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SOCIAL VENTURE BUSINESS MODELS FOR TRANSFORMING NON-PROFIT
ORGANIZATIONS: TYPOLOGY-DRIVEN THEORIZING
Muhammad Ariono Margiono Master of Management
Master of Economics and Social Studies Bachelor of Political Science
Submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy
School of Management
QUT Business School
Queensland University of Technology
2018
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing i
Keywords
Business model, social entrepreneurship, social venture, non-profit organization,
typology, configuration
ii Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
Abstract
Social entrepreneurship and social ventures are important for the survival of
many non-profit organizations (NPOs). Transforming into social ventures and
embracing their business models are seen by many NPOs, particularly those
operating in developing countries, as potential solutions to achieve financial
sustainability in light of a recent decline in public and aid funding support to these
organizations. Unfortunately, the knowledge of the appropriate social venture
business models for these transforming NPOs is limited.
Many researchers have begun to pay attention to the phenomenon of non-
profit organisations becoming more business-like. A recent review paper identified at
least three major streams of non-profit transformation studies in the literature: (a) the
causes of NPOs to become social ventures; (b) the processes of transformation; and
(c) the effects of transformation.
Despite this extensive body of research on the transformation of NPOs into
social ventures, few studies have paid attention to the characteristics and the effective
business models of social ventures that these NPOs can adopt, especially in the
context of developing countries where the tensions between public and private forces
from external stakeholders are high. Studying the characteristics and the appropriate
types of business models of social ventures may help non-profit organizations that
are in the process of transforming to social ventures to identify the effective
organizational forms that they can use.
This thesis aims to address the research gaps by (a) establishing a typology of
social venture business model configurations that identifies the characteristics and
the effective types of business model configurations that transforming NPOs in
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing iii
developing countries can adopt; (b) establishing the construct validity of the
characteristics in the typology; and (c) further empirically testing the typology using
a taxonomic analysis.
This is a thesis by published papers. Using a theory elaboration/advancement
framework to achieve the aims and to link the papers, this thesis contains three
sequential papers that fulfil important roles in the typology-driven theorizing process.
The first paper, a conceptual paper, entitled “A Typology of Social Venture Business
Model Configurations” aims to develop a typology of social venture business models
for transforming non-profit organizations. The paper, using resource dependency
theory and public administration literature, identified four characteristics of social
ventures and four types of social venture business model configurations. The
second paper, entitled “Organizational Characteristics and Forms: Empirical Insights
from Business Models of Social Ventures”, aims to establish the construct validity of
the characteristics developed in the first paper using 12 case studies of successful
social ventures in Indonesia. The paper used Most Different System Design
(MDSD) case research technique to select the cases. Case narrative technique and
case comparison table were utilized to analyse the qualitative data. The paper
resulted in construct validity of the characteristics and insights on the connection
between social venture forms, business models, and effectiveness. In doing so, the
second paper provided construct validity of the social venture characteristics
theorized in the first paper. The third paper, entitled “A Taxonomy of Social
Venture Business Models for Transforming Non-Profit Organizations”, aims to test
the typology developed in the first paper by analysing 205 cases of social ventures
that recently transformed from non-profit organizations in Indonesia using latent
profile analysis (LPA). The paper resulted in three hybrid social venture types that
iv Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
are associated with different business models and different levels of financial
performance. The third paper provided an indication of predictive validity of the
characteristics developed in the first and the second papers and an indication of
predictive adequacy of the typology developed in the first paper.
This thesis extends the social entrepreneurship literature, especially
discussions around the “earned-income” school of thought by providing an initial
indication of the validity and the utility of the characteristics and typology of
effective social venture business model configurations that transforming NPOs can
adopt. This thesis also extends the business model literature by offering a novel re-
conceptualization of extant frameworks that unpacks the current understanding of
how business models are configured in different types of organizations (public,
private, and hybrid – i.e., social ventures). This thesis, thus, may lay important
foundations for future social venture business model research.
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing v
Table of Contents
Keywords ................................................................................................................................... iAbstract ..................................................................................................................................... iiTable of Contents ...................................................................................................................... vList of Figures ......................................................................................................................... viiList of Tables ......................................................................................................................... viiiList of Papers and Presentations .............................................................................................. ixStatement of Original Authorship ............................................................................................ xiAcknowledgements ................................................................................................................. xiiChapter 1: Introduction ........................................................................................... 13Introduction ............................................................................................................................. 13Social entrepreneurship and the transformation of non-profit organizations to social ventures ................................................................................................................................... 18Research gaps .......................................................................................................................... 28Aims and research questions ................................................................................................... 29Methodology ........................................................................................................................... 30Contributions to the Literature ................................................................................................ 34Thesis outline .......................................................................................................................... 35Chapter 2: Methodology ........................................................................................... 37Introduction ............................................................................................................................. 37Typology-driven theory generation in Paper 1 ....................................................................... 39Typology-driven theory elaboration: Tactics and method employed in Paper 2 .................... 47Typology-driven theory testing: Tactics and method employed in Paper 3 ........................... 52Summary ................................................................................................................................. 57Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations ........................................................................................................... 62Abstract ................................................................................................................................... 62Introduction ............................................................................................................................. 63Business model frameworks ................................................................................................... 69Resource dependence theory ................................................................................................... 72Key characteristics of social ventures and business model dimensions ................................. 80A typology of effective social venture business model configurations .................................. 86Discussion ............................................................................................................................... 96Conclusion ............................................................................................................................ 104References ............................................................................................................................. 106Chapter Transition Note (Paper 1 to Paper 2) ....................................................................... 116
vi Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
Chapter 4: Paper 2 - Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures .............................................. 118Abstract ................................................................................................................................. 118Introduction ........................................................................................................................... 118A theoretical study of social venture business model forms ................................................. 122Methods................................................................................................................................. 126Results ................................................................................................................................... 138Discussion and conclusion .................................................................................................... 175Chapter Transition Note (Paper 2 to Paper 3) ....................................................................... 187Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models for Transforming Non-Profit Organizations .............................................................. 189Abstract ................................................................................................................................. 189Introduction ........................................................................................................................... 190Business models in social entrepreneurship ......................................................................... 193Public and private tensions, social venture characteristics, and business models ................ 194Method .................................................................................................................................. 202Results ................................................................................................................................... 210Discussion ............................................................................................................................. 221Concluding remarks .............................................................................................................. 228References ............................................................................................................................. 234Chapter 6: Discussion and Conclusion ................................................................. 244Introduction ........................................................................................................................... 244Summary of the papers ......................................................................................................... 244Theoretical contributions and implications ........................................................................... 256Practical implications ............................................................................................................ 263Limitations and directions for future research ...................................................................... 265Concluding remarks .............................................................................................................. 271Bibliography ............................................................................................................ 275Appendix A .............................................................................................................. 299Appendix B .............................................................................................................. 311
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing vii
List of Figures
Figure 1.1. Organization of Economic Cooperation and Development (OECD)’s Official Development Assistance (ODA) grants to select developing countries in Asia and Africa, 2005-1014 (in Millions USD). Adapted from OECD Database – Geographical distribution of financial flows (2016). ...............................................................................................15
Figure 2.1. A typical model of LCA/LPA with three indicators and five distal outcomes. ..........................................................................................56
Figure 2.2. Thesis linkages ......................................................................................59
Figure 3.1. Spectrum of organizations (adapted from Alter, 2010). ........................67
Figure 3.2. Configuring effective business models in public and private organizations .....................................................................................82
Figure 4.1. Characteristics of effective social ventures, organizational forms and their business models (Adapted from Margiono, Zolin & Chang, 2017) ...............................................................................................128
Figure 4.2. Data analysis process ...........................................................................136
Figure 4.3. A three-dimensional illustration of effective social venture organizational forms and business models based on the case data. 155
Figure 4.4. Effectiveness patterns and conceptual relationship between configurations. .................................................................................172
Figure 5.1. Configuring effective business models in public and private organizations (from Margiono et al. 2017). ....................................196
Figure 5.2. Standardized means of the distal outcome variables. ..........................221
viii Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
List of Tables
Table 1.1. Approaches to Make Sense of Social Ventures in the Literature ...........22
Table 1.2. Public and Private Aspects in Antecedents and Consequences of Business Model Research (Adapted from Zott, Amit & Massa, 2011) .................................................................................................27
Table 1.3. The Theorizing Framework of the Papers in This Thesis (Adapted from Fisher & Aguinis, 2017) ....................................................................31
Table 2.1. Typology-Driven Theory Advancement (Adapted from Fisher & Aguinis, 2017) ...................................................................................37
Table 2.2. Goals of Typologies (Adapted from Elman, 2009) ................................42
Table 2.3. Theory Elaboration Tactics (Adapted from Fisher & Aguinis, 2017) ....48
Table 2.4. Characteristics, Objectives, and Exemplars of MDSD and MSSD ........49
Table 2.5. Fit indices in Latent Class/Profile Analysis ............................................58
Table 3.1. Business Model Themes in the Literature (Adapted from George & Bock, 2011) .......................................................................................71
Table 3.2. The Interactions Between Key Characteristics of Social Ventures and Extant Business Model Dimensions ..................................................88
Table 3.3. Business Model Configurations of Social Ventures ...............................91
Table 4.1. Social Venture Cases in This Research ................................................131
Table 4.2. Construct Validity and the Scope of the Characteristics (An Example from the Codebook) ........................................................................141
Table 4.3. Characteristics and Organizational Forms ............................................147
Table 4.4. Organizational Forms and Business Model Configurations .................157
Table 4.5. Organizational Forms, Business Model Configurations and Effectiveness Configurations ..........................................................163
Table 4.6. Summary of Findings ............................................................................171
Table 5.1. A Typology of Social Venture Business Model Configurations (Adapted from Margiono et al., 2017) ............................................................200
Table 5.2. Means, Standard Deviations, and Correlations of the Variables ..........211
Table 5.3. Fit Statistics of the LPA (Three-Profile Solution Selected) .................212
Table 5.4. Profile Information and Interpretation ..................................................217
Table 5.5. Cohen’s d Effect Size of the Distal Outcome Variables .......................219
Table 6.1. Summary of the Papers .........................................................................245
Table 6.2. This Thesis’s Typology Among Extant Approaches to Classify Social Ventures in the Literature ................................................................259
Table 6.3. Summary of Contributions to the Literature .........................................264
Table 6.4. Limitations and Directions for Future Research ...................................268
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing ix
List of Papers and Presentations
This section outlines the paper/manuscripts in this thesis and the relevant papers/manuscripts presented in conferences and paper development sessions. Table 1 A Published and Submitted Papers in This Thesis Paper title Journal name Journal
rank Status
A Typology of Social Venture Business Model Configurations
International Journal of Entrepreneurial Behavior and Research
SCOPUS Q1/ABDC B
Accepted, published
Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures
Organization Studies SCOPUS Q1/ABDC A*
Submitted, under review
A Taxonomy of Social Venture Business Models for Transforming Non-Profit Organizations
Research Policy SCOPUS Q1/ABDC A*
Submitted, under review
Table 1 B Peer-Reviewed Conferences and Paper Development Sessions Conference Paper title Location Date
Australian Center for Entrepreneurship Research Exchange
“Business Model Publicness and Socialness of the Social Enterprise”
Adelaide, Australia
February, 2015
Australian Center for Entrepreneurship Research Exchange
“Social Enterprise Identity and Effectiveness”
Gold Coast, Australia
February, 2016
x Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
Table 1 B - continued Peer-Reviewed Conferences and Paper Development Sessions
Conference Paper title Location Date
Australian Center for Entrepreneurship Research Exchange
“Business Models of Social Ventures: Value Capture and Profit Distribution in Ventures with High Social Mission Orientation”
Melbourne, Australia
February, 2017
13th Annual Social Entrepreneurship Conference
“The Business Models of Social Ventures: Dimensions, Types, and Dynamics”
Los Angeles, USA
November, 2016
Australian Center for Entrepreneurship Paper Development Bootcamp
‘Who’s who in the Zoo’: Towards a Typology of Social Enteprise”
Brisbane, Australia
December, 2014
Australian Center for Entrepreneurship Paper Development Bootcamp
“Business Models of Social Ventures: Theoretical Typology and Empirical Taxonomy”
Brisbane, Australia
December, 2016
Australian Center for Entrepreneurship Paper Development Bootcamp
“A Typology of Social Venture Business Models for Transforming Non-Profit Organizations"
Brisbane, Australia
December, 2017
Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing xi
Statement of Original Authorship
The work contained in this thesis has not been previously submitted to meet
requirements for an award at this or any other higher education institution. To the best
of my knowledge and belief, the thesis contains no material previously published or
written by another person except where due reference is made.
Signature:
Date: 23 May 2018
QUT Verified Signature
xii Social Venture Business Models for Transforming Non-Profit Organizations: Typology-Driven Theorizing
Acknowledgements
I would like to thank my supervisors, Professor Artemis Chang, Professor
Roxanne Zolin, and Dr. Stephen Cox for the support and the guidance that they
provided during my PhD processes. I would also like to thank Professor Per Davidsson
and Dr. Craig Furneaux who evaluated this thesis as panel chair and panel member
during the final thesis seminar. Thank you for your positive encouragement.
A big thank you to the Australian Centre for Entrepreneurship (ACE) team,
especially Professor Per Davidsson and Karen Taylor, who allowed me to participate
in many of their programs. I am honoured to be able to benefit from ACE's events,
capacity development activities, as well as seminars. I should also thank Australian
Awards Scholarship (AAS) and Binus University for making this thesis possible.
This thesis is a PhD by published papers and a lot of scholars in many
conferences and paper development sessions, including journal editors and anonymous
peer reviewers, have directly and indirectly provided feedback and inputs to the earlier
versions of the papers. I thank you very much for their critical feedback. Further, a
professional editor, Dr. William Wrigley, provided copyediting and proofreading
services, according to the guidelines laid out in the university-endorsed national
‘Guidelines for editing research theses’.
I would also like to thank British Council Indonesia team, especially Ari Sutanti
and Puti Media Indasari, who were very helpful and supportive in the data collection
processes. It is my hope that the results of this thesis can help many of British Council’s
beneficiaries.
Finally, huge thanks and love to my family who always have provided never-
ending support throughout this long and winding intellectual journey. This is for you.
