Case studies on social enterprise business models

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Thesis International Management

Case studies on social enterprise business models

Florentine Gillis / 10645411

MSc. in Business Administration - International Management track University of Amsterdam – Faculty of Economics and Business Supervisor: Dhr. D. van den Buuse

Second Supervisor: Drs. E. Dirksen 01-02-2015

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Statement of originality

This document is written by Student Florentine Gillis who declares to

take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original

and that no sources other than those mentioned in the text and its

references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the

supervision of completion of the work, not for the contents

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Abstract

This research studies social enterprises’ business models and tries to answer the question how business models of social enterprises create value by incorporating their stakeholders. Earlier business model literature identifies that value creation and incorporated stakeholders are important elements within a company’s business model. Conventional business model literature combined with innovative and compared social-sustainable business model elements gives direction for the analysis of social enterprise business models. By conducting in-depth case studies on five Dutch social enterprises, comparing the cases separately and concurrently, several social enterprise business model elements have been identified. These elements come down to a balance of social and economic value creation, where social value comes first and financial sustainability is an important aspect to create social value. Companies need to be financially sustainable and grow to make social impact. Combining different existing resources in a new way that makes the business model innovative or a more conventional business model is used to bring different innovative techniques about. Social value creation and sustainability often pair up in a business model because there has to be a right balance between people, planet and profit. Stakeholders constitute an important and integrated part of the business model and social enterprises coordinate the stakeholders by connecting the dots for different stakeholders, facilitating a network. Business models that involve stakeholders in their decision-making processes show to get access to resources and/or capital and visa versa, internalizing stakeholders for social action.

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2.4.1. Theme 1: social enterprise business model and its characteristics 23 P1a: the value proposition incorporates economic and social value 23 P1b: sustainable and innovative business models 23 P1c: stakeholders are integrated in the business model 24 2.4.2. Theme 2: role of stakeholders in a social enterprise business model 24 P2a: stakeholders form a network consisting of horizontal relations 24 P2b: stakeholders can be internalized as capital or resources 24 P2c: stakeholders are involved in the decision-making processes 25

2.5. Concluding remarks 26

3. Methodology 27

3.1. Philosophy and approach 27

3.2. Research design 28

3.2.1. Multi-method qualitative research design 28

3.2.2. Case study approach 29

3.2.3. Case study design 29

Case selection 30

3.3. Data collection: research instruments and procedures 32

3.3.1. Semi-structured interviews 32

3.3.2. Secondary data 34

3.4. Data analysis of interviews and secondary data 35

4. Results 36

4.1 Within-case analysis 36

4.1.1. SnappCar 36

Theme 1: business model and its characteristics 36 Theme 2: the role of stakeholders in the business model 38

4.1.2. Dakdokters 39

4.1.3. Beebox 43

Theme 1: business model and its characteristics 43 Theme 2: role of stakeholders in the business model 45

4.1.4. Beehives 46

4.1.5 De Amsterdamsche Tram 49

4.2. Cross-case analysis 53

P1a: the value proposition incorporates economic and social value 53 P1b: sustainable and innovative business models 54

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P1c: stakeholders are integrated in the business model 54 P2a: stakeholders form a network consisting of horizontal relations 55 P2b: stakeholders can be internalized as resource or capital 55 P2c: stakeholders are involved in the decision-making process 56

5. Discussion 57

6. Conclusion 60

6.1 Limitations 61

6.2 Suggestions for future research 61

Reference list 62

List of articles 62

List of newspaper articles 66

List of company documents 67

Appendix 68

Appendix 1: SnappCar business model 68

Appendix 2: SnappCar business model 68

Appendix 3: Dakdokters business model 69

Appendix 4: Dakdokters business model 69

Appendix 5: beebox business model 70

Appendix 6: beebox business model 70

Appendix 7: Beehives Business model 71

Appendix 8: Beehives business model 71

Appendix 9: interview protocol 72

Index of tables

Table 1: business model definitions: adjusted and extended from Zott et al. 2011 11

Table 2: working propositions 25

Table 3: detailed description of the selected cases 31

Table 4: participants in interviews 33

Table 5: questions linked to working propositions 33

Table 6: overview documentation 34

Table 7: results working propositions SnappCar, source: author 37 Table 8: results working propositions Dakdokters, source: author 40 Table 9: results working propositions beebox, source: author 44 Table 10: results working propositions Beehives, source: author 47 Table 11: results working propositions Amsterdamsche Tram, source: author 50

Table 12: cross-results of within-case analysis. 53

Index of figures

Figure 1: four components of a social business model 15 Figure 2 derived from Social Enterprise NL: hybrid spectrum between social and economic value

creation 19

List of abbreviations

AT - Amsterdamsche Tram

SEM 2014 - Social Enterprise Monitor 2014 HACCAH - How a cow catches a hare

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1. Introduction

Worldwide problems such as growing income inequality and environmental issues are just a few of the matters that gained attention in academic literature over the past decades (Boons et al. 2013). These issues in contemporary society urgently demand solutions in order to create a livable world in the future. In the past, mainly non-profit organizations or governments were actively dealing with the above-mentioned issues whilst currently corporate social responsibility (CSR), greening multinationals and other sustainable initiatives are common good in society’s businesses (Zahra et al. 2009). However, companies will mostly put their financial interest above societal interest and are mainly performing damage control in making their processes as “green” as possible (Porter & Kramer 2011).

On a global scale a new phenomenon of doing business has actively emerged over the past decade: social entrepreneurship (Antonella 2009). Social enterprises differ from traditional businesses in the sense that they have a mission that benefits society. Social impact comes first, while financial performance is used as a means to achieve their social mission (Mair & Marti 2006). Social enterprises are innovative businesses that create both social and economic value. Recent research on 115 Dutch social enterprises shows that almost half of these enterprises enter the existing market with a new product or service (SEM 2014). Social entrepreneurs make important and varied contributions to the community and society, adopting business models that offer inventive solutions to compound and persistent social problems (Zahra et al. 2009). Moreover, inventive business models are shown to be an important driver for social value creation (Mair & Marti 2006)

Research on business models in general remains in early stages of development, but the concept has found its theoretical basis and has shown to be a robust, useful concept for analysis (Zott & Amit 2013). Among other themes Zott et al. (2011) show business model literature tries to explain value creation by organizations through their business models. Building upon this they propose that business model as activity, focusing on value creation could be rewardingly researched.

