Creating a Social Business Matrix to evaluate and compare Social Businesses

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Creating a Social Business Matrix to evaluate and

compare Social Businesses

Master Thesis International Business & Management

Faculty of Economics and Business; RUG

March 2017

Student:

Ron Huiskes

Student number:

s2411997

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Introduction

If we look back at history and in particular the history of economics and business, for the largest part of it, the only goal of businesses was to make profit. While they had to operate within a certain set of laws and regulations, businesses could focus on economic goals without worrying about social and ecological problems. If you consider early economic theories and economic works as the Wealth of Nations by Adam Smith (1776), there is literally no regard for social responsibility or social sustainability. Even in more recent economic models there is still little attention given to social value creation while in practice, businesses have continually increased their attention to the creation of social and ecological value, as the history of CSR over the recent decade’s shows:

The paper by Madrakhimova (2013) shows this evolution of the social responsibility of businesses in the form of CSR. The paper basically is a literature review reviewing how CSR evolved and changed over the last 60 years. A plethora of key events and new ideas in the 60’s ushered in social changes in regard to CSR, with more public awareness of the responsibility of companies. In the 70’s, business leaders began to respond more to the idea of CSR and the business and social interests of businesses came closer together, partly because you could use CSR for promotional purposes as well. After the implementation of CSR by businesses in the 80’s , CSR became widely accepted as a part of business and after this it started to become an important strategic issue for businesses as well. The most important general change is that CSR has become widely accepted as a task of companies and that it has evolved into a tool for businesses to promote themselves instead of just a hindrance to spend money on. In this evolution we can clearly see that social and ecological responsible behavior has become a part of the business model of companies, which is a positive development from the social and ecological perspective.

While this change in the social responsibility of companies by the rise in CSR is definitely a positive change from a social and ecological perspective, it still remains the case that the main purpose of most companies is to create high economic value, instead of creating social and ecological value. While this holds true for most companies, this does not hold in the case of social businesses. Social businesses are types of companies which do value social and ecological welfare more than traditional types of businesses.

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Literature Review

However, first there will be a more in depth overview of the rise of social awareness about the responsibilities of businesses to show why social businesses have become a type of business that is definitely worth investigating further and creating a model around.

The paper by Goodpaster and Rodbourne (2005) covers the six decades between 1945 and 2004 and. also gives a detailed description of what CSR is and how it can be viewed. The paper does this by identifying and describing 5 different lenses through which Corporate Social Responsibility and the history of CSR can be viewed, these being:

- The core economic impact of business on society - The changing context in which business operates - Changing definition of CSR

- Implemented business practices

- Issues currently under debate regarding CSR

The most important lens for this paper is the second lens. The changing context in which business operates has been crucial to the existence of social businesses because the business environment has grown to reward social and ecological responsibility in businesses. Two main reasons for this are that consumers have become more knowledgeable and critical, and governments and regulatory bodies/institutions have created stricter rules and institutions.

Another process that took place during the changing context in which business operates and which also interacted with this changing context, were the increasing debates among scholars, academics and businessmen about the main purpose of businesses. Two articles that summarize the debate between people who thought differently about the social and ecological responsibilities of businesses are the ones by Friedman (1970) and the one by Johnson (1962).

One of the most well-known advocates for this pure economic vision in modern economics and business was Milton Friedman. The paper by Friedman (1970) lists the reasons why businesses main concern should always be making money and that other aspects of human life and culture should be left to other institutions and organizations.

The main argument that Friedman uses in the article is the fact that the managers who are in control of the actions of companies are not there to serve their own ideals or their own desires, but are in fact agents carrying out a task for the shareholders. Friedman argues that these agents only purpose is to create maximum value for their shareholders regardless of the social and environmental consequences. Although both agents and principals can do whatever they want with their money as an individual, in the roles within the business of these parties they should behave as such to obtain as high a profit as possible.

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of social responsible behavior as opposed to profit maximizing behavior. While maximizing profit is a very clear and objective goal, behaving socially responsible is much harder to quantify in such a way that the personal interests and desires of agents do not influence how the business behaves socially. Contrary to the view of Friedman about the responsibility and the purpose of businesses, the article by Johnson argues that businesses do have a social responsibility.

The article by Johnson (1963) argued that businesses do have a social responsibility and that several economic theories point out that the goals of businesses have evolved. The author argues that, for example, in game theory individuals do not only care about profit maximizing but there are other factors just as important as for example rivalry, fairness and mutual restraint which could all be considered social factors. Another aspect that Johnson underlines is the fact that there is an increasing interaction and cooperation between social actors and expectations that businesses should behave in a social responsible way. Because more social actors make decisions regarding businesses and because of the fact that businesses are expected to behave more socially, there profit animation behavior has changed. The main take-away from this article however is that it would be far too simple and convenient to argue that businesses only have one purpose and one real goal in maximizing profit. Game theory shows that individual behavior is often skewed willingly and unwillingly by things like moral and rivalries, and that a sense of decency from both agents within a firm and social actors outside the firm will ensure that corporations will behave increasingly social. While this debate is still relevant, the rise in the amount of social businesses shows that you can have a very viable business which focuses on social or ecological value creation. The article on the site of the Financial Times by Bounds(2013) and the publication by Temple and Villeneuve-Smith (2015) both show that social businesses have grown and that their impact on society has increased. This also is an indication of the fact that the camp who thinks that business should be about more than making profit alone, is growing and that indeed society thinks business has a social responsibility. The previous articles establish which circumstances and changes in business practices and business environment have led to the rise of social businesses and the increase in social awareness of both businesses and society.

In this next section, the focus lies on what social businesses are and what makes them different from other types of businesses.

