Creating Shared Value in HA
Laura K. Fritze S 2351374
MA International Humanitarian Action
Shared Value Creation and Value Based Management in the context of Humanitarian Action
Dr. B. J. W. Pennink - University of Groningen Lars Lofquist, PhD - University of Uppsala
2 Table of Contents
1. Introduction………... 7
1.1 Unlocking the Non-Profit Sectors Full Potential ……….. 7
2. Literature Review on CSV and its Relevance in the Non-Profit Sector…... 2.1 The Status Quo in the Humanitarian Sector………... 2.2 The Theory of Hybrid Organizations ...………. 2.3 The Idea of Creating Shared Value ………... 2.4 CSV related theories and phenomena……….... 2.4.1 Differentiating CSR, Social Entrepreneurship and NGOs………...……. 2.4.2 CSV and the Stakeholder Theory……….. 2.5 The Junction of Philanthropy and the Role of NGOs in successful CSV... 2.6 Challenges and Restrains in the Non Profit Sector ………... 2.6.1 The Social Belief System………... 2.6.2 Discriminating the Non-Profit Sector ………... 9 9 11 12 14 15 17 21 23 24 26 3. Methodology ………... 3.1 Literature Search ………... 3.2 Study Selection ………... 3.3 Case Selection ………... 3.4 Data Collection and Analysis ……… 30 30 30 30 31 4. Further Development of new Ideas concerning CSV and its use in HA ….. 4.1 General Case Descriptions of Hybrid Organizations in HA………... 4.2 A Framework of CSV in the Humanitarian Sector……… 4.3 Unique Elements of CSV within the 3 - Step Process………... 4.4 Dimensions of Shared Value Based Management and related Best Practices facilitating CSV……….. 34 34 35 38 42 5. Theory Development and Discussion………... 5.1 Other concepts with the Potential to create Shared Value………. 5.2 General Challenges in the pursuit of creating Shared Value……….. 49 49 52 6. Limitations ...………. 56 7. Future Research..……….. 57 8. Conclusion ………. 58 References ……….. 61
3 Appendices ………. 66 I. Interview Guide……… 66 II. Case study descriptions……… 67
4 This thesis is submitted for obtaining the Joint Master’s Degree in International Humanitarian Action. By submitting the thesis, the author certifies that the text is from his own hand, does not include the work of someone else unless clearly indicated, and that the thesis has been produced in accordance with proper academic practices.
5 Abstract
Sharing value refers to a management strategy in the business context first introduced by Porter and Kramer (2006) proposing that creating economic value by addressing societal issues and challenges increases an organizations productivity and innovation thereby facilitating its competitive advantage on the market. Since, the number of hybrid organizations mixing social and economic value systems have grown exceptionally in the past decade. In the business environment the sharing value approach has shown itself to produce positive societal change while following a profit-seeking orientation at the same time. Against this backdrop, the question arises in how far the concept of creating shared value can be a useful approach for our struggling humanitarian sector to facilitate transformation and help to make it more effective and sustainable in its line of work. We argue that non-profit organizations need to operate more entrepreneurially and market oriented e.g. more results-driven and innovative so that organizations can deliver their services in the most cost-effective way and enable people to best possibly protect themselves and those for whom they are responsible. Hence, this paper seeks to explore to what extend the idea of creating shared value is novel in the HA context, in how far it is applicable in humanitarian relief efforts and what specific elements represent factors of success for an NGO to engage in CSV. Hereby we introduce a new causal model and adopt social entrepreneurship as a lens to explore the relationship between shared value creation and the multi-value-multi-actor-system at hand. Considering the great number of challenges, the sector is facing due to environmental, geo political, societal and demographic not only a business CSV framework but additional contextual factors and management practices are taken into account to answer these research questions. Qualitative research methods are applied and the analysis of empirical literature, case studies and the conducted interviews point to the conclusion that the CSV approach is in fact applicable to NGOs. Further, it was concluded that shared value based management and its best practices is a valuable tool for achieving CSV in the humanitarian sector and has the potential to lead to growth and more effectiveness.
Keywords: Creating shared value, value based management, hybrid organizations, humanitarian action, social businesses, transition of the non-profit sector
6 1. Introduction to the Field of Shared Value Creation
The approach of shared value creation (CSV) has proven to be a useful tool to overcome a crisis in the for profit sector and developed increasing significance across different business domains. Against the backdrop of a global capitalism crisis in the late 1990s beginnings of 2000s international businesses started to discover new business models of value creation, seeking new markets and value propositions and to foster growth. People dubbed this rise of innovative business models ‘social entrepreneurship’ in which a growing number of initiatives proactively took responsibility for meeting social and environmental challenges in the pursuit of a more sustainable development (Forbes, 2017). The phenomenon of social entrepreneurship which can also be referred to as social enterprise is a modern and altruistic form of entrepreneurship that employs novel types of resources and combines traditional entrepreneurship with the mission to societal change (Seelos and Mair, 2005). These social businesses commonly described as hybrid entities make revenue while achieving social goals, yet, are neither businesses nor charities (Billis, 2014). OneWorld Health, for example, is a US non-profit
pharmaceutical company that adopted an entrepreneurial business model and manages to deliver medicine to the most vulnerable in third world countries despite great
logistical and economic barriers. Victoria Hale, the founder of OneWorld Health wanted to redesign the value chain of drug delivery where, for a long time, traditional
profitability thinking and the development of much needed cures seemed incompatible (OneWorld Health, 2017). Another interesting example of social value creation in the business context is the Grameen Bank in Bangladesh. The economics professor Muhammad Yunus founded the bank in 1977 because he believed that the poor have skill sets that remained under, - and unutilized. He was convinced that policies and institutions failed to provide support to poor people that was required for them to be able to unfold their full potential. Today, the Grameen Bank grants unsecured loans to over 3 million poor people in Bangladesh who wouldn’t qualify as costumers of
established banks. From the start the Grameen Bank has been profitable and inspired the so called micro-credit movement that has spread to 65 developing countries, reaching 17 million borrowers (Bornstein, 2005). Similarly, the UK-based organization Riders for Health sells its logistical services to health ministries in more than seven African countries. Rider for Health own a fleet of about 1.500 vehicles that deliver medical services to up to 12 million rural Africans. Their operating expenses are covered by
7 charging local health ministries a cost per kilometre aiming to cover fuel, replacements and maintenance rather than being profit charges of any kind.