Whereas conventional business models try to explain how enterprises create economic value, social enterprise business models create both social and economic

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value. The latter implies a different business model. If social enterprises focus more on creating social value instead of economic value, how will their business model be converted? When moving to the more social side of the value creation spectrum, a business model’s stakeholders and financial resources may change. Yunus et al. (2010) proposed a social business model that includes social profit equation and economic profit equation. However, this model is not applicable to all social enterprises, because the economic profit equation only focuses on full cost recovery. Social enterprises’ economic value creation resides from full cost recovery and profit distribution, where a significant amount comes from trading income.

Boons & Lüdeke-Freund (2013) propose that social entrepreneurs, who aim at economic profits, may be able to apply slightly modified conventional models. It is still not clear what this slightly modified conventional business models looks like. Furthermore, Boons & Lüdeke-Freund (2013) offer a set of normative requirements that sustainable business models should meet. However, sustainable business models are much broader and thus do not precisely identify how social enterprises as innovative business models create social value (Mair & Marti 2006). And although sustainable business models incorporate a social and innovative component, which viably could support social enterprises’ way of doing business, they lack the value creating stakeholder network put forward by Osterwalder (2010) and only draw upon the downstream (customers) and upstream stakeholders (suppliers). Osterwalder (2010) observes that a business model is an architecture incorporating a network of partners. This observation puts emphasis on a broad business model concept and describes value creation by companies as collective activity (Osterwalder & Pigneur 2010).

To build upon the existing theories and try to form elements for social enterprise business models this research addresses the following question:

How do business models of social enterprises create value by incorporating their stakeholders?

Empirical grounds for answering the research question will be found in conducting case studies within five Dutch social enterprises. Along with interviews with founders and employees of these enterprises, secondary data regarding the cases will be analyzed. Together they will be studied and cross-compared. By making comparisons across these five case studies the research will contribute to the literature in several ways. Firstly, it advances the literature on business models. The concept of

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value creation will be expanded to both economic and social value creation through business models. Secondly, it will present elements of business models or at least a set of normative requirements on what the social enterprise business model should look like. Thirdly, it advances our knowledge on how Dutch social enterprises are doing business.

This research is structured as follows. Firstly, this thesis will commence with a review of general, innovative and sustainability business model literature extracting business model elements. This will be linked with the concept of social enterprises and forms the theoretical framework that will be the starting point for the analysis of the case studies. In the next step this thesis gives an in-depth overview and cross-compared analysis on the 5 case studies. The thesis finishes with a discussion and conclusion.

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2. Theoretical framework

This chapter will present a theoretical framework that will serve as the foundation for this research. The first section starts by presenting, comparing and contrasting the many different concepts of business models defined in existing literature, followed by a discussion reviewing business model literature on innovative models and compared social-sustainable models. This specific business model literature links business models to social entrepreneurship. Consequently, the second section will elaborate on the concept of social enterprise and addresses the aspect of value creation more thoroughly. The last section will elaborate on social enterprises’ stakeholders that are incorporated in the value creation process. The different concepts derived from the literature will lead to several working propositions. These working propositions will form the framework for the empirical research and aids in answering the research question.

2.1. Business model literature

Identifying business models as a way of creating value through social entrepreneurship requires a clear understanding of its definition, different components and how the concept of a business model is developed in the literature.

Over the past decades a vast amount of literature on business models has arisen (Zott et al. 2011). Several authors have tried to identify the primary themes in the debate and as the recent meta-analysis by Zott & Amit (2013) reveals, the literature has developed in fragments. Their meta-analysis shows that the existing literature on business models primarily tries to explain three phenomena: (1) e-business and the use of information technology in organizations, (2) strategic issues, such as value creation and (3) innovation and technology management (Zott et al. 2011), which mainly overlap with themes identified by Wirtz (2010). Another way of analyzing 16 years of business model literature is by relating it to organizations more generally: (1) the business model as basis for enterprise classification, (2) business models and enterprise performance and (3) business model and innovation (Lambert & Davidson, 2013).

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The above-presented themes could have been a viable starting point for this research. However, because of this research’s perspective it is better to use a framework by Osterwalder (2005) of three types of business model categories that are hierarchically linked to each other.

A hierarchically linked framework implies a vertical structure (from broad perspective to a focused perspective) and entails the following points. Firstly, what is a business model and what elements belong to a business model? Secondly, types of business models that share common elements. Last, concepts become clearer on specific business models of companies (Osterwalder et al. 2005). Applying this hierarchical model to this specific research the next paragraph will first outline the concepts of (innovative) business models; building upon these concepts shared elements of sustainable and social business models will be presented. Ultimately, different specific cases of social enterprises business models will be presented, which will allow identifying specific elements that the cases have in common.

2.1.1. Business model definitions

Although there is no clear consensus on the business model definition, there is an agreement on several of its components. A business model is mostly described as architecture, system or logic (Timmers 1998, Chesbrough & Rosenbloom 2002, Zott & Amit 2010). Teece (2010) designates a firm’s business model as a structure that portrays several processes in a logical way. It is something conceptual, rather than a financial model and it can be fixed in a business plan or cash flow projection (Teece 2010). It might seem somewhat abstract, which allows each of these definitions to capture many different activities of doing business, in this sense Osterwalder (2010) captures an even broader concept by referring to a rationale.

Most of the definitions, however, are more specified. Authors especially agree on the notion of value creation or capturing (Timmers 1998, Amit & Zott 2001, Chesbrough & Rosenbloom 2002, Morris et al. 2005, Johnson et al. 2008, Osterwalder & Pigneur 2010) and involvement of several stakeholders. Where value creation has not been specified, could this mean that this could be any kind of value creation, such as social value creation?

As for stakeholders, some focus on customers only (Morris et al. 2005, Johnson et al. 2008, Boons et al. 2013), whereas others involve a broad range of stakeholders, for example business actors (Timmers 1998). Regardless of the focus of

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the definition, business models should not involve a linear mechanism for value creation from suppliers to the company, to the customers and reversed. Rather it should involve a complex and interconnected set of relations and activities among multiple players (Zott & Amit 2010).

