questions from subordinates who face uncertainty in the firm’s execution of their unit’s labor compliance mission (Smith et al., 2013).

Cross-functional process tensions may arise due to competing organizational designs and structures, including hierarchical departmental structures and siloed work/job designs that prevent communication and exchange of labor compliance data between siloed functional unit employees and leaders (Smith & Lewis, 2011). The retail firm’s organizational structure or “the formal allocation of work roles and the administrative mechanisms” (Child, 1972, p. 2), designate control over supplier selection to the purchasing unit with only secondary, auxiliary involvement from the compliance unit (Bartley & Egels-Zandén, 2016; Lund-Thomsen & Lindgreen, 2014). Consequently, compliance managers are typically not invited by procurement managers to meetings to finalize order allocation among suppliers (Amengual et al., 2020). Procurement unit employees may also be spatially and technologically separated from compliance unit employees with minimal opportunities for exchange of data or cooperative communication during selection of suppliers for sourcing.

Finally, cross-functional goal tensions arise due to the use of competing financial and social performance objectives and metrics that are not shared between functional units (Smith & Lewis, 2011). For example, employees’ performance on labor compliance metrics may be exclusively assessed and rewarded within the compliance unit and excluded from performance appraisals for purchasing unit employees. Leaders across functions may struggle in defining, measuring, and rewarding the firm’s success across seemingly contradictory overtime/wage compliance vs. lead time/price performance metrics, resulting in employees perceiving a “zero-sum” situation of success in one performance objective as avoidance of another objective (Smith et al., 2013).

As noted earlier, SCLC integration reflects the retail firm’s capacity for shared and coordinated action by leaders and employees of distinct functional units within the retail firm to consistently align, shape, and renew the human capital, identities, processes, and goals of the functional units and their members around the firm’s supply chain labor compliance mission. Improving the retail firm’s degree of SCLC integration requires measures to minimize all four types of cross-functional tensions (human capital, identities, processes, and goals) described earlier. Next, drawing on prior research evidence on the use of discretionary management practices that enable, motivate, or empower greater cross-functional collaboration in organizations (Engelsberger et al., 2023; Greening & Turban, 2000; Hansen et al., 2019; Hong et al., 2019; Roberts & Beamish, 2017), we identify specific organizational practices that may help mitigate each of the four types of cross-functional tensions in supply chain labor compliance to increase the degree of SCLC integration in the retail firm. Figure 1 illustrates our model on the determinants of the retail firm’s SCLC integration level and the subsequent impact on the firm’s supply chain labor standards performance.

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Figure 1.

An Organizational Model of Retail Firms’ Supply Chain Labor Compliance Integration.

Determinants of SCLC Integration That Minimize Cross-Functional Human Capital Tensions

To identify organizational practices that minimize cross-functional human capital tensions in supply chain labor compliance, we draw on prior evidence on the use of selectivity in hiring and extensive training as discretionary management practices that help enable greater intra-organizational collaboration through alignment of knowledge and skills (Engelsberger et al., 2023; Hansen et al., 2019; Hong et al., 2019). First, an emphasis on job applicants’ social responsibility knowledge as a criterion in the hiring process across functions can help recruit candidates whose professional growth interests and learning behaviors align with the firm’s labor compliance initiatives (Belinda et al., 2018; Greening & Turban, 2000). According to Evans and Davis (2011), employees with prior CSR knowledge are more likely to systematically process, analyze, and incorporate CSR information in their decisions. Using prior experience in social responsibility practice as a selection criterion across functional units can also help identify socially conscious employees with a higher propensity to facilitate knowledge sharing on the firm’s labor compliance. For example, Siltaloppi and colleagues (2021) described the case of a construction firm where recruiting employees with both technical expertise and experience in issues of ethical conduct was helpful in bridging employees’ past understanding of the financially driven construction industry and the firm’s new socially responsible vision. Thus, selecting new hires across functions for their in-depth social responsibility knowledge in addition to their specific functional expertise would help improve SCLC integration by enabling more frequent exploration and innovation in labor compliance knowledge, thereby reducing human capital tensions in labor compliance within the retail firm.

