Social Enterprise Innovation in Context: Stakeholder Influence through Contestation

4.1 Data Collection

The development of this case study emerged from a broader ethnographic research project into the New Zealand branch of an international humanitarian development NGO. From October 2011 to March 2014 the author was embedded in the NGO as a social intrapreneur charged with pursuing social enterprise models and was central to the formation of the partnership. Participant observation was therefore the primary source of data as the author was a first-hand witness to and heavily involved in the forming of the joint venture and its subsequent development. The researcher occupied what could be considered a “complete participant” role (Gold 1958). The observational data was supplemented with two interviews with the founder, and single interviews with each of the NGO senior leadership team who also became 100Percent Board members, as well as analysis of organizational documents and media publications. The ethnographic examination of the NGO also provided useful background to the NGO’s strategic motivations going into the partnership.

The study occurs within a single geographic context, New Zealand, which creates limitations around transferability of findings. While few of the important findings here are idiosyncratic to New Zealand as a context for social enterprise, every organization faces a unique blend of contextual factors. It is important note that the generalizable contribution of this research is why and how context matters, not that the particular context studied is representative of all social enterprises.

4.2 Data Analysis

The data analysis process involved a number of stages to aggregate data from multiple sources, identify initial concepts, and then synthesize these with theoretical concepts from the literature. The source documents listed above were initially examined to identify initial concepts by coding common concepts from stakeholder perspectives on key events, motivations, opportunities, and challenges. These concepts were then grouped into a smaller number of themes that represent the sources of influence which shaped the innovation over time. A summary of this analysis is outlined in Table 1.

5.1 The Opportunity

100Percent is a small, nascent social enterprise operating in New Zealand. Founded in early 2012 by Crystal Diong, a medical school student at the University of Otago in Dunedin, 100Percent is a student-driven fundraising organization. Its purpose is twofold: to enable students to fundraise for worthy causes and to facilitate a peer-to-peer tutoring services market. In this way it delivers two streams of benefit – improved educational outcomes from its paid-for tutoring services and the fundraising outcomes from allocating 100% of proceeds to charitable causes.

It was created in response to the market failure that prevents SPOs – such as charities, non-profits, NGOs, schools, churches, and citizen sector organizations – from realizing the value of volunteer time and talent. In short, unless a willing volunteer with the appropriate skills is in the right place at the right time it is typically very difficult for an SPO to make use of them. The enterprise addresses this failure by creating a marketplace to monetize this volunteer energy by facilitating the search, selection, and transaction processes to connect volunteer service providers with paying customers via a web platform. The value proposition for volunteers is the ability to contribute to the cause of their choice when they are unwilling or unable to use their own money to do so, i.e. they donate their service. Customers of this enterprise receive the service on offer at a market price but with the embedded social value of 100% of the proceeds being distributed to the cause of the service provider’s choice. In monetizing volunteer energy, the enterprise addresses its illiquidity and unlocks this latent resource for SPOs.

100Percent was born from a desire for a more efficient and effective fundraising business model than those typically employed at grassroots levels such as bake sales or cake stalls. While 100Percent was founded primarily as a fundraising initiative that provides opportunities for young people to participate in positive social action, the vision has grown to ultimately include the provision of any service (not just tutoring) by anyone (not just students). The development of the venture is expected to accelerate in 2014 with the launch of a new digital platform which will provide the degree of automation required to dramatically scale the venture in terms of geography, volume, and scope.

The opportunity, as Diong saw it, was to combine the presence of willing volunteer human capital with existing Internet technology and awareness-raising information about causes in need of funding. The outcome of this innovation is the solution to the illiquidity of this volunteer human capital. Not only does this create more a more effective fundraising mechanism but also creates value through the service provision itself (Figure 1).

Figure 1:

100Percent stakeholder groups.

5.2 Scalability and Business Model

The venture was founded with a model of simply connecting willing volunteer service providers with those seeking the service with the transaction taking place in an unregulated fashion between the two parties. The volunteer would then deposit the proceeds into 100Percent’s bank account. It would then be aggregated with other deposits and distributed to the chosen charity at the end of each semester. The initial concern with this model was the lack of transparency at the point where money changes hands between the volunteer and the client. Given the 100% donor promise, this situation was unsustainable. Likewise, without a fully automated digital platform the coordination and booking of services required significant manual input which created an unsustainable workload for volunteer staff and made reconciling financial deposits against services delivered a cumbersome process. In early 2013, a joint venture between 100Percent and a large NGO ^[2] was established. The basis of the partnership was that the NGO would build the necessary web platform for the venture in return for the intellectual property. Subsequently a separate entity has been established to govern the enterprise with joint control between the NGO and the founder. The web platform is to create an automated digital marketplace for volunteer service providers and clients to automate payments directly from clients to the cause of the volunteer’s choice. This ensures complete transparency around the transaction such that money never passes through a volunteer’s hands and it can be reconciled against the original purchase.

