corporate social responsibility and the capabilities … · engagement in firm’s social...
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Corporate Social Responsibility and the Capabilities Based View -
A Case Study of a Multinational Enterprise (MNE)
C. Lattemann, A.-M. Schneider, S. Kupke
Chair for Corporate Governance and E-Commerce
University of Potsdam
14482 Potsdam
Phone: +49/ (0)331/ 977 38 39
Fax: +49/ (0)331/ 977 33 75
Corresponding author: [email protected]
Summary English
Today, many industries are coined by fundamental and sustainable environmental changes. Firms have to adapt their strategies, organizational structures and processes to the new environmental conditions continuously. In this context, researches depict that so called dynamic capabilities of firms may become a source of competitive advantage. This contribution shows that social responsible actions by firms can be turned into dynamic capabilities. Hence, the orientation on social responsible issues in the change management may lead to competitive advantages. These statements will be validated by a case study and an encompassing review of CSR and capability based view literature. Summary French Keywords: Corporate Social Responsibility, Capability Based View, Dynamic Capability,
Competitive Advantages, Hyper-competition
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Introduction
Today firms have to cope with fundamental and sustainable economic environmental changes.
Amongst others, new opportunities and risks face corporations, the competitive situation changes from
local to global markets. Aside to this, continuous developments of new innovations in information and
communication technologies (ICT) change firm’s daily business. The rate of technological change as
well the diffusion speed has accelerated significantly in the recent years (Bettis/ Hitt, 1995: 8). These
changes lead to increased dynamics in competition in many markets which have to be reflected in the
business strategies of firms. In particular, the dynamism has rapidly increased in several markets, such
as in the service (e.g. franchising) or in the IT sector. In these markets a hyper-competition among
competitors evolved. These changing competitive conditions alter the corporate imperatives and
influence the organizational design. These imperatives are: ’1) decreased transactions costs; 2)
increased penalties for mistakes and hesitancy; and 3) competition based on knowledge accumulation
and development.’ (Bettis/ Hitt, 1995: 14). Therefore firms have to adopt new capabilities which
enable them to cope with the changed environmental threats and to get access to new resources to
sustain the fierce competition and to differentiate from other competitors.
In this context, this contribution shows how firm’s capabilities and resource configurations influence
their competitive advantage in respect to a changing environment. In particular, this contribution
analyzes the internal and external effects of corporate social responsibility (CSR) activities from a
resource and capabilities based view perspective. The central questions are: ’Is CSR a dynamic
capability in a firm faced by hyper-competition?’ and ’What are the consequences for the firm’s
strategy and the competitive advantage?‘.
This contribution starts with a broad literature review on CSR. The theoretical background to describe
the relation between CSR and firm’s performance derives from the resource based view and the
capabilities based view. Therefore an overview of previous contributions in which CSR has been
related to these two theoretical perspectives will be provided. Because the research topic is to
investigate the relationship of CSR and dynamic capabilities the focus will be on a hyper-competitive
environment. Three hypotheses will be derived and validated by an in-depth case study. To match the
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requirements of the dynamic capabilities approach a multinational enterprise (MNE) within the ICT
industry with a European focus has been selected. This contribution will end with a discussion and
consideration for further research.
Corporate Social Responsibility
A lot of different views on and definitions of corporate social responsibility (CSR) exist. At the
beginning of the CSR debate, Carroll’s pyramid model on CSR helped to develop a more
encompassing concept for CSR (Carroll, 1991, 2003). He defined four corporate responsibilities which
are bases on each other: 1) economic responsibility to be profitable; 2) legal responsibility to follow
the law; 3) ethical responsibility; and 4) philanthropic responsibility to support diverse social,
educational, environmental as well cultural objectives (Carroll, 1991).
However, nowadays it is widely accepted that CSR should follows a stakeholder approach. According
to the definition of the European Commission being socially responsible means ‘investing more into
human capital, the environment and the relations with stakeholders’ (2001: 6). Werther and Chandler
defined CSR as ’the relationship between corporations (or other large organizations) and the societies
with which they interact. Thus, CSR includes the responsibilities that are inherent on both sides of
these relationships. CSR understands society in its widest sense and on many levels to include all
stakeholders and constituent groups that maintain an ongoing interest in the organization’s operations’
(2006: 6f). CSR activities can focus on four main areas: 1) environment; 2) ethics; 3) employees; and
4) society.
Furthermore, McWilliams and Siegel (2001) pointed out that CSR is not only about the alignment of
firm’s strategy and operational management to legal standards. CSR is a proactive and voluntary
engagement in firm’s social responsibility which goes beyond legal rules and regulations. CSR
activities represent social responsible behaviour of firms and may lead to sustainable development of
firms as well of the society. In the context of this contribution all mentioned aspects will be considered
and hence CSR is understood as the voluntary integration of economic, social as well environmental
aspects into corporate processes and decisions.
