IT Capabilities: Competitive advantage in terms of corporate environmental responsibility and financial performance

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Faculty of Social Sciences and Business Studies Department of Business

IT CAPABILITIES: COMPETITIVE ADVANTAGE IN TERMS OF CORPORATE ENVIRONMENTAL RESPONSIBILITY AND FINAN-

CIAL PERFORMANCE

Master’s thesis Service Management Marja Nurkka 29 November 2020

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Abstract

UNIVERSITY OF EASTERN FINLAND

Faculty

Faculty of Social Sciences and Business Studies

Department Business School

Author

Marja Nurkka

Supervisor

Tommi Laukkanen

Title

IT capabilities: Competitive advantage in terms of corporate environmental responsibility and financial performance

Main subject

Service Management

Level

Master´s degree

Date

29 November 2020

Number of pages 71+4

Abstract

The purpose of this study was to find out if IT capabilities of companies moderate the effect of corporate environmental responsibility and corporate financial performance. As digitalization, scarcity of resources and global warming are defining the future, it is essential to examine whether activities towards sustainable development can lead to competitive advantage of a firm and therefore provide better financial performance.

The study was implemented with quantitative methods. The focus group of the study was Finnish companies from all industries, in mainly small and middle-sized companies and the sample size was 560. The results were analyzed through PROCESS, a moderation analysis. The interest of the study was in environmental management systems (EMS), IT capabilities and an objective financial performance of companies.

The results were significant as different dimensions of IT capabilities moderated the relationship of environmental management systems (EMS) and operating revenue. EMS was found to have a positive effect towards financial performance and operating revenue, which supports the findings in previous researches. Investing in IT hardware and software did not moderate the environmental responsibility and financial performance, possibly for its imitable and substitutable nature, which means that IT hardware and software are not competitive advantages of companies. Other IT capability dimensions moderated this relationship, but no effect on financial performance was detected. Further studies considering the relationships of IT capabilities and corporate performance should be implemented with different measures for financial performance in the future, as these results provide a good groundwork.

Keywords

corporate environmental responsibility (CER), corporate financial performance (CFP), IT, IT capability

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Tiivistelmä

ITÄ-SUOMEN YLIOPISTO

Tiedekunta

Yhteiskuntatieteiden ja kauppatieteiden tiedekunta

Yksikkö

Kauppatieteiden laitos

Tekijä

Marja Nurkka

Ohjaaja

Tommi Laukkanen

Työn nimi

IT kyvykkyydet: kilpailuetu yritysten ympäristövastuun ja taloudellisen suorituskyvyn suhteessa

Pääaine

Palvelujohtaminen

Työn laji

Maisterin tutkinto

Aika 29.11.2020

Sivuja 71+4

Tiivistelmä

Tutkimuksen tarkoituksena oli selvittää, vaikuttaako yritysten IT kyvykkyydet niiden ympäristövastuun ja taloudellisen suoriutumisen suhteeseen. Digitalisaation ja luonnonvarojen vähentymisen myötä sekä ilmastonmuutoksen määrittäessä aikakauttamme, on tärkeää ymmärtää, voiko IT kyvykkyys vaikuttaa yritysten ympäristövastuullisuu- teen sekä niiden taloudelliseen suorituskykyyn, viimeisenä mainitun ollessa yritystoiminnan yksi tärkeimmistä pää- määristä.

Tutkimus toteutettiin kvantitatiivisin menetelmin. Tutkimuksen kohderyhmänä oli suomalaiset yritykset kaikilta toi- mialoilta painottuen pieniin ja keskisuuriin yrityksiin. Tutkimuksen otoskoko oli 560 ja tulokset analysoitiin PRO- CESS -moderaatioanalyysin keinoin. Tutkitut käsitteet olivat yritysten ja organisaatioiden ympäristöjärjestelmät (EMS), IT kyvykkyyden osa-alueet ja taloudellinen suorituskyky.

Tutkimuksen tulokset olivat merkittäviä, sillä eri IT kyvykkyyden ulottuvuudet moderoivat ympäristöjärjestelmien (EMS) toimeenpanon ja liikevoiton suhdetta. Ympäristöjärjestelmien toimeenpanolla havaittiin positiivinen vaiku- tussuhde taloudelliseen suorituskykyyn sekä liikevoittoon, mikä tukee aiempien tutkimusten havaintoja. IT laitteis- toon ja ohjelmistoon investoiminen ei moderoinut ympäristöasioiden hallintajärjestelmien ja liikevoiton suhdetta, mahdollisesti johtuen termin jäljiteltävissä ja korvattavissa olevasta luonteesta, mikä tarkoittaa, että IT laitteistoa ja ohjelmistoa ei voida pitää yritysten kilpailuetuna. Muut IT kyvykkyyden osa-alueet moderoivat tätä vaikutussuh- detta positiivisesti, mutta varsinaiseen taloudelliseen suorituskykyyn ei havaittu moderoivaa vaikutusta. Tulevaisuu- dessa IT kyvykkyyden eri ulottuvuuksia sekä organisaatioiden suorituskykyä tulisi tutkia eri taloudellisen suorituskyvyn mittareilla, näiden tulosten luodessa perustuksen jatkotutkimuksille.

Avainsanat

ympäristövastuu, taloudellinen suorituskyky, informaatioteknologia (IT), IT kyvykkyys

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From a global perspective, there are several megatrends defining the crucial change in the world. Hajkowicz (2015) introduced seven patterns shaping the future: the ageing population, the rapid economic growth in Asia and developing countries, experience economy, digital technology and technological advancement as well as the resource scarcity and global climate.

European Environment Agency, EEA (2015, 4) determined 11 megatrends as Sitra, The Finn- ish Innovation Fund, determined five megatrends where the economic growth, ageing population and environmental pollution and pressure on ecosystems as well as technological advancement were introduced as the key factors defining the future. It is evident that the resource scarcity and ecological reconstruction is a central theme in future-related research as it needs to be solved urgently and before any other social and environmental challenges can be settled. (Sitra; Hajkowicz 2015, 36-38.)

Scientists widely agree upon that global climate warming is inevitable. This most likely is the result of greenhouse gas emissions forming from human-related activities (Hajkowicz 2015, 71-72) and the consumption of fossil fuels, mainly coal and oil (Hirofumi 2003, 9). As these greenhouse gas emissions and burning of fossil fuels tie the heat from sun in the atmosphere and disturb the atmospheric balance, temperatures on the earth’s surface increase and extreme events get common around the world. (Hajkowicz 2015, 71-72; Hirofumi 2003, 9.) The Inter- governmental Panel on Climate Change (IPCC), created by United Nations Environment Pro- gramme (UNEP) and the World Meteorological Organization (WMO) in 1988, declared that global climate is currently warming by 0,2 degrees Celsius per decade due to current and past emissions (IPCC). For the crucial change, adapting to and mitigating global climate warming concerns all parties, politicians, organizations and common people.