In addition, selectively hiring “boundary spanners” (Acquier et al., 2018; Gieryn, 1983) with the relational skills to develop and facilitate new connections between functional units as well as between internal units and external suppliers may ensure active knowledge transfer and knowledge creation on labor compliance. For example, boundary-spanning sourcing professionals who are bicultural/multicultural and/or have bilingual/multilingual skills can help their firms acquire locally embedded knowledge of foreign business and social practices by meaningfully communicating with foreign suppliers (Roberts & Beamish, 2017) and more credibly and convincingly propagate knowledge on labor compliance (Perrone et al., 2003). Employees from purchasing functions with such boundary-spanning interpersonal and communication skills are more likely to act in partnership with their compliance colleagues in generating shared institutional knowledge on labor compliance (Gatignon, 2022). Using evidence of boundary-spanning skills such as prior cross-cultural experience and overseas education (e.g., in sourcing locations) as hiring criteria across functions can help improve SCLC integration by reducing cross-functional tensions in using human capital to collaboratively innovate in their responses to labor compliance gaps among suppliers (Miska et al., 2016). Therefore, we propose the following:

Second, the retail firm may further mitigate cross-functional human capital tensions due to differences in skill/knowledge demands between the firm’s compliance (i.e., skills/knowledge to monitor labor compliance) and purchasing professionals (i.e., skills/knowledge to secure competitive pricing) through regular and extensive training on supply chain labor compliance. Therefore, employees’ cross-functional labor compliance training may include rotational experiences across compliance, purchasing, and other organizational functions to enable a deeper, “big picture” understanding of the role of each function in ensuring labor compliance (Eriksson & Ortega, 2006). For example, Siltaloppi and colleagues (2021) describe how a socially conscious construction firm used exemplary case studies to train employees across functions during firm-wide workshops on how the firm and each functional unit seek to accomplish the social goals. Extensive training on how labor compliance data may be used for decision-making alongside other sourcing data (e.g., pricing, lead time) can ensure that employees across functions become active contributors of innovative ideas and new knowledge to address labor compliance gaps (Andersen & Skjoett-Larsen, 2009; Haugh & Talwar, 2010). For example, global telecommunications retailer, Huawei’s procurement staff are trained on the use of suppliers’ compliance audit data on SA8000 and OHSAS 18001 standards (United Nations Global Compact [UNGC], 2021). Extensive training may also reduce cross-functional human capital tensions by leveraging existing quality management and process improvement routines within procurement functions to encourage the sharing of tacit knowledge and routines for minimizing variance in labor compliance (Acquier et al., 2018). Therefore, we propose the following:

Determinants of SCLC Integration That Minimize Cross-Functional Identity Tensions

To identify organizational practices that help reduce cross-functional identity tensions in supply chain labor compliance, we draw on prior evidence on the appointment of leaders with pluralist/multi-stakeholder views and new employee onboarding as discretionary management practices that enable greater intra-organizational collaboration through collective internalization of a shared mission. As organizational identities are often formed from the leaders’ core beliefs and values (Voss et al., 2006), the labor compliance mission will need to be supported by the firm’s top leadership across functions prior to being fully embraced by employees in varying functional roles (Weaver & Trevino, 2001). Retail firms may minimize cross-functional identity tensions and improve SCLC integration by appointing leaders at the C-suite (e.g., Chief Sustainability Officer) and senior vice president levels that adopt pluralist and multi-stakeholder views in sourcing (Strand, 2013; Wiengarten et al., 2017; Worley et al., 2010). Pluralist leaders are more likely to orient the firm’s sourcing strategies in support of the labor compliance mission by demonstrating their willingness and ability to prioritize responsible sourcing decisions alongside other business objectives (Besharov, 2014; Park & Ghauri, 2015; Smith et al., 2013). When functional identities are in conflict, pluralist leaders can role model how neither identity needs to be abandoned in the pursuit of the labor compliance mission. Through the leaders’ exemplary behaviors, employees across functions will be more likely to accept and internalize the central role of labor compliance within the firm, thus resulting in greater SCLC integration (Hannah et al., 2016). For example, Siltaloppi and colleagues (2021) described a construction firm where the top management’s exemplars in resolving sourcing conflicts responsibly and ethically, helped employees embrace the firm’s social mission.