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Figure 1:

Source: The four lenses strategic framework: Toward an integrated social enterprise methodology, 4lenses.org

The existence of social enterprises and socially responsible businesses is an example of a high degree of blended value. The concept of blended value is that all types of organizations generate all three different kinds of value being: economic, social and ecological. The rise of social responsibility in businesses and social businesses in general in recent decades has shown that businesses and organizations are now pursuing a mix of all the factors instead of just one. This is also an indication for the fact that social enterprises and socially responsible businesses are these are closest to creating sustainability equilibrium. In this research I will focus on social enterprises and socially responsible businesses which means they are most likely to exhibit both substantial economic and social/ecological value creation. In the remainder of this paper, when the term social businesses is used, this can mean to be either a social enterprise or a socially responsible business, as long as the business sees social/ecological value creation as one of its main goals.

The article above shows that there are several ways that business and organizations can create different types of value at the same time. A model which tries to explain how businesses can combine the creation of social, economic and ecological values is can be found in the book Nieuwe Business Modellen by Jan Jonker (2015).

The book describes that in the past there was mostly a focus upon profitable business and more in general, creating economic value was the only main purpose of businesses, in recent years this is increasingly shifting towards a more social and ecological purpose. This basically means that it becomes more and more important for businesses to focus and take care of their social and ecological image to become successful. The keyword in this process has become: Multiple-value creation. In the books this is a symbol for the potential abilities of firms and businesses to create value on three different areas being Economic, Social and Ecological.

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businesses to engage in so-called Multiple-value creation to combine their economic value creating behavior with creating social and ecological value. The main idea of the book and the Multiple Value creation model is that business are required to implement social and ecological factors into their value creation models because they are increasingly judged by consumers upon their societal influence. Which leads to the conclusion that businesses need to include these factors to reach maximum amount of profit and value creation.

This model already shows a significant amount of progress from the basic idea that businesses exist solely to make profit from the perspective of social and ecological values. However, in the model proposed by Jonkers, the main vision and goal of companies still remains to create economic value while also creating social and ecological value on the side.

However, this still doesn’t do right to the main goals of social businesses. This doesn’t do social businesses justice, because social businesses often see economic value creation and social/ecological creation as equally important or social/ecological value creation as more important than economic value creation. And as previously mentioned, there seem to be models about implementing social and ecological value creation for regular businesses, there is a severe lack of models focused specifically on social businesses. Therefore, in the next section I will describe a model of which the goal is to show how social businesses create value, what kinds of value they create and who are involved in creating this value.

Introduction of the model

The model for social businesses in this paper will be largely based upon the concept of a matrix designed by Pennink (2016), in which the main idea is that you place a business in the matrix based upon whether its main characteristics seem to align more with economic factors or with social or ecological factors. Furthermore, it also shows how much different kind of social actors/stakeholders are involved in the business or project.

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Figure 2: Owner/ma nagement

Employees Customers Local

communities close to

Governmenta l actors

Civil society actors

Economic values

Ecological values

Social values

Source: Pennink, B.J.W, 2016, Exploring a changing view on organizing value creation, Conference “ New Business Models

In principle, the idea of the matrix is that you evaluate a business based upon the different factors and stakeholders featured within the matrix, and then place the business according to this evaluation. In general, it is then suspected that social businesses are located more in the bottom right area while traditional businesses or businesses solely focused on profit will be located in the top left corner of the matrix. This means that the hypothesis is that social businesses will be focused on social and ecological value creation and will be involved with outside actors significantly, while traditional for-profit businesses will be focused on economic value creation and will be less involved with outside actors.

The main use of this matrix is a simple but clear graphical illustration of where different kinds of businesses strong points lie in case of value creation and what actors they use to create these values. If we compare different companies, irrelevant of the fact what the main objectives are of these companies, we can get an indication of the reasons why they perform well or poor on certain aspects of the value-creation process, and which stakeholders are involved in this.

There are three main subjects about the company that need to be illustrated simple and clearly in the matrix. These subjects are:

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 Is the business favored towards economic factors or social-ecological factors?

 What kinds of actors/stakeholders are mostly used in the business?

To accomplish this, I will give the total average score of the business over all the separate factors, these being economic, social and ecological, within the matrix. The favoring of the business for either economic or social-ecological factors will be shown on which point of the Y-axis the circle of the business will be placed. The impact of outside actors will be shown by the placement of the circle on the X-axis.

This means that when a business is located at the top of the Y-axis of the matrix they mostly focuse on economic value creation, while when their located at the bottom of the Y-Axis, they mostly focus on social/ecological value creation. The X-axis of the matrix will consist of actors/stakeholders that are close to the business on the one side and that are further removed on the other side. This means that X-axis and the Y-axis will only change slightly from the prototype.

The ecological and social value creation has been taken as one in the matrix to avoid having to add another layer to the matrix which would severely decrease the simplicity and usefulness of the matrix. As mentioned previously, the main use of the matrix is to create a simple and clear image of the value created and the actors involved.

One of the main questions that will be answered by this matrix is whether there can be found any evidence that social businesses are more involved with outside actors than for-profit businesses. This will be done by looking if there is a downward trend to the right side of the matrix visible across all the different businesses. This would then be evidence that companies with more influence of outside actors in general behave more socially/ecologically responsible.

While the answering of questions regarding the relation between outside actors and social businesses is important and one of the main focuses of this paper, it is not the most important goal of this paper. The most important goal of this paper is to accomplish two things:

 The first main goal of this paper is to find out how to accurately measure and evaluate economic, social and ecological value creation of social businesses, as well as a way to measure the influence of outside actors.

 The second main goal of this paper is to create a simple and clear matrix to accurately show if a business creates more economic or social/ecological value and how to accurately show the involvement of outside actors/stakeholders in the matrix as well.

However, before we can use the matrix to accomplish these goals, there are two things that have to be dealt with to actually use the matrix to evaluate and compare different businesses.

The first thing that needs to be done is to evaluate what are the important characteristics and variables that have to be measured for each of the different factors identified in the model. This involves evaluating the economic, social and ecological factors as well as each of the stakeholders. After the factors have been evaluated properly, there must be determined what has to be measured and what data must be collected.

