Towards More Strategic Corporate Social Responsibility Partnerships with Social Enterprises

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1 Anna Cajanus Towards More Strategic Corporate Social Responsibility Partnerships with Social Enterprises School of Science Thesis submitted for examination for the degree of Master of Science in Technology. Espoo Thesis supervisor: Prof. Eila Järvenpää Thesis instructor: M.Sc. (Agr.&For.) Jari Karjalainen A! Aalto University School of Science

2 aalto university school of science abstract of the master s thesis Author: Anna Cajanus Title: Towards More Strategic Corporate Social Responsibility Partnerships with Social Enterprises Date: Language: English Number of pages:7+90 Department of Industrial Engineering and Management Professorship: Work Psychology and Leadership Supervisor: Prof. Eila Järvenpää Code: TU-53 Instructor: M.Sc. (Agr.&For.) Jari Karjalainen This research studies partnerships between large firms and social enterprises. The research questions are (1) in which ways can social enterprises and large firms work together, (2) what are the perceptions of large firms about the partnerships between large firms and social enterprises and (3) how can partnerships between social enterprises and large firms be advanced. The data was collected with semi-structured interviews with five experts and nine CSR managers of large firms and it was analyzed with qualitative content analysis. Based on previous theory and international examples of partnerships four main ways of partnering were identified: (1) social enterprises as part of large firm s support or primary activities, (2) non-strategic partnerships, (3) strategic partnerships and (4) spin-offs, joint ventures, acquisitions and social intrapreneurship. These ways form a continuum with an increasing level of integration. The representatives of large firms had a positive attitude towards social enterprises and they would like to develop their CSR activities towards more strategic direction. Social enterprises must be professional and have credibility for large firms to be willing to partner with them. Partnering practices can become more common from (1) top-down: the state and society can facilitate or regulate partnerships and from (2) bottom-up: social enterprises can themselves start making concrete business proposals. In addition, partnership practices can (3) diffuse from one company to another both within a country and from abroad. Increasing awareness and concrete examples are best ways for advancing partnerships. Keywords: social enterprise, CSR, partnerships, collaboration

3 aalto-yliopisto perustieteiden korkeakoulu diplomityön tiivistelmä Tekijä: Anna Cajanus Työn nimi: Kohti strategisempaa yhteiskuntavastuuta yhteistyö yhteiskunnallisten yritysten kanssa Päivämäärä: Kieli: Englanti Sivumäärä:7+90 Tuotantotalouden laitos Professuuri: Työpsykologia ja johtaminen Valvoja: Prof. Eila Järvenpää Koodi: TU-53 Ohjaaja: MMM Jari Karjalainen Tutkimuksen aiheena on isojen yritysten ja yhteiskunnallisten yritysten välinen yhteistyö. Tutkimuskysymykset ovat (1) millä eri tavoin isot yritykset ja yhteiskunnalliset yritykset voivat tehdä yhteistyötä, (2) miten isot yritykset näkevät kumppanuudet yhteiskunnallisten yritysten kanssa ja (3) miten isojen yritysten ja yhteiskunnallisten yritysten välisiä kumppanuuksia voidaan edistää. Aineisto kerättiin asiantuntijoiden ja isojen yritysten yhteiskuntavastuujohtajien puoli-strukturoiduilla haastatteluilla ja analysoitiin laadullisen sisällönanalysoinnin keinoin. Aikaisemman teorian ja kansainvälisten esimerkkien pohjalta tunnistettiin neljä yhteistyön tapaa: (1) yhteiskunnalliset yritykset osana ison yrityksen ensisijaisia toimintoja tai tukitoimintoja, (2) ei-strategiset kumppanuudet, (3) strategiset kumppanuudet ja (4) spin-off -yritykset, yhteisyritykset, yritysostot sekä yrityksen sisäinen yhteiskunnallinen yrittäjyys. Nämä tavat muodostavat jatkumon, jossa yhteistyö muuttuu yhä tiiviimmäksi. Yritysten edustajat suhtautuivat yhteiskunnallisiin yrityksiin positiivisesti, ja he tahtoisivat kehittää yritysvastuutaan strategisempaan suuntaan. Yhteiskunnallisten yritysten on oltava ammattimaisia ja uskottavia ollakseen haluttuja yhteistyökumppaneita. Yhteistyötavat voivat yleistyä (1) valtion ja yhteisön mahdollistamana tai pakottamana: yrityksiltä vaaditaan yhä vastuullisempaa toimintaa, valtio voi luoda yhteistyötä ja yhteiskunnallisia yrityksiä tukevia rakenteita tai (2) yksilöistä ja organisaatioista lähtien: yhteiskunnalliset yritykset voivat itse tarjota konkreettisia liiketoimintaehdotuksia. Lisäksi yhteistyökäytännöt voivat (3) levitä organisaatiosta toiseen sekä maan sisällä että maasta toiseen. Tietoisuuden lisääminen ja käytännön esimerkit ovat tärkeimpiä tapoja yhteistyön lisäämiseksi. Avainsanat: yhteiskunnallinen yritys, yhteiskunnallinen yrittäjyys, yhteiskuntavastuu, kumppanuudet, yhteistyö