Thus, Hybrid organizations as those described above are now also covering the very basic needs of millions of people in non-industrialized countries that otherwise would remain unmet by governments, traditional businesses, charities and non-profit organizations (Grassl, 2012). In fact, these hybrid organizations are believed to fill the gap between the “apathy of the private sector” and “the impotence of the government to provide services to the people” (Robinson, 2006). It seems like since the 1990s and early 2000s boundaries between the for-profit and the non-profit sector have become blurred, creating a hybrid spectrum ranging from traditional non-profit organizations with a mission motive to traditional for-profit organizations with profit generating motives (Alter, 2007). Moreover, since the rise of social enterprises NGOs have become more and more subject of competition struggling for funds and growth opportunities. The concept of sharing value thus clearly origins from the business sector and has proven itself to be successful in creating positive societal change. However, CSV has never sufficiently been explored from an NGO perspective despite its ability to tackle societal problem in holistic manner. The specifics of creating shared value will be explained in more detail in the next chapter and thoroughly discussed throughout this paper.
1.1 Unlocking the Non-Profit Sectors Full Potential
Given that creating shared value is a quite successful concept that in the business world creates goals and outcomes that are also relevant for the non-profit sector the question arises what role CSV could play in the humanitarian world and what affects it might have on the work e.g. NGOs that are engaging in CSV. It seems that shared value creation gains increased relevance in the non-profit sector as there is a sense of change noticeable. Considering the ineffectiveness and lack of sustainability in the non-profit sector three major, yet, opposing trends can be identified. First, there is more influence by the financing actors that stress the control component and thereby highlighting the need for measurement systems and assessing the impact of an organization. Second, there is a trend towards more subsidiarity and localizing response since beneficiaries are more and more included in a disaster response model and third, NGOs are forced to include the return on investment (ROI) argument in their organizational model (OSE,
8 2017). The current directions in the humanitarian field create pressure on the shared value creation process and initiate a change of thinking.
However, despite the fact that noticeable change is underway it seems to be a very slow and lengthy process while the need and thus pressure in the sector is increasing and particularly financial resources are decreasing. In the face of its lacking effectiveness and insufficient reform efforts, increased competitiveness for resources and a funding crisis in particular NGOs are required to adapt their organizational strategies to a steady changing environment and demands because the non–profit community is failing to match the scale of the world’s great social problems. Despite its serious potential to improve the work in the non-profit sector and its significant societal relevance literature on shared value creation in humanitarian action is very fragmented and practices are lacking a coherent theoretical framework.
Therefore, this paper seeks to explore to what extent creating shared value is a new concept to non-profit sector and to analyse the elements of CSV for their prospective success in the humanitarian sector. Within that context the following questions are sought to be answered: (1) What are the specific components of creating shared value and (2) what best practices will lead towards successful shared value creation in the humanitarian sector? Further, the impact of CSV in humanitarian relief efforts will be assessed. A specific set of values is extracted and best practices are developed and described to provide practical guidance for NGOs to engage in shared value creation and become more effective and sustainable. Hereby we adopt social entrepreneurship as a lens to explore the relationship between shared value creation and the multi stakeholder system at hand. We argue that non-profit organizations need to operate more entrepreneurially and market oriented e.g. more results-driven and innovative so that organizations can deliver their services in the most cost-effective way, thereby become more efficient and enable people to protect themselves and those for whom they are responsible. We inductively derive a theoretical framework applicable to organizations in humanitarian action from empirical findings, case studies, reports and semi structured interviews. A research design using qualitative methods was adopted to answer the research question and extract a new distinct set of values. The paper ends with a discussion and implications for research and practice.
9 2. Literature Review on CSV and its Relevance in the Non-Profit Sector
In recent years social, environmental and economic problems increased dramatically bringing NGOs and the non-profit sector to its limits but at the same time starting a new wave of innovation and growth when it comes to tackling these issues. We are in a period of transformation where businesses and society are moving closer together with new idea to combine forces and be united in fighting for social progress and unlocking opportunities for economic global growth. Businesses and society have been against each other for a very long time thinking that societal benefits come with greater costs for the companies, while society has viewed business as the cause for many of the societal issues (Porter and Kramer, 2011). Now, the common understanding arises that societal needs also define markets as much as economic needs and that social harm can actually create more internal costs for companies. Thus, there is an increased interest in the business world to understand, solve and prevent societal issues while using societal needs as opportunities for growth and new market value (Ru, 2009). Simultaneously, the non-profit sector is in great need of transformation because organizations struggle since years to be more effective in tackling the major challenges they are facing.
With lack of funding and resources as well as insufficient economic knowledge to keep the NGOs healthy and running a synthesis between the traditional business models and the non-profit sector approach could present a useful and promising approach to these modern challenges. The following section reviews literature on shared value creation from a business perspective and its relevance for the non-profit sector, exploring how shared value creation might have the ability to unlock the non-profit sectors full potential and create innovative solutions to today’s human struggles. Hereby we explicitly use ideas introduced by Bennett et al. (2011), Porter & Kramer (2011) and case studies to develop and build new theory and bring interesting elements together that yield to explicit thinking in the field of humanitarian action.
2.1 The Status Quo in the Humanitarian Sector
Since Second World War the international human suffering index has reached its peak and the humanitarian sector is struggling to effectively respond to increasing global and major challenges. The worlds context and dynamics are changing resulting in more unpredictable and complex crises, which have a profound effect on the humanitarian landscape (Cohen, 2015). Today, humanitarian crisis response is substantially affected by environmental, geo-political, social and demographic shifts
10 coupled with an increasing influence of technology, a globalized economy and steadily rising inequality (Scott and Scott, 2014). Though the non-profit sector continues to grow and the number of humanitarian agencies, private organizations, corporations, individuals and stakeholders as well as government support have increased enormously over the past decades the international humanitarian system continues being criticized for its effectiveness. A common stakeholder belief is that humanitarian assistance has been unsuccessful in decreasing morbidity and mortality, alleviate suffering and enhance well-being, quality of life and human dignity due to duplication of services and lack of accountability and coordination amongst actors (Van Wassenhove, 2006). Its multi-layerdness and the high number of different moving parts that constitute the humanitarian system represent a major challenge when it comes to tackling crises because all come with individual interests, capacities and advantages. In addition, there is a lack of a common framework and no unified definition for standards or good practices, which makes working optimally together even harder given the complex and steady changing environment.
