MASTER THESIS Corporate Social Responsibility: A new competitive differentiator? A comparative case study in the telecom sector Author:

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MASTER THESIS

Corporate Social Responsibility: A new competitive differentiator? A comparative case study in the telecom sector

Author:

Paraskevi-Aikaterini Blika Student Number: s1940481 E-mail: M.S.Blika@student.rug.nl MSc in International Business and Management

August 2010

Supervisor:

Prof. Dr. J.A. Neuijen (J.A.Neuijen@rug.nl) Co-assessor:

Prof. Dr. G.B.W. Willenborg (g.b.w.willenborg@rug.nl)

University of Groningen

International Business and Management Postbus 800, Groningen

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AKNOWLEDGEMENTS

First of all, I would like to express gratitude to my supervisor, Professor Bram Neuijen, for his support, guidance, encouragement and valuable feedback during the last months that I worked on this thesis. Furthermore, I would like to thank Professor

Gijsbert Willenborg for taking the time to read and evaluate my thesis. Moreover, I would like to thank my IB&M colleagues, my professors at the University and my friends for this wonderful experience that I had the chance to live

during this year in Groningen. I also want to thank my family for their love and support.

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ABSTRACT

Corporate Social Responsibility is not a new concept in the academic and business world, but little is known about the relationship between CSR and competitiveness at firm level. This thesis is an attempt to unpack the competitiveness theoretically using the RBV - Resource Based View- theory and Porter‟s theory presenting a conceptual model that relates corporate social responsibility to competitiveness. The model is tested empirically in the telecom sector, comparing two companies that perform in the Greek market. The outcomes based on the case studies suggest that implementing environmental and social CSR practices that meet the needs and expectations of every stakeholder the company can improve human resource management, reduce risk costs, enhance the reputation and create innovation. However, further research in different sectors and different countries is still needed in this field in order to investigate whether corporate social responsibility can be a new competitive differentiator.

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1. Introduction

“We need a fresh start to the Lisbon Agenda and a European partnership for Jobs and Growth…corporate social responsibility practices can play a key role in contributing to sustainable development, while enhancing Europe’s innovation potential and competitiveness”1

José Manuel Barroso, current President of the European Commission The European Commission defines Corporate Social Responsibility as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders as a voluntary basis”2

. Publishing three Papers, from 2001 to 2006, the European Commission suggests that corporate social responsibility should be treated as an investment, adapted to the specific context in which individual enterprises operate and creating win-win situations for companies and society.

In the Green Paper: Promoting a European framework for Corporate Social Responsibility (2001, p.3), the European Union stressed that CSR can contribute to the strategic goal decided in Lisbon: “to become the most competitive and dynamic knowledge- based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. Almost 10 years later, in 2010, Europe and the whole world face the current economic crisis and its consequences.

In 2001, a challenge was presented at European level about how corporate social responsibility can contribute to the Lisbon‟s goal. “CSR should be treated as an investment, not a cost. Companies can have an inclusive financial, commercial and social approach, leading to a long-term strategy minimizing risks linked to uncertainty” (p.4).

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6 attempts to regulate CSR at EU level would be counterproductive, because this would stifle creativity and innovation among enterprises which drive the successful development of CSR, and could lead to conflicting priorities for enterprises operating in different geographical areas” (p.4). Moreover, “what constitutes CSR depends on the particular situation of individual enterprises and on the specific context in which they operate, be it in Europe or elsewhere” (p.5). Commission expects that CSR will be of strategic importance to ensure the long-term business success.

In 2006, the European Alliance for CSR was launched and Commission published the following paper: Implementing the Partnership for Growth and Jobs: making Europe a Pole of Excellence on Corporate Social Responsibility4. The Alliance seeks to promote CSR as a business opportunity creating win-win situations for companies and society and recognizes that CSR is a voluntary basis approach which reflects the diversity of European business.

The papers presented indicate Europe‟s efforts to emphasize the role of corporate social responsibility as a major contributor to its social agenda in order to achieve sustainability and competitiveness. The debate about corporate social responsibility still goes on and the outcomes of Europe‟s efforts need to be tested in the real business world. It is a challenge to investigate and understand whether and how corporate social responsibility can help to shape the kind of competitiveness model that Europe wants5 .

1.1 The Business Case for Corporate Social Responsibility

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7 In business practitioner terms, a “business case” is “pitch for investment in a project or initiative that promises to yield a suitably significant return to justify the expenditures” (p.92). The pitch is that a company can “do well by doing good”, that is, can perform better financially by attending not only to its core business operations but also to its responsibilities toward creating a better society (Kurutz et al., 2008, p.84). In other words, Kurucz et al. (2008) investigate whether companies can perform better financially by addressing both their core business operations and their responsibilities to the broader society. They conclude that if the four modes of value creation proposed (cost and risk reduction, competitive advantage, reputation and legitimacy and synergistic value creation) are viewed along a holarchic progression, then the business case for CSR would be a relevant concept that “…would attempt to connect the identity of the organization and of individual members, and it would be an argument for a more richly and deeply conceived notion of value creation (p.106). As Carroll and Shabana (2010) argue, there is no single business case for CSR- no single rationalization for how CSR improves the bottom line. According to the authors there are two approaches of the business case for CSR, a narrow view and a broad view. The narrow view means that CSR is only recognized when there is a clear link to firm performance while the broader view recognizes direct and indirect relationships between CSR and firm performance, allowing the firm to value and appreciate the complex relationship between CSR and firm performance. The authors conclude that “the broad view of the business case for CSR enables the firm to enhance its competitive advantage and create win- win relationships with its stakeholders, in addition to realizing gains from cost and risk reduction and legitimacy and reputation benefits, which are realized through the narrow view” (p.101).

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8 advantage, (3) developing reputation and legitimacy and (4) seeking win-win outcomes through synergistic value.

Consequently, the business case for corporate social responsibility gives companies the reasons why they should be engaged in CSR strategies. They can gain not only financial benefits but also other valuable assets, such as reputation, competitive advantage and innovation. Although the importance of corporate social responsibility has been studied and underlined by authors the last years, as well as the reasons why companies should invest on CSR, there are many aspects concerning CSR that have not been clarified, there are many relationships that have to be investigated in depth in order to accept that corporate social responsibility has become a business strategy.