4 iv Preface It took me over a year, thousands of kilometers and many discussions with different people to find the topic for my thesis. Thank you Chile, World Scout Jamboree in Sweden, Ben, Francisco, Nina, Mikko and all the others. I still think that it was worth of all that time and effort I even enjoyed transcribing the interviews! I would like to thank Living Lab for Social Enterprises -project for proposing this topic for me and all the people working with the project for the interest you have shown. Especial thanks to my instructor Jari Karjalainen in the Aalto University School of Economics Small Business Center for providing such a clear scope for the study and for guiding me through the research process. I am also grateful to my supervisor Eila Järvenpää for all your advice, guidance and interest. After listening to others experiences I really appreciate how detailed feedback I got from you and how quickly you always read through the newest version of my thesis. I would also like to thank by little brohter for telling that there should be a spelling mistake in the first pages and my parents for never telling me to study harder or what to do. I am grateful to my mum for leading me to the wonderful world of books and to my dad for watching over my shoulder when I was doing Maths homework. I am also thankful to my friends and to scouting for giving me something else to do during evenings. Thank you also for your support, encouragement and advice with L A TEX. Especial thanks to Heikki for providing me a countryside office, for helping with the pictures and for coming to dance. Järvenpää, October 2, 2012 Anna Cajanus

5 v Contents Abstract Abstract (in Finnish) Preface Contents ii iii iv v 1 Introduction Defining social enterprise Why partnerships? Scope of the study Previous research Partnerships Partnering continuum Partnerships between social enterprises and large firms Summary of partnership theory Institutional theory Top-down processes of institutional theory Bottom-up processes of institutional theory Horizontal diffusion of institutional theory Institutional theory and corporate social responsibility Summary of institutional theory Methodology Data collection Search of international examples Interviews of the experts Interviews of the CSR managers Data analysis Developing the partnership framework Analyzing the interviews Results The partnership framework Social enterprises as suppliers of support or primary activities Non-strategic partnerships Strategic partnerships Spin-offs, joint ventures, acquisitions and social intrapreneurship Summary of the partnership framework Interviewees perceptions of the different ways of partnering between large firms and social enterprises Interviewees perceptions of traditional philanthropy

6 4.2.2 Interviewees perceptions of social enterprises as ordinary suppliers Interviewees perceptions of non-strategic partnerships Interviewees perceptions of strategic partnerships Interviewees perceptions of spin-offs, joint ventures, acquisitions and social intrapreneurship Summary of the interviewees perceptions How to advance partnerships Advancing partnerships via top-down processes Advancing partnerships via bottom-up processes Advancing partnerships via horizontal diffusion Other emerging topics Benefits of partnerships Possibilities for social enterprises Discussion Different ways of partnering and interviewees perceptions of them How to advance partnerships between social enterprises and large firms? Benefits of partnerships and possibilities for social enterprises Evaluation of the study Practical recommendations Recommendations for future research Conclusions 76 References 78 Appendices 1 Appendix A The requests of examples 1 Appendix B The interview protocol 1 vi

7 vii List of Figures 1 The criteria for the Social Enterprise Mark of the Association for Finnish Work (Association for Finnish Work, n.d.) Collaboration as co-creation of value (Prahalad and Ramaswamy, 2004, Figure 11-1, p. 200) Ways for companies to support social entrepreneurship (Nelson and Jenkins, 2006) Top-down and bottom-up processes in institutional creation and diffusion (adapted from Scott, 2001) The data The first version of the framework (further developed from the ways identified by Nelson and Jenkins (2006)) Different ways of partnering between large firms and social enterprises 34 List of Tables 1 Potential benefits of social partnerships (Nelson and Zadek, n.d.) The collaboration continuum (Austin, 2000) The partnering continuum (based on Thompson and Sanders, 1998) Description of companies and their representatives (Talouselämä, n.d.) 26 5 Used memos and codes assigned to each Current CSR activities of the companies (based on the interviews) Business opportunities for social enterprises