In 2016 heads of state, national and international NGOs, representatives of the private sector as well as representatives of the UN, academia, faith based leaders and media met in Istanbul at the first-ever humanitarian summit to tackle the question of humanitarian effectiveness (Humanitarian Summit, 2016). The intention was to create a hub for action, commitment and transformation and work towards a common framework that would eventually lead to meaningful change. There is no doubt that this humanitarian summit was of crucial importance for the global humanitarian agendas. It engendered a numerous amount of commitments to action, alignments with core commitments delivering the agenda of humanity and helped to launch and strengthen initiatives designed to improve the lives of those affected by humanitarian crises (Agenda for Humanity, 2016). However, despite all reform efforts and aspirations for meaningful change humanitarian crises continue to escalate and the services provided are failing the poor. Simultaneously, with respect to the scale of these crises non-profit and civil organizations remain tiny in comparison while also international governments seem to lack answers that specifically target these challenges. In Yemen, for example, 18 million people are in need of humanitarian assistance. Before the conflict escalated in May 2015 the country was already struggling for years of poverty, instability, poor governance, lacking law and order, general under development and dramatic environmental decline. Today, the Yemen crisis is the worst and largest food emergency
11 crisis in the world and aid workers are running out of time to prevent a famine (BBC, 2017). Likewise, 20 million people in countries like Somalia, South Sudan and Nigeria are on the verge of suffering famine and people will simply starve to death denoting the worst humanitarian crises since World War II. UN OCHA has difficulties responding to the people’s immediate needs because of inadequate funding from private donors and international governments (Al-Naggar, 2015). In combination with a great lack of awareness in the civil society the funding crisis plays an important role when it comes to humanitarian effectiveness.
Also, in the face of the humanitarian sectors lack of effectiveness and the increased competition for funding across NGOs, the humanitarian system is experiencing what some would call a “slow-onset funding disaster” (Hurt, 2014). In 2016 and 2017 international governmental funding streams began to dry up due the geo-political developments in the EU i.e. Brexit and the new US administration under Donald Trump, who already announced to cut the foreign aid spending by 32% in 2018 (Konyndyk, 2017). Restricted access to crucial government funding causes NGOs to constantly chase funding instead of being able to focus on strategic and substantive issues forcing them to come upon alternative ways to finance their organization while the world expects them to end the world’s worst crises such as in Yemen, Nigeria, South Sudan or Somalia. That said, the aid sector is in need of fundamental change and the idea of hybrid organizations following a concept of creating shared value could represent feasible approaches to solving the problems. The next sections will elucidate the idea of hybrid organizations and the related concept of creating shared value.
2.2 The Theory of Hybrid Organizations
Against the backdrop of the current humanitarian affairs outlined above the following section discusses the evolvement of new types of organizations that might have the potential and capacity to better cope with the growing global humanitarian challenges and bring positive societal change while at the same time producing economic benefit and become more effective and competitive on the harsh market.
As briefly mentioned above, the past two decades have brought exceptional growth in hybrid organizations. Those organizations typically mix elements, value systems and action logics such as combining a social mission with profit-seeking (Billis, 2010, see Figure 1) from different sectors like the public, private and voluntary sector. Hybrid organizations can for instance include firms pursuing corporate social responsibility (CSR) policies, firms that are specifically environmentally-friendly or
12 companies that responsibly invest in projects or development. Also, a broad yet ill-defined group of hybrid organizations are the so called social enterprises including work integration firms, microfinance institutions or firms that sell affordable products in developing countries as well as businesses selling fair trade products. Hybrids can be found on any level of societal activity e.g. micro and macro level, consisting of a great networks ranging between different entities from the public and the private sector. Literature further characterizes these organizations on the basis of the following features (Johanson, 2017; Boris and Jemison, 1989): (1) shared ownership, (2) goal incongruence and institutional logics, (3) a variety of financing sources and (4) different form of economic and social control.
Hybrid Spectrum
Figure 1: The Hybrid Framework (adapted from Williams et al. 2009)
There is a hybrid ideal proving that the independence of social value and commercial revenue creation is a long standing myth. Its vectors, however, can either reinforce or undermine each other with the great potential to produce both, negative and positive social impact.
2.3 The Idea of Creating Shared Value
Between 1999 and 2005 the originators Michael Porter and Mark Kramer first published articles on creating shared value. Publications such as “Philanthropy’s New Agenda: Creating Value” and “The Competitive Advantage of Corporate Philanthropy” as well as “Corporate philanthropy: Taking the High Ground” served as bases for the development of the current CVS model in the business sector. The central theme of CSV deals with the question how the self-interest behaviour in business can yield a positive outcome for society in the business environment. Porter and Kramer (2011) criticize businesses for their narrow understanding of capitalism and argue that the focus is too much on short term profitability. This constricted view of capitalism keeps
Tradition al Enterpris e CSR Philanthr opic Public institution s NGOs NPOs Social Enterpris es CSR Shared value New hybrid organizations
13 organizations from addressing the wider global societal challenges. Thus, the roots of sharing value are creating economic value by creating social value. More specifically Porter and Kramer (2011) define creating shared value as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.”
Figure 2: Features of Shared Value Creation (Porter and Kramer, 2011)
Creating shared value entails three different aspects (Figure 2). Products and markets have to be reconceived, productivity has to be redefined and a supportive cluster network needs to be created preferably at the business location (Kramer and Porter, 2011; Von Liel, 2015). Thereby, reconceiving products and markets is a two dimensional approach: creating new products specifically designed for the needs of a target population e.g. housing, health or shelter creates and avenue of innovation while serving social needs. Additionally, by meeting societal needs business can open a new market for themselves and are provided with a growing opportunity.
