Building a business model for a new swimming pool

Building a business model for

a new swimming pool

A Corporate Social Responsible Market Opportunity

Studentnumber: S1976001 Star Numanstraat 105B 9714JN Groningen Tel: +31(0)646129996 E-mail: g.j.post.2@student.rug.nl University of Groningen Faculty of Economics and Business

MSc Business Administration Specialization Business Development

Landleven 5 9747 AD Groningen

First university supervisor: prof. dr. P.S. Zwart Second university supervisor: prof. dr. C Reezigt Fist company supervisor: Marcel van Delden bc. Second Company supervisor: Benny Mensink

Preface

In order to complete my study Business Administration at the University of Groningen I write this Master thesis related to the field of Business Development. In my final year I have learned a lot about business models, new product development processes and about the so called ambidexterity phenomena. Special attention has been given to sustainability and durability and I gained insight in the opportunities which lay at the base of the pyramid. BOP, durability and sustainability had my special interest. Living in a world of prosperity and with the increasing pressure on natural resources the call to become more sustainable is already set, but not yet in all fields of the current economy exploited. Creating and re-designing business models together with new product and service development processes are creative fields which I find very interesting. Creativity, perseverance, and lot of motivation have brought me to the point where I am standing now. But without the help of my parents, the support of family and friends I wouldn’t have come this far. Furthermore I would like to thank the founders of Groenbad VOF to offer me the opportunity to write my thesis and give me a learning opportunity that I never will forget.

Also I would like to thank the professors at the university for stimulating and creating an unforgettable atmosphere. The help, support and off course all the wise lessons have contributed to who I am today.

Abstract

The purpose of this research is to present a different and more sustainable view towards the current business model in use in the local Dutch swimming pool industry. This paper starts with a short introduction of the current market situation. It addresses the current pressure on local governments that need to economize due to reduced subsidy’s, while at the same time they aspire to becoming more sustainable.

The business philosophy followed, contains the awareness of sustainability and durability of local swimming pools whereby entrepreneurs and local governments strive to integration of knowledge and profitability within this branch. The approach of this research is to incorporate Corporate Social Responsibility within a business model.

The domain of Corporate Social Responsibility is extensively elaborated to provide the right tools to integrate into a new business model. Swimming pools are known for their high energy consuming facilities, so logically many improvements can facilitate a reduction in energy consumption; this feeds not only the ecological domain of CSR but also the economical domain. But the function of a swimming pool is not limited to sports and educational purposes only, also has a social function. The social domains addressed, stretches from lower ticket prices to public funding mechanisms.

The current literature on business models in use have provided a solid foundation or platform. The combination of these two domains provided the input for creating a new business model which incorporates CSR.

Table of content

2.1. Current market situation ... 10

2.2. Corporate Social Responsibility ... 11

2.3. CSR definitions ... 12

2.4. CSR frameworks ... 15

2.5. Concluding definition on CSR and its framework. ... 18

2.6. Business models ... 23

2.7. Definitions and framework of business models ... 23

2.8. Business models and funding models for nonprofit organizations ... 29

2.9. Conclusion on business models ... 32

2.10. Literature on CSR integrated in Business Models... 35

3. Methodology ... 40

3.1. Desk Research. ... 40

3.2. Field research ... 41

3.3. Validation of the problem statement ... 41

4. Results and conclusion ... 43

4.1. Proposed instruments for a CSR business model ... 43

5. Discussion ... 53

APPENDIX 1: CSR, Carroll (1979) ... 58

APPENDIX 2: CSR, Maignan and Ralston (2006) ... 59

APPENDIX 3: CSR, Dahlsud 2006 ... 61

APPENDIX 4: CSR, Framework on CSR ... 62

APPENDIX 5: Business model, Morris et al. (2005) ... 65

APPENDIX 6: Business model, Chesbrough and Rosenbloom (2002) ... 67

APPENDIX 7: Business model, Osterwalder et al. (2005) ... 68

APPENDIX 8: CSR + business model, Høgevold, and Svensson (2012) ... 69

APPENDIX 9: CSR + business model, Grayson & Hodges (2004) ... 70

APPENDIX 10: CSR + business model, Jenkins (2009) ... 71

APPENDIX 10: Designed Model CSR + business model ... 72

APPENDIX 11: Semi-structured interviews ... 75

List of tables Table 1: Overview CSR dimensions Maignan and Ralston (2006)... 17

Table 2: Dimension Scores based on Dahlsrud (2006) ... 18

Table 3: overview of CSR domains in used literature. ... 19

Table 4: overview of frameworks used ... 20

Table 5: Domains of CSR ... 22

Table 6: Business model of Morris et al. (2005) ... 25

Table 7: The nine building blocks of Osterwalder et al. (2005). ... 29

Table 8: Extended building blocks ... 34

Table 9: CSR defined by Maignan and Ralston (2006) ... 60

Table 10: The five dimensions of CSR Dahlsud 2006 ... 61

Table 11: Framework on CSR. ... 64

Table 12: The six components of Morris et al. (2005) ... 66

List of figures

Figure 1: Basic set up ... 9

Figure 2: A CSR business model for a new swimming pool... 44

Figure 3: The Corporate Social Performance Model; Carroll (1979) ... 58

Figure 4: Business model based on Chesbrough and Rosenbloom. (2002) ... 67

Figure 5: The Business Model's Place in the Firm Osterwalder et al. (2005) ... 68

Figure 6: Business model canvas structure; Osterwalder et al. (2005) ... 68

Figure 7: HÅG’s business sustainability model Høgevold and Svensson. (2012) ... 69

Figure 8: The seven steps of the business opportunity model; Grayson & Hodges (2004) ... 70

1. Introduction

This research was initiated by Groenbad VOF, in order to provide advice and support for clients in the public as well as in the private swimming pool sector. Accurate recommendations are needed concerning the enhancement of a new “green” vision and techniques for energy- and exploitation cost reduction. A new business model will help measure up to the current market demands and the needs of the stakeholders. Part of the stakeholders are local governments, who support local swimming pools by subsidizing them to help facilitate the needs of the community. But these subsidy´s are under high pressure due to the economical climate.

