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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: christoph.lattemann@uni-potsdam.de

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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