Vodafone, for example, launched an initiative in 2007 that combined their online banking service with affordable cell phones in Africa. On the one hand this initiative enables the poor to securely save money and on the other it supports the farmers to produce and market their crops more efficiently as well as it created a new market opportunity for Vodafone products (Vodafone, 2014). Redefining productivity in a value chain can be summarized as company’s activities to enhance resources, improve efficiency and overall optimize the business along its chain. Thus, the primary
Business Opportunities
Social Needs Corporate Assets
SHARED VALUE
14 goal of CSV is to create a positive impact on society along the value chain while reducing the negative impact during the production process. Porter and Kramer (2011) identify six potential areas to redefine productivity, namely, resources, logistics, energy use, acquisition, distribution and location. In the business context logistics, energy use and resources are specifically related to environmental friendly gains from advanced technologies and innovative processes e.g. efficient packaging and less waste. Enabling suppliers to improve their production will lead to quantity and quality gains and thereby redefines the area of acquisition. Further, distribution processes can be improved by specifically targeting communities in need or underserved markets with new approaches. Investing in employee skills and in, for example, health and insurance packages will lead to increased productivity. Lastly, Porter and Kramer (2011) recommend to carefully consider production locations in terms of cost and efficiency. The third way Porter and Kramer suggest (2012) to create shared value is by enabling local cluster development and simultaneously increasing a company’s productivity and innovation. Positive effects include a better infrastructure, more job opportunities and more effective collaboration. For instance, Yara, a Norwegian fertilizer company faced significant distribution issues in Tanzania and Mozambique due to the countries poor infrastructure. Consequently, the initiative built roads thereby also enabling about 200.000 farmers to deliver their products more efficiently and creating 350.000 new jobs in that area.
However, Crane et al. (2014) from the University of California effectively argue that the concept of Porter and Kramer closely resembles ideas of merging values first proposed by Glenn Carroll and thereby isn’t an original concept. They argue further that it is ignoring the inherent tension when it comes to responsible business activity and it takes a rather naïve approach onto business compliance. They further state that also the role of corporations in society is not sufficiently described since it is based on a shallow concept. As this research seeks to answer the questions in how far CSV is applicable to the non-profit sector and more specifically to the humanitarian sector we conclude, that Porter and Kramer (2011) as well as Crane (2014) are both right at times, depending on the situation and the context of CSV but we are aware that sharing value goes beyond these theoretical concepts and there are other phenomena or concepts leading to a similar outcome.
15 Again, originally creating shared value is defined as policies as well as operating practices enhancing competitiveness of an organization while simultaneously advancing the economic and social conditions in the community it is operating in. Within CSV the company reconceives products and markets, redefines productivity in the value chain and builds supportive industry clusters and the organizations location (von Liel, 2016). There are multiple elements within the concept of creating shared value that also exist in other concepts or theories like corporate social responsibility, social entrepreneurship or the stakeholder theory, which will be elaborated on in the following section.
Nevertheless, creating shared value goes beyond the theoretical model introduced by Porter and Kramer (2011) with its three steps of creating shared value. Moon et al. (2011), for example, argue that defining core competence should be the initial step of shared value creation and the steps introduced by Porter and Kramer (2011) would succeed. Moreover, internationalization is one of today’s key topics when it comes to businesses and service distribution. We are living in a highly interconnected and globalized world that brings along a number of challenges that are also disregarded and will be discussed in one of the following sections. Despite its critiques, the model by Porter and Kramer (2011) is a good starting point for introducing CSV, yet, has to be further developed since the process itself not only concerns multiple values but also multiple actors at the same time, thereby representing a more holistic and complex approach than any other concept introduced in the past.
2.4.1 Differentiating CSR, Social Entrepreneurship and NGOs
In the field of modern business ethics, the CSR concept gained significant attention in the 1980s when R.E. Freeman (1984) published a book named “Strategic Management: A Stakeholder approach”. The concept then gained momentum in the 1990s due to the increase of technology and globalization. Freemans work was probably one of the most influential milestones, proposing that good management practice is based on relationships with stakeholders and how they in turn are affected by businesses. Today, CSR or Corporate citizenship refers to a corporation’s initiative to determine and take responsibility for a company’s effects on social well-being and the environment (Adi et al., 2015). The corporate culture is known for its dark legacy and immense detrimental effects it can have on vulnerable communities. At the same time large companies are extremely powerful entities that have the capacities to manipulate interests and leadership in sovereign nations in their favour (Bowen, 1953). The most apparent cases of money and influence inflicting tremendous damage on people and the
16 environment can be drawn from industries such as oil, mining, chemical manufacturing, fishing or agriculture. For example, the indigenous groups in the Amazon rainforest have almost been wiped out for hydroelectric power purposes as there was room needed for logging, cattle ranching or drilling (Bhattacharya et al., 2011). Although consumer’s demands for certain goods and services play a crucial role in facilitating permanent damage to local ecosystems it is evident that corporations have and continue to profit from such deterioration.
Today, certain areas of the corporate culture started to embrace a philosophy that intends to combine profit making value with the commitment to ethical conduct or as Google Inc. likes to put it: “Don’t be evil”. Usually CSR efforts go beyond what may be required by regulators or environmental protection groups and the common belief is that the same money and influence causing the damage allows companies to positively and effectively bring change (Blowfield and Frynas, 2005).
In fact, there are multiple ways for corporations to show their commitment to ethical conduct. They could simply give money to charity or utilize their influence in sovereign nations to pressure governments and other companies to deal with people and resources more ethically. Alternatively, offsetting the negative impact of their operations companies can directly invest in local and poor communities by building schools or improving the medical and sanitary situation. In addition, they can fund research and development to promote sustainable technologies. Some might think CSR is in oxymoron combining two contradictory ideas in the business world (Mendiratta, 2017) while others belief it is the lawful pursuit of profit (Nicholls, 2017). Nevertheless, in 2010 a set of voluntary standards was released by the international organization for standardization intended to help companies implementing corporate social responsibility.
In comparison, social entrepreneurship (SE) is frequently described as an “innovative, social value creating activity occurring within or across the non-profit, business or government sector” (Kickul and Lyons, 2012). In the face of numerous global issues such as climate change, new health pandemics, water and energy crises, growing migration, increasing inequality and endemic poverty, the rise of terrorism and nuclear instability, SE is probably the most noteworthy innovation in global civil society. A narrower definition of SE refers to non-profit organizations that apply entrepreneurial strategies to better financially sustain themselves while having an increased impact on their social mission (Lasprogata and Cotton, 2003). However, it
17 remains a fluid and contested concept that can be applied to a range of organizations differing in size, aims and beliefs implying that the definition of SE is context dependent and its attached meaning changes respectively.