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The CSR debate dates back to the 1950s. Levitt started the CSR discussion with his seminal work ’The
Danger of Social Responsibility‘. He stated that ’government´s job is not business, and business’s job
is not government‘(1958: 47). Friedman (1970) supported this statement and demurred that the only
social responsibility is to increase its profits. This shareholder perspective explains CSR issues as a
consequence of implicit management failures in respect to resource allocations.
Freeman (1984) enlarged the focus towards the stakeholder perspective. He mentioned that CSR is not
only an issue between a firm and their shareholders but between firms and their stakeholders, such as
employees, customers, suppliers etc. Furthermore, he stated that firms may gain a positive outcome by
take different stakeholders into account (McWilliams et al., 2006: 3).
A detailed discussion on a socio-economic level has been raised by topics on corporate citizenship
(CC). Corporate citizenship focuses more on the closer regional environment of a firm and considers a
firm as a legal entity with rights and obligations. From this perspective a firm is a part of the society
and hence has to act as a ’good (corporate) citizen‘ (Matten et al., 2003; Matten/ Crane 2005).
Many CSR researchers often exclude economical perspectives in their analyses. However, Donaldson
and Preston classified CSR as a potential business case. This perspective on CSR describes the self-
interest of firms to act in a social responsible way. They show that CSR activities can influence the
corporate performance positively (Donaldson/ Preston, 1995; see also Smith, 2003). The interrelation
between social and financial performance was empirically researched by a variety of authors (e.g.
Aupperle et al., 1985; Waddock/ Graves, 1997; Orlitzky at al., 2003; Orlitzky, 2005). A major part of
these analyses concentrate on the analysis of the relation between environmental and firm’s
performance (e.g. Russo/ Fouts, 1997; Dowell et al., 1999). Margolis and Walsh (2003) depict that
between 1972 and 2002 particularly 127 studies were performed on the relation between social
responsibility and financial performance. Orlitzky et al. presented in 2003 a quantitative meta-analysis
of 52 studies to the topic of the relationship of corporate social performance and corporate financial
performance. The results of this analysis are that: the social performance is positively correlated with
financial performance of a firm and this relationship tends to be bidirectional. The authors outline
additionally that reputation represents an important mediator for the relationship of corporate social
performance and financial performance (Orlitzky et al. 2003: 427). Based on the results of the meta-
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analysis Orlitzky (2005) conclude that social and financial performance should not presented as trade-
offs.
In respect to marketing issues, many authors state that CSR is often used by firms as an instrument to
enhance firm’s reputation, image, and awareness (e.g. Smith, 1991; Brønn/ Vrioni, 2001; Maignan et
al., 2005; Chahal/ Sharma, 2006). However, researches show that it is more and more important for
firms to implement CSR on the corporate level in a globalized world with increased fierce competition
and a lack of resource supply. This is true because the integration of CSR in the corporate strategy will
be a requirement to keep or generate competitive advantages (Porter/ Kramer, 2003, 2006; Werther/
Chandler, 2006).
Amongst others, Branco and Rodrigues (2006), and McWilliams et al. (2006) show that the ability to
adopt a firm’s strategy to the changed environments is a competitive advantage which rooted in firm’s
internal resources. Hence, the resource based view (RBV) is applicable for the further discussion.
CSR and the Resource Based View
The RBV is raised by Penrose (1959) who described a corporation as an accumulation of
competencies. Wernerfeldt (1984) expanded this concept to a new research field next to the traditional
competitive based view (Porter, 1985). The analysis of firm’s core competencies stands in contrast to
the approach of the competitive based view, whereas competitive advantages gain through specific
resources and not through industry structures (Hamel/ Prahalad, 1990). The concept of the RBV
(Hamel/ Prahalad 1990) emerged in the strategic management research since the early 1990s. The
RBV overtakes the perspective that a corporation’s internal environment, in terms of its resources and
capabilities, affect strategic action to a larger extend than external factors do. In this respect, Teece et
al. define resources ‘as firm-specific assets that are difficult if not impossible to imitate’ (1997: 512).
These resources can be classified into three categories: 1) physical capital, 2) human capital and, 3)
organizational capital.
According to Barney there are two core assumptions of the RBV, which differentiate it from the
competitive based view (Barney, 1991a, b): First, resources are allocated heterogeneously among
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firms. Second, the transfer of resources from one firm to the other causes transaction costs. These to
basic assumptions are leading to the following argumentations: First of all resources which are rare
and valuable can cause a competitive advantage. Second resources which are additionally not imitable,
not replaceable, and not transferable can cause a sustainable competitive advantage. From the
perspective of the RBV firms can generate competitive advantages by successfully configure their
resources as well as their capabilities if these fulfil the criteria: valuable, rare, not imitable and not
substitutable (Wright et al., 2001).
