Resource Orchestration Theory
ROT is an important theory in corporate strategic management. It is particularly suitable for explaining how companies achieve strategic goals by managing and dynamically adjusting their resource portfolio, especially in digital transformation and improving ESG performance23.
ROT can show SMEs how digital transformation may boost innovation and service quality, boosting ESG performance. Companies now have big data, cloud computing, and other digital tools thanks to digital transformation. Enterprises need to integrate these digital resources with original human, financial, and other resources, formulate appropriate digital strategies, and adjust organizational structures and processes. Only by optimizing resource allocation can the value of digital transformation be truly unleashed25. ROT also emphasizes the key role of managers in resource integration26. In promoting digital transformation, business managers need to have strategic vision and decision-making capabilities, dynamically adjust resource allocation according to changes in the internal and external environment, and lead organizational change. Managers must also focus on cultivating talent, improving employees’ digital skills, creating an innovation culture, and stimulating organizational vitality24. ROT presents a theoretical framework for studying digital transformation and SME ESG performance. Digital transformation involves hardware, software, and talent integration and management to succeed. Next, we will use this theoretical framework to examine how digital transformation might boost ESG performance through innovation and service quality.
Digital transformation and its components
Digital transformation is a multifaceted organizational change process that leverages digital technologies to create new—or modify existing—business processes, culture, and customer experiences to meet changing business and market requirements1. This transformation enables firms to reconfigure their resources and capabilities effectively, aligning with the principles of ROT23. According to ROT, firms must adeptly manage and orchestrate their resource portfolios to achieve sustainable competitive advantages9. In the context of digital transformation, SMEs can harness digital resources to enhance critical organizational capabilities, particularly innovation capabilities and servitization level, which play pivotal roles in driving ESG performance26. Innovation capabilities refer to a firm’s ability to develop new products, services, and processes through the integration and reconfiguration of existing resources and the assimilation of new knowledge27. Digital transformation provides SMEs with advanced technologies, data analytics, and collaborative platforms, facilitating innovation by enhancing knowledge sharing and enabling more agile responses to market changes1. Servitization level denotes the extent to which a firm moves from a traditional product-centric business model to one that integrates products and services, emphasizing value co-creation with customers28,29. Digital transformation empowers SMEs to elevate their servitization level by adopting technologies such as the Internet of Things (IoT), artificial intelligence (AI), and data analytics, which support advanced service offerings and closer customer relationships30. By integrating innovation capabilities and servitization level into our theoretical framework, we align with ROT’s emphasis on strategic resource management. These mediating variables represent orchestrated capabilities through which digital transformation influences ESG performance, providing a coherent and well-founded basis for our study. This shift improves economic outcomes and supports social and governance aspects by fostering customer loyalty, improving service quality, and ensuring better management of resources and processes31. ROT posits that firms need to strategically manage and dynamically integrate their resources to achieve desired outcomes23. Digital transformation provides an opportunity for SMEs to orchestrate digital resources alongside traditional ones to enhance their innovation capabilities and servitization level, thereby promoting their ESG performance26.
Digital transformation for SMEs refers to the comprehensive transformation of firms’ strategies, organizations, and business processes using digital technology to enhance their innovation capabilities and servitization level13, thereby promoting their transformation and upgrading32. In SMEs’ digital transformation, digital strategy33, digital organization6, and digital technology adoption12 are three crucial components. This division is grounded in the literature and aligns with the principles of Resource Orchestration Theory (ROT), which posits that firms must adeptly manage and orchestrate their resource portfolios to achieve sustainable competitive advantages23. ROT emphasizes the strategic management and dynamic integration of resources to achieve organizational goals24. In the context of digital transformation, ROT provides a framework to understand how SMEs can orchestrate their digital and traditional resources to enhance innovation capabilities and servitization levels, thereby improving ESG performance26. Digital Strategy refers to the overall planning and direction of firms’ digital transformation, taking into account their strategic goals, business processes, and technological foundations32,34,35. Firms must examine their characteristics, market environment, organizational structure, and personnel composition when determining the direction and path of digital transformation21. Digital organization refers to firms’ organizational structure and personnel configuration in digital transformation36,37. Firms need to establish an organizational structure and culture compatible with digital transformation, attach importance to cultivating and introducing digital talents, and ensure that the leadership can fully understand and support digital transformation16. Digital transformation adoption is the various technologies and tools that firms adopt in the process of digital transformation, taking into account their technological foundations, technological talents, and technological costs37,38. Firms need to choose suitable digital technologies and tools based on their own technological capabilities and business needs, and ensure that applying digital technologies and tools can effectively improve their production efficiency and servitization level39.