There are two main schools in social entrepreneurship, namely social enterprise school (SES) and social innovation school (SIS). The former focuses on the creation and management of social enterprises through earned-income strategies and thus by definition limits SE to solely being non-profit organizations. The latter teaches simultaneous opportunity and advantage seeking behaviours resulting in increased firm performance (Ireland et al., 2003). This orientation is not restricted to one organizational structure and therefore allows for both, a for-profit and non-profit entities. Typically, for-profit entrepreneurs measure performance by using business metrics like profit, revenues and stock prices, whereas non-profits or blend profits primary goal is to generate a positive return to society indicating that at this point different metrics have to be used (Upadhaya et al., 2014). Social values concern the “fulfilment of basic and long-standing needs such as providing food, water, shelter, education, and medical services to those members of society who are in need” (Certo and Miller, 2008:267). That said, also social businesses need some kind of market and make use of money measures. There is no doubt that business will lift up development and economy and social business continue to take care of major social issues, thus, will move the great mass of humanity forward. However, sometimes there are issues for which money measures that are needed for a market can’t be developed and leaves behind those ten percent of the most disadvantages or just unlucky e.g. disabled or old people who just need love and compassion.
Non-governmental organizations or NGOs are for the remaining ten or more percent of the market where there is no money value. According to the World Bank NGOs are non-profit and citizen based groups that primarily rely on volunteers and source their funding from private donations, grants, good sales, service donations or from governments (OED, 2002). They are cooperative in nature and pursue activities to relive suffering, promote interest of the poor, undertake community development, and provide basic social services as well as protecting the environment. Generally, two major groups of NGOs can be identified: operational and advocacy. Operational NGOs focus more on development projects while advocacy NGOs promote particular causes.
18 humanitarian sector is most likely of philanthropic nature and is solely and primarily guided by social values.
2.4.2 CSV and the Stakeholder Theory
R.E. Freeman developed the concept of Stakeholder Theory in 1984, which assumes that a business organization wouldn’t exist without its relationships with stakeholders. Stakeholders are any group of employees, customers, suppliers or communities who affect or are affected by the achievement of an organization’s objectives (Freeman et al., 2010). Freeman argues in order to understand a business itself one has to understand an organization’s relationships with its stakeholders because those relationships among these groups are inherently tied together. Clarks (1994) further defined Stakeholder Theory as a firms purpose to create value or wealth for its stakeholders by converting their stakes into goods and services. In addition, Mansell (2013) highlights the normative characteristics of this theory since moral legitimacy is a central element in this context.
Thus, CSV and the Stakeholder Theory have common elements with respect to their definition and their perspective on the role of stakeholders in an organization. Both theories stress the positive impact on the financial performance of a company and that value has to be created for each and every group as interests among them are joint. Business and society are intertwined and concurrent value creation for both, the business and its stakeholders are the core aspects of creating shared value.
Concepts Main Focus Common Elements with CSV
Differentiating Elements
Corporate Social
Responsibility do good to society
- integration in corporate strategy - yielding financial and social return - using corporate capabilities
- strict
measurements process
-direct link between financial and social results -merged with business activities Social Entrepreneurship Business opportunities in the social sector - Potential for monetizing social potential - aiming to generate profits -emerging from
19 Table 1: An Overview of CSV related concepts: Similarities and Differences (adapted from von Liel, 2016)
A unique element of CSV is its concern for the creation of values for all not just a single stakeholders of society. Table 1 shows distinct similarities and differences between different corporate social responsibility concepts that emerged over time and highlights the fact that CSV seeks to combine the elements of each of the concepts and thereby goes beyond the traditional relationship of beneficiaries, stakeholder and businesses. Creating shared value means to combine the different focuses of each theory to a new and more dynamic as well as holistic concepts with a wider and more long lasting reach. Creating shared value also means to seek business opportunities in the social sector and have a profound social impact while integrating and considering the interests and values of all stakeholders involved. That said, it is impossible to describe the CSV process in a cause and effect model with single indicators for success.
Instead, sharing value has to be described by a multi-value-multi-actor-matrix that has the capacity to catch and express the multiple interdependent and complex relationships
- Focus on innovation solutions to solve social problems
existing for profit organizations - applicable to all industries Stakeholder Theory Integrate interest of all stakeholders - Notion that society and business are intertwined - positive financial impact of social corporate behaviour - CSV goes beyond corporate stakeholders - CSV requires innovative way of doing business Non-Profit Effects changes in the humanitarian sector - advancing social conditions - pursuing a common not for profit goal - provide public benefit - no financial return or potential of monetizing social capital
- notion that society and business are disconnected
20 between actors and the value while at the same time being considerate of the operating context (von Liel, 2016, Pennink, 2017). The next paragraph describes how shared value creation can lead to more effectiveness and sustainability and explains cross functional relationships between different group of actors and their values by means of a multi-value-multi-actor-matrix.
2.4.3 CSV in a Multi-Value-Multi-Actor-Matrix
All of the concepts mentioned in the previous sections incorporate creating economic values in such a way that it directly or indirectly creates value for society. They combine business values with social values to achieve growth and innovation and producing monetary and social return. However, these concepts aren’t of holistic nature and don’t explain what specific behaviours lead to CSV. Table 2 shows the explicit values and actors related to this process. It also visualizes the multifacetedness and the complexity of CSV as different levels of values among different groups of actors are considered, making it highly cross sectional. According to experts, shared value creation is a holistic approach that redefines capitalism (Geipel, 2015), however, CSV should be less of a dogma but rather a useful concept for specific situations.