In the past decades Corporate Social Responsibility has become a serious topic, but unfortunately it did not appeal to the semi public industry, to which most of the public swimming pools belong to. But due to the increasing subsidy´s cuts the swimming pool industry has to change in order to survive.

1.1. Introduction Groenbad

Groenbad is a recently established company which is settled in Eelde, in the north part of the Netherlands. Both founders of Groenbad have worked for many years in the swimming pool industry. First I introduce, Joan Hamstra director of Badim and Mercurius. Already for quite some time he receives many requests from customers to offer more sustainable and durable products which claim to be less harmful for the environment as well as for employees and of course for the customers in the swimming pool. These requests are not yet been fully elaborated on. Second founder is Benny Mensink, an entrepreneur in sports accommodations. At the start of his career he worked with three other directors in the south part of the Netherlands, exploiting over 26 sport accommodations including 21 swimming facilities. His main goal as an operational director was to restructure and optimize sports activities towards available staff and their capabilities. He revised missions and vision statements towards goals, and checked if these goals were met. Nowadays he is exploiting six sport accommodations in the north part of the Netherlands and he is a director of the national swimming federation which facilitates safe swimming lessons for children, with an own private label for safe swimming education.

These two business partners, shared the same vision regarding the structure of the entire swimming pool industry towards a more sustainable and durable one, whereby sustainability and durability meet profitability. However, to realize a project at this scale, experts of different fields are required. Energy experts for example. The gas and electricity bill of an average size swimming pool exceeds a 100.000 euro’s annually. With the current technology it must be possible to reduce these costs.

possible but by building a new one they could create opportunities for optimizing the swimming pool building even further. So Mark Maas, an expert in the field of sustainable building techniques with a passion for the cradle to cradle-concept was asked to join the group to elaborate even more on the possibilities for sustainable building techniques.

Sharing knowledge requires great responsibility, and to secure the intellectual property contracts are needed. This was one of the reasons for starting a partnership in the form of a Dutch VOF. They all believe in the economical profit of the project and they give advice, support and their mandate to facilitate a “greener” vision for the exploitation of public swimming pools. The name Groenbad is chosen.

The main reason for this research is to develop an instrument in the form of a sustainable business model for a new swimming pool. By investing in high standards and well founded instruments whereby CSR is heavily integrated into this particular model it can be used for further projects as well. The strategy of Groenbad can help create more sustainable swimming pools in other parts of the country. A structured and reliable business plan should also confirm the presumptions of the targeted business opportunities.

1.2. Research question

This research elaborates on the development of a sustainable business model whereby swimming pools can enhance the current knowledge on CSR and on profitable Business Models. This to ensure a good and save future for the development of the swimming pool industry in the Netherlands. The current models suggested in the literature do not fully elaborate on CSR within the semi public industry. These models lack certain criteria and factors that are easily applicable on a newly planned swimming pool.

This has led to the formal research question:

 How to incorporate CSR within an applicable business model for a new swimming pool? To find answers to this question the following sub questions should be posed:

 How is CSR defined in the current literature?

 What are the common characteristics of CSR and what are the most important dimensions?  How are Business Models defined in the current literature?

 What are the distinctions between business models for a profit and nonprofit organization, and which fits best?

 Which characteristics of these models best serve its purpose to fit the business model for a new swimming pool?

1.3. Research design

The research is set up according to the model for academic problem-solving as proposed by Van Aken Berends and Van der Bij (2007). In the first chapter the academic interest and the business problem are explained. An introduction is given of the company involved, and of the vision the partners share. Also a short introduction of the current market situation is given and the validation of the research is therefore justified.

The main theoretical body of this research is described in chapter 2. This chapter provides the theoretical framework. This framework starts with an elaboration of the (2.1) current market situation followed by an extensive elaboration of the concepts (2.2) of CSR. This paragraph elaborates on the definitions and frameworks provided in the current literature. The next paragraph elaborates on the topic (2.3) business models: first, frameworks mostly based on meta-analysis, second, differences between business models for the profit and nonprofit organizations and finally a short elaboration on the current sustainable business model literature. This will result in an overview of the most applicable and important characteristics which will express themselves in a new (2.5) conceptual model applicable for the development of a new sustainable business model for a swimming pool. Accordingly a partial set up and elaboration of the model for Groenbad is proposed.

Figure 1: Basic set up

The methodology of the research is discussed in Chapter 3. This chapter includes the method of the quality and quantity research done, the data collection and data analysis. The quality of the research will also be discussed, concerning controllability, reliability and validity of the study.

Chapter 4 presents the results of combining the literature of corporate social responsibility and the business model literature into the building blocks for a sustainable business model for a new swimming pool.

2. Theoretical framework

In the theoretical framework a short introduction will be given of the current market situation. In this chapter I will also explain that the swimming pool industry is in troubled weather. This will be followed by an elaboration on the concepts of CSR. In this paragraph definitions are compared and models are discussed. The most relevant characteristics or domains of the discussed literature will be summarized in a framework , and a complete definitions will be formulated. This will be followed by an elaboration of business models. The main stream models are compared and other input from the non-profit models are discussed and used as input for the business model framework. These two domains meet in the paragraph where sustainable business models are discussed. All input is used to formulate a cohered CSR business model. The proposed model arose from the discussed definitions and frameworks that are formulated

2.1. Current market situation

The challenges for the (semi) public sector are large and diverse: citizens expect quick and accurate service, but while budgets reduce, talented employees are scarce and those who are talented are attracted towards the private sectors. An efficient and effective approach is urgently needed, but has an impact on processes and corporate culture and calls for new models of service.

When looking closer into the history of swimming pools in the Netherlands, the statistical data are a bit outdated. But a trend can be seen from 1988 on, where over 60 percent of all indoor swimming pools where being exploited by local governments, however in twelve years time this is reduced to approximately 20 percent. Private operators took over during a period of strong economical growth (CBS; Statline, 2012).