Whilst some definitions are broadly described (Casadesus-Masanell & Ricart 2010, Osterwalder & Pigneur 2010) others give very specific elements of a business model (Boons & Lüdeke-Freund 2013, Morris et al. 2005, Johnson et al. 2008). Nevertheless, no definition is solely geared towards the internal organization. The focus is thus firm-centric, yet a boundary spanning structure of interdependent activities.

Essentially, one could say that the conventional concept of business models tries to explain how an enterprise delivers value to its stakeholders, how these stakeholders pay for value and how these payments turn into revenues and profits. It exposes a business’s hypothesis about what stakeholders want, how they want it, and how the enterprise can organize to best meet those needs, earn revenues and make economic profit. These above-mentioned business model concepts, components and interaction with stakeholders imply an unchangeable architecture that presents how companies conduct business. Business models are not as static as these definitions show us and could be a source of innovation for companies.

Table 1: business model definitions: adjusted and extended from Zott et al. 2011

Authors Definition

Timmers, 1998 The business model is “an architecture of the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors a description of sources and revenues” (p. 2).

Amit & Zott, 2001 “The content, structure, and governance of transactions designed to create value through the exploitation of business opportunities” (p. 511).

Chesbrough & Rosenbloom, 2002 The “heuristic logic that connects technical potential with the realization of economic value” or “in essence a business model embodies nothing less than the organizational and financial ‘architecture’ of a business” (p. 529).

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Morris et al., 2005 A business model is a “concise representation of how an interrelated set of decision

variables in the areas of venture strategy, architecture and economics are addressed to create sustainable competitive advantage in defined markets. It has six fundamental components: Value proposition, customer, internal processes/ competencies, external positioning, economic model, and personal investors/factors” (p. 727).

Johnson, Christensen & Kagermann, 2008 Business models “consist of four interlocking

elements, that, taken together create and deliver value” (p. 52). These are customer value proposition, profit formula, key resources and key processes.

Casadesus-Masanell & Ricart, 2008 “A business model is a reflection of the firm’s realized strategy” (p. 195).

Osterwalder, 2010 “A business model describes the rationale of how an organization creates, delivers and captures value."

Teece, 2010 A business model “articulates the logic, the data and other evidence that support a value proposition, for the customer, and a viable structure of revenues and costs for the enterprise delivering that value” (p. 179).

Zott & Amit, 2010 A “system of interdependent activities that transcends the focal firm and spans its boundaries”(p. 216).

Boons & Lüdeke-Freund, 2013 Combined several leading articles on

business models into four generic elements of the business model concept: (1) value

proposition, (2) supply chain, (3) customer interface and (4) financial model.

2.1.2. Business models and innovation

Over the past years, there has been a growing academic and managerial interest in innovative business models (Baden-Fuller & Morgan 2010), derived from the idea that these business models could offer new ways to create value and could compete or even surpass traditional businesses (Wirtz et al. 2010). In most cases, innovative business models emerge in turbulent technological, economic and regulatory contexts, where innovative ways of doing business become feasible. Advances in IT and the demands of socially motivated enterprises constitute important sources of recent business model innovations. Two ways of discussing business model innovations can be distinguished.

First, business models can be the innovation itself, complementing the original processes, products and organizational forms and where technology is an enabler of

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the business model (Chesbrough 2010, Zott & Amit 2010, Demil & Lecocq 2010). Second, business models may bring the innovation about, where it markets the firm’s innovative processes, products and services to customer needs or other firm properties (Zott & Amit 2007, Teece 2010, Pateli & Giaglis 2005). They could also be a combination of both.

For some businesses, drastically changing their value proposition and business model proves to be rather difficult (Christensen et al. 2008). All elements of the business model have been co-evaluated to deliver to a specific value proposition that fits the existing resources, stakeholders and processes and take the product to the market (Christensen et al. 2008). These existing business models implement innovations into their way of doing business but in a more incremental way (Chesbrough & Rosenbloom 2002).

Incremental innovations result in the best products that can be sold for the highest prices to large customer segments. This may be contrasted with disruptive innovations, where one tries to deliver affordable and inventive solutions to existing products (Chesbrough & Rosenbloom 2002). New business models that properly fit this value proposition of affordable and inventive solutions mostly introduce these disruptive innovations, which are often used by newly established companies.

The more drastic the innovation, the greater the changes needed in a conventional business model. In general, the need to change a business model can either be driven by internal or external factors, such as market imperfections (Giesen et al. 2010).

To summarize, two roles of business models regarding innovation may be distinguished (Wirtz et al. 2010, Baden-Fuller & Morgan 2010). First, business models themselves can be changed and be a subject of innovation. Secondly, business models can be a vehicle for innovation. Combined situations, where process or product innovations impact business model designs (and vice versa), that leads disruptive innovation are also explored (Chesbrough 2010). Consequently, firms that want to be supportive of drastic innovations have to alternate their business models (Kley et al. 2011, Chesbrough & Rosenbloom 2002). The following section will elaborate on innovative business models implementing sustainable innovations.

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2.1.3. Business models and sustainability

Market imperfections, such as inefficient firms, imperfect information and externalities provide significant opportunities for the emergence of radical technologies and innovative business models (Cohen & Winn 2007, Dean & McMullen 2007, Hockerts & Wüstenhagen 2010, Hall & Vredenburg 2012). As discussed above, innovative business models that enable radical technologies or inventions to enter and overtake the market or create a new market are drivers of disruptive innovations. Sustainable entrepreneurs identify market opportunities for innovations concerning sustainability, successfully implement innovations and create new products or services (Gerlach 2003).

As been argued in the literature, sustainable innovations, such as sustainable technologies, are not easily implemented by existing business models (Kley et al. 2011, Chesbrough & Rosenbloom 2002, Chesbrough 2010). Using an innovative business model, where the fundamental elements of business models have been revised, can make sustainable innovations commercially viable.

