Stakeholder Value Creation: A Collective Action
Approach
MASTER THESIS
Submitted in Partial Fulfillment of the Requirements for the Degree of
MASTER OF SCIENCE
in Strategic Management
Prof. Dr. Kerstin NEUMANN
Department of Strategic Management, Marketing and Tourism
The University of Innsbruck School of Management
Submitted by
Susann KRUSCHEL
Innsbruck, June 2019
Table of Content
I
Table of Content
List of Figures .......................................................................................................................... III
List of Tables ............................................................................................................................ IV
List of Abbreviations ................................................................................................................. V
1. Introduction ............................................................................................................................ 1
2. Sustainability, Stakeholders and Collaboration ..................................................................... 4
2.1. Sustainability ................................................................................................................... 4
2.2. Stakeholder Theory ......................................................................................................... 5
2.3. Stakeholder Value Creation ............................................................................................ 8
2.3.1. How Stakeholder Relationships Create Value ......................................................... 8
2.3.2. Stakeholder Value Definition ................................................................................. 11
2.4. Collaboration ................................................................................................................. 13
3. Collective Action Theory ..................................................................................................... 15
3.1. Core Concepts of Collective Action Established by Ostrom ........................................ 16
3.1.1. Collective Action Problems of Appropriation and Provision ................................ 16
3.1.2. Institutions as Problem Solutions ........................................................................... 19
3.1.3. Eight Design Principles for Successful Collective Action ..................................... 21
3.2. Comparing the Different Settings ................................................................................. 26
3.2.1. Actors ..................................................................................................................... 26
3.2.2. Underlying Structure .............................................................................................. 27
3.2.3. Source of Conflict/Problem .................................................................................... 28
3.2.4. Rule-Creation and Decision-Making ..................................................................... 28
3.2.5. Soft Mechanisms – Trust, Reciprocity and Reputation .......................................... 29
3.2.6. Summary ................................................................................................................ 31
4. Synthesis ............................................................................................................................... 33
4.1. Summary ....................................................................................................................... 33
Table of Content
II
4.2. Synthesis of Collaboration and the Eight Design Principles ......................................... 34
4.3. Adopting the Eight Design Principles to the Organizational Level .............................. 35
4.3.1. Boundary Rules ...................................................................................................... 35
4.3.2. Allocation Rules According to Local Conditions .................................................. 37
4.3.3. Participation in Making and Modifying Rules ....................................................... 38
4.3.4. Monitoring .............................................................................................................. 39
4.3.5. Graduated Sanctions ............................................................................................... 41
4.3.6. Conflict Solving Arenas ......................................................................................... 43
4.3.7. Right to Organize by Local or National Government ............................................ 44
4.3.8. Nested Enterprises .................................................................................................. 45
4.4. Eight Design Principles for Successful Stakeholder Value Creation ............................ 46
5. Conclusion ............................................................................................................................ 47
5.1. Contribution & Further Research .................................................................................. 49
5.2. Managerial Implications ................................................................................................ 52
References ................................................................................................................................ 54
List of Figures
III
List of Figures
Figure 1: Eight Design Principles (Source: Adapted from Ostrom, 1990, p. 90) .................... 21
Figure 2: Comparison of Institutional and Organizational Setting (Source: Author) .............. 32
Figure 3: Collaboration Black Box (Source: Adapted from Thomson and Perry, 2006, pp. 24)
.................................................................................................................................................. 34
Figure 4: Eight Design Principles for Successful Stakeholder Value Creation (Source: Author)
.................................................................................................................................................. 46
List of Tables
IV
List of Tables
Table 1: Key Features of the Four Relational Models (Source: Bridoux and Stoelhorst, 2016, p.
233) ............................................................................................................................................. 9
List of Abbreviations
V
List of Abbreviations
CPR Common-pool resource
IPCC Intergovernmental Panel on Climate Change
UN United Nations
WCED World Commission on Environment and Development
1. Introduction
1
1. Introduction
One of the most frequently cited definitions for sustainability is provided by the WCED (1987)
and states that it is the “development that meets the needs of the present without compromising
the ability of future generations to meet their own needs." A closer look reveals that so far, the
current population’s and its predecessors’ actions are not guided by the premise of
sustainability. The IPCC (2018) released a special report on climate change painting a dramatic
picture about how humanity is responsible for a temperature increase of 1 ºC and heading
towards 1,5 ºC with potentially catastrophic consequences like extreme weather conditions and
rising sea levels. So, when Nobel Peace Prize nominee and environmental activist Greta
Thunberg (2019) addressed economists at the World Economic Forum in Davos in 2019 with
the statement that “our house is on fire” to raise urgency on the matter of climate change and
the need for sustainable actions, she has a valid point.
The United Nations (UN) draw attention to additional pressing global issues concerning rising
inequality, unemployment, disparities of opportunity, wealth and power and the depletion of
natural resource, to name a few (United Nations Global Compact, 2015). In order to tackle these
issues along the triple bottom line of economic growth, social needs and environmental
protection all 193 member states of the UN signed “The Agenda 2030 For Sustainable
Development”. By developing the 17 Sustainable Development Goals within the subjects of
people, prosperity, planet, peace and partnership, the UN Global Compact offers global goals
and guidance for the private and public sector to collaborate on tackling the challenges of the
21st century by the year 2030. Additionally, opportunities for sustainable and responsible
management and business models are provided. To fulfill these goals a collective effort from
states, public institutions, privately held organizations, society and science on a global as well
as on a local scale is needed. Goal number 17 builds on the necessity for multiple stakeholder
partnerships to mobilize and share resources to reach the common goals and create value
beyond financial measures.
The private sector is vital in order to succeed in this endeavor through their positive
contributions of innovation and investment power to support sustainable development on the
one hand (econsense, 2016). On the other hand, their business activities like production
processes or supply chain activities often have a negative impact on the environment and society
through, e.g., resource extraction, waste production, pollution and poor working conditions
(Carr and Alter Chen, 2001; WCED, 1987). Their hunt for profit, shareholder value
1. Introduction
2
maximization and individualistic behavior causes a great extent of today’s world’s economic,
social and environmental disparities (Lozano, 2007).
Going back to the definition from the beginning the essential question is what and how do
corporations need to change to meet the needs of today without comprising future generation
to meet theirs? One important step for organizations towards sustainability and reaching at least
some of the UN’s 17 Sustainable Development Goals is the collaboration with and integration
of different stakeholders and their interests into the value creation process (Hart and Milstein,
2003). To engage in stakeholder value creation requires corporations to question what they
consider value and for whom they create it. Solely focusing on financial measures in order to
meet shareholder interests is insufficient at this point (Freeman, 1984). Organizations will have
to broaden their horizons to multiple interests and their alignment towards common goals and
multiple concepts of the meaning of value (Freeman, 2010).
On the institutional level, the theory of collective action aims to find answers of how
collaborative behavior among multiple actors can be fostered and maintained in order to reach
a common objective. Extensive theoretical and empirical research has been conducted on how
communities or groups of actors are able to self-organize the sustainable use and maintenance
of a common-pool resource (CPR) in order to ensure its long-term survival. Ostrom (1990)
challenged the tragedy of the commons concept of Hardin (1968) which states that the
protection of CPRs requires an external force or authority by arguing that resources can be
successfully managed bottom-up by different actors if certain principles are being adhered to.
Little research has been conducted on how these findings on collective action can be transferred
from the institutional level to the organizational level. The eight design principles created by
Ostrom (1990) that are crucial for successfully maintaining collaboration in a common-pool
resource setting are potentially beneficial for other group settings, e.g., on the organizational
level which require a collaborative attitude to reach common goals (Wilson, Ostrom and Cox,
2013). Further research is still necessary to understand the relationship between the design
principles and the performance of groups, e.g., firms and their stakeholders, to connect
collective action theory to economic theory.
To contribute to closing this research gap this master thesis proposes the following research
question:
How can the theory of collective action be adopted towards the organizational context to
support stakeholder value creation?
1. Introduction
3
In order to answer this research question a thorough literature review is conducted on the topics
of stakeholder value creation, collaboration and collective action. Since collective action theory
and stakeholder theory operate on different levels, the institutional and the organizational, both
settings will be compared to look for similarities and potential boundary conditions. The aim is
to generate knowledge from Ostrom’s (1990) eight design principles for the process of
stakeholder value creation in order to foster collaboration and ensure ongoing contributions of
multiple stakeholder and the organization to a common objective. These design principles will
then be adapted towards stakeholder value creation.
This conceptual master thesis is structured into the following chapters: After the introduction
provided in this chapter, chapter 2 gives an overview on the current state of literature in the
areas of stakeholder theory, stakeholder value creation and concludes with the process of
collaboration, which is an essential cornerstone for both stakeholder value creation and
collective action.
Chapter 3 outlines collective action theory with a special regard to Ostrom’s research and the
eight design principles. It also juxtaposes the institutional and organizational setting to
investigate the common ground for the application of the principles.
The following chapter 4 contains the synthesis of the previous chapters from which the adapted
design principles will be derived. This chapter provides an overview of which and how the eight
design principles can be usefully applied on stakeholder value creation to foster collaboration
on the organizational level and consequently support sustainability.
The last chapter of this master thesis concludes with a summary of the findings, contributions
and provides directions for further research. As a last step, possible managerial implications are
indicated.
2. Sustainability, Stakeholders and Collaboration
4
2. Sustainability, Stakeholders and Collaboration
Within this chapter the topics of sustainability, stakeholder theory and stakeholder value
creation will be introduced. Followed by the concept of collaboration, which is essential for
successful stakeholder management in organizations (Savage et al., 2010) and in collective
action theory (Ostrom, 1990). To begin with the context of corporate sustainability is briefly
introduced since stakeholder value creation is one important step towards a more sustainable
way of doing business.
2.1. Sustainability
Taking multiple stakeholders and their interests into consideration during decision-making
processes is a crucial step for an organization towards sustainability (Hart and Milstein, 2003).
Sustainability on the organizational level is labeled as corporate sustainability. If a company
implements corporate sustainability, it requires it to broaden its horizon beyond financial
measures and to include environmental and social concerns (i.e. triple bottom line) into their
strategy, decision-making and operations (Berger, Cunningham and Drumwright, 2007). To
meet the needs of multiple stakeholders in this fast-changing world with high uncertainty has
become essential for the long-term survival of organizations (Garvare and Johansson, 2010).
Due to the rising pressure on the environment and increasing social inequalities worldwide
sustainability should be applied as the guiding principle in businesses. In order to promote
sustainability corporations could start by aiming at incorporating stakeholders and promoting
collaboration (Gibson, 2012).
On the institutional level, communities or small groups strive for the sustainability of common-
pool resources through collective action (Ostrom, 1990). Within this master thesis further
investigations within collective action theory will be conducted to extract central learnings from
the collaborative mechanisms for stakeholder value creation.