Global climate warming, also known as climate change, is such commonly acknowledged is- sue changing the way we live, that it could be argued to be the most critical megatrend of the 21^st century. Climate change as a key factor, has brought the concepts of sustainability, as well as environmental responsibility, into the common knowledge, as United Nations have defined them as crucial acts in sustainable development goals (United Nations). On a corporate level, these are understood to be the responsible activities in the mitigation of climate change as well as relevant future strategies as they affect corporate brand, image and reputation.

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Economist Intelligence Unit (2009) even researched that brand enhancement was found to be the leading motivation of sustainable initiatives for sustainability leaders. The second most important initiative was revenue growth (Economist Intelligence Unit 2009) which leads the conversation to the direction where environmental responsible activities should provide financial benefits for companies.

The relations between corporate financial performance and corporate social and environmental responsibility have been researched for years by many scholars, such as Russo and Fouts (1997), Sullivan (2011) as well as Herold and Lee (2014) to name a few. Industries are shift- ing their interest towards environmental responsibility since consumers are getting more environmentally sensible. Consumers are expecting environmentally responsible acts from corporations and they are interested in investing in them. (White, Hardisty & Habib 2019.) As White et al (2019) stated, especially Millennials demand purpose and sustainability from brands they consume, but still it is evident that eco-friendly products are mainly purchased when the price is convenient. The expectations of consumers can be related to the megatrend of the experience economy. Experience economy generates from the rapid income and technology growth, cultural change and educational development. It is based on the increasing consumer and societal expectations for services, experiences and social interaction. (Haj- kowicz 2015, 124-125.) Companies are willing to communicate about their environmentally or socially responsible activities, which may cause brand related benefits that tend to eventu- ally emerge to financial benefits. While a company may start an environmentally focused pro- gram or project, the managers’ and stakeholders’ main interest is in the financial side of it.

Therefore, if corporate environmental responsibility can increase corporate financial performance directly or indirectly, a company should invest in it.

Another globally important megatrend defining the 21^st century is digitalization and the acceleration of technology. Technology has become an important part of our daily lives, it has changed the way we live, communicate, work and spent our free time. The technological development can be tracked down to researchers called Leavitt and Whisler (1958) who first introduced information technology. This new technology provided rapid information change and processing, as today the technological development is in a stage where businesses use flu- ently artificial intelligence, robotics and sharing economy platforms, and where Internet of Things enables smart managing of our living and well-being (Leavitt & Whisler 1958;

Kettrick 2019). The rise of digital world is a consequence of social and economic systems

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adapting to virtual environments as well as the increasing power of computers. Many for- merly physical activities have found their way into the virtual world and the “ocean of information” is rapidly growing as more data is collected every single second. (Hajkowicz 2015, 107-108.) Tratler, Zilberman, Heikes, Dubois and Petiard (2018, 169-171) also claim that the Internet has even impacted on agriculture and food industry as the development of robotics and connectivity have created new kitchen technology, robots and a “socialization” of cook- ing. Technology is all over and adapting to the technological development may even cause financial benefits on corporate level as the acceleration of technology is inevitable.

As digital technologies and the concept of digitalization comprehend such a wide range of different technological innovations, it is undesirable to examine the concept, as it is too broad.

Researchers, such as Bharadwaj, Sambamurthy and Zmud (1999), Bharadwaj (2000), Tippins and Sohi (2003), Carbonara (2005), Banker, Bardhan and Asdemir (2006), Desouza, Awazu, Jha, Dombrowski, Papagari, Baloh and Kim (2008), Webb and Schlemmer (2008) and Kmieciak, Michna and Meczynska (2012), have examined information technology in corporate perspective and claim that information technology -based resources can help companies reaching their strategic missions, reducing costs and communicating with customers. These activities are commonly referred to as IT capability or IT competency. This concept is ac- cepted to the research as an indicator for companies’ performance on IT-based activities.

Based on the previous research, there’s some evidence that corporate environmental responsibility and IT capability affect financial performance. Looking at the two independent subjects, it is desired to ask whether they may be related to one another. Could the evolving digital world help mitigate the risks of climate change? On a corporate level, this question should be reformed towards the financial benefits. What are the reasons for corporations to invest in environmental protection measures? Do the information technologies in business change corporate performance? Can the digital world of today accelerate the environmental protection of companies?

These questions define the basis of this research. Next the key concepts as well as the objectives and research questions and the approach of the research will be introduced.

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1.1 Key concepts

In this chapter, the key concepts of the research are introduced. These concepts are corporate environmental responsibility (CER), corporate financial performance (CFP), information technology (IT) and IT capability. First, to briefly explain the most commonly used term in this study, corporation is a ‘legal person’ owned by its shareholders. As a legal figure, a corporation is allowed to make contracts, do business, borrow and lend money, as well as sue and be sued. It is also obligated to pay taxes. (Brealey, Myers & Allen 2014, 5.)

Corporate environmental responsibility (CER)

Corporate social responsibility, commonly known as CSR, means the self-regulations of corporations to improve the well-being of people and the planet, as well as creating profit. The definition includes an understanding between the stakeholders, employees, customers, suppli- ers and other community members concerned in the field of business. (Newell 2014.)

Roughly, CSR can be split into social, environmental, economic, stakeholder and voluntari- ness dimensions. The concept of corporate environmental responsibility, CER, is a sub-concept and one field of orientation of corporate social responsibility. Gunningham (2009) defined CER as activities that benefit the environment or aim to mitigate the environmentally disturbing impacts of business towards the environment. Auld, Bernstein and Cashore (2008) explained how environmental management systems (EMS) represent CER activities, and it is found out that implementing EMS causes indirect benefits of acting positively towards the society. The concept of EMS is used to measure CER in this research.

Corporate financial performance (CFP)

Bourne and Bourne (2011) stated, that performance is relative not absolute, it can only be compared inside the industry or the organization. In the conversation concerning corporate performance, corporate financial performance is the most commonly used measurement of the economic performance and an important dependent variable in strategic management

(Brealey, Myers & Allen 2014; Webb & Schlemmer 2008, 15). A corporate finance can be split into two subjects: investments to generate income and financing of those investments (Brealey et al 2014). Brealey et al (2014) suggest that these subjects form the concept of corporate finance, and they should be called investment decision (purchase of real assets) and

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financial decision (sale of financial assets). Accounting measures of performance have been traditionally used in quantitative approaches (Neely 2002, 3). Ray, Barney and Muhanna (2004) stated that financial performance depends on the net effect of its different processes, as a firm may perform well in in some areas and not in others.