The establishment of the partnership between 100Percent and the partner NGO led to the establishment of appropriate legal and governance structures. This process identified a significant risk associated with the business model as it currently stood. The previous model where volunteers were donating the income from their services created a potential tax liability on income generated, even though it was generated on the basis that 100% of it was for charity. Not only did this situation further necessitate the development of a digital platform, but it forced a technical change in the business model. To ensure that volunteers are protected from creating both an income tax and a Goods and Services Tax liability on services they provide, volunteers and clients must understand and contractually agree to the fact that the volunteer is donating their service to 100Percent, and that clients are buying that service from 100Percent. If there was a belief from either volunteer or client that an informal supply agreement had been made between them then the transaction could fall foul of New Zealand’s tax legislation.

The NGO partner required a shift in the offering as part of its involvement such that the beneficiary SPOs needed to meet certain standards of transparency and governance and that their position as beneficiaries was dependent on them providing content for the web platform. This shifted the design from the founder’s vision of an unregulated marketplace with little content, to a high-content, high-engagement model with strong content curation and oversight. The NGO was able to influence this because at the time the partnership was formed 100Percent was looking to expand from supporting a single NGO (the partner NGO) to allowing volunteers to support a range of SPOs.

The attitude of the universities, and faculties within them, where 100Percent has sought to establish a presence has varied. Some have tolerated it, some have actively opposed it, and others have supported it. The institutional resistance is due to the lack of control over 100Percent’s teaching standards and/or because they believe it may detract from their own tutoring services. This has meant that 100Percent has had to remain independent of the institutions and has prevented the establishment of relationships with the institutions which could provide the support structures to help ensure 100Percent’s enduring presence on campus. There is currently one university which is considering a formal relationship with 100Percent whereby the institution will endorse and promote the program so long as the income generated flows through its own foundation on its way to 100Percent. Ironically, this university has previously resisted 100Percent to the extent that it threatened to punish a 100Percent volunteer manager (also a student) if they promoted the tutoring service on campus. 100Percent responded by promoting the tuition of high school students by university students.

5.3 NGO Partnership

When she started 100Percent, Diong chose the partner NGO’s West African Food Crisis Appeal as the cause for which the organization would fundraise. In late 2012, 100Percent came to the attention of the NGO, which led to a partnership between the NGO and Diong for the purpose of dramatically scaling the size and scope of the venture from one which facilitated a tutoring service primarily among medical school students at the University of Otago, to one which facilitated a range of services in universities across the country, and ultimately be present beyond the university market. The benefits of the partnership were to be mutual. 100Percent would have support in instituting the legal and governance structures it requires to grow within the parameters of the relevant legislation and would have financial and management support in developing the upgraded digital platform it needed. It would also provide significant capability in marketing, public relations, and access to venture philanthropists. The partner NGO would benefit, ultimately, financially from being a beneficiary SPO of a larger fundraising platform. It also provided the partner NGO with an opportunity to demonstrate leadership in the SPO space by investing in an entity that would improve the fundraising and engagement capability of the SPO sector, not just for itself. The partner NGO also saw formally partnering with 100Percent in this way as a superior avenue to bring this opportunity to market than developing its own offering. This is because 100Percent had the embedded support of a grassroots movement of mobilized young people that had achieved some market validation for the monetization of volunteerism concept, albeit on a very small scale.