2. Sustainability, Stakeholders and Collaboration
5
2.2. Stakeholder Theory
The beginnings of stakeholder theory lie in taking a stand against the omnipresent view that
shareholder primacy is the guiding light for corporations and that management should be
conducted solely in the interest of shareholders (Freeman, 1994). Shareholder primacy claims
that the purpose of the corporation is to maximize value for shareholders and that only they
have a right to residual income therefore limiting other stakeholders’ access to value from their
investment (Hoskisson et al., 2018; Klein et al., 2012).
In his seminal work, Freeman (1984, p. 46) offers a broad definition of stakeholders. He states
that “a stakeholder in an organization is (by definition) any group or individual who can affect
or is affected by the achievement of the organization's objectives.” In contrast, Post, Preston
and Sauter-Sachs (2002b) incorporate the value creation aspect by stating that stakeholders
contribute either voluntarily or involuntarily to the process and thus either bear risk or benefit
from a company’s activities. Stakeholders of an organization can thus, e.g., be employees,
customers, suppliers, communities and also shareholders (Freeman, 2010).
Donaldson and Preston (1995) identify three different perspectives of stakeholder theory in
literature, which are: Instrumental stakeholder theory, normative stakeholder theory and
descriptive/empirical stakeholder theory.
The instrumental approach draws attention to in how far stakeholder management has an effect
on achieving corporate goals, e.g., financial targets (Berman et al., 1999). In this case,
stakeholder management is seen as a means to an end. In contrast, the normative stakeholder
theory follows the moral obligation and purpose a firm has towards its stakeholders and how
this may positively affect financial goals, but as a side benefit (Argandoña, 1998).
Descriptive/empirical stakeholder theory is the practical approach offering empirical insights
into how organizations are managed and how stakeholders are identified (Agle, Mitchell and
Sonnenfeld, 1999).
While this distinction is without a doubt important to understand, the different perspectives and
motives behind stakeholder management, Hörisch, Freeman and Schaltegger (2014) suggest an
integrative view, which this master thesis will apply. This approach represents the fact that
normative and instrumental stakeholder theory are highly interconnected with each other. It
also refutes the idea that business and ethical issues can be treated separately. Every business
decision will have an influence on society. The assumption that both issues can be treated
2. Sustainability, Stakeholders and Collaboration
6
individually is known as the separation fallacy (Freeman et al., 2010). If an organization aims
to create actual value for stakeholders, the core business has to be linked also to social as well
as environmental issues (Hörisch, Freeman and Schaltegger, 2014).
By incorporating social and environmental issues a corporation moves away from shareholder
primacy to a broader spectrum of stakeholders. Stakeholder theory states that a firm’s
responsibility is not limited to equity holders but to all stakeholders since an organization’s
value creation is not only supported by investments of shareholders. Other stakeholders like the
beforementioned also contribute resources and capabilities to the value creation process (Coff,
1999).
In the stakeholder-based view of a firm, organizations are often defined as various
interdependent relationships among stakeholders (Donaldson and Preston, 1995). When an
organization conducts business, it acts within these various relationships of different groups
which all have a stake in the business activities. These relationships need to be managed by
executives in a way that as much value is created for all stakeholders. In order to do so
shareholder primacy is given up and replaced by the purpose of satisfying the interests and
needs of multiple stakeholders (Freeman, 2010). It requires organizations and its executives to
constantly balance and incorporate these various relationships and goals and take them into
account during decision-making processes and strategy formulation. Investing in relationships
that ensure long-term success and establishing a collective underlying strategy is a vital part of
stakeholder management (Freeman et al., 2010; Freeman and McVea, 2001).
Identifying and meeting stakeholder interests and managing multiple relationships are two of
the big and complex challenges in stakeholder management. Often the chosen solution to this
issue is to find trade-offs among stakeholder interests and often in favor of the interests of
shareholders. Consequently, a group of stakeholders whose interests are not being met may stop
contributing to the value creation process. Therefore, it is advisable to put an effort on finding
joint interests, which indeed is more difficult than finding trade-offs, but will ultimately lead to
greater value (Freeman, 2010).
It becomes obvious that stakeholder management is not an easy endeavor for organizations. In
order to master this challenge a collective effort is needed from all parties. To foster
collaboration between different stakeholders with different interests a set of shared core values
is necessary. These shared core values provide the relationships with the necessary stability in
order to survive in the long-run (Freeman and McVea, 2001).
2. Sustainability, Stakeholders and Collaboration
7
As Freeman (2010) states, it is now interesting to look at stakeholder theory from a value
creation point of view instead as a concept that only works by trading off stakeholder interests.
In the next subchapter the topic of stakeholder value creation will be further examined to find
out how organizations can jointly create value with and for multiple stakeholders.
2. Sustainability, Stakeholders and Collaboration
8
2.3. Stakeholder Value Creation
The ultimate objective of an organization is to create value (Grant, 2002; Mills and Weinstein,
2000; Rappaport, 1986). For an organization following the stakeholder-based view this
objective results into creating as much value as possible for as many stakeholders as possible
(Freeman, 2010). Also, the role of stakeholders within the value creation process becomes more
and more important and requires the coordination of their multiple values (Ramírez, 1999). To
understand how value is created and what stakeholders consider as value are crucial factors in
investigating the stakeholder value creation process.
2.3.1. How Stakeholder Relationships Create Value
The total value of an organization is created by not only the organization itself but also by its
stakeholders (Garcia-Castro and Aguilera, 2015). The critical aspect here is that value is created
relational and interdependent through the relationships among stakeholders, and between
stakeholders and organization (Bridoux and Stoelhorst, 2016; Post, Preston and Sachs, 2002a).
Stakeholders create value by contributing resources and capabilities that are firm-specific,
casually ambiguous and socially complex (Coff, 1999). In order for an organization to access
these resources and capabilities it needs to build relationships and interconnections with and
among stakeholders (Rowley, 1997). Understanding what fosters these relationships may allow
drawing insights on why certain firms are more successful in engaging in stakeholder value
creation than others.
The contributions stakeholders make towards joint value creation depend on the way each of
the stakeholders formulates their relationship with others involved in the value creation process.
Bridoux and Stoelhorst (2016) identified three relational models that foster, in this particular
research case, social welfare: Communal sharing, authority ranking and equality matching. The
relational model of communal sharing implies that an individual merges his or her identity with
the community. Through this the personal identity recedes into the background and the
community identity becomes dominant. All participants or relational partners are perceived as
equal community members and decisions are made by consensus. Authority ranking follows a
hierarchical concept with power asymmetries. Appropriate behavior and decisions are related
to the rank in the hierarchy. An important aspect here is the perception of the superior as
legitimate. In equality matching the central element is reciprocity. Partners see themselves as
equal and the relationship is characterized through balanced and proportionate interactions. In
terms of decision-making everyone has an equal voice. In contrast to the beforementioned three
2. Sustainability, Stakeholders and Collaboration
9
models stands the relational model of market pricing. Here, the self-interest of the individual
and the rational calculation of cost vs. benefits are central aspects. Decisions are made
individually and are mediated only by the market. This focus on personal rewards hinders
contributions to joint value creation (Olson, 1965).
The following Table 1 summarizes all four relational models. Bridoux and Stoelhorst (2016)
argue that the levels of appropriate behavior vary across all four models leading to either more
or less contributions to value creation. The motivation to contribute is highest in the relational
model of communal sharing, where also the highest level of collaborative behavior can be
observed. Similarities to collective action settings can also be found within the relational model
of equality matching. Reciprocity is also an essential underlying mechanism in order solve
collective action problems (Ostrom, 1998).
Table 1: Key Features of the Four Relational Models (Source: Bridoux and Stoelhorst, 2016,
p. 233)
For ongoing contributions stakeholders must perceive the organization to having adopted the
same relational model in order to recognize the relationship as harmonious. A relationship is
perceived as harmonious when similar motivations and expectations can be assumed from
partners (Connelley and Folger, 2004; Giessner and van Quaquebeke, 2010). When the
relationship is regarded as inharmonious and the organization’s behavior as inappropriate the
following reactions can be expected: Stakeholders may adopt the relational model of market
pricing and follow a self-interested approach instead of collaborating, inappropriate behavior
may be seen as a honest mistake and is therefore forgiven, the misbehavior is settled through
2. Sustainability, Stakeholders and Collaboration
10
sanctioning or the relationship is ended and further contributions are withheld (Bridoux and
Stoelhorst, 2016; Giessner and van Quaquebeke, 2010; Ostrom, Gardner and Walker, 1994).
Mitchell et al. (2015, p. 858) consider the process of value creation as a “sequential risk-sharing
process of stakeholder organization”. They established four risk-sharing premises of the
stakeholder value creation process: Activity, alignment, interaction and reciprocity. Activities
are exchanges or transactions among stakeholders or between stakeholders and organization
that either create or destroy value. In order to create the most value for all stakeholders and
minimize the involved risk it is paramount to align stakeholder interests instead of trading them
off against each other. The pressure that arises from the different interests of stakeholders is
best reacted on through a common purpose. This common purpose is shaped by innovation and
guided by moral norms. This interaction of purpose, innovation and moral norms creates value.
The last premise is the premise of reciprocity. Reciprocity is vital to sustain ongoing
contributions. It entails that when one stakeholder contributes to value creation, value is created
for the other stakeholders as well by making the “value pie” bigger for everyone. Reciprocity
also contains the ethical obligation of everyone within the relationship set to return value to one
another in the long run, thus ensuring fairness of contributions.
The four premises illustrate the importance of relationships. These relationships do not just
occur but are built over time and require a foundation of trust (Post, Preston and Sachs, 2002a).
Schneider and Sachs (2017) investigated stakeholder value creation in issue-based stakeholder
networks. They also value trust and collaboration as vital aspects of stakeholder relationships.
The level of trust in a relationship can provide indications about the amount of resources and
capabilities contributed in a multi-stakeholder setting. The higher the level of trust, the more
are stakeholders willing to contribute. The more is being contributed, the more value can be
created. Positive effects also emerge from trust and collaboration in terms of reduced
transaction and agency costs (Foss and Foss, 2005; Jones, 1995; Mayer, Davis and Schoorman,
1995).
Furthermore, regular interaction and communication play a vital role in the stakeholder value
creation process. It can foster a more inclusive stakeholder identity with a focus on finding
integrative solutions. Through highlighting common grounds in terms of values, norms, and
goals stakeholder value creation is promoted (Gaertner and Dovidio, 2014; Hewstone, Rubin
and Willis, 2002).
2. Sustainability, Stakeholders and Collaboration
11
2.3.2. Stakeholder Value Definition
An important question underlying the stakeholder value creation process is how stakeholders
define value for themselves beyond economic figures. Value creation for shareholders can be
captured in financial measures. Value for stakeholders on the other hand can take other forms
and may look differently from stakeholder group to stakeholder group (Tapaninaho and Kujala,
2019). Value is created through interaction and lies within the relationships of multiple
stakeholders. Therefore, value cannot be summarized in a single metric (Dean, Ottensmeyer
and Ramírez, 1997). Garriga (2014) supports this opinion by stating that value is multifaceted,
subjective and might differ among stakeholder groups.