Information technology (IT)

As Leavitt and Whisler (1958) first introduced this new technology in Harvard Business Re- view, they called it information technology, since it could process an enormous amount of in- formation rapidly and it could do mathematical programing. Webb and Schlemmer (2008, 118) claimed that IT is not heterogeneous or inimitable, while Mata, Fuerst and Barney (1995) stated that managerial IT skills are rare and company specific which makes them sources of sustainable competitive advantage. McAfee (2005) divided IT to raw materials (hardware, software and networks) and finished goods (technology used in a productive way to add value). In the early 21^st century, information technology was predicted to only change working environment (Webb & Schlemmer 2008) but as for now, IT has changed altogether the everyday life of people.

IT capability

Tippins and Sohi (2003) explained how companies develop strategies where they invest in information technology in order to increase their performance. Tippins and Sohi (2003) introduced the concept as IT competency based on resource theory and IT literature whereas for example Bharadwaj et al (1999), Bharadwaj (2000), Kmieciak, Michna and Meczynska (2012) all referred to IT capability and Webb and Schlemmer (2008) to IT assets as a corporation’s IT-related innovations and business performance. Whereas increased corporate performance can result from competitive advantage in resources or capabilities (Newbert 2007), Webb and Schlemmer (2008) measured internet performance as a result of IT capability in companies.

1.2 Objectives and research questions

In this study, the interest is to examine the relationships of activities related to the two globally acknowledged megatrends - global climate and advancing digital technology from

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corporate perspective. Does the environmental responsibility of companies help them gain financial benefits while the IT capability affects this relationship? The secondary interest is to investigate the relationship of corporate environmental responsibility and corporate financial performance; what kind of causality can be found between the two subjects in this research.

The output of the thesis is a moderation effect - whether IT capabilities moderate the relationship of corporate environmental responsibility (CER) and corporate financial performance (CFP). This study is produced, since there are relatively little research concerning the influence of IT capabilities to corporate financial performance as well as contradictory results concerning the effect of CER towards CFP. There are no previous research concerning the moderation effect of IT capabilities towards corporate environmental responsibility and financial performance. The research problem is whether IT capabilities affect corporate environmental responsibility and corporate financial performance in a way where the sign or size of it changes the direction or supports the effect (Hayes 2018, 220-223) of CER and CFP. Based on this problem, an initial research question will be:

RQ1. Does corporate environmental responsibility affect corporate financial performance?

The main interest of the study is formed in the second research question:

RQ2. Do IT capabilities moderate corporate environmental responsibility and financial per- formance?

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2 Theoretical foundation

The concepts of CSR and CER are not straightforward, and they vary depending on the industry, scholar or corporation (Adi, Grigore & Crowther 2015). To understand the concepts in context, previous research concerning corporate environmental responsibility, IT capability and corporate financial performance will be discussed and gathered up in this chapter. To be able to conduct the research, these concepts might need to be limited based on the theoretical foundations.

As Sullivan (2011) stated it, reporting of corporate responsibility is not an exact science and therefore there are many uncertainties and restrictions in the data presented to it. The concept of IT capability is also not straightforward, and the dimensions of it vary as Tippins and Sohi (2003) introduced the concept as IT competency whereas for example Bharadwaj, Sam- bamurthy and Zmud (1999), Bharadwaj (2000), Kmieciak, Michna and Meczynska (2012) all referred to IT capability and Webb and Schlemmer (2008) to IT assets as a corporation’s IT- related innovations and business performance. Also, performance is divided to different dimensions or perspectives by scholars, such as Bourne and Bourne (2011), Neely (2002) and Cameron and Whetten (1983), when the defining of a used extent is not fixed. Next, previous research concerning the three main subjects will be reflected to one another, and a specific framework for this research will be defined based on the findings.

2.1 Corporate environmental responsibility

As corporate social responsibility is originally considered as way of creating profit while serving the societal and communal interests (Kao & Kao 2009, 9-11), corporate environmental responsibility focuses on the environmental side of social responsibility, such as mitigation of emissions, resource drains and environmental damage as well as efficient use of resources.

Resources cover energy and material usage in land, air and sea, in all industries, in buildings, agriculture, communications and lighting to name a few. Mismanagement of resources as much as corruption, stock markets and terrorism can be classified under resource drains. (Kao 2009, 135.)

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Before starting the conversation about corporate environmental responsibility (CER), it should be taken a bit further, to corporate social responsibility (CSR) and the origins of CER.

CER, is one field of orientation of CSR and their implications are sometimes hard to separate from one another. The definition of the concept is not fixed, but it varies in national contexts and by who promotes it. (Adi et al 2015.) This chapter discusses about the development of CER and to the first- and second-generation of CER. Later on, different measurement methodologies of CER used in previous research are introduced.

2.1.1 Corporate social responsibility – the origins of corporate environmental responsibility The commonly argued aspect of corporate social responsibility is, whether it is adopted solely to increase profit, as stated by Milton Friedman in 1970. Later on, the argument was widely challenged, since profit maximization does not benefit the society. As corporation is defined to be a legal person, it consists of the moral responsibilities of its stakeholders, employees and managers. The importance of social responsibility has been understood by many classical and neo-classical economists, and for example Adam Smith (1776) in The Wealth of Nations believed that an individual promotes public interest best by pursuing his own interest and secu- rity. In the early 20^th century, John Stuart Mill (1920) had a similar approach to CSR in Prin- ciple of Political Economy. (Kao 2009, 9-13.) Researchers studying CSR share a view of the value adding benefits of the subject, and they are improved shareholder value, increased customer loyalty, sympathetic media at critical times, cost savings due to eco-efficiency and ability to attract motivated, top class employees, to name a few. (Idowu, Schmidpeter & Fifka 2015, 2-3.)

The measurement of CSR has increased in the 21^st century, as corporations are being evaluated by their achievements and performance in CSR (Newell 2014). Corporate profit and social responsibility are closely related and therefore social costs should be included into accounting practices. These social costs are labor costs, non-renewable versus renewable resources and environmental contribution. (Kao 2009, 14-15.)

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2.1.2 Development of corporate environmental responsibility

Steger (1993) introduced a goal structure of a corporation, where he claims that the most important objective of a corporation is survival, which requires strengthening its resources and capabilities to serve the needs of a changing business environment. Second most important aspect is to set strategic goals, so called missions. These goals are listed in the figure below.

Already in the early 1990’s, Steger stated, how profit and market objectives are studied to have a positive correlation. The interest lies on the question of how they relate to environmental protection, which is a contradictory goal as it carries additional costs that may deteriorate competitiveness. (Steger 1993, 149-150.)