1.2 Problem Statement

Corporate Social Responsibility is a term that does not meet a universal definition despite its global diffusions. Researchers have problems in their effort to measure corporate social responsibility and their outcomes are contradictory. Corporate Social Responsibility remains a dominant term in the academic literature and in business practice, in spite of the ongoing deliberation as to what it means and what it embraces (Carroll and Shabana, 2010).

Taking into consideration the Lisbon‟s goal (“to become the most competitive and dynamic knowledge- based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesions “) and the economic situation especially in the Europe but across the whole world as well, we realize that it seems more proper to investigate new approaches to CSR than to search for another definition or another measurement.

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9 long- run profit performance and its ability to compensate its employees and provide superior returns to its owners” (Francis, 1989).

As companies themselves face the challenges of a changing environment in the context of globalization and in particular the Internal Market, can CSR be viewed as a new competitive differentiator?

As Porter and Kramer (2002) point out “a new approach is needed to integrating social considerations more effectively into core business operations and strategy” (p.81). The authors state that CSR is not just a cost, “it can be a source of opportunity, innovation and competitive advantage” (p.80). Moreover, in their article, Vilanova et al. (2009) investigate the nature of the relationship between corporate social responsibility and competitiveness and they argue, as Porter and Kramer (2002) already did, that there is a lack of understanding about the impact CSR has on competitiveness.

The Commission expects that the CSR will be a business opportunity to create win- win situations for companies and society. The notion of creating win- win outcomes through CSR activities has been raised before. Drucker (1984) argues “the proper “social responsibility” of business is to…turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth” (p.62).

However, to what extent and how this can be achieved and how can CSR be used as a management tool is not clarified. What has been emerged as an important topic for both CSR researchers and practitioners is the link between competitiveness and CSR at firm level, often under the banner of “the business case for CSR”.

The objective of this thesis is to place Corporate Social Responsibility in the new emerging dynamic context which is structured by the relationship between Corporate Social Responsibility and competitiveness, an emerging important topic for both researchers and practitioners. Therefore, the main research question has been formulated:

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10 In order to answer the main research question, the most recent literature that relates corporate social responsibility to competitiveness has been used as theoretical background. This part serves as a theoretical analysis establishing the link between CSR and competitiveness at firm level. Based on the theoretical analysis, the conceptual model has been developed in order to explore through which variables corporate social responsibility can contribute to competitiveness. The empirical research that follows intends to explore the applicability of the created conceptual model in the real business world. This part further explores the importance of CSR at firm level, to what extent companies have integrated corporate social responsibility in their strategy and how companies can gain competitive advantage from implementing CSR practices.

1.3 Contribution

This thesis intends to contribute to both the academic and business world. It intends to contribute to the existing literature by strengthening the link between corporate social responsibility and competitiveness. The ongoing debate among scholars about corporate social responsibility still cannot give a clear answer to the impact that the environmental and social practices have on the financial performance of a firm. Consequently, authors start to investigate other aspects of firm‟s performance and other variables that can explain why companies should treat CSR as an investment. This thesis intends to give answer to that question focusing on the competitiveness at firm level and the variables that can give competitive advantages to the firm.

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1.4 Thesis Structure

This thesis consists of two main parts; a literature review focusing on corporate social responsibility and competitiveness and an empirical analysis on how these terms are related in the business world. The literature review starts with exploring the main aspects of corporate social responsibility such as the problems that have emerged throughout the years in the existing literature and the still confusing hypothesized link between corporate social responsibility and corporate financial performance (CFP). Then, the literature review focuses on the relationship between corporate social responsibility and competitiveness, introducing Porter‟s theory about how a company can achieve competitive advantage. Combining Porter‟s theory and the resource based view of the firm the conceptual model is created, explaining theoretically how corporate social responsibility can contribute to competitiveness at firm level.

The second part of this thesis concerns an empirical analysis of whether and how two companies that operate in the telecom sector in Greece have achieved competitive advantages integrating corporate social responsibility in their strategy. In this part, two cases are presented and analyzed, formulating a comparative case study research, and the established conceptual model based on the literature study is empirically tested. The results of this analysis compared to theory will answer the main research question, strengthening or even extending the conceptual model. Limitations and suggestions for further research are presented in the end of this thesis.

2. Literature

2.1 Main aspects of Corporate Social Responsibility

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12 leading principle of top management and entrepreneurs‟ behavior (Gil Estallo et al., 2007).

The problem that has been emphasized throughout the years in the literature is that it is not very clear what corporate social responsibility is, that we do not understand its causes and consequences, and that the notion is not very helpful in understanding and making explicit what is desirable or required at the business- society level (van Oosterhout and Heugens, 2006). Unfortunately, for both academicians and practitioners, the analysis of CSR is still embryonic and thus theoretical frameworks, measurement, and empirical methods have not yet been resolved (McWilliams et al, 2006).

So far, the dominant debate around the issue of corporate social responsibility refers to the impact that CSR has on corporate financial performance (CFP). However, researchers cannot conclude to a general outcome and the debate still goes on, in both the academic and business world. Moreover, in the recent literature another values-based concept, sustainable development, has emerged, that “requires the integration of social, environmental, and economic considerations to make balanced judgments for the long term” (World Business Council for Sustainable Development, 2000, p.2). The link between these two concepts, corporate social responsibility and sustainable development, is obvious, since both of them refer to “social, environmental and economic considerations” that companies should take into account.

Corporate Social Responsibility and Corporate Financial Performance

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13 research remains to be conducted before this relationship can be fully understood (e.g., see Griffin and Mahon, 1997; Margolis and Walsh, 2003; Rowley and Berman, 2000; or Wood and Jones, 1995).

Corporate Social Responsibility and Sustainable Development

Corporate Social Responsibility6 is linked also with the concept of sustainable development7. Moon (2007) compares CSR with sustainable development and argues that CSR “offers some potential contribution to sustainable development because it brings incentives for corporations to act socially responsibly and this includes contributions to the sustainable development agenda” (p.296).