Nowadays swimming pools close because they cannot generate enough income to cover the increasing exploitation cost, including the rise of energy cost. According to the Dutch news broadcast (NOS, 2011) 60 of the 750 swimming pools in the Netherlands experience financial troubles.

Nevertheless most of the local governments financially support their local swimming pools, they see it as a service they have to facilitate in their region. Not only for the well being and support of local sports clubs, but perhaps even more important for local safety. (Van der Werf, H.; Van Bedaf, A.; Hoenderkamp, K.; Breedveld, K., 2012).

Concluding; the Dutch swimming pool industry finds itself in troubled weather, a clear vision is needed to restructure the market. Reducing the social footprint by becoming more energy sufficient, will also lead to lower exploitation costs which can (partly) compensate the reduction of grants money.

2.2. Corporate Social Responsibility

The search for balance within a continuous changing environment and in a competitive market, Corporate Social Responsibility has emerged as an important business and management topic. This is evident because of the great number of published articles and management journals dedicated to this environmental and responsibility issues. Nowadays sustainability, durability and similar terms are often used to try to formulate and find a competitive business advantage.

Already in the 1950’s we find an impressive history associated with the evolution of the concept and definitions of CSR. The publication by Bowen (1953) of his landmark book Social Responsibilities of the Businessman is argued to mark the beginnings of the modern period of literature on the concept Corporate Social Responsibility. This is the start of the literature dialogue, the number of definitions of what CSR entails expanded rapidly in the 1970’s ,1980’s and 1990’s. Different theories like the agency theory, by Friedman (1970), stakeholders theory by Freeman (1980); Donaldson and Preston (1995), the resource based view of the firm by Hart (1995) or the theory of the firm by Baron (2001); Feddersen and Gillian (2001); McWilliams and Siegel (2001) have dedicated their attention towards the concept CSR.

2.3. CSR definitions

To elaborate on CSR and to define CSR in the most complete way, a selection of definitions will be discussed and explained. The chosen definitions are placed in chronological order and start with one of the earliest, Davis (1960). The second definition is from Frederick (1994). The third definition is by Carroll (1979), the fourth is by Jones (1980). The following definition is by McWilliams and Siegel (2001). The next two definitions come from The World Business Council for Sustainable Development (1999) and the last definition is that of the Commission of the European Communities (2001).

1. Davis (1960)

Keith Davis was one of the first to try to formalize or, more accurately, state what CSR means. Davis‘s attempt to define what social responsibility means refers to “businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest” (Davis, 1960). He states that a moral imperative exists for managers “to do the right thing” without regard to how such decisions affect the firms performance. A high standard of moral.

2. Frederick (1978)

The second definition, proposed by Frederick (1978) is: “Corporate social responsibility is that business corporations have an obligation to work for social betterment. This obligations is incurred and acts as a constant function throughout all phases mainstream and peripheral of the company’s operations”.

This definition highlights the obligation to work for social betterment throughout all the processes for the intern as well as extern actions taken place throughout the whole organization. In this paper Frederick (1978) questions some of the fundaments of CSR, and states that regardless of its origin, the philosophic mindset, or the particular portion of company operations, its affect or its impacts on profit, obligation to work for social betterment is the essence of the notions of CSR. So a clear statement of how far a company must go to be CSR-labeled is hard to give also because the lack of proper measurement tools. Another aspect concerning CSR is the institutional mechanism through which the idea of CSR could be influenced. Governments assisted business response through subsidies, contracts etc. to encourage social responsibility and interaction together with voluntarism and traditional market forces and responses. A tradeoff between CSR and profitability can influence social and economical betterment between social groups, which raises the question to whom it is social responsible. A final debate on CSR is linked to the poor definition concerning the moral underpinnings of the idea are neither clear nor agreed upon. In this same paper he opt for a new definition more clear and better defined. CSR2 should be defined as Corporate Social Responsiveness. Corporate social responsiveness

achieving a generally responsive posture to society in the focus of CSR2. The most significant

difference is the philosophic overtones of CSR1 where as CSR2 shuns philosophy in favor of

managerial approach.

3. Carroll (1979)

Carroll (1979) defines CSR as follows: "The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time." This definition is designed to bring a four-part framework which provides categories for the various responsibilities that society expects businesses to assume. The first, economical responsibility according to Carroll, is the first and foremost the social responsibility of the organization. Without this fundament no right to exist. The second, the legal responsibility, has its fundaments within the social contract. It has established the ground rules, the law and regulations under which businesses are expected to operate. The third layer is the “Ethical responsibility layer”. Although the first two layers embody already ethical norms, this layer stresses additional behaviors and activities that are not necessarily codified but are expected of businesses by society members. The Fourth and final layer of Carroll’s framework describes “Discretionary responsibilities”. This layer focuses on the voluntariness of the company. It exceeds the expectations of the community. An example is a philanthropic contribution towards training programs for long-term unemployed people. The framework Carroll presents in his paper has two other dimensions. The second aspect or dimension concerns the range of social issues involved (e.g. consumerism environment and discrimination) to which the management must address. The third is a continuum of responsiveness (from doing nothing to doing a lot). The model Carroll presents (see appendix 1, figure 2 ) should help managers systematically think through major social issues they are being faced with. In this way answers can be found on how far an organization should go and it can help form a performance program and could work as a planning tool.

As stated by Carroll (1979), this model includes the philosophy of social responsiveness, the social issues involved, and the social responsibility categories (one of which is economic responsibility). An empirical test of this CSP (corporate social performance) framework is presented also in the work of Waddock and Graves (1997).

4. Jones (1980)

to other societal groups such as customers, employees, suppliers, and neighboring communities. Furthermore Jones states that corporate behavior should not, in most cases, be judged by the decisions actually reached, but by the process by which they are reached. So in progresses CSR should be seen as a means, not as a set of goals.

So the implementing process of Corporate Social Responsibility can only taken place when the concept of CSR is accepted and decisions can be made in line whit the set of goals. This can be done in the form of environmental impact statements, pure on paper. Or consider and be aware of the impacts of the proposed projects to the environment and if possible reduce the impact or reject the project.