The partnership and the broader approach to innovation demonstrated by the partner NGO is an outcome of a strategy to invest in visionary individuals and groups outside of the organization to help them to achieve their vision when it aligns with organization’s goal of eliminating extreme poverty. The intended outcome of this strategy is the engagement of new stakeholders and the creation of new business models. This partnership approach allows the organization to circumvent many of the internal influences that inhibit innovation and to leverage the resources, capabilities, and drive of individuals and groups outside of the organization to mutual benefit. In the case of 100Percent this approach has realized some of these intended benefits but it has also produced some unintended negative consequences. In simple terms, the increased human capital that 100Percent has access to has brought more knowledge and experience to bear on decision-making and on broader organizational development. However, having ceded a lot of control to the partner NGO, 100Percent did find its agility, and the ability to move quickly to seize opportunities was compromised. This was due to control over what 100Percent was permitted to do under the terms of the partnership agreement, but also the speed at which the partner NGO made decisions or completed activities. While this speed was not slow for an organization of the partner NGO’s size (over 100 full-time employees domestically and approximately 50,000 internationally) it was very slow relative to what 100Percent (an organization comprising a couple of volunteers) was accustomed to. Furthermore, as part of the partnership agreement, the partner NGO had made assurances that it would build and support the digital platform needed to automate the 100Percent offering so it could be scaled nationally. In attempting to do this it became apparent that the partner NGO had overestimated its ability to build this platform and the subsequent failure to build the platform adequately or to the required timeframe not only slowed the growth of the venture but directly caused a decline in income. While this provides some insight into the ability of large NGOs to innovate outside of its direct donor mandate and to deploy their resources outside of “business-as-usual,” it also illustrates the risks of partnerships between SPOs at such different sizes and stages of development.

5.4 Venture Capital

Despite the early stage of the venture and the ongoing delays in developing the new web platform, the venture was able to leverage the relationship with the partner NGO and its innovative business model to secure the venture philanthropy investment needed to cover the overheads it will incur in scaling the venture. This financial support is necessary in order to maintain the promise it makes to its volunteers that 100% of the income they generate will reach the charity they have chosen. Remarkably, the philanthropic opportunity was sufficiently compelling that 100Percent was able to raise capital, to be paid over 3 years, worth over five times its total income to that point.

6.1 Shaping Innovation: Alignment, Legitimacy, and Resource Acquisition

This case example illustrates that it is through the flow of resources that contextual forces ultimately shape social innovations within existing non-profit and for-profit organizations, and as social entrepreneurial start-ups (Desa and Basu 2013). The entrepreneur as the driver of the social innovation will receive many signals of unconditional support, conditional support, or non-support prior to the acquisition of resources. It is in response to these signals that social entrepreneurs refine their innovations to make them sufficiently attractive to new institutional investors and other donors, sufficiently palatable to existing donors and other supporters of the status quo, and sufficiently decrease levels of uncertainty for those who see the innovation as high risk. In this way the innovation is refined in order to attract the resources and organizational support for it to progress toward implementation. This refining process will naturally shift the innovation from being the product of an initial entrepreneur or entrepreneurial team to that of the stakeholders whose support is required for the innovation to move from idea to reality. This necessitates the prioritization of stakeholder alignment over the creative designs of social entrepreneurs. It is refined from an initial conceptual design that is based on potential resource combination for maximal social impact, toward a design that attracts sufficient resources for it to be brought to fruition while minimizing the loss of social impact of the conceptual design.

This is especially relevant to social entrepreneurship because often the very purpose of the activity is to address some type of resource depravation in a particular community (Peredo and Chrisman 2006). The innovation in social entrepreneurship is therefore often in the creation of novel relationships between organizations and across sectors to provide access to new resources as part of novel business models. Alternatively it can be through the use of existing resources in novel configurations. Innovative resource configurations through collaboration provide clear examples of how social innovations are invariably the negotiated products of the differing missions, strategies, and logics of the multiple stakeholders that provide implicit or explicit support for the innovation. Understanding that the access and utilization of resources in this context is conditional on such stakeholder alignment adds further insight to the bricolage approaches that social entrepreneurs are invariably required to adopt (Zahra et al. 2009; Di Domenico et al. 2010; Gundry et al. 2011).

It is a central argument of this article is that this “trading-off” of initial design to engender stakeholder support does not necessarily diminish the ultimate impact of the innovation. Neither does it preclude the implementation of significant innovations in the social sector. It does, however, mean that social innovations will ultimately be negotiated manifestations of the interests, beliefs, and expectations of multiple stakeholders. This process can in fact lead to more impactful innovations both because their alignment with stakeholder beliefs allows for greater scalability and because stakeholders will hold insights, knowledge, and culturally specific wisdom that can enhance an innovation. In this sense compromising an innovation’s design to “appease” the wishes of stakeholders is not a case of “sacrificing” impact in order to gain support. Rather it refines the innovation, resulting in improvements that can range from the cosmetic – such as changes of narrative – to the fundamental, i.e. by revealing to the entrepreneur the true causes of the social issue they are seeking to address, and how their innovation may or may not actually have an impact. In this sense we can consider such forces as “positive resistance.”

