EFFECTIVE MEASURES TO MEASURE EFFECTIVENESS: CONCEPTUAL DEVELOPMENT OF THE MULDER AND PENNINK (2014) MODEL TOWARDS APPLICATION TO THE INDIAN 2% RULE

EFFECTIVE MEASURES TO MEASURE EFFECTIVENESS:

CONCEPTUAL DEVELOPMENT OF THE MULDER AND

PENNINK (2014) MODEL TOWARDS APPLICATION TO THE

INDIAN 2% RULE

Master Thesis University of Groningen Faculty of Economics and Business

Nettelbosje 2 9747 AE GRONINGEN

MSc International Business and Management MScBA Organizational and Management Control

Supervisor: Dr. B.J.W. Pennink Co-Assessor: Dr. B. van der Kolk

J.G. Wubs Witte de Withstraat 21a 9726 EB GRONINGEN

j.g.wubs@rug.nl Student number: S2188775

2 Abstract

The main goal of this thesis is reflected by its chiastic title: to develop effective measures to measure effectiveness. It argues how in the case of CSR expenditures the locus of analysis should not be the amount of money spent, but the effect of these expenditures. In order to effectively measure these effects the Mulder and Pennink (2014) model, originally designed as a quick scan for assessing the local situation in the context of humanitarian crisis, is conceptually developed to be applied in this context. In order to do so, a new methodological standard for conceptual development is introduced into the field of management accounting research. Relevant insights gained from a diverse body of literature are incorporated into a revised model, specifically applicable to the case of the Indian 2% rule. Especially the inclusion of lead and lag indicators, the social dimension, and new parameters to incorporate all the relevant drivers of local economic growth are important contributions of this thesis. Keywords: CSR, Indian 2% rule, Local Economic Development, Sustainable Economic Growth, Conceptual Development

Acknowledgements

TABLE OF CONTENTS

1.0 Introduction……….p. 5

1.1 CSR and the Indian 2% rule………..…p. 6 1.2 Problem Statement………p. 7 1.3 Significance of this thesis………..…p. 9

2.0 The Mulder and Pennink (2014) model………...p.11

2.1 Introduction………...p.11 -Table 1: Local dimensions of the economic context………...…….p. 12 -Table 2: Regional and national dimensions of the economic context……..p. 13 2.2 Operationalization……….………..p. 14

3.0 Methodology………..p. 15

3.1 Introduction……….…...p. 15 3.2 Critical analysis of conceptual development methods………....…p. 17 3.3 Conceptual development in management accounting research……...…………p. 19

-Table 3: Main examples of conceptual development………...p. 19 3.4 Introducing the criteria………p. 20 3.5 Applying the criteria………p. 21

4.0 Critical analysis of the literature……….………p. 22

4.1 Introduction………...p. 22 4.2 The balanced scorecard

4.2.1. Introduction…..………...p. 23 4.2.2. Critiques………...p. 24 4.2.3. Compassion and relevant insights...………...p. 24 4.3 Corporate responsibility reporting

4 4.4 Social Impact Assessment

4.4.1. Introduction………...p. 27 4.4.2. Critiques...………...p. 29 4.4.3. Compassion and relevant insights.………...p. 30 4.5 Humanitarian crisis analysis

4.5.1. Introduction………...p. 31 4.5.2. Critiques..………...p. 34 4.5.3. Compassion and relevant insights.………...p. 34 4.6 New Economic Growth………...p. 35 4.6.1 The local dimension………...p. 36 4.6.2 The regional dimension……….………...p. 37 4.6.3 The national dimension………...p. 39 4.7 Overview of gained insights

-Table 4: Overview of gained insights………..p. 39

5.0 The revised model………...p. 40

5.1 Local dimension of the economic context………...p. 40 -Table 5: Local dimensions of the economic context………p. 41 5.2 Local dimension of the social context……….p. 42 -Table 6: Local dimensions of the social context………..p. 42 5.3 National and regional dimensions of the social context………..p. 43 -Table 7: National and regional dimensions of the social context………....p. 43

6.0 Conclusion………...p. 45

6.1 Limitations and further research……….p. 45

1.0 INTRODUCTION

India is the first regulator in the world to enforce Corporate Social Responsibility by law (Desai, Pingali, & Tripathy, 2015). From April 2014 onwards, the government of India implemented new CSR guidelines requiring companies to spend 2% of their net profit on social development (The Guardian, August 11th, 2014). Clause 135 of the Companies Act 2013 (henceforth referred to as the Indian 2% rule) requires companies whose financials meet certain standards to annually spend 2% of the average net profit over the past three years on CSR activities. Furthermore, these companies are required to enclose these expenditures in their financial statements and prepare a separate CSR statement as well, in which the CSR expenditures are reported (Desai, Pingali, & Tripathy, 2015).

In his remarks regarding this issue, Ratan Tata, former chairman of the Tata Group, immediately indicated the main difficulty with the 2% rule in India: How can we measure effectivity of the money spend? Mr. Tata identified the main problem caused by the Indian 2% rule as follows: “We have a phenomenon which is meant to be good but is going to be somewhat chaotic ... we don't as yet know what kind of monitoring there'll be in terms of how well this money is used.” (The Guardian, August 11th

, 2014). It is for that reason that the companies will have to present CSR reports too, but currently no reliable format to

incorporate effectiveness as well as spending is available. Some managers may think that their money is well spent when they invest it in CSR initiatives, but who knows whether the money is channeled properly? Does the money reach the people and increase sustainable economic development? Is the money in fact used to facilitate more inclusive economic growth? Are structural contributions made for all people in society?

The Indian government imposed this act in order to ensure the contribution of all corporations to the Indian society as a whole. Through this measure, the government wants to make

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1.1 CSR and the Indian 2% rule

Over the past decades, many authors have contributed to the topic of Corporate Social

Responsibility. Hill et al. (2007) define CSR as the economic, legal, moral, and philanthropic actions of firms that influence the quality of life of relevant stakeholders. McWilliams (2000) identifies CSR as: “Actions of firms that contribute to social welfare, beyond what is required for profit maximization” The World Bank envisions CSR as a tool to improve overall human development and social inclusion. Tailored to the specific case of India, the World Bank describes CSR as an activity that will ensure that corporations work with the government, civil societies, and communities to improve the lives of the underprivileged people of India by making (corporate) growth more inclusive (World Bank, 2013). This concretely holds that local communities should profit from economic growth as well.

Dhingra, Sarin, and Gill (2015, p. 15) identify how “the consistently growing economic growth of India needs to be suitably redistributed among the lower strata of the society in order to ensure that the economic progress is balanced, equitable and sustainable in the long run.” The Indian government shares that opinion and for that reason has installed the 2 % rule. The 2 % rule mandates both listed companies and private companies whose net worth exceeds INR 5000 million or, whose annual turnover exceeds INR 10000 million or, whose profits exceed INR 50 million, to annually spend 2% of the average net profit over the past three years on certain CSR activities. Furthermore, these companies are required to enclose these expenditures in their financial statements and prepare a separate CSR statement as well, in which the CSR activities are reported. (Desai, Pingali, & Tripathy, 2015)

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1.2 Statement of the Problem

The problem that forms the purpose of this thesis is: “There are currently no sufficient parameters available to evaluate the effectiveness of CSR expenditures”.