CSV cannot be achieved in all situations and highly depends on the collaboration and interaction of all parties involved (Mendiratta, 2017). For example, the CSV concept seems useful for mining companies that decide to localize their processes in developing countries and by doing so invest in skills and knowledge training of their suppliers, making them more competitive. The optimal long term outcome would mean lower procurement costs because delivery times are cut and shipment costs are omitted as well as the wages in local markets are lower compared to export nations. Simultaneously, hosting communities are upgraded in terms of job opportunities, revenue, skill set and technical equipment as well as infrastructure. Now, if the same company, however, engages in malpractices such as e.g. they produce even more losses for their host countries, shareholders and local governments. Thus, the idea of sharing value does not replace ethical behaviour or compliance with legal or social norms but it creates an intersection of corporate activity and economic and social development. At this intersection several questions are of increased importance and central to begin with the process of sharing value. By means of such a multi-value-multi-actor matrix the following questions should be answered:
21 Table 2: A multi-actor-matrix (Pennink, 2017)
“What is my goal?”, “who will be involved”, “how are they involved”, “what are their values and (how) are these values communicated or discussed” and finally “what combination of cells will bring the most effective results in the long run”? (Pennink, 2017). The answers to these questions lay the groundwork for strategic planning which, particularized in the following sections, is of incredible importance. The process of creating shared value is more integrative and strongly cross functional as it requires the involvement of all actors affected and consequently leads to an inevitable exchange or discussion of values, expectations and goals to achieve a desired outcome.
In addition to the matrix displayed above, Bente et al (2001) identified two further factors important for each actor to consider when it comes to CSV. Organizations should choose a domain, i.e. chose strategies that allow for prioritization of projects and clients and second, the organization should be aware of their individual resources and needs when entering communicational processes with other actors as it keeps interactions open and transparent. Such an innovative collaboration as portrayed above has a tremendous potential for aiding transformation while at the same time illustrates the major challenge of CSV in the humanitarian context.
2.5 The Junction of Philanthropy and the Role NGOs play in successful CSV As previously outlined, businesses are moving towards an increasingly strategic and integrative approach regarding their philanthropic initiatives. This changing notion is supported by the concept of shared value described in the previous section and is moving from an early adopter phase to almost mainstream global acceptance.
However, what role does an NGO play in creating a successful shared value initiative? Actually, the dynamics between NGOs and organizations are beginning to change.
22 To date, most businesses considered the non-profit sector being non integral to an organization’s principal objectives and goals, leaving it to the marketing departments to generate public relations corporate social responsibility or using charity merely for tax deduction purposes. Now, NGOs take on more and more a role of social value distribution partners thereby marking a shift towards integral collaboration.In fact, the transition towards strategic partnering can also be described as innovative collaboration (Sorensen and Torfing, 2011), whereby companies create a competitive advantage by unlocking a new market and customers through an in-depth understanding of external stakeholders such as non-profits or civil society.
Unilever, for example, works together with an initiative that financially empower rural women and create livelihood opportunities by providing regular income for Shakti entrepreneurs and their families (Unilever, 2005). Likewise, CARE and Cargill helps to improve the lives of more than 300.000 people around the globe due to its partnerships with other local initiatives that foster nutritional, economic and educational opportunities for growth (Cargill, 2008). Probably one of the most prominent examples for innovative collaboration is Coca-Cola’s initiative Coletivo. The company creates shared value by increasing employability of Brazils low income youth while simultaneously increasing its product sales (Coca Cola, 2017). Coca-Cola has implemented four steps to measure the initiatives success and uses data to further identify potential areas of shared value creation.
Step one: relevant skills development among low income youth was identified the social issue to target. Step two: along their value chain and in partnership with local NGOs the initiative trained local youth in retailing, business development and entrepreneurship making it a business case. Step three: Each community supervisor of the initiative is measuring and reporting on the progress in a monthly fashion. Indicators include number on youth participating, retailers involved and their performance over time. To ensure optimal cost efficiency and effectiveness costs are monitored and associated with the efforts. Lastly, and step four: key results are measured and provide relevant insights into new opportunities of unlocking new values (Coca-Cola, 2016). Shedding new light on the role of NGO during the CSV process, data of the Coca Cola case study revealed that the strength of the local NGO as an implementing partner was one of the most important key factors for the initiatives success (Lorenzo, 2014, Coca Cola 2014). As a result, Coca Cola specifically invested in strengthening management skills and leadership training for local NGO workers and helped them to build
23 sustainable funding sources thereby guaranteeing the initiatives success, which in turn lead to increased product sales for the company.
Against the backdrop of the humanitarian funding crisis mentioned as one of the key issues of the humanitarian sector innovative collaboration thus represents a practical alternative to overcome those and eventually improve effectiveness of current humanitarian aid. The capital and financial resources that NGOs are struggling to raise themselves would then be provided by the for profit sector whereas NGOs provide knowledge, networks and partnerships. On the downside, innovative collaboration would also imply a continued integral dependency on a company’s strategical objectives and willingness to cooperate, further stressing the already very complex multi stakeholder system in the humanitarian sector. Having that said, what hinders non-profits to stand up for themselves and become “big players” when they in fact have the potential to solve these societal problems? The next section illustrates potential roadblocks on the way to shared value creation in the non-profit sector and specifically within the context of humanitarian action.
2.6 Challenges and Restrains in the Non Profit Sector affecting CSV
The world is a remarkably diverse place and so are the challenges the non-profit sector and NGO’s face in the pursuit of having a positive social impact in society. In the context of this changing ecosystem, the non-profit sector is growing fast and still evolving. Its taking more and more shape in the democratic system of society which comes with increasing challenges in forms of rules, regulations and interests. These challenges, however, can fundamentally shape an NGOs values, which in turn can shape the CSV process. As described in the multi-value-multi actor section above the most central part of CSV is considering the values of all stakeholders involved, yet, this can become even more complex by considering the individual challenges for each group of actors and the ultimate effect on the creating shared value process.
Thus, establishing a common framework for CSV in the humanitarian sector requires and understanding of obstacles NGOs are facing in order to be more effective. It is especially important to be able to identify inhibitors or barriers to CSV for overcoming these challenges and in order to have positive societal impact.
24 Figure 3: Restrains undermining a Non-Profits Potential and affecting CSV
Considering the complexity of globalization and its many effects on the humanitarian sector it is challenging to draw a clear and concise picture of the restrains that undermine humanitarian work. However, Figure 3 is a first attempt to visualize the broad diversity of the local context as well as national approaches including national regulations, NGO law or simply restrictions, with respect to shared value creation. The following sections go into more depth about where some of the inhibiting factors come from, how specifically they inhibit CSV and what needs to be done to overcome those to start an effective CSV process.