Figure 1. Goal structure of a corporation (Steger 1993, 150)

Gunningham (2009) refers to the report of World Business Council for Sustainable Develop- ment and defines corporate environmental responsibility as “practices that benefit the envi- ronment (or mitigate the adverse impact of business on the environment) that go beyond that which companies are legally obligated to do”. World Business Council for Sustainable Devel- opment (1999) argued in the report of Corporate Social Responsibility: Meeting Changing Expectations, that environmental ethics and profitable business can have positive correlations, since the adoption of coherent corporate social responsibility strategy creates a broader world view, which helps businesses to keep track of changes in social expectations and to control

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risks and to identify market opportunities. It was also argued by Gunningham (2009), that the managerial values to environmental issues have an effect on the corporation’s responsiveness.

Hoffman (1997) suggested that institutional factors, such as “historical legacies, cultural mo- res, cognitive scripts and structural linkages” often lead organization to adapt to social norms.

As Burke (1997) stated it, CER practices are most commonly applied for risk management and reputational capital reasons.

There are various reasons to invest in CER. The reasons can be divided into the corporation’s external environment, to intra-organizational factors and to an interaction of internal and external factors. Corporation’s external environment contains the external political, legal and economic business environment. Portney (2005) suggested in his article that investing in CER would serve the very purpose of a company’s existence, which is to provide goods and services to consumers, through saving resources that can provide competitive returns in the future. Porter and Kramer (2006) stated that corporations influence positively on the society by investing capital and operating every-day business, providing jobs and purchasing goods.

Many researchers, such as Yosie and Herbst (1997) have emphasized the meaning of external factors in corporations’ environmental policies. Prakash (2001) introduced the intra-organizational factors to reinforce the external factors, which, as he stated, are necessary, but not sufficient enough to determine environmental investment decisions. Intra-organizational factors are related to enhancing, developing or protecting the core of the organization which may require adaptation of green strategies. Roome (1992) stated that company’s commitment to CER practices is a result of both, external pressure and internal incentives. He also argues, that managerial attitudes and values have an independent role in investing in CER, and

Ghobadian et al. (1998) added a factor of company’s ability, which includes human and financial resources as well as flexibility. Christmann and Taylor (2002, 127-133) suggested a framework of firm-level capability to address environmental issues based on Roome’s (1992) model of scientific significance of environmental impact. This framework introduces four strategies for participation in international voluntary environmental initiatives (VEIs) that are proactive, accommodative, defensive and/or capability-building and reactive.

In proactive strategy, managers need to consider the environmental issues that have a central role to a firm’s strategy and to which the firm has strong capability to develop solutions. In accommodative strategy, a firm has strong resources and capabilities in implementing a strategy, but they are not central to the firm’s strategy. These issues are likely to have only little

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positive effects on the company’s competitiveness. The defensive and/or capability-building strategies have a high strategic importance to a firm’s strategy but the capability to address these issues is weak. These issues are the most difficult ones and may require a firm to defend itself from negative impacts on competitiveness. (Christmann & Taylor 2002, 127-133.) Christmann and Taylor (2002, 131) state that “Firms that rely on their reputation for environ- mental responsibility as a source of competitiveness will benefit more from focusing on build- ing capabilities than on defensive strategy.” The reactive strategies are those strategies that are not central to a firm’s strategy and the capability of implement them is weak. These issues have only a little negative effect on competitiveness and the company does not gain much by implementing them. (Christmann and Taylor 2002, 127-133.)

Ghobadian, Viney, Liu and James (1998, 16-17) introduced a linear model for mapping corporate environmental behavior. In the model, the goal is to adapt environmental strategies through a decision-making process affected by three factors: external, mediating and moderating factors. External factors have an impact upon the company and mediating and moderating factors influence the extent of the impact of these external factors. The dynamics between these factors seem to influence a company’s decision-making process and therefore the development of company’s strategic environmental policies. External factors in the model are such as market behavior, legal-regulatory influences and social expectations. Mediating factors are leadership, corporate tradition and corporate ethics. Moderating factors are technology, oppor- tunity, cost assessment, human resource availability, capital availability and organizational adaptability. In the decision-making process moderating factors are those elements that con- strain the company’s activities either through the complexity of processes or the availability of resources. (Ghobadian et al 1998, 16-18.)

2.1.3 The First-generation of corporate environmental responsibility

The discussion about CSR started in 1970 from Milton Friedman’s declaration how the main task of managers in public organizations was to maximize the value of the company’s out- standing shares. This created a debate since the common view was that environmental protection measures are expensive, and they do not provide any marketplace advantage. In 1990’s the common view was challenged. Business strategists, environmental commentators and even some corporations stated that businesses could successfully combine objectives of environmental responsibility and economic growth. They introduced some specific actions, such

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as preventing pollution and thereby cut costs, avoid direct waste by more effective risk management and reach a market share in the growing green markets. (Gunningham 2009.) Russo and Fouts (1997) found out in their research that corporations with high levels of environmental performance had better financial performance, but it was argued whether firms with better financial performance could in fact afford higher environmental protection.

Another significant step forward was Porter’s (1991) suggestion that “properly constructed regulatory standards, which aim at outcomes and not methods, will encourage companies to re-engineer their technology.” This would result a process that pollutes less, lowers costs and improves quality. Mol and Sonnenfeld (2000) introduced a theory known as ecological mod- ernization, which specified that economic and environmental views can be reconciled and by reducing costs there is a potential in increasing profits when appropriate framework is given by the government. It was widely argued, that if CER did not have any financial burden, it would be applied by most corporations. Walley and Whitehead (1994) proved that win-win situations with CER initiatives are rare and insignificant to the expenditures they create.

2.1.4 The Second-generation of corporate environmental responsibility

During the second-generation, the context of CER was seen more broadly. The main question left unanswered was, that if considerable win-win situations do exist, why the majority of corporations had not put them into practice. Rappaport and Flaherty (1991) stated, that the proba- ble reason for this was that companies focus more on the short-term profits and environmental investments can only offer medium- or long-term profits. Simon (1992) suggested that people have neither the knowledge nor the power to calculate the optimal economic benefit from environmental activities and that only where, for example energy, is a major component of the business, investments in energy efficiency will be made. Greer and van Löbel Sels (1997) argued that management is focused on the core functions in business and ignores all less re- markable costs saving, even if it would support environmentally responsible behavior. Man- agers will ignore a win-win situation if they think that they can do a better investment else- where or the benefits are not sufficient enough to overrun other corporate priorities.

As stated by Gunningham (2009), one of the most influential second-generation analysts was Reinhardt (1998; 1999) who analyzed the circumstances in which investing in CER would create a strategic advantage. Reinhardt (1998; 1999) suggested that environmental policies

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should be applied if they increase the company’s expected value or reduce the plausibility of a business risk. A useful environmental strategy depends on the structure of the industry, the firm’s position in it and its organizational capabilities. By developing a functional environmental strategy and a business logic that meets the corporate environmental policies, it is possible for a corporation to gain competitive advantage from its environmental strategy. (Gun- ningham 2009.)