8 1 Introduction In Europe the ageing population is challenging the healthcare systems and welfare states, immigrants have difficulties in integrating to their new home countries and marginalization continues and worsens. In developing countries millions of people still live in poverty and lack access to clean water, appropriate accommodation and nutrition to name but a few. At the world scale, the climate continues to change, and inequalities between developed and developing countries persist. These are all what Rittel and Webber (1973) call wicked problems. They do not have clear true-or-false solutions, they are unique and have no stopping-rule. United Nations have identified the most critical wicked problems and summarized them under eight Millennium Development Goals (MDGs). They include (1) ending extreme poverty and hunger, (2) achieving universal primary education, (3) promoting gender equality and empower women, (4) reducing child mortality, (5) improving maternal health, (6) combating HIV/AIDS, malaria and other diseases, (7) ensuring environmental sustainability and (8) developing global partnerships for development. (United Nations, 2010) Wicked problems do not exist only in the developing but also in developed countries. There are social and environmental problems even in Nordic welfare states which have traditionally had high standards of living and equal opportunities for all. For example, unemployment and marginalization of the young, more and more difficult mental health problems, overloaded health care system and insufficient nursing services of the elderly and increasing income differences are reality (Korkman, 2011, p. 11). New solutions are thus needed also in the Western world. Because of the complex nature of the wicked problems, the governments cannot solve them nor achieve the MDGs alone, but the private sector can and should have an important role. Private sector companies can participate, for instance, by developing new technologies, products and processes, as well as new financing mechanisms. More and more traditional companies have in fact started seeking to address the MDGs and other wicked problems. They have started to realize the business opportunities that fighting against poverty has, and are often working together with the public sector to develop these opportunities. (Nelson and Prescott, 2008) Traditionally large firms have created social value mainly by providing employment, improving the working conditions and by producing goods and services that people need or desire, and by paying taxes that are used to various social purposes. Nowadays many large firms also try to create social value through corporate social responsibility (CSR) or corporate citizenship programs. (Seelos and Mair, 2004) Despite these social activities, the large firms legitimacy to operate is starting to be challenged (Brugmann and Prahalad, 2007; Porter and Kramer, 2011). One way for large firms to better fulfill their social responsibility and to re-gain their legitimacy to operate could be partnering with social enterprises. Social enterprises mission is to solve social and environmental problems in innovative ways (Bland, 2010). However, they as conventional small and mediumsized enterprises (SMEs) often lack resources to effectively work towards their

9 mission (Meyskens, 2010). Partnerships can be a way to overcome the resource constraints as they increase the resource diversity (Meyskens, 2010). In fact, Nelson and Prescott (2008) suggest that partnering with social enterprises and other SMEs, and providing them the lacking resources such as skills, technology, and finance, is one of the main ways in which large firms can contribute to achieving the MDGs and solving the wicked problems. However, despite their potential, partnerships between social enterprises and large firms are hardly studied (see Seelos and Mair, 2004; Nelson and Jenkins, 2006; Meyskens, 2010). Most research on partnerships concentrate on the role of strategic alliances in international business or on partnerships of large firms whose primary goal is to increase the profit generation. The research focusing on the creation of social value, in turn, studies mostly non-profit organizations and their partnerships with large firms, government entity or both of them. Further on, entrepreneurial research explores mainly networks as a whole, and what kind of impact these networks have on enterprises. (Meyskens, 2010) This study seeks to start filling this gap in research. It aims to find out in what ways social enterprises and large firms can work together and how such practices can be advanced. It also studies how large firms perceive these themes. The research questions of the study are thus: (1) In which ways can social enterprises and large firms work together?, (2) What are the perceptions of large firms about the partnerships between large firms and social enterprise? and (3) How can partnerships between social enterprises and large firms be advanced? In this study the term work together is used to describe all kinds of partnership activities with varying levels of integration between the partners. Partnering is used as a synonym for this, whereas collaboration or co-operation are reserved for specific stages on the partnering continuum. (See Chapter 2.1, Partnerships) To study the perceptions of large firms, interviewing their corporate social responsibility managers was chosen because partnerships with social enterprises can be a way for large firms to fulfill their CSR. The following chapter introduces background theories which are in continuation applied to answer the research questions. The first part of the chapter provides an insight to previous studies on partnerships and other ways of working together. As there is only little research on partnerships between large firms and social enterprises, also studies of partnerships between large firms and SMEs and large firms and nongovernmental organizations (NGOs) is presented. The second part of the following chapter introduces the institutional theory. Using institutional theory as theoretical basis for looking for ways to advance partnerships between large firms and social enterprises was chosen because it concentrates on the process by which actions become institutionalized (Scott, 1987) rather than the current situation. Actions are needed for partnerships to become more common, analyzing the current situation would not be enough. Institutional theory has previously been used to describe the conditions under which companies are likely to act responsibly (Campbell, 2007). As partnerships with social enterprises can be 2