2.6.1 The Social Belief System
Many of today’s belief systems or dogmas originate from religion. It is said that in the 16th and 17th centuries a strict fundamentalist sect came from Europe to America
to escape prosecution with the mission to purify the catholic church and to make a lot of money (Nuttall, 1992). Old Puritan beliefs and their fanatical dogma soon played a crucial role in the founding of American colonies. Literature describes them as pious people and aggressive capitalists with extreme profit making tendencies. At the same time Puritans were Calvinists who were taught that self-interest was a raging sea that was a sure path to eternal damnation creating a huge internal conflicts (Hill, 1992): if making money meant to be directly sent to hell then puritans where basically taught to hate themselves. Charity became their economic sanctuary where they could to penance for their profit making tendencies. However, how could they make money from charity
25 when charity was their penance for making money? Thus, financial incentives were exiled from the roam of helping others so they were able to thrive in the area of making money for themselves. In more than 400 years nothing and nobody intervened pointing out that this is unfair and counterproductive.
According to Dan Palotta (2013), this ideology gets policed in the non-profit sector by this one very dangerous question: What percentage of my donation goes to the cause versus overhead? There are two major issues resulting from these old beliefs: First, this ideology of exiling incentives from charity makes people think that overhead is something negative and not part of the cause. However, especially when overhead is used for growth it absolutely is part of the cause as it maximizes the outcome.
Second, the belief that overhead is an enemy of the cause creates an even larger problem as it forces charities to go with the intention to keep the overhead low despite their need to grow in order to be effective.
Consequently, charities get taught that they should spent as little money as possible on activities such as fundraising under the theory that there will be more money available for the cause. Palotta (2013) argues that in a logical world fundraising is the only activity that has the potential to multiply the amount of money available for the cause people care about so deeply. Hence, charities are doing it wrong to invest less in these activities when they should in fact invest more so they have more money available.
Thus, it’s the belief system that keeps the non-profit sector tiny. The negative associations that people have with the demonic label overhead are rooted in our current social system belief stemming from old religious beliefs and it is undermining the non-profits potential. Dan Palotta (2016) clearly states that this problem is a result of confusing morality with frugality and the non-profit sector should start asking the right questions, namely, what is the actual size of these pies instead of how much money a non-profit organization spends on overhead. So, as overhead is an integrative term in the business world and therefore is strongly linked to economic values social beliefs can pose a threat to CSV in the humanitarian sector because different stakeholders might refuse to think or simply don’t understand the term overhead in the non-profit context. This could lead to refusal of support or cuts of funding or maybe the loss of good reputation. NGOs fear the consequences of creating shared value within their organizations but also from the public because that could mean they have to repel long
26 term partners or relationships or their own employers for the sake of transition and change. Hence, changing people’s perspectives by educating them about why and how economic values should be integrated in the humanitarian work and what the positive aspects of shared value creation are is absolutely crucial for successfully implementing CSV.
2.6.2 Discriminating the Non-Profit Sector
The unjust treatment of the non-profit sector is another inhibitor of CSV in this context. If we want a world that works for everyone and where no one is left out, then the non-profit sector has to be a serious part of the discussion. Unfortunately, this is not the case yet and neither charities nor NGOs come close to solving the big humanitarian issues. The humanitarian activist and entrepreneur Dan Pallotta (2013) says this is because we have two rule books which eventually and negatively tie back to CSV. There is one for the non-profit sector and one for the rest of the economic world. It can be described as an apartheid that leads to profound discrimination of the non-profit sector, which in turn inhibits CSV because it blocks organizational growth and innovation both necessary for a successful shared value initiative.
In fact, Palotta (2013) identifies five specific areas of discrimination: (1) compensation, (2) advertising and marketing, (3) taking risk on new revenue ideas, (4) time and (5) profit making.
In the for profit sector the assumption holds the more value you produce the more money you can make. However, in the non-profit sector people are reluctant to us money to incentivize people to produce more in social services, e.g. curing Malaria. As explained in the previous section and based on social beliefs the idea of anyone making a lot of much money by helping other people elicits a visceral reaction. Strangely enough the notion that someone became rich by not helping other people but by for example selling violent video games to kids doesn’t elicit the same reaction in people. In fact, the latter seems to be widely accepted thinking this is based on an ethical system. Yet, this system has a very powerful and stark side effect on a very high number of highly educated people who want to do good in the world and provide their knowledge but are left a mutually exclusive choice that would imply a lifelong economic sacrifice for them. Because financial incentives are lacking in the non-profit sector (young) professionals with great talents have to decide to either do very good for themselves and their families or to do good for the world. Tying back to the idea of creating shared value this can be a major issue for the non-profit sector because the
27 complexity of CSV needs the most talented and motivated people, however, also young professionals within themselves are striving for shared values in their lives and that is exactly where the non-profit sector again becomes almost a victim of not being able to go with this social trend yet. In addition, it is probably cheaper for a CEO to annually donate a certain amount of money to e.g. a hunger charity and be called a philanthropist than becoming a CEO of that hunger charity him or herself. This way keeping both, his or her own career opportunities including power and influence while at the same time doing something good by donating or volunteering for charity organizations. This, again, proves the point that the non-profit sector, due to contextual and societal factors, is not yet able to provide their workers with morally fulfilling and economic opportunities, let alone engage in shared value creation in their line of work to tackle global issues.
Moreover, the for-profit sector spends tremendous amounts of money on advertising and marketing to create more value. However, in the non-profit sector the common belief holds that donations shouldn’t be spent on advertising or marketing if you can spend the full amount helping the needy. This thinking, though, disregards the fact that advertising and marketing can help bringing in dramatically greater sums to help the people in need. According to Dan Pallotta (2013) people just need to be asked because they are wiry to be asked to do the least possible for a good cause they care about deeply. Ever since charitable giving started to be measured in the 1970s the number has remained stuck at 2% of GDP (NCCS, 2015). This implies that over forty years the non-profit sector wasn’t able to take any market share from the for profit sector because the non-profit sector isn’t really allowed to market. If an NGO or charity isn’t advertising all the good they do it is not surprising that people spend their money otherwise and more importantly, how will they ever become equal partners in creating shared value since that means taking into account all shareholders values and needs?
