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Measuring the Mission: How Theories of Value Creation in
Business are applied in a Social Enterprise.
The Case of Aflatoun
Simon Bailey
MBA Company Project Supervisor: Hans Strikweda baileysimon@gmail.com 10451811
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Abstract: International Non Governmental Organziations have
become increasingly influential but remain understudied in
business and management literature. Accountability is a key goal for
these organizations. Traditionally, they have borrowed from the
social sciences and financial accounting for tools to measure this. As
businesses begin to look at value creation more broadly and
consider both internal processes and partners as key to sustainable
competitive advantage, there may be measurement tools that might
be appropriated for this distinct purpose. Using a case study
methodology, the company project looks at how Aflatoun, an INGO
and social enterprise based in Amsterdam, structures its
accountability requirements and has begun to incorporate business
principles and practices into this work.
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Contents
I. Introduction ... 4
II. Framing ... 6
NGO Definitions: Mission and Accountability ... 6
Broadening the Concept of Value in Business ... 9
Business Principles and NGOs ... 12
Conclusion ... 15
III. Context ... 16
Methodology and Approach ... 16
Organizational Background ... 17
IV. Results: Mixing Accountability, Strategy, and Business Principles ... 22
Aflatoun’s Strategic Approach to Accountability ... 22
Accountability to Donors ... 24
Accountability to Participants in Organizational Activities ... 24
Internal Accountability ... 25
Relationship between NGO Accountability and Business Principles... 26
A Single Measure of Success: Stock Valuation and Social Return on Investment ... 26
Multifaceted Organizations and the Importance of Learning: Balanced Scorecards, Strategic Planning, and Learning ... 28
Measuring Alignment: Expanding Organizational Boundaries and Network Assessment .. 32
Bringing Partners In: Business Models, Social Franchising and Governance ... 33
V. Conclusion ... 35
VI. References ... 37
Annex 1: Aflatoun Donors and Accountability Requirements* ... 1
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I. Introduction
A global enterprise with over 2.6 billion dollars in revenue, almost 300 million dollars in advertising, operations in 53 countries, 100 legal entities and over 45000 staff. It routinely competes against comparatively structured organizations for multimillion dollar
government projects. Its country headquarters are focused on converting its brand
recognition by the general public into cash. Its management and strategy, along with all of its competitors, remain undocumented in business literature. The reason; it is an
International Non Governmental Organization (INGO) that does not disperse profit (World Vision, 2012).
In the past three decades, INGOs, like World Vision described above, have become increasingly large and influential. They have an estimated annual turnover of over 43 billion dollar in 2011 from government and private donors (International NGO Training and Research Centre, 2013). They also have become important actors that influence both government and corporate activities in developed and developing countries. That said, INGOs have been relatively absent from mainstream management literature (Lambell, Richard, et al, 2008). Where there has been study of late, much of this focus has been on their role in corporate social responsibility, in altering activities and strategies of
multinational enterprises through advocacy, or in operational partnerships for low income markets (Teegen et al (2004), and Dahan, Nicolas M., et al, (2010)). While this is important research, there has been little serious contemplation of the characteristics, motivations and managerial challenges of INGOs.
One area that remains understudied in both management and development literature is the use of business principles in the area of accountable. Non Governmental Organizations (NGOs) must align their activities with their mission in an effective and cost efficient manner. Whereas businesses are primarily accountable to their owners and to the bottom line, NGOs have accountabilities to different constituencies on various dimensions. To manage these accountabilities, tools that have been used have borrowed from financial accounting and social science research. Due to increasing demands, new tools might be
5 needed to be developed or appropriated based on the multidimensionality and complexity of these demands.
Business and management practices may be able to provide tools that can help manage NGO accountability needs. In particular, business theories that look at value creation as a collaborative act may have associated tools and measures that could be applicable to NGOs. While the dominant theory of value creation remains focused on shareholder and economic value, other theories look more broadly at how internal organizational activities and
external actors like customers, suppliers, and competitors may be aligned to create
sustained competitive advantage. The management or measurement tools that have been developed to measure these approaches might be applicable and useful for NGOs in their accountability work.
This will be investigated through a case study of Aflatoun, an Amsterdam based INGO and social enterprise. It was founded to disseminate its educational program that increases the social and financial skills of children and youth and uses the principles of social franchising to replicate its programs globally. By investigating the organizations history, processes and accountability structures, this company project seeks to isolate where business principles around value creation might help improve the accountability of NGOs. It describes 4 theories of value creation and outlines how they have been applied in an NGO setting to build accountability. It will show that distinct subset of NGOs, social enterprises, that already borrow or adapt business models and principles for social good might be uniquely situated for this cross fertilization as well as show that these business principles are most aligned with measuring the effectiveness of inter and intra organizational accountabilities within NGOs.
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II. Framing
NGO Definitions: Mission and Accountability
This lack of focus in management literature on Non Governmental Organizations might stem from a lack of definitional clarity (Teegan, 2004). NGOs are primarily defined by their negation; as all organization that are not covered by the public sector and the private sector (Teegan, 2004). This is an expansive category covering a range of different types of organizations from community institutions, to mutual interest groups, to advocacy
organizations, to service providers like hospitals and universities. That said, they tend to be aligned around objectives that are important to their supporters and do activities that contribute to this cause. Therefore, it is also possible, as the UN defines NGOs, to define NGOs by some of their function and descriptive attributes:
A not-for-profit group, principally independent from government, which is
organized on a local, national or international level to address issues in support of the public good. Task-oriented and made up of people with a common interest, NGOs perform a variety of services and humanitarian functions, bring public concerns to governments, monitor policy and program implementation, and encourage participation of civil society stakeholders at the community level1
With this definition, we see that NGOs work is action or service oriented towards a group’s defined mission.2
Mission is the key driver of NGO activity. It is the reason for institutionalization, the
connecting beliefs that bring its founders, members and supporters together. NGO mission creates a compelling case for the need that it fills or the problem it seeks to solve. It serves a dual purpose of also describing where an organization is headed in the future or how it might achieve this aim. Organizations need to institutionalize and organize their activities
1
See http://unrol.org/article.aspx?article_id=23. Accessed September 7, 2014
2Mission will be used cover a variety of different related concepts in the literature including
7 to align with this overarching goal. (Ossewaarde et al, 2008). Whereas corporations use profit and loss, the mission of an NGO is the primary orientation for organizational action.