For many stakeholders, financial value is also from importance. But it is crucial to acknowledge
that value is defined individually, and stakeholders will look for the highest value returns in
relation to their contribution. For an organization this can mean that stakeholders will stop
contributing to the value creation process in order to invest somewhere else where greater value,
in whatever form, can be assumed (Harrison and Wicks, 2013). To prevent this from happening,
a firm should aim to achieve satisfactory results for all stakeholders involved in the value
creation process. If this goal is being attained and stakeholder interests are being met, a firm
can create more value over time (Campbell and Andrew, 1997; Freeman, 1984).
For this master thesis the definition of value by Harrison and Wicks (2013) is used. They define
value as everything of potential worth to a stakeholder. Due to its broadness, this definition
includes economic as well as any other form of value. It therefore allows value creation beyond
financial measure to meet the variety of stakeholder interests and compensate them for their
contribution in a suitable manner. The two authors describe suitable compensation as utility.
Utility stands for a stakeholder’s received value that meets their preferences. Derived from these
two aspects and Freeman’s (1984) idea of stakeholder theory, firm performance can be defined
as “the total value created by the firm through its activities, which is the sum of the utility
created for each of a firm's legitimate stakeholders” (Harrison and Wicks, 2013). Legitimate
stakeholders can be, e.g., customers, employees, communities or suppliers (Phillips, 2003).
A first step for organizations towards stakeholder value creation is to recognize that value is
embedded in the relationships with stakeholders and not only in conventional assets (Post,
Preston and Sachs, 2002a). Moreover, do stakeholders not only have multiple interests but also
define value and utility subjectively. In contrast to shareholders, value might not necessarily be
of financial form. Another important aspect is to look for synergies among stakeholder utilities
2. Sustainability, Stakeholders and Collaboration
12
and jointness of interests instead of weighing- and trading off interests against, e.g., shareholder
interests. By conducting innovative actions that meet mutual utilities and fostering collaborative
relationships value can be created for and with a variety of stakeholders.
2. Sustainability, Stakeholders and Collaboration
13
2.4. Collaboration
One ingredient that is vital in stakeholder value creation as well as in collective action is the
collaboration process among the individual actors in order to pave the way to reach a common
objective (Ostrom, 1990; Savage et al., 2010; Thomson and Perry, 2006). Collaboration efforts
can be observed on the institutional and organizational level and the processes on both levels
show similarities. As organizations become more and more interdependent due to the
complexity of today’s world, the need for interaction among actors to reach satisfactory long-
term agreements becomes increasingly important.
Collaboration is defined as “a process through which parties who see different aspects of a
problem can constructively explore their differences and search for solutions that go beyond
their own limited vision of what is possible” (Gray, 1989, p. 5). This definition implies that
Synergetic outcomes can be achieved through collaboration. These outcomes are essential in
the process of stakeholder value creation (Tantalo and Priem, 2016). To observe and understand
the process behind collaboration efforts is rather difficult. Therefore, Wood and Gray (1991)
introduced the term of the “black box”, in which these processes and practices are hidden.
Successful collaboration is reached through constant renegotiation and finding equilibria in
different processes. Thomson and Perry (2006) identified five dimensions of processes taking
place inside the “black box” of organizational collaboration: Governance, administration,
autonomy, mutuality and norms of trust and reciprocity.
During the governance process joint decisions concerning rules are made in order to govern
behavior and relationships. This is also a vital step in solving collective action problems.
Ostrom (1990) states that the development of working rules is essential to define certain
boundary conditions of decision-making, behavior and appropriation. The second process is the
administration process, which describes how collaboration is implemented. This includes roles
and responsibilities, monitoring and coordination. Due to the lack of hierarchies and
standardization as well as the interdependent relational setting instead of a contractual one this
process is more complex in the collaboration context (Huxham and Vangen, 2005; O'Toole,
Laurence J., Jr., 1996). Another aspect also essential in collective action theory and stakeholder
theory is the quandary between self-interest and collective-interest or autonomy dimension
according to Thomson and Perry (2006). In order for actors to continue their contribution and
share information in the collaboration process they need to be able to also reach individual goals
(Huxham, 1996). Stakeholders will only keep to their contributions if they receive value suiting
2. Sustainability, Stakeholders and Collaboration
14
their utility (Harrison and Wicks, 2013). This directly connects to mutuality. Without mutual
benefits essential information sharing will not be conducted. Thus, it is important to achieve
win-win solutions to problems so, e.g., stakeholder will not withdraw their efforts (Wood and
Gray, 1991). The last process, that requires careful calibration of the equilibrium is norms of
trust and reciprocity. Reciprocity entails that actors will contribute as long as others do the same
also known as tit-for-tat reciprocity (Ostrom, 1990, 1998). Mutual trust is fundamental in
collaboration among stakeholders as well as in collective action settings in order to build and
maintain relationships (Huxham and Vangen, 2005). If trust among actors is high, the payoffs
from collaboration will be as well (Ostrom, 2000).
Collaboration is a fragile system that can easily disintegrate and requires a lot of resources in
form of time and energy to build and maintain (Thomson and Perry, 2006). It is important that
actors establish credible commitment towards the common objective. Collective action theory
states that face-to-face communication, mutual monitoring and sanctioning are vital conditions
for credible commitment (Mattessich and Monsey, 1998; Ostrom, 1998).
Collaboration is the central activity in order to move from independent behavior in a collective
action setting to interdependent (Ostrom, 1990) and to switch from shareholder primacy to
stakeholder value creation (Perrini and Tencati, 2006). The beforementioned dimensions
illustrate what happens in the background of collaboration and give insights on essential
processes that need careful adjustment to foster collaborative behavior among multiple actors.
3. Collective Action Theory
15
3. Collective Action Theory
Moving away from the organizational context of stakeholders, collective action theory is rooted
in the institutional level and influenced by researchers of various disciplines like anthropology,
politics or sociology among others. The aim of collective action theory is to shed light on under
which conditions small groups or communities relying on the same common-pool resource are
able to govern the sustainable use of said resource without the intervention of external
authorities (Agrawal, 2001).
The dilemma in this scenario is owed to the properties of the CPR. The facts that exclusion of
actors is impossible or cost intensive and consumption is highly competitive and subtracting
often leads to overconsumption and ultimately depletion of the CPR (Poteete and Ostrom,
2004). A CPR can be, e.g., fishing grounds, forests or irrigation systems. Early research
concerning the commons suggested that this dilemma or collective action problem can only
rarely be solved or that privatization of the resource or governmental interventions are
necessary in order to sustain the CPR (Hardin, 1968; Olson, 1965).
A central problem within collective action theory is the so-called free-rider problem. In order
to achieve collective action and the responsible use of a CPR the individuals should jointly
contribute towards a common objective (Olson, 1965; Ostrom, 1990). Individuals who engage
in opportunistic, self-interested behavior not only do not contribute to the process of sustaining
the resource but decrease the attainable benefits for others. Also, the costs resulting from this
behavior are distributed among all individuals, producing so-called externalities (Bandiera,
Barankay and Rasul, 2005; Hardin, 1968). Without a collective effort of the local community
or individuals relying on the CPR the long-term availability of the resource is endangered.
There is a wide body of literature in collective action theory that points towards the successful
self-organization of shared resources and thus taking a stand against Hardin’s (1968) famous
work The Tragedy of the Commons (Burger and Gochfeld, 1998; Feeny et al., 1990; Ostrom et
al., 1999). His main argument is that actors are unable to sustain a CPR and instead cause its
depletion through opportunistic behavior if no external authority intervenes. What Hardin
(1968) did not take into consideration are underlying agreed on institutional arrangements that
allow individuals to move beyond self-interested behavior and towards effective self-
governance of a common-pool resource over time. He therefore extended his work with the
article The Tragedy of the Unmanaged Commons (Hardin, 1994) by highlighting that it is the
3. Collective Action Theory
16
ungoverned common that is at the mercy of the involved actors behavior and thus at risk of
destruction.
To engage in collective action is a costly endeavor for everyone involved. It not only requires
overcoming information asymmetry through close communication and information exchange
to create a basis for collaboration, but also to establish a distribution and incentive system to
govern the CPR and ensure ongoing contributions (Poteete and Ostrom, 2004).
Within this master thesis the focus will be laid on the research conducted by Ostrom. By
applying the eight design principles in the organizational context, more specifically stakeholder
value creation, the resulting principles will contribute to closing the research gap identified by
Wilson, Ostrom and Cox (2013).
3.1. Core Concepts of Collective Action Established by Ostrom
In her seminal work Governing the Commons Ostrom (1990) examines several articles of field
studies to answer the central question of “how can a group of principals [community of citizens]
who are in an interdependent situation organize and govern themselves to obtain continuing
joint benefits when all face temptations to free-ride, shirk, or otherwise act opportunistically”
(Ostrom, 1990, p. 29). To answer this question, she uncovers what successful self-organizing
groups do differently from those who fail. The key to success lies in the underlying institutional
arrangements these local communities established and/or adapted.
To gain a better understanding why institutions are of such importance, a deeper look will be
taken into the central problems of appropriation and provision which individuals face in CPR-
settings and how institutions contribute to the solutions. Also, a review of the eight design
principles will be conducted to prepare for the connection to stakeholder value creation and the
organizational level. Along the way, terminologies of collective action used by Ostrom to
illustrate CPR problems will be briefly introduced.
3.1.1. Collective Action Problems of Appropriation and Provision
The terms appropriation as well as provision play a central role in Ostrom’s study of collective
action and common-pool resources. Appropriation is a CPR-setting where multiple individuals
draw resource units (e.g., tons of fish) from the same resource system (fishing ground). These
individuals are called appropriators. This CPR is the origin of each appropriator’s economic
3. Collective Action Theory
17
activity. Every individual activity will influence the other individuals and therefore are
interdependent as long as they draw from the same CPR.
Ostrom, Gardner and Walker (1994, p. 4) define CPRs as resource system where the limitation
of appropriators is difficult and the appropriation by each user subtracts from the resource. A
CPR is therefore nonexcludable and rivalrous in consumption (Klein et al., 2019). Due to these
characteristics a CPR is prone to overconsumption and exploitation by its users if they are
unable to establish suitable measures. The owners of a CPR can be local, regional or national
governments, communities, companies or private individuals (Ostrom, 2003).
The main problem here is to organize how, when and in what quantity resource units are
supposed to be allocated from a resource system. This is necessary in order to reduce
uncertainty and conflict among appropriators and to avoid rent dissipation, meaning that
marginal costs exceed marginal returns (Libecap, 1994). This process is mainly characterized
through trial and error learning experiences (Ostrom, 1990).