Firstly, the essence of this problem is clearly exhibited in the work of Forget (2011). She identified the positive effects and immense cost savings initiated by a social project in the town of Dauphin, Canada, where every citizen received a basic income. In a rather unique experiment, this town, which incorporated the ideals visualized in Thomas More’s Utopia (1516), experienced a significant decrease in healthcare expenditures offsetting the costs of the basic income provided (Forget, 2013), whereas the community strived as never before (Forget, Pedan, & Strobel, 2013). Clearly, the amount of money spent is not always directly related to the effectivity, or the extent to which it is able to improve the quality of life or facilitate sustainable economic development.

8 effectiveness of CSR expenditures, issues such as window-dressing and greenwashing will be eliminated, as the focus will shift to the effects of the expenditures.

Fourthly, the role of the government as a stimulant for CSR activities has not remained without criticisms either. Rodriguez and Lemaster (2007) called upon the United States Securities and Exchange Commission (SEC) not to mandate CSR disclosure. They argue that such regulatory disclosure is accompanied by increased costs and, as a consequence, smaller effect. However, a generally applicable quick scan model may well aid in the lowering of unnecessary costs, and through its focus on effect rather than spending as well as its guidance in what projects to stimulate, may actually promote both lower costs and greater gains. Fifthly, these problems do not merely apply at the practical level. Cooper and Owen (2007) conclude how both mandatory (as is the case in India) and voluntary social responsibility reporting offer little opportunity to facilitate actions relevant for the organizational

stakeholders, hereby calling for an academic approach to help facilitate such actions. Whereas many authors have attempted to describe corporate social responsibility reporting, as will be discussed elsewhere in this thesis, previously, there were no appropriate means to effectively measure the effect of CSR practices, especially in the Indian context. For the 2% rule to be effective, such measures have to be developed, answering the call of Cooper and Owen (2007).

Currently, there is no sufficient approach to assess the effectivity of CSR spending. Many authors in different fields, among whom Mulder and Pennink (2014), have tried to establish academically valid models to assess the quality of life in a certain area, but without full satisfactory result in light of the current application. The Mulder and Pennink (2014) model is developed in the field of Humanitarian Aid to be used as a quick scan to assess a local

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1.3 Significance of this thesis

The contribution of this thesis is threefold. The first contribution relates to the theoretical level. The theoretical interest of this thesis will be to develop an applicable model to assess the quality of life in a certain area, both ante and post CSR expenditures have affected the local area. Furthermore, as this thesis will carefully examine the Mulder and Pennink (2014) model, it will present relevant insights from which the model in its original context may benefit as well. The second contribution relates to the practical level. The practical domain to which this thesis is applicable is that of corporations who engage in business practices in India and are obliged to comply with the 2% rule. They currently face a problem because they have to deliver a CSR report on the effectivity of their obliged spending, but there are no valid means available to do so. Furthermore, the ability to measure effects effectively will give direction to future CSR expenditures and as such drive sustainable economic growth. As such, this study aims to contribute to the facilitation of inclusive economic growth, the main goal of the Indian 2% rule, on several levels. By providing such a model, which is grounded in academic literature and built upon the model by Mulder and Pennink (2014), a link is made between the business world and the academic world.

The third contribution of this thesis is the introduction of appropriate conceptual development methodology to the field of management accounting research. Management accounting research has been criticized in the past years for having problems with definitions of its main concepts (e.g. Chenhall, 2003). These issues are mainly problematic when different authors refer to the same concepts but with different meaning. (Bisbe, Batista-Foguet, & Chenhall, 2007; Van der Stede, 2001). Malmi & Brown (2008) identify how these problems make it hard to compare different studies about the same concept and cause many difficulties in the establishment of a cumulative and organized body of knowledge. Interestingly enough, employing a structured conceptual development approach may well aid in tightening the widely conceived upon research-practice gap which characterizes management accounting research (e.g. Tucker & Lowe, 2014; Malmi & Granlund, 2009).

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2.0 THE MULDER AND PENNINK (2014) MODEL 2.1 Introduction

When conceptually developing a model, obviously a thorough understanding of that model is required. The model of Mulder and Pennink (2014) was introduced in a chapter of the book “Humanitarian Crises, Intervention and Security – A framework for evidence-based

programming.” The chapter of Mulder and Pennink (2014) illuminates how to assess the economic situation in a specific region prior, during, or after a humanitarian crisis, when very extensive research of the situation is impossible, but a scan is needed. They focus on the local domain because the authors believe “...that is where the most relevant information can be gathered to cover the domain of the socio-economic world...” (Mulder & Pennink, 2014). However, Pennink (2014) argues how the regional and national levels bear significance as well in light of local economic development. Therefore, these levels are incorporated in this model too.

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Table 1 Local Dimensions of the Economic Context Dimensions Definitions

Poverty Poverty contains of wage and income and poverty standards. Both causes disable people to participate in cultural, economic, and social activities and suffering in terms of health and housing (Alina et al., 2010).

Accessibility of Basic Goods The accessibility of basic goods contribute to the physical quality of life and by generating strength, agility, and energy, increase productivity (Perlo-Freeman & Webber, 2009).

Employment High levels of employment are associated with

productivity, income, high purchasing power, lower crime rates and therefore are signs of a blooming economy and society (Inekwe, 2013).

Transportation Infrastructure Transport infrastructure is a way to bring regions together physically and socially and as such facilitates economic development. (Crescenzi & Rodriguez-Pose, 2012) Small Business and

Entrepreneurship

Small businesses are the foundations of job growth

Clayton et al. (2013). However, entrepreneurship relates to economic growth both through a pull and push mechanism. In a bad economy people may have no other choice than to become entrepreneurs, but their small business may also suffer (Gohman & Fernandez, 2013).

Currency Three levels may be identified: are there business

activities, are they based on money or trade, and if there is money involved, how its value is determined (Mulder & Pennink, 2014).

Energy Efficiency Energy consumption increases with economic

development, and later on, so should energy efficiency (Liimatainen & Pöllänen, 2013).

13 The next table presents in a similar fashion the dimensions Mulder and Pennink (2014) identified regarding the regional and national levels.