According to the extensive research of Boons and Lüdeke-Freund (2013), sustainability issues directly linked with business models involve technological, organizational and social innovation. These interacting streams are most important in fostering the development of sustainable business models. Put differently: sustainable business models support innovations. Drawing upon earlier literature Boons and Lüdeke-Freund propose four normative requirements for sustainable business models: (1) Value proposition: What value is imbedded for the stakeholders in the product/service that is offered, (2) supply chain: suppliers that take responsibility towards their own and the company’s stakeholders and aim at a sustainable supply chain, (3) customer interface: customers take responsibility for their own consumption and the company’s stakeholders and (4) financial model: distribution of the economic value among the actors involved.

The framework for sustainable entrepreneurship, which so far has covered business approaches with a strong inclusion of sustainability issues, is further developed by including social entrepreneurship, i.e. the application of the entrepreneurial approach towards the primary goal of meeting societal interests (Schaltegger & Wagner 2011).

In their literature review on sustainable business models supportive of innovation, Boons & Lüdeke-Freund (2013) draw upon business models that create

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social value and use money as a means to achieve this social value through a social enterprise. In discussing social enterprise business models, they adhere the model presented in figure 1.

This particular model shows that an important social component is added comparing to the business models reviewed in the first section of this research. Their goal is to achieve full cost recovery. However, when social enterprises do pursue a financial return on investment, Boons & Lüdeke-Freund (2013) propose that social enterprises can use a slightly more conventional business model. The alteration of the regular business model to opt for social innovation all depends on the magnitude of social value creation by a social enterprise.

Figure 1: four components of a social business model

Source: Yunus et al. 2010 p. 319

In comparing the normative requirement of the sustainable business model and the characteristics of the social business, the first similarity that stands out is the inclusion of the concept of value proposition: who are our stakeholders and what do we offer them that they value (Yunus et al. 2010)? Whereas the value proposition of sustainable business models is non-specified, the social business model requires social and/or ecological value creation beside economic value creation. For the stakeholders a balance should be struck between the social and economic values offered (Boons et al. 2013).

The second similarity between the two business model concepts is elaboration on a value chain, that involves either upstream/downstream (suppliers/customers) or internal/external stakeholders. In the sustainable business model they try to cover the whole value chain by connecting the suppliers and customers to other stakeholders of the company. Only by involving the whole value chain, the business model can aim for a fully sustainable supply chain. The social business model practically enhances

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the same stakeholder involvement, but tries to take an even broader view. Thus, the two business model concepts do not solely focus on the customers and suppliers, but are expanded to encompass all stakeholders.

Comparing the above-mentioned elements of business models, they show some overlapping elements. Firstly, all elements comprise practices of value creation, either value distribution, social value creation, economic value creation or combined in the value proposition concerning stakeholders. Secondly, all elements involve different forms of stakeholders, either single stakeholders or networks of stakeholders.

To further develop the business model that social enterprises use or to apply the defined elements, a clearer understanding of social enterprises is necessary. How does value creation work and what are the different stakeholder groups? In the next section this research elaborates on the concept of social enterprises in general, in relation to value creation and stakeholders.

2.2. Multiple value creation: Social entrepreneurship

In the wake of the worst financial crisis, entrepreneurs fostering innovation and new patterns of production are desirable (Dees 2011). However, innovative businesses can be risky, especially if the innovators and early adopters adopt a short-term view. This is the kind of entrepreneurship that has to be avoided in the future. Instead, entrepreneurship that is fostering long-term value, using fewer resources and creating less destructive effects is needed (Dees 2011).

Value-creating innovation is most important in solving social and environmental problems, and this is where the social enterprise can contribute on a large scale. Throughout the world, socially conscious entrepreneurs have been introducing and employing innovative business models to tackle social problems that governments, regular business and NGOs could not solve or did overlook (Zahra et al. 2009). Social entrepreneurs have had a significant influence on developed economies, where they employed innovative and cost-effective methods to solve leading social problems (Zahra et al. 2009).

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2.2.1 Concept of social entrepreneurship

Since the emergence of the concept of social enterprises, scholarly literature is struggling with its definition. Consequently, much of the literature evolves around defining the concept of a social enterprise (Peredo & McLean 2006, Mair & Marti 2006, Zahra et al. 2009). Whilst some authors describe it as typical entrepreneurs performing CSR activities (Baron 2007), others define it as non-profit or governmental organizations applying business principles (Weerawardena & Mort 2006).

Furthermore, they reflect distinct regional differences (Kerlin 2010). For example, in Western Europe social enterprises are cooperatives dominated by a social economic approach focusing on a social beneficial outcome (Borzaga & Defourny 2004, Nyssens 2006). In the United States, on the other hand, social enterprises are often situated in the non-profit sector and use market-based approaches to income generation and social change (Austin et al. 2006a, Defourny & Nyssens 2010).

In reviewing a considerable amount of social enterprise literature, Dacin et al. (2010) conclude that most of the authors agree that a social enterprise “leverages resources to address social problems”. Beyond this broad description they found not much consensus. Subsequently, they propose that social entrepreneurship is not very different from other forms of entrepreneurship in terms of processes and leveraging resources (value creation). Social entrepreneurship provides instead a context where normal forms of entrepreneurship can operate (Dacin et al. 2010).

Based on definitions in the existing literature, Zahra et al. (2009) proposed a new definition that reflects both social and economical consideration: “Social entrepreneurship encompasses the activities and processes undertaken to discover, deﬁne, and exploit opportunities in order to enhance social wealth by creating new ventures or managing existing organizations in an innovative manner”.

To create a consensus in Europe there has been made a conceptualization in economic, social and governance sphere (Borzaga & Defourny 2004). This conceptualization makes a clear distinction between the economic and social aspects, which in some way is indicative of criteria for economic value creation and social value creation. Consequently, definitions of other leading articles all come back to these two defining characteristics of social enterprises: the agreement on a commercial activity that leads to both social goals and the generation of revenues,

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where social goals have primacy over profit maximization (Mair & Marti 2006, Laville & Nyssens 2001, Peattie & Morley 2008, Peredo & McLean 2006).

Furthermore, all definitions feature innovation. Innovation can be practiced through new organizational models and processes, through new products and services, or through new thinking about, and framing of, societal challenges or a combination of the above-mentioned.