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Models measuring value creation

To start with the evaluation of all the different factors present in the model, several different frameworks or models that measure economic, social and ecological factors of businesses will be described and evaluated. The main purpose of the inclusion of these models is to show in general what kind of variables are considered to be important in successfully evaluating economic, social and ecological factors while also trying to see if there need to be adjustments because of the fact that in this paper we are interested in social businesses.

Mcelroy and Thomas (2015) introduced the Multicapital Scorecard, which is an integrated and multi capital system for reporting value creation. What this basically means that this is a way to effectively measure performance of an organization of business according to the principles of the triple bottom line. The triple bottom line means that you value a project or performance according to economic, social and ecological factors. Figure 3 shows the Multicapital Scorecard as designed my Mcelroy and Thomas

Figure 3:

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Accounting, Management and Policy Journal, Vol. 6-3

The Multicapital Scorecard is a great tool for big organizations to examine where their strengths concerning economic, social and ecological factors lie. But this does not automatically mean this measurement tool is also appropriate for smaller businesses and businesses that focus more on social and ecological value creation.

For smaller socially responsible businesses and projects, it is also relevant what the economic, social and ecological consequences are for the local players. Also, while the Multicapital Scorecard is a framework to evaluate businesses and organizations, it does not give a standard evaluation of the factors because often these are firm specific, while it would be very fruitful to have a standard measurement to evaluate businesses with. This basically means that the balanced scorecard needs to be tweaked somewhat to fit with the model proposed in this paper. While it is a good starting point, we will need other types of measuring and valuing tools to make a proper measuring tools for these social businesses in the concerning matrix.

An interesting paper concerning how to properly evaluate economic, social and ecological aspects to create more sustainability is the article by Basiago (1999). In this article, the author proposes different criteria to create more economic, social and ecological sustainability because of the increasing rural population in the world. The authors also describe the historical context in which sustainability and urban sustainability is placed and he constructs a theoretical framework on how to deal responsibly with sustainability. The most interesting aspect of the paper for this research is the definition of different kinds of sustainability and how to become sustainable in every one of these categories: Economic Sustainability is about satisfying the current demand and consumption without compromising the consumption and demands for the future. Social Sustainability implies that there should be social organizations that try to solve societal issues like poverty, but social sustainability in a broader sense should also be about creating a system that allows for social progress while also preventing environmental decay. The definitions and characteristics described in this paper often go further than the responsibility and the influence of a single firm or business and there are a quite few characteristics that are highly applicable to the model constructed in this paper.

The paper by Giannopoulos et al (2013) shows how the balanced scorecard should be used by small companies and more importantly, if it can be used appropriately by small companies and businesses and if small businesses use similar performance measures and indicators. The authors find that while most small businesses could make use of balanced scorecard as the Multicapital Scorecard as it is also suited to the specific needs and limitations of small enterprises, very little businesses actually use these performance measures most due to the fact of a lack of knowledge. However, it does become evident in this research that most businesses do use performance measures that are very much alike the balanced scorecard method. Furthermore, the paper also gives an indication what kind of economic, social and ecological factors are mostly measured by small businesses in their own performance measures.

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applicable to social businesses and the model used in this research. So, in the next section I will determine what variables will be measured for each different factor of value creation to create a balanced score regarding the performance of the concerning business on the factor.

Evaluation of Economic, Social and Ecological factors

and the Stakeholders

Economic Factors:

In the consideration of which economic factors to use for the eventual model one should take into consideration which information is available to social businesses.

If we look at the base of the proposed measuring model as being the Multicapital scorecard, we can see that the economic/financial focus here consists of three main categories in equity, debt and competitive practices. First of all we have to take a look at the different measuring tools discussed in the previous section to see how these measure and evaluate financial/economic performance and then we will look at some other financial measurement tools to create a wholesome and complete overview of which things are most appropriate for this study to include into the financial/economic performance measure.

One of the most complete articles regarding economic performance indicators was published by the Global Reporting Initiative and is called Economic Performance Indicators (2006). This article explains that while economic performance is well reported in many countries, the contribution of this organization to the sustainability of the economic system in which it operates is often not considered. To accommodate this, the economic performance indicators in this paper try to measure the economic outcomes of the organization and also the effect on a broad array of stakeholders. Because of the stipulation that the economic interests of many stakeholders within the business are important in this measurement tool this indicator looks a bit different from the Multicapital scorecard. The most important notion in this article is the fact that when rating performances, it is also important to think about the sustainability of the value created and to incorporate sustainability in general.

A detailed description of what financial performance indicators are and what are the most commonly used measurements for financial performance in profit seeking organizations can be found on the site of Kaplan Financial Knowledge Bank called the financial performance indicators (2012). These indicators are extremely important for profit seeking companies to reach their goals of profit maximization and continuing growth of the business, and while somewhat less crucial to social enterprises or socially responsible organizations, they still should be included into an economic/financial performance measurement. The following categories are distinguished regarding financial performance:

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 Liquidity/working capital

 Gearing

 Invest ratios

if we take a look at what these different categories entail, we can see that profitability is relatively straightforward in focusing on profit margins and return on investment and return on equity. Liquidity/ working capital mainly deals with the cash flow management and problems in a business by using current ratio and inventory holding period to show how easily the business can create cash in the short term and pay liabilities with this money. Gearing is mostly aimed at long term loans and financial risk and shows and this is shown by the financial gearing ratio which shows how much the company relies on debt and interest cover which indicates if the company can cover its finance payments in due time. Finally, investor ratios show the return to investors and shareholders of the company by using dividend yield for example and the earnings per share.