However, apart from these theoretical considerations, the link between firm specific resources and
firm’s performance is still unclear and hardly investigated (Priem et al., 2001: 25). Thus, the practical
implications of research on the RBV on firms overall strategy are limited. Nevertheless, research
results underline so far that - in respect to the RBV - firm’s resources configuration is influencing
firm’s performance and success (Priem et al., 2001).
Hart (1995) has started to analyze CSR aspects from a resource based perspective. He has focused on
firm’s environmental responsibility. According to Hart (1995) for a certain type of firms
environmental responsibility could constitute a resource or a capability, which can lead to a
sustainable competitive advantage. Litz (1996) enhances this perspective by adding ethical and social
aspects to the debate. Through the development of specific corporate capabilities in this area, social
responsible management can be enforced which may lead than to competitive advantages.
Russo and Fouts (1997) have performed an empirical analysis where CSR is perceived as a result of
firm-internal resource configurations. These authors have researched on the relationship of
environmental performance and economic performance. Their analyses supported the hypothesis that
firms with a higher environmental performance have also higher financial performances, especially in
high-growth and innovative industries. Branco and Rodrigues (2006) explained on the basis of the
RBV why firms implement CSR by describing their internal and external benefits. Furthermore, Mc
Williams and Siegel (2001) empirically found an optimal degree of investments in CSR activities in
respect to firm’s output by performing various cost-benefit-analyses. These authors state that the
optimal degree of CSR activities depends on several internal and external factors, such as firm size and
industry type (Williams/ Siegel, 2001). These results are consistent with the assumptions of the RBV.
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CSR and the Capability Based View
However, the traditional perspective of the RBV is static and is thus not applicable to explain
competitive advantages of firms acting in high dynamic environments (Eisenhardt, 2000: 1106). Some
authors have therefore announced a new perspective: the capabilities based view (CBV). This CBV
enlarges the RBV by taking paths dependencies and knowledge processes into account. Therefore the
focus is on the internal processes of a firm and how the processes affect the resources of a firm (Teece
et al., 1997: 529). Dosi et al. stated that ’capabilities fill the gap between intention and outcome‘
(2000: 2). Capabilities are also the ’dynamic element in the bundle which infuse resources with
sustainable value through underlying processes‘ (Madhok, 1996: 580).
This contribution will consider the definition of Dosi et al. which differentiate explicitly between
capabilities and processes [they used the term routines]: ‘Capabilities involve organized activity and
the exercise of capability is typically repetitious in substantial part. Processes are units or 'chunks' of
organized activity with repetitive character. Hence, it is basically well said that 'processes are the
building blocks of capabilities' - although processes are not the only building blocks of capabilities’
(2000: 4). We focus on the level of capabilities which implicitly integrates the lower level of
processes.
Capabilities are heterogeneously distributed among firms and also within a firm (Jacobides/ Winter,
2003: 6). Griffith and Harvey point out that the source of competitive advantage especially in dynamic
environments lies in the development of dynamic capabilities (Griffith/Harvey 2001: 597). Originally,
Teece et al. introduced the term ‘dynamic capability’ into the CBV: ’Rudimentary efforts are made to
identify the dimensions of firm-specific capabilities that can be sources of advantage, and to explain
how combinations of competencies and resources can be developed, deployed, and protected. We refer
to this as the ‘dynamic capabilities’ approach in order to stress exploiting existing internal and external
firm-specific competencies to address changing environments‘ (Teece et al., 1997: 510). Also
Eisenhardt et al. focus on the usage of resources while defining dynamic capabilities as ‘the firm's
processes that use resources - specifically the processes to integrate, reconfigure, gain and release
resources - to match and even create market changes. Dynamic capabilities thus are the organizational
and strategic processes by which firms achieve new resource combinations as markets emerge, collide,
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split, evolve, and die.’ (Eisenhardt/ Martin, 2000: 1107). According to Eisenhardt and Martin, the view
on dynamic capabilities ’opens up RBV thinking to a large, substantive body of empirical research that
has often been neglected within the paradigm.’ (2000: 1108). Zollo et al. define dynamic capabilities
as ’learned and stable pattern[s] of collective activit[ies] through which the organization systematically
generate and modif[y] its operating processes in pursuit of improved effectiveness.‘ (2002: 340).
According to these definitions, on the one hand dynamic capabilities depend on the firm’s specific
resources and on the other hand they are related with firm’s path dependence. Thus dynamic
capabilities are not identical to organizational processes which are not necessarily related to the
resources. Therefore Teece et al. identify three groups of factors which characterize dynamic
capabilities: ‘Processes, positions, and paths’ (1997: 518).
As mentioned, the CBV focuses in particular on firms, which are confronted with a rapid
environmental change (Teece et al., 1997). Teece et al. (1997) pointed out, that outperforming firms
have specific dynamic capabilities which lead indirectly to competitive advantages. Over this way,
dynamic capabilities enable firms to gain competitive advantages. However, dynamic capabilities are
not competitive advantages per se (Eisenhardt et al., 2000). But, as researches show, they are closely
connected with firm’s financial performances (Kapur et al., 2005).