Finally, social enterprises diffuse their social goals via market oriented action that is performance driven, try to scale up their initiatives in other contexts through alliances and partnerships, in order to reach broader and more sustainable outcomes. These dimensions are similar to what Nicholls (2006) identifies as the main building blocks of social entrepreneurship: sociality, innovation, and market orientation, which comes together in value creation.

2.2.2. Social enterprises and multiple value creation

In contrast with regular entrepreneurship that is only aimed at maximizing profit for shareholders or owners, social enterprises put social change above private wealth creation. This social and economic focus clearly views the social enterprise as a multiple-goal organization (Cohen & Winn 2007). Some typical social objectives include reducing poverty, inequality, carbon emissions or unemployment (Murphy & Coombes 2009). Social enterprises driven by their social motivations tend to be involved in helping the poor in society, cooperation and community development (Lumpkin et al. 2013).

The economic goal is to be financially sustainable, providing some specific services or goods and gain competitive advantage. A good example is a collaborative consumption firm. As part of its mission, this type of business model connects people and creates social cohesion, by providing a profitable platform where people can share their goods with other people, the so-called peer-2-peer economy. The multiple-mission to achieve financial sustainability and generate social value by creating social cohesion and built local communities categorizes collaborative consumption firms as social enterprises (Botsman & Rogers 2011).

Although a social enterprise is different from a typical enterprise, they do have some overlap in strategies for generating revenues with profit-making activities in trading goods and services (Weerawardena & Mort 2006). Yet they are distinct from the traditional non-profit organizations in that the latter rely on grants, donations and gifts or execute some income-generating activities, nevertheless not operated as a

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business (Alter 2007). For an enterprise to be social, their reliance on income out of trading activities can range from minimum to total dependent (Austin et al. 2006b, Chell 2007, Peredo & McLean 2006). Zahra et al. (2009) incorporated the concept of “total wealth” in their definition meaning that within organizations there are various gradations of the ratio economic value to social value, which differs from one social enterprise to another.

Because of the unclear ratio, social enterprises may rely on a combination of commercial revenues and grants or rely entirely on trading income to meet their social objectives (See figure 2). E.g., 100% fair-trade companies that pursue to improve the quality of life of farmers in developing countries, try to advance farming activities by making sure that farmers get fair prices and they aid them in implementing sustainable farming mechanisms (Davies & Crane 2010). The strategic combination of making revenues, advance the life of farmers and their consciousness about the environment, makes these 100% fair-trade companies social enterprises.

To summarize, whilst it is not precisely clear what the ratio between social and economic value is in specific social enterprises, social enterprises can be placed somewhere in the middle of a spectrum having social resp. financial value at its ends, as presented in figure 2. Social enterprises are being defined as hybrid organizations that pursue financial and social aims and combine characteristics of public, private and non-profit organizations (Doherty et al. 2014). Ranging from financially sustainable companies to enterprises making real profit such as 100% fair-trade companies, social enterprises all strive to grow economically and make revenues from trading activities. However, social impact comes first. To create value, either social or economical, a social enterprise has to cope with various stakeholders. These stakeholders could play an important role in their business model and the stakeholders could be linked together in order to form a value-creating network.

Figure 2 derived from Social Enterprise NL: hybrid spectrum between social and economic value creation

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2.3. Social enterprises and stakeholders

As analyzed in the previous sections the core of creating value is build within the system of the organization and incorporation of stakeholders. Stakeholders form an important element in companies’ business models (see paragraph 2.1.) and are a vital player in value creation. The next section uses an existing stakeholder identification framework in order to identify social enterprises’ important stakeholders.

2.3.1. Stakeholder salience

There is no generalized list of social enterprises’ stakeholders; they differ from company to company. Therefore, the aim is to use an existing framework and describe interactions between social enterprises and different important stakeholders. Taking this framework of stakeholder mapping and earlier assumptions about stakeholder interaction together will form basis of this section.

“Stakeholders are any actor or group that is affected by the achievement of the company’s objectives.” (Freeman 1984 p. 46) Taking into account this definition, there is a very broad spectrum of potentially important stakeholders that the company needs to take into account. A commonly used process by managers to identify their important and influential stakeholders is stakeholder salience, developed by Mitchel et al. (1997). Salience is the degree to which a firm positively responds to a specific stakeholder request (Mitchell et al. 1997). Through this process companies can categorize their many different stakeholders in eight groups on the basis of stakeholder power, legitimacy and urgency. Power is relative access to resources for the stakeholder group with respect to the firm being targeted. Legitimacy is the degree to which there is a general perception or assumption that a stakeholder’s actions are desirable, proper or appropriate (difference between stakeholder and specific request). Urgency means the degree to which a specific stakeholder request calls. Reviewing these different aspects will determine stakeholder’s salience and aids social enterprises in focusing on the right stakeholder.

Stakeholders that have power, legitimacy and urgency are company’s most important stakeholders in terms of stakeholder salience.

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2.3.2. Stakeholders incorporated in business model

The aim of this section is to describe a social enterprise’s important stakeholders that play a role within the way social enterprises do their business. Analyzing earlier case studies, all participants referred to the active involvement of stakeholders in the creation, management, and governance of their social enterprise (Di Domenico et al. 2010). By actively engaging the stakeholder and operating a social network strategy, social enterprises can generate contacts and create new links with key players or other actors with valuable resources.

In traditional business the connections with stakeholders are usually operated as a chain. Suppliers deliver to companies and companies deliver to customers. Earlier research on different social enterprises shows that creating value does not only occur within the enterprise itself, but occurs within the whole network (Jonker 2012). A network may sound abstract, but where a chain refers to a vertical movement Jonker’s network refers to horizontal relationships with a great number of interconnected relations. A particular characteristic of this network is co-operation, which means that the enterprise and its stakeholders have an equal position within the stakeholder network. Companies need stakeholders and stakeholders need companies. This changes the position of external stakeholders to integrated stakeholders in the way an enterprise does its business.

Creating a network of stakeholders also means that every output within this network is captured and further developed by other stakeholders in the network, which can lead to even more value creation. Organizing sustainable business should not be done from one organization’s perspective, but must be done from the network’s perspective.