Taking into consideration the different types of performance measures on economic and financial characteristics of social businesses, the following categories will be measured for each separate company:

● A measure of profit or profitability: ● A measure of output or revenue: ● A measure of the amount of debt: ● A ratio of equity/debt

Social Factors:

While financial and economic performance measures for companies are relatively well developed, the same cannot be said about social performance measures for socially responsible businesses. Therefore, it is crucial that an evaluation is made off articles and papers that indicate ways that social performance of businesses can be measured. Thereafter, it must be decided which indicators are most suited for the businesses examined in this paper.

A base for the social and ecological benchmarking of projects and businesses is the social impact assessment by Vanclay (2012). This document focuses on how to effectively and accurately evaluate the social impact of a certain project but is also appropriate to use on small businesses that are akin to such a project. The main purpose of the Social Impact Assessment is to improve the biophysical and human environment. In this document can also be found what the main interests are of the social impact assessment community, which are: Fundamental Human rights across cultures, right to have your human rights protected by law, right to good and healthy living and working conditions, right to be socially healthy by being free from fear and war, a right to be involved in decisions affecting you and a right to benefit from local knowledge and experience. These core values, as this is called by the SIA community, are important indicators to evaluate the social aspect within the matrix, and indicate that we should consider the human rights of everyone connected with the business to rate the social value creation.

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sustainability. The authors argue that because of the tradeoffs between ecological and social improvements that it is crucial that from the beginning those both social and ecological factors should be taken into equal consideration. While in ecological terms there is a well-known and accepted idea of what ecological sustainability is, this is much less the case in social terms. In the paper, the authors create a stable model to measure and rate social sustainability based upon a multicriteria evaluation.

A very detailed and high quality paper regarding social performance measurements is the paper by Vickery-Niederman and Benoit (2010). In this article, there is an overview given of how businesses can deal with the social part of the triple bottom line of sustainability which many companies use. In doing this, it also shows which kind of factors regarding social sustainability should be measured and evaluated to paint an image of a business’s social impact and social sustainability. In the article, there are several core subjects and issues mentioned that are critical to the social responsibility of businesses and these are: Human Rights, Labor Practices, Fair Operating Practices, Consumer Issues and Community Involvement and Development.

Based upon the articles and the Multicapital Scorecard the next categories will be evaluated in the case of the social factors:

● A measurement of wage

● A measurement of human rights ● Measurement of worker safety ● Education for employees

● Impact on social actors outside firm ● Activities creating social value outside firm

Ecological Factors:

The ecological/durability aspect will be based on reports and articles regarding the ecological value creation and the ecological impact of small businesses and social projects. In the article by Kaval(2011), the authors looks at different ecological measurement systems and evaluate what the main uses of these measurement systems are and which of the systems is mostly used in academic research and in practice. This report gives a nice overview of the different options for ecological measurement and gives an overview of the factors that are universally deemed important in ecological factor measurement.

Another interesting report comes from the Örok (Osten Österreichische Raumordnungskonferenz ) (2006) and the report is called: Methods for the Evaluation of the Environmental Impacts of the Structural Funds Program. This is a report that specifically addresses which environmental dimensions are crucial for small and medium- enterprises and thus will also be the most important factors on a regional scale. The authors of this report indicated that there are certain crucial environmental dimensions that should be measured on each scale of economic activity.

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MultiCapital Scorecard. Therefore, the following variable will be aimed to measure for the ecological factor:

● A measurement of pollution, ● Consumption of resources

● Amount of waste and waste disposal ● Living conditions: quality of water and land

The Stakeholders/Actors:

Now that we have extensively handled the first dimension of the model in the economic, social and ecological factors, we now turn towards the next dimension in the different actors involved in the business

For the different actors in the matrix, there are two main ways that they can influence the way businesses behave.

- The involvement of each actor in the business/project. - The importance of the interests of the actor to the business.

The evaluations of these two things will determine whether a business is very integrated within the community and uses several different actors and rewards several different actors for its business or if the business is relatively secluded and independent and mostly does business alone.

However, to determine how we must measure the different actors/stakeholders, it is important to give a proper definition about what is meant by actor/stakeholder in this paper (These terms will be used interchangeably) and also to show in what way they can influence social businesses.

A detailed description of the term stakeholder can be found in an article by Boundless.com (2016) which basically says that a stakeholder is any person or organization that can affect or be affected by the actions of businesses. They make a distinction between internal stakeholders and external stakeholders, in which the first are located within the business and the group of external stakeholders is located outside of the business.

The groups that this article distinguishes are: ● Management & Owners

● Employees ● Societal actors ● Customers ● Government ● Partners.

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 Management & Owners

 Employees

 Customers

 Local Communities

 Governmental Organizations

 Civil Society Actors

The Management & Owners and Employees form the group of inside actors of the business, while the rest of the actors contribute to the outside actors. This is very important to note as the model tries to see how much involvement outside actors have on the business.

In the following section, all of the different actors will be defined and it will be described in what way they can affect firm behavior. After this an evaluation will be made of how these different stakeholders can be represented and measured in the model.

Management & Owners:

Traditionally, this group has by far the most influence of the actions of the business because they have the most authority and the most legal power. The owners of the company evaluate the management and set out the main course of the business, and the management gets the power of making decisions on a day to day basis, usually in a basic principal agent manner. There is no main difference in how managers and owners can influence their firm between a social business and a for profit business, which makes the way they affect behavior of the firm very straightforward

Employees:

This group consists of the employees of the business and is about the effect that employees can have on the actions of the firm and more importantly, if the involvement of employees can lead to more social policies or not. The paper by Rob Gross (2011) examines this connection between employees and CSR, which in general is aimed to create social value.