Businesses and NGOs therefore have different accountabilities. Businesses are primarily accountable to one stakeholder (or to shareholders) based on their financial performance. NGOs are the inverse to corporations. NGOs are accountable to multiple stakeholder groups and for the non-economic dimensions of performance (Grey et al, 2006).
As such, accountability for NGOs requires balancing different interests and goals. NGOs must work to satisfy the accountability demands of three distinct groups:
Donors who provide resources
Beneficiaries who participate or are targets of NGO activities
Internal stakeholders such as staff, members, and the board (Najam, 1996). These stakeholder demands must be balanced across the three key dimensions of performance: efficiency, effectiveness, and learning.
While this delineation provides a clear distinction between groups, there are sometimes competing demands and requirements within and between these groups (Ebrahim, 2003). Balancing complex accountabilities is therefore one of the core management tasks within NGOs.
Donors provide the primary source of revenues for NGOs in the form of charitable contributions of money, time, and material (Moore, 2000). Individuals who provide resources to charitable institutions do so because they embrace the mission of the nonprofit organizations. (Moore, 2000). Mission orientation alone is not sufficient and resources must be allocated efficiently and effectively in the service of this goal.
Individuals who provide funds are rarely ever to be able to directly monitor what they fund and NGO managers, to be accountable, must be able to show them that resources were spent efficiently.
8 Measures of organizational efficiency is based on principles borrowed from financial
accounting and auditing. That said, NGO effectiveness cannot be managed based on a single bottom line. All resources are supposed to be aligned with fulfilling the social mission and any profit must be used to further these goals. This is referred to as the non-distribution constraint (Hansmann, 1987). NGO financial principles are based on aligning all revenue around the goal of maximizing production of mission aligned goods while minimizing all ancillary costs to achieve this purpose (Hansmann, 1987). Whereas the end goal of business accounting is to determine profit and loss, within NGOs it must assess efficiency and contribution towards the mission.
This dovetails with the second stakeholder group and the second dimension that NGOs are also accountable to/for. NGOs have participants in service oriented organizations or constituencies in advocacy oriented ones.3 To achieve their stated aims, they target social, economic, or political activities at particular groups and these beneficiaries become
stakeholders as a result. The resulting outcomes of this interaction are what often fulfill the organization’s mission. There is therefore a strong claim that the organizational is
accountability to those people that it serves in pursuit of its mission. It must seek to do no harm, to respect their autonomy, and offer services/good that this group needs. It must not only be efficient but also effective.
The second dimension of accountability work relates to the effectiveness of organizational activities are achieving and aligned to their mission. The work is most commonly referred to as Monitoring and Evaluation within NGOs. This discipline is both an internal staff function but also relies heavily on external experts. Its primary influences have been quantitative and qualitative methods from social science research, with the ideas of
objectivity and validity being driving principles within the discipline. Whereas monitoring is normally required of good project management, evaluation is often required by donors and focuses on impartially assessing whether or not the work is achieving its stated aim.
3 Stakeholders who are targets of NGO interventions will be referred to as beneficiaries. Other terms in the literature
9 Finally, it is important to note that accountability is not a concept that is synonymous with commitment to external stakeholders. While it does encompass being ‘held responsible’’ by others, the concept also does include the idea of ‘‘taking responsibility’’ as well. (Ebrahim. 2003) As NGOs are mission driven, internal accountability to that goal is seen as key to organizational effectiveness. Staff in NGOs is usually paid lower wages than in the private sector for their work and do so because of belief in its mission (Werker et al, 2008). Board governance is also a formal accountability mechanism that is meant to ensure that NGOs activities and policies remain aligned. Internal accountability could also extend to partners or collaborators with the organization as well as other groups who might share similar goals. Internal stakeholders should take actions that are in accordance with the
organizational mission. This is actualized in the goal learning and improving to keep processes and accountability in line with the mission (Ebrahim, 2005).
Accountabilities are therefore have multiple stakeholders and different dimensions. Peter Drucker suggests that a missing bottom line would make NGOs in greater need of
measurement and management (Anheier, 2000). As we will see in the next section, some emerging business theories now call for other stakeholder interests and organizational activities to also be accounted for to create sustained competitive advantage.
Broadening the Concept of Value in Business
Whereas the norm remains that business works for shareholders and for a single bottom, many business thinkers are increasing the scope of concern for business to incorporate new dimensions within the organization and groups outside the corporation that create value. This introduces other processes and stakeholders as value creating actors in the business literature.
The dominant organizing principle in business revolves around the alignment of activities to create the greatest economic value for its shareholders. This widespread normative consensus has become the dominant corporate ideology for managers (Hansmann and Kraakman, 2000). Shareholder value theory holds that agency problems within companies
10 between managers and owners require that shareholder returns be the sole metric of corporate success (Jensen and Meckling, 1979). Therefore, many businesses use this value as a key to determining future investments, to make choices, and organizational decisions. That said, it has been contested based on both the substantive claim that a single bottom line is the best strategic measurement tool to guide value creation as well as pragmatic concerns that it focuses managers on the wrong relationships, indicators, and time scale for growth. These theories do not reject the idea that economic value maximization should be the ultimate business goal but that it can only be managed when a broader array of value creation mechanisms are considered.
The best known theory is the Balanced Scorecard which considers both the financial and non financial dimensions of company performance (Kaplan and Norton, 1996). This is done through internal measures, metrics and indicators that reflect key organizational value creating activities. The argument is rooted in the criticism that financial measurement alone are not aligned with modern knowledge based companies who have greater need to develop, invest, and nurture intangible assets. A key principle is the idea of learning as a measurable and actionable activity that needs to happen within organizations in order to be successful in the future (Kaplan and Norton, 1996). Value creation is broader than just financial results and the authors provide 3 additional dimensions to assess and improve the efficacy of a company.