Social innovations are far more likely to be negotiated in this fashion than commercial innovations because of the greater number of stakeholders and the greater influence they have over the viability of social ventures. In contrast, commercial innovations are designed almost entirely on what will maximize market performance, and resources are acquired on this basis. For this reason commercial innovations do not suffer from the contestability of the appropriateness of a social intervention, the ethics of social entrepreneurship itself (cf. Zahra et al. 2009), or the questionable institutional legitimacy of operating with concurrent logics of social and commercial value creation (Dacin, Dacin, and Tracey 2011). Likewise, there are fewer checks and balances provided by the market for social entrepreneurship and the performance of social entrepreneurial ventures are less likely to be rewarded and punished by the market as readily as for businesses (Austin, Stevenson, and Wei-Skillern 2006; Zahra et al. 2009). Stakeholder resistance can fulfill an important function in this regard in that it tempers the potential for unintended negative consequences of an innovation, the implementation of unethical or culturally inappropriate innovations, or the risks of imposing paternalistic interventions on marginalized, minority, or indigenous populations (Newth and Woods 2014).

Thus far the discussion has emphasized the social entrepreneur’s dependence on others for resources, and their innovation’s resultant malleability, because of a dependence advantage that the resource bearing stakeholder has over the needy entrepreneur (cf. Jawahar and McLaughlin 2001). Naturally, social entrepreneurship is motivated at its core by a desire to help others, the public good, or the natural environment. However, this is typically not the motivating force of those with resources, and in many cases, the disruptive nature of social entrepreneurship can create active resistance from those who would be disrupted (Newth and Woods 2014). However, we must be careful not to imply that this interaction is driven purely by self-interest. While entrepreneurship theory is typically premised on self-interested actors making rational decisions, this is emphasized less when specifically considering resource mobilization as this requires an appreciation of how entrepreneurs can create value for others (Lounsbury and Glynn, 2001; Van de Ven, Sapienza, and Villanueva 2007; Zott and Huy 2007). Van de Ven, Sapienza, and Villanueva (2007, 361) extend on this to argue that “successful resource mobilization does not follow a resource dependence exchange logic that only satisfies the self-interests of parties; instead it should be framed as a joint sensemaking process of interaction, meaning making and social construction that motivates both opportunities and actions for the parties involved.” This suggests that social entrepreneurial ventures can lower the dependency on key resource-holding stakeholders if they can create interdependencies with them.

The hybridity of social enterprises potentially puts them in an advantageous position as they are able to utilize the narrative of collective interest to mobilize resources from those stakeholders who are primarily interested in the creation of unappropriated social value (cf. Santos 2012) such as venture philanthropists, customers, volunteers, and beneficiaries. And drawing on Van de Ven et al.’s (Van de Ven, Sapienza, and Villanueva 2007) argument, the collective interest which underpins the logic of social enterprise may strengthen their ability to mobilize the resources of commercial stakeholders provided an appropriate commercial proposition exists.

This relates strongly to a practice we see illustrated in this case – relating the plight of the enterprise to the macro-level discourse of social entrepreneurship and social enterprise to legitimate the venture (Tracey et al. 2011) and create resonance with stakeholders. This was most clearly illustrated by the interaction with the venture philanthropist who has supported the growth of 100Percent financially. The narrative of collective interest and an enterprise approach to catalyzing social change proved instrumental in mobilizing financial resources.

In this case study in the first instance the involvement of the NGO partner significantly altered the design of the offering to ensure it was more inline with its own model of supporter engagement. This meant making the platform available to a limited number of charities which meet certain standards of transparency and governance, each of which would provide rich feedback to supporters on the impact that has been achieved with the funds received. This was a significant departure from the unregulated, low-content marketplace of volunteers and charities that the founder had envisaged for the second phase of the venture. This means that 100Percent will have a significantly altered offering from early 2014 which is a direct result of the partner NGO imposing its norms and routines around supporter engagement on the 100Percent venture. In other words, the venture was only investable when its model more closely aligned with its own marketing and engagement logics.