Chapter 1: Introduction 13
Chapter 1: Introduction
Introduction
Social entrepreneurship and social ventures have become increasingly
important for non-profit organizations (NPOs1) in developing countries that seek to
achieve financial sustainability due to a recent decline in public and aid funding
support from developed countries (Khieng, 2013; Parks, 2008). Social
entrepreneurship has become a potential solution for these NPOs, and so many NPOs
in developing countries have transformed and are transforming to become social
ventures. Social entrepreneurship is defined as “entrepreneurial activity with an
embedded social purpose” (Austin, Stevenson & Wei-Skillern, 2006, p. 1) to achieve
sustainable solutions in neglected societies (Santos, 2012). Social entrepreneurship is
unique because it is innovative and it facilitates novel ways of offering products and
services to these neglected societies (Mair & Marti, 2006). Social ventures, which
are the entrepreneurial form of organizations that combine social, or public benefit
aims with business-like management (Anheir & Ben-ner, 2003; Becchetti &
Borzaga, 2010; Borzaga & Defourny, 2001), are considered important because they
enable NPOs to embrace appropriate business models to survive and to continue
delivering necessary support to their beneficiaries. Indeed, appropriate business
models, defined as “the system of interdependent activities performed by a focal firm
and its partners and the mechanisms that link these activities to each other” (Amit &
Zott, 2015, p. 331) may help these NPOs to achieve financial sustainability while at
the same time effectively creating value for developing nations.
1 This thesis uses NPOs and non-profits terms interchangeably to refer to non-profit organizations
14 Chapter 1: Introduction
NPOs, which have been defined as “institutions that … receive the bulk of
their income not from the sale of goods and services in the market, but from the dues
and contributions of their members and supporters” (Salamon & Anheir, 1992, p.
133), play important roles for societies in developing nations (Anheier & Salamon,
1998; Considine, 2003; Hansmann, 1980). NPOs are one among many important
actors in developing nations that facilitate social change by delivering services to
neglected areas.
NPOs operating in developing countries, such as Indonesia, face different
contexts from their counterparts in developed nations for a few reasons (Anheier &
Salamon, 1998). First, NPOs in developing countries need to deal with different and,
in many cases, uncertain political and economic situations. Second, they may also
need to address civil society traditions that are different from those in most
developed countries. Most importantly, non-profits in developing nations rely on
different sources of revenue than their counterparts that operate in developed
countries (Anheier & Salamon, 1998).
Many non-profits in developing nations are dependent on development aid
organizations. Aid funding, mostly coming from developed countries’ public, tax-
payer money, has become a major source of revenue for non-profits in developing
countries (Anheir & Salamon, 1998; Smillie, 1995; Smith, 1993; Buscher, Komujuni
& Ashaba, 2018; Irvine, 2018; Dupuy & Prakash, 2017). Aid funding is also
important for the survival of NPOs in developing countries (Burger & Owens, 2012).
In fact, aid funding is so important that they affect the internal processes of NPOs
(AbouAssi, 2013); this, for example, results in the homogenization of NPOs; that is,
although NPOs are geographically separated, they have similar organizational
Chapter 1: Introduction 15
structures due to the institutional “foot-print” of the aid funding and aid
organizations (Kamstra & Schulpen, 2015).
Until recently, NPOs in developing nations had enjoyed a steady flow of
official development assistance (ODA) grant funding from developed country
governments. These grants supported many NPOs in developing countries to deliver
services to their beneficiaries. Yet, a recent decline in the flow of ODA to developing
countries may pose a threat to the survival of their NPOs (Khieng, 2013; Parks,
2008). (see Figure 1.1 for a graph of the declining trend of grant flow in since 2013
to selected developing countries).
Figure 1.1. Organization of Economic Cooperation and Development (OECD)’s Official Development Assistance (ODA) grants to select developing countries in Asia and Africa, 2005-2014 (in Millions USD). Adapted from OECD Database – Geographical distribution of financial flows (2016).
16 Chapter 1: Introduction
As a response to this situation, social entrepreneurship and social ventures
have often been seen as important potential solutions for the survival of NPOs in
developing countries. However, when NPOs embrace business-like approaches and
become social ventures, they often need to adopt new organizational forms or new
business models (Maier, Meyer & Steinbereithner, 2014). Adopting new business
models subjects them to different organizational processes (Di Zhang & Swanson,
2013; Hwang & Powell, 2009), and by embracing business-like approaches, social
ventures that transformed from NPOs need to appropriately manage conflicting
public and private tensions arising from the different stakeholders that they have to
engage (Bull, 2008). For example, on the one hand, despite a recent decline, these
emerging social ventures may still receive partial funding support from foreign aid
agencies such as USAID, Australia Aid, or British DFID’s UKaid (Aspinall, 2010;
Carapico, 2002). These emerging social ventures are also subject to external controls
just like public and non-profit organizations (Ferris, 1993; Sloan, 2008). On the
other hand, when NPOs transform to become social ventures and more business-like,
they need to take into account market demands, such as profit and return on
investment (Miller & Wesley II, 2010). The challenge is that foreign aid
organizations tend to influence the direction and the strategy of recipient
organizations (AbouAssi, 2013). Thus, aid organizations may limit decision choices,
especially market-related decisions, of a social venture. At the same time, investors
and other market stakeholders can put pressure on social ventures to show market
performance, as these market stakeholders often expect financial returns (Cordes,
2017).
An understanding of the appropriate organizational design or business models
for new social ventures that have transformed from NPOs and experienced these
Chapter 1: Introduction 17
tensions is, therefore, very important; unfortunately, there is insufficient knowledge
of social venture business models that these NPOs can embrace when they transform
to become more business-like.
Previous studies on non-profits that have become business-like have been
discussed in the literature, such as in the social entrepreneurship literature. The
research in this literature, particularly under the “earned-income” school of thought
(Defourny & Nyssens, 2010), has focused on the definition and nature of marketized
non-profits (Dart, 2004), the ethics of the marketization of non-profits (Eikenberry,
2009; Eikenberry & Kluver, 2004), the transformation processes (Guo, 2006; Gras &
Mendoza-Abarca, 2014), as well as, the ways non-profits diversified funding support
(Khieng, 2013). Maier and colleagues (2014) identified at least three major streams
of non-profit transformation studies in the literature: (a) the causes of non-profits to
become social ventures; (b) the processes of transformation; and (c) the effects of the
transformation.
Despite this existing body of knowledge on the transformation of non-profits
into social ventures, there are few studies that have paid attention to the
organizational design characteristics and the effective social venture business models
that these non-profits can adopt (Demil, Lecocq, Ricart & Zott, 2015), especially in
the contexts of developing countries. To date, studies focusing on design
characteristics and types of social ventures in the literature (e.g. Alter, 2010; Ridley-
Duff & Bull, 2016; Defourny & Nyssens, 2017) have usually examined the general
and global classifications that descriptively identify different social venture types.
Unfortunately, they have not explained the types that correspond to effective social
venture business model frameworks that are necessary for these transforming non-
profits to perform and survive.
18 Chapter 1: Introduction
Studying the characteristics and effective types of social venture business
models may help transforming non-profits to identify the appropriate business
models that they can use. Subsequently, effective social ventures can sustain value
creation for the beneficiaries who need help in neglected societies in many
developing countries. In the end, successful social ventures that have transformed
from NPOs can continue to deliver important social benefit to societies.
The next sections outline the relevant social entrepreneurship literature to
show how the transformation of NPOs to become social ventures has been
understood. An outline of the research gaps, aims and research questions of this
thesis follows, along with an outline of the methodology to achieve the aims, and the
contributions that the thesis makes.
Social entrepreneurship and the transformation of non-profit organizations to social ventures
The social entrepreneurship literature has taken a variety of approaches to
understand social entrepreneurship and social venture phenomena (Defourny &
Nyssens, 2010). For example, a “social innovation” school of thought focuses on the
innovation that social entrepreneurs create to solve problems in societies. On the
other hand, “the EMES (Emergence des Enterprises Sociales en Europe)” school of
thought sets European-centric criteria of a social enterprise (Defourny & Nyssens,
2008). One perspective, the “earned-income” school of thought, which focuses
specifically on social ventures that transformed from NPOs, is the major focus of this
thesis because this perspective hosts a body of literature that analyses the causes,
processes and effects of NPOs that have become business-like (Defourny & Nyssens,
2010; Maier et al., 2014).
Chapter 1: Introduction 19
In this body of literature, the causes of NPOs to become social ventures can be
attributed to external and internal factors. For example, political and economic
conditions, such as the introduction of new public management (Liebschutz, 1992),
or the availability of grant funding (Kerlin & Pollak, 2011; Khieng, 2013; Parks,
2008), may serve as the external drivers for adopting social venture business models.
On the other hand, board characteristics (Stone, 1989) and ideologies (Meinhard &
Foster, 2003), among others, may become the internal factors that also drive NPO
transformation.
Furthermore, the processes and the structures of the transformation are widely
discussed in this literature. For example, scholars have started to pay attention to the
managerialization, the organizational rationalization, and business-like organizing of
NPOs (Di Zhang & Swanson, 2013; Hwang & Powell, 2009; Meyer, Buber &
Aghamanonukjan, 2013). In this research area, Davis, Marino, Aaron and Tolbert
(2011) specifically examined the entrepreneurial orientation processes in the
transformation of non-profits to become more business-like and embrace social
venture business models.
The literature also discusses the effects of the transformation. For example, a
few studies have paid attention to mission drifts that might follow from the
transformation processes (Froelich, 1999; Keevers, Treleave, Skyes & Darcy, 2012;
Young, 1998). Other scholars have focused on the ethics of the transformation
(Eikenberry, 2009; Eikenberry & Kluver, 2004) and the legitimacy of social ventures
that transform from NPOs (Dart, 2004).
Other literature focuses on the social intermediation issue in the marketization
of non-profits. Social intermediation refers to the role of intermediaries that seek to
20 Chapter 1: Introduction
alleviate poverty via linking bottom-of-pyramid markets with developed markets
(Kistruck, Beamish, Qureshi & Sutter, 2013).
Despite extensive research in this area, discussions on the organizational
designs or social venture business model types for these transforming non-profits are
still limited (Demil et al., 2015; Wilson & Post, 2013); although in parallel, general
discussions on social venture types and models have begun to take place. This thesis
presents two critical points of view in relation to this aspect. First, although the
extant literature discussing social venture types has paid some attention to the
tensions that social entrepreneurship organizations encounter (e.g., Bull, 2008;
Ridley-Duff, 2008), the identification of social ventures in this literature has tended
to be classificatory and descriptive and, therefore, explanatory discussions of the
effective organizational design or social venture business models for transforming
non-profits are still insufficient (Demil et al., 2015). Moreover, discussions in this
body of the literature have also been detached from the broader entrepreneurship and
management literature (Dacin, Dacin & Matear, 2010; Short, Moss & Lumpkin,
2009) and, therefore, theories in the social entrepreneurship domain have not built
from or contributed to existing management theories. Second, extant discussions on
business models have seemed to be biased towards commercial and market-based
models (Arthur, Keenoy, Scott-Cato, & Smith, 2016; Eikenberry & Kluver, 2004;
Randles and Laasch, 2016; Wilson and Post, 2013), thus leaving the non-
commercial, public aspects that influence the effective business models of social
ventures under-discussed in the literature. The next sections elaborate on these
points.
Chapter 1: Introduction 21
Social ventures and business models
Different approaches to make sense of social venture types and designs
Social ventures are seen as hybrid organizations because they combine
characteristics from different sectors (Doherty, Haugh & Lyon, 2014; Ridley-Duff,
2008). They are organizations that conduct trading activities to generate sustainable,
social solutions (Santos, 2012). Almost all definitions of social ventures focus on
two important features (Doherty et al., 2014; Seanor, Bull, Baines, & Purcell, 2013).
The first is the adoption of commercial activities to generate revenue (Mair & Marti,
2006; Peredo & Mclean, 2006); and, the second is the prioritization of social
mission/goals (Agafonow, 2014; Santos, 2012). Social ventures prioritize a social
mission yet embrace business approaches.
This way of operating can create tensions (Bull, 2008; Doherty et al., 2014),
and there are at least four approaches in the social entrepreneurship literature that
attempt to classify different types of social ventures according to different
characteristics (i.e., the origin of the tensions), scope, and the purpose of
classification (see Table 1.1; Defourny and Nyssens, 2017; Ridley-Duff and Bull,
2016).
22 Chapter 1: Introduction
Table 1.1 Approaches to Make Sense of Social Ventures in the Literature
Approach 1 Approach 2 Approach 3 Approach 4 Characteristics Market-
social spectrum
History/origins, development path
Principles of interest, resource mix
Governance, ethics, social impact
Scope Global National (developed country)
Global Global
Purpose Describes general classification distinction with commercial ventures
Describes general classification, distinction with commercial ventures
Describes general classification, theoretical framework of different models from around the world
Describes general classification for global use
Example types Commercial non-profits, social enterprise, socially responsible business, corporate CSR
Mutual, trading charities, public sector spin-off, new social enterprises
Entrepreneurial non-profit, social cooperative, social business, public-sector social enterprise
Cooperative and mutual enterprises, socially responsible businesses, charitable trading activities
Examples in the literature
Alter (2010); Kerlin, (2009); Dees (1998)
Spear, Cornforth & Aiken (2009); Gordon (2015); Young & Levy (2014)
Defourny & Nyssens (2017)
Ridley-Duff & Bull (2016)
Note. Adapted from Defourny and Nyssens (2017), and Ridley-Duff and Bull (2016).
Approach 1 (see Table 1.1) focuses on the market-social spectrum in
identifying different social enterprises. This approach identifies different social
ventures according to their place within the market and social spectrum. For
example, a commercial non-profit is a type of social venture that is highlighted in the
literature as operating in commercial markets. This approach attempts to establish a
general classification of social ventures that may apply globally. Kerlin (2013), for
example, used these market and social characteristics to classify different social
Chapter 1: Introduction 23
enterprises across the globe. Similarly, Alter (2010) also established a classification
of different social enterprises across the market-social spectrum. This approach
seems to purely focus on the social and market tensions encountered by social
ventures.
Approach 2 (see Table 1.1) focuses on the history or origins of social
enterprises. This approach sees the development path of social ventures as a
distinguishing characteristic. This attention to history and to the development path
implies a more contextual differentiation; therefore, this approach tends to focus on
national or local level social enterprises and tends to capture dynamics from
developed countries, such as Europe and the United Kingdom. In the United
Kingdom, for example, there are several types of social enterprises that have
different historical and development paths, such as mutual, trading charities, and
public sector spin-off (Spears et al., 2009). This approach touches on discussions of
the tensions that social ventures face in developed countries.