Other theories of value create look at the idea of partnership, networks and/or ecosystems of suppliers, customers, and even competitors being required to create value. In
competitive strategy, Brandenberger and Stuart provide a theoretical basis by defining value as being created by firms together with both suppliers and customers in a vertical chain of actors (1996). All parties must see a financial return on that purchase above the price of their respective contributions and they all contribute and bargain for the ‘’added value’’ in the transaction (Brandenberger and Stuart, 1996). Based on the increased
complexity of business and pace of technological change, more expansive theories conceive of company supplier relationship as value enhancing partnerships or networks as opposed
11 to bargaining relationships. These arguments place companies as part of network of
companies that facilitate offer knowledge rich environments, greater information processing and more flexible governance to facilitate product innovation (Zaheer et al, 2008). As such, value is removed from hierarchical relationships towards a theory of aligned action.
This idea of aligned action is moved to entire product categories with the ecosystem perspective. Looking at large market altering products, Adner argues that companies must not only think about their own product success but also the buy in and interests of both complimentary companies and competitors (Adner, 2010). When viewing company success as a function of changing market structure, value creation becomes a collaborative challenge more so than an autonomous one.
Looking at collaboration beyond company relations, recent business model considers partner activities but also customer actions, contributions and relationships towards the value proposition of the product. Traditionally, business models were seen as secondary to competitive strategy as economic theory assumes that business models are easily
replicable and that products have well defined markets (Teece, 2010). This dismissal of business models has come under fire from two sides. First, lack of business model flexibility has been seen as a primary driver of market changes, missed product
opportunities and firm failure (Chesbrough and Rosenbloom, 2002 and Christensen, 1997). Second, alignment of suppliers and customers are seen as increasingly important partners to building or reinforcing market positions (Magretta, 2002, and Osterwalder and Pigneur, 2010). The business model is a tool to describe, visualize, and plan based on this idea of shared value.
Business ideas about value creation have become more expansive and have incorporated other internal measures and stakeholders into perspective. There is an increasing focus on the contribution that internal systems, partners, customers and even competitors might play in creating value and increasing firm performance.
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Business Principles and NGOs
A key open question is whether the differences in accountabilities between NGOs and businesses require separate management models and practices (Anheier, 2000). NGOs had previously held themselves as distinct entities with their own tailored management approaches but this has changed. Increasing management practices in NGOs are being adapted and emulated. In this section, we will explore how NGO management has evolved and identify some of the ways in which they have convergence with business thinking.
NGOs were previously viewed as a distinct and separate management field. Stemming from their origins as voluntary or critical civil society movements, there was a widespread belief that the concept of management within these organizations was at some level opposed- practically or ideologically- to their approach (Anheier, 2000). Business principles went against the voluntarism, philanthropy, compassion and a concern for the public good that was supposed to be central to this emerging organizational form (Lewis, 2009). NGOs were not managerial because they often started as loose and informal organizations, were action oriented and practical, were searching for ‘alternative’ approaches to the management of development, did not want to use scarce resources for ‘management’ overheads, and viewed management as a form of donor imposed control (Lewis, 2009). In essence, non- material, mission-oriented motivations should suffice to sustain collective action (Johnson, Erica, and Aseem Prakash, 2007).
This aversion to business management within these organizations changed as they grew in size and complexity. This was the result of both external and internal pressures in the environment and has resulted in greater alignment between business and NGO practices.
Starting in the early 1980s, a major external pressure was the imposition of New Public Management on NGOs (Ramia, 2003). Government service delivery, both domestically and internationally, was devolved from civil servants to external organizations. Using market based mechanisms like tendering, linking performance to payment, and transparency
13 based on quantifiable outputs, large inflows of resources were provided to the sector
(Lewis, 2009). This resulted in large amounts of resources moving into the sector, with public money now accounting for 60% of income for the top 50 US INGOs (FSG, 2013). Government and institutional donors required ‘strategic management’ techniques to be implemented as conditions of funding and many NGOs complied.
There was also internal changes and gradual acceptance that the increased scale of
organizations in the NGO sector required new ways of working. NGOs internationalized to broaden resource acquisition opportunities and representation (Siméant, 2005). The focus on these INGOs in the 1980’s resulted in greater demand for their services and the decision to expand to other donor countries to access public and private resources. This resulted in multiple nationally registered NGO’s that shared a name, mission, and track record and increased their voice in international activity (examples include PLAN International, Oxfam, Médecins Sans Frontières etc). It dramatically increased resources available to a subset of NGOs but also added a new layer of internal and external stakeholders in decision making.
The increased size of NGOs resulted in a search for solutions to the organizational challenges that they faced. To deal with the increased requirement on their work, NGOs began to actively seek out management principles that might better order their disparate organizations and activities. In particular, it resulted in the incorporation of formal financial models, principles, and practices into the sector. For a period, the meaning of management in NGOs was equated with the management, allocation, and accounting for resources within the organization (Anheier, 2000). This ran parallel with the increasing the number of managers entering the sector with business experience. This cross
pollination of ideas and individuals made organizations more amenable to business principles.
Another key factor has been competition between NGOs which have proliferated in numbers in recent years (Teegan et al, 2004). This has resulted in changes to how
14 organizations approach the activities and position themselves in the market for resources. Some authors argue that increasingly success, and even survival, demands that nonprofits operate more like for-profit organizations, seeking competitive advantage through
adaptation of corporate processes and principles to their work (Hu, 2013). Broadly
speaking, this principle has been defined as ‘social innovation’, defined as which is the use of business expertise and market based strategies to more efficiently reach NGO goals (Meyskens, 2010).
Many NGOs are also beginning seeing the market as not oppositional to NGO goals but something that could be used to achieve their social aims. Market driven approaches engage businesses as partners in development using value chains and labor market opportunities as levers for reducing inequality. This has converged with a business focus on how markets of low income people, commonly defined as the Bottom of the Pyramid, might be able to use NGO partnerships and methods to distribute profitable products (Prahalad, C. K., & Hart, S. L, 2002).