The partnership also led to the creation of a more formalized organization at an earlier stage than would otherwise have been the case, as prior to the forming of the partnership 100Percent was an informal group of volunteers without legal incorporation. This locked in a particular organizational form and governance structure that the organization may not have otherwise chosen. These changes or “compromises” can be considered part of the price of the partnership and the resources, support, and legitimacy that came with it. Whether these changes will have a positive net effect remains to be seen, but it does illustrate the fact that the innovation has been shaped by a key stakeholder in these ways because the access to resources and legitimacy was conditional on, or an unavoidable outcome of, those changes.

The actions of the NGO during the formation of the partnership to legally incorporate the organization, establish governance structures, and to ensure legal compliance not only led to the implementation of these formal structures, but altered the business model – at least in how it is legally articulated – to ensure compliance with New Zealand’s tax legislation. This illustrates how the unintended consequences of the extant regulatory framework shaped the innovation. It is also demonstrative of how such legislation and other formal institutions have not kept pace with the innovative, cross-sector business models of social entrepreneurs and their social enterprises.

The relationship with the partner NGO had a dramatic impact on 100Percent’s access to venture philanthropy capital. In becoming a partnership or joint venture, 100Percent was imbued with the legitimacy of their NGO partner. They were able to draw on this legitimacy to acquire a significant amount of philanthropic venture capital from someone within the NGO’s broader supporter network. The joint venture is able to combine the trustworthiness of the large NGO with 100Percent’s narrative of innovation and its ability to use the language of venture philanthropy, i.e. a philanthropy opportunity with potential for leveraged impact and ability to scale. Likewise, using the NGO partner as an avenue to acquire resources was instrumental in acquiring vital pro bono legal service from a leading law firm which helped the venture navigate the narrow regulatory constraints within which it must operate.

6.2 Theoretical Model – Influence, Interdependence, and Innovation

The contestation process between a social enterprise and a particular stakeholder is informed by the salience of that stakeholder. The outcome of a successful contestation process is greater social capital, interdependence, and ultimately more refined innovations.

The creation of interdependence results from the building of social capital – particularly cognitive capital (Nahapiet and Ghoshal 1998) and relational capital (Granovetter 1992) – between stakeholders which is built through the contestation process and strengthened (or weakened) over time. The contestation process is animated by the potential for the creation of mutual value, with stakeholder salience (Mitchell et al. 1997) determining the relative importance and power dynamics therein. The intensity of the contestation process is determined by variances in institutional alignment between the parties involved.

Also, as norms, economic structures, and institutions shift over time, this will alter the contestation process as it shifts the bases of resistance and the need for negotiation. This is particularly relevant to social enterprise as it gains prominence and acceptance as this will likely generate resistance to this form of enterprise and its hybrid nature. As institutions shift, and as an enterprise develops over time, this will change the relative institutional alignment of the parties involved. Also the development of the social capital and legitimacy of an enterprise will change the dynamics of the contestation process. In some cases the success of a social enterprise may increase the resistance to it if it begins to threaten legitimacy of other stakeholders or their ability to attract resources. There is potential for this in the 100Percent case. If 100Percent begins to cannibalize the charity offerings of the NGO partner, or destabilize its more traditional charity position, it may cause conflict as the mutual benefit of the partnership will become more questionable.

The process depicted in Figure 2 is an ongoing, dynamic one. As a social enterprise builds legitimacy and acquires resources, for example, it changes the relative salience of stakeholders. Likewise, as its strategy changes the need for venture capital for growth may increase the importance of stakeholders that can provide venture capital, making them more salient.

Figure 2:

Theoretical model of innovation processes with stakeholders in social enterprise.

Figure 2 illustrates how the interplay between social enterprises and their key stakeholders creates an interdependence that ultimately leads to superior innovations. A superior innovation may mean one that is more socially impactful, financially successful, or one that strikes a more appropriate balance between the two logics. The 100Percent case demonstrates how interaction between stakeholders can result in innovations that are better positioned to generate social change which in this case was achieved through partnering with an international NGO with capability and capacity to deliver high-impact programs in deprived communities around the world. This partnership, and the legitimacy it provided, also enhanced its ability to attract venture philanthropy capital and its marketability. The mutual benefit that has been derived from the relationship has built the social capital which has brought a balance in the relationship that has reduced 100Percent’s dependence on the NGO partner and increased the interdependence between the two parties. This also applies to its other key stakeholders and leaves 100Percent better equipped to scale and refine its innovation to increase its impact and marketability (Table 2).