If appropriators act independently in interdependent settings the benefits will be smaller
compared to following an organized and coordinated strategy together. Such an independent
behavior may ultimately lead to lower returns or, in a worst-case scenario, to the destruction of
the resource (Olson, 1965, p. 7). If there is no accepted allocation method in place which is
followed by most appropriators, they may refuse to contribute to provision activities. Provision
activities include the construction and maintenance of a resource system to ensure the long-
term preservation of a CPR. Provision problems occur on the supply or demand side or a
mixture of both. The supply side deals with the construction and maintenance of the resource
system to sustain it over time. The demand side determines the withdrawal rates of resource
units.
When appropriators follow individual and unorganized strategies the level of uncertainty and
the risk of free-riding among individuals is high. Therefore, the motivation to invest in costly
provision activities that would benefit all appropriators is low. It becomes clear that the
provision problem cannot be solved as long as there is no solution to the appropriation problem
in place (Ostrom, 1990).
The problems of appropriation and provision extend over time when individuals discount future
benefits and value immediate benefits higher. This depends on factors like time-horizons,
physical and economic security and shared norms. Shared norms of behavior are a crucial factor
in collective action situations. They impact the likeliness of appropriators to engage in
3. Collective Action Theory
18
opportunistic behavior. Opportunistic behavior makes it difficult to develop long-term and
stable commitments. Shared norms can help to reduce this risk but not eliminate it entirely
(Ostrom, 1990).
3. Collective Action Theory
19
3.1.2. Institutions as Problem Solutions
In order to solve these problems, individuals must organize themselves and move from
independent behavior to following congruent strategies and a collective action approach by
creating new institutional arrangements. Institutions are shared concepts organized by working
rules, norms and strategies that are applied in reoccurring situations to determine eligible
decision-makers in some arena, allowed and constrained actions, used aggregation rules,
followed procedures, provided or restricted information, payoffs assigned to individuals
depending on their actions (Crawford and Ostrom, 1995; Ostrom, 1986).
Working rules are those rules applied, monitored and enforced by individuals when making a
choice. In CPR-settings, these rules may differ substantially from official regulations. Ostrom
(1990) divides rules into three levels:
1. Operational rules support appropriators in a practical way in making day-to-day decisions
and on how to conduct their work.
2. Collective-choice rules have an indirect effect on operational choice by appropriators and
their officials or external authorities making policies about how the CPR should be
managed.
3. Constitutional-choice rules determine who is authorized to create new collective-choice
rules and what set of rules are to be applied during the process.
Successful and stable institutional arrangements can be created when problems of supplying
own institutions, commitment to rules and mutual monitoring are solved and thus pave the way
to solutions for appropriation and provision problems. One important pillar of institutions are
so called norms (Scott, 1995). Ostrom (2000) argues that social norms create long-lasting
cooperative behavior whereas externally implemented rules are likely to disappear quickly.
Crawford and Ostrom (1995) define social norms as the common understandings about
“obligatory, permitted or forbidden” actions. If these norms are being more and more adhered
to over time, expensive and invasive monitoring becomes less necessary in order to maintain
rule conformance because mutual monitoring sets in. Settings where external rules are in place
prevent social norms from forming and evolving (Ostrom, 2000).
These rules and norms are not only vital in order to establish institutions but also as a next step
to foster collaborative behavior among all actors. Essential aspects of collaboration are trust
and reciprocity (Thomson and Perry, 2006), which are also a critical success factor for
collective action (Poteete and Ostrom, 2004). Another important cornerstone for achieving
3. Collective Action Theory
20
collective action is the reputation of trustworthiness of actors. All three factors trust, reciprocity
and reputation can help overcome short-term opportunistic behavior and successfully manage
a CPR. The ability to make mutual commitments in order to build trust requires direct
communication between everyone involved. These mutual commitments also serve as a
reassurance that others will reciprocate and that an adequate behavior can be expected (Ostrom,
1998; Poteete and Ostrom, 2004). Direct communication also enables acquiring information on
the reputation of others concerning trustworthiness, which plays an essential role in the
willingness to collaborate (Mohtashemi and Mui, 2003).
These soft mechanisms are very effective in order to decrease free-riding and other
opportunistic behavior, increase collaboration and therefore leading towards collective action.
However, it is important to take the cost side into consideration. Communication and interaction
are often only pursued if the costs for engaging in them are close to zero or in proportion to
their benefits (Bandiera, Barankay and Rasul, 2005; Ostrom, 1998).
By closely studying field settings in which appropriators were able to establish, implement and
monitor own rules to control a CPR, institutions as well as the resource system itself were
preserved over a long period of time, Ostrom gains insights into how these self-organized
groups were able to solve the before mentioned problems. As a result, she established eight
design principles that are crucial for the long-term survival of self-organized groups in a CPR-
setting and their established institutions.
3. Collective Action Theory
21
3.1.3. Eight Design Principles for Successful Collective Action
Within this subchapter the eight design principles created by Ostrom (1990) will be introduced.
The following Figure 1 provides a brief overview over the principles and their main argument.
Figure 1: Eight Design Principles (Source: Adapted from Ostrom, 1990, p. 90)
1. Clearly Defined Boundaries
Individuals or households who have rights to withdraw resource units from the CPR must be
clearly defined, as must the boundaries of the CPR itself.
This first step is crucial in order to limit free-riding by outsiders who have not contributed to
produce benefits. By specifically defining who is authorized to withdraw resource units and by
defining the boundaries of the CPR, uncertainty about who is involved and the dimension of
the resource system can be reduced and a foundation for trust reciprocity can be build (Ostrom,
Individuals or households who have rights to withdrawresource units from the CPR must be clearly defined, asmust the boundaries of the CPR itself.
1. Clearly Defined Boundaries
Appropriation rules restricting time, place, technology,and/or quantity of resource units are related to localconditions and to provision rules requiring labor, materialand/or money.
2. Congruence Between Appropriation and Provision Rules
and Local Conditions
Most individuals affected by the operational rules canparticipate in modifying the operational rules.
3. Collective-Choice Arrangements
Monitors, who actively audit CPR conditions andappropriator behavior, are accountable to the appropriatorsor are appropriators.
4. Monitoring
Appropriators who violate operational rules are likely to beassessed graduated sanctions (depending on the seriousnessand context of offense) by other appropriators, by officialsaccountable to these appropriators, or by both.
5. Graduated Sanctions
Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts among appropriatorsor between appropriators and officials.
6. Conflict Resolution Mechanism
The rights of appropriators to devise their own institutionsare not challenged by external governmental authorities.
7. Minimal Recognition of Rights to Organize
Appropriation, provision, monitoring, enforcement, conflictresolution, and governance activities are organized inmultiple layers of nested enterprises.
8. Nested Enterprises
for CPRs that are Part of Larger Systems
3. Collective Action Theory
22
1990, pp. 91). If these boundaries are defined by external authorities, there is a high risk that
long-term users of the CPR will not accept them as legitimate or might not even know about
them (Ostrom, 2005).
By examining fishery systems in the south Pacific, Ruddle (1996) also showed that defining the
physical or biological boundaries are from importance, but should remain flexible when the
CPR requires it through, e.g., changing conditions. Additionally, he stresses that the definition
of social boundaries like rules of behavior and access conditions for all involved stakeholders
are just as important. This directly leads to the second design principle.
2. Congruence Between Appropriation and Provision Rules and Local Conditions
Appropriation rules restricting time, place, technology, and/or quantity of resource units are
related to local conditions and to provision rules requiring labor, material and/or money.
In order to preserve a CPR, it is important to adjust appropriation and provision rules to specific
local conditions since they may vary substantially. One-fit-all solutions are rarely if never
appropriate to preserve a variance of resource systems. The ones who are most familiar with
local conditions and requirements are usually the appropriators themselves and therefore best
suited to contribute to rule formulations (Ostrom, 1990, p. 92). This design principle is essential
when it comes to providing a fair system which determines the proportional allocation of benefit
in relation to required input (Trawick, 2001). Perceived fairness of the rules is a crucial attribute
of long-lasting CPR-systems (Chakraborty, 2004).
3. Collective-Choice Arrangements & 4. Monitoring
Most individuals affected by the operational rules can participate in modifying the operational
rules.
Monitors, who actively audit CPR conditions and appropriator behavior, are accountable to
the appropriators or are appropriators.
The third design principle of collective-choice arrangements entails that the majority of
individuals is authorized to participate in creating and modifying operational rules. This allows
for rules that are suitable to local conditions, are considered to be fair and are adaptable when
environmental or societal changes occur. Governmental inventions on the other hand lead to
frequent rule violation and less contributions due to lower acceptance. To create a set of rules
that works for everyone involved requires time and effort and the development process contains
3. Collective Action Theory
23
a trial and effort learning curve (Bandiera, Barankay and Rasul, 2005; Ostrom, 2005, pp. 263–
265).
Sarker and Itoh (2001, p. 96) support this design principle by studying a Japanese irrigation
system and finding that the irrigators “collectively participate in modifying their daily
operational rules”. In cases where this design principle is absent the management of a CPR is
often destined to fail (Cox, Arnold and Villamayor-Tomas, 2015).
By applying these three principles alone it is already possible to design an institution with a
good first set of rules, if the costs of rule changing are kept relatively low. But there is no
guarantee that appropriators will follow these self-established rules. Here, the problem of
commitment steps in and is often thought to be fixed through external authorities (Hardin,
1968). But Ostrom (2000) states that external rules and monitoring may drive out cooperative
behavior entirely. The field studies showed that this is not necessary and often even insufficient.
The selection of own monitors whose duty it is to monitor the resource itself and the behaviors
of individuals can foster the willingness to cooperate. The cases with long-term surviving
institutions and CPRs demonstrate that internal investments into monitoring and sanctioning
help providing stable commitment and cooperative behavior (Ostrom, 1990, pp.93). Gautam
and Shivakoti (2006) deliver an example of forestry in Nepal that illustrates the effects of
choosing own and accountable monitors well. It was stated that most users find the chosen
monitoring system effective and helpful in order to govern the CPR.
5. Graduated Sanctions
Appropriators who violate operational rules are likely to be assessed graduated sanctions
(depending on the seriousness and context of offense) by other appropriators, by officials
accountable to these appropriators, or by both.
Contrary to the former assumption that appropriators will not monitor and sanction themselves
due to high personal costs and the creation of a public good available to all (2nd-order dilemma),
in strong institutions the appropriators do in fact conduct the tasks of monitoring and
sanctioning. As soon as appropriators have made a contingent self-commitment, they are
motivated to monitor others to make sure that rules are mostly being followed. If appropriators
can install customized rules, that facilitate monitoring, the costs can be reduced.
In case monitors discover infractions of rules, the imposed sanctions depend on the severity and
frequency of rule breaking and are therefore called graduated. Finding a rule breaker also allows
the monitor to gain status and prestige. The rule-breaker on the other side decreases or even
3. Collective Action Theory
24
loses these private benefits and reputation of trustworthiness due to the breaking of commitment
(Ostrom, 1990, pp. 94). Baldassarri and Grossman (2011) support the effectiveness of
sanctioning when facing collective action problems. Sanctioning can discipline violators and
therefore ensure a higher level of contributions.