The mixture of business principles and NGO practices has also given rise to a new
organizational form referred to as social enterprises, These organizations leverage, use or aligning market forces, partnerships, and social dynamics in new unusual or unexpected configurations to create social value (Dacin et al, 2010). While many examples in business literature focus on the ability of social enterprises to balance profit with social mission, many other social enterprises look to bring actors together in new ways to leverage resources for a particular social good. While NGOs traditionally responded directly to fill a need, social enterprises seek to change how different actors work together to alleviate that problem. Therefore, social enterprise are more explicit about how their organizational facilitates social change through the use of market and/or social dynamics.
Business principles are no longer seen as oppositional to NGO work but are actively sought out and applied to increase the efficiency and effectiveness of NGO work. They are
becoming a key component of how organizations think about their work and fulfillment of their mission.
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Conclusion
As we have seen, NGOs are accountable to multiple stakeholders along different
dimensions. In the business literature around value creation, there is an increasing focus broadening the measurement of performance and the role that other stakeholders like companies, customers and competitors might play in creating value.
As NGOs increasingly incorporate business principles into their management, this might indicate potential overlap and a convergence between the two sectors around measuring and metrics for accountability. Through the use of a case study, this company project seeks to investigate whether tools and frameworks that focus on value creation in business might be applicable in the NGO context.
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III. Context
Methodology and Approach
The methodology used in this paper is an exploratory case study. While there are criticisms of case study research for both they cannot be generalized and for subjectivity, they are an established means of detailing concepts, principles, or phenomena as a means of initially test or develop theory (Eisenhardt, 1989). This may allow for the beginning of broader and more comprehensive research endeavors.
The case study method was chosen for a number of reasons. First, it provides an opportunity to look at a single organization in greater detail, a requirement of the
University of Amsterdam MBA company project. Second, it allows for activities within that organization to be described and to be compared or contrasted to broader theory. Finally, while case study methods may not be sufficiently representative to prove a hypothesis, it does allow for an argument to be illustrated and initially assessed and may form a base for future research work.
This project was done for the purpose of the University of Amsterdam MBA company project. The topic was identified by the author and approved by the organization. The primary sources of information for this project was a document review of Aflatoun’s research and accountability publications, strategic plans, and an analysis assessment of Aflatoun’s funding, governance, and accountability reports.
The case begins by providing background on Aflatoun and its evolution as an organization. It then looks at the development of accountability systems and describes the organizations stakeholders and the accountability work completed for each group.
The results section describes 4 different approaches to business that focus on value creation and demonstrate how certain accountability activities have either used or been
17 influenced by these business principles. Each comparison between business approaches and accountability activities will have 3 components:
A description of the business principle of value and its adapted principle for NGOs
The rational for implementing the principle within an NGO’s accountability work
Discussion of its applicability to NGO’s accountability work
The project seeks to demonstrate that Aflatoun’s use of a social franchise business model influenced its choice of accountability tools and may make it more likely to appropriate tools from the corporate sector.
Organizational Background
Aflatoun, Child Savings International is an Amsterdam based INGO and social enterprise whose mission is to empower children to be agents of change in their own lives and their communities. It achieves this aim by promoting the concept of social and financial education through an educational program. This education program is disseminated to other organizations through a social franchise business model. This organization, as a social franchise, provides educational materials, supports training around the world, arranges learning opportunities and provides a comprehensive package of technical assistance to partners. In the 9 years since it was founded, it has been a recognized for its model, approach and results (Amar and Munk, 2014). To date, Aflatoun partners with over 160 NGOs, governments and micro finance institutions globally to deliver its program to over 2.3 million children in 103 countries.4
As mentioned in the framing section, business principles are increasingly being incorporated into NGO work and Aflatoun is an example of such an organization. It considers itself a social enterprise and its growth can be in part attributed to the integration of business methodologies into its strategy and practices of the organization.
18 This section will look at the organizations development and evolution and describe the integration of business principles and practices into the organization, One area has been around accountability and the results section will look at how the development and management of Aflatoun’s accountability requirements resulted in the use of business practices in that work.
Between 1991 and 2005, the founder Jeroo Billimoria experimented with an educational program for children in Mumbai (Billimoria, 2010). The Indian organization was named Meljol and its program name was Aflatoun. During this stage, the main goal was to create the product and define the mission. Initially, the mission was to foster inter cultural understanding amongst children. She began with a program that brought children from different backgrounds together to learn about each other’s lives through art activities and games. As it expanded into rural areas, the program started to experiment with both saving and lessons about money. As the program added themes, its mission broadened to be to provide an array of inter cultural, inter personal and financial skills to children.
In 2005 the program - Aflatoun – became the INGO and social enterprise, with the aim to ‘facilitate and accelerate the transmission’ of children’s education in child rights, savings, and entrepreneurship to the rest of the world (Aflatoun, 2005). Between 2005 and 2007, Aflatoun recruited 10 organizations from four continents to work in order to test the program in different cultural and geographic contexts around the world (Aflatoun. Children and Change, 2007). Partners were paid for their costs of adapting the materials to their local environments, as well as the costs for participation in Aflatoun events. The result of this collaboration between Aflatoun and these initial partner organizations were pilot programs in each of the countries.
These pilot projects showed that the program was successfully portable to communities outside of India (Aflatoun. Children and Change, 2007). These findings were encouraging to substantiating Aflatoun’s program. What the pilot project did not answer was how to expand the programs transmission to other countries and contexts. One critical problem related to resource scarcity. At the time, partner organizations were being paid for a subset
19 of the work that they did. Payment for services also created dependencies between organizations. INGO’s have increasingly been using similar tendering and/or contracting mechanisms to New Public Management to deliver programs and services (Ramia, 2003). In this model, organizations are contracted to complete certain objectives as per the budget provided. Should Aflatoun pay for some services, it would inevitably be pressured by its partners to bear the full cost of program implementation. This meant that Aflatoun’s growth around the world would be limited by the resources that it would be able to mobilize to pay for these services.