Table 2 Regional and national dimensions of the economic context Dimensions Definitions

Large businesses (regional)

Both domestic and foreign firms may cause spillover effects in the regional or local context, which can stimulate economic growth. (Che & Wang, 2013)

Foreign Direct Investment (national)

Foreign Direct Investment, especially in the agricultural industry, is directly related to employment levels of both skilled and unskilled labor (Chaudhuri & Banerjee, 2010). Financial Institutions

(regional + national)

The five roles the financial system plays in economic growth are: savings mobilization, risk diversification, efficient allocation of resources, exertion of corporate control, and, facilitation of exchange in the economy. (Levine, 1997)

Financial legislation and Enforcement (national)

Good governance practices aid countries in developing themselves economically and establish an environment for high and sustainable economic growth. (North, 1990) Education and Literacy

(national)

Three factors are identified by Perlo-Freeman and Webber (2009): Quality of education, externalities of education, and inequalities of education.

National budget and resources (national)

Through assessing the budget deficit and the resource flow, more insights can be gained in the national

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2.2 Operationalization

In further sections of the chapter, Mulder and Pennink (2014) identified how they propose to apply their model and how the indicators are to be operationalized, aggregated, and weighted. Firstly, Mulder and Pennink (2014) propose that every dimension within the different contexts should receive a score ranging from 1 to 10, where a low score indicates a less favorable situation and a higher score a more favorable situation. They argue furthermore that in cases where no “hard data” can be examined, stakeholders should be found how are familiar with the context and the dimension at hand, ideally four to eight in order to overcome possible biases (Mulder & Pennink, 2014). Moreover, Mulder and Pennink (2014) identify an approach to aid the stakeholders in assessing the situation: ask stakeholders to mark the idealness of their situation on a continuum of ten centimeters, ranging from low to high, which are to be measured afterwards by the researcher in order to establish the quantified score. This approach however, may be contrasting with the “quick scan” nature of the model at hand.

Secondly, Mulder and Pennink (2014) suggest aggregating the operationalized measures in order to combine the different indicators to one overall score on the economic context. They present soft guidelines in order to assess especially the local context, arguing that due to varying needs and situations, it is impossible to identify universal thresholds of what is to be valued as an acceptable situation (Mulder & Pennink, 2014). Therefore, when the model is applied, it cannot be completely excluded that some degree of subjectivity has influenced the final results, presenting one of the main difficulties of this model but also of assessing local contexts in general.

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3.0 METHODOLOGY

The following section will introduce a new approach to conceptual development in

management accounting research. The first section identifies the need for such an approach. The second section argues why this approach is beneficial to management accounting research. The third section compares the new methodology to the methodologies adopted by examples of conceptual developments in management accounting research, further stressing the relevance of the adopted approach. The fourth section introduces the criteria needed to assess which methodology is fitted for which researches. The fifth section applies these criteria and as such the new approach that has been introduced and defended to the subject at hand.

3.1 The need to develop concepts

Hull (1988) describes how the core nature of science is similar to a process. He identifies the need to constantly develop concepts in science in order to reflect new knowledge and insights (Hull, 1988). Science is characterized as a shift, or process, from common sense to the

conscious criticism of concepts (Wartofsky, 1968). “[W]e may critically reflect on our understanding and study not simply what our concepts are about, but the concepts

themselves” (Wartofsky, 1968, p. 6). Emerging concepts follow, once tentatively introduced to academia, a process of gaining acceptance as a critical consensus. The understanding of said concepts will increase as research develops, leading to evolving definitions, which eventually stabilize, the end of the process (Wallace, 1983). Branch and Rochhi (2015) stress the need to critically assess concepts, by articulating the pivotal role that concepts hold in science. “When concepts are immature, science suffers” (Branch & Rochhi, 2015, p. 111). This statement is interpreted as a call for research similar to the research conducted in this thesis.

The field of management accounting research appears relatively barren concerning the conception of formal methods of conceptual development. Tessier and Otley (2012),

confronted with this lack of sound methodological approaches for conceptual development in management accounting research, turned to nursing research and employed methodologies described there. Nursing research is characterized by a great amount of conceptual

16 1996); and Empathy (Kunyk & Olson, 2001). A field with such a strong focus on conceptual development constitutes many different methodological approaches for doing so, from which management accounting research may benefit.

At first glance, it may appear odd to analyze a management control problem by means of a conceptual development framework designed to be applied in nursing research. Tucker and Vesty (2014) however, are surprised by this discrepancy, arguing that the eclectic evolution of management accounting research in terms of theories it draws upon, methodologies it adopts, and methods it employs, appears to favor such an approach. Tucker and Vesty (2014) are not alone in their call for management accounting and control research to look beyond its own boundaries, e.g. O’Dwyer and Unerman (2014) and Merchant, van der Stede, and Zheng (2003) pose similar calls. Furthermore, Tucker and Vesty (2014) identify the similarity when nursing research is compared to management accounting research in the established tradition of promoting the need for evidence-based practice, as well as the progress which has been achieved in doing so, critical to both fields of study.

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3.2 Critical analysis of conceptual development methods

Morse et al. (1996) identify the four most generally adopted methodological methods to concept analysis. These are: Wilsonian methods, qualitative methods, critical analysis of literature, and quantitative methods. Furthermore, they present criteria for the selection of an appropriate research approach for conceptual development as well as criteria for the

evaluation of this type of research. The identification of these methods by Morse et al. (1996) is enhanced here with a contemplation of the most prominent limitations, especially in

relation to the application of these methods in management accounting research.

Wilsonian methods are derived from the work of Wilson (1963/1969) and typically involve an 8-step technique: (a) select a concept; (b) determine the aims or purpose of analysis; (c) determine the defining attributes; (d) construct a model case; (e) construct borderline, related, contrary invented, and illegitimate cases; (f) identify antecedents and consequences; and (g) define empirical referents (Walker & Avant, 1988). These steps together accumulate in a conceptual development. The major limitations of these derivatives are that, contrary to the intellectual rigor required by Wilson, the adaptions appear to be a set of easy-to-follow steps which, in fact, conceptual development is not (Morse et al. 1996). Moreover, Wilson-derived methods stress the linguistic principle at the direct expense of the epistemological, logical, and pragmatic principles (Morse et al. 1996). Combined, these limitations have led to a shredded field of non-concomitant results when Wilsonian methods were applied (Hupcey, Morse, Lenz, & Tason, 1996). Wilsonian methods may have limited use in bridging the research-practice gap in management accounting research, as Bisbe, Batista-Foguet, and Chenhall (2007) describe how non-concomitant results are currently the latent problem of the immaturity of certain management accounting concepts.

18 limitation may reduce the applicability of qualitative conceptual analysis in management accounting research. However, awareness of the existence of this trap will reduce the likelihood that researchers fall for it.

The third method under interest here is the critical analysis of literature. Under this method, a concept is developed by reviewing the literature written about it critically. Surprisingly, this approach is, quite unlike the previous two, not characterized by clearly-defined

methodological guidelines. Nonetheless, this feature does not per force limit its usefulness (Morse et al. 1996). Critical literature analysis can be applied to many different purposes, strikingly different from both Wilsonian methods and qualitative methods. Some of these agendas include concept clarification, operationalization, developing conceptual frameworks, and evaluation of the adequacy of the concept for practice (Morse et al. 1996). A critique to critical literature analysis is that researchers often do not indicate the specific techniques they have employed to reach their conclusions. Often these techniques resemble techniques applied in qualitative approaches (Morse et al. 1996). These critiques appear not to reduce the

possibility for incorporation in management accounting research. Furthermore, the ease in which different purposes may be served by critical literature analysis enhances its usefulness in management accounting research.