A broader understanding and better empirical analyses of CER started in the 21^st century. Vo- gel (2005) argued that CER is not central to a company’s business strategy and it should not be applied if it is inconsistent with the broader business plan. He also suggested that a corporation can gain competitive advantage by developing its environmental guidelines for the fa- vor of a successful basic business model. Vogel’s (2005) arguments have been widely ap- proved and supported by other researchers. Esty and Winston (2006) predicted that a so-called

‘green wave’ is approaching the corporate world and that proactive companies would identify ways to profit from it, such as cutting costs and increasing revenues, reducing risk and creating stronger brands. Dyllick and Hockerts (2002) argued in their article, that there are six cri- teria to satisfy by managers aiming for corporate sustainability: eco-efficiency, socio-efficiency, eco-effectiveness, socio-effectiveness, sufficiency and ecological equity.

The similarity in both of the generations is that the research concerning CER has concentrated on whether to what extent or in which circumstances it is strategically sensible to invest in CER, and ethics, moral and altruism are rarely concerned in the matter (Gunningham 2009).

2.1.5 Measurement methodologies

Auld, Bernstein and Cashore (2008) developed a framework of the new social responsibility, where it is divided into taxonomic categories of: individual firm endeavors, firm-NGO (non- governmental organization) partnerships, public-private partnerships, information approaches, environmental management systems, industry association codes of conduct and nonstate market-driven. Of these categories, Environmental management systems (EMS) represent CER activities, and it is found out that implementing EMS causes indirect benefits of acting positively towards the society. The two most significant EMS’s are Europe’s Eco-Management and Audit Scheme (EMAS) and the International Organization for Standardization (ISO) 14001 procedures for environmental management. (Auld et al 2008, 417-422.)

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Testa and D’Amato (2017) measured the bidirectional causality of CER and CFP on a sample of manufacturing firms. They used a fixed effect panel data regression and checked the ro- bustness of the results with alternative econometric techniques. Testa and D’Amato (2017) used a formalized EMT to measure CER. A formalized EMT assists in managing, measuring and improving environmental initiatives in an organization and reduces a risk to accidental non-compliance with environmental regulations. Cai and He (2013) used alternative portfolio weighting methodologies, controlling of firm characteristics and removal of outliers and they tested the results by using industry-adjusted Tobin’s Q for the study. Researchers have often used KLD Environmental Ratings in measuring CER. MSCI ESG KLD Stats, initiated in 1991, is an annual data gathered from positive and negative environmental, social and governance (ESG) performance indicators applied to a universe of publicly traded companies. The ESG environment performance indicators are divided to positive and negative performance indicators (MSCI 2015.) In KLD dataset, companies are evaluated through environmental, community, corporate governance, diversity, employee relations, human rights and product quality and safety issues (Hasan, Kobeissi, Liu & Wang 2016).

Kim and Statman (2011), Kim and Oh (2019) as well as Cho, Chung and Young (2019) measured corporate financial performance with Tobin’s Q ratio and ROA (return on assets). Mon- tabon et al (2006) used ROI (return on investment) and sales growth to measure the impact of environmental management practices (EMPs) to financial measures. Semenova and Hassel (2014) introduced other environmental performance ratings, such as ASSET4, Global En- gagement Services (GES), which correlated highly and provided convergent scores in US companies. King and Lenox (2001) measured environmental performance by the organizations total emissions, relative emissions and industry emissions. They used RQ, reportable database, to weight each chemical by its toxicity. Montabon, Sroufe and Narasimhan (2006) used corporate environmental reports to create data, since comprehensive measurement efforts are limited and not available for researchers when analyzing corporate environmental management and firm performance. They identified significant EMPs (environmental management practices) which were associated with firm performance. These environmental management practices were recycling, proactive waste reduction, remanufacturing, environmental design, specific design targets and surveillance of the market for environmental issues. (Monta- bon et al 2006, 1006-1008.)

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2.2 Digitalization shaping the use of information technology

Digitalization cannot be described as a concept, but it is an economic and societal change re- sulting from the development of information and communication technology, commonly known as ICT (Itkonen 2015). Itkonen (2015) defined digitalization also as storing, transmit- ting and processing information (Tilastokeskus 2017). As Schou and Hjelholt (2018, 8-9) put it, digital technologies have been integrated in the western lifestyle and they have become a significant part of the daily life of western people. Urbach and Röglinger (2018, 1), Gartner (2016) and Gimpel, Hosseini, Huber, Probst, Röglinger, and Faisst (2018) stated that digitalization reflects the adoption of digital technologies in business and society as well as the changes in connectivity of individuals, organizations and objects.

Digital technologies drive digitalization. Due to all investments in technological processes, a great number of digital technologies are on the market today. Loebbecke (2006) defined digital technologies as all technologies for creation, processing, transmission and use of digital goods. Yoo, Henfridsson and Lyytinen (2010) claimed that digital technologies are different to earlier technologies by their characteristics of re-programmability, homogenization of data and self-referential nature. (Urbach & Röglinger 2018, 1-2.) Ross (2018) suggested that new digital technology has a role of inspiring business strategies. Digital technologies, such as social, mobile, analytics, Internet of things, artificial intelligence, blockchain and cloud etc., provide capabilities of unlimited connectivity, omnipresent data and massive automation. For the disrupting role of technology in business, Ross (2018) wanted to separate information technology, which for 50 years, has been key to enable understanding of people, products, services, customer relationships and processes in business and to make them more efficient, reliable and measurable.

Iansiti and Lakhani (2014) examined how digital omnipresence started with the transfor- mation of software companies and adapting to omnipresent digital connectivity is essential to be compatible today in most economical sectors. Transactions are now digitized, data is gen- erated and analyzed in a new way and any objects, people or activities formally discrete are being connected. Number of connected devices has dramatically increased all over the world and those devices are getting more and more intelligent. (Iansiti & Lakhani 2014, 3-5.) Digital technologies are accessible to all, which means that employees, customers, partners and competitors can access these technologies and demand how they should be harnessed by the

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company. Therefore, it is stated that digital technologies cannot be a competitive advantage of a corporation since everything done with digital technologies is replicable. (Ross 2018.)

2.2.1 Information technology and IT capability

Bharadwaj (2000, 171) stated, that IT capability is company’s ability to obtain, deploy and leverage IT-related resources together with other resources to achieve business objectives and goals. Carbonara (2005) introduced how IT develops communications, information and knowledge sharing as well as interorganizational exchange. Banker, Bardhan and Asdemir (2006) and Carbonara (2005) claimed that the use of IT in product design and development processes cuts the development cycle, reduces development costs, improves the quality of product design and increases the number of designs. Desouza et al (2008) expressed that using IT can help companies in communicating with customers and increasing their contribution to the development of new products. (Kmieciak et al 2012, 710-711.) The organizational capabilities are influenced by the resource-based view introduced by Penrose in 1958 and as resources of companies are easy to replicate, capabilities are mostly inimitable as they are connected to the culture, experience, history and skills of a company (Bharadwaj et al 1999).