10 a form of CSR for the large firms, it is suggested that they are affected through institutional factors as well. Institutional theory takes also into account the various directions how the institutional environment where companies act is created (Scott, 2001). Before the previous research about partnerships and institutional theory are discussed, the definition of social enterprise is provided and the potential benefits of partnerships between social enterprises and large firms are presented in order to justify the study. 1.1 Defining social enterprise The concept of social enterprise was used for the first time in Western Europe and the USA around mid-1990s. However, there have been social entrepreneurial actions well before that. (Defourny, 2009, p. xi) As stated before, social enterprises exist to develop solutions to social and environmental challenges (e.g. Bland, 2010). The definition of social enterprise varies however in different countries, and even more variation is in the definitions between Europe and the United States (Kerlin, 2006). 1 In the US, the definition of social enterprise is more focused on revenue generation than in Europe. In the US academic world, social enterprises are seen to form a continuum. It starts from profit-oriented businesses engaged in socially beneficial activities (i.e. corporate philanthropy and corporate social responsibility) and goes on to dual-purpose businesses that mediate profit goals with social objectives (hybrids). On the final stage of the continuum are non-profit organizations engaged in mission-supporting commercial activity (social purpose organizations). In practice, most activities defined as social enterprise are revenue generation activities of non-profit organizations. (Kerlin, 2006) However, recently also practitioners have started to adopt the broader definition including both non-profit and business forms (Kerlin and Gagnaire, 2009, p. 87). In Western Europe, the concept of social enterprise remains unclear and it has different meanings (Nyssens, 2009, p. 13). However, one of the main differences compared to the US view is that the production of goods and services should in itself have a social impact, not only indirectly through the generated income (p. 16). In Europe profit is seen as means to achieve the social or environmental goals rather than as a goal in itself. In the European view, profit distribution is allowed but usually restricted, whereas in the US it is not allowed at all. (Kerlin, 2006) There are two schools of thought in the European discourse: the first one puts emphasis on the social entrepreneurial activities of firms which seek to improve the social impact of their activities, whereas the second uses the concept to describe only organizations of the third sector. In the latter case, the social impact itself is the motivation of the economic activity. (Defourny and Nyssens, 2010) EMES, the European Research Network of Social Enterprises, follows the latter school of thought (Nyssens, 2009, p. 13). EMES also puts emphasis on the democratic 1 For a detailed description of different views of social enterprise across the globe see e.g. Kerlin (2009) 3

11 management and involvement of different stakeholders in the governance of the organization, which are not requirements in the US (p ). Besides these differing views and different schools of thought, the term social enterprise has dual meaning in many European countries. In addition to the meanings described above, the concept of social enterprise is used for work integration social enterprises (WISEs) 2, organizations which try to integrate poorly qualified, unemployed people into work and society through productive activity. In fact, the concept of social enterprise is associated with WISEs in almost all European countries and almost all specific public programs and public financing related to social enterprises are focused on WISEs. (Nyssens, 2009, p ) In the UK, the Department for Business Innovation and Skills states that social enterprises have mainly social and environmental aims and principally reinvest their surpluses in the business or the community. Social enterprises should also generate over one forth of their income from trading goods and services. (Allinson et al., 2011) In the Finnish discussion the concept of social enterprise is fairly new but there already is action that resembles social entrepreneurship. According to an inquiry of Karjalainen and Syrjänen (2009) there are potentially up to small and medium sized enterprises which see themselves as working towards social or environmental benefits and which re-invest their profits back to the company in order to achieve those benefits. This study follows the Finnish definition, which is close to the British one, for sure partly because the Finnish Ministry for Work and Employment has been conducting studies of the social enterprise practices in the UK (Laiho et al., 2011; Bland, 2010). The Finnish view is summarized in the criteria for the Social Enterprise Mark of the Association for Finnish Work. The primary criteria are: generation of social benefits in business and service activities, limited profit distribution, and transparency and demonstration of the impacts. In addition, at least one the following secondary criteria must be met: minimizing the environmental and health damage, customer orientation, relationship with neighboring communities, employee well-being, and paying attention to people in vulnerable position. (Association for Finnish Work, n.d.) (Figure 1) 1.2 Why partnerships? In order to justify the study, this chapter briefly introduces potential benefits of partnerships between large firms and social enterprises for these two participating actors and for the society (Table 1). It is noteworthy that the benefits for participants and for the society are partly overlapping (Nelson and Zadek, n.d., pp ). Some of the benefits of partnerships are tangible and can thus be measured, whereas others are more intangible and more difficult to identify. However, for partnerships to be successful and for partnerships to occur at the first place, it is 2 Sosiaalinen yritys 4