In his paper, Moon (2007) underlines two important characteristics of CSR. First, in CSR different economics, legal, ethical and social responsibilities must be aligned with the different values and expectations of the stakeholders. Moreover, firms have different social, environmental and ethical impacts for which they may be held responsible and this makes the generalization of CSR difficult.

The relationship between corporate social responsibility and corporate financial performance has not yet fully understood, as researchers claim, while due to the different social, environmental and ethical responsibilities that companies have to meet it is difficult to generalize corporate social responsibility. However, literature tends to support the notion that corporate social responsibility should not be

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The World Business Council for Sustainable Development states that "Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large." Thus, corporate social responsibility (CSR) or „Sustainability‟ is not just obeying the law. It is not philanthropy. It is much beyond that. It implies serious business where organizations have to be seen as partners in their communities and not just as profit centers promoting the interest of their shareholders but as businesses having obligation towards various „stakeholders‟”.(Source: http://www.prlog.org/10018774-sustainable-development-corporate-social-responsibility.html)

7_{“The term sustainable development (SD) was used for the first time at the United Nations Conference}

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14 generalized but it should adapt to the different cultural and sectoral contexts. Moreover, recent papers suggest that corporate social responsibility should be treated as an investment, an opportunity that could give companies a competitive advantage.

Corporate Social Responsibility and Competitive Advantage

In the most recent literature, corporate social responsibility has been characterized as a vehicle for sustainable development (Moon, 2007), as a new management tool and not as a fashionable concept (Gil et al., 2007), as a corporate strategy (Carroll, 1999). Porter and Kramer (2002) underline the link between competitive advantage and corporate social responsibility. They argue that “when looked at strategically, corporate social responsibility can become a source of tremendous social progress, as the business applies its considerable resources, expertise, and insights to activities that benefit society” (p.80). They argue that creating shared value through strategic CSR should be viewed like research and development, as a long- term investment in a company‟s future competitiveness.

Corporate Social Responsibility and Crisis

There is one paper by Souto (2009) that investigates the link between corporate social responsibility and crisis and that questions whether CSR in crisis periods can be an opportunity. The author concludes that the double relationship between CSR and the crisis appears in both the lack of CSR as one of the causes of the current economic and financial crisis and as a tool for managing the current situation and helping firms overcome the consequences of the crisis.

Corporate Social Responsibility and Different Contexts

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15 and performance. While CSR is an idea with global diffusion, there are several reasons to expect national frameworks to play a decisive role” (p.11).

Moreover, in their paper, Griffin and Mahon (1997) investigating the relationship between corporate social performance, a term used also for corporate social responsibility, and corporate financial performance, they focus on three problematic of this issue. First, the lack of research within specific industries, because “the issues change and they differ from different industries” (Carroll, 1979, p.501). Second, the multiple dimensions used to measure corporate financial performance. And third, the need for multiple sources of corporate social performance.

Main aspects of corporate social responsibility and the most recent literature have been mentioned and what has emerged from this literature overview is the need for a new approach to corporate social responsibility. Investigating the relationship between corporate social responsibility and corporate financial performance, as hundreds of CSP (Corporate Social Performance)-CFP studies have already done, once again will probably lead to the same confusing results. What is further suggested is unpacking the CSR competitiveness, searching for the variables that can construct a conceptual model that tested in a specific national and sectoral context can create real value for the companies. Theory about corporate strategy will be used to link corporate social responsibility and competitiveness before the conceptual model is presented.

2.2 Corporate Social Responsibility and Competitiveness

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16 The definition of corporate social responsibility has already been introduced 8as well as the definition of competitiveness at firm level9. In order to find first a theoretical link between these two concepts Porter‟s theory is used to show how companies can gain competitive advantage.

Porter suggests that there are three types of strategies that a firm can follow in order to gain competitive advantage: (1) cost leadership, where the firm becomes competitive reducing their costs, (2) differentiation, where the firm becomes more competitive based on the uniqueness and the differentiation of their products and/or services and (3) focus strategies, where the firm focuses on a specific segment of the market, implementing either the strategy of cost leadership or the strategy of differentiation. How is this theory connected to CSR and competitiveness?

Literature suggests that corporate social responsibility and competitiveness is connected through the first type of strategy that Porter suggests, through cost leadership. In other words, implementing environmental and social practices, companies attempt to reduce their costs, and through cost reduction they become more competitive in the market.

Carroll and Shabana (2010) contend that when a firm engages in CSR activities, these activities can reduce costs and risks to the firm. According to Miles and Covin (2000), when a firm invests on CSR-related strategies, there are cost savings because company avoids continuous improvements, achieves lower insurance and lower energy costs.

However, the evidence that CSR reduces costs is mixed, showing both positive and negative relationships between CSR and cost structure, at least from the environmental dimension of CSR. What seems to be more evident is what Welford (2003) concludes, that “the emphasis should be placed on the area of differentiation where social and environmental aspects of sustainable development will have most impact” (European Competitiveness Report 2008, p.108).

8_{“a concept whereby companies integrate social and environmental concerns in their business}

operations and in their interaction with stakeholders as a voluntary basis”

9_{“A firm is competitive if it can produce products or services of superior quality or lower costs than its}

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17 Carroll and Shabana (2010) present competitive advantage as one of the business-case argument for CSR practices. They place the term “competitive advantage” in the context of a differentiation strategy. Smith (2003) focuses on the uniqueness that a firm‟s social responsibility strategy should demonstrate and that this uniqueness can help firm to gain competitive advantage.

The differentiation strategy, however, seems to link better with the resource based view theory that many authors use in order to relate the social , environmental and economic dimensions of CSR to firm resources. The differentiation of a product/service is not only tangible but it can be perceived and related to its augmented characteristics, not only to its core characteristics.

In the resource- based- view, resources are classified as tangible, intangible, and personnel- based (Grant, 1991). Tangible resources include financial reserves and physical resources such as plant, equipment, and stocks of raw materials. Intangible resources include reputation, technology, and human resources; the latter include culture, the training and expertise of employees, and their commitment and loyalty. As these resources are not productive on their own, the analysis also needs to consider a firm‟s organizational capabilities- its ability to assemble, integrate, and manage these bundles of resources.