The last method described is that of quantitative analysis. This method aids the development of a concept by applying quantitative research techniques. Quantitative analysis requires concepts to have clearly defined and described characteristics, components and variable dimensions, in other words, they must be mature (Waltz, Strickland, & Lenz, 2010). Many different techniques can be employed in order to perform a quantitative concept analysis, including factor, regression, and discriminant analysis, as well as LISREL or Cronbach’s Alpha, among others (Morse et al. 1996). The main problem with quantitative methods can be found in the aforementioned maturity requirement, in the sense that often, the level of

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3.3 Conceptual Development in Management Accounting Research

Encouraged by the arguments by Tucker and Vesty (2014) and the successful application by Tessier and Otley (2012), this thesis will employ the criteria introduced by Morse et al. (1996). What will follow next is an assessment of conceptual development papers in the field of management accounting research. Key papers form the journals Management Accounting Research and Accounting, Organizations, and Society have been examined. The research approaches followed by these researchers will be explored. Furthermore, the methodology of these papers will be interpreted in light of the four approaches identified by Morse et al. (1996). The main results from this analysis are exhibited in table 3.

Table 3: Main examples of conceptual development in management accounting research Authors Concept at hand Methodology

Tessier and Otley (2012)

Simons’ levers of control framework (Simons, 1995)

Critical literature analysis, enhanced with qualitative analysis when no sufficient literature was available, mention Morse et al. (1996) Nørreklit (2000) Balanced Scorecard

(Kaplan and Norton, 1992)

Claimed to use Wilsonian methods but did not follow a clear 8-step sequence.

Nørreklit (2003) Balanced Scorecard

(Kaplan and Norton, 1992)

Rhetorical analysis (a category of qualitative analysis)

Broadbent and Laughlin (2009)

Middle-range thinking in performance measurement systems

Qualitative approach focusing on the discerning relationship between characteristics

Chenhall (2003) Contingency findings in management accounting

Development of a taxonomy, which is a qualitative method in

ethnoscience Hartman (2000) RAPM (Reliance on

Accounting Performance Measures)

20 Notably, nearly all the papers which employ conceptual development in the field of

management accounting research under examination here have applied rather vague methodologies in doing so. Many appear to employ qualitative methods of conceptual development, but virtually no reference is made to a theoretically more rigorous reasoning to do so. Bisbe, Batista-Foguet, & Chenhall (2007) strongly emphasize the potential risks of conceptual misspecification and stress the need for a sound conceptual specification before employing concepts in explanatory models. Once more the link between poorly defined concepts and the research-practice gap appears to be partially solvable by adhering to a solid methodology when developing concepts. This paper will provide an example of a conceptual development founded on clear methodological principles.

3.4 Introducing the criteria

As the choice of methodology, as well as its benefits for aiding conceptual developments in management accounting research has been clearly demonstrated, the criteria which Morse et al. (1996) have incorporated in order to assess which method is the most suitable will be introduced. Morse et al. (1996) have identified five indicators in order to determine the maturity of a concept.

According to Morse et al. (1996) the main determinant of the appropriate approach to conceptual development which can be employed is the maturity of the concept at hand, combined with the purpose of the concept inquiry. The purpose of the inquiry therefore

should be the primary indicator when searching for a method. Even though the most important indicator is the level of maturity, different purposes may require different levels of maturity. Therefore, one can only assess the maturity of the concept whilst keeping ones purpose in mind. Accordingly, the secondary indicator is the maturity of the concept.

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3.5 Applying the criteria

In order to assess the maturity a clear distinction should be made between the two levels apparent in the Mulder and Pennink (2014) model. This distinction is even more needed in light of the different conceptual development purposes identified before. Firstly, there is the level of the different constructs comprising the model, e.g. “Energy Efficiency” and

“Accessibility of Basic Goods”. Even though the Mulder and Pennink model (2014)

intuitively appears to be relatively immature, in the sense that no critical mass of literature has been written about it, the model consists of many different constructs which have individually been broadly conceived upon. The focus of this thesis will therefore not lie with the individual constructs and the quantitative approaches required by their level of maturity.

Secondly, there is the framework as a whole. As mentioned before, this framework appears to be relatively immature. However, a vast amount of work has been done in different areas from which relevant insights may be derived. Similar models, to a greater or lesser degree, to the Mulder and Pennink (2014) model may be found in many different areas of research. Corporate social responsibility reporting, social impact assessment, and humanitarian crisis analysis are evident examples of fields of interest which face similar challenges. However, every field has incorporated issues which are deemed important in their respective field, whereas they remained away from issues important in other areas of interest. Clearly, these literatures can be “systematically compared and differentiated” (Morse et al., 1996, p. 296) when relevant questions are posed. Furthermore, the Mulder and Pennink (2014) model has been employed in several case studies. Therefore, the field in this case seems to be partially developed, favoring a critical analysis of the literature.

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4.0 CRITICAL LITERATURE ANALYSIS 4.1 Introduction

This thesis aims to contribute insights from management control into the Mulder and Pennink (2014) model because of its expertise in measuring effectively and transparently. In an

attempt to do so, firstly the Balanced Scorecard (Kaplan & Norton, 1992) will be analyzed. Secondly, the field of Corporate Social Responsibility Reporting will be assessed to examine to what extent the Mulder and Pennink (2014) model may be developed by insights from this field. Furthermore, the fields of Social Impact Assessment and Humanitarian Crisis Analysis will be incorporated in order create the holistic model the issue of the Indian 2% rule

demands. Moreover, these fields will be analyzed in order to access any methodological contributions they may incorporate for the revised Mulder and Pennink (2014) model. Lastly, literature regarding the different levels of economic growth incorporated in the Mulder and Pennink (2014) model will be presented in order to identify whether all the relevant drivers of sustainable economic growth are incorporated at the local, regional, and national levels. This section analyzes the different fields of literature by incorporating what Morse et al. (1996) the systematical comparing and differentiation using questions. Firstly, an introduction of each stream will be presented, aspiring to answer the following questions:

-What is the core of the literature?

-Why is this literature relevant in the current context? -What is the main goal?

-In what context can it be applied?

-What are (some) of the parameters incorporated?