12 5 Generation of social benefits in business and service activities Minimization of the environmental and health damage Customer orientation Relationship with neighboring communities Limited profit distribution Transparency Demonstration of the impacts Employee well-being Figure 1: The criteria for the Social Enterprise Mark of the Association for Finnish Work (Association for Finnish Work, n.d.) important to find out what is the added value of the partnership and to communicate it to both partners and to other stakeholders. (Nelson and Zadek, n.d., pp ) Nelson and Zadek (n.d.) have identified eight main benefits of social partnerships i.e. partnerships which seek to address societal goals (p. 13) for the participants: development of human capital, improved operational efficiency, organizational innovation, increased access to resources, better access to information, more effective products and services, enhanced reputation and credibility and creation of a stable society. (p. 27) These are discussed in a more detail in the following. Table 1: Potential benefits of social partnerships (Nelson and Zadek, n.d.) Participant benefits Development of human capital Improved efficiency operational Organizational innovation Increased access to resources Better access to information More effective products and services Enhanced reputation and credibility Creation of a stable society Societal benefits Local development Job creation economic Improved quantity or quality of services and better access to them Improved health and education services Improved ethnic tolerance both in the workplace and in the community Overall improvements in quality of life Human capital includes for example intelligence, judgment and tacit knowledge, and it is embodied in individuals (Barney, 1991). Partnerships provide possibilities

13 to develop human capital of the employees of both large firms and social enterprises via training, mentoring and volunteering. Partnerships can include even exchanges of personnel which also develops human capital. Further on, working in different circumstances and with different people can raise general awareness which as well is one form of human capital. (Nelson and Zadek, n.d.; Meyskens, 2010) Operational efficiency increases as the partnership may provide possibilities to reduce costs, to increase process efficiency and to improve service delivery. Also organizational innovations new ways of working to answer to the complex challenges can result. (Nelson and Zadek, n.d.) This has been found to happen in partnerships of large firms with both NGOs (Holmes and Moir, 2007) and SMEs (Doz, 1988). Especially nascent social enterprises often lack resources: also financial, physical and social capital in addition to the aforementioned human capital. This may constrain their capacity to develop their businesses and to achieve their mission. (Nelson and Zadek, n.d.; Meyskens, 2010) For social enterprises getting access to financial capital can be harder than for ordinary enterprises because their financial statements are often weak in the traditional sense. In addition, it is challenging to get funding with adequate terms which would not contradict their mission and social goals. (Bland, 2010) Physical capital resources include for instance the operating plant, equipment and geographic location (Barney, 1991). For example in-kind donations or sharing office space could be physical capital resources which would benefit social enterprises. Social capital in turn, is embedded in the relationships between entities: individuals or organizations. It is mainly a instrumental resource: knowing the right people will facilitate access to other resources, to gain legitimacy and to more easily get access to new markets. (Meyskens, 2010) All these would be highly beneficial for the social enterprises as well. Also access to information improves via the improved access to resources. Both the large firm and the social enterprise can learn from each other about the surroundings where they operate, which can help them to improve service delivery and also improve risk management and conflict prevention. (Nelson and Zadek, n.d.) In partnerships between large firms and NGOs, large firms have been found to also gain insight of the customer needs at the grass root level and insight of the weak signals (Yaziji, 2004). Better knowledge of the customer needs and of the operating environments via partnerships can result in effective products and services and better design of them (Nelson and Zadek, n.d.). Seelos and Mair (2004) suggest that partnerships between large firms and social enterprises can result in development of new markets like the people of the bottom of the pyramid (BoP) market with even basic needs unsatisfied will be seen as potential customers. Partnerships can also result in innovations: the more integrated the partnership is, the more likely the innovations are to be radical and to lead to unexpected changes. When the partnerships are less integrated, the innovations are more likely to remain incremental and planned. (Holmes and Moir, 2007) Partnerships also enhance the reputation and credibility of the actors as they 6