To resolve this issue, Jeroo Billimoria and Aflatoun staff, with pro bono support of McKinsey and Company, developed a strategy and developed a management model that could spread the program in a cost-effective and efficient manner. After investigating several different approaches, a ‘social’ franchise model was chosen as Aflatoun’s method of expanding the number of organizations delivering its program. Franchising is a commercial business model that replicates a business through the standardization of activities and management processes, transfers technical knowledge between organizations as well as shares the costs, risk and reward of the business between geographically dispersed organizations (Combs et al. 2004). Aflatoun sought to apply these principles to the replication of its own program.
Social franchising is the application of commercial franchising concepts to achieve socially beneficial ends. It refers to two types of activity, one which uses franchising as means to generate social and financial bottom lines while the other using franchising to transfer knowledge between organizations to increase impact. (Beckmann and Zeyen ,2014). Aflatoun’s model follows the knowledge transfer approach. As the franchiser, Aflatoun is responsible for providing core programmatic content, developed a common brand, centralized and formalized technical assistance, created standard training, as well as supported processes to ensure learning and quality within franchisees. Importantly, it was
also responsible for recruiting new partner organizations and broadening the global reach of the program. With this new model agreed, the second organizational phase started in 2008 (Aflatoun. Strategic Plan 2008-2011, 2008).
20 In this new model, partner organizations would pay Aflatoun an token amount of 50 Euros per year as a ‘partnership’ fee in exchange for access to content, technical resources and support, and learning opportunities. Partners would bear the cost and financial responsibility for program implementation. This involves adapting the Aflatoun program to their local contests, managing local relationships, training teachers, providing resources and support to teachers and instituting their monitoring and evaluation. This placed all responsibility for the adaptation, funding, logistics, and monitoring of the program in the remit of the partner organization.
The social franchise model for Aflatoun and its partners has aligned roles and responsibilities in a manner that has been mutually beneficial for both franchiser and franchisee. Aflatoun found organizations who had a need for high quality content and access to local or global resources. Partners were able to quickly start up Aflatoun activities with low up front program development investments or costs and with high quality technical support. By the end of 2013, Aflatoun had partnered with almost every major INGO working with children globally and had integrated its work into UNICEFs primary global education initiative (Aflatoun. Annual Report 2013). The results are an average of 54% annual growth in the number of children reached and an increase in the number of countries from 11 to 103 over the same period.5
Whereas some social franchises see replication as a revenue generating opportunity, Aflatoun raised money for its work as a franchiser through donations and fundraising. As per the end of 2013, it had raised almost 14 million Euros to date to cover these centralized costs.6 This has been in the form of grants from philanthropies, companies, and government.7 In its initial pilot phase, Aflatoun received funding from private philanthropies that were tied to the founder’s position as a social entrepreneur. Subsequent funding has been in the form of long term (3-5 years) commitments to provide
5
All children numbers are taken from Aflatoun’s audited annual reports.
6 Based on data from internal fundraising management information system for period ending December 31, 2013. 7 For a breakdown of Aflatoun’s sources of funds, type of funds, period of funding, and accountability requirements,
21 funding for core unrestricted funds for the operations of the organization or for the development and distribution of new programs. This funding, while representing 30% of the donors to the organization, accounts for 92% of the organizations income. In 2014, it began to diversify its revenue by accepting consulting contracts that provided supplemental services, like the development of specialized curriculum or additional support for particular program, to external organizations. The income revenue generating from these contracts is expected to account for approximately 10% of total income in the current year. Aflatoun was able to cover the core costs of operating the franchise model and has now been able to monetize some capabilities that it has built.
Aflatoun organizational evolution shows a move from a traditional NGO program in India that directly implemented its own program, to a global organization that financially supported international program delivery, to a social franchise that adapted a commercial business model to broaden its reach. As such, we see that the organization moved away from more conventional NGO approaches to concepts that were more aligned with business processes and principles. With these changes, we see that the program has rapidly expanded and has been successful in scaling.
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IV. Results: Mixing Accountability, Strategy, and Business Principles
Aflatoun’s Strategic Approach to AccountabilityWhile incorporating business principles into its work, Aflatoun, like all other NGOS, has a responsibility to be accountable to different stakeholders and on multiple dimensions. Whereas other comparable organizations are accountable for the direct delivery of
programmes and services to beneficiaries, Aflatoun use of the social franchise methodology create different accountability requirements between itself and organizations that both funded it and partner with it to deliver the program to children. It also has accountabilities to children based on its role as an education program developer as well as internal
accountability to improve and be responsive. This section details the development of an accountability system at Aflatoun as well as describes the demands on accountability for the organization. It also provides an overview, based on a review of all research and accountability activities, of where business principles were incorporated into this work.
While being an important NGO management principle, accountability has not historically been central or strategic to the operations of many INGOs. While 9 out of 10 of the 50 largest US INGOs currently has at least one staff person dedicated to program level or organizational evaluation, more than two-thirds of those positions created in the past 5 years (FSG, 2013). For Aflatoun, accountability was a central focus of the organization’s strategy and was included as a goal its first strategic plan. Aflatoun conceived and
organized its accountability work to align with its mission and organizational aspirations.
Aflatoun primarily aligns accountability to strategy through the use of public goals that it sets for itself. In 2008, Aflatoun publicly announced it was going to reach one million children in 75 countries within three years (Aflatoun. Strategy Plan 2008-2011, 2011). By 2011, both these targets had been exceeded (Aflatoun. Annual Report 2009, 2010). With this goal complete and its mode of operating more widely accepted, Aflatoun subsequently publicly announced its goal to institutionalize and integrate its program into educational systems with a target of providing a high-quality Aflatoun education to 10 million children
23 in 120 countries by 2015 (Aflatoun. Strategy Plan 2011-2015, 2011). These public goals demonstrate ambition, can be objectively measured and are a means to judge
organizational performance. They may also serve to align donors, partners and internal stakeholders around shared targets.