The research around dynamic capabilities and related frameworks is still in progress. Lavie stated that
there is the need of a theory ’that accounts for the antecedents and consequences of capability
reconfiguration - a phenomena that is frequently mentioned in dynamic capability studies but requires
further elaboration and elucidation.’ (Lavie, 2006: 153).
However, the interrelations between CSR aspects and firm’s capabilities have already been analyzed
by several authors (e.g. Sharma/ Vredenburg, 1998; Aragon-Correa/ Sharma, 2003; Black/ Härtel,
2004; Marcus/ Anderson, 2006) but not the relation between dynamic capabilities and CSR. Sharma
and Vredenburg (1998) depict for example that a proactive corporate environmental strategy can be
associated with the development of unique organizational capabilities, which are competitively
valuable. A proactive environmental strategy in the meaning of managing the interface between
business and its natural environment has the characteristics of a dynamic capability.
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The remaining part of this contribution will concentrate on the bridging of the CSR research and the
approach of dynamic capabilities.
Corporate Social Responsibility as a Dynamic Capability
Firms need dynamic capabilities to cope with dynamic environments by changing resources
configurations accordingly and to explore new resources (Eisenhardt, 2000; Teece, 1997). Such
dynamic capabilities do not represent necessarily competitive advantages. However, they are of
essential importance in order to develop and to maintain competitive advantages over business rivals.
In respect to CSR issues the question is than, whether CSR activities can be considered as dynamic
capabilities which can lead to competitive advantages. Dynamic capabilities normally are dispersed
across several firm’s departments and alter the resource basis of the firm. These capabilities constitute
an (indirect) contribution to the corporate performance and strengthen the position in the competitive
environment (Eisenhardt, 2000).
Eisenhardt stated that ‘[…] dynamic capabilities consist of specific strategic and organizational
processes like product development, alliancing, and strategic decision making that create value for
firms within dynamic markets by manipulating resources into new value-creating strategies.’
(Eisenhardt/ Martin, 2000: 1106). Following this description, experiences and knowledge about CSR
can be defined as dynamic capabilities. Research on this topic was conducted by Marcus and
Anderson (2006: 40), who analyzed whether there is a general dynamic capability which enables to
reach business objectives as well as corporate social objectives. They found that no general dynamic
capability exists, which affects economic competencies and social competencies in the same manner.
Based on their research results, Marcus and Anderson stated that different factors drive competitive
advantages and CSR activities (2006: 40). However, Marcus and Anderson examined only the
environmental issues and defined them as social competencies. Hence, this research must fail when
applying for CSR research. Further Aragon-Correa and Sharma argue that characteristics and
effectiveness on firm’s CSR activities vary among industries and depends on the various exogenous
factors (2003: 74).
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We adopt the dynamic capability approach from Teece et al. (1997) to the CSR topic while
investigating a relationship of the three factors of dynamic capabilities – processes, positions and path
– to CSR. Firms use CSR activities to embed stakeholders and their knowledge into the firm’s
processes and positions. In this concern, this contribution includes the stakeholder dialogue as a CSR
process and analyzes the affects on of firm’s internal processes. CSR knowledge, experiences, and
activities depend on path processes. This is also true for dynamic capabilities. CSR also influences
firm’s competitive position likewise dynamic capabilities do so (Teece et al., 1997). Hence, processes,
positions, and paths will be theoretically discussed in greater detail in the following to prove whether
CSR could be a dynamic capability.
CSR Capability
Path
Positions Processes
Competitive Advantage (in Dynamic Environments)
CSR Capability
Path
Positions Processes
Competitive Advantage (in Dynamic Environments)
Figure 1: CSR as Dynamic Capability
Processes
The relation between dynamic capabilities and CSR competencies can be fairly good described on the
example of organizational processes. Dynamic capabilities ’have three roles: coordination/ integration
(a static concept), learning (a dynamic concept), and reconfiguration (a transformational concept).’
(Teece et al., 1997: 518). In this respect, Black and Härtel (2004) identified five organizational CSR
processes: 1.) ’stakeholder management‘, 2.) ’accountability‘, 3.) ’ethics‘, 4.) ’value-attuned public
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relations‘, and 5.) ’dialogue‘ with stakeholder. These processes have impact on several aspects of a
firm. The integration of CSR in a firms’ productions cycle – for example - may likewise lead to a
reorganization of processes, financial, and material flows. Due to the implementation of social and
ecological aspects in the corporate strategy the processes are altered by the CSR strategy. The
development and utilization of new technologies and procedures on the production level lead to a
reconfiguration, for example enhanced internal methods for waste reduction and operational
efficiency. Examples for improved processes through the firm’s CSR strategy are recycling of raw
materials, reducing waste volumes, utilization of less harmful materials and utilization of new plants,
which increase the efficiency of energy and materials usage (Branco/ Rodrigues, 2006). The whole
production cycle with their processes are changing.