Social enterprises try to make citizens responsible and foster social entrepreneurship not only for themselves but also for the society at large (Putnam 2001, Hulgård & Spear 2006). Social enterprises can use this position in society and relations with these stakeholders to change their initially external resources into internal resources, in order to create some new opportunities for social action (Dacin et al. 2010).

Strong relationships with different stakeholder groups in society can be important in internalizing different resources, and in fact make these stakeholders part of their business. For example, different stakeholder groups, especially volunteers, customers, philanthropist etcetera, can be leveraged for access to capital (Mair &

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Marti 2006). Another example of internalizing stakeholders to get access to their resources is crowd funding. Crowd funding is a form of investment where practically every person in society can invest in enterprises. In this case many individuals invest a small amount instead of a small group where each investor contributes a considerable amount (Belleflamme et al. 2013).

The specific goals of a social enterprise to benefit the whole community and often to handle with a general interest influences the enterprises’ group of stakeholders that is able to actively impose influence. Where traditional enterprises are said to be single-stakeholder organizations, social enterprises are multi-stakeholder organizations (Di Domenico et al. 2010). This means that they involve several categories of stakeholders in their decision-making process. Moreover, earlier literature seems to indicate that the participation of stakeholders in these enterprises leads to the exercise of a real influence within boards.

Where the involvement of stakeholders is exercised by democratic decision-making processes and by balanced allocation of influence among various groups, such as volunteers, staff, participants, business organizations and government representatives. Having multiple stakeholder groups that participate in the decision-making process benefits multiple – social and economic – goals (Nyssens 2007).

Further, active involvement reduces external constraints by influencing external conditions to the advantage of the organization, by internalizing stakeholders such as governmental bodies (in charge of policy making), users and other third sector organizations (potential partners in lobbying projects) (Kerlin 2009, Nyssens 2006, Ho & Chan 2010).

In conclusion, authors define clear stakeholder groups by means of stakeholder salience. For social enterprises focal stakeholders are important in the value creation process and an integrative part of the business model. They are part of how the company is doing business in several ways. First stakeholders form a network with emphasis on horizontal relations. Every stakeholder needs the network and value is created within the whole network. Further social enterprises use their position in society to get access to external stakeholders and use these stakeholders as capital or they internalize other resources. Last, social enterprises are multi-stakeholder companies meaning that multiple multi-stakeholders are part of the decision-making process to make barriers low for external constraints.

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2.4. Working propositions

Based upon the theoretical foundations presented in the previous part, this section will structure the various areas concerning business models and social enterprises in two different themes: (1) social enterprise business model and its characteristics and (2) role of stakeholders in social enterprise business models. Both themes incorporate three working propositions detailed below and summarized in table 2. The themes are chosen to present a clear focus on the different dimensions concerning business models of social enterprises.

2.4.1. Theme 1: social enterprise business model and its characteristics

P1a: the value proposition incorporates economic and social value

General business model literature already showed what specific aspects a conventional business model has. Conventional business models incorporate an aspect that addresses the value proposition (Morris et al. 2005, Amit & Zott 2001, Johnson et al. 2008, Osterwalder & Pigneur 2010, Boons & Lüdeke-Freund 2013). This means that a company’s business model explains how it delivers value to its stakeholders. Derived from earlier literature on social enterprises, these companies do not only create economic value but also have a social value component, which is typically more important than the economic value aspect (Mair & Marti 2006, Peredo & McLean 2006, Zahra et al. 2009, Austin et al. 2006b). Therefore, this research proposes that social enterprises value proposition incorporates social and economic value.

P1b: sustainable and innovative business models

For conventional business models to introduce technological innovations or to create new markets, by disruptive innovation, an alternation in their business model is necessary (Kley et al. 2011, Chesbrough & Rosenbloom 2002, Chesbrough 2010). These innovative business models can bring new products or processes about or change entire markets. In this case sustainable entrepreneurs are the individuals or organizations who identify imperfections in the market and try to introduce sustainable (social, economical and environmental) innovations by using sustainable business models (Boons & Lüdeke-Freund 2013, Schaltegger & Wagner 2011). Building upon these two concepts it is proposed that social enterprises have innovative and sustainable business models.

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P1c: stakeholders are integrated in the business model

As identified throughout the theoretical framework stakeholders or actors beyond the focal company are almost always an aspect of the business model and play a very meaningful role in the way companies execute their business (Morris et al. 2005, Osterwalder & Pigneur 2010, Teece 2010, Boons et al. 2013). Especially in social enterprises all types of salient stakeholders play an important role in achieving their social mission (Boons & Lüdeke-Freund 2013, Yunus et al. 2010, Di Domenico et al. 2010). It is proposed that social enterprise business models incorporate their stakeholders.

2.4.2. Theme 2: role of stakeholders in a social enterprise business model

P2a: stakeholders form a network consisting of horizontal relations

Whilst in conventional business models stakeholders are divided between upstream and downstream stakeholders or internal or external stakeholders (Boons & Lüdeke-Freund 2013, Morris et al. 2005, Yunus et al. 2010), the literature shows that social enterprises do not have these vertical chains, but horizontal relationships forming an interrelated value creation network. Social enterprises need their stakeholders and visa versa. Social value is created within the whole network (Osterwalder & Pigneur 2010, Jonker 2012). Consequently, another working proposition is stakeholders form a network consisting of horizontal relations.

P2b: stakeholders can be internalized as capital or resources

Mainly because of their central position in society and the relations with stakeholders, social enterprises have the ability to change their initially external resources into internal resources (Dacin et al. 2010, Putnam 2001, Hulgård & Spear 2006). Strong relationships with different stakeholder groups makes these stakeholders part of the social enterprises’ business. By internalizing these resources and leverage stakeholders to get access to capital they can create new opportunities for social action (Mair & Marti 2006). Therefore, it is proposed that stakeholders can be internalized as capital or resources

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P2c: stakeholders are involved in the decision-making processes

Last, social enterprises are multi-stakeholder organizations that include multiple stakeholders in their decision-making processes (Di Domenico et al. 2010). By internalizing different external stakeholders barriers are lower to external constraints and make it easier to achieve their social mission (Nyssens 2007). Involvement of stakeholders is exercised by democratic decision-making processes and balanced allocation of influence among various groups, where their involvement benefits multiple –social and economic- goals (Nyssens 2007). Therefore it is proposed that stakeholders are involved in the decision-making processes.