Along with goal setting, the organization took a systematic approach to measuring its results through a board approved research, monitoring and evaluation plan. This work was developed by staff in collaboration with an external advisory group, called the Impact Assessment Committee, and approved after several discussions by the Aflatoun Board. The organization brought together academics from research and business to develop a system approach to its research work. This was aligned with the organizations goal of ‘proof of concept’ which was by the end of the 2011 (Aflatoun. Strategy Plan 2008-2011, 2011). Used in engineering, drug development, and business development, proof of concept is the
demonstration that a certain method or idea is feasible and effective.8 Primarily, this work primarily focused on showing the impact the Aflatoun educational program on children but organizational accountability to partners was a smaller component. The result was a board approved plan that incorporated mixed evaluation methods for program evaluation with a subset of goals for measuring organizations effectiveness.
In the 9 years since the organizations founding and in line with both its accountability strategy and its aim for proof of concept, the organization has completed 37 evaluations looking at the efficacy of its program with children as well as 10 organizational
assessments.9 It also has internal processes and procedures that look to reinforce accountability. By looking at accountability by stakeholder group, we aim to show how accountability measures have been applied and whether they have a business link/origin.
8
See http://en.wikipedia.org/wiki/Proof_of_concept Accessed September 10, 2014.
9 All accountability results including all partner and organizational assessments are published at
www.aflatoun.org/evaluation. A summary of these assessment, by country, type and methodology is available in Annex 2.
24 Accountability to Donors
For donors, Aflatoun’s publicly stated goal often provides an objective means of measuring the organizations performance. The use of objective future oriented goals may have reduced the reliance on third party external evaluation that are usually requirements of funding for NGOs. Instead, the organization was held to account for reaching the ambitious targets that it had set itself. In a review of all funding to the organization, the four largest donors, representing 60% of overall revenue, primarily require that Aflatoun report on its achievement of these output targets. The ability to align donor requirements with
organizational goals allows the organization to maintain strategic focus and operational flexibility.
To date, Aflatoun has been required to complete 2 external evaluations of its efficiency and effectiveness independent of these output targets. One used conventional Monitoring and Evaluation methods whereas another, described later, was influenced by business
principles around learning.
Accountability to Participants in Organizational Activities
Aflatoun’s social franchise approach means that its direct beneficiaries are partner
organizations who work with it to start, improve, and expand the reach of their programs. As such, there is accountability owed from Aflatoun to these organizations.
The relationship between Aflatoun and its partners is materialized in its formal contracts with partners. This details the duties and responsibilities of each party as well as the commitments that each make to the other. Interestingly, with the exception of a dispute resolution mechanism related to the contract, there are no explicit methods by which this accountability is measured. That said, the focus of accountability work within Aflatoun, as the franchiser, is primarily as a facilitator of its partners. Its organizational success and ability to reach its goals is based on satisfied partners whose goals are aligned with its own.
25 For that reason it has completed 10 assessments of its partner facilitation work, of which 80% were done without any donor requirement. Of these 10 assessments, 8 used or adapted business principles for assessment and accountability purposes.
A second group of indirect participants in Aflatoun’s work are children themselves. Over the 9 years since the founding of the organization, its partners- with Aflatoun’s technical assistance- have completed 37 program research studies. Of those research projects complete, 35 used quantitative and qualitative methods most commonly associated with evaluation and academic research and 2 used principles derived from business practice.
Internal Accountability
A final component of accountability is with internal organizational stakeholders like staff, members, and the board. As mentioned above, this remains relatively unexplored in the literature.
Upward accountability from staff to the board is maintained through the connection of strategic and annual plans to staff deliverables. Staff report to the board on its progress against the strategic goals twice per year. The annual report functions as a means of publishing and making transparent the progress towards achievement of organizational goals.
Aflatoun bridges internal accountability and partner oriented accountability through its governance structure. Aflatoun partners have authority and voice in the decision making structure of the organization, both through regionally elected representation on the board and in providing advice on topical issues through task forces and program meetings. As such, partners are able to hold the organization formally accountability to their needs. This has the concurrent benefit for the organization in ensuring that partners are also aligned and commitment to organizational goals.
26 There are no formal downward accountability mechanisms for staff within the
organization. There have been 2 one off formal processes, with private sector consultants providing pro bono services, that focused on aligning staff with organizational goals.
Relationship between NGO Accountability and Business Principles
As can be seen from the breakdown of Aflatoun’s accountability work by stakeholder group, the majority of assessments informed by business or management practices focus on Aflatoun’s role as the facilitator of the social franchise model. Inter and intra
organizational alignment and performance may therefore be the key areas where business principles and practices influence how NGOs measure their accountability. As definitions of value creation in business have expanded to incorporate a broader set of activities and stakeholders, corresponding tools aid in the measurement or monitoring of these additional organizational responsibilities.
In this section, we look at how 4 different value creation theories have be aligned with business influenced accountability activities by Aflatoun. The focus on measuring the value creation of organizational processes and stakeholder relationships may be the most
appropriate overlap between value creation theories and how NGOs measure accountability.
A Single Measure of Success: Stock Valuation and Social Return on Investment
The dominant belief in business is that financial results are the most important dimension of company results and the primary means of determining company value. This is
represented by the stock market price or discounted future free cash flows for the company. Should sufficient information be available through public financial statements and private knowledge of the company’s market position, a company’s value can be
27 accurately and objectively be measured. A single measure is therefore the most accurate metric of a company’s value.
Borrowing from the idea of single quantitative measure of value, Social Return on Investment (SROI) is an attempt to calculate the current and future social and financial benefits of a project or program using a single quantitative ratio that compares outcomes to costs. The approach was pioneered by social enterprises and workforce development programs that generated revenue or increased employment (Miller and Hall, 2013). Initially it took its basis in cost benefit analysis but included narrative to document social returns. This initial conceptualization never gained much traction due to an inability to measure social returns but, more recently, it reemerged as a prominent accountability tool. It broadened its ambition by attempting to more accurate value social and environmental benefits and externalities. It sought to measure social returns through qualitative research by engaging stakeholders with activities that might illicit a value that could be used as a social return (Arvidson, 2010). Drawing from the history of accounting, this updated approach argued that it is the beginning of a long period of development to become the GAAP of social accounting. 10
Aflatoun initially believed that SROI might form the basis of its entire accountability
system. The aim was to value partner programs with children and be able to aggregate this value into a single calculation for the entire Aflatoun social franchise. Whereas other approaches to accountability differentiated between partner and organization accountabilities, this approach sought to combine them.