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4.2 Balanced scorecard

4.2.1 Introduction

The balance scorecard was introduced into the management accounting research literature by Kaplan and Norton in 1992 and in the following period they presented several

conceptualizations (Kaplan & Norton, 1992; Kaplan & Norton, 1996a; Kaplan & Norton, 1996b; Kaplan & Norton, 1998). By incorporating the several conceptualizations and critiques presented in the literature in this analysis, it may be argued that a body of literature

surrounding the balanced scorecard is studied, even though the balanced scorecard itself is merely a management accounting tool. The balanced scorecard has four main features by which it can be known from other such tools. The balanced scorecard provides a top-down reflection of the company’s mission and strategy, which is forward-looking, integrates external and internal measures and is able to guide managerial focus on the most important issues. (Kaplan & Norton, 1996a)

The relevance of the balanced scorecard in this context does not appear to be straightforward or intuitive. However, this thesis aspires to behold rather what can be learned from different theories than what drives them apart from each other. Therefore, the focus in this thesis will not be on the balanced scorecard as a managerial strategic tool, but rather on its capabilities to measure the state of an organization in a balanced manner and its unique methodology in doing so. This is where the expertise in the field of management accounting research may be incorporated to develop the Mulder and Pennink (2014) model. Moreover, the notion that measurement may lead to better results is a valuable conclusion which may be incorporated in the justification of providing a model such as the Mulder and Pennink (2014) model.

The balanced scorecard is an example of a management control system. Obviously, its position in the sphere of business and management is related to the main goals it is employed for. Kaplan and Norton (1995) explain how the balanced scorecard can have the most impact when it is applied as driver to change. As such, the balanced scorecard is a tool to “translate strategy into action” (Kaplan & Norton, 1996a, p. 10), or in other words, an instrument which helps the organization to keep their main goals in mind throughout every process. The

24 sciences. The balanced scorecard heavily relies upon the inclusion of both financial and non-financial measures in such a way that (non-financial) measures of past performance are enhanced with measures designed to predict future performance (Kaplan & Norton, 1996b). The balanced scorecard is based on the assumption of the following latent causal relationship: (measures of) organizational learning and growth cause (measures of) internal business processes which cause (measures of the) customer perspective which leads to the financial measures (Kaplan & Norton, 1996a). As such, the measures of the first criteria are argued to be drivers for the measures of the criteria following them up.

4.2.2 Critiques

The balanced scorecard has not remained without its share of criticism. However, even though Nørreklit (2003) criticizes the Balanced Scorecard to a great extent, he specifically mentions not to criticize the need to include non-financial measures, underlining its critical importance (Nørreklit, 2003, p. 70). The main criticism he does pose to the Balanced Scorecard attacks the previously explained underlying assumption of causality between the different four indicators/drivers (Nørreklit, 2003). According to Nørreklit (2003) this relationship is not causal but rather a finality relationship in the sense that means and ends have a complicated relationship. Furthermore, he argues for the need to establish coherence in the different indicators, in the sense that the indicators should the relationship between the different indicators should be carefully examined.

4.2.3 Compassion and relevant insights

25 A good example of this situation would be the company that builds a school and hires

teachers to educate underprivileged children in a certain area. When researchers were to conduct a quick scan one say June 1st to assess the effectivity of CSR spending in that area, one of their parameters may be the extent to which children have access to education. At June 1st in that specific year, the hypothetical school was almost finished but no children had access to education yet, whereas on June 1st one year onwards, the local children had been at school for almost a year. The inclusion of a lead indicator in this extremely simplified example (the construction of a school) can lead to a better assessment of the access children have to education in this specific situation.

Another lesson which may be derived from the Balanced Scorecard literature is the need for coherence among indicators. Coherence refers to the extent to which the relevant indicators complement or match each other (Nørreklit, 2003). More specifically: “… an action is coherent if the actions used and the means are appropriate with respect to the intended end” (Nørreklit, 2003, p. 83). This call for coherence bears relevance in light of the application to the 2% rule, specifically when the lead and lag indicators as per previously explained will be incorporated.

The third lesson which may be taken away from the Balanced Scorecard literature is the value of weighing different indicators differently. Currently, Mulder and Pennink (2014) only acknowledge that the local level should be weighted more than the other two levels, but do not incorporate such weighing in the individual parameters. In combination with the lead and lag indicators, this approach allows to truly focus on what areas are most important in order to introduce a better quality of life by means of effective CSR spending.

4.3 Corporate responsibility reporting

4.3.1 Introduction

26 companies publishing such statements (KPMG, 2015).The literature on corporate

responsibility reporting should be examined in order to identify how it differs from the other approaches. The Indian 2% rule demands that a corporate social statement, to demonstrate obedience with the demands stated by that rule. To examine how this can be improved, it is important to investigate what the current state is.

The goal of corporate responsibility reporting is less clearly identified than the goals of the other streams of literature identified to this extent, in the sense that much debate has risen about this subject among authors in academia. Roberts (1992) found, after identifying the lack of theoretical support to answer the question why firms invest in CSR activities, that

stakeholder power, strategic posture, and economic performance are all significantly related to the levels of corporate social disclosure. Interestingly, in recent years, authors have started to find several arguments for voluntary corporate responsibility reporting practices. Dhaliwal et al. (2011) identify the beneficial effects of corporate social responsibility reporting when they found a strong relationship between the initiating of superior CSR performance with a

subsequent reduction in the cost of capital. In other words, they demonstrated how firms who invest in CSR benefit from this because it becomes easier for them to attract funds. Corporate responsibility reporting is applied by businesses who aim to demonstrate their involvement with corporate social responsibility initiatives. Such demonstrations can both be voluntary and regulatory (Cooper & Owen, 2007). Bebbington, Larrinaga, and Moneva (2008) determine how CSR expenditures help companies to find legitimacy and identify how they are a pivotal part of reputation risk management. Jain (2014) identified similar results in the specific context of India.

In the current situation, corporate responsibility reporting is to a great extent involved with financial measures. Other rapports focus on the reduction of carbon emission, and rapport on this (KMPG, 2015). In several countries, some degree of mandatory disclosure exists, often accommodated by specific guidelines on what to report and how to rapport it, resulting in a cacophony of different parameters and measurements. Examining all of these lies beyond the scope of this thesis.

4.3.2 Critiques

27 rule, in the sense that corporate social investment has been made obligatory, but without setting clear guidelines about corporate social reporting, let alone about the effects of investments. Noronha et al. (2012) argue, on the basis of an extensive overview of CSR reporting in China and previous literatures, that there is a need for companies to publish their CSR reporting in a format which is standardized and can be systematically applied. Belal and Lubinin (2009) identify the underdeveloped state of the field of CSR reporting, and call for CSR reporting to catch up with financial reporting standards. KPMG (2015) in their

periodically review on corporate responsibility reporting identify the lack of consistency in these reporting practices as a key problem.

4.3.3 Comparison and relevant insights

Corporate Responsibility Reporting to a great extent incorporates the actions undertaken by companies, but not the consequences, hereby contrasting approaches such as SIA, and the Mulder and Pennink (2014) model. This thesis argues that the consequences, and as such the effectiveness, of CSR expenditures need to be taken into account in order to be able to truly assess their value. Furthermore, when the goals of the Indian 2% rule are taken into account, it becomes evident that the effects of CSR spending is more important to achieve the goals of sustainable economic development than when only the amount spent is presented. Important when comparing corporate social reporting and standard accounting practices is the concept of stakeholder accountability, as introduced in this context by Cooper and Owen (2007). They identify how stakeholder accountability currently is a voluntary type of accountability. This thesis agrees with their train of thought and adds to that the measurement of effectiveness of the expenditures. Overall, corporate social reporting as part of the management accounting discipline can be characterized by transparent and relatively easy-to-assess measures.