14 build better relations not only among themselves but also with other stakeholders, which benefit directly or indirectly from the partnership (Nelson and Zadek, n.d.). Reputational reasons have indeed been found to be one of the main internal drivers for large firms to enter partnerships with NGOs (Holmes and Moir, 2007). Partnerships with social enterprises can also help them to gain trust of the citizens, which is essential for the large firms to legitimate their operations (Seelos and Mair, 2004). Social partnerships also help in building a stable society which is critical also for companies in the long term, not only an objective of governments and NGOs (Nelson and Zadek, n.d.). In addition to these eight benefits arising from social partnerships, working in a responsible company provides employees the possibility to work in ways that benefit other people, to become prosocially motivated (Grant, 2008). Prosocially motivated employees are outcome focused: the work they do is a means to achieve something greater in the future to benefit other people, rather than an end in itself (Grant, 2007). Prosocial motivation has been found to increase the effectiveness and productivity of the employees (Grant, 2008), which benefits also the employer. Nelson and Zadek (n.d.) suggest that potential benefits for the society, in turn, can include local economic development, job creation and improved quantity or quality of services and better access to them, especially in the case of health and education services. Further on, they state that also ethnic tolerance improves both in the workplace and in the community. According to them, social partnerships can even improve the overall quality of life. Nelson and Zadek (n.d.) emphasize, however, that benefits depend on the social purpose of the partnership, not all partnerships bring all of them. 1.3 Scope of the study The study is done by the order of Living Lab for Social Enterprises -project in Finland. It is a joint project between Syfo Oy, Aalto University School of Economics Small Business Center and Diaconia University of Applied Sciences, and is partly funded by the European Social Fund. The aim of the project is to increase general awareness of social entrepreneurship and to create supporting structures for social enterprises. (Yhteiskunnallisten yritysten Living lab, 2011) Because of the scope of the project, this study focuses on partnerships mainly in the context of developed countries, even though there would be a great potential in partnerships between large firms and social enterprises also in the developing countries. It is noteworthy that the aim is not to find ways to advance social entrepreneurship as such because this was recently studied in the Finnish context (Koto, 2010) but to find ways how partnerships between social enterprises and large firms can be advanced. The study concentrates on the ways of partnerships, not the partnership formation process, even though studying the formation process would also be important for advancing partnerships. As partnerships between large firms and social enterprises are studied so little, this study focuses solely on bilateral partnerships between large firms and social enterprises. This was chosen even though Meyskens (2010) emphasizes that part- 7

15 nership diversity provides partners access to different types of resources, and thus to more valuable resource conditions. When it comes to the ways of advancing partnerships, Scott (2001, p. 196) states that one single study cannot study the causal connections all the way from the individual level to the world level. He continues, however, that most informative research should study connections across two or more levels. Therefore this study concentrates especially on the organizational field level and societal level, and on processes among them. On the organizational level, the study focuses on exogenous factors which can advance partnering practices, internal organizational characteristics are not studied. 8

16 9 2 Previous research This chapter first introduces the previous research of partnerships. As there is only little research about partnerships between social enterprises and large firms (see Nelson and Jenkins, 2006; Seelos and Mair, 2004; Meyskens, 2010) and as social enterprises have characteristics of both SMEs and NGOs, also research of large firms partnering with these actors is taken advantage of. This research is in continuation developed further and combined with international examples of partnerships between large firms and social enterprises in order to answer the first research question: in which ways can social enterprises and large firms work together? These ways are presented in a form of a framework in Chapter 4, Results. The second part of the chapter concentrates on the institutional theory and institutional change, especially on the ways institutions are created and diffused. This theory is taken advantage of when discussing the third research question: how can partnerships between social enterprises and large firms be advanced. 2.1 Partnerships The field of partnering is not clearly defined and there is confusion in the terminology used. The term collaboration is used to describe almost any relationship between different entities from individuals to multinational corporations, and several terms are used to describe it: joint ventures, networks, alliances, coalitions, partnerships to name but a few. (Gajda, 2004) For example, Gulati (1998) defines strategic alliances as voluntary arrangements between firms involving exchange, sharing, or co-development of products, technologies, or services which can occur as a result of a wide range of motives and goals, take a variety of forms, and occur across vertical and horizontal boundaries. Meyskens (2010), in turn, defines partnerships as mutual exchange or sharing of resources between two or more organizations in order to maximize value creation which involves more than a single transaction whereas Austin (2000) uses the terms collaboration, alliances and partnerships to mean the same. This study uses consistently the term partnership to refer to different kinds of collaboration activities, and follows the broad definition of Meyskens, but only concentrates on partnerships between two organizations. Despite the confusion in the terminology most of the studies agrees that ways of working together can be expressed across a continuum of low to high integration (Gajda, 2004). A partnering continuum including different ways of partnerships and different terms to describe them from both NGO and SME fields are presented in the following. This first part of the chapter is then concluded by introducing the existing literature of partnerships between large firms and social enterprises Partnering continuum In the NGO field Austin (2000) uses the term collaboration to mean the whole continuum of collaboration activities. He identifies three stages on the continuum:

17 10 philanthropic, transactional and integrative, but emphasizes that the stages cannot be clearly distinguished. At the philanthropic stage the large firm mainly donates money for the non-profit organization whereas at the transactional stage there are explicit resource exchanges focused on specific activities, for example sponsoring events and cause-related marketing. At the last, integrative stage the different parties objectives, people and activities start to merge. This increases the complexity of management and broadens the scope of activities. Also the strategic value of the partnership increases. (Table 2) Table 2: The collaboration continuum (Austin, 2000) Nature of Stage I Stage II Stage III Relationship Philanthropic Transactional Integrative Level of engagement Low High Importance to mission Peripheral Central Magnitude of resources Small Big Scope of activities Narrow Broad Interaction level Infrequent Intensive Managerial complexity Simple Complex Strategic value Minor Major Austin (2000) says that many of the alliances evolve through all three stages, but mentions that it is possible to start the alliance from the transactional stage as well. The movement towards higher stages of the continuum requires resources, processes and right attitude. More trust and confidence is needed at the higher stages, but on the other hand trust also increases as the partnership continues and partnering activities become more and more complex. At the higher stages also compatibility and congruency of the objectives increase. The same characteristics increasing trust and congruency of objectives have been identified from the private sector partnerships (Thompson and Sanders, 1998). Thompson and Sanders (1998) call this partnering continuum, and the four stages as competition, cooperation, collaboration and coalescence. The researchers state that at the latter stages there are more points of contact, interpersonal relationships improve and information sharing increases. Also shared risk increases at the latter stages as well. (Table 3) The partnering continuum of Thompson and Sanders (1998) is similar to Prahalad and Ramaswamy (2004, p. 200) co-creation of value framework. Prahalad and Ramaswamy call the stages as (1) traditional business approach, (2) collaboration with suppliers, key customers and partners, (3) shared practices and co-innovation, and finally (4) shared destiny and co-creation of value (Figure 2). The competition stage, i.e. the traditional business approach, is market-placed and transaction-driven, and typically across unit boundaries (Prahalad and Ramaswamy, 2004, p. 200). At this stage the parties do not have common objectives, and success usually comes at the expense of others. The time horizon is rather short,

18 11 Table 3: The partnering continuum (based on Thompson and Sanders, 1998) Stage I Stage II Stage III Stage IV Competition Cooperation Collaboration Coalescence Number of points of Small High contact Interpersonal Weak Strong relationships Information and Little Intense knowledge sharing Shared risk Little Big Objectives Separate Common Time horizon Short Long Trust Little Absolute Autonomy of the entity Low High Discovering and creating new opportunities Prerequisites for Collaboration Sharing and creating knowledge (tacit and explicit) Sharing information (transaction data) Collaboration with Suppliers, Key Customers, Partners Shared Practices and Co-Innovation Shared Destiny and Co-Creation of Value: New Opportunity Space Arm s-length relationship Traditional Business Approach Market-based, transaction-driven; across unit boundaries Improved business processes; across legal boundaries Joint development; co-management of the enhanced network Collaboration Intensity Joint goals; joint leverage of competencies Figure 2: Collaboration as co-creation of value (Prahalad and Ramaswamy, 2004, Figure 11-1, p. 200) and there are no common project measures. There is not a lot, if any, room for continuous improvement, and only little trust is required for the success. (Thompson and Sanders, 1998)