6. Conflict Resolution Mechanism
Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts
among appropriators or between appropriators and officials.
Even when appropriators established rules themselves, the possibility to find a way to interpret
them in their favor exists and can lead to free-riding. In order to prevent this over time a conflict
resolution mechanism must be present. Here, appropriators have the chance to discuss and
resolve conflicts and further define what an infraction constitutes (Ostrom, 1990, pp.100).
Without these mechanisms a successful management of a CPR becomes more difficult and may
end in severe conflicts (Cox, Arnold and Villamayor-Tomas, 2015).
7. Minimal Recognition of Rights to Organize
The rights of appropriators to devise their own institutions are not challenged by external
governmental authorities.
Rules installed by appropriators mostly do not undergo an official recognition process by
authorities or governments and are therefore informal. It is important though that officials grant
these rules at least minimal recognition and legitimacy to ensure that the self-governed CPR
can be sustained. If this is not the case, appropriators who do not agree with a certain rule can
turn to external officials to get this rule overturned (Ostrom, 1990, p. 101). Governments trying
to impose own rules on a CPR community and therefore question established institutions of the
community often leads to failure, especially when they do not suit the local conditions (Scott,
1998).
8. Nested Enterprises
Appropriation, provision, monitoring, enforcement, conflict resolution, and governance
activities are organized in multiple layers of nested enterprises.
As soon as a CPR becomes more complex, they are organized on several nested levels, e.g.,
local, regional, and national. Therefore, the established institutional arrangements should
become more complex, redundant and nested in many different layers. This is best implemented
3. Collective Action Theory
25
by allocating authority to support the adaption of governance at multiple levels and hence
providing wide-ranging institutional infrastructures (Dietz, Ostrom and Stern, 2003).
The problems faced on each level may differ considerably from another. It is therefore essential
to establish rules for appropriation and provision, monitoring, sanctioning conflict resolution
mechanisms and governance activities not only at one level, but on each level to reach a
complete system and ensure a long-term survival of the CPR (Ostrom, 1990, pp. 101). This
polycentric approach proofed far more successful than one-level and centralized control and
decision-making that were presumed to increase efficiency by limiting redundancies (Dietz,
Ostrom and Stern, 2003).
With these eight design principles, Ostrom offers a guidance for individuals facing collective
action problems to self-organize in order to preserve a CPR for mutual and long-lasting benefits.
The principles analyze the conditions under which trust and reciprocity are established and
maintained in order to solve collective action problems (Cox, Arnold and Villamayor-Tomas,
2015). Ostrom (2005) also stresses that these principles do not provide a “one-size-fits-all”
planning solution and instead need careful adjustment between rules, environment and
community. If a group of actors is able to transfer them successfully, new institutional
arrangements can be created that ensure relatively stable conditions for each appropriator,
provisioner and the resource system itself. She also urged other researchers to put the design
principle to a test in practice (Abernathy and Sally, 2000; Crook and Jones, 1999; Weinstein,
2000).
While there is evidence in the literature that support the design principles, critical voices are
also heard. Multiple authors argue that Ostrom’s (1990) list is incomplete in terms of social
variables (Singleton and Taylor, 1992), more specific properties of CPR system (Agrawal,
2002) and external socioeconomic factors like, e.g., market integration (Tucker, Randolph and
Castellanos, 2007). However, for the purpose of this master thesis the original eight design
principles by Ostrom (1990) will be applied and not extended versions since it would exceed
the scope of the thesis.
3. Collective Action Theory
26
3.2. Comparing the Different Settings
Most of the research in this field has been conducted on the institutional level. In order to draw
conclusions for organizations and stakeholder value creation it is essential to contrast both
settings, the institutional setting of collective action and the organizational setting of
stakeholder value creation. By doing so the groundwork is laid to investigate which of Ostrom’s
(1990) eight design principles for successful and long-term collective action are applicable in
the organizational setting and foster collaboration among stakeholder.
One could argue that these two theories cannot benefit from one another due to the different
levels of analysis and that gained knowledge from an institutional research setting is not
transferable to an organizational context. Even though it might be necessary to establish
boundary conditions, it is evident that organizations must also solve collective action problems
among different parties to successfully create joint value. Klein et al (2019) argue that the
alignment of various interests and goals, securing of ongoing participation and the coordination
of actions of stakeholders of an organization are collective action problems and that those are
analogous to the problems found on the institutional level.
Within the next subsections both levels will be contrasted along five attributes that are of central
interest in collaboration, collective action as well as in stakeholder value creation: Actors,
underlying structure, sources of conflict/problem, rule-creation and decision-making and soft
mechanisms.
3.2.1. Actors
On the institutional level of collective action Ostrom (1990) identified two types of central
actors within communities or groups in a CPR-setting: Appropriators and provisioners.
Appropriators include all actors of a community that draw resource units from a common-pool
resource. Provisioners are the ones contributing to the construction and maintenance of the
resource. The desirable condition in order to solve collective action problems is that actors take
on both roles to foster trust and collaboration through reciprocity.
On the organizational level the actors involved in the process of stakeholder value creation are
the organization itself in center surrounded by its multiple stakeholders. Stakeholders like, e.g.,
employees, suppliers or customers contribute resources and capabilities to the value creation
process of an organization (Klein et al., 2019).
3. Collective Action Theory
27
While the organization with its value creation processes forms the economic basis for the actors
on the organizational level (Grant, 2002; Mills and Weinstein, 2000; Rappaport, 1986), in an
institutional collective action setting the CPR is the central element of economic activity
(Ostrom, 1990). The main difference that requires mentioning at this point is the passiveness of
the CPR with its non-excludability and substractability qualities (Poteete and Ostrom, 2004).
The CPR can be acted upon by all surrounding actors due to its passiveness. The value creation
process on the contrary is managed centrally by the organization in which it takes place. Thus,
power and the access to relevant information are unequally distributed among the organization
and its stakeholders (Venkataraman, 2002). In more recent research, decentralized stakeholder
networks where the focal organization might not be at the core are being discussed. Socio-
economic issue are in the center instead which can enable more inclusive decisions in an
increasingly complex environment (Frooman, 2010; Roloff, 2008).
In both settings the plurality of actors and their interests play an essential role. Furthermore, the
same challenge is faced – to maintain ongoing contributions to the common goal. In order to
ensure ongoing contributions in either the perpetuation of a CPR or towards value creation in
an organization, actors no matter if stakeholder, organization, appropriator or provisioner, are
required to collaborate with each other and to build trusting relationships.
3.2.2. Underlying Structure
The underlying structures of successful collective action efforts are institutional arrangements.
These arrangements are shared concepts that consist, e.g., of rules and social norms that serve
as a guidance for actors in terms of appropriate behavior, creating order and reducing
uncertainty (Crawford and Ostrom, 1995; North, 1991). The ability of a community to establish
such institutional arrangements is vital for the effective self-governance of a CPR (Lubell et al.,
2002).
Organizations also contain underlying structures to reach goal achievement and provide
guidance during the conduct of business activities. These formal and informal rules and
procedures are known as governance structures (Klein et al., 2019) and are the equivalent to
the institutional arrangements in the collective action setting. Governance structures are in place
to regulate conflicts and control the handling of all resource related matters (Blair and Stout,
1999; Williamson, 1985). By organizing the beforementioned issues, governance structures are
an important cornerstone within the “black box” of the collaboration process (Wood and Gray,
1991).
3. Collective Action Theory
28
Moe (1990, pp. 217–218) summarized this by stating that economic organizations and
institutions are “structures that emerge and take the specific forms they do because they solve
collective action problems.”.
3.2.3. Source of Conflict/Problem
When multiple actors draw resource units from the same unmanaged CPR the risk of
exploitation and destruction of the resource is high. Additionally, the risk of free-riders, actors
who appropriate but do not invest into provision, obtaining benefits without conducting
investments into the sustainability of the CPR is high and is therefore reducing the benefits for
everyone. The underlying problem here is the lack of reciprocity, which hinders the formation
of trusting relationships. The collective action problem, in a nutshell, states that all actors would
be better off if they cooperated instead of acting in a self-interested fashion, but rational
individuals more often than not tend to rather engage in free-riding (Olson, 1965).
In the organizational setting the same collective action problem can be observed. The set-up is
similar. Multiple actors, or in this case stakeholders, with different interests and the organization
could generate greater value if they collaborated instead of pursuing individual self-interested
goals. Klein et al. (2019) argue that in order to fulfill the purpose of an organization, which is
to collectively deploy assets, resources and capabilities of stakeholders, the aforementioned
organization needs to coordinate stakeholder interests to create joint value because value cannot
be realized independently.
In order to solve this collective action problem on the institutional as well as on the
organizational levels, actors in a CPR-setting or stakeholders and the organization must come
together in a collaborative manner to establish institutional or governance arrangements to
ensure that contributions into the shared goal are ongoing and free-riding is kept at a minimum
level.
3.2.4. Rule-Creation and Decision-Making
The aspect of who is authorized to make decisions about rules and whose interests are being
considered is important on both levels. Successful collective action efforts require the
establishment of rules and norms in order to form institutional or governance arrangements.
Ostrom’s (1990) third design principle of collective choice arrangement discusses the issue of
decision-making. The importance here lies in the authorization of most actors to take part in the
3. Collective Action Theory
29
process of rule-creation and modification and therefore in setting the foundation for fair and
suitable decision-making.
On the organizational level the same applies to setting up governance arrangements. Decisions
on rules that govern behavior are preferably made jointly (Thomson and Perry, 2006). A central
component of stakeholder theory and stakeholder value creation is the consideration of
stakeholders and their interest during the decision-making processes (Hörisch, Freeman and
Schaltegger, 2014). Hall, Millo and Barman (2015) state that interests should not only be
considered during decision-making but that it is important to include stakeholders in the
process. Joint decision-making requires the direct communication of interests, expectations,
beliefs etc. Through this collaborative approach to decision-making joint value can be created
(Raiffa, 2007).
To make decisions and establish rules collaboratively has advantages in contrast to imposed
ones. Communities that self-govern a CPR benefit from imposing their own rules and
institutions. The advantages here lie in greater acceptance of results and rules and therefore the
willingness to follow the rules. Also, the commitment towards a decision are greater. By
directly including most actors into the processes, the most suitable and appropriate decisions
can be made. External authorities lack specific knowledge and flexibility to impose the right
rules and decisions and thus the risk of actors ignoring them increases and opportunistic
behavior becomes more likely (Ostrom, 1990).
To involve stakeholders into the decision-making processes can also have positive effects for
an organization in terms of efficiency gains and as a consequence lead to competitive advantage
(Turnbull, 1994, 1997). Furthermore, it is assumed that it helps decreasing conflicts (Rothman
and Friedman, 2001). It becomes apparent that collaborative decision-making and rule-creation
play a significant role on both levels and entail similar advantages for collective action and
stakeholder value creation.