4.4 Social Impact Assessment

4.4.1 Introduction

An interesting body of knowledge which is closely related to corporate responsibility

28 and to develop strategies for the ongoing monitoring and management of those impacts” Vanclay, 2003, p. 6). SIA is characterized by a clear distinction between social change and social impact, where social impact is a sum of all issues which, either directly or indirectly, affect people (Vanclay, 2003).

The attention SIA gives to the analysis of planned interventions makes SIA extremely relevant for application in the case of the Indian 2% rule. Furthermore, Schirmer (2011) describes how in SIA, little research has been conducted regarding different levels of impact assessment. Mulder and Pennink (2014) clearly distinguish local, regional, and national levels of assessment in their model and argue that a certain order is in place, namely that the local context is the most important and should be weighted more heavily. This thesis thus attempts to incorporate the best of both worlds, where the social emphasis of Vanclay (1999) is

combined with the more economic approaches identified earlier on. In fact, the field of SIA is calling for more economic approaches to impact assessment, acknowledging the need for a broader, less biased, view (Vanclay, 2002). This thesis recognizes this call to create a holistic, socio-economic model, and has incorporated it as one of its main goals, mainly in relation to the application to the Indian 2 % rule.

The main goal of SIA is to influence decision making on the political level by analyzing the possible impact legislation may have (Vanclay, 2002). SIA is applied in many contexts, but always to estimate or assess the social implications which are likely to follow from policy actions or developments (Burdge and Vanclay, 1995). As such it is often applied in the context of legislation, on different levels in the political field. In the context of developing countries, however, SIA can be applied as “a process for research, planning, and management of change arising from policies and projects” (Taylor, Bryan, & Goodrich, 1995).

29 (temporary and/or seasonal) newcomers, tourism and urbanization. Economic processes are characterized as conversion and differentiation of the economy and impoverishment on a local level, and exchange rate fluctuation, inflation, concentration of economic activity and

globalization on a macro level (Vanclay, 2002). Geographical processes describe how land is utilized within a society (Vanclay, 2002) by means of conversion and diversification, urban sprawl or urbanization or gentrification, among others. Institutional and legal processes describe the effectiveness of the organizations in charge of the supply of goods and services people depend on, whereas emancipatory and empowerment processes refer to

democratization, marginalization, and capacity building (Vanclay, 2002). Furthermore, sociocultural processes, which are those which affect the sense in which people live together can be identified (Vanclay, 2002). The group “other processes” may be employed for situation specific processes.

The main goal of Vanclay (2002) was to conceptualize the social impacts, and not the

processes leading to them. However, the social processes are the core drivers of these impacts and as such should be employed as an integral part of the final framework. The indicators presented by Vanclay (2002) are to varying degrees specific and more or less macro

orientated. Seven boxes (A-G) are identified to group the social impact indicators according to themes. These themes are “Health and Social Well-being”, “Quality of the Living

Environment”, Economic Impacts and Material Well-being”, “Cultural”, “Family and Community”, “institutional, Legal, Political, and Equity” and “Gender Relations” (Vanclay, 2002). All of these themes are supported with concrete examples which are to be applied in practice.

4.4.2 Critiques

30 4.4.3 Comparison and relevant insights

In light of the research at hand, the conceptual development of the Mulder and Pennink (2014) framework, the aforementioned processes and social impact indicators appear to be included to differing levels. Some issues are almost carbon copies of each other, whereas others present in the Vanclay (2002) model are remarkably absent in the Mulder and Pennink (2014) model, which can be explained by the different goals Vanclay (2002) and Mulder and Pennink (2014) aspire. Whereas the former wishes to provide a general overview of all the relevant aspects regarding the social impact people experience in their lives, the latter

specifically focuses on the economic context. However, the fashion in which SIA is structured may present valuable insights which can be incorporated to enhance the Mulder and Pennink (2014) model. Another interesting issue in the relation between the two fields of research is the time focus. Whereas the Mulder and Pennink (2014) model, can be applied both ex ante and ex post, SIA is characterized by the estimation of impacts in advance (Burdge & Vanclay, 1995). Even though Mulder and Pennink (2014) briefly indicate that it would be desirable to not only have data available ex post but also ex ante, they do not incorporate this approach into their framework overall. They do argue, albeit shortly, that when no such data would be available, key stakeholders should be interviewed in order to construct scores guided on their perceptions of the situation before the impact.

One of the most interesting insights which can be gained from SIA is presented by Burdge and Johnson (2004) and Becker et al. (2004). Confronted with the difficulty of assessing changes resulting from an impacting event on a local scale, they explored the possibility to compare the local situation with that of a situation very similar to the impacted one, but which has not experienced the impact. Schirmer (2011) explained three other approaches for similar comparison, namely approaches based on: time (Benson, Twigg, & Rossetto, 2007 -

before/after impact), average (Petäjäjärvi, 2005 - compare the impacted situation with a macro average) and similarity (Taylor et al., 2003 - compare with a similarity impacted situation). These concepts, similar to benchmarking, appear to be very applicable for the Mulder and Pennink (2014) model as well, especially in light of the possible application to the Indian 2% rule.

31 situation in the comparable non-impact local region be identified as a possible beneficiary for CSR expenditures. When the model would be applied in this fashion subsequently the next year but in the region which had firstly not received the impact, the approach identified by Benson, Twigg, and Rossetto (2007) can be incorporated, since data has been collected about the situation last year. However, this approach is not feasible when a certain region receives CSR expenditures for the first time.

4.5 Humanitarian Crisis Analysis

4.5.1 Introduction

Humanitarian crisis analysis is a concept which has been conceived upon broadly.

Furthermore, many frameworks have been developed in order to aid humanitarian workers with contexts and facilitate their analyses. Heyse (2014) presented an overview of existing frameworks for humanitarian crises analysis, which will be the main focus of this part. The frameworks which focus on the structural dimension of humanitarian crises and were identified by Heyse (2014) are: the (Sustainable) Livelihoods Framework, Capabilities and Vulnerabilities Analysis, the Multi-Cluster/Sector Initial Rapid Assessment, the Political Economy/Arena Approaches, and the Pressures and Release model.

The relation between this stream of literature and the Mulder and Pennink (2014) model is evident: Mulder and Pennink (2014) contribute to this literature field by providing it with a framework in relation to the economic context, whereas the focus in the field relies more on other contexts. The first connection with the Indian 2% rule is apparent: companies may very well decide to spend their CSR budgets in order to aid regions affected by humanitarian crises. Incorporation of insides from this field of literature will aid in assessing the

effectiveness of them doing so. Another possible connection with the Indian 2% rule may appear counterintuitive, since one might think that the structured approach undertaken in CSR spending differs from that of a crisis. However, many authors have identified the structural dimension of humanitarian crises and proposed structural frameworks to cope (Heyse, 2014). The focus here will be on such approaches.