5. McWilliams and Siegel (2001, 2006)

6. World Business Council for Sustainable Development, (1999)

The World Business Council for Sustainable Development, 1999 defines CSR as “The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.”. The World Business Council for Sustainable Development is a CEO-led organization of forward-thinking companies that stimulates the global business community to create a sustainable future for business, society and the environment. This is directly traced back to the definition given. This definition clearly states that a corporation should find a way or process to contribute to a more sustainable organization where by some exclusively mentioned stakeholders are helped to make improvements in their quality of life.

7. Commission of the European Communities, (2001)

The European Commission has previously (2001) defined Corporate Social Responsibility (CSR) as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”. Corporate social responsibility concerns actions by companies over and above their legal obligations towards society and the environment. Certain regulatory measures create an environment more conducive to enterprises that voluntarily meet their social responsibility.

The CEC also stresses the importance of the strategic approach to the competitiveness of organizations because it can bring benefits in terms of risk management, cost savings, access to capital, customer relationships, human resource management, and innovation capacity. Besides that, special attention is given to the engagement with internal and external stakeholders. This enables organizations to better anticipate and take advantage of fast changing societal expectations and operating conditions. It can therefore drive the development of new markets and create opportunities for growth. According to CEC addressing the social responsibilities of organizations will help to build long-term employee, consumer and citizen trust as a basis for sustainable business models. And higher levels of trust will help to create an environment in which enterprises can innovate and grow.

According to Dahlsrud (2006) who conducted a study of 37 definitions on the determination of CSR, the definition of the Commission of the European Communities merged as one of the most complete and most quoted. The definition of the Commission of the European Communities contains all five elements which were stated as most commonly used dimensions namely, voluntariness, stakeholders, social, environmental and economical dimensions.

consensus as to what constitutes socially responsible behavior (Jones 1980). This is in line with the previous chapters on how CSR is defined and still it is hard to define and achieve consensus in what CSR means exactly. This is concurrent with other research projects concerning CSR definitions like the study of Dahlsrud (2006); McWilliam and Siegel (2001); Lockett, Moon and Visser (2006); Windsor (2006); Piercy & Lane ( 2009) and many more. In the following section two frameworks will be discussed. First Maignan and Ralston (2002), a very complete and often quoted model. The second model is by Dahlsrud (2006) who conducted a meta-analysis of 37 definitions and who constructed a framework of the most used dimensions of CSR in literature.

1. Maignan and Ralston (2002 and 2006)

Some attempts are made to categorize CSR in several frameworks. According to Maignan and Ralston (2002), three CSR categories can be identified: (1) motives for CSR activities; First, the motives for CSR implementation were coded and classified into three different items: (1.1) value-driven; (1.2) performance-driven; and (1.3) stakeholder-driven. According to Swanson’s (1995) findings, the value-driven view suggests that corporations are self-motivated to implement CSR initiatives regardless of external and social pressure. Following a utilitarian perspective, what was later called performance driven, CSR is implemented in a corporation to achieve performance objectives, such as profitability, returns on investment, or sales volume. This view assumes a strong relationship between CSR and financial performance. This perspective has a close link towards corporate social performance. According to the stakeholder view this suggests that corporations adopt social responsibility initiatives in response to the pressure from the various stakeholders (Swanson, 1995).

programs; the company describes a formal product series quality program as a form of responsibility initiative. (2.6) health and safety programs; the company introduces formal health and safety programs aimed at one or more stakeholders groups as a form of responsibility initiative . And (2.7) management of environmental impacts; the company discusses activities aimed at diminishing the negative impact of the product activities on the natural environment. These seven processes are not mutually exclusive.

(3) Stakeholder issues constitute the third measurement category for CSR initiatives. Considering Clarkson’s (1995) stakeholder classification, five items are relevant for this study: (3.1) community; (3.2) customers; (3.3) employees; (3.4) shareholders; and (3.5) suppliers. But more stakeholders can be found.

1. Motives for CSR activities 1.1. Value driven 1.2. Performance driven 1.3. Stakeholders driven 2. Managerial CSR processes 2.1. Philanthropy programs; 2.2. Sponsorships; 2.3. Volunteerism

2.4. Implementation of a code of ethics 2.5. Quality programs

2.6. Health and safety programs

2.7. Management of environmental impacts 3. Stakeholders issues 3.1. Community 3.2. Customers 3.3. Employees 3.4. Shareholders 3.5. Suppliers

Table 1: Overview CSR dimensions Maignan and Ralston (2006)

2. Dahlsrud (2006)

According to Dahlsrud (2006) who conducted a study of 37 definitions on the determination of CSR, the definition of the Commission of the European Communities emerged as one of the most complete and most quoted. Dahlsrud’s definitions are based on frequency counts which were obtained by searching for each definition in Google. A dimension score was calculated by adding up the frequency counts of each definition and categorized to the dimensions. The four highest scoring dimensions have comparable dimension ratios above 80%, although it is worth noticing that the environmental dimension performs significantly lower, 59%. However, all dimensions achieve dimension ratios above 50%, which indicate that they are more likely than not to be included in a random definition. The dimensions in this study are (1) the environmental dimension, (2) the social dimension, (3) the economic dimension, (4) the stakeholder dimension and finally (5) the voluntariness dimension. See appendix 2 table 10 how these dimensions are described. In this study the dimension ratio for each of the five dimensions in CSR definitions are as followed.

Dimension Dimension ratio (%)

(1) The environmental dimension (2) The social dimension

(3) The economic dimension (4) The stakeholder dimension (5) The voluntariness dimension

88 88 86 80 59

Table 2: Dimension Scores based on Dahlsrud (2006)

A conclusion of this frequency count is that CSR definitions are to a large degree congruent. Thus it is concluded that the confusion is not so much about how CSR is defined, as about how CSR is socially constructed in a specific context.