Hart (1995) expanded the resource- based view of the firm to include the constraints imposed and opportunities offered by the biophysical environment. In his theory, he provided a schema that links the imperative advantage of capturing a competitive advantage with the goal of securing and enhancing social legitimacy. He viewed external stakeholders as playing a pivot role in moving corporations towards sustainability. Researchers agree that the usefulness of RBV in the study of CSR is due to the emphasis it places on the importance of specific intangible resources, as they are very difficult to imitate and substitute (Branco and Rodrigues, 2006).

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18 Recent studies show that intangible resources may be the missing link that can explain the relationship between CSR and firm‟s performance (Surroca et al., 2010; McWilliams and Siegel, 2000).

Porter‟s theory has indicated that competitive advantage can be achieved if companies adopt a strategy of cost leadership or a strategy of differentiation. Authors suggest that CSR can contribute to cost reduction while strategy of differentiation is linked to the resource based view theory. This theory, recognizing the importance of intangible concepts, suggests that intangible assets can differentiate the companies in the competitive environment they operate.

Theory so far has underlined the link between corporate social responsibility and competitiveness through Porter‟s theory and resource based view theory. What has to be investigated is how corporate social responsibility can contribute to competitiveness at firm level. In order to answer this question, the conceptual model will be further presented indicating the mediating variables between corporate social responsibility and competitiveness. If corporate social responsibility can enhance the variables that can give competitive advantage to companies, these variables can explain the relationship between corporate social responsibility and competitiveness.

2.3 Conceptual Framework

Before the conceptual model is developed, other frameworks relating corporate social responsibility to competitiveness will be presented. So far, literature has stressed the link between CSR and competitiveness but the variables that structure this relationship have not been mentioned.

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19 Figure 1. The five dimensions of competitiveness. Source: Marc Vilanova 2007

Figure 2. CSR and competitiveness framework. Source: Marc Vilanova 2007

Another framework is presented in the European Competitiveness Report 200810, constructed by six (6) determinants and indicators: cost structure, human resources, customer perspective, innovation, risk and reputation management and financial performance. The Report concludes that the strongest evidence of a positive impact of CSR on competitiveness appears to be in the case of human resources, risk and reputation management and innovation. Positive links between CSR and competitiveness also exist but appear less strong or not so generally applicable in the case of cost structure, the customer perspective, and financial markets.

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20 According to the Report, competitiveness is related to the following variables: cost structure, human resources, customer perspective, innovation, risk and reputation management and financial performance. Enhancing these variables the company becomes more competitive. Moreover, CSR practices can have a positive effect, as will be discussed more in depth later, on these variables. Therefore, through these variables corporate social responsibility can contribute to the competitiveness at firm level.

Competitiveness has already been defined while Porter‟s theory has been used to indicate how companies can be competitive. However, this thesis focuses on the relationship between competitiveness and intangibles assets, a relationship that has emerged by the resource based view theory of the firm. This thesis does not attempt to include all the aspects and theories of the competitiveness.

The conceptual model (Figure 3) that is created is based on the three determinants and indicators that have the strongest positive impact on competitiveness according to the Report and are: human resource management, risk and reputation management and innovation. Financial performance has already been researched and there are no inclusive results. The aim of this thesis is not to deepen more in that debate but to shed more light on intangible resources such as innovation, reputation and human capital that has been stressed from the recent literature to be the mediating variables that could give an answer to the CSP-CFP relationship. Therefore, the variables in this conceptual model are mediating variables between corporate social responsibility and competitiveness.

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21 Figure 3. Conceptual Model

The conceptual model (Figure 3) will be now strengthened theoretically investigating the literature that relates corporate social responsibility to human resource management, risk and reputation management and innovation. This model will be further tested empirically with two comparative case studies.

2.3.1 CSR and human resource management

Literature suggests that corporate social responsibility can lower company‟s employee turnover and improve employee motivation. Empirical research shows that employees take into consideration company‟s environmental and social actions and company‟s corporate performance influences their desire to work for the company. Moreover, corporate social responsibility can contribute to increasing the commitment and motivation of employees to become more innovative and productive.

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22 customer loyalty “(p.102). N. Smith claims that “some employees express a preference for working for more socially responsible companies” (p.63). According to Cochran (2007), good employee relations can lower company‟s employee turnover rate and improve employee motivation.

This relationship between CSR and human resource management, from the perspective of employer‟s attractiveness, explored Backhaus et al. (2002). Their findings suggest that employees evaluate a firm according to its CSR practices which among others include environment, community relations, employee relations, diversity and product issues. Empirical research shows that employees take into consideration company‟s environmental and social actions and company‟s corporate performance influences their desire to work for the company (Turban and Greening, 2000).

Moreover, CSR can contribute to increasing the commitment and motivation of employees to become more innovative and productive11.Ramus and Steger (2000) investigated the relationships of environmental policy and supervisory support behaviors to employee environmental initiatives. Their results indicate that when employees perceive their company to be strongly engaged in environmental CSR policies, they generate creative ideas in the environmental area.”In fact, having a convincing environmental policy tripled the profitability of employee ecoinitiatives” (Ramus and Steger, 2000, p.622).

There are several case studies in different sectors and in different size companies that illustrate the positive impacts of CSR from a human resource perspective ( Cochran, 2007; Montgomery and Ramus, 2003; Turban and Greening, 1997; Longo et al. 2005). Studies relate the attractiveness of corporations as prospective employers to company‟s ability to attract talents (Schmidt Albinger and Freeman, 2000; Waddock et al., 2002; Riordan et al., 1997; Turban and Greening, 1997; Stigler, 1962).

11 _{http://www.ic.gc.ca/eic/site/csr-rse.nsf/eng/h_rs00100.html}_{“A key potential benefit from CSR}

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23 According to Aguilera et al. (2007), “the perceived fairness of the working environment has been shown to affect both employees well being (e.g. job satisfaction, stress, health, emotion) and organizationally relevant outcomes, such as employee commitment, turnover, absenteeism, job performance, citizenship behavior, and counterproductivity” (p.840).