Karimi, Somers and Gupta (2001) introduced four categories of the impact of IT on customer service. These categories by Karimi et al (2001) are IT-laggard firms, IT-enabled operations- focus firms, IT-enabled customer-focus firms and IT-leader firms. There are two dimensions to the framework: IT’s potential impact on marketing (customer focus) and IT’s potential impact on operations (operations focus). The aim of any company should be reaching of a position of an IT-leader, where a sustainable leading position is gained with a combination of process reengineering and IT. The integration and coordination of operations is a main challenge in IT-led firms, claims Reponen (2003) based on Karimi et al ‘s (2001) framework. (Reponen, 2003, 6-7.)

Kmieciak et al (2012) examined the effects of information technology (IT) in small to medium-sized firms. They used the context of IT capability, previously studied by Bharadwaj (2000), Tippins and Sohi (2003) and Webb and Schlemmer (2008), and divided it into IT knowledge, integration of IT with business strategy and IT in internal communications.

Kmieciak et al (2012) also measured corporate performance with subjective and objective measures such as change in profitability and income growth rate as well as consumer

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satisfaction and market share growth. The interest in IT capability lies in whether investing in technology creates superior intangible resources for the firm (Bharadwaj 2000, 174). Finding IT capability so closely related to the resource-based view, the orientation of the subject will be turned towards RBV -theory and the competitive advantage of IT.

2.2.2 Resource-based view theory

The origins for the resource-based view can be tracked down to Penrose in 1959. He defined that an enterprise is a combination of resources that determine the company’s possibilities for success. Nevertheless, the first coherent statement of resource-based view (RBV), was created by Wernerfelt in The resource-based view of the firm in 1984 and since then it has been estab- lished by many other authors and researchers before the 21^st century, such as Prahalad and Hamel (1990), Barney (1996), Grant (1991) and Lado and Wilson (1994). The success of a firm is based on its industrial sector features and on the combination of its resources and capability that make a company different from its competitors. Those can be company’s external and internal factors as well as tangible and intangible resources. Resources are all those tangible and intangible assets the firm has, such as brand, skilled personnel, technology, culture, experience and history (Olalla 1999; Bharadwaj et al 1999.)

The VRIO framework of RBV by Barney and Clark (2007) explains resource-based analysis through four key measures of business activities in a firm. These VRIO attributes are value, rarity, imitability and organization. (Barney and Clark 2007, 69-71.) If a resource or capability is valuable, rare and costly to imitate, utilizing that resource generates sustainable competitive advantage. If a company has all these resources or capabilities but fails to organize them, it can face competitive parity or even competitive disadvantage. (Barney & Clark 2007, 71- 72.) Webb and Schlemmer (2008, 17) pointed out based on Newbert’s (2007) findings, that a competitive advantage can increase corporate performance, but the relationship is not bidirectional as increased corporate performance cannot lead to competitive advantage.

2.2.3 IT and the resource-based view

Mata, Fuerst and Barney (1995) claimed that managerial IT skills are rare and company specific which makes them sources of sustainable competitive advantage. Ross, Beath and

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Goodhue (1996) suggested that reusable technology bases (which serve as technical assets) and cooperation between a company’s IT and business unit management (relationship assets) effect on company’s abilities to harness IT for strategic objectives. Based on Grant’s classifi- cation scheme, Bharadwaj (2000, 171-172) divided the IT-based resources to IT infrastructure (tangible asset), technical and managerial IT skills (human resources), IT-enabled knowledge, customer orientation and synergy (intangible asset). The IT infrastructure comprises all computer and communication technologies as well as the shareable technical platforms and data- bases in a company. The human IT resources include the training, experience, relationships and insights of a company’s employees, where the technical IT skills refer to programming, system analysis and design and competencies in emerging technologies. The managerial IT- skills mean coordination and interaction with user communities and IT function management as well as project management and leadership. The intangible IT assets include the know- how, corporate culture and reputation as well as the environmental orientation. (Bharadwaj 2000, 172-174.)

In the late 20^th century and early 21^st century, many researchers, such as Huang and Liu (2005), Mata et al (1995) and Tippins and Sohi (2003) claimed that information technology in terms of hardware and software is not a competitive advantage since it is easily duplicated.

Therefore, a resource-based view for IT adoption in firms was developed and the sources for competitive advantage included IT-related skills and resources that create an inimitable, valuable, rare and non-substitutable IT capability. (Bharadwaj 2000.) Kmieciak et al (2012, 710) added IT governance and IT maturity to the model as IT governance may help in defining a strategy for developing IT capability.

As Carr (2005) started the discussion of the strategic importance of IT, there has been a debate of whether IT enables a strategic differentiation or diminishes it. Webb and Schlemmer (2008, 2-3) investigated if an IT hardware or software can add value to firm performance based on the Schumpeterian economic theory and strategic management theory. McAfee (2005) defined IT hardware, software and networks as raw materials whilst information technology used to add value were finished goods. As the raw materials of IT have become a util- ity, management of IT resources has become more relevant and it can deliver sustainable competitive advantage in companies (Webb & Schlemmer 2008, 118). Kmieciak et al (2012, 707) suggested that IT knowledge has a positive effect on companies’ subjective performance measures that are correlated with the objective performance measures.

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The framework of IT capability has been researched through different dimensions where Bha- radwaj et al (1999) introduced the concept as IT capability and divided the it to IT business partnerships, external IT linkages, business IT strategic thinking, IT business process integration, IT management and IT infrastructure. Tippins and Sohi (2003) introduced the concept as IT competency since competencies are inimitable from a resource-based perspective as the development of original resources have little value outside the context of that firm. Tippins and Sohi (2003) divided IT competency to IT knowledge, IT operations and IT objects whereas Webb and Schlemmer (2008) used the same dimensions as they introduced the concept as IT assets. Kmieciak et al (2012) introduced dimensions of IT capability as IT

knowledge, integration of IT with business strategy and IT in internal communications.

2.3 Corporate financial performance

Corporate performance overall is hard to measure, since there are many perspectives of the subject. Shareholder-, manager- and employee-perspective all differ from one another and therefore good and successful performance varies within a corporation. Corporate performance can be described as a balance of financial, social and individual commitment to common goals. (Bourne & Bourne 2011, 1-2.) Neely (2002) divided business performance to an accounting perspective, marketing perspective and operations perspective as Cameron and Whetten (1983) explained dimensions of performance measurement as accounting-based measures, financial market measures and non-financial measures.