If we look at the paper by Rob Gross (2011) we can see that there is a clear connection between employee involvement and engagement and CSR. The author suggests that this can be a two way street, as CSR activities within the company can increase the involvement and engagement from employees as they are able to pour their own ideas and preferences into these activities. Another way you could look at this relation is that employee engagement can create more social value created because of the fact that the employee might create more social ties and create satisfaction and the actions of the business might become more social altogether. In the paper, most of the focus lies on the first effect on how CSR can increase employee engagement. The author finds very strong evidence that CSR in fact can have a significant effect on employee engagement as employees highly value CSR activities in judging firms and even when considering where to apply for a job. As earlier mentioned, it is likely that these engaged employees also have a significant effect on the activities of the business.

Customers:

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company. While the most important function of consumers is to buy the product of the company, this is not the role in which the customers are important in this particular model. In this model, the role of customers is to be involved in the creation of socially responsible products and how these consumers as a group can benefit from this socially responsible product. The main way that customers are involved in this is by steering the business with their consumption behavior and reaping the benefits from the products. Similar to the owners and managers, the influence of customers of social businesses does not differ from regular for profit businesses.

Local Communities:

In this category, the local communities that are associated and impacted by a business are discussed. In principle, local communities are groups of people that together share an environment and are associated with each other within this environment. These local communities can be based upon a religious organization, social events, sporting organizations or even simply based upon proximity to each other which can also create a distinct local community. Local communities can have a significant effect on the way business act in this region and are simultaneously also affected by actions of other organizations and businesses. A good illustration of the effect of local communities on organizations can be found in the article by Marquis & Battilana (2009) The enduring influence of local communities on organizations. In this article, the authors examine how and why local communities are still important to businesses with increasing globalization and also give an overview how exactly local communities can influence businesses. The authors have divided the influence of local communities into three different types: Regulative, social-normative and cultural cognitive. These types can change the behavior of businesses in their specific region in different ways and are therefore important to consider, especially because social businesses might attach more value to the interests of local communities.

Governmental organizations:

Another important stakeholder in businesses is governmental organizations’. While the complete government of a country is also an important stakeholder capable of severely impacting businesses within their jurisdiction, this section will mostly cover local governmental organization.

An article that shows exactly how governmental organizations can affect and impact businesses is the article by Van den Bosch and de Man (1994). It’s an older article but it shows particularly well how and why government can affect businesses, which makes it a very relevant article to this paper. This article takes the 4 forces model of Porter, one of the most influential and highly regarded models on the effects of outside sources on businesses, and asked if in this model there should be a role for government and if they could show that government had a significant effect on the outcome of businesses and if the model explained more with the factor government taken into account. By examining the role of government, the authors conclude that they find evidence that government has a significant effect on businesses particularly on an industry level. Also, the authors also stress that there is a growing influence of local and regional governmental organizations’ on business. This means that local government is a very important factor and an important stakeholder regarding local and small businesses.

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This group consists of NGO’s and other types of organizations that are active within a society and lie between government and regular businesses in. In this group you have organizations like charities, but you can also count social enterprises to some extent as civil society actors. The most important characteristics of these actors is that they must have another purpose then making profit and that the must be well formed and legitimate organizations.

The paper by Hutter and O’Mahoney (2004) examines the role which civil society plays in creating rules and social norms for businesses. The author explains that over the past decades there has been a shift in regulation from technically and specific defined rules and norms to a form of regulation for businesses and that encompasses much different factors than only traditional government. For example, many businesses are prone to influence by supranational rules and treaties because of the rise of multinationals and another important influence is the fact that civil society organizations have gained more influence on the behavior and regulation of businesses. This influence of civil society organizations can be through the fact that they are more involved in governmental regulations and law making, but it can also be through directly affecting businesses or by creating different social norms in a region where a business operates. Another interesting section of the article talks about the CSO potential and how it might in the future be one of the most important forces behind firm regulation. The author concludes that while it is evident that civil society organizations have a very substantial and significant effect on firm behavior it is not clear how much of an effect they will have in the future on regulations and decision making of businesses.

Now that the different societal actors or stakeholders have been identified and their potential effect on the business has been examined, it is important to determine how we are going to measure the involvement of these stakeholders in the businesses. The only people who know which stakeholders are having influence and are involved in the business are the people within the business. Therefore, to measure the impact of these stakeholders, we basically must ask the two questions asked in the beginning of this section to the businesses participating in this research and take into account in which ways these different actors can influence the actions of the business.

The two important questions are:

- What is the amount involvement of each actor in the business? - How important are the interests of the actor to the business?

Measuring the variables

Now that the variables that need to be measured have been analyzed and determined in the previous section, it is time to answer the question in what way these variable are going to be measured.

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that I have chosen a survey to gather this data.

- The first and most important reason is the fact that I want to create a model and a way of measuring that can be replicated and quantified more easily than if I used for example interviews to gather the data. By using a survey, the model and the survey might serve as an inspiration for future research and I think that a survey is an appropriate tool to measure the relevant data on a large scale, because only with a larger scale can we draw significant conclusions on the subject.

- It becomes much easier to compare the different businesses by using a survey because the answers on the survey are in general very short and clear. While the answers to the open questions present in the survey might be harder to compare, they do serve the purpose of giving some additional information and they allow the business that participated to explain more.

- Another reason why a survey was a good option was due to the fact it was particularly hard to find businesses who would participate in this research. Because of the fact that a large part of the businesses that were reached out too indicated that they got a lot of requests for research and that they had very little time to participate in mine, setting up interviews with enough businesses would be very difficult.

In the survey the different factors in the model are separated into categories to evaluate every single different category on the economic, social and ecological factors and the stakeholders. This evaluation will result in a score from 1 to 10 on each of the 4 different categories that I will determine based upon the survey filled in by the companies.

The ratings of the economic, social and ecological factors will be largely based upon the average score of the scores the businesses have filled in the survey and this average score will be given at the beginning of the discussion about the rating. I will then try to evaluate and analyze the business based upon other answers given in the survey and I will also try to take into account if the products or actions of the business also directly impact the economic, social or ecological value that the business creates. Based upon the average score and the evaluation, I will then come to a final score for each category for each business.