3.2.5. Soft Mechanisms – Trust, Reciprocity and Reputation
Trust, reciprocity and reputation are the soft mechanisms as well as the foundation for
successful collective action efforts and building and maintain strong relationships between
different actors (Ostrom, 1990). Also, norms of trust and reciprocity is one dimension of
processes which take place within the “black box” of collaboration and a premise of stakeholder
value creation (Mitchell et al., 2015; Thomson and Perry, 2006).
3. Collective Action Theory
30
On the organizational level these three attributes are also of importance and have been discussed
numerously in literature. Trust is vital in bolstering cooperative behavior not only within
organizations (Gulati and Westphal, 1999) but also between different stakeholder groups
(Jensen, 2003; Uzzi, 1997). Just like in a collective action setting trust should be established
among stakeholders to foster commitment towards a common goal (Ganesan, 1994).
To trust another person or party means to have positive expectations about their behavior and
goodwill (Rousseau et al., 1998). The willingness to trust someone is strongly based on their
reputation in terms of trustworthiness (Swift, 2001). Jones (1995, p. 421) states that “a
reputation for trustworthiness is really a reputation for not being opportunistic”. The presence
of opportunistic behavior is a risk factor on both levels and poses a threat to successfully
establishing collaborations.
While in collective action settings trust needs to be created among actors, on the organizational
level trust needs to emerge among stakeholders and between stakeholders and the organization.
To build a trusting relationship between stakeholders and the corporation it is vital that the
corporation shows trustworthy behavior, e.g., by avoiding opportunism to build up their
reputation (Hosmer, 1995; Swift, 2001).
A fundamental part of establishing trusting relationships and reputation is a matter of
reciprocity. This is also true for both levels. Stakeholders and organization need to reciprocate
by contributing to the value creation process in order to build trust and a reputation of
trustworthiness. Reciprocity roots in mutual loyalty and cannot be imposed through external
interventions (Fassin, 2012). The same is true for communities relying on a common-pool
resource. Trusting relationships and contributions to maintain the resource over time are
essential. Free-riding and other opportunistic behavior is prevented or at least limited through
reciprocity (Ostrom, 1990).
3. Collective Action Theory
31
3.2.6. Summary
The following Figure 2 provides an overview over the discussed attributes. By contrasting five
attributes at the institutional and organizational level considerable similarities were
emphasized. The fact that multiple actors with personal interests are able to achieve higher
benefits if they collaborated among each either is equally present in the CPR as well as in the
stakeholder setting. The underlying structures reveal commonalities as well. Institutional
arrangements and governance arrangements consists of rules and norms that govern the actions
and behavior of the actors. The source of conflict is in both cases opportunistic and self-
interested behavior by the actors or on the organizational level stakeholders. Everyone would
be better off if they collaborated instead of free-riding on the contributions by still obtaining
the benefits. Rule-creation and decision-making are conducted in a participatory and
collaborative way on both levels and the soft mechanisms of trust, reciprocity and reputation
are vital for fostering collaboration and solving the collective action problem in a CPR-setting
as well as in a stakeholder setting.
One difference of both settings is the central element of the common-pool resource on the one
hand and the organization on the other. While the common-pool resource remains passive, the
organization holds power and controls the access to relevant information.
3. Collective Action Theory
32
Institutional Setting
Collective Action
Organizational Setting
Stakeholder Value Creation
Actors
Appropriators
Provisioners
Organization
Stakeholders
Underlying Structure Institutional Arrangements Governance Arrangements
Source of
Conflict/Problem
Collective Action Problem
Free-Riding/Opportunism
Collective Action Problem
Opportunism/Withdrawal of
Contributions
Rule-Creation and
Decision-Making
Participatory and
Collaborative
Participatory and
Collaborative
Soft Mechanisms
Trust, Reciprocity and
Reputation
Trust, Reciprocity and
Reputation
Figure 2: Comparison of Institutional and Organizational Setting (Source: Author)
To conclude, it can be assumed that the eight design principles by Ostrom (1990) can be
transferred to the organizational setting. By applying insights grounded in collective action
theory to stakeholder value creation additional knowledge can be gathered and contributed to
literature.
4. Synthesis
33
4. Synthesis
In this chapter the discussed findings on stakeholder theory, stakeholder value creation,
collaboration and collective action will be synthesized. After a brief summary of the previous
findings each design principle will be adopted towards stakeholder value creation.
4.1. Summary
When organization decide to implement corporate sustainability the matters of stakeholder
integration and collaborative approaches are inevitable (Gibson, 2012). An important step on
the way towards corporate sustainability is to give up shareholder primacy and include multiple
stakeholders and their interest into decision-making process and the overall corporate strategy
(Freeman, 1984).
Stakeholder value creation is gaining more and more attention within the stakeholder approach.
Central element of stakeholder value creation are the relationships among stakeholders and
between stakeholders and the organization. Within these relationships joint value is created
(Post, Preston and Sachs, 2002a). As long as partners show appropriate instead of self-interested
and opportunistic behavior and the level of trust is high relationships are perceived as
harmonious and contributions to value creation are made (Bridoux and Stoelhorst, 2016). Next
to trust reciprocity is also an indicator of ongoing contributions. Both beforementioned
attributes as well as common values, norms and goals are vital in order to foster collaborative
relationships among actors and promote stakeholder value creation (Schneider and Sachs,
2017).
Collaboration is an important driver of stakeholder value creation (Thomson and Perry, 2006)
as well as collective action theory (Ostrom, 1990). In both cases the process of giving up
independent and self-interested behavior for interdependent relationships is necessary to
achieve the common objective of joint value creation or in the case of collective action of
successful self-governance of a common-pool resource.
4. Synthesis
34
4.2. Synthesis of Collaboration and the Eight Design Principles
Collaboration requires a careful calibration of different processes that take place within the
“black box” (Thomson and Perry, 2006). The five processes shown in Figure 3 show similarities
with Ostrom (1990) eight design principles. The design principle three (collective-choice
arrangements) resembles the process of governance, where joint decisions in terms of rules are
made. The process of administration organizes the implementation of collaboration. This
process can be associated with design principle four (monitoring), five (sanctioning) and six
(conflict resolution) which are essential for implementing and maintaining collaboration in a
collective action setting. Design principle two (congruence of appropriation and provision
rules) contributes to balancing self-interest vs. collective interest by establishing a fair set of
rules for appropriation and provision. If these rules are being adhered to win-win solutions can
be achieved for everyone involved. The design principles of collective action investigate under
which conditions norms of trust and reciprocity are created and maintained to limit
opportunistic behavior (Cox, Arnold and Villamayor-Tomas, 2015).
Figure 3: Collaboration Black Box (Source: Adapted from Thomson and Perry, 2006, pp. 24)
This comparison emphasizes the importance of collaboration in the process of establishing a
self-governing and self-managing community, that is able to sustain a common-pool resource
successfully. Adopting the principles towards stakeholder value creation will not only gain
valuable insights from collective action theory but also from the underlying concept of
collaboration.
Governance
(joint decisions about rules to govern behavior & relationships)
Administration
(implementation of collaboration - rules, responsibilities, monitoring &
coordination)
Norms of Trust and Reciprocity
(fundamental ingredients for long-lasting relationships)
Autonomy
(balance of self-interest vs. collective-interest)
Mutuality
(win-win solutions)
4. Synthesis
35
4.3. Adopting the Eight Design Principles to the Organizational
Level
Wilson, Ostrom and Cox (2013) argue that the design principles are not only applicable in CPR-
settings, from which they were derived, but in every setting where groups must work together
in order to achieve a shared goal. Within this subchapter each of the eight design principles by
Ostrom (1990) will be adopted towards stakeholder value creation. Every adoption process
results in the adequate reformulation of the principles.
The principles contain valuable insights in terms of collaboration among different actors, the
creation of lasting relationships and solutions to collective action problems. Stakeholders and
firms on the organizational level face similar challenges when engaging in joint value creation
and can potentially benefit from the insights Ostrom (1990) gained during her research on
communities in a CPR-setting.
Since this master thesis sets the focus on value creation the matter of appropriation will not be
closely considered on the organizational level.
4.3.1. Boundary Rules
Individuals or households who have rights to withdraw resource units from the CPR must be
clearly defined, as must the boundaries of the CPR itself (Ostrom, 1990).
The first design principle by Ostrom (1990) stresses the importance of defining boundaries in
terms of the CPR and identifying all actors with appropriation rights. This step is vital in order
to provide clarification, reduce uncertainty and establish a common group identity (Wilson,
Ostrom and Cox, 2013).
This design principle entails valuable insights for organizations, that engage in stakeholder
value creation. Just like in a collective action setting those stakeholders who contribute to the
value creation process by supplying resources and capabilities need to be identified. By
providing certainty for all actors about who is involved the foundation for a common identity
is laid. When stakeholders identify with each other and are able to establish a common identity
issues occurring within groups in a multi-stakeholder setting are more likely to be settled
through integrative solutions (Schneider and Sachs, 2017).
By defining who is part of the collective or the stakeholder network it is also determined who
is authorized to take part in certain decision-making processes. Klein et al. (2019) call these
4. Synthesis
36
stakeholders enfranchised stakeholders. They receive the right to participate in decision-
making through contributing resources and capabilities that are crucial for value creation.
Aside the identification of actors with appropriation rights, the principle also states to define
the physical boundaries of the common-pool resource. Transferred to stakeholder value creation
it is useful to define the boundaries of value and identify how value is defined by each
stakeholder group. Moving away from shareholder value primacy and acknowledging that
value is created within the relationships with various stakeholders is essential. Furthermore, the
subjective concept of value and how it is created is unique to each stakeholder relationship of
an organization (Garriga, 2014).
The first of Ostrom’s (1990) design principles contains valuable information and can be adopted
to stakeholder value creation on the organizational level as follows:
Stakeholders who contribute to an organization’s value creation by supplying resources and
capabilities must be clearly identified as well as the subjective concept of value within each
stakeholder relationship.
4. Synthesis
37
4.3.2. Allocation Rules According to Local Conditions
Appropriation rules restricting time, place, technology, and/or quantity of resource units are
related to local conditions and to provision rules requiring labor, material and/or money
(Ostrom, 1990).
The second design principle rather focusses on establishing rules that govern the fair and
sustainable distribution of resource units among appropriators and rules that ensure contribution
to provision activities. Both, appropriation and provision rules, should conform to the local
surrounding.
Since this master thesis concentrates on the value creation process and not the distribution of
value this principle will be applied in a more general manner. The underlying notion of this
principle is to create a sense of fairness by balancing costs and benefits (Wilson, Ostrom and
Cox, 2013). This is essential for collective efforts to thrive but also important in a stakeholder
setting. If individuals perceive rules as unfair and encouraging inequality, they are more likely
not to commit to them or show opportunistic behavior ultimately damaging the collective effort
or withhold contributions to the process of joint value creation.
Besides rules being perceived as fair they should also suit the local environment. For
stakeholder value creation this means that the rules should be appropriate for the local economic
conditions and consider organizational characteristics. Just like every resource setting and its
environment is unique so are organizations, their stakeholder relationships and their economic
environment.