Cooper (1993) pointed out that the effects of performance measures vary depending on the measure used as different studies point out how the choice and use of performance measures can affect the results of the research (Kirchoff 1977; Venkatraman & Ramanujam 1987; Rob- inson 1998). The measurement of performance demands an explicit definition of the dependent variable (Dess & Robinson 1984) and performance should be measured with sustained profitability instead of stock prices or sales (Porter 2001). Murphy, Trailer and Hill (1996) stated that researchers should include multiple different performance dimensions if possible and Chakravarthy (1986) argued that financial data should be complemented with future-ori- ented data to get wider understanding of the actual performance of a corporation. Hawawini, Subramanian and Verdin (2003) examined whether corporate performance is driven by industry or firm factors with value-based measures of performance instead of accounting ratios.

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They found out that for the performance of industry leaders and losers, firm-factors dominate.

They also argued that value leaders build their success on the understanding of industry to be able to capture most of the industry value. (Hawawini et al 2003.) This indicates that the performance is not only measured by the financial ratios but the image and reputation of a firm matters.

Bertonèche and Knight (2001, 3) stated, that the financial statements of a corporation represent their financial performance. Neely (2002, 3-6) claimed that financial performance may be the most important organizational objective and it should be controlled by financial measures such as profit or return on investment. The main objectives of corporate finance are to increase the market value and the current price of the shares of the company (Brealey et al.

2014, 1-3). Neely (2002, 5) stated that in addition to cash flow planning, profitability or ac- quiring resources at a greater rate than when using them, is another key area of business.

Financial planning and control are essential in management of business (Neely 2002, 4-5).

While balance sheet reports stocks at a specific moment, income statement and cash flow statement measure the flow of transactions in a wider time period (Bertonèche & Knight 2001, 46). The value of a firm is defined by its recent financial position. Balance sheet contains the key financial figures of corporations, such as assets, liabilities, and stockholders’ equity (Bertonèche & Knight 2001, 3-7). Income statement contains sales, net income, taxes, financial and expenses. Cash flow statement contains cash flow from operations, investments, financial flows and cash. It analyses all transactions in a firm’s bank account and classifies them into operation, investment and financial cash flows. (Bertonèche & Knight 2001, 46-60.) Cash flow planning is necessary as cash should be available to meet any financial obligations (Neely 2002, 5). Commonly, with balance sheet, two years of data is reported as with income statements and cash flow statement, data is reported from three-years-time. (Bertonèche &

Knight 2001, 46-60.)

Corporate financial performance demands clear measurement strategies. Niskavaara (2017, 67) suggested, that corporate financial performance should be measured through three key characteristics: profitability, liquidity and solvency. Profitability measures whether incomes are enough to cover expenses. Liquidity measures whether cash flow is sufficient to cover bills and other fees. Solvency measures if capital structure is healthy and there’s an appropriate amount of dept, and not too much. Most of the corporations Key Performance Indicators

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(KPIs) are financial indicators. (Niskavaara 2017, 67.) Webb and Schlemmer (2008, 15) claimed that typical accounting-based measures are sales, sales growth and profitability.

As Goel (2015) presented the concept of financial ratios, he divided them into profitability, efficiency, liquidity, solvency and market ratios. Financial ratios enable working with the numbers in corporation’s financial statements, evaluating its business performance, analyzing and forecasting its growth. Profitability ratios evaluate whether a corporation has been efficient with expenditures and managing sales and investments. Roughly, profitability ratios are margins (=sales into profits) and returns (=overall efficiency generating return for shareholders) (Goel 2015, 9). Efficiency ratios indicate how effectively a company capitalizes its assets.

Liquidity ratios inform how a corporation meets its short-term financial responsibilities. Sol- vency ratios indicate the firm’s long-term financial reliability and market ratios indicate the market trend and potential growth of business. (Goel 2015.) Based on previous research, the key financial indicators are revenue, sales growth, market share and return on investment (ROI) This study is based on the selected indicators of earlier research and the following indicators are applied to this study.

Revenue

Revenue measures the value customers gain while they purchase products or services. Reve- nue is a liquidity ratio and it does not measure company’s profitability. Revenue is equal to profit + all costs and reductions. (Niskavaara 2017, 86-88.)

Market share

Market share is a percentage of a company’s sales in the industry. It is calculated from company’s sales in a specific time period compared to total sales of the industry in the same time period. Market leaders are those who have the biggest share of the market. (Hayes 2020.)

Sales

Sales are equal to revenue and refers to earnings a company gets from customers as they purchase products or services (Niskavaara 2017, 92).

Return on investment (ROI)

Return on investment is one way to examine capital profit margin and it measures corporation’s relative profitability. ROI is calculated as profit / capital. (Niskavaara 2017, 74-75.)

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3 Relations between the theoretical concepts

The three main theoretical concepts introduced in this research have been researched inde- pendently while also the existence of the relations between the concepts has been an interest for different scholars. In the following chapters, the previously detected relations of corporate environmental responsibility (CER) and corporate financial performance (CFP) are introduced. Also, the relations of technology and corporate social responsibility (CSR) as well as IT capabilities and CFP are introduced. These findings are the basis of the hypotheses, which are introduced in this chapter.

3.1 Corporate environmental responsibility and financial performance

Galant and Cadez (2016) presented, how the results concerning CSR and CFP have been contradictory. Some studies have found a positive relationship between CSR and CFP, where social responsibility improves company’s profitability. Therefore, investment in CSR has a positive effect on shareholder value. On the other hand, some studies have found a negative relationship where investing in CSR has brought extra costs and deteriorated company’s profitability. Some studies have documented no relationship between CSR and CFP and some, like Barnett and Salomon (2012), have found a u-shaped relationship where companies with low CSR or high CSR have high CFP, and companies with medium CSR have a low CFP.

Figure 2. Relationship between KLD and net income (Barnett & Salomon 2012, 40)

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The conversation of corporate environmental responsibility (CER) affecting corporate financial performance started in the first-generation of CER in the 1990’s when for example Russo and Fouts (1997) found a correlation between these two concepts. Since then, the relationship of corporate performance and CER has been studied by many researchers and the results have brought out mainly a positive correlation between the two; CER activities affect positively on corporate financial performance. Sullivan (2011) introduced the concept of corporate responsibility in the eyes of the investors. There are several communication issues spotted concerning corporate responsibility reporting and how investors use this data. Investors play an important part in how corporations manage social and environmental issues. Herold and Lee (2014) researched the concept of CER from industry and geographical focus in the natural resources point-of-view and through orientation and salience towards the subject. They found out that most of the research concerning CER is based on secondary data and the research method has mainly been qualitative. The most used theoretical framework has been a stakeholder theory. They found out that most CER articles are based in the developed countries and that for the natural resources sector, the degree of salience is weak in leading management journals. (Herold & Lee 2014.)