Promoting leaders with pluralist views may also help reduce cross-functional identity tensions and increase SCLC integration because such leaders are more likely to help in mobilizing financial, physical, and human resources to support labor compliance, providing mentoring to lower-level managers on appropriate ways to handle labor compliance gaps, and encouraging continuous dialog on labor compliance among employees (Pagell, 2004; Sethi, 2002; Wolf, 2011). Such leaders may also help promote a shared vision of labor compliance among different functions and help their subordinates meaningfully translate the labor compliance mission into relatable norms and values within each function (Wiengarten et al., 2017). For example, at multinational steel manufacturer ArcelorMittal, senior-level leaders’ commitment to defining a “shared vision” for sustainability was key in building employees’ buy-in with addressing social issues in the supply chain (UNGC, 2021). We propose the following:

Second, retail firms may use labor compliance onboarding for new employees across functional units to communicate, promote, and shape their identification with the labor compliance mission. Retail firms’ labor compliance onboarding practice may include formal (written and verbal) orientation of new hires across functions to supply chain labor standards performance as a core tenet of the firm’s mission and vision, and/or informal induction ceremonies that recognize ideal models/narratives on the contributions of past/current leaders and employees across functional units to the success of the firm’s labor compliance mission. Following global footwear retailer ASICS (Acquier et al., 2018), retail firms may also circulate a publication (e.g., orientation manual) that presents the firm’s labor compliance mission as the representation of its founders’ values and the firm’s “DNA.” This centralized, collective labor compliance onboarding (in addition to individualized functional onboarding) may help prevent cross-functional identity tensions at the time of employees’ organizational entry by instilling shared values on prioritizing supply chain labor standards as a precursor to new employees’ sense-making of function-specific job duties. As a result, they may help reduce potential role conflict (e.g., between competing social and financial expectations) in subsequent job-related tasks (Campbell, 2000; Saks et al., 2007; Van Maanen & Schein, 1979).

It may also provide new employees a means to relate to their counterparts across functions and establish trust and collegiality based on their shared ownership of the labor compliance mission (Allen & Shanock, 2013). Promoting collective internalization of the labor compliance mission among new employees across units using labor compliance onboarding will help reduce cross-functional identity tensions by establishing a common frame of reference for responsible sourcing throughout the firm that is deeply anchored in a sense of shared accountability. Therefore, we propose the following:

Determinants of SCLC Integration That Minimize Cross-Functional Process Tensions

To identify organizational practices that help reduce cross-functional process tensions in supply chain labor compliance, we draw on prior evidence on the use of cross-functional teams, temporary international work assignments, and shared information systems as discretionary management practices that empower greater intra-organizational collaboration by breaking down structural barriers that prevent communication and exchange of data between functional units. First, retail firms may mitigate cross-functional process tensions and improve SCLC integration by consolidating their compliance expertise into their purchasing function to create cross-functional “responsible sourcing teams” that are empowered to engage in cooperative communication and data exchange (Crook et al., 2008; Huq et al., 2016). For example, Holcim, Swiss multinational retailer of building materials, uses cross-functional sourcing teams led by its procurement leaders at global, regional, and country levels with the membership of subject matter experts from human rights, health and safety, and legal compliance functions, to collaboratively assess and mitigate supplier labor risks (UNGC, 2021). Cross-functional sourcing teams can help expand lateral relationships within the firm, resulting in the opening of new communication lines and enhanced cooperation between functions to execute the labor compliance mission (O’Leary-Kelly & Flores, 2002; Zhao et al., 2011). Cross-functional sourcing teams may also help minimize data asymmetries, thereby empowering employees across functions to have an equally informed voice in ensuring that the labor compliance process unfolds simultaneously with other functional processes (Keller, 2001). Consequently, cross-functional process tensions will be minimized because purchasing unit employees on cross-functional sourcing teams will have firsthand access to their compliance colleagues’ analysis of labor compliance data and thus be able to proactively assess and communicate with them about how changes to order volumes or delivery times with suppliers might undermine compliance with criteria on overtime work. Therefore, we propose the following:

Second, sending employees from different functional units on short-term international work assignments in supplier nations can help overcome structural limitations in accessing and communicating real-time data on local supplier conditions and emerging labor compliance gaps (Crook et al., 2008; Hocking et al., 2007; Martins et al., 2004). Employees on international work assignments are uniquely positioned to disseminate the retail firm’s labor code criteria among the suppliers as well as relay their observations and supplier feedback on the local constraints to complying with these criteria to their colleagues across functional units in the retail firm’s headquarters (Harzing et al., 2016; Reiche et al., 2009). These spatially and geographically dispersed employees may use cloud-based remote communication and data-sharing tools to interact seamlessly and constantly with one another on addressing labor compliance gaps unique to specific supplier locations (Gibson & Cohen, 2003; Malhotra et al., 2007; Pinjani & Palvia, 2013). For example, global footwear retailer ASICS virtually connected teams of globally dispersed CSR, strategy, and product development professionals to identify and leverage strengths in local social initiatives (Acquier et al., 2018). Global automobile retailer, Volkswagen, similarly emphasized data transparency and regular communication between sourcing staff working across regions to gather feedback on responsible sourcing (UNGC, 2021). These examples suggest that temporary international work assignments in supplier locations for employees across functional units of the retail firm may help improve SCLC integration by empowering more precise and cooperative sourcing decisions based on direct, real-time observations of supplier conditions and shared access to data in the supply chain labor compliance process. Therefore, we propose the following:

Finally, retail firms may minimize cross-functional process tensions by using shared sourcing information systems that help seamlessly and transparently distribute fragmented compliance and purchasing data across functional units on demand, facilitating real-time communication between both purchasing and compliance employees/leaders on applying the labor compliance criteria in responsible sourcing (Crook et al., 2008; Dewett & Jones, 2001; Narasimhan & Kim, 2002; Pagell, 2004). For example, Johnson Controls, retailer of fire and safety equipment, uses an online portal to collect and transmit supplier compliance data directly to procurement managers to use in supplier selection (UNGC, 2021). Consolidation of supplier data on order volume, lead time, worker wages, overtime, and so on into a single database can also enable functional units to minimize cross-functional process tensions by identifying interdependent constraints in sourcing as well as adjust their unit’s demands on suppliers to the needs of the other units on an ongoing basis (Dewett & Jones, 2001; Zhao et al., 2011). For example, clothing retailer Inditex implemented an online platform to collect and consolidate supplier data into a single database accessible across functional units for the purpose of conducting traceability audits (UNGC, 2021). Transparently and broadly sharing sourcing data on compliance and purchasing will improve the retail firm’s SCLC integration by empowering employees/leaders across functional units to incorporate evidence/data-based problem-solving on supplier compliance in their units’ sourcing processes. Therefore, we propose the following:

Determinants of SCLC Integration That Minimize Cross-Functional Goal Tensions

To identify organizational practices that help minimize cross-functional goal tensions in supply chain labor compliance, we draw on prior evidence on the use of objective, continuous performance management and performance-based rewards as discretionary management practices that motivate employees to simultaneously prioritize multiple competing goals (e.g., financial and social metrics) without compromise (Pache & Santos, 2013). Unlike procurement metrics (e.g., price, lead time) that are objectively measured and quantified, supply chain labor compliance metrics are generally “qualitative, ambiguous, and non-standardized” (Smith et al., 2013, pp. 410). Retail firms may minimize goal tensions that employees encounter in evaluating labor compliance as part of their job performance by developing objective labor standards performance metrics and incorporating these metrics into purchasing and other units’ key performance indicators (Pagell, 2004).

Retail firms may also require purchasing unit leaders to provide continuous feedback and immediate performance counseling for unit employees that willfully neglect labor compliance in sourcing decisions. This will help retail firms improve their SCLC integration level by supporting the performance evaluation of employees and leaders across functional units for their direct (in-role) and indirect (extra-role) contributions to the labor compliance mission. For example, procurement staff at Nike were evaluated by their managers for prioritizing a supplier’s compliance with the Nike code of conduct as the “first question asked” in determining whether to source from them (Lim & Phillips, 2008, p. 149). Therefore, we propose the following:

Finally, retail firms may use performance-based reward practices across functional units that tie employees’ base pay, merit pay raises and promotion opportunities to the firm’s supply chain labor standards performance to encourage all employees to evaluate their contributions to labor compliance as part of their job performance (Narasimhan & Kim, 2002). For example, the firm may reward purchasing unit employees who consistently secure sourcing contracts with fully compliant suppliers with promotion to leadership roles. The firm may also award bonuses to employees for meeting specific labor compliance targets, such as zero supply chain labor violations detected throughout a performance period. When employees across functional units are rewarded for incorporating labor compliance goals into the day-to-day decision-making, they are less likely to experience cross-functional goal tensions on supply chain labor compliance. Therefore, we propose the following:

In summary, we argue that the degree of SCLC integration will be higher in retail firms with selective hiring based on CSR knowledge and boundary-spanning skills, extensive labor compliance training, labor compliance onboarding, pluralist/multi-stakeholder leadership, cross-functional sourcing teams, temporary international work assignments, shared information systems that broadly and transparently distribute labor compliance data, objective/continuous labor compliance performance management, and labor compliance performance-based rewards. In utilizing this system or bundle of organizational practices, the retail firm may also experience increasing returns to SCLC integration over and above the gains in SCLC integration from the independent effects of practice usage, because of practice synergies or complementarities (Chadwick, 2010; Gerhart, 2007; Milgrom & Roberts, 1992). Such practice synergies will occur when a practice implemented by the firm to reduce cross-functional tensions in supply chain labor compliance of a certain type (e.g., human capital, identity, process, goals) also interdependently reinforces the function of another practice designed to reduce the same or other types of cross-functional tensions. We illustrate with several examples below.