Position
The strategic position of a firm within its competitive environment is influenced ’by the coherence of
its internal and external processes and incentives, [and] also by its specific assets. […] specific assets
[…] include its difficult-to-trade knowledge assets and assets complementary to them, as well as its
reputational and relational assets. Such assets determine its competitive advantage at any point in
time.’ (Teece, 1997: 521).
As CSR activities influence the reputation of a firm in general. It therefore also influences the relation
to stakeholders in particular. CSR might also have an influence on firm’s assets. Furthermore CSR can
have an impact on human resource management and recruitment due to an increased reputation as e.g.
a socially responsible employer or simply by increasing the motivation of employees due to the
implementation of employee-friendly firm policies. Further human resources development influences
the firm’s positions as well. Due to frequent training courses competencies of employee can be
improved and can enforce the firm know-how basis (Branco/ Rodrigues, 2006). Sponsoring
programmes and joint projects e.g. with universities may generate new knowledge and may lead to
technological inventions.
Furthermore CSR activities often influence directly the improvement of production technologies and
production processes. Due to more operational efficiency the firm can save material resources as well
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reduce waste and can realize decreasing charges for waste. CSR activities potentially reduce firm’s
costs and enhance the productivity and therefore the position of the firm in the market (Branco/
Rodrigues, 2006).
The running of social responsible projects may change the reputation of a firm in a positive way
(marketing perspective), which can than lead to product differentiation. Hence CSR may act as quality
criteria for customer. Therefore the firm can charge premium prizes for offered goods and services
(McWilliams et al., 2006).
Path
History matters especially in CSR activities where the development is ’a function of its current
position and the paths ahead.’ (Teece 1997: 522). CSR is mainly influenced by path depend processes.
Successful CSR projects are build on experiences of past projects. Furthermore, as already described,
CSR is also closely related to reputation and trust. And as reputation and trust is a function of past
actions, it is a question of path dependencies.
Summary about CSR and processes, position, and path
The discussion above has shown that CSR activities as well as experiences and knowledge about CSR
affect firm’s resource, which is likewise a key element of dynamic capabilities.
CSR activities are able to affect or even change firm’s resource configuration and hence influences
indirectly firm’s performance. CSR can provide internal and/or external benefits. From an internal
perspective CSR can support the development of resources and capabilities regarding know-how and
corporate cultures. These altered and acquired resources and capabilities can lead to a more efficient
utilization of firm’s resources.
As CSR potentially opens new knowledge sources and improves the processes as well as the structures
of a firm, CSR serves likewise as a source for competitive advantage. Furthermore, socially
responsible behaviour can improve relationships with external stakeholder such as customer, investors,
suppliers, competitors or even (local) citizens.
The implementation of CSR into the corporate philosophy and strategy influences also the
configuration of the supply chain. For example supplier selection can be affected by negotiated codes
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of conducts or requirements for certain standards. Further CSR activities can support sustainable
growth as well as social compliant downsizing of companies. Such capabilities are of crucial
importance especially for firms who have to cope with hyper-competition and who are acting in
dynamic environments.
All in all it can be stated that ‘[t]he experience with investment in environmentally responsible
technologies and business practice suggests that going beyond legal compliance can contribute to a
company’s competitiveness.’ (EC, 2001: 6). The reason for this can be found in the development of
dynamic capabilities.
According to the discussion about CSR, dynamic capabilities, and competitive advantage, the
following hypotheses are derived to be validated by a case study in the remainder of this paper:
Hypothesis I: CSR activities change the resource configuration of firms.
Hypothesis II: CSR activities can indirectly create competitive advantages.
Hypothesis III: Firms in a high competitive environment work on CSR projects to gain competitive
advantages.
Case Study of a Multinational Enterprise (MNE) in the ICT Industry
The theoretical considerations shown above will be proven by an in-depth case study of a MNE,
positioned in the ICT industry. The analyzed firm (in the following just named ’ICT firm‘) is world-
wide active but focuses mainly on the European ICT market. The ICT industry is a dynamic
environment with rapid technological changes and hyper-competition. In this environment dynamic
capabilities are of crucial importance firm’s success. Therefore, the selected ICT firm represents an
adequate research object to analyze the relation between CSR, dynamic capabilities, and competitive
advantages.
Methodology of the Case Study
A case study will be used to investigate if CSR are dynamic capabilities and hence can be used in
firms as dynamic capabilities. This research method follows the approach of Langley and Royer who
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view ’a case as a bounded system [which] simply requires a researcher to focus on the details of a case
and to analyze its context - it does not a priori restrict the methods used to achieve this.‘ (Langley/
Royer, 2006: 74). This method will be enhanced by the review of past literature and empirical
observations. Eisenhardt describes that ’tying the emergent theory to existing literature enhances the
internal validity, generalizability, and theoretical level of theory building from case study research.