By dissecting digital transformation into digital strategy, digital organization, and digital technology adoption (Fig. 1), we align our study with established theoretical frameworks16. This categorization reflects how SMEs strategize for digital initiatives, restructure organizational processes, and adopt new technologies, which is essential for effective resource orchestration25.
The composition of digital transformation.
ESG performance in the digital age
ESG performance is the evaluation of firms’ performance in Environmental protection, Social responsibility, and corporate Governance, serving as an important indicator for investors, regulatory agencies, customers, and the public to assess firms6,8,15. Environmental Performance measures how a firm’s operations impact the natural environment, including resource usage and emission reductions15. Social Performance assesses the firm’s relationships with employees, customers, and communities, including social responsibility initiatives6. Governance Performance evaluates the firm’s internal practices and policies that lead to effective decision-making and compliance with laws10. ESG performance has become an important responsibility that firms must undertake for sustainable development3,9. Digital transformation’s impact on ESG performance is gaining attention19. Digital technology-based transformation can improve organizations’ ESG performance, improving sustainability and social responsibility17. Digital transformation can boost energy and resource efficiency, reduce environmental impact, and promote sustainable development21. Digital transformation can help firms optimize supply chain management, reduce waste and energy consumption40. Digital transformation can boost enterprises’ social responsibility by improving employee productivity and welfare14. Digital transformation can also help firms improve their corporate governance, enhancing transparency and sustainability33. Digital transformation can assist organizations improve transparency and sustainability by improving data management, auditing, sharing, and openness40.
Digital transformation enables organizations to more effectively track and control environmental metrics, enhance social impact, and strengthen governance practices, thereby directly contributing to improved ESG performance. Digital technologies such as IoT sensors and data analytics allow companies to monitor and optimize resource usage in real-time, leading to reduced energy consumption, waste generation, and pollutant emissions12. For example, smart building management systems can automatically adjust lighting and temperature based on occupancy, significantly reducing energy waste. Digital platforms enhance customer engagement and improve service delivery, allowing companies to better address societal needs13. For instance, AI-powered chatbots can provide 24/7 customer support, improving accessibility and responsiveness. Digital tools facilitate more effective community outreach and social responsibility initiatives, such as online volunteering programs or digital fundraising campaigns. Advanced information systems improve the monitoring and management of financial and operational activities, enhancing transparency, accountability, and reliability14. For example, blockchain technology can be used to create immutable audit trails, reducing the risk of fraud and improving stakeholder trust. Data analytics tools enable more informed and ethical decision-making processes, fostering a culture of integrity within the organization. By leveraging these digital capabilities across all three ESG dimensions, companies can systematically improve their overall ESG performance. This comprehensive approach ensures that digital transformation not only enhances operational efficiency but also drives sustainable and responsible business practices.
In summary, the impact of digital transformation on firms’ ESG performance is multifaceted8. However, it can help firms improve their ESG levels, enhancing their sustainability and social responsibility performance33. In digital transformation, firms should consider technology, society, and the economy comprehensively and develop reasonable digital transformation strategies16 to achieve their sustainable development goals. Through digital transformation, firms can achieve sustainable development and better ESG performance results14.
H1: Digital transformation positively affects ESG performance.
Digital Transformation, Innovation Capabilities and ESG performance
Drawing upon ROT, we posit that digital transformation enhances firms’ innovation capabilities by providing access to novel technologies and facilitating the reconfiguration of resources23. Enhanced innovation capabilities enable firms to develop sustainable products and processes, directly impacting environmental performance by reducing waste and promoting resource efficiency12. Digital transformation can stimulate employees’ innovation awareness and capabilities, helping firms respond more effectively to market competition13. Moreover, digital transformation can enhance various aspects of innovation capabilities, such as innovation speed, quality, and efficiency33. By strengthening innovation team building and enhancing employees’ innovation awareness and capabilities, digital transformation further bolsters firms’ overall innovation capabilities and sustainability31. However, firms should consider improving innovation capabilities as a long-term strategy and continuously innovate to ensure sustainable development13. Therefore, applying digital transformation can provide firms with more innovation resources, enhance innovation capabilities, and view innovation as a long-term strategy to promote firms’ sustainable development continuously10.