Table 2: working propositions

Theme 1: Social enterprise business model and its characteristics

Working proposition 1a Social enterprise business models involve a value proposition in which social and economic value is embedded.

Working proposition 1b Social enterprises have sustainable and innovative business models

Working proposition 1c Stakeholders are integrated in the social enterprise business model

Theme 2: The role of stakeholders in social enterprise business model

Working proposition 2a Stakeholders form a network consisting of horizontal relationships

Working proposition 2b Stakeholders can be internalized as capital or resource

Working proposition 2c Stakeholders are involved in the decision-making processes

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2.5. Concluding remarks

Overall, reviewing the theoretical foundations presented, this research links business model theory to social enterprises’ way of doing business. Having started by identifying value creation and stakeholders as important aspects of a conventional business model, these aspects were to be investigated within social enterprises. Social enterprises create multiple – social and economic – value and execute this by

incorporating stakeholders in their business model. Combining value creation and stakeholder integration with theoretical foundations on innovative and sustainable models, will give the conventional business model theory more direction towards a social enterprise way of executing business and provides some main features for a social enterprise business models.

As stakeholders play an important role in a social enterprise business model their main contribution to the business model will be investigated. Comparing conventional business model theory with sustainable business model theory shows that social enterprises co-operate in a network of stakeholders. Moreover,

internalizing external stakeholders as resources or by leveraging them as capital and involving them in the decision-making processes, barriers are low to external

constraints and stakeholders will help to benefit the social enterprises multiple goals.

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3. Methodology

This section will outline the methodology used in this research. Firstly, section 3.1. will address the philosophies underlying this research. Secondly, the research design will be elaborated upon in section 3.2. Thirdly and lastly, the data analysis method will be turned to in section 3.3..

3.1. Philosophy and approach

This section presents three ways of thinking about research philosophy: epistemology, ontology and axiology that will all influence the research process in a different way (Saunders et al. 2012). Evaluating these ways of thinking will aid in justifying the selection for a particular methodological choice, strategy and data collection methods. These different ways of thinking are not separate choices but a multi-dimensional set of continua (Niglas 2010).

Lead by three questions concerning each of these ways of thinking, a position on each continuum will be presented. First, what is the nature of reality (ontology)? On the continuum of external versus socially constructed the author believes that entities are socially constructed; meaning for example that management is not the same in every organization, but the organization influences managers. Further, the author in this research is biased because of her connection with one of the studied cases, which automatically leads to a subjective point of view. Secondly, what is considered acceptable knowledge (epistemology)? The author believes that for a research the primary knowledge are facts and more objective data, though contextual factors will bias facts. Last, what is the role of value (axiology)? As mentioned earlier, the author thinks that research is biased, and especially in this case the researcher cannot be separated from the research. So the research is value-laden.

Thus, the author takes a position between positivism (external, objective, facts and value-free) and interpretivism (socially constructed, subjective and value-laden), giving the author a realistic view: objective, but interpreted through social conditioning, observable phenomena provide credible data, facts, explanation is done within the context(s) and the research is value-laden because of the former knowledge and experiences of the researcher.

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This research is starting of general by presenting different theories and presents specific propositions that will be evaluated by collecting data (Saunders et al. 2012). This is known as deductive approach that supports theory verification. In the next sections choices for methodologies linked with the research philosophy will be elaborated on.

3.2. Research design

Each choice made in the research design is related to earlier choices and will affect subsequent choices (Saunders et al. 2012). The first methodological choice is related to the choice a multi-method research design. Furthermore, it is important to address the choice for of multiple research strategies that also fit within the research philosophy and methodological choice. Each chosen research strategy will be detailed in its approach and execution. Last this research design will detail the appropriate data collection methods.

3.2.1. Multi-method qualitative research design

In answering the research question it is most appropriate to conduct a qualitative research. Qualitative research is useful when the investigation is directed to determine the motivations, perceptions and/or beliefs of a certain phenomenon (Eisenhardt 1989, Velde et al. 2004). Qualitative research will aid in examining and articulating the business model processes in-depth and in detail and tries to understand the world from perspectives of those studied; the social enterprises.

The two considered philosophical positions often lead to a multi-method research design. This type of research design is using more than one data collection technique and analytical procedure to answer the research question; motivations for this research design are outlined in section 3.3.

The methodological link between the described philosophy and the subsequent choice of methods to collect and analyze data is the research strategy. The research strategy used in this thesis is a case study (Saunders et al. 2012) and will be explained here after.

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3.2.2. Case study approach

As described detailed by Simons (2009): “A case study is an in-depth exploration from multiple perspectives of the complexity and uniqueness of a particular project, policy, institution, program or system in a “real life” context” (Simons 2009). Three different factors could indicate whether a case study is the appropriate way to meet the research’s objectives. Firstly, the research question is addressing a ‘how’ or ‘why’ question. Secondly, there is no need for control of behavioral events and thirdly, the research focuses on a contemporary event (Yin 2014).

The current research is answering, “how do innovative business models of social enterprises create value, by incorporating stakeholders” which can be identified as a ‘how’ question. Consequently, it is focused on the contemporary event of the way social enterprises do business with a particular focus on their business models. A contemporary event also indicates a real existing event, where the context is important and there is no clear boundary between the phenomenon and the context.

According to Thomas (2011) case studies are composed of two distinctive elements (1) “practical, historical unity,” the subject of the case study and (2) an analytical or theoretical frame, is the object of the study. Observing a unit (case) only has no meaning. Analyzing the observations made through a framework gives meaning to the unit observed. In this research the object is the theoretical framework including its propositions. How the different cases are selected is explained in another section.

3.2.3. Case study design

In every case study it is important to define a specific research objective. This particular research is exploratory in nature in trying to extend the current knowledge on the characteristics of social enterprise business models and the related themes of value creation and stakeholders. By expanding this particular knowledge the research objective is to both build and refine theory (Eisenhardt 1989).