Approach 3 (see Table 1.1) emphasises the principles of the interest and
resource mix as characteristics that distinguish different social ventures (Defourny &
Nyssens, 2017). According to this approach, social enterprises are driven by three
different “principals of interest” that are at work in the economy: general interest
(public goods), mutual interest (collective goods), and capital interest (surpluses or
profits), and social enterprises differ along these three interests. There are four types
of social enterprises, such as: entrepreneurial non-profits, social cooperatives, social
businesses, and public sector social enterprises. This classification aims to become a
global grouping and as part of the International Comparison of Social Enterprise
Models (ICSEM) project (ICSEM, 2017); different types are developed based on this
framework from across the world. This approach identifies the role of public tension
24 Chapter 1: Introduction
in terms of public goods as one of the principal interests that interact with other
characteristics and contribute to the classification of different social venture types.
Approach 4 (see Table 1.1) emphasises the democratic governance, ethics,
and social impacts of social ventures (Ridley-Duff & Bull, 2016) and classifies them
into three types: cooperative and mutual enterprises, socially responsible businesses,
and charitable trading activities. This classification’s characteristics touch upon
public tension, such as governance, in a broad approach that becomes a basis to
advance social enterprises in different parts of the worlds (Ridley-Duff & Bull,
2016).
Up to this point, the literature seems to highlight that the approaches to
classify social ventures address the tensions that these organizations encounter in
varying degrees. However, most of them aim to develop a global classification or to
serve developed country contexts; most importantly, these classifications are
descriptive and only few seek to investigate explanatory types of effective social
venture business models that transforming non-profits in developing countries can
adopt. Previous social venture studies that have specifically focused on public and
private tensions in developing country contexts, especially those arising from
continuous engagement with aid organizations and market stakeholders, have been
scant despite their importance. In addition, many of these studies in this literature
are also rather disconnected from the extant entrepreneurship and management
literature. Short et al. (2009), for example, criticized research in the social
entrepreneurship literature for lacking connection to existing management and
entrepreneurship theories. As a result, there has been little cross-fertilization between
the social entrepreneurship and management literature which has negatively
impacted on the theorization processes in both domains. They suggest, for example,
Chapter 1: Introduction 25
the development of social entrepreneurship theorization that uses existing, well-
established management theories, including among others, agency theory, resource
dependence theory, resource-based view theory, or to extend their suggestion,
business model frameworks. The next section outlines research in the business model
literature, especially in the social entrepreneurship context to further show the
deficiency of the extant frameworks in analysing social ventures that have
transformed from NPOs.
Business model frameworks and their use in the social entrepreneurship context
Successful social ventures that transform from non-profits need to embrace
effective business models. Yet, discussions in the literature on business models have
largely used frameworks that are designed to analyse commercial ventures and are
founded on market-based theories, such as the resource-based view (RBV) and
transaction-cost economics (TCE) (DaSilva & Trkman, 2014). The focus of extant
business model research has mostly been on private or market factors, rather than
public factors. This may be due to the fact that the purpose of business model design
is to increase competitiveness and to maximize profit (Wirtz, Pistoioa, Ullrich, &
Gottel, 2016). Teece (2010), for example, highlighted that “the essence of a business
model is in defining the manner by which the enterprise deliver value to customers,
entices customers to pay for value, and converts those payments to profit” (p. 172).
Furthermore, much of the business model research has also focused on the business
models of firms in developed country and technology-based industries. For example,
Clemons (2009) focused on value capture – an aspect of the business model
dimension that relates to how a firm creates profit. On the other hand, Christensen
(2001) focused on business models that drive a competitive advantage, which is often
seen as a source of profit in business firms (see Table 1.2).
26 Chapter 1: Introduction
All of this is to suggest that extant business model frameworks are specifically
designed and developed for commercial purposes (Wirtz et al., 2016) and, therefore,
may be insufficient to analyze various tensions at work in social ventures (Demil et
al., 2015; Wilson & Post, 2013). Commercial ventures prioritize profit maximization
and a sustainable, competitive advantage (DaSilva & Trkman, 2014; Wirtz et al.,
2016). Social ventures, on the other hand, prioritize value creation over value
capture (Santos, 2012). These different foci in the social entrepreneurship context
may require a different understanding of how business model dimensions (value
proposition, value creation, and value capture) are configured. A re-
conceptualization of the extant business model framework may, therefore, be
necessary.
A re-conceptualization may allow business model frameworks to appropriately
analyse the business model phenomenon in the social entrepreneurship context.
Some recent studies have explored sustainable and social enterprise business models
(Bocken, Short, Rana & Evans, 2014; Grassl 2012; Wilson & Post, 2013; Yunus,
Moingeon & Lehmann-Ortega, 2010). These studies have attempted to incorporate
non-commercial aspects in the extant business model framework. For example,
Wilson and Post (2013) conducted an inductive study to make sense of how social
businesses are designed. Grassl (2012) explored the different configurations of
feasible and implemented business models in the social entrepreneurship context,
while Yunus and colleagues (2010) attempted to uncover the business model
dynamics for social businesses.
Unfortunately, these studies did not discuss social venture business models
for transforming non-profits in developing countries, and especially the business
models of NPOs that are required to address the public and private tensions that can
Chapter 1: Introduction 27
arise from the transformation. Thus, the extant business model studies seem limited
and insufficient to make sense of the tensions experienced by transforming NPOs
(Demil et al., 2015).
Table 1.2 Public and Private Aspects in Antecedents and Consequences of Business Model Research (Adapted from Zott, Amit & Massa, 2011)
Antecedents and Consequences
Market (private) factors Non-Market (public) factors
Antecedents • New information and communication technologies (Dubosson-Torbay, Osterwalder and Pigneur 2002; Timmers 1998);
• Value drivers (Amit and Zott 2001);
• Choices (Casadesus-Masanell and Ricart 2010; Shafer, Smith and Linder 2005);
• Technology (Chesbrough and Rosenbloom 2002; Chesbrough 2007);
• Technological development, innovation (Björkdahl 2009; Calia, Guerrini and Moura 2007)
• External Pressures, Regulations (Tankhiwale 2009; Yunus, Moingeon and Lehmann-Ortega 2010)
• Value Drivers (Spieth, Schnieder, ClauB, Eichenberg, 2018)
28 Chapter 1: Introduction
Table 1.2 - continued Public and Private Aspects in Antecedents and Consequences of Business Model Research (Adapted from Zott, Amit & Massa, 2011)
Antecedents and Consequences
Market (private) factors Non-Market (public) factors
Consequences • Industry Structures (Applegate and Collura 2000; McPhillips and Merlo 2008)
• Rules of Competition (Applegate and Collura 2000; Tapscott, Lowy and Ticoll 2000)
• Value capture (Clemons 2009; Pauwels and Weiss 2008)
• Total value creation (Amit and Zott 2001);
• Competitive advantage (Christensen 2001);
• Stock value performance (Casadesus-Masanell and Ricart 2010; Zott and Amit 2007, 2008)
• Configurations (Aversa, Funari, and Haefliger, 2015)
• Incentives to Provide Public Goods (Sommerrock 2010)
• Ethics (Bull and Ridley-Duff, 2018)
Research gaps
Despite extensive research on social entrepreneurship that has generated
different understandings and classifications of social ventures, as well as business
models in the social entrepreneurship context, there seems to be a need for more
research, to further enrich our understanding, that specifically focuses on the social
venture characteristics and the frameworks of the appropriate social venture business
Chapter 1: Introduction 29
models for transforming NPOs (Demil et al., 2015; Wilson & Post, 2013), especially
in developing countries where there are tensions between public and private forces.
Aims and research questions
The aims of this thesis are to address the research gaps by (a) establishing a
typology of social venture business model configurations that identifies the
characteristics and the effective types of business model configurations for
transforming non-profits in developing countries; (b) establishing construct validity
of the characteristics in the typology; and (c) further empirically testing the typology
using a taxonomic analysis. A typology is defined as “conceptually derived
interrelated sets of ideal types … each of which represents a unique combination of
the organizational attributes that are believed to determine the relevant outcome(s)”
(Doty & Glick, 1994, p. 232), while a taxonomy is defined as “an empirically
derived … organizational classifications schemes” (Rich, 1992, p. 761). The aims
and the research questions (RQs) of this thesis are:
Aim 1: To develop a typology of social venture business model configurations for
transforming non-profits in developing countries
RQ1: How do resource dependence theory and public administration theories (i.e.,
publicness theory) make sense of extant business model configurations, especially in
social ventures?
RQ2: What are the key characteristics of social ventures and how do they configure
extant business model dimensions?
RQ3: What are the types of social ventures for transforming non-profits in
developing countries and how are these types associated with effective business
model configurations?
30 Chapter 1: Introduction
Aim 2: To establish construct validity of the characteristics in the typology of social
venture business model configurations
RQ4: What are the characteristics of social ventures as they emerge from the
empirical data?
RQ5: What are the emerging social venture forms resulting from these
characteristics?
RQ6: How do different social venture forms correspond to outcomes?
Aim 3: To test the typology of social venture business model configurations by
examining its association with particular outcomes
RQ7: Are there different business models of social ventures that are empirically
identifiable? If so, how do they differ?
Methodology
This is a thesis by published papers (see Appendix C for QUT’s requirement
on PhD by published papers). Using a theory elaboration/advancement framework to
achieve the aims and to link the papers (Fisher & Aguinis, 2017; Lee, Mitchell &
Sablynski, 1999), this thesis consists of three sequential papers that fulfil important
roles in the typology-driven theorizing process (Bacharach, 1989; Boyd, Bergh,
Ireland & Ketchen, 2013; Doty & Glick, 1994; Weick, 1995). The papers: (a)
develop characteristics and a typology of social venture business model
configurations and generate the typology’s logical adequacy – “implicit or explicit
logic embedded in the … propositions which ensures that their … propositions are
capable of being disconfirmed” (Bacharach 1989, p. 505); (b) establish construct
validity in a typology theory elaboration study; and (c) test the typology by
Chapter 1: Introduction 31
generating an empirical taxonomy to seek predictive validity – “whether measures in
fact have a link to dependent variables as specified by theory” (Boyd et al., 2013,p.
6) - and predictive adequacy – “the degree to which … propositions approximate …
reality” (Bacharach 1989, p. 509). Table 1.3 summarizes the aims, methods, and
outputs of the papers in this thesis.
Table 1.3 The Theorizing Framework of the Papers in This Thesis (Adapted from Fisher & Aguinis, 2017) Typology theory
generation Typology theory elaboration
Typology theory testing
Aim
Paper 1 Development of the characteristics and a new typology of social venture business models
Paper 2 Elaboration of the typology developed in Paper 1 by clarifying construct validity of characteristics and generating insights
Paper 3 Test by examining the association of the typology and outcomes
Method Conceptual Qualitative (case study)
Quantitative (latent profile analysis)
Function in theory evaluation
Logical adequacy Construct validity Predictive validity and adequacy
Outputs Reconceptualization of business model frameworks using resource dependence theory (RQ1) Unique characteristics of social ventures (RQ2) Theoretical typology and the relationship of business models and performance (RQ3)
Construct validity and scope of unique characteristics of social ventures (RQ4) Improved typology (RQ5) Conceptual framework of social venture forms, business models, and effectiveness (RQ6)
Empirical taxonomy and test of association (RQ7)
32 Chapter 1: Introduction
Paper 1, entitled “A Typology of Social Venture Business Model
Configurations”, develops a new typology of social venture business models for
transforming non-profits by taking account of the public and private organizational
characteristics. As a conceptual paper, Paper 1 borrows from the public
administration literature and uses resource dependence theory (Pfeffer & Salancik,
1978, 2003) to conceptually derive the characteristics and identify the theoretical
types of social venture business models for transforming non-profits, and further
generate theoretical propositions on how they relate to different outcomes. In doing
so, Paper 1 develops new constructs and new testable propositions. The typology in
this paper broadly builds on the “socially responsible business” type of social
enterprise classification in the existing literature, primarily because the types in the
literature focus on public and private resources, seek to employ innovation, and aim
to reduce poverty (Ridley-Duff & Bull, 2016).
Paper 2, entitled “Organizational Characteristics and Forms: Empirical
Insights from Business Models of Social Ventures”, aims to establish construct
validity of the social venture characteristics that built the typology using a qualitative
approach. Paper 2, using a case study method, is a qualitative empirical study that
establishes construct validity (e.g. Bechky, 2003; Eisenhardt, 1989; Gioia &
Chittipeddi, 2001) of the characteristics of social ventures and subsequently
generates an improved typology of social venture business models. Paper 2 further
generates insights from the empirical data and develops a conceptual framework that
connects social venture forms, business models, and organizational effectiveness.
Paper 3, entitled “A Taxonomy of Social Venture Business Models for
Transforming Non-Profit Organizations”, tests the typology developed in Paper 1
using the quantitative taxonomic method of latent profile analysis (Lanza, Tan &
Chapter 1: Introduction 33
Bray, 2013; Muthen, 2001, 2004). In doing so, Paper 3 demonstrates further
construct validity, especially, the convergent, discriminant, and predictive validity of
the measurement of the variables derived from the constructs, and a preliminary
indication of the predictive adequacy of the theoretical relationship derived from
Papers 1 and 2.
Boundary conditions and data for theory elaboration and testing
This thesis’s boundary conditions are the ones developed in the typology
generation paper (Paper 1). In Paper 1, the typology was developed to specifically
focus on the business models of emerging social ventures from NPOs undergoing
transformation. The typology is, therefore, not exhaustive and it does not include all
types of social venture models. The typology also specifically aims to analyse social
ventures that were transformed from NPOs in developing countries due to high
public and private tensions that they encounter from aid organizations and market
stakeholders.
Thus, the data for the analyses in Papers 2 and 3 were collected in a
developing country (Indonesia) to ensure that the typology was elaborated and tested
according to these boundary conditions (Bacharach, 1989). More specifically, Paper
3 uses a sample of social ventures that had been recently transformed from NPOs
from the British Council’s NGO Transformation to Social Enterprise Program in
Indonesia (British Council, 2017). Prior to the data collection, research for Papers 2
and 3 received QUT ethical clearance, no. 1400001026 and no. 1600000283,
respectively. Subsequently, the generalizability of the results of this thesis may need
to be cautiously interpreted within these proposed boundary conditions.