As one example, retail firms’ selective hiring based on applicants’ prior CSR knowledge to minimize cross-functional human capital tensions may simultaneously facilitate a further reduction in human capital tensions and gains to SCLC integration from the use of extensive and frequent labor compliance training across functions. This is because selectively recruited employees who are predisposed to incorporate labor compliance in their sourcing decisions from their prior experience with social responsibility practice may also be more likely to display readiness and receptivity to regular training on the firm’s labor compliance initiatives and compliance gaps among its suppliers. Similarly, the firm’s selective hiring based on applicants’ prior CSR knowledge and boundary spanning skills may also facilitate: the use of labor compliance onboarding to reduce cross-functional identity tensions because socially conscious employees with prior CSR knowledge will be more likely to embrace shared values on prioritizing supply chain labor standards and ownership of the firm’s labor compliance mission; the use of shared sourcing information systems with labor compliance data to reduce cross-functional process tensions because employees hired with prior CSR knowledge are more likely to meaningfully analyze and incorporate compliance data across supplier contexts in sourcing decisions; the use of cross-functional sourcing teams to reduce cross-functional process tensions because new recruits with the capability to facilitate connections between functional units for knowledge creation are more likely to engage in cooperative teamwork to minimize sourcing data asymmetries among their units; and the use of labor compliance-based rewards to reduce cross-functional goal tensions, because employees with prior experience on social responsibility practice are likely to be more responsive to monetary and non-monetary rewards for prioritizing the firm’s labor compliance goals.

Using a practice designed to reduce cross-functional tensions of a different type as an example, the retail firm’s appointment of pluralistic leaders to reduce cross-functional identity tensions may also simultaneously facilitate: the firm’s selective hiring of applicants with prior CSR knowledge to reduce cross-functional human capital tensions because pluralistic leaders are more likely to advocate for developing recruitment practices that help attract and retain employees with prior knowledge and experience with social responsibility practice; the use of cross-functional sourcing teams to reduce cross-functional process tensions, because pluralistic leaders are more likely to value and support the diversity in perspectives on labor compliance that is generated by such sourcing teams utilizing sourcing data supplied by different functions; and the adoption of objective, continuous labor compliance performance management to reduce cross-functional goal tensions, because pluralistic leaders are likely to be naturally inclined to comprehensively consider and balance multiple product purchasing and labor compliance goals in evaluating employee performance. As such, the retail firm’s use of the above configuration of interdependent organizational practices will complementarily determine the firm’s level of SCLC integration by reducing cross-functional human capital, identity, process, and goal tensions.

Internal Efficiencies in Labor Compliance Innovation

We argue that retail firms with higher SCLC integration are able to rapidly reconfigure and leverage shared knowledge/skills, identities, processes, and goals relating to labor compliance to improve labor standards performance in volatile supply chain environments (Collis, 1994; Eisenhardt & Martin, 2000; Teece et al., 1997). Firms with higher SCLC integration levels are more likely to have employees across functions that engage in joint problem-solving to address unforeseen compliance gaps due to volatility in suppliers’ local environments (e.g., political unrest and economic instability). As a result, such firms are more likely to be able to accept joint accountability with their suppliers for upholding labor standards amid changes to other sourcing priorities and product demands. On the contrary, firms with lower levels of SCLC integration are more likely to have employees from siloed functional units separately communicating and imposing on the same supplier, a variety of competing product demands limited to their own functional unit (e.g., the purchasing unit pressures suppliers to lower product prices at the same time as the compliance unit recommending the supplier’s adherence to minimum wage requirements). When labor violations follow from a supplier trading off these conflicting sourcing demands, employees in retail firms with poor SCLC integration may resist accountability over the violations and be reluctant to reach across functional boundaries to communicate with their counterparts on how to remediate the supplier’s noncompliance by revising sourcing demands.

Furthermore, retail firms with higher SCLC integration will have employees across the firm’s functions that collaboratively develop innovative supplier training programs and risk assessment tools that facilitate enhanced monitoring of labor conditions and compliance constraints at each supplier location. Using information on specific suppliers, these retail firms may design customized methods to track and assess each supplier’s degree of labor compliance and develop context-sensitive practices to promote each supplier’s continuous improvement in compliance (Pedersen & Andersen, 2006). On the contrary, retail firms with lower SCLC integration levels are not equipped with sufficient firm-wide skills and knowledge on labor compliance, with the compliance staff alone using standardized “check-the-box” audits (Kuruvilla et al., 2020) universally among suppliers without attention to constraints unique to local contexts that make compliance with certain labor standards infeasible. This may prolong and proliferate poor supply chain labor standards performance for retail firms with lower SCLC integration.