For the involved actors, I will try to try to rate them based upon the use and links of an organization to actors and stakeholders outside of the organization itself, with the organization receiving a higher rating if they appear to collaborate more with outside actors and take their specific interests in account more than the other companies participating in this research. However, contrary to the rating of the performance on the other factors, this is merely to show the involvement of actors and a low rating does not imply that the company is either more or less successful than others, just that they make less use of outside actors.

Furthermore, it is important to note that the ratings for the actors/stakeholders for the businesses are largely relative to each other. Because of the fact that

Developing the survey

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have formed two questions about profit, two about revenue/output, two about finances and one about the financial ratio. The reason that the amount of questions was only limited to 2 per category was mainly the fact that most businesses that I contacted didn’t really had much time to cooperate with research projects such as this and therefore requested that the survey would be rather short. A major problem I encountered was the fact that to come to an optimal evaluation, sometimes I needed sensitive information about the company, and not all the participants were willing to give up specific information. To combat this, I have often asked the participants of the survey if they would give a rating about a certain factor within their organization. A positive effect of this is that these ratings are easily quantifiable with a number, which makes it easier and more transparent for me to evaluate the firms. A negative effect is that this is more prone to subjectivity than a simple figure or ratio.

As I have previously mentioned, a lot of businesses that participated in the survey mentioned that they would only participate if the survey took a short time to complete. To try and make the survey as short as possible to meet the wishes of these companies, there was little explanation regarding the research or much explanation on several questions that could be hard to understand for some of the participants. This led to the fact that there were some misunderstandings and inconsistencies in the answers on the survey. The part that suffered the most from this was the portion of the survey about the stakeholders, as most participants found this hard to understand. However, due to the pressure to keep the survey short and the information I definitely needed to create a representative image of the businesses, I think making the survey as it is was the most viable option.

An empty version of the survey can be found at the start of the Appendix

The participating businesses

Now that the way of collecting data has been determined and the survey has been explained, it is also important to view what the criteria are for the participating businesses. Because of the fact that the focus of this research is on creating a model that is applicable to social businesses, all cases that are evaluated must be firms or companies with a clear social/ecological goal, but must also have a clear economic presence. Therefore, I have searched for companies who profile themselves as social businesses first, as this is the group this research focuses on and the model is made for as well. However, due to the fact that it has been hard to find businesses to participate in this research, I have also included one foundation. The only problem with this was in the economic factor of the model because they do not aim to make profit at all, limiting their economic value creation. This will be discussed in more detail in the section regarding this specific foundation.

To find these companies, I have primarily searched on sites of organizations like B-Corp and Social Enterprises NL and looked for companies with a combination of creating social and/or ecological value with creating economic value.

The 8 firms participating in this research are: - Atlantis Handelshuis

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- Thermaflex - Springlab - ClosingtheLoop

- Kringloopwinkel Steenwijk - Exceptionall

There are two main reasons why I have decided to evaluate 8 different companies:

- The most important reason that I have decided to evaluate 8 companies instead of more or less, is the fact that I felt that it was possible with 8 different social businesses to create a somewhat representative picture of the trends in economic, social and ecological value creation and stakeholder involvement, while also still giving me the opportunity to explain how I ended up with the different ratings for the different businesses.

- As previously mentioned several times, I had trouble to find businesses that fitted the profile of social businesses and were willing to participate in this research. This basically forced me to only evaluate a limited number of businesses.

Evaluation of the cases

In this section, I will evaluate the different businesses that participated in this research. I will start by giving some general information about the firm, what its main business activities are and what their main purpose is. This information is taken from the sites and its main purpose is to give some background information about the business.

After this introduction of the company, I will respectively rate the economic, social and ecological performance of the business as well as evaluate the involvement of different stakeholders in the business. For the economic, social and ecological evaluation I will start by mentioning the average score the business have filled in for every category, followed with a more detailed overview of the results of the survey and the open questions. After this overview, I will give my final score for the category for the particular business. For the stakeholders, there are no average scores, and thus there will only be an overview of the answers given in the survey followed by my rating.

1. Atlantis Handelshuis

The first case is about the company Atlantis Handelshuis. This company is a wholesaler that sells locally produced (agricultural) goods and tries to do this in a transparent and sustainable way. In their vision, they describe that they try to create as much of a positive impact on the environment as possible and they do this by collaborating on a regional level with farmers, health facilities and schools. Also, the healthy product also helps their customers to create more healthy food which creates social benefits for consumers. A remarkable fact is that they have 86% less CO2 emission than others in their sector.

Economic average score: 5.5

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all, the growth of the company over recent years has been very substantial, and while the company indicated that last year the output rose with less than previous years, they expect to double their output again in 2017. While output development is great, the same does not hold for the profit of the organization. The profit margin is lower than the margin of competitors, which leads to the fact that profit-wise the organization has underperformed slightly. There is one major problem with the organization and that is the difficulty with which they can obtain new capital to invest with. This paired with the already high amount of debt as opposed to equity, will make it increasingly difficult for the organization to keep investing and keep growing.

Overall I rate this section with a 6, increasing it slightly because of the extraordinarily high output prospects, while the problems regarding capital and profit keep the score low.

Social average score: 8.33

If we look at the social part for this organization, the figures look very impressive. As most organizations surveyed the wages and working circumstances of employees are reported to have a high standard. Also employees have the opportunity in this organization to learn and to grow in the organization. Also, the organization seems to have connections to organizations like schools and caretaking facilities, through which the company also indirectly creates social value. The only negative point is that the products produced and sold by the company do not create any direct social value and the activities of the company don’t help with social issues in society.

Therefore, I will rate this section 8 for this company. The main reason why the score isn’t higher is the lack of creating direct social value through their products, while the overall social performance is high.