Studies also underline the fact that employees that are involved in CSR practices within their company perceive their involvement as “a catalyst of enthusiasm, commitment, pride and personal reward” (Lukka, 2002).

Surroca et al. (2010) based on the instrumental stakeholder theory and the natural resource- based view theory, present three reasons why CSR practices contribute to the accumulation of human resources or human capital. First, the authors argue that companies engaged to best CSR practices attract better job seekers and retain them once hired, reducing turnover, recruitment and training costs. Second, employees obtain initiatives to benefit the organization, from the environmental dimension of CSR and third, these initiatives lead to high-commitment HR practices that encourage employee involvement in environmental improvement. The authors conclude that “the accumulation of human capital derived from socially responsible practices can become a source of competitive-advantage and result in improved financial performance” (p.468).

Implementing good environmental, social and economic CSR strategies a company succeeds to attract and retain better employees that involved in these practices can become more innovative and productive and demonstrate commitment and loyalty to the company.

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24 Competitiveness” “…companies build competitiveness by attracting better human resources- they create proprietary intellectual assets…” 12

2.3.2 CSR and risk and reputation management

Literature that connects CSR and risk management suggests that companies can benefit from CSR programs by reducing or avoiding conflicts with society and stakeholders. Being socially responsible can increase interpersonal trust between and among internal and external stakeholders and reduce uncertainty about company‟s financial performance.

The link between CSR and strategic risk management is well established. Good relations with a variety of stakeholders, such as firm‟s employees, customers, suppliers, shareholders , local communities and NGO‟s can achieve companies engaged to high CSR strategies. According to Heal (2005), effective CSR programs can reduce or avoid conflicts between companies, society and the stakeholders. Many of the companies that have established risk management systems integrate CSR policies within their risk evaluation process (Story and Price, 2006). The authors, based on a case study analysis, conclude that “addressing long-term stakeholder concerns, especially those concerns held by customers and shareholders, is important” (p.47). Organizations, which participated in the case study, responded that CSR practices can improve risk management systems and enhance the organization‟s image.

Previous studies suggest that companies engage in corporate social practices proactively in order to reduce their risk (Davis, 1973; Dyllic, 1999; Reinhardt, 2000; Yaziji, 2004). In a recent working paper, Hockerts (2008), conducting interviews with 12 investor relation directors, investigates the business case for corporate social responsibility. One of the four dimensions of CSR-induced competitive advantage

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25 that emerges is risk. The other three are efficiency, branding and new markets. Risk is analyzed in four categories: litigation risk, regulatory risk, campaign risk and license to operate, the “iron law of responsibility, which is that in the long run, those who do not use power in a manner which society considers responsible tend to lose it” (Davis, 1973, p.314).

In their paper, Orlitzky and Benjamin (Corporate Social Performance and Firm Risk: A Meta- Analytic Review, 2001) investigate the relationship between CSP (Corporate Social Performance) and risk, a relationship with reciprocal causality. The authors focus on business risk and suggest that the higher a firm‟s corporate social performance the lower the financial risk incurred by the firm. They conclude that “a firm that is socially responsible and responsive may be able to increase interpersonal trust between and among internal and external stakeholders, build social capital, lower transaction costs, and, therefore ultimately reduce uncertainty about its financial performance” (p.391).

In a recent working paper about corporate social responsibility as risk management, Kytle and Ruggie (2005) argue that “for the complex and evolving area of social risk, CSR programs represent an excellent mechanism for addressing these challenges across the business enterprise” (p.1). Based on the Kennedy School of Government‟s CSR Initiative‟s definition about CSR13_{, the authors conclude “risk management by}

global companies should be adapted to include corporate social responsibility programs. CSR provides the framework and principles for stakeholder engagement, supplies a wealth of intelligence on emerging and current social issues/groups to support the corporate risk agenda, and ultimately serves as a countermeasure for social risk” (p.15).

Many companies engage in CSR activities not only in order to reduce their risk management but also to enhance their reputation in the eyes of customers, potential employees, and regulators. Good CSR policies improve both brand and corporate image (Brammer and Pavelin, 2004; Rowley and Berman, 2000). N. Smith contends that “consumers report that many claim to be influenced in their purchasing decisions

13 _{http://www.hks.harvard.edu/}_{“encompass not only what companies do with their profits, but also}

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26 by the CSR reputation of firms” (p.61-63). Disclosure and transparency of companies regarding their performance on different social and environmental issues is another reason why CSR enhances the reputation of the companies (Brammer and Pavelin, 2004).

The more companies are exposed to public scrutiny and criticism, the more the business case for CSR in terms of risk and reputation management is strengthened. Based on the literature presented about risk and reputation management, corporate social responsibility actions seem to generate favorable perceptions about the company in the minds of key stakeholders. Therefore, environmental, social and economic practices adopted by companies tend to reduce company‟s risks and improve its reputation and image.

2.3.3 CSR and innovation

A number of studies have argued that CSR can be a route to innovation through the use of social, environmental or sustainability drivers to create new ways of working, new products, services and new market space (Grayson and Hodges, 2004; Little, 2006).

Innovation is an intangible asset that can give to a firm a competitive advantage over its rivals because the “capability for generating new technology, products, and improved processes is costly for competitors to copy” (Surroca et al., 2010, p.467). Following Amabile et al. (1996) definition, as Ramus and Steger did (2000), innovation is the implementation of creative ideas within an organization.

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27 More specifically, the environmental dimension of CSR is studied by academic literature, arguing that green management can contribute to innovation. The adoption of an environmental technology can lead to new ideas such as environmentally friendly products (Shrivastava, 1995) with enhanced quality and attractiveness that improve product differentiation.

The term “social innovation” has also been used in the literature, indicating that through social innovation companies can create new market space. Social innovations have been characterized as a “break-through discipline for innovation” (Fussler, 1996), as a “source of creative destruction” (Hart and Milstein, 1999, p.23), as a source for “environmentally begin growth” (Dyllick, 1994, p.60), as a source for “the great leap downward” (Christensen et al., 2001, p.92), as well as the beginning of the “next revolution” (Braungart and McDonough, 1998, p.82; Lovins et al., 1999, p.1; Senge and Carstedt, 2001, p.24).