Finally, retail firms with higher SCLC integration are more likely to have the capacity to involve employees across functions in the company-wide adoption of new compliance management technology (e.g., data analytics and blockchain) to record noncompliance incidents and develop evidence-based corrective action plans (Asokan et al., 2022). In contrast, firms with lower SCLC integration, are less likely to have the collective buy-in of leaders and employees across functional units that is necessary to assemble and distribute critical sourcing data needed to support real-time responsible sourcing decisions and corrective action plans. For instance, in a retail firm with lower SCLC integration, the purchasing staff may continue to place orders with a supplier without knowledge of its weak labor compliance scores.

External Labor Compliance Collaboration

We also argue that higher levels of SCLC integration will help drive improvements in the retail firm’s supply chain labor standards performance by enhancing collaboration with external stakeholders in the supply chain ecosystem. For example, employees in a retail firm with higher SCLC integration are more likely to collaborate with their counterparts at supplier firms to facilitate their understanding of labor compliance criteria, motivate their willingness to comply, as well as initiate trust-based, long-term responsible sourcing partnerships (Carter & Jennings, 2002; Zorzini et al., 2015). Retail firms with higher SCLC integration will also be able to leverage support from external stakeholders outside of the supplier (e.g., competing buyers, third-party social monitoring organizations, government agencies, and nongovernmental organizations) to improve its labor standards performance (Perez-Aleman & Sandilands, 2008; Torugsa et al., 2013). In such retail firms, employees across functions are more likely to serve in boundary-spanning roles to collect precise labor compliance data from supply chain actors besides suppliers (e.g., trade unions, local government, and social monitoring groups). They may also be more likely to collaborate on cross-functional sourcing teams to access opportunities to tap into the knowledge of these supply chain actors to develop suitable labor compliance capacity-building mechanisms for specific suppliers. Consequently, retail firms with higher SCLC integration will be able to improve their supply chain labor standards performance by investing in supplier compliance capacity building and minimizing the likelihood of suppliers’ deceptive practices to hide noncompliance (Egels-Zandén, 2007; Huq et al., 2014; Lim & Phillips, 2008). In contrast, employees other than the compliance staff in retail firms with lower SCLC integration are less inclined to be involved in directly monitoring labor compliance, communicating with supply chain actors besides the supplier on labor compliance issues, or cooperating with such actors on suppliers’ compliance capacity building. In such firms, employees may restrict the scope of their interactions with the supplier and other supply chain actors to purely the specific transactions reflecting the goals/metrics of their functional unit, obtaining minimal information on the specific labor violations reported by a third-party auditor at a supplier facility (Kuruvilla et al., 2020; Locke et al., 2009).

Firms with higher SCLC integration will also be more likely to actively identify and resolve previously observed inconsistencies between the firm’s labor compliance criteria and the needs of workers across supplier locations to improve supply chain labor standards performance (Huq & Stevenson, 2020; Mancini et al., 2021; Yu, 2008). Employees of these retail firms in temporary international work assignments at supplier locations are more able to help incorporate the voice of workers and worker unions from supplier facilities in reshaping compliance criteria and their implementation at specific facilities. They are also likely to be encouraged by their pluralistic leaders to incorporate workers’ perspectives, including from subcontracted supplier facilities, in developing remedies for labor compliance gaps. In contrast, in firms with lower SCLC integration, employees across functional units are unlikely to have access to information or perspectives of workers and worker unions in supplier facilities, relying primarily on standardized reports from third-party auditors’ interpretations of the partial or inaccurate data provided by supplier firm managers in assessing labor conditions (Anner, 2012; Welford & Frost, 2006). Consequently, in such retail firms with lower SCLC integration, compliance professionals may unknowingly force suppliers to cut overtime work which workers rely on to earn income for basic needs (LeBaron et al., 2022; Li & Kuruvilla, 2023; Mancini et al., 2021).