32 demonstrate the importance of using experiences from the past to help improve aid in the future or current situation.

Once more, this thesis will draw upon Heyse (2014) who presented the most important frameworks which employ a structural approach to humanitarian crisis analysis, especially since she does not only provide an overview of different attempts to provide a framework for humanitarian crises analysis, but also derives a synergized model based on those previous efforts. The following section will describe in more detail the different frameworks which were incorporated by Heyse (2014). As such, several models will be examined, which all include different parameters.

Firstly, the (Sustainable) Livelihoods approach will be examined. This framework does not merely focus on humanitarian crisis contexts, but also incorporates poverty reduction strategies (Twigg, 2001), hereby providing a more clear bridge between the topic of the implementation of the Indian 2% rule at hand than the other frameworks commonly

incorporated in the humanitarian crises literature. The purpose of this framework is to reveal which factors and what processes can aid in developing people's livelihood, by focusing on the following core elements: livelihood assets, transforming structures and processes,

livelihood strategies, and the vulnerability context (DFID, 2001). Some debate has risen about the thoroughness and pace of this model (e.g. Morse & McNamara, 2013; Carney, 2002) but Heyse (2014) concludes that it can best be described as slow and medium thorough and generally applicable, whereas it does provide options for programming, albeit complex and difficult to initiate (Morse et al, 2009).

33 Thirdly, the Multi-Cluster/Sector Initial Rapid Assessment method will be analyzed. This method, as developed by the Interagency Standing Committee (IASC) has been developed in order to identify strategic humanitarian priorities during the first weeks after an incident (IASC, 2012). This approach is based on three strategic elements (impact of the crisis, response capacity, and access and gaps) which are all covered by asking situation specific research question (IASC, 2012). Heyse (2014) identifies this method as rather "quick and dirty", quite general, and providing programming advice.

Fourthly, the Political economy and Arena Approaches will be elaborated upon. This approach relates to what certain groups and actors stand to gain or lose from a humanitarian crisis, and describe the dynamic nature where some people benefit from the same situation (Collinson, 2002). According to other authors, the post-crisis region resembles an arena, where different actors with differing motivations battle for a favorable result of the aid provided for themselves (Hilhorst & Serrano, 2010). In other words, both approaches aim to determine which different stakeholders are involved and what their motives are, arguing that humanitarian interventions are inherently political. Furthermore, they call for an ex ante evaluation in order to determine what the benefit of how the possible humanitarian aid would benefit the different stakeholders identified (Heyse, 2014). According to Heyse (2014) these stakeholder-oriented approaches can be as "quick and dirty" and "slow and thorough" as is pleased, based on the thoroughness of the stakeholder analysis. Furthermore, she identified these approaches as generally applicable and providing programming advice.

Fifthly, and finally, the Pressures and Release model will be examined. This approach, as introduced by Blaikie, et al. (1994/2014) resembles the mode of thinking adopted by

34 (focusing on the prevention of crises and then merely those caused by natural hazards), posing only programming advice in terms of the entry-points discussed here earlier (Heyse, 2014). 4.5.2 Critiques

Heyse (2014) presented a severe critique herself in the form of the trade-offs inherent to the current models. Every model is located at a careful balance of the three dimensions identified (quick and dirty vs. slow and thorough, generally applicable vs. situation specific, and

guidelines for programming advice vs. no programming advice), and all the trade-offs, as is inherent to the nature of a trade-off, has a situation specific outcome. Moreover, the five individual models presented here have faced critiques separately. Some of these critiques have already been incorporated in the previous sections, the rest lies beyond the scope of this thesis.

4.5.3 Comparison and relevant insights

The Mulder and Pennink (2014) model has been designed in order to facilitate the assessment of the economic context after a humanitarian crisis occurred in a certain region. As such, this model is, at least regarding content, complementary to the purely humanitarian models of which Heyse (2014) provides an overview. The Mulder and Pennink (2014) model has incorporated different indicators than commonly employed in humanitarian crisis analysis. Some of the most relevant insights derived from humanitarian crises literature are derived from the Political economy and Arena Approaches. In fact, it may be argued that the

implementation of the Indian 2% rule supports the statement adopted in these approaches that humanitarian aid is inherently political. The most interesting aspect derived from this

statement is the call for a careful ex ante analysis of the situation and the impact the aid may have on the different stakeholders. This can be even more beneficial when combined with the work of Anderson and Woodrow (1990) when capabilities and vulnerabilities are identified beforehand. Following these approaches, the revised model may not only aid in the

35

4.6 New Economic Growth

The main goal which led to the legislation of the Indian 2% CSR expenditures has been inclusive, sustainable economic development. Therefore, an attempt to measure the

effectiveness of CSR expenditures, should keep in mind the goals with which the Indian 2% rule has been introduced. In order to do so, economic growth literature will be examined in order to find the most important factors related to economic development. This will be done for all the three contexts (local, regional, and national) which are incorporated in the Mulder and Pennink (2014) model, since authors agree that the regional and national levels bear importance regarding local economic development too. (Pennink, 2014)

There are two main streams in the economic growth literature. These are the traditional neoclassical economic growth theory and the new growth theory. Neoclassical economic growth theory describes economic growth as a function of capital accumulation, population growth, and technological progress (Solow, 1956). The new growth theory has become increasingly important in recent decades and will be discussed here. The new growth theory distinguishes two different types of factors in relation to economic growth: exogenous and endogenous factors. Endogenous factors are factors that arise from a region’s economy itself, whereas exogenous factors are factors that influence the economic growth of a region from the outside (Stimson, Stough, & Salazar, 2009). CSR expenditures, when they are legislated by the government and implemented in a certain region, are an example of exogenous factors. The incorporation of such exogenous factors in a model for economic growth makes new growth theory more relevant in this specific context.

36 4.6.1 The local dimension

In the local context, Local Economic Development presents us with an interesting body of literature. Pennink (2014) identifies how regular economic development models, such as the Stimson, Stough, & Salazar (2009) model presented later on, whilst presenting a relevant model to describe regional economic development, omit the “local actors who are living somewhere in a concrete situation” (Pennink, 2014, p. 251). This call is relevant in light of this thesis as well, since the Mulder and Pennink (2014) model incorporates regional and national as well as local parameters. Furthermore, including the local level of analysis appears to be extra relevant in the application to the Indian 2% rule, since the goal of the Indian government has always been to enhance sustainable economic growth in the poorest local situations.

Mulder and Pennink (2014) incorporate the following parameters when assessing the regional context, as per mentioned before: Small business and entrepreneurship, Employment rates, State of transportation infrastructure, The presence of absence of poverty, Currency/ basis of trade, Energy efficiency, Innovation capacity, and Accessibility of basic goods. However, some of these parameters can be applied at the regional level of economic development as well, and will be covered there.