34 Chapter 1: Introduction
Contributions to the Literature
This thesis documents a theorizing process (Weick, 1995). This process
“consists of activities like abstracting, generalizing, relating, selecting, explaining,
synthesizing and idealizing” (Weick, 1995, p. 389); it is a “journey” towards
developing a falsifiable theory (Bacharach 1989). As a theorizing process, this thesis
makes two main contributions that address the identified research gaps in the
literature. First, it extends the social entrepreneurship literature, especially the
discussions on the “earned-income” school of thought (Defourny & Nyssens, 2010;
Maier et al., 2014) by providing an initial indication of valid and useful
characteristics and a typology generated from the context of a developing country,
that is, Indonesia. The typology of social venture business models for transforming
non-profits in developing countries enriches the discussion beyond the causes,
processes, and effects of transformation and extends the “socially responsible
business” classification (Ridley-Duff & Bull, 2016) due to the overlapping poverty-
reduction and innovation foci. The typology may also overlap with the “public-sector
social enterprises” classification model (Defourny & Nyssens, 2017) since the
typology focuses on the tensions arising from public and private stakeholder
demands. Although the typology is generated from a developing country context, the
attention to public and private tensions may suggest that it is also useful in a more
general context, such as in the wake of the increasing popularity of social
procurement in developed countries (Furneaux & Barraket, 2014). In developing the
typology, this thesis also links the social entrepreneurship discussion to the broader
entrepreneurship and management theory by utilizing public administration and
resource dependency theory, as suggested by Short and colleagues (Short et al.,
Chapter 1: Introduction 35
2008). This may advance the theorization process in the social entrepreneurship
domain.
Second, this thesis moves the discussion in the business model literature by
re-conceptualizing the extant business model frameworks, which to date have been
designed to analyse commercial ventures (Wirtz et al., 2016), so that they can
analyse social ventures that transformed from NPOs. Using a theoretical lens from
the management literature (resource dependence theory; Pfeffer & Salancik, 1978,
2003), this thesis offers a novel re-conceptualization that unpacks the current
understanding of how business models are configured in different types of
organizations (public, private, and hybrid, i.e., social ventures). This thesis extends
the popular business model framework (Amit & Zott, 2001, 2015) by incorporating
the public and private aspects to analsze the configurations of extant business model
dimensions (Richardson, 2008). In doing so, this thesis also parallels with the recent
work in the business model literature that aims to include sustainability perspectives
in the extant frameworks (Bocken et al., 2014; Boons & Ludeke-Freund 2013;
Randles & Laasch, 2016; Stubbs & Cocklin 2008; Wilson & Post 2013) and further
allows researchers to use business model frameworks to analyse non-commercial
organizations.
Thesis outline
This thesis comprises six chapters. Chapter 1 provides the introduction of the
thesis, and Chapter 2 provides a discussion of the thesis research design and
methodology, outlining the strategies and methods to achieve the thesis objectives.
This chapter specifically discusses the approach and methods employed in Papers 1,
2, and 3. Chapter 3 contains Paper 1 on typology theory generation, while Chapter 4
36 Chapter 1: Introduction
contains Paper 2 on qualitative, typology theory elaboration, and Chapter 5 is Paper 3
on quantitative typology theory. Chapter 6 provides a general discussion and the
conclusions of the thesis. It highlights the key findings, key contributions to the
literature, as well as the limitations of the thesis and directions for future research.
The chapter also highlights practical implications from the results of this thesis and a
concluding remark.
Chapter 1: Introduction 37
Chapter 2: Methodology
Introduction
The aims of this thesis are: (a) to develop a typology of social venture
business model configurations for transforming non-profits in developing countries;
(b) to establish construct validity of the characteristics in the typology of social
venture business model configurations; and (c) to test the typology by examining its
association with business models and performance.
This chapter outlines the methods of this thesis to achieve these objectives.
Each of these objectives is achieved in an individual paper presented in Chapter 3, 4,
and 5. In Chapter 3, a conceptual paper develops a typology of social venture
business model configurations. In Chapter 4, a qualitative paper elaborates the
typology and aims to establish construct validity of the characteristics from empirical
data. In Chapter 5, a quantitative paper tests the theory-driven typology by
examining its association to distal outcomes. In Chapter 6, an overall discussion will
be presented.
This thesis uses a theory advancement framework (Fisher & Aguinis, 2017)
that links all the papers (typology theory generation, typology theory elaboration, and
typology theory testing) together (see Table 2.1). Each paper in the theory
advancement framework provides “a complementary purpose in the knowledge
creation process” (Fisher & Aguinis, 2017, p. 4) and thus, altogether, the three papers
document a theorizing process (Weick, 1995) to develop a falsifiable typology of
social venture business model configurations (Bacharach, 1989; Doty & Glick, 1994)
38 Chapter 2: Methodology
Table 2.1 Typology-Driven Theory Advancement (Adapted from Fisher & Aguinis, 2017)
Typology theory generation (Paper 1)
Typology theory elaboration (Paper 2)
Typology theory testing (Paper 3)
Input Unexplained phenomenon; little to no existing theory
Partially explained phenomena; an existing conceptual model and/or ideas
Relationship between the social venture business model types and outcomes derived from extant theory
Process and tactics (Methods) Develop and derive new concepts/typology and relationships using logical, well-reasoned arguments (Conceptual)
Use existing concepts/typology theory to collect and organize data to contrast, specify, and structure theoretical constructs and relations to refine existing theory (Qualitative case study)
Collect and analyze data to assess whether they provide evidence supporting the theorized relationship in the typology theory (Quantitative latent profile analysis)
Output (Theory evaluation) New testable typology theory; new constructs (Logical adequacy)
Refinement of existing theoretical ideas – refined contextual factors, constructs/typology, and/or relationship (Construct validity)
Taxonomic analysis validation of extant theory (Predictive validity and adequacy)
Research questions RQ1: How do resource dependence theory and public administration theories make sense of extant business model configurations, especially in social venture? RQ2: What are the key characteristics of social ventures and how do they configure extant business model dimensions? RQ3: What are the types of social ventures for transforming NPOs in developing countries and how are these types associated with effective business model configurations?
RQ4: What are the characteristics of social ventures as they emerge from the empirical data? RQ5: What are the emerging social venture forms resulting from these characteristics? RQ6: How do different social venture forms correspond to outcomes?
RQ7: Are there different business models of social ventures that are empirically identifiable; if so, how do they differ?
Chapter 2: Methodology 39
Typology-driven theory generation in Paper 1
The theorizing process in this thesis begins with the development of a typology
in Paper 1 (see Chapter 3). Prior to describing the strategy of Paper 1, this section
discusses the definition of a typology and why a typology is useful in theory
generation processes
Typology-driven theorizing
Typologies are popular and their popularity are often derived from their ability
to parsimoniously describe complex organizational phenomenon (Miller, 1996). A
typology is defined as “conceptually derived interrelated sets of ideal types … each
of which represents a unique combination of the organizational attributes that are
believed to determine the relevant outcome(s)” (Doty & Glick, 1994, p. 232). They
offer a way to make sense of complex configurations of phenomena. The utilities of
a typology also go beyond this, as they are also communicative and easy to
remember (Miller, 1996).
An example of a famous and widely used typology in the management
literature is Miles, Snow, Meyer and Coleman’s (1978) configurations of effective
business strategy (Doty & Glick, 1994). Miles and colleagues identified types of
effective firm strategies based on how firms configured their organizations in
adapting to “entrepreneurial, engineering, and administrative” problems (Miles et al.,
1978). Miles and colleagues’ typology has been widely used in management
consultancies and in academia. Evidence for this popularity can be seen in a Google
Scholar metric of the Miles et al. (1978) paper published in the Academy of
Management Review that was cited by 12,547 papers until early 2017.
40 Chapter 2: Methodology
Despite these practical utilities, several authors in the management literature
have criticized the use of typologies. For example, typologies, according to Rich
(1992) are classification schemes that serve as instruments to compare, contrast and
order organizational phenomena into categorical types. While they may be useful,
according to the critics they are not theories and they do not explain the relationships
between variables – as theories normally do. Not surprisingly, Bacharach (1989)
asserted that “typologies are limited to addressing the primary question asked by
descriptive researchers” (p. 497).
These critics marked the declining use of typology in top management
journals despite the continuing popularity of some in several subject areas, such as
strategic management, and among management practitioners (Delbrige & Fiss, 2013;
Ketchen & Shook, 1996). This may have been because top management journals
expect researchers to offer new contributions of knowledge and significant
theoretical contributions (Mathieu 2016) and typology research is often perceived as
one that does not make sufficient theoretical contributions (Bacharach, 1989).
Researchers in the typology camp disagreed with the critics. A recent
conversation among scholars and the emerging research in the Academy of
Management journals highlighted the attempt to bring typology research back into
the management discipline. They argued that typologies have been misunderstood in
the literature and this misunderstanding has pushed the typology research away from
theory development processes in management studies (Fiss, 2011; Snow & Ketchen
2014).
In contrast to the critics’ accusations, they argued that typology is a unique
form of theorizing. This approach, “typology-driven theorizing” (Snow & Ketchen,
2014), calls for a departure from a “false understanding” of a typology as a
Chapter 2: Methodology 41
descriptive categorization of organizational phenomena. A typology is different from
a classification or a system of clusters. Elman (2009) called this form “explanatory
typologies” (p. 122). Explanatory typologies are different from
descriptive/classificatory typologies because unlike the latter, the former offers
theoretical predictions. Elman (2009, p. 122) highlighted the differences between the
goals of explanatory and descriptive/classificatory typology:
In an explanatory typology, the descriptive function follows the conventional
usage, but in a way that is heavily modified by its theoretical purposes. The
constituent attributes are extracted from the variables of a pre-existing theory.
The dimensions of the property space (its rows and columns) reflect
alternative values of the theory’s independent variables, so each cell in the
space is associated with predictive values of the theory’s intervening or
dependent variables. This association changes the descriptive question being
answered from ‘What constitutes this type?’ to ‘If my theory is correct, what
do I expect to see?’ (see Table 2.2).
This perspective also corresponds to Doty and Glick’s (1994) notion of a
“typological approach to theory-building” (p. 232). For them, typologies should
“identify multiple ideal types, each of which represents a unique combination of
organizational attributes that are believed to determine the relevant outcome(s)” (p.
232). This is, according to them, different from mere classification because
typologies “are intended to predict the variance in a specified dependent variable
because the organizational types identified in typologies are developed with respect
to a specified organizational outcome” (Doty & Glick, 1994, p. 232). In a similar
fashion, Cornellisen (2017) in an Academy of Management Review (AMR) journal
editorial also asserted that the theoretical typology needs to go beyond empirical
classification and, similar to other modes of theorizing (proposition and
42 Chapter 2: Methodology
narrative/process model), an explanatory typology should offer theoretical and causal
explanations instead.
Table 2.2 Goals of Typologies (Adapted from Elman, 2009)
Descriptive Classificatory Explanatory
Analytic move(s) Defines compound concepts (types) to use as descriptive characterizations
Assigns cases to types
Makes predictions based on combinations of different values of a theory’s variables; places data in relevant cells (e.g., two-by-two matrix) for congruence testing and comparisons to determine whether the data is consistent with the theory
Question(s) answered
What constitutes this type?
What is this a case of?
If my theory is correct, what do I expect to see? Do I see it?
Example What is a commercial enterprise as opposed to a social enterprise?
Are Google and Facebook commercial or social enterprises?
According to resource dependence theory, what outcomes are predicted from different types of commercial enterprises? Do the performance of Google and Facebook agree with that prediction?
Thus, to qualify as a theory, Doty and Glick (1994) argued that typologies
need to have two kinds of constructs: (a) ideal-type constructs that aim to provide an
abstract model of the phenomenon; and (b) the constructs serve as the “building
blocks of traditional theoretical statements” (p. 233-234). Typology theories need to
Chapter 2: Methodology 43
also “hypothesize relationships among the constructs incorporated in the theory”
(Doty & Glick, 1994, p. 234). In doing so, Doty and Glick (1994) positioned the
typologies as theoretical propositions that can be assessed according to the
Bacharach (1989) yardsticks of theory evaluation: measured variables, construct
validity and scope, and relationships (e.g., logical and empirical adequacy as well as
predictive adequacy). Logical adequacy refers to the logic in the theoretical typology
propositions that allow the propositions to be disconfirmed; that is, the propositions
are non-tautological and the nature of the relationships are specific. Empirical
adequacy refers to the operationalization of the theoretical typology that warrants
falsification (Bacharach, 1989). On the other hand, predictive adequacy refers to
whether the propositions approximate reality (Bacharach, 1989).
Doty and Glick (1994), Elman (2009), and recently, Cornelissen (2017), have
offered a fresh perspective in understanding the characteristics of typologies and how
they can become means for theory development. Instead of a simplistic overview of
reality (Rich, 1992), if appropriately developed, a typology offers a simple,
memorable, and neat (Miller, 1996) model that can explain, and not only describe
complex organizational phenomena.
The configurational approach
The rising attention to typologies as theories is also related to the recent return
of the configurational approach in management studies (Miller 1996; Short, Payne, &
Ketchen, 2008). Typology-driven theorizing reflects configurational thinking
(Ragin, 2008). The configurational approach views organizations as a holistic
entity; “the whole is best understood from a systemic perspective and should be
viewed as a constellation of interconnected elements” (Fiss, Marx, & Cambre, 2013,
p. 2). The configurational approach is different from the more conventional variable-
44 Chapter 2: Methodology
centred approach. Instead of focusing on the whole, the latter pays attention to the
relationships among variables or attributes of organizations (Meyer, Stanley &
Parfyonova, 2012). So, for example, in understanding business models of
organizations, a configurational approach analyses the ways in which value creation,
value capture, and value propositions are configured in achieving organizational
performance. In contrast, a conventional linear or variable approach is interested in
the relationship between each of the components of the business model with
performance, for example the relationship between value proposition and financial
performance. Unlike the configuration approach, the variable-centred approach does
not recognize unobserved heterogeneity in a population.
An important notion in the configuration approach is equifinality (Ragin,
2008), which refers to the situation where different paths can lead to the same
outcomes (Katz & Kahn, 1978). From the equifinal point of view, organizational
performance, for example, may be caused by several equally effective
configurations; both groups of firms that have innovation and those that have
efficient configurations may be equally effective in creating performing
organizations. In contrast, in a unifinal situation, only one configuration exists. To
illustrate, a unifinal analysis only pays attention to the relationship between
innovative firms and performance. This latter mode of analysis is reflected in the
conventional, linear or variable approach.
Another important characteristic of the configuration approach is the
asymmetrical nature of the connections between configurations and outcomes
(Ragin, 2008); that is, the conditions that lead to an outcome may be different from
the conditions that lead to the absence of an outcome. Miles and colleagues’
typology (1978), for example, highlights three configurations that lead to the
Chapter 2: Methodology 45
effective performance of firms (prospectors, analysers, and defenders). These firms
have particular configurations that lead into each of the identified effective
outcomes. However, Miles and colleagues’ typology (1978) also identified a non-
effective configuration that they called reactors. This particular configuration leads
to an absence of effective outcomes.