19 More trust is required at the next, cooperation, stage. Here the parties start to have and to work towards common objectives. There are already measures for the success of the partnership, and mutual respect grows. However, the shared risk remains fairly limited as the objectives remain project-specific. (Thompson and Sanders, 1998) Second stage at the co-creation of value framework is called collaboration with suppliers, key customers and partners all of which can also be social enterprises. This stage includes sharing transaction data, which yields to improved business processes. (Prahalad and Ramaswamy, 2004, p. 200) The term collaboration is used in Thompson and Sanders continuum to describe the third stage, shared practices and co-innovation (Prahalad and Ramaswamy, 2004, p. 200). This includes joint development and continuous improvement of the project processes: the parties start working as a team. They are more willing to take chances as greater risk comes to mean greater expected reward. The parties also often have a shared vision, and the time horizon is longer. Duplication and control are reduced as trust increases and knowledge sharing becomes more open. The resources formerly required for supervising and control can now be used to value adding activities which may lead to new, innovative perspectives. (Thompson and Sanders, 1998) Prahalad and Ramaswamy (2004, p. 200) descriptively call the last stage a shared destiny and co-creation of value. At this stage, the coalescence, the parties have joint goals and the work processes can be redesigned to better leverage the competencies of both parties (Thompson and Sanders, 1998; Prahalad and Ramaswamy, 2004) and to eliminate duplication. The tasks can be divided based on the employees skills and not their original organization. Altogether the organizational boundaries are no longer significant and employees start to see each other as part of the same team a separate entity starts to form. The autonomy of the entity increases and the risk is shared by both parties. Complete trust and confidence and improved communication are required for this to happen. (Thompson and Sanders, 1998) This sub-chapter has introduced the partnering continuum which has been identified in partnerships between large firms and NGOs and SMEs. It is noteworthy that even though the benefits are often greater at the higher stages of the continuum, they are not self-evidently better ways for working together but rather serve distinct functions. The best way would thus be to have different forms of partnerships with different parties. (Austin, 2000) The following sub-chapter continues by presenting the different forms of partnerships between large firms and social enterprises Partnerships between social enterprises and large firms As stated above, the partnerships between social enterprises and large firms have not been studied extensively. Meyskens (2010) has applied the resource-based view to partnerships of social ventures both non-profit, for-profit and hybrid organizations with different parties. However, she concentrates on the competitive advantage that partnerships bring rather than on the different ways of partnering. Nelson and Jenkins (2006) introduce in their working paper some ways that large firms can apply to advance social entrepreneurship, including ways of working to- 12

20 gether with social enterprises. Seelos and Mair (2004) write a few paragraphs of the topic in their article about the contribution of social entrepreneurs to sustainable development. The perceptions of Nelson and Jenkins and Seelos and Mair are presented in this sub-chapter. Nelson and Jenkins (2006) identify three main ways for companies to support social entrepreneurship: (1) investing directly in social entrepreneurs and their organizations, (2) encouraging social entrepreneurship by engaging in public policy dialogue, advocacy and institution building and (3) creating internal climates for social entrepreneurship, i.e. social intrapreneurship (Seelos and Mair, 2004). According to the authors, the first option can still be further divided into two (1.1) investing as part of their core, commercial business operations and (1.2) through companies philanthropic and community investment activities. (Figure 3) Direct investments in social entrepreneurs and their organizations 2. Encouraging social entrepreneurship by engaging in public policy dialogue, advocacy and institution building 1.1 As part of core, commercial business operations 1.2 Through philanthropic and community interest activities 3. Creating internal climates for social entrepreneurship Figure 3: Ways for companies to support social entrepreneurship (Nelson and Jenkins, 2006) At the first option (1.1) the social entrepreneurs work with large firms in different parts of the value chain. Nelson and Jenkins suggest that this can include, for example, sourcing from micro-enterprises or small-scale producers, or offering affordable goods and services to low-income communities. They also present the hybrid value chain approach of Ashoka, an association promoting and supporting social enterprises and social entrepreneurship. The old version of the hybrid value chain consists of product/service development, production, distribution/logistics, sales & marketing and financing. The newer version does not name these stages at all (Ashoka, n.d.b), but the final goal remains the same: to serve low-income populations. The definition of hybrid value chain emphasizes that this partnership must go beyond a traditional buyer-seller relationship, and that the partners should invest and share risks and revenues. (Ashoka, n.d.a) Therefore this view is more strategic than the first alternative of Nelson and Jenkins and comes, in fact, close to the integrative stage of Austin (2000).

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