2.5. Concluding definition on CSR and its framework.

Literature CSR Domain Davis (1960) Frederick (1994) Carroll (1979) Jones (1980) McWilliams & Siegel (2001, 2006) WBCS D (1999) CEC (2001) Motivational moral principles X X In line with organizational strategy X X X X Voluntariness X X X X Legal X Ethical X Different Stakeholders X X X X Stakeholders demands X Actions X X X Processes Economical domain X X X Social domain X X X X X Environmental domain X X Technical domain X X

Table 3: overview of CSR domains in used literature.

Literature Domains Wood (1991) Swanson (1995) Maignan & Ralston (2002, 2006) Dahlsrud (2006) Motivational principles Value driven X Performance driven X Stakeholders driven X Social philosophy Legal X Ethical X Moral X X The Stakeholders X X1 Community X X Customers X X Employees X X Shareholders X X Suppliers X X Sustainable domain Environment impact X X X X Social impact X X X Economical impact X X The process X Philanthropy programs; X X Sponsorships; X X Volunteerism X X2 X Implementation of a code of ethics X X Quality programs X X

Health and safety programs

X X

Table 4: overview of frameworks used

1 _{Not explicitly defined who the stakeholders are.}

2 _{A close relation with “Legal dimension” but the paper explicitly refers to the voluntarism domain, which}

In this research the following definition will be handled for CSR because it fits all elements mentioned above and is therefore the most complete definition to proceed with. Accordingly table 5 gives an overview of domains included in the definition.

“The motivational, ethical and moral principles to engage in CSR is in line with

the organizational business and marketing strategy which includes all important

and relevant stakeholders. The diversity of actions and processes derived should

be on voluntariness basis and address successfully stakeholders demands in the

technical, economical, social and environmental dimensions.”

Motivational principles Stakeholders driven, Performance driven Value driven Social philosophy layer Ethical

Moral The stakeholders Community

Customers Employees Shareholders Suppliers Sustainability domains Environmental

Social Economical

The process Philanthropy programs Sponsorships;

Volunteerism

Implementation of a code of ethics Quality programs

Health and safety programs

Management of environmental impacts

2.6. Business models

In the ever changing economy, society and in literature the need of good working models has never been of more interest. The objectives of a business model are to make clear what vision a company wants to express and to consider all the important aspects. Current business models however often date from the second industrial revolution, Hamel (2001). Of course these models have led to great prosperity but a turning point has been reached. A combination of worldwide crisis, financial stress and energy and climate pressure led to enormous complexity in this field. The need of good and up to date business models also becomes clear in the current business literature. A quick internet search on business models yields lots of results. But let´s start at the beginning, clarification is needed to elaborate on the concept of business models.

First an introduction is needed to explain the fuzziness and confusion about what business models are. In the current literature a few trends can be distinguished. Note a business model may refer to parts of a model, types of models, concrete real instances of business models or as a concept of elements a business model should contain, (Osterwalder, Pigeur and Tucci, 2005). In contrast to business process design at the operational level, a business model defines the overall business logic of a company at the strategic level. So first an elaboration on definitions of what a business model is and which elements it should contain. In this section a few definitions are being compared and explained. Meta-analysis have been done before so a comparison between meta-analysis studies on business models should be sufficient and be most reliable. Accordingly targeting the question of, how business model can be a more useful tool in strategy? First, what elements are needed to be identified in a business model; and second, to what extent can business models be planned in advance. I will also do a small elaboration on the difference between business models for the public and for the private industries.

2.7. Definitions and framework of business models

conducted a meta analysis on the most used “building blocks” or terms used to identify the key components of a complete and compatible business model.

1. Morris, Schindehutte and Allen (2005)

The first definition to discuss is the business model proposed by Morris, Schindehutte and Allen (2005) A business model is a concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets. (Morris et al. 2005).

According to Morris et al. (2005) the essence of a well-formulated business model consists of three layers; the foundation level, Property level and the rule level, (see table 6). The first layer consist of six key questions/components that must be addressed. These questions have been derived from commonalities among the various perspectives found in literature. The six questions asked form the foundation level of the model. These questions are the basics of defining the basic components and logic. In appendix 5 table 12 describes the questions that underlie the business model.

The second level identified is the property level, and is about finding and creating unique combinations. While the foundation level is adequate to capture the essence of a model for many firms, sustainable advantage ultimately depends on the ability of the entrepreneur to apply unique approaches to one or more of the foundation components

Once implemented, a model’s success can be tied to a basic set of operating rules. These guidelines ensure that the model’s foundation and proprietary elements are reflected in ongoing strategic actions. Rules are important at the level of execution of the business model. Consistent adherence to basic principles can distinguish two companies having otherwise similar models.

The model of Morris et al. (2005) Short overview.

Foundation level Defining the 6 basics characteristics of the business and make them generic decisions.

How to create value (The scope) for whom Core competence(s) Strategic position How to make money

Time, scope and size ambitions

Proprietary level Unique approaches to one or more components to create competitive advantage.

Rules level guiding rules to business operations how to apply the business model and how to follow the unique approaches.

Table 6: Business model of Morris et al. (2005)

2. Chesbrough and Rosenbloom (2002)

Chesbrough and Rosenbloom contribute to literature by offering the business model as a construct that can inform other perspectives on what a business model should contain. Based on a case study of 35 cases models, they define a Business Model as follows, “A business model provides a coherent framework that takes technological characteristics and potentials as inputs and converts them though customer and markets into economical outputs. The business model is thus conceived as a focusing device that mediates between technology development and economical value creation”.

According to Chesbrough and Rosenbloom (2002) the ultimate role of the business model in case of an innovation that is proposed, is to ensure that the technological core of the innovation delivers value to the customer. They state that discovery oriented research often produces spillover from the technology site that lack a clear path to the market; discovering a viable business model for the spillovers is a critical and neglected dimension of creating value from that technology. By the interpretation given of the business model a construct mediates the value creation of the process which translates between the technical domain and the economical domain (see appendix 6, Figure 4). The concept of this business model differs in its perspectives towards strategy in the sense that the focus of the business model is to create value for the customer instead of the organization. Secondly it differs in creating value for the organization versus creating value for the stakeholders. The financial dimensions of a business are left out of the business model. The model assumes that the business is financed though internal corporate resources, so that financing issues do not play a prominent role in the business model. Or the model of a startup is assumed to be financed though early stage venture capital. The final important difference they claim is the assumption about the state of knowledge held by the firm, its customers and third parties. The business model construct consciously assumes that this knowledge is cognitively limited and biased by earlier success of the firm. Strategy is of great importance and requires careful and analytic calculations and choices whereby reliable information is of great value. But the limitation of knowledge within the company may lead to limited success and commercialization of early stage technologies which are led by the established company and their applied business model.