Thus, the configuration approach pays attention to the complex, holistic
relationship that leads to the presence (or absence) of a particular outcome. In the
organizational behaviour research area, for example, the so-called “person-centred
approach” has also showed the utilization of the configuration approach in explaining
the behaviour of persons from a whole perspective. Meyer et al. (2012) used this
strategy to replace the “variable-centred strategies” in researching commitment.
Similarly, in entrepreneurship research, scholars have started to adopt the
configurational approach to explain entrepreneurship phenomenon. For example,
Khelil (2016) outlined configurations of entrepreneurial failure, and Obschonka and
Stuetzer (2017) used the configurational approach to develop an entrepreneurship
personality system (EPS), which is a holistic approach to make sense of
entrepreneurial personality and behaviour.
Despite offering a new perspective, the configuration approach does not
attempt to replace the theoretical power of existing management theories, such as the
resource based view, resource dependence theory, transaction cost theory,
institutional theory, population ecology, and others. In contrast, the configuration
approach offers different ways of “detecting and understanding the proper operation”
of the mechanism in these theories (Fiss et al., 2013, p. 8).
In summary, in addition to its practical utility, a typology offers a promising
potential for theory development in management studies. If designed appropriately,
46 Chapter 2: Methodology
a typology can capture complex organizational phenomena in heterogeneous settings,
offer a more accurate representation of reality, explain and predict organizational
phenomena, and can further be assessed according to the extant theory evaluation
criteria. Further, a typology reflects configurational thinking because it is essentially
a visual representation of a complex configuration that leads to certain outcome(s)
(Fiss, 2011; Ragin, 2008).
Paper 1
Paper 1, entitled “A Typology of Social Venture Business Model
Configurations” in Chapter 3 aims to develop a theory-driven typology of social
venture forms and business model configurations. It is a typology theory generation
study that uses existing concepts in the literature to identify the characteristics of
social ventures (i.e., publicness theory) and to develop an explanatory typology using
a management theory (i.e., resource dependency theory) to explain how different
business model types of social ventures affect organizational outcomes. Paper 1 re-
conceptualizes extant business model frameworks so that they can analyse public and
private tensions in social ventures.
In doing so, Paper 1 fulfils the requirement of a typology theory as indicated by
Doty & Glick (1994) and Cornelissen (2017): the paper (a) develops ideal type
constructs (i.e., the characteristics of social ventures); and (b) develops building
blocks of theoretical statements (i.e., using resource dependency theory logic) to
make sense of different business models in the social entrepreneurship context.
Paper 1, therefore, aims to fulfil the logical adequacy criterion indicated by
Bacharach (1989). The theoretical arguments in Paper 1 lead to statements that can
be disconfirmed because they are built on existing, widely tested, theoretical
frameworks (resource dependence theory and publicness theory).
Chapter 2: Methodology 47
Typology-driven theory elaboration: Tactics and method employed in Paper 2
Paper 2 in this thesis, entitled “Organizational Characteristics and Forms:
Empirical Insights from Business Models of Social Ventures”, subscribes to the
method prescribed by Lee et al. (1999) and more specifically by Fisher & Aguinis
(2017) to elaborate theoretical propositions. Lee et al. (1999) defined theory
elaboration as occurring “when pre-existing conceptual ideas or a preliminary model
drives the study’s design” (p. 164). Theory elaboration usually utilises qualitative
research methods and embraces several tactics that aim to fulfil theory evaluation
criteria according to Bacharach (1989). Fisher & Aguinis (2017) asserted that the
tactics of theory elaboration include contrasting, construct specification, and
structuring. According to them, contrasting tactics aim to improve the logical and
empirical adequacy of a theory; construct specification tactics aim to improve
construct validity and the scope of the variables and dimensions outlined in a theory,
while structuring tactics, on the other hand, aim to improve the explanatory and
predictive adequacy of a theory. Table 2.3 outlines the tactics common to theory
elaboration studies.
Construct specification tactic
Paper 2 (see Chapter 4) uses the case study method to specifically focus on the
construct specification tactic to elaborate the typology-driven theory (e.g., Bechky,
2003; Eisenhardt, 1989; Gioia and Chittipeddi, 2001). Construct specification is an
important first step prior to testing the theory; establishing construct clarity and
validity is essential for a theory to be falsifiable (Bacharach, 1989; Sudabby, 2010).
Suddaby (2010) argued that clear definitions of the constructs, scope conditions, and
the relationship to other related constructs are important because constructs are the
foundation of theory.
48 Chapter 2: Methodology
Table 2.3 Theory Elaboration Tactics (Adapted from Fisher & Aguinis, 2017)
Implementation approaches and specific tactics
Fundamental features Theory evaluation purpose (as per Bacharach, 1989)
Contrasting
Contrasting observations across different contexts and different levels of analysis
Improving logical and empirical adequacy
Construct specification Identifying and defining (new) constructs and breaking broad constructs into specific constructs
Improving construct validity and scope
Structuring Defining/redefining a specific relation between two constructs; providing an explanation of a sequence of events or relations; accounting for a recursive relationship between two or more entities over repeated interactions
Improving explanatory and predictive adequacy
Paper 2 employs a qualitative, case-comparison study design to fulfil the
construct specification task. It aims to establish construct validity of the
characteristics of social ventures outlined in Paper 1 on the typology. Case studies, in
addition to their powerful ways in generating theory, allow researchers to establish
construct validity and explore the scope of the constructs under investigation.
Eisenhardt (1989), in describing the use of case study research to validate constructs,
argued:
This [construct validity process in case study research] is a two-part process
involving: (1) refining the definition of the construct and (2) building
evidence which measures the construct in each case. This occurs through
constant comparison between data and constructs so that accumulating
Chapter 2: Methodology 49
evidence from diverse sources converges on a single, well-defined construct
… This process is similar to developing a single construct measure from
multiple indicators in hypothesis-testing research. That is, researchers use
multiple sources of evidence to a build construct measure, which define the
construct and distinguish it from other constructs. In effect, the researcher is
attempting to establish construct validity (pp. 541-542).
Most Different Systems Design (MDSD) and Most Similar Systems Design (MSSD)
Paper 2 embraces a particular technique in the case study method to establish
construct validity: the most different system design (MDSD) as opposed to the
commonly used most similar system design (MSSD) in many qualitative studies.
These approaches are the two most dominant paradigms in conducting comparative
research (Meckstroth, 1975). Table 2.4 outlines the distinguishing characteristics of
MDSD and MSSD.
Table 2.4 Characteristics, Objectives, and Exemplars of MDSD and MSSD
Most different systems design (MDSD)
Most similar systems design (MSSD)
Characteristics Focuses on cases that differ on all factors, except selected independent variables and outcomes; analysis of within-group differences
Focuses on cases that differ systematically; analyses of between-group and within-group differences
Objectives Looking for maximum heterogeneity in a designated sample by eliminating irrelevant systemic factors
Looking for causal conditions by isolating systematic differences, for example, by applying replication logic
Exemplars in the literature Howard (2003); Skocpol (1979)
Brown & Eisenhardt (1997); Eishenhardt (1989)
Paper 2 utilizes MDSD case study approach because this method suits the
construct specification objective. In a construct specification study, a researcher is
50 Chapter 2: Methodology
interested to see the boundaries, scope and relationships of particular constructs in
contrast to others. Thus, having a sample with maximum heterogeneity within
designated boundaries is important to achieve the objective as it allows researchers to
analyse similarities and differences among different cases. In qualitative case studies
the MDSD approach allows maximum heterogeneity in case comparisons (Otner,
2010) because it formulates “statements that are valid regardless of the systems
within which observations are made” (Preworski & Teune, 1970, p. 35).
In MDSD case selection, researchers need to identify “cases that differ on all
factors except [a selected] independent variable(s) and outcome; this procedure
amounts to selecting on the dependent variable …[and] it aims to eliminate irrelevant
systemic factors” (Otner, 2010, p. 3). By doing this, the researcher can focus on
differences within a selected sample. MDSD focuses on variables below the system
level (Anckar, 2008) and, thus, is useful in analysing within-group differences. For
example, if a researcher is interested to examine differences within a large group of
sweet fruits (taste of sweetness on the tongue as a dependent variable and the
presence of fructose as the selected independent variable), MDSD allows a
researcher to identify other factors (such as colour determinants and texture of fruits)
in a sample of sweet fruits with maximum heterogeneity of different types of fruits
with fructose (e.g., apples, oranges, bananas). In this case, MDSD disregards the
differences among different systemic factors (e.g., among sweet and non-sweet
fruits).
While MDSD is useful for identifying factors in a maximum heterogeneity
sample setting, which is, thus, useful in a construct specification study, unlike
MSSD, the method is rarely used for identifying causal relationships (Gerring, 2007).
This is because MDSD allows the identification of independent variables at the
Chapter 2: Methodology 51
system level, while at the same time the method uses a dependent variable at the sub-
system level (Anckar, 2008). This arrangement discourages the isolation of the
causal variables. Independent variables at the system level may contribute to
different dependent variables other than the ones selected at the sub-system level. In
other words, factors in the variety of fruits (such as colour determinants and texture)
may also contribute to the non-sweetness taste of the fruits.
In contrast, MSSD is the predominant view among social scientists in
establishing causal relationship (Przeworski & Teune, 1970). It operates by focusing
on different “systemic” factors that distinguish cases against particular outcomes
(Przeworksi & Teune, 1970). For example, if one wants to understand the causes of
sweetness in oranges, one needs to find groups of sweet and sour oranges. Only by
comparing different groups of sweet and sour oranges, one can isolate the causal
factors (i.e., the presence of fructose) that lead to sweet oranges because in sour
oranges the fructose compounds are not present.
Yin (2009), for example, highlighted the importance of “replication logic” in
employing MSSD. Replication logic uses the same logic to ensure that researchers
are able to isolate systemic differences between the cases. Brown and Eisenhardt
(1997) argued that replication logic is similar to an experimental design “in which
the cases are treated as a series of independent experiments that confirm or
disconfirm emerging conceptual images” (p. 3). Case study research using MSSD is
often preferable in theory generation studies because of its potentials in producing
causal analysis and causal conceptual frameworks (Eisenhardt, 1989). By embracing
this logic, researchers are able to identify the causal factors by eliminating plausible
alternative explanations and, thus, focusing on the aspect that they wish to examine.
52 Chapter 2: Methodology
Paper 2
Paper 2 uses 12 case studies of effective social ventures from the developing
country of Indonesia) that are consistent with the scope and boundary conditions of
the theoretical typology developed in Paper 1 to fulfil the construct specification
task. All cases were selected to have the same outcome (effectiveness) and selected
independent variables (social mission and private ownership logic) to follow the
MDSD case selection approach. In contrast to the MSSD approach, using MDSD in
Paper 2 allowed for maximum heterogeneity in the selected sample and, therefore,
Paper 2 was able to establish the construct validity of the characteristics within a
group of effective social ventures. Interview data and secondary data (reports, news
clipping) were collected, coded, and developed into case narratives (Brown &
Eisenhardt, 1997). Comparison tables were then developed to analyse the cases.
QUT ethical clearance no. 1400001026 was obtained prior to data collection.
Typology-driven theory testing: Tactics and method employed in Paper 3
A typology that drives theorization “should [also] be subjected to … rigorous
empirical testing” (Doty & Glick 1994, p. 231). Paper 3 (see Chapter 5), entitled “A
Taxonomy of Social Venture Business Models for Transforming Non-Profits”, aims
to test the typology-driven theory developed in Paper 1 and to use the construct
validity results and insights from Paper 2 by using quantitative taxonomic methods.
A taxonomy refers to an “empirically derived … organizational classification
schemes” (Rich 1992, p. 761). Paper 3 tests the typology by examining its
association with several outcome variables (business model configurations and
performance). In doing so, Paper 3 seeks to examine the predictive adequacy, that is,
the extent to which the theoretical frameworks approximate reality, of the typology-
driven theory (Bacharach 1989).
Chapter 2: Methodology 53
Latent Profile Analysis (LPA)
Testing typology-driven theories requires specific methodologies that differ
from the conventional variable-centred approach (such as regression) (Fiss et al.,
2013), and management authors have attempted to apply various configural methods
to test typologies (Short et al., 2008). Paper 3 uses a particular configural method,
latent class analysis/latent profile analysis (LCA/LPA) to generate and analyse the
empirical taxonomy. The LCA/LPA method is part of a family of latent methods
called mixture modelling, together with factor mixture analysis and the growth
mixture model (Nylund, Asparouhov, & Muthen, 2007). LCA allows researchers to
identify unobserved heterogeneity (latent variables) in a population from a number of
observed indicators (Muthen, 2004; Nylund et. al., 2007). Thus, consistent with the
configuration approach, LCA focuses on the outcomes of a system of indicators at
the holistic level. While LCA focuses on categorical observed variables, latent
profile analysis (LPA) refers to the use of LCA with continuous indicators (Gabriel,
Daniels, Diefendorff, & Greguras, 2015).
LPA is often considered superior than conventional cluster analysis (Ketchen
& Shook, 1996; Stanley, Kellermanns, & Zellweger, 2017). Unlike conventional
cluster analysis, the latent variables resulting from LCA/LPA can be treated like any
other construct (Vandenberg & Stanley, 2009). Thus, LCA/LPA can be extended to
analyse predictors and “distal outcomes” or dependent variables (Lanza et al., 2013).
LCA/LPA is similar to factor analysis because it assumes that the relationship
between observed variables is caused by latent variables – those that are not directly
observed (Vandenberg & Stanley 2009). The only difference is that factor analysis
54 Chapter 2: Methodology
attempts to reduce large amounts of data to generate meaningful constructs, while
LCA attempts to reduce large amounts of cross-sectional data into meaningful
profiles or classes of individual cases.
Wang and Hanges (2011) argued that LCA/LPA is useful for several reasons.
First, LCA/LPA uses a statistical model to infer the population from the sample
selected for analysis. This implies that the LCA/LPA uses statistically consistent
criteria in allocating individual cases in the latent clusters.