Aflatoun completed 5 linked experiments with SROI to investigate different aspects of the approach (Aflatoun. Results of Aflatoun SROI Pilot (with Social Evaluator), 2011). Two projects interviewed children about the value they got from program, two projects used focus group and survey information to determine the value and cost saving of participation in Aflatoun, and one project used an existing data set to assess SROI by comparing results
28 to publicly available statistics. This work was done as part of a broader pilot project to test the efficacy of a standardized reporting tool for SROI called the social evaluator.11
Social Return on Investment was never institutionalized due to challenges around with the methodology as well as the subjective nature of the calculations. Converting qualitative data into financial returns also proved challenging, with culture and age appropriateness, aggregation across stakeholders, and purchasing power parity being undefined issues. After completing the pilot, the SROI methodology was never used again for accountability work. It was ultimately seen as to subjective, lacking appropriate rigor and lacking
sufficient detail and context to help improve programs or operations. Whereas the promise of a single measure of organizational effectiveness and efficiency was tempting, measuring value with a single number remained a ‘bureaucratic fantasy” as opposed to a usable accountability measure (Tuan, 2008).
Multifaceted Organizations and the Importance of Learning: Balanced Scorecards, Strategic Planning, and Learning
Balanced scorecard opens up measurement in the enterprise and attempts to measure non financial activities of a company that create value over time. It challenges the idea that financial measures are an adequate single guide to strategic decision making. A key principle of the balanced scorecard is that different operational attributes of the organization create value in the future and appropriate measures and metrics that
represent these must be balanced with financial ones (Kaplan and Norton, 1996). Instead of a single number guiding performance like the financial bottom line, multiple dimensions of the organization must be visible, measured, and considered as a whole to avoid against sub optimization future return. A key attribute of a company’s performance drivers is the concept of an innovation and learning perspective that seeks to answer the question “can we continue to improve and create value?” (Kaplan, 2005). The ability to learn can tie
29 directly to an organizations value through improvement in customer experience,
innovation, and efficiency.
The balanced scorecard is an interesting concept to NGOs for two reasons. First, it recognizes a variety of different organizational attributes that go into being an effective organization and that financial viability is just a single measure. Second, it recognized the idea that measures that could not easily be compared or combined also offered a means of revealing ultimate value (Moore, 2003). Finally, it is important to monitor and improve not only ultimate results, but also to focus on the processes, indicators and learning that could lead to the end goal.
Aflatoun strategic planning as well as its focus on learning in accountability activities has been influenced by the balanced scorecard.
Multiple Metrics to Create Value: Incorporation into Strategy Development
Aflatoun’s strategy and planning approach aligns with the concept that organizational performance must be aligned around more than a single metric. While organizations have a mission, there are a variety of different components that contribute towards reaching that goal. While the metrics don’t align with those that are in the Balanced Scorecard, it follows the principle that multiple metrics needed to be measured in order to create future value.
Aflatoun, as a start up organization, had to build normative legitimacy for its concept, develop and provide service to a program, as well as recruit new organizations into the network of organizations that deliver it. This is complimented by the need to be financial viable as an organization. 12 These different dimensions were called organizational pillars and associated measurable objective. Annual planning is done with this document in
12 Aflatoun developed the division of organizational tasks into programme, concept and network. In the second
30 reference and internal staff goals are set based on these different aims. Accountability to the strategy is to the board which reviews progress against strategic goals twice per year.
While the concept of balance is key between pillars and visions is explicitly built into the organizational strategy and planning, the most public organizational goal around country and children targets, also key donor requirements, become the dominant and primary aim of the organization. This single goal has actually reduced internal accountability with staff reducing buy in to the mission of the organization. Based on a recent appreciative inquiry activity done by a pro bono consultant, the overwhelming focus on one metric had reduced staff motivation, buy in, and belief in the leadership of both management and the board.13
Therefore, while the organization is configured around multiple goals, its execution has focused on the most prominent ones at the expense of other aims. This single orientation, similar to the preeminence of financial targets in business, resulted in decision making aligned to achieving this aim at the expense of other goals and reducing the accountability to the organization felt by staff.
Accountability as Learning in Donor Driven Evaluations
Kaplan and Norton argue that innovation and learning perspective is necessary in order to optimize the operational practices of an organization. A key element of accountability, not often explored due to the presumed antagonism between donors and organizations, is that the relationship between donor and recipient is a partnership of which success is mutually beneficial to both parties. For this reason, and underrepresented in the literature, is the idea that learning can be a shared value and a component of accountability.
In 2013, in partnership with the largest donor to the organization, Aflatoun did a midterm evaluation of its youth project with learning as the key objective (Aflatoun. Mid Term
13 The resulting document is an consultant led assessment called One Dream, One Team. The document is an
31
Evaluation of the Aflateen Programme, 2013). Midterm evaluations tend to be formative as they are conducted at a point where corrective action can take place and should be about change and not judgment (Anderson and Ball, 1978). Unfortunately, in many cases, it functions as the deciding document for future resource allocation as the final or summative evaluation tends to be complete outside of grant decision making cycle (Avina, 1993). To choose learning required a trust that opening up the organization to internal and external criticism would be not result in detrimental impact on the organization.
The methodology used was developmental evaluation, which gained initial recognition in 2010, which aimed to
Support development of and decision making about an innovation based on the nature and stage of the innovation and the situation in which the innovation takes place. (Patton, 2010)
It is therefore situational and meant to help facilitate learning and change in the context of a complex adaptive system and to facilitate double loop learning. This is done by having the evaluator become part of the team, with changes driven by staff, and facilitation of learning being the primary aim.
The results of the evaluation were compelling as 11 of 15 changes were implemented during the course of the 8 month evaluation cycle.14 Learning allowed internal change to occur thereby improving the value creation mechanisms within the organization. Accountability has traditionally been seen as an antagonistic relationship between parties but learning can function as a way of creating value for both organizations.