3. Magretta (2002)

“A good business model tells a logical story and explains who your customers are and what they value and how you’ll make profits providing them that value. The provided good satisfies an unmet need, and may be done in a innovative way”.

As explained a well thought-out business model enables you to test and revise your assumptions about customers, think rigorously about your business, and align employees behind your company’s mission. Examples are given to explain the most basic principles of what a business model is. Derived from these examples some kind of definition is composed. He states that business models may fail because of two reasons, that can be checked by using the narrative test (the story does not make sense) or the numbers test (the P&L don’t add up). After correcting the outcomes success may follow.

A good business model is important to detect underlying assumptions. When a new business model changes the economical domain of the business (model) and also of an industry which are difficult to replicate, it can by itself create a strong competitive advantage. This becomes clear when adding or reducing important (traditional) fundaments of the current models in use may change the whole market and thus create a strong competitive advantage over other players in the market.

An example given is the story of Dell Computers, after changing some fundaments, for example, lean manufacturing, and rethinking their distribution channels, the traditional business model in the computer industry has changed. Dell created a strong competitive advantage and changed the computer (retail) industry and is now one of the largest computer manufacturing companies in the world. The fundaments of the success lay in the business model to execute their superior strategy. They focused on which customers to serve and ask0 themselves what kind of service they want to provide for which products.

4. Hummel, Slowinski, Mathews and Gilmont (2010)

One of the findings in the research is that by collaborative research projects value drivers within the business model are being identified by the collaborative partners and form an avenue for communication. This opens collaboration and negotiation space on how to allocate tasks, risks and rewards.

5. Osterwalder, Pigneur and Tuci (2005)

In the paper of Osterwalder, et al. (2005) it is clearly stated and proven that the concept of business models are vague and often not understood. They help clarifying this area and they define a business model as follows: “A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams”. Osterwalder et al. (2005).

In the paper they state that a business model is the blueprint of how a company operates. It is the translation of strategic issues, such as strategic positioning and strategic goals into a conceptual model that explicitly states how the business functions. The business model serves as a building plan for designing and realizing the business structure and systems that constitute the company’s operational and physical form. The business triangle as described in their research is constantly subject to external pressures, like competitive forces, social change, technological change, customer opinion and legal environment. (see appendix 7, Figure 5). The business model can be seen as the conceptual link between strategy, business organization, and systems. The business model as a system shows how the pieces of a business concept fit together, while strategy also includes competition and implementation. Furthermore the business model implementation contains the means to transform theory into practice, such as a business structure (e.g. departments, units, human resources), business processes (e.g. workflows, responsibilities) and infrastructure and systems (e.g. buildings, ICT). Business models are subject to external pressure and thus constantly subject to change.

of actions that is necessary in order to create value for the customer. Partnership is a voluntarily initiated cooperative agreement between the enterprise and another company in order to create value for the customer. The cost structure is the representation in money of all the means employed in the business model. The Revenue Model describes the way a company makes money through a variety of revenue flows.

Pillar Business Model

Building Block

Description

Product Value Proposition Gives an overall view of a company's bundle of products and services

Customer interface Target Customer Describes the segments of customers a company wants to offer value to

Distribution Chanel Describes the various means of the company to get in touch with its customers

Relationship Explains the kind of links a company establishes between itself and its different customer segments Infrastructure

management

Value configuration Describes the arrangement of activities and resources.

Core Competence Outlines the competencies necessary to execute the company's Infrastructure business model

Partner Network Portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value

Financial Aspects Cost Structure Sums up the monetary consequences of the means employed in the business model.

Revenue Model Describes the way a company makes money through a variety of revenue flows.

Table 7: The nine building blocks of Osterwalder et al. (2005).

2.8. Business models and funding models for nonprofit organizations

nonprofit organizations are considered to be businesses that do not directly seek to financially enrich their members, such as management or associates. (Dabbs, 1991). Whereas the semi public industry is a sector occupying a position between the private sector and the public sector. It covers the provision of public services in respect of which it is decreed in the political decision-making process that the market mechanism should play little or no part.

In the current literature specific business models for nonprofit organizations are not yet fully elaborated on. Maguire (2009), Foster, Kim, & Christiansen (2009) don’t agree on all parts of their vision but they all state that the current literature about non-profit business models needs more elaboration. In the study of Maguire (2009) research is done to compare profit business models and nonprofit business models in the periodical publishing industry. In this media industry the nonprofit organizations form a sizable segment. In this study is proven that nonprofit publishing companies generate less profit than profit organizations and do not grow as rapidly as profit organizations. Furthermore the long term strategy may differ from a more goodwill based strategy to a more traditional accountable approach but both strategies may be viable (Maguire, 2009).

On the other hand, in the study of Foster, et al. (2009) the basic understanding of the business model for the nonprofit organizations are addressed. And it discusses the consequences of the financial fuzziness that comes with it. Ten different models are described and addressed in their research. One reason according to Foster et al. (2009) why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit business is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. When a nonprofit business finds a way to create value for a beneficiary, it has not identified its economic engine. That is a separate step. As a result of this distinction between beneficiary and funder, the critical aspects of nonprofit funding models need to be understood separately from those of the for-profit world. This is also why we use the term funding model rather than business model to describe the framework. A business model incorporates choices about the cost structure and value proposition to the beneficiary. A funding model, however, focuses only on the funding, not on the programs and services offered to the beneficiary. In the study of Foster, et al. (2009) three main parameters are set and identified: (1) the source of funds, (2) the types of decision makers, and (3) the motivation of the decision makers. Three models are highlighted whereby the funds are largely originated from the government.

service delivery function but establishes specific requirements for nonprofits to receive funding, such as reimbursement formulae or a request for proposal (RFP) process. As public providers grow, they often seek other funding sources to augment their funding base. This is the most common funding model in the swimming pool industry.