In doing so, LCA/LPA uses several fit statistics that need to be used
altogether in helping the researcher to determine the number of selected
clusters/profiles. Unlike other latent analyses, such as structural equation modelling,
there are no “cut-offs” for these fit statistics (Gabriel et. al., 2015); in LCA,
researchers need to triangulate the results of the fit statistics. The first is the absolute
model fit, such as the log-likelihood (LL) value, the Lo-Mendell-Rubin likelihood
ratio test, and the Bootstrapped likelihood ratio test (BLRT). The second is the
relative fit indices, such as Akaike information criteria (AIC), Bayesian information
criteria (BIC), and the sample-size adjusted Bayesian information criteria (SSA-
BIC). The third is the classification-uncertainty index, such as entropy. The ideal
number of profiles needs to have lower LL, AIC, BIC, and SSA-BIC values, a
significant LMR and BLRT, and larger entropy (> .7) (Bennet, Gabriel, Calderwood,
Dahling, & Trougakos, 2017; Gabriel et. al., 2015). These fit indices need to be used
together because simulation analysis (e.g., using Monte Carlo methods) shows that
there is no single fit index that consistently demonstrates statistical power (Tein,
Coxe, & Cham, 2013). Yet, most importantly, although this may help researchers to
decide the number of clusters, several authors have emphasized the importance of
theoretical and past research interpretations in deciding the number of clusters. In
Chapter 2: Methodology 55
fact, some researchers have emphasized that these interpretations can heavily
influence the decision on the number of clusters/profiles (Foti, Bray, & Thopmson,
2012; Lawrence & Zyphur, 2011). Table 2.5 describes and outlines these fit indices
including their statistical power based on a number of simulation studies.
Second, LCA/LPA applies a probabilistic classification approach (Wang &
Hanges, 2011). In LCA/LPA, despite that each individual belongs to one latent
class, the uncertainty of its membership is taken into account. The step in LCA/LPA
starts with estimating the latent class model parameters and observed scores, which
then becomes the basis in computing individual posterior probabilities – the
probabilities that an individual case has, taking into account prior events – for class
memberships. This procedure allows the classification of other individuals in the
population based on observed scores in the next step of the analysis.
Further, consistent with the typology-driven theorizing arguments, LCA/LPA
analysis attracts more interest of researchers when it analyses the relationships
between the latent variables with other variables (antecedents, consequences).
Asparouhov and Muthen (2014) called these “auxiliary variables”. Analyses of
relationships with distal outcome variables (consequences) and with predictor
variables (antecedents) make the LCA/LPA more theoretically useful. Figure 2.1
presents a modelling illustration of LCA/LPA with three indicators and five “distal
outcomes”. In figure 2.1, C denotes the clusters or the latent variables, µ1 to µ3
denote the indicator variables, and distal outcome 1 to distal outcome 5 denote the
auxiliary variables.
56 Chapter 2: Methodology
Figure 2.1. A typical model of LCA/LPA with three indicators and five distal outcomes.
Paper 3
Paper 3 uses characteristics developed in the theoretical typology in Paper 1
and that emerged in Paper 2 to test the typology using the LPA method. Prior to
testing the theory, Paper 3 conducted construct validity and reliability tests as
suggested by Bacharach (1989) to establish appropriate measurements for the
analysis. Appendix B highlights in more detail the process of scale development,
construct validity, and reliability of the measures used in testing the typology-driven
theory. Paper 3 uses these scales to test the typology against a set of distal outcomes
to establish the predictive validity of the scales. Predictive validity refers to an
assessment of the degree to which the measures are connected to the dependent
variables (Boyd et al., 2013).
Distal Outcome1
Distal Outcome2
Distal Outcome3
Distal Outcome4
Distal Outcome5
u1 u2 u3
C
Chapter 2: Methodology 57
Paper 3, following the boundary conditions set in Paper 1, uses a sample of
transforming non-profits in a developing country. The sample is social ventures
from the British Council NGO Transformation to Social Enterprise program in
Indonesia (British Council, 2017). The program assists local non-profits to transform
into social ventures by providing training and technical assistance on social
enterprise models and governance. There were 307 social ventures that participated
in the research (about a 30% response rate) from more than 800 social ventures in the
sampling frame. QUT ethical clearance no. 1600000283 was obtained prior to data
collection.
Summary
This chapter discussed the methodology in achieving the aims of the thesis.
Following a recent theorizing or theory advancement framework, this chapter
outlined the design of the linkages between the papers in this thesis. Paper 1, a
conceptual paper, aimed to serve as a theory generation paper. Paper 2, using
qualitative method to ensure construct validity, aimed to serve as a theory elaboration
paper. Paper 3, using a quantitative, probability-based typology testing method,
aimed to serve as a theory testing paper. Figure 2.2 summarizes the linkages of the
papers in this thesis.
58 Chapter 2: Methodology
Table 2.5 Fit indices in Latent Class/Profile Analysis
Types Fit indices Description Selection criteria
Characteristics and statistical power
Relative fit indices Akaike
Information Criteria (AIC)
Most commonly used information-theoretic models; based on maximum likelihood estimates of model parameters (Tein et al., 2013)
Ideally, AIC, BIC, SSA-BIC, and LL of the selected model need to be relatively lower than others
AIC tends to overselect the number of profiles (Dziak et al., 2014)
Bayesian Information Criteria (BIC)
BIC tends to underselect the number of profiles (Dziak et al., 2014).
Sample-size Adjusted Bayesian Information Criteria (SSA-BIC)
Adjusting the BIC according to sample size (Tein et al., 2010)
SSA-BIC has more power to BLRT in larger sample size (Tein., 2013) SSA-BIC and BIC are more superior than others, esp. in continuous indicators (Nylund et al., 2007)
Absolute model fit Log-likelihood (LL)
Show how well the k-class model fits the data (Morgan, Hodge, & Baggett, 2016)
-
Lo-Mendell-Rubin likelihood ratio test (LMR)
Compare the relative fit of two models (Tein et al., 2010)
Ideally, LMR and BLRT need to be statistically significant
BLRT is more robust than LMR results (Nylund et al., 2007) Bootstraped
Likelihood Ratio Test (BLRT)
Classification-uncertainty
Entropy Show how well the model works to classify cases (Morgan et al., 2016)
Need to be relatively high, Jung and Wickrama (2008)’s “cut-off” is > .7
Entropy tends to be unreliable (Tein et al., 2013)
Chapter 2: Methodology 59
Figure 2.2 Thesis linkages
Re-conceptualize business model framework (RQ1)
Develop unique conceptual characteristics of social ventures (RQ2)
Develop effective typology theory of social venture business model configurations (RQ3)
Conduct qualitative data collection and data reduction steps
Identify empirically emerging characteristics and establish construct validity (RQ4)
Identify improved typology (RQ5) and relationship (RQ6)
Develop scale items Expert panel Test with social entrepreneurs EFA and CFA tests Convergent and discriminant validity Construct reliability
Develop empirical taxonomy (RQ7)
Conduct test of relationship with distal outcomes (RQ7)
Paper 1: A Typology of Social Venture Business Model Configurations
Paper 2: Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures
Paper 3: A Taxonomy of Social Venture Business Models for Transforming Non-profit Organisations
Appendix B
Qualitative case research, MDSD method Quantitative taxonomic research, LPA method Conceptual paper
61 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Statement of Contribution of Co-Authors for Thesis by Published Paper
The authors listed below have certified that:
1. they meet the criteria for authorship in that they have participated in theconception, execution, or interpretation, of at least that part of the publicationin their field of expertise;
2. they take public responsibility for their part of the publication, except for theresponsible author who accepts overall responsibility for the publication;
3. there are no other authors of the publication according to these criteria;4. potential conflicts of interest have been disclosed to (a) granting bodies, (b) the
editor or publisher of journals or other publications, and (c) the head of theresponsible academic unit, and
5. they agree to the use of the publication in the student’s thesis and itspublication on the QUT’s ePrints site(http://www.moqut.edu.au/F/F_01_03.jsp) consistent with any limitations setby publisher requirements.
In the case of this chapter:
“A Typology of Social Venture Business Model Configurations”
The manuscript in Chapter 3 has been accepted for publication in the forthcoming (2018) special edition on “Challenging tensions and contradictions: critical, theoretical and empirical perspectives on social enterprise” edited by Mike Bull, Geoff Whittam, Rory Ridley-Duff and Sue Baines at the International Journal of Entrepreneurship Behaviour & Research (IJEBR) (SCOPUS, Q1)
Contributor(s) Statement of contribution(s) 1.Ari Margiono Wrote the manuscript, designed and developed the typology-
driven theory, and developed the re-conceptualization of business model framework 14 Dec 2017
2.Roxanne Zolin Provided feedback on the typology and suggestions, e.g., onpublicness theory, read the manuscript
3.Artemis Chang Provided general feedback, read the manuscript
Principal Supervisor Confirmation
I have sighted emails or other correspondence from all co-authors confirming their certifying authorship. (If the co-authors are not able to sign the form please forward their email or other correspondence confirming the certifying authorship to the RSC).
A/Prof Artemis Chang ________signed________ 14 December 2017 Name Signature Date
QUT Verified Signature
62 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Chapter 3: Paper 1 - A Typology of Social Venture Business Model
Configurations
Abstract
Purpose – Social ventures are unique and important for society; yet, we know very
little about their business models. The purpose of this paper is to re-conceptualize
extant business model frameworks so that they can analyse social ventures, identify
the key characteristics of social ventures, and identify the typology of effective social
venture business model configurations.
Design/methodology/approach – The paper uses resource dependence theory to make
sense of extant business models and borrows from public administration literature to
identify key characteristics and different configurations of social venture business
models.
Findings – The paper re-conceptualizes business model frameworks as inter-
organizational arrangements to cope with external resource dependence; this paper
also identifies four key characteristics of social ventures, and develops a social
venture business model typology based on these unique key characteristics and
extant business model dimensions.
Research limitations/implications – The typology may guide further social venture
research, e.g., research on social venture business model creation, on social venture
business model innovation, and on social change. Limitations and boundary
conditions are discussed in the paper
63 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Practical implications – The research may further help social entrepreneurs to
develop effective business models that meet the social and financial objectives of the
social ventures.
Originality/value – The paper offers a novel reconceptualization of traditional
business model frameworks, a unique set of key characteristics of social ventures,
and a theoretical typology of effective social venture business model configurations.
Keywords: business model, social venture, characteristics, typology, social
enterprise, resource dependence theory
Paper Type: Conceptual paper
Introduction
Embracing a business model and transforming it into a social venture has
recently become a popular survival strategy among non-profit organizations (Bull,
2008; Guo, 2006; Maier, Meyer & Steinbereithner, 2016; Nicholls, 2006; Pearce,
2003). This especially happens in developing nations where domestic and foreign
grant-making organizations gradually reduce their funding support to local non-
profits during the phasing-out period (Aldaba, Antezana, Valderrama & Fowler,
2000; Parks, 2008). The British Council, for example, offers world-wide programs
that facilitate various local NGOs in different countries to transform into social
ventures (British Council, 2017) – an entrepreneurial form of organizations that
combine social, or public benefit aims with business-like management (Anheier &
64 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Ben-ner, 2003; Becchetti & Borzaga, 2010; Borzaga & Defourny, 2001)
Adopting a business model and becoming a social venture is the strategy of
choice for them because emerging social ventures can embrace alternative funding
sources, such as from trading and market revenues (Froelich, 1999), and invite social
financial investors (Austin, Stevenson & Wei-Skillern, 2006; Miller & Wesley II,
2010). Seeking profit and opening up to social investors allows the emerging social
ventures to survive and grow (Vickers & Lyon, 2014). In fact, the proponents of the
marketization of non-profits believe that more beneficiaries will benefit from this
particular approach (e.g., Shoham, Ruvio, Vigoda-Gadot & Schwabsky, 2006).
In the social entrepreneurship literature, much research has placed significant
emphasis on this matter. Authors have investigated various income-generation
strategies that non-profits may adopt (e.g., Khieng, 2013), discussed the definitions
and the nature (e.g., Dart, 2004; Kerlin & Pollak, 2011) and the processes and
performance of this transformation (e.g., Davis, Marino, Aaron & Tolbert, 2011;
Gras & Mendoza-Abarca, 2014; Guo, 2006). This “earned-income” school of
thought in the social entrepreneurship literature discusses broadly “the use of
commercial activities by non-profit organizations in support of their mission”
(Defourny & Nyssens, 2010, p. 40).
Yet, despite extensive discussions and research on how non-profits become
social ventures, there is surprisingly limited research that focuses on the effective
types of business models that these transforming non-profits may adopt. Defined as
“the system of interdependent activities performed by a focal firm and its partners
and the mechanisms that link these activities to each other” (Amit & Zott 2015, p.
331), business models of social ventures essentially describe how a focal social
venture manages social and business tensions at the system level. Every successful
65 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
social venture needs an effective business model to achieve financial sustainability
and to produce a desirable social impact.
We believe that there are several reasons contributing to the deficit in the
literature. First, there has been limited attention to the business models of social
ventures in the business model literature (Bocken, Short, Rana & Evans, 2014;
Demil, Lecocq, Ricart & Zott, 2015; Wilson & Post, 2013). Most business model
analyses are for organizations with market-orientation and based on expectations to
achieve a sustainable competitive advantage and profit maximization (Teece, 2010;
Wirtz, Pistoia, Ullrich & Göttel, 2016). Further, theoretical foundations used to
analyse existing business models are mostly market-based theory, such as the
resource-based view (RBV) (Barney, 1991; George & Bock, 2011); therefore, there
is a commercial bias in most business model frameworks. Little do we know on what
are the appropriate business model frameworks for organizations with more social
interests and what subsequent theoretical perspectives underlie these frameworks.
Second, much research on non-profit transformation discusses how to embed market
activities into non-profits and focus partially on funding diversification of the new
entity (Aldaba et al., 2000; Khieng, 2013). This approach has been criticized and
characterized as the dominance of the ‘enterprise’ or the ‘business’ narratives in the
literature (Arthur, Keenoy, Scott-Cato & Smith, 2016; Eikenberry & Kluver, 2004).
There is limited research that looks at the public/private tensions in emerging
configurations of social ventures (Dart, 2004; Ridley-Duff, 2008).
Building on resource dependence theory (RDT) (Pfeffer & Salancik, 1978,
2003) and public administration literature (i.e., publicness theory) (Bozeman, 1987,
2013; Perry & Rainey, 1988) as the foundational theoretical frameworks, we present
an account of business model frameworks specific to social ventures and their unique
66 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
key characteristics. Using the RDT perspective, we argue that business models are
essentially inter-organizational arrangements that help focal organizations manage
their dependency on non-market external resources (political support, government
funding, etc.), as well as market external resources (capital, brands, etc). Since the
effectiveness of particular inter-organizational arrangements is dependent on the
characteristics and the purpose of the focal organizations (see Figure 3.1), we use
public administration literature to complement our reconceptualization of extant
business model frameworks, and identify unique key characteristics of social
ventures.