To answer the research question and achieve the research objective a qualitative research will be conducted by means of a holistic multiple-case study with a cross-sectional time-horizon. Holistic refers to the unit of analysis. This case studies focuses on organization as a whole (Saunders et al. 2012). Considering the purpose of this research, multiple-case studies are more convenient. Single-case studies have the ability to describe an existence of a phenomenon, however multiple-case studies are

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more suitable for building theories (Yin 2014, Siggelkow 2007). These cases will be studied concurrently; analyzed first separately then comparatively.

Analyzing multiple-case studies will show if one important finding is idiosyncratic with one single case or is to be found in multiple cases. Further it offers a more robust theory because the outcomes lead by propositions are grounded on multiple empirical evidences (Eisenhardt & Graebner 2007). Although multiple-case studies are more complex because of the many different characteristics, they provide a construct with accurate definitions and relationships better delineated.

The goal of this research is to develop theory on social enterprise business models; theoretical sampling will be sufficient in this case. The cases are selected because they are particularly suitable to illuminate or describe relationships in and between cases. They contribute to an analytical generalization, which assures richness of content and as Eisenhardt (1989) also explains, this approach leads to novel, testable and rich information. On the other hand, disadvantage of this method is that the results are not statistically generalizable. By investigating a phenomenon at one particular location, cross-sectional and with only few organizations within the sample as units of analysis, this would result in lower generalizability (Klossek et al, 2012, Deng, 2007). The results are only valid in a specific setting for specific type of organizations.

Case selection

To conduct a multiple-case study that has external validity it is important to use replication logic in selecting the cases (Yin 2014). The objective of the research is to build upon existing literature of social enterprise business models. To reach this objective, it is most convenient to use literal replication, meaning that cases are selected to predict similar outcomes (Yin 1994).

Over the past decade many social enterprises have entered the market and they all differ in their objectives, ways of working and fields of working (Social Enterprise NL 2014). Firstly, members of social enterprise NL and B-corporation were used as a primary selection of candidates for the case studies. The first is a Dutch community that supports its social enterprise members. To join this community the social enterprises have to go through a selection procedure, where the others members decide who will be accepted. B-corporation is the worldwide equivalent of Social Enterprise NL.

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Secondly, selected cases have an impact in the Netherlands. As described in the theoretical framework there still remains difference between the concept social enterprises in for example US, UK and the rest of Europe. So to concentrate on one of these areas there will be some consensus on the concept of a social enterprise.

Further, this research solely concentrates on Dutch social enterprises that have their social and economic impact in The Netherlands. If focus lies on one geographical area it is easier to identify institutional, cultural or constitutional influences on the social enterprises and their business model choices. Awareness of this knowledge enables future research on business models to build upon this research and bare the different influences in mind. To summarize, the selected case samples will be Dutch entities, member of Social Enterprise NL or B-corporation and mainly try to create a social and economic value in The Netherlands. The selected cases are outlined in table 3.

Table 3: detailed description of the selected cases Company

name

SnappCar Dakdokters Beebox Beehives Amsterdamsche Tram

Founded in 2011 2009 2012 2008 2011

Sector Sharing economy Sustainability Sustainable food/ environment

Service Hospitality/labour participation

Focus area Netherlands Netherlands Netherlands Amsterdam Amsterdam

Number of employees

15 10 20 5 6

Main

activities • SnappCar is an online platform where car owners can share their cars with neighbours, friend or anyone else. • Agreements, such as prices and rental days, are made between users. • SnappCar only enables the transaction and provides insurance. For this service they charge a fee on top of the transaction costs. • Dakdokters make cities liveable and healthy by start using the unused spaces on rooftops. • They work on a project basis with a team of architects, carpenters, cabinetmakers and gardeners. • Their core themes are water, biodiversity, recreation, food and energy. • They realized over 500 projects in the Netherlands. • Beebox is a delivery shopping service. They propose varied boxes filled with bio-food • The box is full

of organic ingredients, home-grown and for a very competitive price. • The subscription is flexible in use and our regional entrepreneurs provide a personal service. • Farmers get a fair price. • Beehive (re) develops buildings and areas to diminish the amount of abandoned buildings and to offer a workspace to creative entrepreneurs. • Entrepreneurs

pay low rent and help develop the community with their own expertise. • They form networks from entrepreneurs, buildings, space and art. • This restaurant is built in an old tram. Unemployed people with a real story renovated this tram in 2011 and nowadays there are still people working who are

unemployed for a long time or have other issues getting employed. • The tram serves

lunch, aperitifs, take-away for companies and provides space for private events.

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3.3. Data collection: research instruments and procedures

In qualitative research multiple data collection techniques are available (Gibbert & Ruigrok 2010). As will be explained below, interviews and secondary data are most appropriate to achieve the research objectives. Interviewing the company’s employees about their business models with a focus on multiple value creation and stakeholders helps getting detailed knowledge and patterns. Another important benefit of this approach is that it commonly results in a high response rate, enables the researcher to cover many detailed topics and to collect much more data at relatively short notice (Velde et al. 2004).

However, the disadvantage of this collection method is that it requires more time and effort and it is generally more difficult to process, analyze and generalize the results of the interviews. Other disadvantages are mostly concerned with the reliability of the results; not all respondents may be knowledgeable enough to provide the expected and desired answers, or would even provide answers which are socially desirable; causing the results of the interview to be biased (Velde et al. 2004).

The results from the interviews will be supported by other data about the company. Most of the case study strategies use and triangulate multiple sources of data (Saunders et al. 2012). Using multiple sources of evidence establishes a more solid construct validity (Yin 2014).

3.3.1. Semi-structured interviews

In every selected case three face-to-face semi-structured interviews will be held. Semi-structured interviews provide the most detailed information and the greatest variety of information (Leech 2002). Further semi-structured interviews also fit with the exploratory nature of this study. This type of interviewing technique provides important background and contextual information (Saunders et al. 2012).

Aim is to interview at least one founder/ owner and one or two other employees, to get a broader perspective of the company. This will make a total of 13 interviews (details of participants outlined in table 4). Each interview will take approximately 30-45 minutes and will be recorded digitally. Afterwards all 13 interviews will be transcribed.

In semi-structured interviews the researcher will work according to an interview protocol (See Appendix 9) that addresses: what to do when, important topics to cover, open questions (allow the participants to describe events or situation

Case studies on social enterprise business models

Thesis International Management