The results of the research concerning CER and corporate performance have also been contradictory and negatively correlated. Testa and D’Amato’s (2016) study of corporate environmental responsibility and financial performance in Italian manufacturing firms revealed that the adoption of formalized environmental tools did not have an effect on company performance. Cai and He (2013) researched corporate environmental responsibility and equity prices and came to the conclusion that environmentally responsible companies get added value from CER in the long run, approximately in four to seven years, even though as an intangible asset, CER’s value will not be completely captured by the market. Kim and Statman (2011) found in their analysis of the KLD database that CER and corporate financial performance have significant correlations and that corporate managers adjust the levels of CER to maximize financial performance. Companies that had increasing levels of financial performance were also likely to increase the level of CER. Gössling (2011) argued that the social performance of a company impacts on its public image and it will gain a reputation of a good business partner, client or a service provider by performing socially responsibly. The research theory points out that commitment increases performance on the job which affects the overall corporate financial performance. Therefore, corporate social responsibility affects financial performance through inside attitudes and outside reputation. (Gössling 2011, 4-8.) This view

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is easily adopted also to CER, as for example, the Economist Intelligence Unit (2009) researched that brand enhancement was found to be the leading motivation of sustainable initiatives for sustainability leaders.

Reflecting to these findings, it is evident that corporate environmental responsibility and corporate performance have different relations depending on the industry, culture and environment. Based on the theoretical foundations of CER and CFP, the first hypotheses of this research are determined as follows:

Hypothesis 1a. Environmental management systems have a positive effect towards operating revenue.

Hypothesis 1b. Environmental management systems have a positive effect towards change in operating revenue.

Hypothesis 1c. Environmental management systems have a positive effect towards financial performance.

3.2 Corporate social responsibility and technological advantages

Adi et al (2015) suggested that whilst recent studies concerning corporate social responsibility (CSR) and digital media are focused on the use of websites for CSR communication, CSR practices should be re-examined from the digital perspective. Di Bitetto, Pettineo and D’An- selmi (2015) suggested that social media can be used as a monitoring tool for the CSR activities by governments and their administrations. Ali, Jiménez-Zarco and Bicho (2015) found out in their research that social media is believed to be a trustworthy tool in communicating CSR activities and in engaging stakeholders. Communication of CSR activities through social media was found to influence positively on customers’ buying behavior and employees are found to be keen on working for socially responsible corporation that communicate of their CSR initiatives through social media. (Ali et al 2015.)

Savolainen (2013) stated in her research concerning trust and e-leadership in the digital era, that technology-mediated working increases in personal- and organizational-level environmental awareness and for the need to increase corporate performance and competitive advantage. Technology-mediation reduces costs in logistics and company’s carbon footprint and it enhances the use of human resources. Rousku (2016) introduced four digital innovations to

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improve environmental sustainability; blockchain, robotics, Internet of Things and the innovation of new organizational structures and operational models.

3.3 IT capabilities and corporate financial performance

Powell and Dent-Micallef (1997), Song, Droge, Hanvanich and Calantone (2005) and Zhu and Kraemer (2002) researched the complementarity of IT assets with different business performance measures. Powell and Dent-Micallef (1997) gained inconclusive results, as Song et al (2005) found complementarity between marketing and technology related capabilities in high-technology turbulent environments. Zhu and Kraemer (2002) found complementarity at IT infrastructure with inventory turnover and cost measures but not with profitability

measures.

A productivity paradox refers to a view where IT expenditure increases as productivity stays the same or even decreases. Carr (2003) and Brown and Hagel (2003) found a negative correlation between IT and corporate performance. On contrary to this, Brynjolfsson and Hitt (2000) as well as Dedrick, Gurbaxani and Kraemer (2003) found a positive correlation where IT investments were related to productivity growth. Rosenberg (2000) claimed that it is too early to indicate the IT benefits since technology has changed so much over the years. IT as a technology is different from other technological innovations (railways, electricity etc.) since they have found a standardization in a quite short time period. IT is changing and emerging continuously, and IT opportunities seem to be endless. (Webb & Schlemmer 2008, 3.)

Webb and Schlemmer (2008, 72-93) examined the effects of business resources, IT assets and dynamic capabilities to companies’ financial performance, where they could not find correlations between IT assets and financial performance. The independent variables of IT assets used in the research are IT knowledge (the extent to which a firm possesses a body of technical knowledge about objects such as computer-based systems), IT operations (the extent to which firm utilizes IT to manage market and customer information) and IT objects (computer- based hardware, software and support personnel). (Webb & Schlemmer 2008.) Webb and Schlemmer (2008) concluded that IT did not have any direct impacts on corporate performance, but they found complementarity with other strategic assets. They suggested that IT cannot be seen as a commodity and it is shaped by the resources and capabilities of an organization. (Webb & Schlemmer 2008, 118-119.)

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Kmieciak et al (2012) investigated the relationship of IT capability to companies’ subjective and objective performance through a factor analysis and multiple regression analyses. IT capability included IT knowledge -factor, integration of IT to business strategy -factor and IT in internal communication -factor. Of these, IT knowledge was found to have a positive effect on companies’ subjective performance which also correlated with the objective measures.

(Kmieciak et al 2012, 714-718.)

Defining of IT capabilities is difficult and depends on the scholar, and therefore the dimen- sion of IT capability is reviewed through more specific subjects. These subjects are in attached to Kmieciak et al’s (2012), Webb and Schlemmer’s (2008) Tippins and Sohi’s (2003) common view for IT knowledge and the first measured object is knowledge about IT-based innovations. The second object is attached to IT operations (Webb & Schlemmer 2008; Tip- pins & Sohi 2003) and integration of IT with business strategy (Kmieciak et al 2012), where the measured objects are collecting and analyzing market information and collecting customer information from online sources. The last object is related to IT objects (Webb & Schlemmer 2008; Tippins & Sohi 2003) and it is measured with the budgeting of funds for new information technology (hardware and software). The hypotheses are following:

Hypothesis 2a. Knowledge about IT-based innovations moderate environmental management systems and operating revenue.

Hypothesis 2b. Knowledge about IT-based innovations moderate environmental management systems and change in operating revenue.

Hypothesis 2c. Knowledge about IT-based innovations moderate environmental management systems and financial performance.

Hypothesis 3a. IT capability in collecting and analyzing market information moderate envi- ronmental management systems and operating revenue.

Hypothesis 3b. IT capability in collecting and analyzing market information moderate envi- ronmental management systems and change in operating revenue.

Hypothesis 3c. IT capability in collecting and analyzing market information moderate envi- ronmental management systems and financial performance.

IT Capabilities: Competitive advantage in terms of corporate environmental responsibility and financial performance

Abstract

Tiivistelmä

TABLE OF CONTENTS