The second of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Creation of rules that foster a fair cost-benefit equilibrium for stakeholders and are suitable
to the economic environment and organizational conditions.
4. Synthesis
38
4.3.3. Participation in Making and Modifying Rules
Most individuals affected by the operational rules can participate in modifying the operational
rules (Ostrom, 1990).
Successful collective action that results in the sustainable use of a common-pool resource
involves that members are able to develop and carry out some of their own rules. Not only does
this participative approach foster greater commitment but also ensures that the installed rules
are suitable (Ostrom, 2000).
In order to raise the efficacy of stakeholder groups in stakeholder value creation processes it is
also important to authorize them to make some of their own rules. This is also important in the
process of collaboration. Stakeholders should be invited to participate in making joint decisions
about the rules that are supposed to govern behavior and the relationships between organization
and stakeholders and among stakeholders (Thomson and Perry, 2006).
Stakeholders or individuals in general are more likely to commit to rules and goals they
established themselves or at least participated in the creation process (Husted and Jesus Salazar,
2006; Wilson, Ostrom and Cox, 2013). Even though it might decrease the chances of rule
breaking, it is still no guarantee that everyone will follow them over time. Nevertheless, it is
advisable to integrate the different stakeholders, their different interests and value utilities in
the decision-making process of establishing rules for the governance structure of the company.
Not only being part of the rule-creation process can have a positive effect on individuals to
follow them but also that the jointly established rules and decisions are more likely to be
adequate. This allows for the organization and stakeholders to contribute their know-how and
interests to find suitable agreements.
The third of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Contributing stakeholders must be authorized to make some own rules and consent to
decisions in establishing governance arrangements.
4. Synthesis
39
4.3.4. Monitoring
Monitors, who actively audit CPR conditions and appropriator behavior, are accountable to
the appropriators or are appropriators (Ostrom, 1990).
The problem of free-riding and shirking is a common collective action problem and can be
found on the institutional as well as on the organizational level. Monitoring proofs to be an
effective measure to limit opportunistic behavior and can ensure that all stakeholders keep
contributing and committing to an ongoing joint value creation (Blair and Stout, 1999, 2001).
On the organizational level, monitoring is usually conducted by the board of directors. Blair
and Stout (2001) state that the board of directors serves as the legal and neutral entity, which
holds the power to allocate the created economic value and take the role of a mediator among
the team to solve conflicts over the allocation. In publicly traded companies the board is elected
by the shareholders. However, a board’s responsibility is not exclusively towards shareholders
(Clark, 1985). This means the duty of the board of directors is to manage all stakeholders and
act on their behalf (Hoskisson et al., 2018). The issue with boards of directors as the monitoring
entity is that their actions are often biased and that they often make decision in favor of
shareholders (Thompson, 2016) or are simply unable to make suitable decision for stakeholders
due to a lack of information (Hansmann and Kraakman, 2001).
An opportunity to make monitoring more inclusive for stakeholders and their interests as well
as ensure that all parties adhere to the established rules and commitments, is to integrate more
stakeholders into governance. A possible way to do so is through the representation of
stakeholders in the governing boards of directors. Stakeholders who contribute to the value
creation process regularly and show long-term commitment could receive voting rights and
could be voted for to become part of the board and ensure the representation of stakeholders
and their interests (Banerjee, 2014; Fassin, 2012).
If an organization is not publicly traded and therefore not required to appoint a board of
directors to fulfill governance and monitoring duties it is still essential to collectively select a
monitor among stakeholders, in the organization or an external third party to perform the task.
4. Synthesis
40
The fourth of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Organizational monitoring, including stakeholders and their interest, audits behavior and rule
conformity to ensure ongoing contributions towards joint value creation processes.
4. Synthesis
41
4.3.5. Graduated Sanctions
Appropriators who violate operational rules are likely to be assessed graduated sanctions
(depending on the seriousness and context of offense) by other appropriators, by officials
accountable to these appropriators, or by both (Ostrom, 1990).
The fifth of Ostrom’s (1990) design principles highlights the importance of applying graduated
sanctions when rules are violated by a community member in order to limit free-riding and
other opportunistic behavior.
Graduated sanctions can also be useful in stakeholder value creation in order to regulate
divergent behavior of stakeholders or the organization which could harm the relationship and
therefore the joint value creation process. As long as stakeholders perceive that all partners
including the organization adopt the same relational model the relationships are harmonious. Is
this no longer the case and the behavior is seen as inappropriate, the risk of stakeholders turning
towards self-interested behavior and stop contributions increases (Bridoux and Stoelhorst,
2016). It is more likely to stick to a common goal and direct personal efforts towards it if there
is a threat of being personally sanctioned in the case of disregard (Ellemers, Gilder and Haslam,
2004). Sanctioning is therefore an important cornerstone in stakeholder value creation to
maintain commitment and reciprocity.
Sanctioning should be graduated meaning proportional to the severity of the transgression.
Smaller rule violations or inadequate behavior do not require severe punishment. Reminders
with indications of possible future sanctions may already suffice. Repeated violations or
misbehavior should be penalized with more serious forms of sanctions and reputational
consequences. This way stakeholders or the organization must not fear to endanger the whole
relationship setup, for example by committing an unintentional infraction.
To apply sanctions gradually allows for more flexibility when being confronted with rule
violations or inadequate behavior. Factors like motive, severity and frequency can be taken into
account and thus offer a more equitable sanctioning system.
In an organizational setting sanctions are often part of the contractual agreements. Graduated
sanctions in terms of the relational connection among stakeholders and the organization should
be agreed on collectively and recorded in the governance agreements.
4. Synthesis
42
The fifth of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Stakeholders and/or organizations that violate rules or show inadequate behavior are rebuked
by graduated sanctions. These sanctions should be agreed on collectively and imposed by a
designated official.
4. Synthesis
43
4.3.6. Conflict Solving Arenas
Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts
among appropriators or between appropriators and officials (Ostrom, 1990).
In order for rules and institutional arrangements to stand the test of time actors must have easy
access to conflict resolution mechanisms. In case of a conflict among any parties, e.g., due to
different interpretations of a rule, these mechanisms are vital to achieve quick and fair
settlements so the collective effort of sustaining a CPR is not endangered and collaboration
does not come to an end.
Such conflicts can also occur on the organizational level during stakeholder value creation
processes and can be challenging to resolve. Different perceptions of value, varying
interpretations of rules as well as various interests can be the source of disagreement. To prevent
such conflicts from taking a toll on the relationships among stakeholders and between
stakeholders and the organization, and therefore posing a threat on the joint value creation
processes, the possibility to quickly and fairly resolve these conflicts must be available.
When conflicts are resolved in a constructive manner, relationships are strengthened, trust is
fostered, and commitment is increased. All three are vital in terms of collaboration. The
outcome of such a conflict resolution should be satisfactory for everyone involved and preserve
the joint value creation process (Mele, 2011).
On the institutional level these resolution mechanisms can range from informal to rather
sophisticated court-like mechanisms (Ostrom, 1990). On the organizational level conflicts may
also be solved in an informal setting when interaction among the parties is possible or in a way
that has been priorly agreed on and defined within the governance arrangements (Hemmati et
al., 2012).
The sixth of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Stakeholders and organizations establish a fair and accessible conflict resolution mechanism
to solve conflicts, that could otherwise endanger the relationships which are vital for
stakeholder value creation.
4. Synthesis
44
4.3.7. Right to Organize by Local or National Government
The rights of appropriators to devise their own institutions are not challenged by external
governmental authorities (Ostrom, 1990).
It is as important for CPR-regimes to create own institutions that are not impeded by external
authorities, as it is for governance arrangements and policies established by stakeholders and
organizations to receive recognition by external authorities.
Not only should these governance arrangements and policies receive recognition, but also
should organizations and their stakeholders be able to establish their own arrangements and
rules that suit their conditions and environment, which goes hand in hand with design principle
three (Wilson, Ostrom and Cox, 2013).
However, organizations and stakeholders are embedded in a statutory framework of different
laws that regulate certain areas of business activities. The self-established arrangements and
rules must not violate the higher laws and regulations. In terms of social and environmental
matters research has shown that voluntary and self-imposed governance is more effective than
coercion through the political and social environment (Husted and Jesus Salazar, 2006).
The seventh of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Governance arrangements established by stakeholders and organizations should receive
minimal recognition by external authorities as long as they do not violate higher laws and
regulations.
4. Synthesis
45
4.3.8. Nested Enterprises
Appropriation, provision, monitoring, enforcement, conflict resolution, and governance
activities are organized in multiple layers of nested enterprises (Ostrom, 1990).
The last design principle suggests that more complex and larger CPR-regimes follow a
polycentric approach by nesting the established institutional arrangements within different
layers. This is especially relevant when CPRs are part of a larger system.
Polycentricity requires different layers of interaction with graduated mechanisms of
communication, coordination and communication (Klein et al., 2019). Polycentric systems
consist of multiple actors and various centers of decision-making that require interdependency
(Kivleniece and Quelin, 2012). This also applies to organizations and their internal governance
structure (Klein et al., 2019).
To nest governance structures within multiple layers is especially beneficial and vital in larger
organizations with potential subsidiaries to allow appropriate coordination among all parties
and finding the optimal scale for each activity (McGinnis, 1999). By distributing authority,
governance structures can be adapted across the multiple levels and ensure that rules and other
agreed on activities, like monitoring and sanctioning will be conducted throughout the entire
system (Dietz, Ostrom and Stern, 2003).
Williamson (1985) argues that polycentric governance comes with a price. The costs for the
intensive coordination efforts across all actors and layers are high. By taking a look at Ostrom’s
(1990, p. 180) research and her comparison of CPRs with different success rates it becomes
clear that the benefits of polycentric governance outweigh the costs when the other design
principles are also observable (Klein et al., 2019).
The eighth of Ostrom’s (1990) design principles contains valuable information and can be
adopted to stakeholder value creation on the organizational level as follows:
Larger organizations and their stakeholders nest governance arrangements and rules across
multiple levels and subsidiaries.
4. Synthesis
46
4.4. Eight Design Principles for Successful Stakeholder Value
Creation
The following Figure 4 summarizes the results from the careful adoption of Ostrom’s (1990)
eight design principles towards stakeholder value creation on the organizational level. Just like
the principles derived from common-pool resource settings, these principles for stakeholder
value creation provide a guidance for organizations and stakeholders when engaging in joint
value creation processes. They are however not meant to provide an implementation instruction
or planning solution. Instead, these principles require the careful calibration of rules, economic
environment, organizations and stakeholders.
Figure 4: Eight Design Principles for Successful Stakeholder Value Creation (Source: Author)
Stakeholders who contribute to an organization’s valuecreation by supplying resources and capabilities must beclearly identified as well as the subjective concept of valuewithin each stakeholder relationship.
1. Clear Definition of Stakeholders and Their Subjective Concept of
Value
Creation of rules that foster a fair cost-benefit equilibriumfor stakeholders and are suitable to the economicenvironment and organizational conditions.