In their paper “Literature Review on Corporate Social Responsibility in the Innovation Process”, Hockerts and Morsing (2008) investigate the relationship between corporate social responsibility and innovation and introduce two types of innovation, innovations aiming at social improvements and environmental innovations.

However, as Hockerts (2008) concludes only firms that demonstrate high social performance (top performance) achieve product innovation by implementing CSR practices. The other companies, firms with above average social performance and firms with average to low social performance (runner-ups and followers), treat CSR as a means to reduce risks and operational cost.

Through CSR companies provide innovation solutions that help address societal challenges. An example is the “bottom of the pyramid” business strategies (Pralahad, 2004), “through which companies treat poorer people as valuable customers and seek to provide them with appropriate goods and services” (European Competitiveness Report, 2008, p.112).

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28 goods and services and reach new customers in ways that address the world‟s major challenges”.

Innovation can generate new ideas, products and services while “social innovations” can create market spaces and new target groups. These achievements give companies the competitive advantage that they need in order to make the difference in the market addressing the emerging environmental and social challenges. When companies achieve innovation using the environmental, social and economic dimension of corporate social responsibility, they confirm the notion that CSR can contribute to competitiveness through innovation.

2.4 Research Question and Hypotheses

The object of this thesis is to investigate whether the literature presented and the conceptual model derived from theory applies to the business world. The literature review has underlined the relationship between corporate social responsibility and competitiveness. “Competitive advantages” was cited one of the top justifications for CSR in a survey of business executives reported in Fortune (2003). However, there is a lack of understanding about the impact CSR has on competitiveness (Porter and Kramer, 2006). Therefore, the following research question has been formulated: How can corporate social responsibility contribute to competitiveness at the firm level?

The link between corporate social responsibility and competitiveness has been strengthened by theory that has already been presented. The way that the conceptual framework has been developed suggests the formulation of three hypotheses that are based on the three mediating variables.

H.1 There is a positive relationship between CSR and human resource management H.2a CSR is negatively related to risk management

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29 I suggest that corporate social responsibility can improve human resource management, reduce risk costs, enhance the reputation and create innovation. As I have already explained these three mediating variables can make companies more competitive. Therefore, if these goals are achieved and the hypotheses are confirmed empirically, then the company gains competitive advantages by implementing good CSR policies. As I will present in the next chapter, case studies have been used to test my hypotheses and enrich my conceptual framework.

3. Methodology

3.1 Method

Limited access to indexes that measure CSR

Kinder, Lydenberg, Domini (KLD)14 social performance index and the Systainalytics Platform rating15 are widely used by researchers in their attempt to measure Corporate Responsibility Performance. Other indexes that measure CSR are the Dow Jones Sustainability Index that comprises the companies with the best CSR practices in their respective industries and the FTSE4Good Index Series that measures the performance of companies that meet globally recognized CSR standards.

No one of these indexes was used in my research due to the fact that no access to these databases was possible. Therefore, I cannot rank companies or measure their performance based on these widely used databases. Second, the goal of this thesis

14_{The KLD index measures corporate performance regarding environmental, social and governance}

issues. KLD uses a combination of surveys, financial statements, articles on companies in the popular press, academic journals (especially law journals), and government reports to assess along eleven dimensions: military contracting, nuclear power, gambling, tobacco, alcohol, community relations, diversity, employee relations, environment and product quality (innovation/R&D), and non-US operations (usually environment and labor relations) (Siegel and Vitaliano, 2006, p.10)

15

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30 goes beyond the ranking of the companies or the measurement of their performance that could link directly corporate social performance with profitability or financial performance. The aim of this thesis is to investigate how corporate social responsibility can contribute to competitiveness at the firm level. Therefore my variables are mediating variables between CSR and competitiveness.

The limitation of not having access to databases that rank companies according to their corporate social responsibility in combination with the nature of my research question lead to my choice to focus on specific companies conducting a comparative case study research.

The case study research as the most proper method

The case study research has been selected as the most proper method in order to give answers to my main research question (How can CSR contribute to competitiveness at firm level). The nature of my question and the type of the sub questions can be more properly tested with a case since case studies emphasize the rich, real-world context in which the phenomena occur (Eisenhardt and Graebner, 2007). The qualitative case study approach enables in- depth understanding (Eisenhardt, 1989). Its strong explanatory power is needed especially where change is radical and unpredictable (Matthyssens and Vandenbempt, 2003).

According to Eisenhardt (1989), the case study is a research strategy which focuses on understanding the dynamics present within single settings. The environmental, social and economic dimension of CSR in combination with the main variables, human resource management, risk and reputation management and innovation should be investigated in depth as single specific cases with some common characteristics that would allow to some extent a broader generalization.

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31 Moreover, since the variables that construct the conceptual model are intangible assets of a company, they have to be approached and explained in a qualitative way. These variables are related to the CSR programs that the companies follow. As a result, CSR strategies have to be described and analyzed in order to understand how these variables are related to Corporate Social Responsibility.

In a case study both qualitative and quantitative methods can be used (Yin, 1994; Eisenhardt, 1989). Quantitative evidence can indicate relationships which may not be salient to the researcher. The qualitative data are useful for understanding the rationale or theory underlying relationships revealed in the quantitative data or may suggest directly theory which can then be strengthened by quantitative support (Jick, 1979). In the case of corporate social responsibility researchers used quantitative data in order to explain the direct relationship between corporate social responsibility and financial performance. The object of this thesis is to reveal the indirect relationships based on the broader view of the business case. Therefore, qualitative data have been used to better explain the impact of corporate social responsibility on the three mediating variables. The dynamic nature of CSR and its complexity can be better researched and interpreted in case studies.