37 4.6.2 The regional dimension

In this context, the well-known model for regional economic development by Stimson, Stough, and Salazar (2009) bears most relevance. This model incorporates four different variables: Resource endowment and market conditions, leadership, entrepreneurship, and institutions. Combined these determine how competitive, entrepreneurial, and sustainable a region is (Stimson, Stough, & Salazar, 2009). The influence of leadership is especially interesting. A clear example of the role of leadership in regional economic development can be found in the United States, where the development of Silicon Valley was to a large extent made possible by the presence of leadership (Leipziger, 2001). Stimson, Stough, and Salazar (2009) identify the crucial role effective leadership plays in sustainable development, where explicit attention is being payed to the triple bottom line. According to Stimson, Stough, and Salazar (2009) the economic development within a region may be measured through

indicators of performance related to: the competitive performance of a region, the degree of entrepreneurship present, and the degree to which sustainable development has been Acknowledging the dynamic nature of these measurements and their interdependencies, Stimson, Stough, & Salazar (2009) suggest that regional development could be benchmarked by means of shift-share analysis. Since the Mulder and Pennink (2014) model incorporates measurements which are dynamic and interdepend too, the inclusion of shift-share analysis as an addition to the model should be investigated. Shift-share analysis, which is employed in regional economics often, can be used to study the separate components of regional growth (Arcelus, 1984). It can be viewed as a method for benchmarking the regional situation to the situation of a bigger area, and aids in determining whether a region has a competitive

advantage (Stimson, Stough, & Salazar (2009). The existence of such competitive advantages of regions is clearly demonstrated by the case of Silicon Valley, as per mentioned before. In the context of the Indian 2% rule, shift-share analysis may bear relevance when comparing whether a region impacted by CSR expenditures has gained competitive advantages over a region which was not impacted by CSR expenditures.

However, the usefulness of shift-share analysis appears to be limited in the specific context of the Mulder and Pennink (2014) model in the sense that for many of the parameters no

38 problem related to the inability to incorporate regional variation becomes even more

significant when the local situation is included was well, and therefore shift-share analysis appears not to be a beneficial addition to the Mulder and Pennink (2014) model.

Mulder and Pennink (2014) incorporate the following parameters when assessing the regional context: Large businesses and financial institutions. However, some of the parameters which are identified by Stimson, Stough, and Salazar (2009) are included in the Mulder and Pennink (2014) model, but as a parameter of the local economic dimension, which is absent in the work of Stimon, Stough, and Salazar (2009). Parameters to measure resource endowment and market conditions are included on that level, namely: accessibility of basic goods,

employment, and transportation infrastructure. The parameter “Small businesses and entrepreneurship” measures relevant aspects regarding entrepreneurship on the local level. Institutions are measured on the national level in terms of “financial institutions” and “Financial legislation and its enforcement”. However, no reference is being made to institutions in the form of the political institutional environment, and especially local

governance is absent in the Mulder and Pennink (2014) model, as is the case with leadership. McGurik, Winchester, and Dunn (1998) identify how local governance can aid the local region in the development of competitive advantages. Institutions on the local or regional level can mitigate or aggravate endogenously the impacts of exogenous forces, and as such, promote or hinder local economic development (Stimson, Stough, & Salazar, 2009).

Clingermayer and Feiock (2014) argue how a high level of leadership turnover in the local governance context is associated with significant negative effects on local economic development, whilst acknowledging the positive impact a local executive may have as he promotes the region as an “entrepreneur for economic development” (p. 32).

Leadership, in this context, is closely related to local governance, especially when the role of local governance as an entrepreneur for local economic development is examined

39 4.6.3 The national dimension

The last of the three loci of analysis incorporated in the Mulder and Pennink (2014) model is that of the national context. According to the triple helix model, economic development is stimulated by an interaction between government, industry and universities (Etzkowitz & Leydesdorff, 1995). This triple helix model takes into account the emerging role of the knowledge sector as a driver of national economic growth, in relation to the political and economic sectors (Leydesdorff & Etzkowitz, 1996). Mulder and Pennink (2014) incorporate the following parameters when assessing the national context, as per mentioned before: Foreign Direct Investment, Financial institutions, financial legislation and its enforcement, Education and literacy and National budget and resources.

In an earlier study Pennink (2012) already incorporated the relevant insights from the triple helix model into the context of local economic development, based on the notion that the regional and national levels bear significance in local economic development too. Therefore, it is not very surprising to identify that parameters regarding the interdependent relationship between universities, the government, and industry, have been incorporated in the Mulder and Pennink (2014) model.

4.7 Overview of gained insights Table 4: Overview of gained insights

Literature Most important insights

Balanced scorecard -The inclusion of lead and lag indicators -Weighing different factors differently -Overall coherence of the indicators Corporate responsibility

reporting

-Transparent measures -Motivation for companies Social Impact Assessment -Compare local situations

-Inclusion of the social dimension Humanitarian crisis

analysis

-Ex-ante analyses

-Balance between fast and good, general applicability and programming advice

40

5.0 REVISED MODEL

Several suggestions have already been made in light of the possible application of the Mulder and Pennink (2014) model to the situation of the Indian 2% rule, the most prominent of which is the inclusion of lead and lag indicators. This section exemplifies how the inclusion of lead and lag indicators aids in scanning the state of a local situation. In some cases, the dimensions identified by Mulder and Pennink (2014) could be restructured with lag and lead indicators. In other cases, the dimension appeared to be a lead or a lag indicator itself. Insights from

economic growth literature are incorporated as well, in order to fully achieve the goals of sustainable economic development. Furthermore, three parameters from SIA are incorporated in order to facilitate the socio-economic approach demanded by the Indian 2% context. Firstly, the parameters and indicators regarding the local level will be examined, followed by the social dimensions of the local context, and finally, the economic dimensions of the regional and national context.

5.1 Local dimensions of the economic context

The extent to which the basic goods such as clean drinking water, food, and sanitary facilities are available can be interpreted as a lead indicator for economic development or a locality. Perlo-Freeman and Webber (2009) explain how the fulfillment of basic needs stimulates productivity, and as such, this thesis argues that an enhanced productivity can be interpreted as a lag indicator that the basic goods condition is met. Employment rate itself is an indicator of the state of the local situation. However, it is also interpreted as a lead indicator in the sense that a higher employment rate can aid in the reduction of poverty and facilitate

accessibility to basic goods. Regarding transportation and infrastructure, the availability of a minimum level of infrastructure is interpreted as a lead indicator because a minimum

threshold is necessary to facilitate economic development (Crescenzi & Rodríguez-Pose, 2012). The amount of traffic in terms of tonnage or travelers per kilometer can be interpreted as a lag indicator, since Usón et al. (2011) explain its close correlation with regional economic growth. The following indicator is that of small business and entrepreneurship. Special