The second model discussed is the policy innovator. Some nonprofits rely on government money and use a funding model. These nonprofits have developed new methods to address social issues that are not clearly compatible with existing government funding programs. This model convinces government funders to support these alternative methods, usually by presenting their solutions as more effective and less expensive than existing programs.

The third and final model highlighted is the beneficiary broker. Some nonprofits compete with one another to provide government-funded or backed services to beneficiaries. Nonprofits with the same approach use a so called beneficiary broker funding model. The areas on which beneficiary brokers compete are for instance housing, employment services, health care, and student loans. What distinguishes these nonprofits from other government-funded programs is that the beneficiaries are free to choose the nonprofit from which they will get the service. Addressing the foundations of these nonprofit business models is that they use an extra function to address funding whereby different types of funding models or funding mechanisms are used to support the value offering.

As previously mentioned our national government and local governments are under high pressure to reduce spending, and yet the demand for public services is generally increasing. Despite the growing emphasis on and investment in technological innovation, little is known about innovation in public services. Dutch local governments are known for their resistance to changes and risk taking, and organizational structures are major barriers to overcome. But how to level these barriers is less clear. Recently, researchers have increased their focus on the importance of specific business models in facilitating collaboration between public-sector organizations and private-sector partners (Micheli, Schoeman, Baxter and Goffin, 2012). In their paper they describe the in depth research they carried out towards innovational success within the public sector. According to Micheli et al. (2012) successful technological innovation may depend more on the models for collaboration than on the specific technology involved. But the technological innovation can also play an important role in improving both the efficiency and the effectiveness of public services (Albury, 2005; Kohli and Mulgan, 2010).

commercialized partnerships have the potential to introduce innovations into the public sector that can benefit citizens, business, and government alike. However, the success of such partnerships will depend on the one hand on public-sector organizations capacity and willingness to engage with the private sector and, on the other, on private-sector partners ability to focus on outcomes, engage with a variety of stakeholders, and be open to share skills and expertise.

Nowadays the organizations in the public-sector are adopting new business models to better engage with private-sector partners and these new business models can encourage greater emphasis on tangible benefits and improvements for citizens and shift the balance of power to the front line, where services are provided. (Micheli et al. 2012) Fostering closer involvement of private-sector organizations in these efforts injects new skills and fresh ideas into the organization and can help overcome organizational resistance to change and risk taking (Brown, Ryan and Parker, 2000).

The lessons we can learn from the literature discussed, that will be used in the redesign, are as follows; business models for the nonprofit are generally more complicated than for profit organizations. A nonprofit business model or its funding mechanism has to incorporate choices about the cost structure and the value proposition to the beneficiary. Three parameters are therefore important the source of funds, the type of decision makers and the motivation of the stakeholders. Furthermore the current funding mechanism on how swimming pools apply for grants can probably be stretched into a wider approach or can add a different mechanism.

2.9. Conclusion on business models

Business models are essential for converting new technologies into commercial value and customer value. And these business models include several elements and components that are interconnected, and can be applied in hierarchical models as well as in interactive ones. The ontology of these models are diverse, but the general conclusion is that, if one or more of the specified components are ignored it will suffer in terms of its comprehensiveness, while inconsistency can manifest itself both in terms of the fit among decision areas within a given component as well as the fit between components. So every company should have some kind of implicit business model in the sense of linking ideas and technologies to commercial outcomes. Especially startup companies have to articulate their business model, for commercializing and exploiting their success. Successful entry into new market spaces often requires access to a new business model (Hummel et al. 2010).

cornerstones of the business model the metal models are aligned and made explicit by presenting examples and stories to detect the underlying aspects. Hummel et al. (2010) hands us the tools needed when collaborating with other partners is described to succeed in the business plan. Opening collaboration and negotiation space on how to allocate tasks risks and rewards. Osterwalder et al. (2005) provide clear and applicable building blocks. These building blocks provide a solid fundament to build on, with the components handed by the other authors. The input of Foster et al. (2009) is integrated as well by adding a building block called funding mechanisms. The input of Micheli et al. (2012) is most prominent in the model as the partner network building block. The effects of technological innovation can influence the efficiency and effectiveness of collaboration between the profit and non-profit industry. The framework of Osterwalder et al. (2005) is used as a platform because it is very well suited to add additional building blocks. The definition used to express a business model is mentioned below. Followed by an overview of building blocks in the form of a table which will be used. The discussed literature is presented in key words behind the building blocks. The numbers refer to the authors mentioned below the table.

A business model is a concise representation of how an interrelated set of decision variables in the areas of strategy, product, customers interface, infrastructure management, and financial aspects are addressed in a architectural way to create sustainable competitive advantage in defined markets. Pillar Business Model

Building Block

Description Key words, input by other

authors

Strategy Strategic view Describes the strategic direction (1) What is our time and size ambition?

(3) Check other BM Risk analysis Describes the risks and

uncertainties

(3) Risk and uncertainties.

Product Value proposition Gives an overall view of a

company's bundle of products and services

(1) How do we create value?

(2) Value proposition (3) Value drivers Technical innovation Provides an overall view of a

company’s technical innovation project for improving both the efficiency and the effectiveness.

(6) Technological innovation

Customer interface

Target customer Describes the segments of customers a company wants to offer value to

(1) Who do we create value for?

(2) Market Distribution channel Describes the various means of

the company to get in touch with its customers

(2) Value chain

Relationship Explains the kind of links a company establishes between itself and its different customer segments

(2) Value network

Infrastructure management

Value configuration Describes the arrangement of activities and resources.

(1) How do we competitively position ourselves?

(2) Competitive strategy Core competence Outlines the competencies

necessary to execute the

company's Infrastructure business model

(1) What is our source of competence?