3.2 Research design

The selected cases: Vodafone Greece and Wind Hellas

The cases were selected using theoretical sampling (Strauss and Corbin, 1998). They were selected because they are particularly suitable for illuminating and extending relationships and logic among constructs (p.27, Eisenhardt, 2007). My intention was to choose cases which are likely to replicate or extend the theory that I have used and already presented. Coming from the same business sector, telecommunications and more specifically from mobile communications, the selected companies have strong reputation for their engagement in CSR activities. The two companies are Vodafone Greece and Wind Hellas.

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32 concern the Greek environment and the Greek market and international CSR actions in which companies are engaged are not included in the cases. As it has already been explained one gap in the research concerning corporate social responsibility is the empirical investigation within a specific cultural and industrial context.

The selected country: Greece

I focus on one country because as literature suggests CSR is a global concept but it needs separate practices. Companies‟ approaches in dealing with their responsibilities and relationships with their stakeholders vary according to sectoral and cultural differences. Both cases are companies that are doing business in Greece. Greece is the European country that lately suffers mostly from the financial crisis. Since the goal of Europe is to develop a competitive and sustainable market, companies must find the way out of crisis, enhancing their competitive advantage. More and more companies are engaged to CSR policies in the last years and CSR in Greece seems to be a new managerial tool in the companies. However, to the best of my knowledge, there are no empirical studies that have linked CSR and competitiveness at a firm level as far as Greece is concerned.

The selected industry: Telecom sector/Mobile communications

Moreover, I focus on this specific industry because mobile communications is a high competitive sector that enhances entrepreneurship, contributes to the development of economic life with significant investments, transfers know-how and creates jobs (Smart 2020)16. It is a growing competitive sector that contributes to the sustainable development of economy and becomes one of the most dynamic sectors in Greek economy. According to a survey17 conducted by the Union for Mobile Communications Companies in 2009, the mobile communications sector has a significant contribution to the development of Greece, since it increased the gross domestic product and the government revenue, it created more than 85,000 new direct

16_{http://www.smart2020.org/publications/} 17

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33 or indirect jobs and it reduced the inflation through the price reduction for mobile communication services.

This survey was assigned to the Union by the three leading companies of the sector, COSMOTE, Vodafone and Wind Hellas. The importance of the sector is clearly demonstrated but what is more obvious in the recent years is the connection of this sector with Corporate Social Responsibility. This rapidly increase of the sector has a negative impact on the three dimensions of CSR, which are the environmental, the social and the economic dimensions. This impact is a challenge for all companies that are doing business in the mobile communications.

Secondary data: Interviews

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34 The selected interviewees

Head-managers of Corporate Responsible Departments18 were selected because they are the most suitable and directly involved with CSR practices. CSR department is responsible for organizing and implementing CSR practices while at the same time it cooperates with other departments of the company and aims to integrate its strategy in the whole organization. That means that a manager responsible for the Department is a person who can discuss about corporate social responsibility and its dimensions and at the same time about firm competitiveness and innovation.

Other secondary data

Many authors claim that a qualitative research, such as case studies, needs data that have been collected from different sources (Patton, 1990; Mason, 1996, Lincoln and Guba, 1985). This phenomenon is called “triangulation”, provides stronger substantiation of constructs and hypotheses (Eisenhardt, 1989) and is necessary in Case Studies (Cresswell, 1998; Minichiello et al., 1990). In addition to the interviews, the CSR reports19 and annual reports of the companies were examined in depth. From the CSR reports, I was able to understand the CSR programs of the companies, their future goals and other characteristics of CSR. It was a first approach with the company concerning CSR. Annual reports were useful in order to understand the strategy of a company, its place in market, its competitive advantage and in general its operations in the sector. Moreover, articles, web pages, scientific and other literature were reviewed in order to understand in depth the relationship between CSR and competitiveness.

18

Mrs. Nafsika Zeugoli, CSR Responsible Vodafone Greece Mrs. Georgiopoulou Marianna, CSR Responsible Wind Hellas

19

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35 Methods used to analyze the cases

Within- case and cross- case analyses (Eisenhardt, 1989) were used as methods to analyze the two cases. The within- case allows the researcher to become initially familiar with each case as a stand- alone entity (p.540, Eisenhardt, 1989). In order to summarize the data and develop preliminary findings, with-in cases in each case were conducted. Each case was in- depth analyzed in order to understand the role that played every variable in the company, how was related to the company and then how was related to Corporate Social Responsibility. The outcomes from the two within- cases were then compared and contrasted by cross- case analysis. Both companies operate in the same business sector, in the same industry and as I have stated before, this strengthens the possibility of generalizations for the industry. Cross- case analysis is significant for multiple case studies (Yin, 2003). Conducting cross- case analysis allowed me to relate Corporate Social Responsibility with competitiveness at firm level because the importance of the mediating variables, since the companies operate in the same industry, is expected to be the same within the industry.

“Content analysis” used for the questionnaires

In order to analyze the answers from the questionnaires the “content analysis” method was used (Stake, 1995; Kent, 1999). The main goal is to understand in depth the meaning of the answers and to examine the consequences of these meanings. This can be achieved by examining in depth what the interviewees answered without necessarily been accepted by researchers (Patton, 1990).

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36 to their Corporate Responsibility. However, innovation, human capital and reputation are intangible resources and difficulties in measurement are always an issue. Therefore, I believe that a case study can help the researcher not only to answer the hypotheses, but to find also other variables that can explain a phenomenon and even construct a new theory.

3.3 Expectations concerning the hypotheses

Based on the conceptual model, I expect that the cases will confirm the relationships between corporate social responsibility and the mediating variables. First, I expect that both companies have embedded CSR in their broader corporate strategy because they realize the benefits of CSR as a strategic tool. Therefore, introductory questions (Appendix, Questionnaire, A1-A5) were formulated in order to understand the role and the significance of CSR in the company.

Motivation, engagement and attractiveness as variables related to human resource management

I expect that their environmental and social CSR practices can enhance human resource management. Using motivation, engagement, and attractiveness (Appendix, Questionnaire, B1) as variables that are related to the main mediating variable, I investigate the impact that CSR has on human capital.