Most importantly, this particular point of view, of what business models are
and of how they are configured, allows us to further look at the interaction between
unique key characteristics of social ventures and extant business model dimensions.
An understanding of the interaction serves as an essential fundamental to develop a
typology that identifies different types of effective social venture business model
configurations: lock-in-centred, novelty-centred, and efficiency-centred. As a form
of theory-building, a typology offers a way to organize complex, non-linear, cause-
effect relationships (Doty & Glick, 1994; Fiss, 2011; Snow & Ketchen, 2014)
between the key characteristics, extant business model dimensions, and the
effectiveness of social venture business model configurations.
67 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Figure 3.1 Spectrum of organizations (adapted from Alter, 2010).
Socially responsible business
Corporation practicing social responsibility
Traditional for-profit
Key characteristics and purpose: Profit maximization and competitive advantage
Key characteristics and purpose: Social/public value creation
Business model configurations as inter-organizational arrangements
Profit-making driven Social/public mission driven
Non-profit with income-generating activities
Social venture Traditional non-profit
Hybrid spectrum
68 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
We argue that this typology specifically serves to primarily help transforming
non-profits, primarily in developing nations, to identify the potentially effective
business models that they can use to adopt and to manage public and private tensions
at the system level. This is because emerging social ventures, despite their market-
based activities, are often still dependent on public or non-market resources, such as
domestic and foreign government assistance (Kerlin & Pollak, 2011).
Most succinctly, we ask the following: (a) how do resource dependence
theory and public administration theories (i.e., publicness theory) make sense of
business model configurations, especially in social ventures?; (b) following this
emerging point of view, what are the key characteristics of social ventures and how
do they configure extant business model dimensions?; (c) what are the types of social
ventures and how are these types associated with effective business model
configurations?
We make several contributions in this paper to the existing literature. First,
we contribute to the social entrepreneurship literature, especially to the discussion
within the “earned-income” school of thought by identifying unique key
characteristics of social ventures and social venture business model configurations
primarily for transforming non-profits in developing nations. Despite this, our
proposed key characteristics and the typology of business model configurations may
also be extended to social ventures in developed countries, especially in the wake of
increasing social procurement arrangements in countries like the United Kingdom
and Australia (Furneaux & Barraket, 2014).
Further, our proposed typology of social venture business model
configurations builds largely upon the “social business” type of social enterprise
(Ridley-Duff & Bull, 2016). The “social business” type of social enterprise, in
69 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
contrast to “charity trading” and “cooperative and mutual” types, focuses on the
recovery of equity investment, innovation, and the elimination of poverty. Our
typology identifies social venture business model configurations that balance private
(equity investment, profit, etc) and public (government grant, etc) resources, employ
innovation, and aim to reduce poverty.
Second, we extend the existing business model literature (Amit & Zott, 2001,
2015; Osterwalder, Pigneur & Tucci, 2005; Richardson, 2008; Zott & Amit, 2007)
by re-conceptualizing extant business model frameworks using RDT and publicness
theory perspectives to explain how business model dimensions, especially in social
ventures, are configured.
This paper is organized as follows. In the next section, following a brief
review of business model literature, we re-conceptualize extant business model
frameworks using resource dependence theory where we argue that business models
are essentially inter-organizational arrangements that a focal firm engages to cope
with resource dependence. We then identify the key characteristics of social ventures
using public administration theory and outline the interaction between these
characteristics and extant business model dimensions. We further discuss the
typology of social venture business model configurations. The discussion section
highlights the implications as well as the limitations and boundary conditions of the
proposed typology framework.
Business model frameworks
Business model frameworks emerged from technology-oriented literature and
have since evolved into different areas (Wirtz et al., 2016). Business model literature
now highlights different foci, topics, and areas of research (Wirtz et al., 2016; Zott,
Amit & Massa, 2011). George and Bock (2011) recently conducted a literature
70 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
review of business model research and found that the literature revolves around six
themes (design, RBV (resource-based view), narratives, innovations, transactive, and
opportunities). Business model discussions also recently expand into non-
commercial themes, such as on sustainability, and around PSOs (public service
organizations) (Bocken et al., 2014; Osborne, Radnor, Vidal & Kinder, 2014; Wilson
& Post, 2013). Most of the focal firms under investigation in much of this research
are commercial ventures (see Table 3.1).
Despite extensive utilization of the frameworks in different themes, business
model frameworks are often criticized for their lack of theoretical foundation
(Randles & Laasch, 2016). To address this critique, much business model research
attempts to incorporate management theories explaining the dynamics of business
model frameworks. Amit and Zott (2001) and DaSilva and Trkman (2014), for
example, use transaction cost economy theory (Williamson, 1979) to explain
boundary spanning transactions that a business model covers. Randles & Laasch
(2016) use institutional theory (DiMaggio & Powell, 1983), especially organizational
institutionalism (Greenwood, Oliver, Sahlin & Sudabby, 2008) to make sense of the
normative aspects of business models.
However, the utilization of these theories in explaining business model
frameworks is rather marginal in the business model literature; in contrast, George
and Bock (2011) argue that much research in the literature embraces resource-based
view (RBV) theory (Barney, 1991) in analysing business model dynamics in
commercial ventures. RBV theory seems to provide an envelope for existing
business model frameworks and it allows linking to firm strategy concepts (DaSilva
& Trkman, 2014). While this approach may explain why firms need appropriate
business models to perform, the utilization of RBV as the dominant theoretical
71 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Table 3.1. Business Model Themes in the Literature (Adapted from George & Bock, 2011)
Theme Sample Publications Summary Focal firms Design Slywotzky (1999); Timmers (1998) Agent-driven or emergent configuration of firm
characteristics
Commercial ventures
RBV (Resource-based view)
DaSilva & Trkman (2014); Mangematin et al. (2003); Winter & Szulanski (2001);
Organizational structure co-determinant and co-evolving with firm’s asset stock or core activity set
Commercial ventures
Narrative/Normative Magretta (2002); Randles & Laasch (2016)
Subjective, descriptive, emergent story or logic of key drivers of organizational outcomes
Commercial ventures
Innovation Chesbrough & Rosenbloom (2002) Processual configuration linked to evolution or application of firm technology
Commercial ventures
Transactive Amit & Zott (2001, 2015); Zott & Amit (2007, 2008)
Configuration of boundary-spanning transaction or interdependent activities
Commercial ventures
Opportunity
Afuah (2003); Downing (2005); Markides (2008)
Enactment and implementation tied to an opportunity landscape
Commercial ventures
Sustainability Boons & Ludeke-Freund (2013); Bocken et al. (2014); Wilson and Post (2013)
Triple bottom line approach and wider range of stakeholder interests, such as environment and society
Commercial ventures, public organizations, social ventures
PSO (Public service organizations)
Osborne et al. (2014); Osborne et.al (2016); Osborne & Strokosch (2013)
Public service delivery system and acknowledgement that business logic of public services is different from the private sector
Public organizations
72 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
foundation in business model literature virtually confines the use of business model
frameworks to commercial ventures.
Resource dependence theory
We offer a re-conceptualization of extant business model frameworks using a
resource dependence theory (RDT) perspective (Pfeffer & Salancik, 1978, 2003),
with the assistance of public administration theories (Bozeman, 1987; Perry &
Rainey, 1988) to make sense of business models of non-commercial organizations.
RDT is especially helpful to make sense of business models of social ventures where
they combine the logic of different sectors and are dependent on both market and
non-market resources (Battilana & Lee, 2014; Doherty, Haugh & Lyon, 2014).
Unlike RBV that focuses on the importance of market resources to maximize profit
and to achieve a competitive advantage (Barney, 1991), RDT asserts that
organizations are actually dependent on non-market external resources (such as
political support, government funding, etc.) as well as market external resources
(capital, brands, etc.) (Pfeffer & Salancik, 1978, 2003). RDT argues that
organizations need to acquire resources external to themselves to survive (Drees &
Heugens, 2013; Hillman, Withers & Collins, 2009; Pfeffer & Salancik, 1978, 2003).
However, RDT differs from earlier theories on the external environment by pointing
the fact that external organizations may possess the required resources (Wry, Cobb &
Aldrich, 2013). Organizations are, therefore, locked-in resource interdependencies.
Casciaro and Piskorski (2005) characterize these interdependencies by a power
imbalance (power differential between two organizations) and mutual dependence
(the sum of their dependencies).
Faced with these interdependencies, organizations, according to RDT tenets,
73 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
will seek autonomy and legitimacy by forging inter-organizational arrangements
(Pfeffer & Salancik, 1978, 2003). Autonomy refers to whether focal firms have
“freedom to make [their] own decisions about the use and allocation of [their]
internal resources without references or regard to the demands or expectations of
potential linkage partners” (Oliver, 1991, p. 944-945) while legitimacy is defined as
“a generalized perception or assumption that the actions of an entity are desirable,
proper, or appropriate within some socially constructed system of norms, values,
beliefs, and definitions” (Suchman, 1995, p. 547). Pfeffer and Salancik (1978, 2003)
prescribe inter-organizational arrangement tactics that organizations can take to
bolster autonomy and legitimacy, among others are: mergers and acquisitions; joint
ventures; board interlock; etc. Each of these tactics may have different configurations
of autonomy and legitimacy and much research in the literature has explored these
tactics as well as how they also predict organizational performance (Drees &
Heugens, 2013; Hillman et al., 2009).
However, in a recent reflection on RDT, authors criticize the theory for inter-
twining theoretical prediction with its prescriptions (Casciaro & Piskorski, 2005;
Davis & Cobb, 2010). RDT has been appraised as a theory of environmental
complexity for its ability “to theorize power beyond conventional dyadic inter-
organizational relationships” (Wry et al., 2013, p. 447). Combining earlier theories of
the environment (Burns & Stalker, 1961; Child, 1972; Emery & Trist, 1965) and the
exchange-based theory of power (Emerson, 1962), the theoretical framework of
RDT, thus, has the potential to make sense of complex and competing environmental
demands that a focal firm needs to manage (Wry et al., 2013).
Unfortunately, in the second half of their seminal book Pfeffer and Salancik
(1978, 2003) reduce RDT’s discussions to a few dyadic tactical prescriptions that
74 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
organizations may take, such as joint ventures, mergers and acquisitions, etc., and
move away from elaborating on the complex environmental demands that a focal
firm may face (Wry et al., 2013). Many RDT scholars are ‘trapped’ in this particular
focus and put their emphasis on the tactics, instead of the theoretical predictions. In a
review of RDT research, Hillman et al. (2009) highlighted the fact that most RDT
literature discusses the aspects around the tactics: joint ventures, mergers and
acquisitions, board interlock, etc.
Thus, to make the most of RDT’s theoretical promises, these critics argue that
RDT should separate the prescription – existing tactics of inter-organizational
arrangement – from the theoretical frameworks because existing tactics are often
specific and may be different in different circumstances and contexts (Davis & Cobb,
2010). In fact, future RDT work should focus on, among others, “cataloging the new
set of available tactics for managing [resource] dependence” (Davis & Cobb, 2010,
p. 38).
Taking our cue from this, we argue that business model configurations
essentially are the tactics of focal firms in managing complex environmental
demand, that is, resource dependence, via certain formal and informal arrangements
with its partners to gain focal firms’ autonomy and legitimacy. From an RDT
perspective, business models are methods that focal firms can take to establish ties
with other organizations for coordination, obtaining information, establishing
legitimacy, as well as for co-optation (Pfeffer & Salancik, 1978, 2003; Wry et al.,
2013). This theoretical re-conceptualization of business models as “new sets of
available tactics” of inter-organizational agreements is actually reflected in existing
business model definitions. For example, the transactive theme in business model
literature defines a business model as “the system of interdependent activities
75 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
performed by a focal firm and its partners and the mechanisms that link these
activities to each other” (Amit & Zott 2015, p. 331). Business models describe the
ways focal firms configure business model dimensions – value creation, value
capture, and value proposition (Bocken et al., 2014; Osterwalder et al., 2005;
Richardson, 2008). These resulting configurations reflect how a focal firm manages
the power imbalances and mutual dependence with other organizations within the
value creation network.
From the RDT perspective, an effectively configured business model may
mean that the emerging configuration serves the aim of strengthening autonomy and
legitimacy for the focal firms from resource dependency. In other words, a business
model configuration is effective when the focal firm has freedom to make its own
internal decision and its actions are accepted by stakeholders. Yet, how a business
model is effectively configured may actually depend on the purpose and the nature of
the focal firms. We argue that the purpose and nature of focal firms, which are
reflected in their key characteristics, may affect the ways business model dimensions
– value capture, value creation, and value propositions – are configured. For
example, private focal organizations configure business model dimensions so that
they result in configurations that lead to profit maximization and competitive
advantage, consistent with the nature and purpose of commercial firms (DaSilva &
Trkman, 2014; Wirtz et al., 2016). From the RDT perspective, private focal
organizations configure these business models to cope with market resource
dependence, such as the acquisition of capital, technology, etc., to actualize
maximized profit. This particular interpretation is consistent with the extant RBV-
driven business model research where they characterize business models as unique,
boundary-spanning arrangements for the focal firms to acquire valuable, rare,
76 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
inimitable, and non-substitutive resources to maximize profit and to gain a
competitive advantage (DaSilva & Trkman, 2014). In contrast, public focal
organizations configure business model dimensions as “complex public service
delivery system” that result in better public services (Osborne et al., 2014). Different
from private organizations, public focal organizations need to cope with non-market
resource dependence, such as political support, taxpayer funding, etc. With this in
mind, identifying the key characteristics of different types of organizations,
especially those of social ventures, is important to make sense of how social venture
business models – inter-organizational arrangements developed to strengthen focal
ventures’ autonomy and legitimacy from external resource dependence – are
effectively configured.
The characteristics of public and private organizations
To identify the key characteristics of public and private organizations, we
look at public administration literature and theories. Public administration literature
hosts extensive discussions on the distinguishing characteristics between private and
public organizations (Andrews, Boyne & Walker, 2011; Boyne, 2002; Bozeman,
1987, 2013; Bozeman & Moulton, 2011; Perry & Rainey, 1988; Wright, 2007;
Wright & Pandey, 2011); Publicness theory argues that private and public
organizations are essentially affected by market and non-market forces (Bozeman,
1987). According to the publicness perspective, public and private organizations are
distinguishable by a set of characteristics reflecting the degree of influence from
these external forces (Bozeman, 1987; Perry & Rainey, 1988). Publicness, therefore,
can be seen as a continuum of public and private influence (Lewis & Zolin, 2004).