While it is important to link empirical research results to theoretical considerations, this is of even
more importance in theory building because the findings often rest on a very limited number of cases.
(Eisenhardt, 1989: 545).
Because ’case studies typically combine data collection methods such as archives, interviews,
questionnaires, and observations‘ (Eisenhardt, 1989: 534), an in-depth expert interview was performed
as well as several other sources such as available information on the firm’s web-homepage and articles
published in magazines, journals as well as newspapers have been taken into consideration. The main
information sources are:
• A semi-structured interview with a CSR manager of the firm to receive in-depth data about the
firm’s CSR activities, their impact on firm performance, internal processes and firm resources.
• A questionnaire to investigate several qualitative and quantitative information on CSR of the
ICT firm.
• A quantitative study related to CSR which covers several topics such as environment, ethics,
employees and society.
• Available documents and reports of and about the firms. Articles published in newspapers,
magazines and journals were also used.
All data and results of the several sources are anonymous to due to its strategic importance and impact
of CSR issues to the ICT firm.
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The Global ICT Industry
For research reasons, a firm acting in a turbulent environment was selected to fit the proposed
conditions of the CBV. A multinational enterprise (MNE), which is mainly operating in the European
ICT industry but also in several other international countries, was chosen to validate the mentioned
hypothesis. As experts stated, ‘the European ICT industry, […] is currently going through a profound
transformation brought about by the convergence of telecommunications, information technology, and
consumer electronics, and by the parallel deconstruction of the value chain of traditional
telecommunications.’ (Cools/ Roos, 2005: 9). Therefore it could be derived that the European ICT
industry is a hyper-competitive environment in which dynamic capabilities are important to survive
and to generate competitive advantage. The ICT firm fits all criteria of the dynamic capability
approach, stated by Eisenhardt (2000) as well as by Teece et al. (1997): The ICT firm is confronted by
a rapidly changing environment and by aggressive competitors.
The competitive European ICT industry has a value of 1,302 billion € which is 33,8 % of the
worldwide ICT industry (EITO, 2006: 41-43). Figure 2 depicts the different product categories in the
ICT industry. The smallest category ‘office’ covers several office equipment products. The most
important categories are telecommunication, media and publishing as well as computer systems and
services. The industry is faced by several challenges. The convergence of technologies and products,
the blurring of market frontiers, increasing influence of EU wide regulations etc.
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Medium Message
Prod
ucts
Ser
vice
s
EU15 + Norway and Switzerland, ICT business arena, 2004, € billionTotal value = € 1,302 billion
Telecom(311)
Distribution(117)
Marketing and advertising(235)
Consumer electronics(94)
Media andPublishing
(257)Computer systems and services
(280)
Office(8)
Figure 2: The Products and Total Value of European ICT industry; numbers in bracket is turnover in billion Euro
Case Study Results
The firm is confronted by a high competitive pressure new product developments and changing
technologies. The product life cycles are becoming shorter and the technology convergence process
leads to new markets with blurring borders and high investments and risks.
The ICT firm runs an own CSR department, which reports directly to the board. The CSR department
is an organizational entity with cross sectional functions. Furthermore the CSR department cooperates
and negotiates with the other departments to setup initiatives and projects. They support CSR conform
changes in processes and organizational structures. The CSR department is actively integrated in
decision making processes in the fields of purchasing, supplier selection, human resource issues, and
innovations with impact on social, environmental or employee level and lobbying.
The CSR department consults in regularly meeting non-governmental organizations (NGO`s) such as
International Labour Organisational (ILO). Further the firm is a member of several CSR-oriented
organizations such as the Global Compact and industry specific associations. CSR policies are based
on the OECD guidelines (Organisation for Cooperation and Development) for MNEs as well on the
GRI (Global Reporting Initiative) guidelines.
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Nevertheless, the CSR department has no influence on mergers and acquisitions, crucial financial
decisions or relocation decisions.
The CSR Strategy
The firm has implemented a sustainability strategy which addresses corporate performance, human
resources, cultural engagement, and environmental responsibility. The firm has a dual level CSR
strategy: a long term and a short term strategy. The long term strategy focuses on internal corporate
processes. The CSR department operates as an initiator and cooperates with several other cooperation
divisions. The organizational entity for CSR is responsible for the initiation of projects and the transfer
of CSR related knowledge to other divisions and departments. The CSR department defines the long
term strategy together with the consultation of major external stakeholders who influence internal
processes, such as suppliers or stockholders. The long term CSR strategy will be finally released by
the executive board.