Trust as variable related to risk and reputation management

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37 Product/service innovation, process innovation and R&D as variables related to innovation

I expect that innovation is related to product/service innovation or process innovation or both. Using case studies the researcher can find real examples that show how CSR can lead to innovation. Moreover, specifying the type of innovation, such as product/service innovation, process innovation, social innovation (Appendix, Questionnaire, B3), it becomes more obvious how company is using CSR in order to drive innovation. Finally, I expect that companies who are strongly engaged in such activities are companies that treat CSR as research and development, as a long- term investment in a company‟s future competitiveness (Appendix, Questionnaire, C).

The selection of an industry is expected to strengthen the generalization of the outcomes

I believe that two companies that come from the same business sector, which means that they have a common external environment that is highly competitive and they are engaged strongly in CSR programs as I will present later, can give results that can be generalized for a specific market. As Griffin and Mahon (1997) state, “industries exhibit special uniqueness in that the internal competencies or external pressures inherent in the industry…., such as governmental regulations, consumer-oriented nature of companies, and public visibility are expected to be the same in one industry when one pursues multi-industry studies without further explanation or analysis” (p.10).

A specific mediating variable is expected to rationalize the different ranking of the companies concerning CSR

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38 (GRI)20. In their reports companies indicate the level that they have achieved and this level has been checked from the organization Global Reporting Initiative (GRI), from the company itself or from a third party. Vodafone Greece was self declared and third party21 checked at level A for Corporate Responsibility Report 2009 while WIND Hellas was self declared and GRI checked at level C for its Corporate Responsibility Report 2009.

Following similar CSR practices since they obey the rules of the sector , I expect that an in depth analysis can to some extent explain from CSR perspective why Vodafone Greece performs better financially and has a better market share than WIND Hellas does. Maybe there is mediating variable on which Vodafone has invested more and this variable makes the difference and strengthens the link between corporate social responsibility and competitiveness. Comparing these two cases more light is shed on the specific intangible asset that CSR can enhance giving company the competitive advantage.

Every company is presented as a separate case study. However, part of the theory cannot be tested from the cases because companies have not conducted surveys that could be related to the theory from the perspective that I approach Corporate Social Responsibility. CSR in Greece has been developed in the last ten years and it is only in the recent years that companies start to integrate CSR in the corporate strategy and they do not treat CSR as another management fashion or another marketing tool. For that purpose, I have used surveys that have been conducted in Greece about Corporate Social Responsibility and Responsible Consumption and surveys about CSR and Human Resource Management.

4. Data

4.1 General Findings

Vodafone Greece and WIND Hellas are the two organizations that have been investigated in depth and in this chapter I will present the findings of these case

20_{The Global Reporting Initiative (GRI) is providing a set of voluntary principles for companies in the}

area of CSR (Hopkins, 2004).

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39 studies. The companies operate in the telecommunications sector and more specific in the mobile telecommunications. Every company has a separate Department for Corporate Social Responsibility and CSR is embedded in the broader corporate strategy and company‟s philosophy. A first general finding is the significance of CSR for these companies, that publish every year Corporate Responsibility Reports and because of the way that they approach CSR they have been selected as the most suitable case studies that can give answers to my main research question and strengthen my conceptual model.

The Corporate Responsibility Reports of the companies meet the “Sustainability Reporting Guidelines” of the Global Reporting Initiative (GRI). Vodafone Greece was self declared and third party22 checked at level A for Corporate Responsibility Report 2009 while WIND Hellas was self declared and GRI checked at level C for its Corporate Responsibility Report 2009. WIND Hellas is part of the Global Compact Network Hellas 23while Vodafone Group and Vodafone Greece, as part of it, are included in the Dow Jones Sustainability Index and FTSE4Good Index.

The most difficult parts to be tested were human resource management and reputation management. For this reason, I will present now general findings for these two variables considering Greek customers and Greek market.

A survey for Corporate Social Responsibility and Responsible Consumption CSR 201024 conducted by the Institute of Communication Greece shows that Greek customers reward a responsible company either buying their products or expressing a positive attitude for this company. This finding suggests that responsible companies can attract customers, enhancing their competitive advantage in the market.

In the previous survey of the Institute (Corporate Social Responsibility and Responsible Consumption CSR 200925) there were findings about the relationship between CSR and human resource management. 91.4% of the respondents argue that the more aware/responsible the company where they work becomes ,the more loyal and caring they become as employees. This finding confirms the positive impacts of

22_{KPMG Consultants S.A.}

23_{http://www.globalcompactnetworkhellas.gr/portal/main.php}

24_{Source: Institute of Communication Greece ,}_{http://www.instofcom.gr/?bGFuZz1HUiY}₌

25 _Source: _Institute _of _{Communication} _Greece,

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40 CSR from a human resource perspective. Findings also suggest that employees want from their companies to educate them how to become more responsible concerning environmental and social issues while they want that their company to focus more on the direction of being a social responsible company.

A general finding about the sector where these companies operate is extracted by last year‟s survey (Corporate Social Responsibility and Responsible Consumption CSR 2010). Telephony/telecommunications26 is the second sector after Food, Drinks and Beverages that is considered to have the most “responsible companies”.

MEDA Communication, a company for Communication, Social Management and Development, in coordination with the Research Institute VPRC publishes since 2003 a survey27 based on the Awareness and Social Behavior Index (ASBI). This survey investigates the opinions and attitudes of the employees in the private and public sector about issues of Corporate Social Responsibility. According to the findings, the vast majority of the employees (8 out of 10) in both the private and the public sector claims that is very important for them to work for a company with environmental and social CSR practices. This suggests that employees evaluate a firm according its CSR practices, as Backhaus et al. (2002) suggest. The survey concludes that companies should realize the importance of CSR and promote it in the internal environment, especially among employees, which are one of their main stakeholders.

4.2 VODAFONE Greece

…At Vodafone we believe that an integrated program of Corporate Responsibility has to do with the way that a company is managed, the way that the company does business and the way that the company behaves towards society, stakeholders and environment. Responsible, according to our definition, is the company, when it takes into consideration the impact of its activities and moves to respective actions with measurable results while the company achieves its commercial goals. So, company is obliged, according to the scope of its activities, - without that being translated