Finally, in firms with higher SCLC integration, employees across functions are more likely to cooperate with their counterparts at rival retail firms on resolving labor compliance issues, reducing the costs of compliance (e.g., preventing duplicate labor audits), and increasing the gains from compliance (e.g., committing to long-term sourcing contracts with guaranteed order volume) for common suppliers (Barrientos & Smith, 2007; Huq & Stevenson, 2020), to improve supply chain labor standards performance. On the contrary, in firms with lower SCLC integration, employees focused solely on competitively accomplishing narrow product sourcing priorities that exclude an emphasis on labor compliance are likely to incorrectly assume their firm’s labor compliance initiatives as being superior and superseding those of rival retail firms (Anner, 2018; Barrientos & Smith, 2007; Jayasinghe & Hunter, 2020; Ruwanpura & Wrigley, 2011). This is likely to result in lower labor standards performance because suppliers may be confused by the multiple conflicting labor code criteria across buyers or lack the financial and human resources necessary for duplicate audits and compliance criteria.

Overall, by generating internal efficiencies in labor compliance innovation and promoting external stakeholder collaboration on labor compliance, higher SCLC integration will help the retail firm expeditiously diagnose and rectify labor violations in the supply chain without compromising other sourcing priorities, ultimately improving the firm’s supply chain labor standards performance. Thus, we propose the following:

Feedback Loop Between Supply Chain Labor Standards Performance and SCLC Integration

We argue that the retail firm’s SCLC integration level is also continuously augmented by feedback on the firm’s supply chain labor standards performance for several reasons. Feedback from the retail firm’s supply chain labor standards performance can increase its employees’ subsequent cognizance of the localized challenges and constraints (e.g., conflict with local laws and norms) that suppliers face in adhering to the labor compliance criteria (Huq & Stevenson, 2020; Kim, 2013). This may help enhance the firm’s degree of SCLC integration by encouraging further intra-organizational collaboration among employees, for example, using existing cross-functional sourcing teams, shared sourcing information systems, and international work assignments to better align the firm’s labor compliance criteria to the suppliers’ context. As retail firm employees identify new knowledge gaps on emerging labor standards, laws, or societal dictates, based on feedback on prior supply chain labor standards performance, the firm may further augment its SCLC integration level by motivating employees across functions to upgrade their labor compliance knowledge/skills by, for example, ramping up the intensity (e.g., number of hours of training per quarter), extensiveness (e.g., proportion of employees trained), and focus (e.g., training employees in cross-functional sourcing teams to audit suppliers instead of contracting third-party social audit firms) of labor compliance training (Cao et al., 2023; Locke et al., 2007; UNGC, 2021).

Feedback on the retail firm’s supply chain labor standards performance can also help augment its SCLC integration level by offering insights for adapting metrics used for evaluating and rewarding employees’ contributions to labor compliance; for instilling self-efficacy among employees and leaders in the success of their participation in labor compliance (e.g., as members of cross-functional sourcing teams or as pluralistic leaders); and strengthening new employees’ ownership of the firm’s labor compliance mission (e.g., through labor compliance onboarding) (Shaukat et al., 2016). Therefore, we propose that the retail firm’s supply chain labor standards performance provides feedback that helps further enhance its SCLC integration level by helping fine-tune or hone the alignment of the firm’s human capital, identities, processes and goals around supply chain labor compliance and preventing new cross-functional tensions from arising:

Implications for Theory

Prior research has found that labor compliance enforcement by retail firms in global supply chains has largely been ineffective in improving working conditions in supplier facilities in developing and emerging economies, resulting in weak supply chain labor standards performance of retail firms. However, what is not understood from this prior work is the extent to which this weak labor standards performance is attributable to intra-organizational tensions on labor compliance experienced by employees across functions within the retail firm itself, as well as how such cross-functional tensions may be mitigated. We developed a theoretical framework that defines, for the first time, SCLC integration, as the shared and coordinated support and alignment of human capital, identities, processes, and goals across functional units around labor compliance. In our framework, we identified specific organizational practices that help increase the level of SCLC integration in a retail firm by reducing each type of cross-functional tension (human capital, identity, process, and goals) on labor compliance. We also explained how higher SCLC integration enables the firm to achieve higher supply chain labor standards performance through internal efficiencies in labor compliance innovation and external stakeholder labor compliance collaboration. Finally, we explained how the retail firm’s SCLC integration level is further augmented by feedback on its supply chain labor standards performance.