The short term oriented CSR strategy addresses external aspects and is directly related to the corporate
communication and investor relations. This strategy focuses on all aspects of good corporate
citizenship in general such as external processes, awareness of the company by customers, suppliers,
competitors, citizens etc. by initializing activities in the area of e.g. corporate volunteering, corporate
giving, sponsoring or partnership. On the basis of recent empirical analysis on publicly listed
companies - performed by the authors - the following figure presents the reasons why firms invest in
CSR activities.
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
CorporateReputation
Corporate Image CustomerRetension
CorporatePerformance
StrategicCompetitiveAdvantages
Tradition
important rather important neutral rather unimportant unimportant
Figure 3: Objectives of CSR Engagement
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To analyze the relation between CSR activities, dynamic capability and the resource configuration the
three aspects processes, positions and paths of the CSR activities will be pointed out in the following:
Processes
The ICT firm considers CSR as a corporate philosophy which encompasses social, ecological, and
economic aspects likewise. Several firm’s processes are already aligned to CSR issues. However, there
exists no holistic road map for a corporate wide review and implementation of consistent CSR
processes.
However, the firm’s internal oriented CSR approach focuses in principle on the knowledge exchange
between external stakeholders and internal divisions. Hence, the CSR division is responsible for the
transfer and for the implementation of ideas and suggestions from external partners in internal
processes and organizational structures. Thus, the long run goal of the firm’s internal oriented CSR
activities is to define CSR-conform internal processes. Because internal processes have interfaces to
external partners, these external partners are actively integrated in the specification of CSR processes.
Foreign subsidiaries and suppliers are also covered by the overall enterprise-wide CSR strategy. Local
CSR strategies have to consider the pivotal enterprise-wide strategies as far as this is possible, an as
far as going along with local laws and local cultural issues.
Further the ICT firm has a monitoring system which covers several ecological issues and the processes
are certificated according to international standards like EMAS or ISO. The ICT firm recycle old
equipments and products according to the EU directive WEEE (Waste and Electric and Electronic
Equipment) guideline and did this before the launching of the WEEE in 2002 on voluntary basis.
Positions
The vast and dramatic changes in the ICT industry and the competitive pressure require ongoing
drastic downsizing of workforce to reduce operational costs, reorganizations, and the development of
new competencies of the ICT firm. To cope with the changing environment in a social responsible
manner, all changes in organization and processes are performed under the directive of CSR concerns.
19
Therefore the ICT firm has e.g. well defined procedures in respect to human resource management
which go beyond labour laws.
The firm’s CSR strategy explicitly enforces dialogs with their stakeholder to gather information about
their needs to guarantee a proper collaboration (e.g. from suppliers), CSR related requirements (e.g.
from NGO’s or governmental organization), and desires in products and service provision and
communication (e.g. from customers). As a result the whole value creation chain - from product
development to product and service provision - is underway to be restructured to be aligned to market
requirements and needs in respect to CSR aspects. This results in a continuous alteration of the firm’s
resource configuration as well.
Furthermore, in the long run CSR activities are highly likely to produce spill-over effects on the firm’s
position on the capital markets. E.g. mutual funds which are specialized on social responsible
investings (Goergen/Renneboog 2004) are highly likely to consider the ICT firm as an investment in
their portfolios. Due to the CSR activities, the attractiveness of the firm’s stocks on the capital market
will increase and likewise the refinancing costs will decrease as the overall corporate reputation and
image increases. However, as the investments in socially responsible mutual funds are around 2% of
all investments in mutual funds at the moment, the latter described effect (reduction of refinancing
costs) can not be observed on the market. Also a market premium on the ICT firm’s stock price,
constituted by CSR reasons, is not observable.
To strengthen the firm’s trustworthiness for customer, investors etc. and to avoid corruption as well
managerial misbehaviour the ICT firm follows voluntarily most of the rules of the worldwide strongest
corporate governance regulation, the Sarbanes Oxley Acts (SOA), without been listed at an U.S. stock
exchange.
The findings of the case study support hypothesis I, which states that CSR activities change the
resource configuration of firms. Internal processes are adapted to CSR requirements. Hence resources
allocations and configuration changed due to CSR projects.
Paths
20
For more than two decades the ICT firm considers CSR - as in today’s understanding - in their overall
corporate strategy. About a decade before the proclamation of the EU Lisbon agenda in 2000/ 2001 the
firm integrated CSR aspects in the organization by the implementation of an ‘environmental
department’ which was the predecessor of the today’s CSR department. The environmental changes in
the ICT sector in the early 1990s, such as liberalization, globalization, increasing competition and
falling prices forced the ICT firm to downsize workforce, adapt processes and firm’s organizational
structure. All these changes were performed under the consideration of socially responsible aspects.
Foreign cultural and legal conditions define the diffusion and adoption rate of CSR issues into
processes in foreign subsidiaries n a path-dependent way.