Further, non-profits are afraid of attempting any brave or giant scale new fundraising efforts in fear that if this attempt would fail their reputation will be dragged through the mud. The film industry frequently produces films that don’t land a hit and it doesn’t seem to affect too many people because they learn from their mistakes. However, clearly, prohibiting failure kills innovation (Palotta, 2008). Killing innovation with respect to fundraising means that no more revenue can be raised, which prohibits growth. Growth, however, is needed to possibly solve the global humanitarian issues and central to creating shared value in the world.
28 Also, people are lacking patience with respect to an NGOs long term objectives and success respectively. Amazon, for example, didn’t return any profit to its investors for six years and they were patient knowing that it was important to first build market dominance. Now, if an NGO had a magnificent long term objective that would require them to invest the donation into building a scale first instead of giving it to the people in need society would not accept. Enabling long term development, though, is another very crucial aspect of creating shared value and also here the non-profit sector seems to be inhibited due to society and public perception. Building a scale in order to be effective and successful it takes time and learning from mistakes.
Lastly, the for profit sector pays people profits to attract their capital for new ideas. Since the non-profit sector can’t pay profits it also doesn’t attract risk, growth and idea capital leaving NGOs and charities starving while the for-profit sector holds the locks on this market.
In summary, there are a number of obstacles on the way to CSV in the non-profit sector because for NGOs to be able to create shared value they also have to overcome social stigma and social as well as political trends that have been around for such a long time. To begin with the non-profit sector is at an extreme disadvantage because money can’t be used to lure talent away from the for-profit sector inhibiting NGOs from being able to design new or creative products and services that are integral to CSV. Then, advertising and marketing is much more small scale compared to any for-profit organizations so they don’t attract as many new costumers, which inhibits growth of an organization and expansion is necessary to build relationships and a good network. Further, risk taking in pursuit of those new costumers isn’t tolerated, generally the non-profit sector is given less time and lastly its lacking the stock market to fund any of the previously mentioned, which basically inhibits any integration of economic values in the non-profit sector. Confirming the effects of the two separate rule books applied to these sectors statistics show that between 1970 and 2009 the number of non-profits growing and crossing the $50 million annual revenue barrier was 144. Simultaneously, in the same time span 46.136 for-profits crossed that revenue barrier (NCCS, 2017). Overall, these points indicate that even creating shared value seems to be somewhat “simpler” as a business than as an NGO and that it takes a non-profit probably double the effort to achieve the same levels that are needed for creating effective shared value compared to for profit businesses, which started integrating CSV already years ago.
29 Finally, the above strengthens the fact that the non-profit sector has problems to generate scale that seems to be very much needed to be able to address and tackle greater societal problems. This is why it is important to explore the role of creating shared value processes in the non-profit sector and determine if and how much value it can add to the humanitarian sector.
30 3. Methodology
This study originated from a need for transformation in the humanitarian sector towards a more effective and sustainable approach and to understand and explain the role of a CSV approach in facilitating this transformation. In the present study business and management theory as well as qualitative methodology have provided the means to go beyond earlier approaches of creating social impact in society and identifying the unique elements of successful CSV and the best management practices to implement the theory of CSV.
3.1 Literature Search.
To examine the corpus of theory that has been accumulated in regard to shared value creation in humanitarian action the online library of the University of Groningen, the online library of the University of Uppsala, Google Scholar and Google were searched between May and December 2017. The following search terms were used in combination: hybrid organizations, social enterprise, multi value creation, sharing value, social business models, circular business models, humanitarian action, transition and change. Google Web was primarily used to find annual reports of social businesses and original websites to case studies provided throughout the paper.
3.2 Study selection.
Titles, abstracts or executive summaries and conclusions were screened by the researcher. An article or report was selected if existing theories on hybrid organizations and social businesses were discussed, the phenomenon of shared value creation or sharing value was investigated or the relationship between the humanitarian sector and social businesses was assessed. Both, for-profit and non-profit social businesses were included in this research. However, only reports and studies written in English language were considered. The full text of the remaining articles was reviewed with respect to the same inclusion and exclusion criteria that were initially used in the title and abstract review. In addition, studies were screened for completeness and all duplicates were excluded using the Mendeley software.
3.3 Case selection.
In order to get an in-depth understanding of the sharing value concept in the context of humanitarian action this paper also includes case study research to generate data. Hereby we make use of information oriented selection approach opposed to random selection, to ensure that cases are applicable to this projects objective (Thomas, 2003). Examples of hybrid organizations were selected based on their goal to combine
31 social and economic values, their non-governmental and non-profit orientation and its applicability to the humanitarian sector. The number of cases selected for this study depends on our research and the features of each case (Yin, 2003). All of the four examples provided in this paper (see Appendix II) combine social and economic values and focus on profit maximization by responding to societal needs. It was decided that four case studies provide sufficient empirical data since the process of shared value creation seems to be very similar after case study 3 and 4. Also, four case studies seemed to be a manageable amount to be analysed in the scope of this paper.
Case studies are applicable to this research because the main purpose of this thesis is to explore and explain in how far CSV is a new concept to the non-profit sector and what exact elements there are that lead to shared value creation. Each case potentially increases the validity of allegations made throughout this paper and helps to understand the underlying concept of shared value creation. Hence, case studies provide the practical grounds for analysing factors of shared value creation.
3.4 Data Collection and Analysis
Since there is a lack of theoretical knowledge and the phenomenon of shared value creation specifically in humanitarian sector is a new subject of study this paper is of explorative and descriptive nature. We collected data through several methods.
Initially, empirical literature on social entrepreneurial theory was reviewed and data from empirical literature on social entrepreneurship and hybrid organizations as well as business reports was collected and analysed to get a profound understanding of the overall concept of sharing value, also called theoretical memoing. Second, the memos are sorted to arrive at new ideas of CSV and a connection between the different concepts is established. At the same time, it enabled to differentiate related concepts that evolved over time and provided a brief historical reflection of CSV in the business sector. The main research question was to determine to what extend CSV is a new concept to non-profit sector and to analyse the elements of CVS for their prospective success in the humanitarian sector. Thus, two areas of interest were deducted from the main research question, namely, shared value creation and social business best practices to produce findings for the sub questions “what are the specific components of creating shared value” and “what best practices will lead towards successful shared value creation”. These two areas of interest served as the main two topics throughout the seven semi structured interviews and more detailed questions were conceptualized based on the analytical framework of value creation by Bente et al. (2001).