Our framework on SCLC integration underscores the importance of intra-organizational tensions as a barrier to, as well as cross-functional alignment and coordination as a prerequisite for, the effectiveness of organizations juggling multiple economic and social priorities in global trade and supply chain environments. In the case of global supply chains, prior research has often criticized weak regulatory regimes, deceptive suppliers, and ineffective or biased auditing efforts for the poor supply chain labor standards performance of retail firms. Despite recent evidence of labor compliance consistently being downplayed over price and lead time in sourcing decisions by non-cooperative retail firm functions, the traditional labor compliance enforcement model that is contingent on power asymmetries between an “authoritarian” retail firm and its “captive,” “powerless” suppliers has remained relatively unaltered (Asif et al., 2009; Lund-Thomsen & Lindgreen, 2014, p. 14; Ruwanpura & Wrigley, 2011; Soundararajan, 2023). For the first time, we adopt an organizational lens to argue that retail firms’ supply chain labor standards performance will also be weakened by the firm’s failure to integrate labor compliance among its siloed functional units that impose product purchasing (e.g., price and lead time) demands on suppliers that undermine the labor compliance criteria. By contributing this organizational perspective on the retail firm’s SCLC integration, we help expand the scope of global supply chain governance research to encompass variability in the intra-organizational determinants of labor compliance in the broader supply chain. We also respond to criticism of the traditional enforcement model, by identifying SCLC integration as a precursor to retail firms’ transition into using “collaborative,” “commitment-oriented,” and/or “relational” models for improving their supply chain labor standards (Jiang, 2009; Locke et al., 2009; Lund-Thomsen & Lindgreen, 2014).

While we focus mainly on labor compliance in retail firms, the outlined process for cross-functional SCLC integration may serve as an organizational model for simultaneously and substantively pursuing other seemingly divergent organizational priorities (e.g., diversity, equity, and inclusiveness; environmental sustainability). For example, studies have previously reported limited success in the implementation of organizations’ CSR policies, despite devoting substantial resources, often because such policies are decoupled or separated from the firm’s strategic practices (Bromley & Powell, 2012; Wijen, 2014). Our article shows that when different functional units within the firm pursue distinct goals, implement different processes, aspire to distinct identities, and rely on independent knowledge bases and skill sets, this gives rise to tensions that prevent or limit the simultaneous accomplishment of the firm’s multiple functional priorities. Our framework provides a model for how firms may develop the capacity for cross-functional integration to minimize these tensions so that multiple organizational priorities may be jointly accomplished.

Our work also helps address existing debates on how business organizations may accommodate social responsibility in their strategy planning and execution in a way that optimizes organizational effectiveness. In this respect, some scholars recommend a “trade-off” approach that actively avoids tensions of choosing economic priorities over social priorities by ensuring that the net sum gain is positive (Orsato, 2006). Others advocate for a “win-win” solution between social and economic priorities using the “business case” for how social initiatives can enable firms to simultaneously achieve economic gains (Orlitzky et al., 2003). While the latter has in fact been the dominant perspective in the CSR literature (Van der Byl & Slawinski, 2015), it puts the spotlight on the economic rationale for addressing societal problems and avoids explicit recognition of the inherent tensions between disparate social and economic priorities (Margolis & Walsh, 2003). In contrast, our framework advocates an alternative approach for pursuing multiple priorities without compromise by developing an organization’s capacity to identify, embrace, and prevent such intra-organizational tensions.

Implications for Practice

Our work responds to recent calls to address threats of severe supply chain disruptions (Crane & Matten, 2020; Sodhi & Tang, 2021) by emphasizing the importance of SCLC integration in helping prepare the retail firm to be resilient to unexpected exogenous shocks to global sourcing. Consistent with prior work that has emphasized the relevance of organizational capabilities for sustaining performance during times of environmental uncertainty (Eisenhardt & Martin, 2000; Schilke et al., 2018), our framework identifies SCLC integration in retail firms as being critical for sustaining a flexible, adaptive, long-term responsible sourcing strategy.

For example, the ongoing COVID pandemic uncovered significant vulnerabilities in global supply chains to raw material and labor shortages. Many retail firms responded to these disruptions by canceling orders, delaying payments, and demanding deep discounts from suppliers, and as a result, putting millions of supply chain workers out of work or without pay (Anner, 2022). According to our framework, such retail firms are most likely characterized by low levels of SCLC integration and thus default to prioritizing price, speed, or rapid fulfillment at the expense of labor standards when threatened by uncertainty. As explained earlier, retail firms with high levels of SCLC integration are more likely to be connected to their suppliers, as well as other supply chain actors (e.g., trade unions, and governments) to be able to consistently uphold labor compliance in conjunction with the firm’s financial pursuits and to continuously improve and innovate their labor compliance processes to remain agile and resilient in their responsible sourcing strategies, in the face of market volatility and crises (Montoya-Torres et al., 2021).