32 Measuring Alignment: Expanding Organizational Boundaries and Network
Assessment
Business partnership and networks of aligned organizations is increasingly seen as an area where organizations can gain or leverage competitive advantage (Dyer, Jeffrey H., and Harbir Singh, 1998). The increasing vertical disintegration of industries has required scholars to look beyond supplier relationships and towards how inter organizational partnership or cooperation might be able to create economic rents. As a base strategy concept, value is generated with suppliers and consumers relative to the total value that is created and negotiated relative to the consumer (Brandenburger and Stuart, 1996). Using network and market dynamics, more expansive theories hold that partnerships can
facilitate greater knowledge transfer, foster interdependence, and create more valuable innovation (Zaheer et al, 2000).
For NGOs, partnerships are also becoming an increasingly common mechanism of addressing problems or delivering programs. While some of this is required as part of organizational mandates or donor requirements, partnerships have been seen as the means of addressing societal complex or ‘wicked’ problems for which organizations on their own have not been able to find adequate answers or approaches (Partnership Resource Centre, 2011). This includes partnerships with government, companies, and other NGOs. Social franchising therefore is one type of inter organizational partnership model that might create social value.
In both business and NGO examples, partnerships are seen as difficult to manage and not always mutually beneficial to all parties. Issues around alignment are key to sustained partnerships.
The role of the Aflatoun organization is to provide services to these partners and to ensure that these services are is in line with the demands and needs. This internal accountability process became a key mechanism for both planning activities and ensuring alignment. To do so, external business processes designed to measure customer satisfaction and generate effective feedback were incorporated into its work. With the pro bono assistance
33 of McKinsey and Company in 2008, an initial survey was developed aligned with
commercial customer satisfaction surveys. In the following year, in partnership with Keystone Accountability, and inspired by JD Power style benchmarking (Kiryttopoulou, 2008), Aflatoun participated in a pilot comparing different networks on various functional attributes. In subsequent years, Keystone Accountability included the use of Net Promoter Scores, as opposed to raw scores as the key metric of organizational comparison (Keystone Accountability, 2014). The survey has been completed annually for 6 consecutive years. Though the survey has changed based on organizational needs, there is sufficient data to identify trends and issues at the regional or global levels. Importantly, it is also meant to be used as part of the annual planning and to structure the themes in annual learning
meetings for the organization. While initially incorporated into organizational planning, some managers have been less data oriented and reduced their use of this data source for planning and needs assessment purposes. This is similar to the business finding that investments in the ability of managers to use data can be more important than investments in the accuracy of data (Sutcliffe and Weber, 2003).
This accountability mechanism is designed to ensure that the value of partnership is maintained and that the mutually beneficial components of this institutional relationship remain aligned. As partnerships and networks become more relevant and required in both business and NGOs, further work on measuring and monitoring these relationships as well as ensuring these measures use will be required.
Bringing Partners In: Business Models, Social Franchising and Governance In social enterprises, the use of business models and concept of value creation are key principles.
Business models have traditionally been viewed as secondary to strategy but this has changed with the emergence of digital business models, a focus on disruptive innovation, and focus on bringing partners and consumers from outside the enterprise into the value creation process (Zott et al., 2011). While the area is still contested in terms of definition
34 and composition, it is provides an alternative means for explaining, visualizing and
assessing how organizations create value in a market with their partners and customers.
For NGOs, business models are an important but unstudied area. In fact, business models are only really described where for profit and not for profit values meet; in social
enterprise literature and bottom of the pyramid approaches (Prahalad, C. K., & Hart, S. L. (2002) and Dacin, P et al, (2010)) . Conventional NGOs tend to split their structure around fundraising, administrative, and governance work from the work that is done to achieve their mission.15
Aflatoun is structured around a clearly defined social enterprise model, social franchising. Whereas traditional franchises have financial measures that define success and ensure alignment, the delivery of an educational program does not have attended revenues or an explicit means of ensuring that both franchiser and franchisee are satisfied. Aflatoun resolved this by merging the model of franchising with the concept of partnership and has developed a governance structure that ensures that partners have voice. Partners have roles in defining Aflatoun’s work and priorities and are they hold the majority on the board and are elected to represent their regions as well on task forces. Representatives from partner organizations are elected every two years to the board and represent the interests and ideas of partners in their region.
This form of internal accountability aligns the different actors to jointly hold responsibility and ensure that the actions of the organization are mutually beneficial. This builds a sense of ownership in the product, belief in the goals and responsibility for the results.
That said, this incorporation of partners onto the board has not necessarily resulted in alignment. There are tensions between opportunities to participation and partners’ feelings that they have actual power over decision making. An example of this potential
35 disconnect is the results of the 2012 Network Assessment which found that only 46.4% were unsure or did not think that their feedback influence organizational decisions.16 Business models provide a unique way of thinking about how different actors can relate both outside the organization and within to creating value. Accountability can be built into business models to provide opportunity and authority to ensure voice in decisions. While not perfect, it provide a visible means of aligning different interests and building internal accountability into the social franchise.
V. Conclusion
Companies are beginning to look at how partners, customers, and even competitors are able to collaborate to create financial returns for companies. Within the NGO sector, social enterprises are focused on how they can leverage markets, relationships, and dynamics to create social value.
One area where these new business tools that align to this broader conception of value creation and demands of NGOs overlap might be around the concept of accountability. Whereas businesses have traditionally defined accountability to one stakeholder
(shareholders) and on one dimension (financial), NGOs are accountable to multiple groups for their effectiveness and efficiency. As this traditional idea of value creation is broadened to include partners and customers, some of the concepts, principles and tools to measure this may become more applicable to NGOs accountability challenges.
The case study of Aflatoun demonstrates that the processes and resources of social
enterprises might align well with some of these new tools. In particular, it found that those tools that were most useful where related to inter and intra organizational accountabilities that are designed to help align the activities or interests of different actors.
16 Two respondents did not answer this question and rounding error accounts for the remaining difference
36 To conclude, NGOs have traditionally not been studied in management literature. Changes to the sector and emergent organizational forms may provide for more overlap and cross fertilization of concepts and ideas, particularly around those that look at value creation as a collaborative act. Through the use of a case study, this paper shows that there are potential avenues for future investigation.
37
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