(3) Infrastructure and culture

Partner network Portrays the network of

cooperative agreements with other companies necessary to efficiently offer and commercialize value

(5) Models for collaboration

Financial aspects

Cost structure Sums up the monetary consequences of the means employed in the business model.

(2) Cost and profit

Revenue model Describes the way a company makes money through a variety of revenue flows.

(1) How do we make money?

Funding mechanism Describes the kinds of funding mechanisms largely originated from governments

(4) Public provider (4) Policy innovator (4) Beneficiary broker

Table 8: Extended building blocks

1: Morris et al. (2005)

2: Chesbrough and Rosenbloom (2002) 3: Hummel et al. (2010)

4: Foster et al. (2009) 5: Micheli et al. (2012)

2.10. Literature on CSR integrated in Business Models

The current literature makes clear that CSR is already linked with business models and the integration of sustainability. Stead and Stead (1994) already argued that companies in the twenty-first century will have to change fundamental assumptions and values which underlie their relationships with the larger natural environment. A need for business sustainability is addressed but not yet fully elaborated on. New models should meet present requirements without compromising the ability of future generations to meet their own needs. Research in the field of sustainability business model is, according to Høgevold and Svensson (2012) far from addressing the core requirements and the multiple aspects of business sustainability Complex models show for specific cases how CSR or sustainability can be integrated into a business model. (For example the models of Vyakarnam, Myers and Burnett (1997), Spence and Rutherfoord (2000), Høgevold and Svensson (2012) Jenkins (2009)). In line with the previous chapters on CSR and business models, integration of these two domains is not yet fully elaborated. Some attempts have been made to frame a unified model for integration of CSR in a business mode. The discussed literature is of Høgevold and Svensson (2012) who conducted a study of a production company in Norway and presented a model. This model will be explained. The second model is formulated by Jenkins (2009) is based on a study focused on SME’s who integrated CSR domains within their business strategy.

1. Høgevold and Svensson (2012)

The case study is based on HÅG (www.hag.no), a Norwegian manufacturer of office chairs conducted by Høgevold and Svensson (2012). This case study resulted in the business sustainability model. The data was collected in late 2010 and early 2011 and were based on a series of semi-structured in-depth interviews with top executives of the company. The first steps of the journey starts with an idea from an employee who wanted to sell her idea to the higher management. It dealt about how to become a more sustainable and environmental friendly company.

Implications and lessons learned from HÅG’s efforts towards business sustainability for example, focusing on the corporate impact of the natural environment can be highly profitable. Customers, especially of larger companies, tend to be less price-sensitive when a product with a lower carbon footprint is available. Carbon footprint is becoming a criterion in the decision-making process of customers across industries The process towards sustainable business must be anchored and supported by the top-level management and sometimes by the owners of companies, and it has to be a long-term commitment. As seen in the case study in focus, the development towards business sustainability is an ongoing process, and resources have been allocated over time. Sustainability has been seen as a part of the long-term product development process.

Based on the case study of HÅG, it appears evident that a genuine effort of business sustainability is not a utopia anymore. The case study confirms that business sustainability is not about increasing costs; it is the very opposite it can reduce costs! Furthermore, it is quite possible in a competitive marketplace. Interestingly, profitability is maintained and even strengthened.

2. Jenkins (2009)

as much as they could or use CSR more as a promoting activity. (3) Internal networks; SMEs have the ability to communicate well, but often have difficulty getting their employees involved in CSR. They make-a-difference-where-you-can-concept is important here, whereby companies look at their biggest area of impact and develop targeted CSR activities. (4) Flexibility. SMEs have a major advantage in their ability to respond more rapidly to changing signals in the marketplace SMEs are therefore more able to rapidly take advantage of new niche markets for products and services that incorporate social and/or environmental benefits into their value. (5) Innovation; Innovation can take many forms. Innovation is a process rather than a single event; it can be incremental in SMEs and does not necessarily involve the adoption of radical new technology or the introduction of major new products, services or processes. (6) Competitive advantage; this does not necessarily mean getting bigger and making more profit if this is not a company’s main or only goal. CSR is seen as just something you build into your business, it is all about the big picture, pulling lots of components together into a coherent strategy.

Jenkins (2009) suggests that a step by step approach to realizing CSOs for CSR is a appropriate methodology for SMEs. The model presented in appendix 10, figure 9 suggests a five step approach. Step 1 requires a company to develop an understanding of CSR and translate this into business principles. This involves setting down the values and principles of the business. This vision should reflect the eight key themes of values, human beings matter, every employee involved, diversity, creativity, holistic approach, community and wealth generation. Step 2 companies scoping this entails ‘what matters’ to their company with respect to CSR. Doing so effectively means that CSR can be targeted efficiently and potential CSOs may emerge from this process. Steps 3 and 4 are the core of achieving competitive advantage from CSR. Step 3 takes the scoping process one stage further by suggesting that companies actively look at what CSOs may realize CSR. This may often involve overcoming any challenging aspects of CSR by being innovative and flexible and seeking market-driven opportunities. Step 4 concerns developing a company CSR strategy. Companies with a CSR strategy stressed that CSR has to be integrated in all aspects of business operations and not to be seen simply as a costly externality; real CSR is about building new business models by placing social responsibility at the core of everyday business decisions. In order to do so and successfully develop such a strategy, certain organizational capabilities, such as learning, networking and innovation, are necessary to become successful. Step 5, learning from experiences and using them in a continuous feedback loop CSR requirements are nowadays more articulated throughout the whole supply chain. Working together supporting each other and give feedback can help to improve the company and its CSR performance.

not. Not all elements are as important for each company or do not even are applicable on that specific organization. In the designed business model all twelve elements are examined and if of value integrated.

The lessons learned from the model of Jenkins (2009) is that the model allows companies to build a CSR strategy from simple beginnings through a process of learning and networking, depending on the size and experience of CSR. And what is proposed by the company’s stakeholders. The starting position of the model, step one, is closely linked towards the elements which are often found in “normal” business models. After mastering this first step the real influence of CSR by making a difference is set in. This is ideal for a opportunity model when the basics are laid out. But when starting a whole new concept earlier impacts on CSR can be of greater and more impact.