Innovation capabilities refer to firms’ ability to continuously innovate during the digital transformation process, including innovation speed, quality, and efficiency27,28. Enhanced innovation capabilities allow organizations to develop more sustainable and socially responsible products, processes, and services8,13. For instance, improved innovation capabilities can lead to the design of more eco-friendly products, optimization of supply chains for minimal waste, and development of solutions that address social challenges. These innovations directly contribute to improved environmental performance12. In terms of social performance, innovative activities can improve employee welfare, enhance their participation and loyalty, and promote firms’ overall ESG performance14. Furthermore, enhanced innovation capabilities can help firms achieve more efficient management and clearer decision-making processes, thereby enhancing transparency and sustainability in governance22. Additionally, innovation capabilities can contribute to more effective risk management and better compliance practices, further enhancing firms’ ESG performance13. Moreover, innovation contributes to social performance by improving employee engagement and developing solutions that address societal needs14. In terms of governance, innovative practices can lead to improved transparency and decision-making processes, enhancing governance performance13. Therefore, we hypothesize:
H2: Digital transformation positively affects innovation capabilities.
H3: Innovation capabilities positively affect ESG performance.
Digital transformation, servitization level and ESG performance
From the perspective of ROT, servitization is a strategic approach wherein firms orchestrate resources to offer integrated products and services, fostering deeper customer relationships and creating additional value23,29. Digital transformation facilitates this shift by providing digital tools that enhance service delivery, customer engagement, and operational efficiency41. According to ROT, digital transformation enables firms to integrate digital resources with their existing capabilities to enhance servitization levels26. This integration facilitates efficient and personalized services, improving customer satisfaction and sustainability21. Through digital transformation, firms can enhance their capabilities in servitization speed, quality, and efficiency19, thereby improving their servitization level. Digital transformation can also help organizations strengthen their service team building, improve employee service awareness and capabilities, and thus enhance their servitization level13. Digital transformation can increase service quality, efficiency, and ESG performance16. Digital transformation enables firms to gather and analyze customer data more effectively, leading to better understanding of customer needs and preferences41. It also provides tools for more efficient and personalized service delivery, such as AI-powered chatbots and IoT-enabled predictive maintenance30. This enhanced capability to offer and manage services facilitates the shift towards a more service-oriented business model, thereby increasing the servitization level. Digital technologies can help firms overcome barriers to servitization by improving their ability to design, deliver, and scale service offerings42.
Firm’s servitization level positively impacts its economic, social, and governance benefits15. In terms of economic benefits, firms can increase their revenue and profit margins by providing more efficient, flexible, and personalized services, thereby enhancing the added value of their products14. Servitization level can also help firms reduce material and energy consumption13, providing a more solid foundation for their social responsibility performance. Regarding social benefits, excellent servitization can help firms better meet customer needs, thereby improving customer satisfaction and loyalty17. A firm’s servitization level can also help it better understand and respond to social and environmental issues31, enhancing its social image and reputation. In terms of governance benefits, improving the servitization level can help firms better manage and coordinate internal resources and processes, thereby enhancing their transparency and sustainability33. The servitization level can also enhance trust and cooperation between firms and stakeholders, helping firms fulfill their social responsibility16. A higher servitization level improves customer relationships and loyalty, leading to better social performance43. It also often results in more efficient resource use (e.g., through product-service systems), contributing to environmental performance44. For instance, servitization can lead to extended product lifecycles and reduced waste through repair and refurbishment services. Additionally, the shift to a service-oriented model typically requires improved governance structures to manage complex customer relationships and service delivery processes, enhancing the governance aspect of ESG45. This improved governance can lead to better risk management and stakeholder engagement, further contributing to overall ESG performance. The hypotheses are as follows:
H4: Digital Transformation positively affects Servitization level.
H5: Servitization level positively affects ESG Performance.
Figure 2 shows the relationships between the hypotheses in the literature and establishes our theoretical framework.
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