Ecological average score: 9.3

From an ecological perspective, the company performs extraordinarily well. The organization actively participates at creating a better environment, both in general and on a local scale, and is consciously doing this in line with their organization’s vision. They have implemented measures to responsibly dispose of waste and they get most of their products and necessities for business from other ecologically responsible organizations. Also, they collaborate with several organizations and foundations to create a better environment, which is shown by the fact that, as previously mentioned, their CO2 emission is much lower than their competitors.

In this section, I give them a 9 due to the fact that both inside and outside of the business they are actively involved in creating ecological value.

Actors:

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I rate the performance of outside actors from this company with an 8. 2. Pymwymic:

The company Pymwymic is a company that has been in business for over 20 years and which main purpose is to help fund other companies to have a positive impact on people or planet. The name of the company means: Put Your Money Where Your Meaning Is Community and it consists of a European community of families, investors and other individuals who support the initiatives of for-profit organizations to create global solutions to social and environmental problems. They have several ways of helping these companies, as they can help companies learn through their Field Building Center, they can donate to starting companies and through their Donor Impact Involve Funds They also help investors and shareholders come into contact with new investment opportunities.

The economic performance of the company in recent years has been somewhat of a mixed bag. While the company reports that output has been rising in recent years on with an average of 10%, we can also see that they are not satisfied with the profit they are making. This is surprising due to the facts that output has gone up and their profit margin are equal to competitors. Also, slightly troubling is the fact that the company indicates that they are not very certain that they are able to pay off debts and they struggle as well with attracting new kinds of capital.

I’ve rated this company 5.5, because while the output seems decent, the profit and liquidity pose a problem for the firm.

On the social performance of the company, it is peculiar to see that they score low compared to the other companies regarding the working conditions of employees and the wage they receive. However, other conditions like safety and the opportunities to learn for employees’ rate higher. Another positive aspect about the social performance of the company is that the companies they get into business with are either social businesses or are mainly for profit businesses who want to fund a project to raise social or ecological sustainability. This makes that the business does have a real effect on structural social issues that are dealt with by these companies they help, which speaks in favor of the social performance of Pymwymic.

Therefore, despite the issues regarding the employees, I will rate this company 6.5 Ecological Average Score: 8.7

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I rate them an 8.5 on this, because of their active participation in helping the environment and their conditions to behave responsibly towards the environment.

Actors:

The survey of this company shows that the actors outside of the company also contribute substantially to the activities of the company and that the interests of customers play a prominent role in the vision of the company. Local communities and social groups and also social organizations also seem to contribute to the firm and their interests are certainly taken into account. It is also important to notice that the company has an extensive amount of partners, with these partners being mostly either socially responsible companies or investors that also believe in the namesake of Pymwymic.

I rate the performance of outside actors of this firm with a 9, because the firms shows that there are many different outside actors that actively participate in the actions of the firm and they also think the interests of the outside actors are important.

3. Enviu:

The company Enviu focuses primarily on helping and funding social startups, which they have been doing for over 10 years now. The main vision and goal of the company is to tackle large environmental and societal problems, and by doing this, improving the livelihood of large groups of less fortunate people and contributing to the environment. The way that the company operates is: First they try to identify large societal or environmental problems and analyze the main issues. Then they communicate with partners and evaluate the impact of the proposed solutions. Finally, together with their partners they try to find appropriate business solutions to the problem based on the needs of the surrounding environment and needs of end-users.

This company did not rate themselves for the social and ecological factors and therefore these averages are missing. However, they did include a lot of information instead in their answers and I have based my rating on this information and have tried to explain it thoroughly for these two categories.

The output of this company has been satisfactory in the recent year according to Enviu, but there were some ups and downs in recent years. According to the company this is mostly due to the nature of their business that sometimes they have more active projects than in other times, but this still makes output rather susceptible to uncertainty. Profit isn’t the main goal of the company but they do make enough money to uphold their financial obligations. However, this also means that their disinterest in creating profit does limit the capabilities to create economic value. Also, the profit (or operational margins as it is called by Enviu) is also susceptible to uncertainty. The company mentions that they do not have trouble fulfilling their financial obligations, but this has posed more difficult in times that output and margins have fallen. They do however have the means to attract new forms of capital for the companies that they are helping, which shows their capability at attracting capital in general.

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healthy, the uncertainty regarding profit and output lowers the score slightly. Social Average score:

Enviu indicates that the wages have stagnated for a longer period of time now and that this means that the wage of employees is relatively low and this could pose problems it this continues in the future. However, the work circumstances for employees are in generally good and employees have a certain amount of freedom. This freedom does lead sometimes to the fact that in rougher times the work atmosphere can be tainted because employees must focus on keeping the company in business first, limiting their creative freedom. While there is no training program or much opportunity to move up in the chain of commands, employees are still stimulated to learn new skills and abilities. In line with the main purpose and main business activities of the company, Enviu almost exclusively works with other companies and organizations which are socially active.

Overall, I would rate their social score at about a 7.5, because while there might be some issues regarding employees, the organization still creates copious amounts of social value with their core activities, which significantly raises the score.

Ecological: -

From an ecological perspective, Enviu creates mainly ecological value by stimulating startups that aim to solve ecological and environmental problems. The organization itself also aims to combat the pollution of the environment, but still the biggest part is done indirectly through the projects they support. The company has measures in place to dispose of waste responsibly and they get most necessary products from responsible businesses. Similar to social value creation, the vision of the company also ranks ecological value creation has one of the main goals.

I would rank the ecological score as a 7, because while they impact the environment indirectly through start-ups and they do try to run their own organization responsibly, the direct environmental impact of the company is rather small.

Actors:

While Enviu did not answer the question regarding actors in the survey as meant to be, the answer they gave still shows somewhat the importance of outside actors to the company. The mention that the importance of the actors very much depends whether or not they are dealing with them or not, and that the influence of the actors they are doing business with is very big. Furthermore, Enviu’s website for example shows that they have a large amount of partners with which they collaborate and that they are willing to collaborate with anyone or any organization which can help them reach their goals.