2. Cost-Benefit Equilibrium Suitable to Economic Environment and
Organizational Conditions
Contributing stakeholders must be authorized to makesome own rules and consent to decisions in establishinggovernance arrangements.
3. Collective-Choice Arrangements
Organizational monitoring, including stakeholders andtheir interest, audits behavior and rule conformity to ensureongoing contributions towards joint value creationprocesses.
4. Monitoring
Stakeholders and/or organizations that violate rules orshow inadequate behavior are rebuked by graduatedsanctions. These sanctions should be agreed on collectivelyand imposed by a designated official.
5. Graduated Sanctions
Stakeholders and organizations establish a fair andaccessible conflict resolution mechanism to solve conflicts,that could otherwise endanger the relationships which arevital for stakeholder value creation.
6. Conflict Resolution Mechanism
Governance arrangements established by stakeholders andorganizations should receive minimal recognition byexternal authorities as long as they do not violate higherlaws and regulations.
7. Minimal Recognition of Rights to Organize
Larger organizations and their stakeholders nestgovernance arrangements and rules across multiple levelsand subsidiaries.
8. Governance Arrangements and Rules are Nested Across Multiple Levels and Possible Subsidiaries
5. Conclusion
47
5. Conclusion
So far, little research has been conducted on how findings from collective action theory on
collaboration as well as sustainable and bottom-up CPR management can be transferred from
the institutional level to the organizational level. The aim of this master thesis has been to draw
conclusions from collective action theory, more precisely from Ostrom’s (1990) eight design
principles for successful collective action, and to investigate in how far these can be adopted to
support successful stakeholder value creation. To conduct research on different levels of
analysis is complex. Thus, this master thesis represents an attempt to build a bridge between
the institutional and the organizational level in the context of collective action and stakeholder
value creation.
The literature review on stakeholder theory, stakeholder value creation, collaboration and
collective action revealed, that in order to solve collective action problems, either on the
institutional or organizational level, collaborative efforts are required. Only when multiple
actors in a CPR-setting or stakeholders and organizations in a joint value creation process move
from independent and self-interested behavior towards interdependent relationships built on
trust, opportunistic behavior can be limited, and joint benefits can be increased.
The comparison of both settings was conducted in order to evaluate if Ostrom’s (1990) design
principles are transferable from the institutional level to the organizational level. By juxtaposing
central elements of both collective action and stakeholder value creation strong similarities were
revealed. This result suggests that enough common ground between both settings exists in order
to enrich stakeholder value creation through insights extracted from collective action theory on
common-pool resources.
The results of the beforementioned comparison allowed the adaption of Ostrom’s (1990) eight
design principles towards stakeholder value creation. Therefore, the research question can be
answered as follows: The theory of collective action can be adopted towards the organizational
context through the adaptation of Ostrom’s (1990) eight design principles to stakeholder value
creation. The adapted principles entail valuable insights from successful collaboration within
CPR-settings that can support stakeholder value creation in organizational settings.
Collaboration is a vital ingredient in order to tackle the 17 Sustainable Development Goals
established by the UN (United Nations Global Compact, 2015). The issues humanity face today
on a local and global scale require the private and public sector to work together. Goal number
5. Conclusion
48
17 “Global Partnership for Sustainable Development” highlights this aspect by stating that
multiple stakeholder partnerships are needed to mobilize and share resources in order to reach
common goals and create value beyond financial measures. Engaging in stakeholder value
creation is one promising way towards a more sustainable development along the triple bottom
line in businesses. When organizations take on the responsibility and commit to tackling the
stated goals more sustainable business models will be created.
The result of this master thesis suggests businesses to be guided more by the eight design
principles and move away from shareholder primacy and financial value maximization towards
creating value by building strong and trustful relationships with multiple stakeholders. That
way, sustainable business models can evolve and as much value as possible can be created for
multiple stakeholders.
A shift into this direction may lead towards a development that allows the next generations to
pursue their future and meet their own needs on a planet where it is still possible to live on.
5. Conclusion
49
5.1. Contribution & Further Research
This master thesis and its results contribute to the literature of various fields ranging from
sustainability, stakeholder theory and stakeholder value creation to collective action theory,
institutional theory and behavioral theory over to organizational theory and areas of strategic
management and governance.
The primary contribution of this master thesis is the adaption of the eight design principles by
Ostrom (1990) towards stakeholder value creation, and therefore supporting the closure of the
research gap identified by Wilson, Ostrom and Cox (2013). The established eight design
principles for successful stakeholder value creation form the bridge between the institutional
and organizational level and show how collective action theory can enrich economic theory.
Another theoretical contribution is the comparison of the institutional setting with the
organizational setting along the central characteristics of both settings and collaboration. These
characteristics are: Actors, underlying structure, source of conflict/problem, rule-creation and
decision-making and soft mechanisms. By juxtaposing both settings relevant similarities were
identified, that allow the transfer of conclusions from collective action theory, and thus adapting
the design principles towards stakeholder value creation.
Valuable insights for sustainability were also gained. By contributing the adapted design
principles organizations and stakeholders can draw on this guideline, derived from the
knowledge on how common-pool resources can be self-governed and managed sustainably, to
foster stakeholder value creation. Stakeholder value creation strongly relates to corporate
sustainability and can support sustainable development along the triple bottom line (Freeman,
2010; Gibson, 2012; Tapaninaho and Kujala, 2019).
Since the foundation of this synthesis was created exclusively based on literature, these
contributions are all theoretical in nature and predominantly serve to fill the theoretical
literature gap. Ostrom derived her design principles from investigating field studies and had
therefore access to examples from practice. This master thesis entirely relies on theory and the
knowledge Ostrom gained by studying CPR-regimes. Empirical research, case studies or other
organizational examples could have provided a more detailed insight into how stakeholder
value creation is being applied in practice and what processes successful implementations have
in common.
5. Conclusion
50
Therefore, an implication for further research could be to put the established design principles
to the test in practice. A possible way to do so would be to follow Ostrom’s approach by
investigating case studies. Here, it would be useful to look for evidence that could support the
adapted design principles or establish new ones and compare the two. This way it would be
possible to derive principles that are more closely related to practice by still being enriched with
knowledge from collective action theory.
Just like Ostrom’s (1990) design principles the adapted principles established in this thesis
neither provide an implementation guide nor a panacea to stakeholder value creation. Mostly,
actors engage in trial and error processes along the eight principles to find the right way of self-
management. Thus implementation can look very differently between regimes (Wilson, Ostrom
and Cox, 2013). It can be assumed that this will also be the case in a stakeholder value creation
setting. Ingram and Hong (2014) developed eight questions to guide the implementation of the
collective action design principles. In order to facilitate the implementation process of joint
value creation according to the design principles, it would be useful to adopt those questions
towards the eight design principles for successful stakeholder value creation.
Even though Ostrom (1990) researched different kinds of CPR-regimes from, e.g., irrigation
systems and fishing grounds to meadows and forests she did not differentiate the principles.
When conducting more empirical research on the topic of stakeholder value creation, it would
be interesting to investigate in how far the type of organization, e.g., NGO, large privately held
corporation or family business, may has an influence on the way how joint value creation is
conducted and if the principles may need to be adjusted accordingly.
Another interesting aspect in this context is the value distribution process, which this master
thesis did not focus on. Ostrom (1990) provides some insights on the appropriation matter. The
issue of how stakeholders, who contribute resources and capabilities to value creation, can be
compensated residually is as interesting as it is difficult to solve. Further research in this
direction may be valuable in order to establish a cost-benefit equilibrium, that is perceived as
fair among all actors and not solely based on financial measures.
The most vital aspects in both stakeholder value creation and collective action are the
collaboration and the relationships among all actors involved (Bridoux and Stoelhorst, 2016;
Ostrom, 1990; Post, Preston and Sachs, 2002a). The mechanisms that make collaboration and
relationships successful and long-lasting are hard to observe or to determine. As a consequence,
research on how to best enable stakeholders and organizations to create and maintain long-
5. Conclusion
51
lasting and relationships in order to ensure ongoing contributions towards a common objective
and foster sustainable business models would be valuable in the area of strategic management.
5. Conclusion
52
5.2. Managerial Implications
Even though this master thesis was entirely derived from theory, it still contains valuable
managerial implications. Since companies play an essential role in finding solutions for global
and local issues that cause, e.g., resource depletion and inequality, they can have an impact on
a more sustainable future.
The most important takeaway from this master thesis for managers, who conduct the change
towards a more sustainable way of doing business and move away from shareholder primacy
towards including all stakeholders, is that value, in whatever form, is created within the multiple
relationships with multiple stakeholders. For these relationships to prosper and ensure ongoing
contributions to joint value creation, collaborative effort from everyone involved is needed.
Here, it is vital that managers recognize these relationships and are able to build and sustain
them through trustworthy and interdependent behavior that limits opportunistic and self-
interested endeavors.
Since value is a subjective concept that varies among stakeholders, and between stakeholders
and organizations it is vital for managers to identify what these individual concepts of value
entail. These varying forms of value should then find their way into reporting systems and be
translated into measurable performance indicators. Because what gets measured also gets
managed.
A look at the adapted design principles for successful stakeholder value creation provides an
overview and guidance of important areas that need close attention by managers. The principles
describe the conditions under which trust and reciprocity, fundamental for long-lasting
relationships and collaboration, are established and maintained. Even though the principles
appear to be intuitively they are not being adopted spontaneously by groups (Wilson, Ostrom
and Cox, 2013). Therefore, organizations and their stakeholders should establish a plan on how
to educate and train their management in this area. Managers need skills and knowledge of how
to best manage not only business activities but also manage a variety of relationships and ensure
their maintenance.
The costs for engaging in stakeholder value creation and for implementing measures that are
guided by the principles are an essential factor for organizations and managers and should not
exceed the reachable benefits. Trust and collaboration can reduce transaction and agency costs
(Foss and Foss, 2005; Jones, 1995; Mayer, Davis and Schoorman, 1995). In order to keep
5. Conclusion
53
coordination costs, e.g., monitoring costs relatively low, it is advisable to focus on establishing
a suitable and fair set of rules and norms for governance arrangements. The better the rules are
in terms of perceived fairness and suitability and the higher the trust among actors is the higher
the possibility of keeping coordination and monitoring costs low.
Since the collaboration with and integration of different stakeholders and their interest is an
essential step for businesses in the private sector in order to tackle and meet the UN’s 17
Sustainable Development Goals this master thesis provides a useful insight into important
factors that can foster stakeholder value creation and therefore a more sustainable business
model with less negative environmental and social impacts.
References
54
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Affidavit
I hereby declare that this Master’s thesis has been written only by the undersigned and without
any assistance from third parties. I confirm that no sources have been used in the preparation
of this thesis other than those indicated in the thesis itself.
This Master’s thesis has heretofore not been submitted or published elsewhere, neither in its
present form, nor in a similar version.
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