Competitive Advantages and Corporate Performance
The ICT industry is coined by a fierce competition with changing and blurring borders. The ICT firm
stated to be committed to CSR projects to attract customers and thus to realize competitive advantages.
This is not an exemption as other examples show. This can be shown for example by analyzing the
case of Nike in the early 2000. In this case Nike was blamed to infringe human rights in their south-
east Asia subsidiaries. With the disclosure of these business practices in the press, the sales dropped by
about 30% immediately (Spar, 2002). Hence, CSR can negatively and positively constitute a quality
factor and potentially lead to a gain or loss of competitive advantages.
However, the effect of CSR on the corporate performance is difficult to evaluate. This is because there
is only an indirect and intermediated relationship between CSR and competitive advantage. CSR has
an impact on the resource configuration of the firm, but this resource configuration has an impact on
the competitive advantage.
Due to the broad spectrum of possible CSR activities there exists no unique indicator to measure the
outcomes of CSR engagement. The analyzed ICT firm evaluates CSR regarding corporate
performance through measuring employee satisfaction, corporate reputation, and the amount of
corporate stocks in sustainability funds. Furthermore the ICT firm employs analysis of ranking
positions (e.g. oekom, SAM - Sustainable Asset Management), supplier audits and benchmarking with
competitors.
21
Even if the ICT firm performs benchmarks with competitors in respect to CSR projects and the
adoption of internal structures to CSR criteria, it is not possible to empirically measure the impact of
CSR on competitive advantages without performing time-series analysis on the whole industry. As this
contribution lacks of such an analysis hypothesis II can nether be validated nor rejected by this case
study.
However, CSR engagement is important to guarantee sustainability in the meaning of save resources
as well the value creation of the firm and therewith the future of the firm. In a fast moving
environment and business principles, norms and values can save substance. CSR seems to become a
corporate imperative which supports the hypothesis III, which states that firms in a high competitive
environment work on CSR projects to gain competitive advantages.
Conclusion
The contribution addresses to two central questions: ’Is CSR a dynamic capability in a firm faced by
hyper-competition?’ and ’What are the consequences for the firm’s strategy and the competitive
advantage?‘. To answer these questions the authors defined three hypotheses and validate them by an
in-depth case study which comprised an interview, data from an empirical study, and a literature
review. The authors found full support on hypothesis I and several indicators which support
hypotheses II and III and depict that CSR can be seen as a dynamic capability because it affects the
resource base of a firm confronted with a continuously changing environment. In general, CSR is a
cross section capability and can not be located in a single division. This dynamic capability is spread
over a whole firm. CSR activities influence major parts of a firm’s organizational structure and their
internal and external processes (e.g. supplier selection, procurement, product development). Due to the
extensive stakeholder dialogue new knowledge is generated and implemented in the corporate
strategy. Therefore CSR activities alter processes in a firm as well the resources configuration and
refers to the market requirements. Path dependency is given, because the CSR projects are based on
experience of early projects and have been improved of the time. It has to be mentioned that CSR is
not per se a dynamic capability. It depends on the firm, on the industry and on the characteristic of the
CSR activity itself. As CSR activities affect the resource basis of a firm, it can help to generate
22
competitive advantage. A direct relationship between CSR activities and competitive advantage or
even performance can not be proven by the case study. Furthermore, a firm can rely on several
dynamic capabilities, whereas CSR is only one of them. Moreover, the CSR capability is probably not
the most important one for the overall firm’s performance.
Limitations and Future Research
While using a case study approach, there are several related risks according to this research method.
Case studies are appropriate research techniques to explore basic structures, as the relation between
CSR and dynamic capabilities. However, to receive deeper insights of the relationship, a more
comprehensive research method has to be applied (Eisenhardt, 1989: 547). Furthermore, it is important
to conclude with cautionary remark that this study - as every case study - suffers from the issue of
generalizability due to the explorative character. This research relies on one single case study drawn
from a multinational enterprise in the ICT industry. This industry has distinctive characteristics. As a
result, the generalizability of the findings presented in this paper to firms in other industries or to small
and medium sized enterprises should be considered cautiously.
The study is purely a structural and qualitative evaluation of firm’s corporate social responsibility
management, capabilities and processes which contains no evolution over time and no quantitative
research. However, the contribution provides a framework for future quantitative time series analysis.
Therefore, this research paper serves as an explorative starting point for future research with employs
time series and probably cross-industry studies. Future research could also consider questions such as
if there are industry-specific patterns? Are there major differences within the industry? Are there
specific patterns in the development of CSR strategies? What is the nature of CSR in cross-industry
networks?
It is also worthwhile to look in future studies on the effects of firm performance. The results of the
study specifically indicate that it might be able to create competitive advantage and hence superior
performance based on CSR capabilities. However, we are still in the dark in terms of what kind of
CSR management yields superior outcome of a firm. Future research could further look into the role of
centralized and decentralized CSR management and how CSR knowledge flowing in managed.
23
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