I rate the outside actor performance with a 6.5. 4. Thermaflex

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networks to create new renewable and durable energy sources together. They also extensively focus on creating new technologies and innovations to heighten the effectiveness and feasibility of these renewable energy sources.

Economically, Thermaflex has in recent years not performed in a satisfactory manner. They have suffered severely from effects of the economic crisis. The output of the company has decreased in recent years and profit of the company was also low, putting the company under some pressure. However, despite the rough weather the company has been in, they are still active, which shows some kind of financial stability within the company.

I rate the economic performance as a 4.5, as all indicators have shown that they performed poorly economically over the last years.

From a social perspective, the working circumstances for employees are rated high and also the wage of employees is indicated to be a very reasonable amount. However, this is where the social contribution of Thermaflex stops. Employees don’t seem to have great learning possibilities within the firm and also there seems to be a lack of opportunities to grow within the firm. The company does not focus on creating social value very much and does not collaborate extensively with other companies or organisations that do. Creating social value is simply not one of the priorities of Thermaflex

I rate the social performance of the company with a 5. This is primarily due to the fact creating social value is not a priority and therefore do not create much social value within or outside of the business.

Ecological average score: 7

From an ecological perspective, Thermaflex is a company that has performed well. The company creates a better environment by delivering their services and products and is very conscious about their impact on the environment as well. They have measures in place to ensure responsible disposal of waste. Most of the necessary products for the company itself come from other businesses that are ecologically responsible and they also contribute to a livable environment for people in various regions. While the company still puts economic interests first, the vision of the company as described by themselves show that ecological value creation is also important and crucial for the identity of the firm.

I rate the ecological performance of this firm with an 8, because their actions as a business aim to directly improve the global environment and the direct environment of individuals. They are also very conscious about their factions within the firm on the environment.

Actors/stakeholders:

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economic effect on the company. While the company does have a received a lot of certificates from governments and institutions, they do not show signs that they very actively collaborate with outside actors.

I rate the outside actor performance of Thermaflex with a 4. 5. Springlab

Springlab is an organization which main goal is simply to get people moving again. On their site, they mention that they think that humanity has created a world and an infrastructure that allows us to move as little as possible and, while this may sounds attractive at first glance, this is unhealthy and possibly even dangerous. That’s why the organization focuses on durable innovations that can bring back movement and mobility into our daily lives. They try to take this idea into practice by encouraging more activity and exercise in education, but also encourage more healthy activities in healthcare facilities and offices.

Economic average score: 7

From an economic perspective, the output of the company over the recent year seems to be positive and the Springlab also has exhibited output growth over the last few years. Moreover, the company is also positive about the profit they have made recently and this has also been growing in recent years. If we look at the financial data provided by the company, we can see that contrary to most social businesses that have been inquired in this research, they are mostly financed with equity over debt. More balance between equity and debt could help the firm, for example because of the fact that in the long-term, the costs of equity are generally higher (at least for the firm). While the firm is confident in paying off debt payments, they are not that confident in attracting new capital.

I rate the economic performance with a 7.5, because of the fact that output, profit and their confidence in paying off debt is high. The only real hindrance to the score is the problems collecting new capital.

From the social perspective, it can clearly be seen that Springlab is a company that primarily focuses on creating social value. The company indicates that the working environment and working conditions for employees are excellent and that in this respect they are doing extremely well. Furthermore, there are opportunities within the company to grow and to learn new skills and capabilities. However, the company does seem to have relatively little business with other firms and organisations that are mainly aimed at creating social value. It is important to keep in mind the main nature of the activities of the firm, which is about creating innovations and applying them to create social value in a plethora of different places, which might include public space, healthcare organisations and regular companies.

I rate the social performance with an 8, because while they do create directly social value with their activities and the employee environment seems to be excellent, they could start to collaborate more with other social societies and have an even bigger impact.

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From an ecological perspective, we can see clearly that this is less important to Springlab. The company's doesn’t seem to be very actively involved in improving the environment, and the company is not focused on performing in an ecologically responsible way more than necessary. Only positive is that they do have measures in place to get rid of waste properly. Furthermore, the company also indicates that ecological value creation is less important than either social or economic value creation.

I rate the ecological performance with a 4, because the company is simply not interested in creating ecological value and does little to create it in any way.

Actors/Stakeholders:

Springlab indicates that while outside actors do not actively contribute to the activities of the firm, they do consider the interests of customers, local communities and social groups and the effects on these groups. These groups can also influence the actions of the company because of their importance in the eyes of the company. The company also does partake into projects that are to the benefit of these aforementioned groups and that can create social value according to the company’s vision in general.

I rate the outside actor performance of Springlab with a 6.5, because while there is not much direct involvement from outside actors, they do indicate that they consider the interests of outside actors to be very important.

6. Closing the Loop

The main business of the company Closing the Loop consists of buying up broken mobile phones, mainly from Africa and Asia, and then making sure they are recycled appropriately and responsibly. By doing this, Closing the Loop can extract all the precious materials and metals (like copper, silver and gold) from these old phones and reuse these again. The company reports that this process will extract 99% of these precious materials. The company’s main vision behind this is to both lower electronic waste and create job opportunities and a better living environment for people in developing countries, where most of the electronic waste is not taken care of properly.

Economic average score: 5

From an economic perspective, the company reports that the output has been growing over the last few years, but the same does not hold for the profit. Most of the company has been funded by using debt and while the amount of debt in respect to equity compared to other companies in this inquiry is relatively high, the company seems fairly confident about fulfilling their financial obligations. However, they do indicate that it is rather hard to find new forms of capital to invest in the firm. I rate the economic performance with a 5, because while the output has been growing, profit is a serious problem. Also, the debt to equity seems to be rather high while they struggle to find new capital for investment.

Creating a Social Business Matrix to evaluate and compare Social Businesses