An understanding of how key characteristics of public and private
77 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
organizations affect business model dimensions serves as important fundamental to
our understanding of the business models of social ventures. In this section, we first
elaborate the key distinguishing characteristics of public and private organizations
and how they differently affect extant business model dimensions. Based on this
discussion, in the following section we identify the key characteristics of social
ventures and continue to elaborate on the interaction between their characteristics
and extant business model dimensions.
The mission of organizations is the first important aspect. Public and private
organizations have different missions. Public organizations’ primary missions are to
create value for society (Wright, 2007). Public organizations are expected to become
service and community-oriented (Wright & Pandey, 2011) and this mission has been
considered an important asset of public organizations (Perry & Porter, 1982; Rainey
& Steinbauer, 1999). In contrast, private organizations’ main objective is to capture
value (Mizik & Jacobson, 2003). Value capture refers to the ability of focal firms to
appropriate value that they have created in a market or in a society (Bowman &
Ambrosini, 2000; Lepak, Smith & Taylor, 2007; March, 1991; Mizik & Jacobson,
2003).
Missions of organizations may affect how business models are configured. In
private focal firms, the mission to capture value affects how value propositions are
selected and how value is created and delivered. So, although Google and Facebook
create free services for all users, the important aim behind these value propositions
and creation is value capture, that is, to get users to see paid advertisements that
serve as important revenue sources for these companies. In contrast, in public focal
firms, the mission to create value for the public and the society is a priority and thus
the value that these organizations offer is usually public goods and services. For
78 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
example, the BBC (British Broadcasting Corporation) creates value for the public via
public broadcasting services, to sustain civil society and citizenship, to promote
education and learning, and to stimulate creativity and cultural excellence (BBC,
2017). As a public service organization, the BBC does not capture value and create a
surplus; in fact, the source of their revenue is from a flat licensing fee to ensure that
they always create public value (BBC, 2017)
Dimensional publicness theory (Bozeman, 1987; Perry & Rainey, 1988)
further highlights three other characteristics – ownership, funding, and control – that
distinguish public and private organizations. First, ownership structure has been
highlighted in the public administration literature as the distinguishing characteristic
between public and private organizations (Bozeman, 1987). The logic behind this
notion stems from private property rights theories (Alchian & Demsetz, 1972;
Demsetz, 1967). Owners of private organizations have the rights to exclude others in
profit appropriation. Public-listed companies, in this case, fall into the category of
private organizations because although the ownership is individually dispersed
among the public, the organizations still operate from a private ownership logic: the
shareholders can exclude others from exercising profit appropriation. In contrast, the
public ‘owns’ public organizations and as the ownership is dispersed among the
public, no one - according to private property rights theorists - has the right to
exclude others and appropriate profit for him/herself (Demsetz, 1967).
Different characteristics of ownership affect how business models are
configured in public and private organizations. For example, private ownership
provides incentives for firms to offer value propositions and value creation that
maximizes value capture. The increasing stock value of Facebook and Google
resulting from their innovative offerings, for example, reflects this point of view. In
79 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
contrast, in public ownership, public organizations get improved legitimacy and
support when they propose and create value for society. As an organization with
public ownership, the BBC needs to ensure that the licensing fee is spent according
to public interest, maintain independence and answer to the UK parliament annually
(BBC, 2017). Public support for the BBC stems from whether the institution is
independent and whether it creates value to serve the public interest.
Second, the funding of public and private organizations comes from different
sources. Public organizations are mostly funded by government money while private
organizations receive their funding from sales revenues (Perry & Rainey, 1998).
Different sources of funding may affect business model configurations in public and
private organizations. In public organizations where the majority of funding is
coming from taxpayer money, value capture is less possible because funding from
tax money is for public purposes and, therefore, no one should profit from this
money (Ferris, 1993; Hughes, 2012). In contrast, sales funding sources in private
organizations do not restrict focal firms from surplus accumulation.
Third, the external control of organizations highlights how different
organizations are subject to external scrutiny (Perry & Rainey, 1988). Private
organizations are subject to market or private control. Examples of private controls
are market logic, such as competitiveness and profit-seeking norms. In contrast,
public organizations are subject to political and public control. Examples of public
controls are political control or terms that are attached with certain government
funding, such as public oversight and accountability, etc. We argue that different
modes of control may affect how business models are configured. For example,
private control encourages firms to maximize value capture while public control
inhibits value capture and ensures that public/social value creation is maximized
80 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
instead. Figure 3.2 summarizes important elements that may affect how effective
business models are configured in private and public organizations.
Key characteristics of social ventures and business model dimensions
Social ventures aim to provide sustainable solutions, that is, to eliminate
poverty, in neglected areas (Santos, 2012). To achieve this goal, social ventures
combine the logic of different sectors (Battilana & Lee, 2014; Doherty, et al., 2014);
thus, they may combine key characteristics of public and private organizations that
we highlighted in the previous section. Building on insights that we developed from
RDT and public administration theories (see Figure 3.2), we identify four key
characteristics that make social ventures: a mission to create public/social value;
private ownership logic; public or private funding; and public or private control.
These four characteristics serve as the building blocks that identify the typology of
social ventures and effective business model configurations (see Figures 3.3a and
3.3b). Before discussing the typology, we first highlight the interaction between the
characteristics of social ventures and business model dimensions below.
Characteristic 1: mission to create public/social value
Literature on social entrepreneurship organization seems to reach an
agreement on the first important characteristic of social ventures: the focus on social
mission (Agafonow, 2014, 2014; Doherty et al., 2014; Santos, 2012; Seanor, Bull,
Baines & Ridley-Duff, 2013). Much research highlights the notion of the
prioritization of social mission over business objectives among different social
ventures (Austin et al., 2006; Defourny, Hulgard & Pestoff, 2014; Defourny &
Nyssens, 2010). Thus, the social mission in social ventures is the prioritization of the
81 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
creation of public and social value over value capture (Agafonow, 2014, 2015;
Santos, 2012; Seanor et al., 2013).
The mission to prioritize public/social value in social ventures eliminates the
profit maximization principle prominent in many commercial ventures. For example,
as a social venture, Grameen Bank prioritizes the creation of value for the un-
bankable segment of the population by providing microcredit for the poor. This
particular choice to serve the customers at the bottom of the pyramid may reduce the
likelihood of the enterprise to maximize value capture, because there may be limited
ability and willingness to pay among the population in this particular segment.
This mission orientation also backstops the selection of activities, resources,
channels, partners, and technologies in social ventures. The mission to create
public/social value ensures that the benefits for beneficiaries are prioritized in these
value creation decisions. Kopernik, a simple-technology distribution social venture
from Bali, Indonesia, for instance, chooses to include their beneficiaries in their
business value chain as entrepreneur-distributors because they want to ensure that
their beneficiaries also receive sustainable income from the business model they
develop (Kopernik, 2017).
We argue that this particular characteristic distinguishes social ventures from
their commercial counterparts. In contrast to social ventures, commercial ventures
aim to maximize profit. Most commercial banks, for example, may not be interested
in the microcredit model because they cannot maximize value capture from this
particular value creation activity.
82 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Figure 3.2 Configuring effective business models in public and private organizations Market resource dependence
Non-market resource dependence
Mission to profit/capture value
Priv
ate
fund
ing
sour
ces
Priv
ate
owne
rshi
p
Private control
Public control Mission to create public/social Value
Publ
ic fu
ndin
g so
urce
s
Publ
ic
owne
rshi
p
Publ
ic o
rgan
izat
ions
Pr
ivat
e or
gani
zatio
ns
Key characteristics of private organizations
Key characteristics of public organizations
Effective business model configurations
Commercial value proposition
Public/social value proposition V
alue
cap
ture
Val
ue c
reat
ion
and
deliv
ery
Extant business model dimensions
Leg
itim
acy
Aut
onom
y
Effective business model configurations – those that strengthen the autonomy and the legitimacy of focal organizations from market and non-market resource dependence – reflect how the characteristics of public and private organizations configure traditional business model dimensions.
83 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Type/Design I: Lock-in centered business models
Type/Design II: Novelty-centered business models
Cha
ract
eris
tic 4
: ext
erna
l con
trol
Figure 3.3a. The building blocks of effective social venture business models (from Figure 3.2).
Figure 3.3b. How to identify different business model configurations of social ventures (from Figure 3a).
Type/Design III: Efficiency-centered business models
Characteristic 3: funding
Public
Private Public
Purpose: delivering sustainable solutions in neglected areas
Characteristic 1: having mission to create social/public value
Characteristic 2: having private ownership logic
Effective business model configurations of social ventures (Characteristics 3 and 4 in Figure 3.3b)
Type IV: Non-Existent Category
84 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Characteristic 2: Private ownership logic
Several definitions of social entrepreneurship highlight the nature of limited
profit distribution in social ventures (Defourny et al., 2014; Defourny & Nyssens,
2008, 2010). Social ventures provide limited profit distribution to owners because
their social mission eliminates profit maximization principles. Other research also
indicates that social ventures distribute profit to social venture capitals (Miller &
Wesley II, 2010). This research may imply that social ventures embrace the
ownership logic of private organizations, where – according to private property
theorists (Demsetz, 1967) – owners have the exclusive right to exclude other people
inside and outside the organizations in profit appropriation.
We argue that this particular characteristic distinguishes social ventures from
other third-sector organizations. The latter is a diverse set of organizations that
includes charities, community groups, credit unions, faith-based organizations, and
voluntary organizations (Seanor et al., 2013). These organizations are commonly
bound by non-distributive principles, that is, the restriction to distribute profit to
owners or shareholders, or to equity investors, despite their market activities (Ben-
ner & van Hoomissen, 1991; Defourny, 2001; Hansmann, 1980). For example,
Oxfam and Save the Children in the UK are charities that engage in market
activities; however, bound by non-distributive principles, they cannot distribute
profit and do not have private ownership logic in their organizations.
Characteristic 3: Public or private funding
The social entrepreneurship literature indicates that social ventures acquire
their funding from different sources (Dees, 1998; Seanor et al., 2013). Each source
of funding affects extant business model dimensions. Sales funding sources allow
85 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
social ventures to have flexibility in making profit. In contrast, government funding,
including foreign-government grants, constrains social ventures from profit-making.
This is primarily because government funding is usually sourced from tax payers’
money and the nature of this funding is restrictive, in the sense that agents (fund
recipients) are generally not allowed to trade or to profit from this money (Ferris,
1993).
Further, private funding conditions social ventures to develop value
propositions and create values that contain potential for profit. For example, social
venture capitals fund social ventures that not only create social impact, but also have
the potential to deliver financial returns. In contrast, public funding’s concern is
whether the value propositions deliver the funding to designated beneficiaries and
the value is created for the sake of the beneficiaries. Thus, public and private funding
may exercise different influences on the value capture, value creation processes, and
value propositions of a social venture.
Characteristic 4: Public or private control
Like other organizations, social ventures are also exposed to external control.
Due to different intensities of social and business activities, social ventures need to
cope with various levels of public and private controls. In social ventures, different
levels of external control from different sources affect the degree of value capture.
Public control, such as government regulations, may inhibit social ventures to
capture value. For example, legal regulations in several countries prohibit social
ventures from maximizing profit (Defourny & Nyssens, 2010). In contrast, private
control encourages value capture in social ventures.
When social ventures are exposed to strong public control, they are expected
to pay undivided attention to social value propositions and value creation. For
86 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
example, the stakeholder board in a social venture may exert control over the choice
of value propositions and partners that they can collaborate with, for example, a
demand to have no partnership with tobacco companies. In contrast, when they are
exposed more to private control, the social ventures are legitimized to develop
market value propositions and more profitable value creation. In other words, these
social ventures receive legitimacy from their stakeholders to arrange their activities,
acquire resources, engage channels and partners, and use technology that may both
benefit the shareholders and the beneficiaries.
Table 3.2 summarizes the interactions between key characteristics of social
ventures and business model dimensions.
A typology of effective social venture business model configurations
We argued that business models are essentially inter-organizational
arrangements that focal firms develop to cope with resource dependence. Focal firms
are dependent on both market and non-market resources. Using public administration
theories, we identified key characteristics of social ventures that configure business
model dimensions as effective inter-organizational arrangements. From an RDT
point of view, effective business models give freedom to the focal social ventures to
arrange internal resources; effective business models also allow the focal social
ventures to receive legitimacy from the market and the public. Market legitimacy
refers to the acceptance of the actions of the focal social ventures within the market
norms, such as seeking potential profits, etc.. Public legitimacy refers to the support
of the stakeholders and partners, including grant organizations, for the activities of
the focal social ventures.
Figure 3.3b and Table 3.3 identify a typology of three effective business
87 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
model configurations. As a form of theory-building, a typology offers a way to
organize complex, non-linear cause-effect relationships (Fiss, 2011; Doty & Glick,
1994; Snow & Ketchen, 2014). This typology explains how different configurations
of key characteristics of social ventures and extant business model dimensions
constitute particular autonomy and legitimacy arrangements that portray effective
social venture business models. We also logically identify one category that seems
non-existent because of the conflicting social venture characteristics that may lead to
a non-effective inter-organizational arrangement or, even, business model failure.
In the following sections, we outline each social venture business model
configuration type. While we do not imply any particular transformation path, for
convenience reasons we arrange the presentation of this typology according to the
type that is closer to the existing non-profits (Type I) and then proceed with the
hybrid (Type II) and the one that is more profitable and more distanced with the non-
profits (Type III).
Type and design I: Public funding/public control and lock-in-centred configuration
Social ventures in this category receive most of their funding from public
sources, such as government grants. They are also characterized by public control,
which implies that the social ventures are subject to more public influence. Thus,
social ventures in this category must cope with more non-market resource
dependence than the other social venture types.
This configuration receives strong public influence and, therefore, social
ventures in this category have the lowest ability to independently manage their
internal resources (low autonomy).
88 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Table 3.2. The Interactions Between Key Characteristics of Social Ventures and Extant Business Model Dimensions
Key characteristics of social ventures
Mission to create public/social value
Private ownership logic
Public or private funding Public or private control
Extant business model dimensions Value proposition Product/Service Customer segments and relationships beneficiaries
Mission provides a basis/foundation to prioritize public/social value propositions
-
Private funding conditions the selection of value propositions that are potential to make a profit Public funding conditions the selection of value proposition that maximize benefits to beneficiaries
Public control mandates public/social value proposition Private control legitimizes the balance between social and market value propositions
Value creation and delivery Activities Resources Channels Partners Technology
Mission backstops the selection of activities, resources, channels, partners, and technology
- Private funding conditions profitable value creation and delivery configurations Public funding conditions the choices of value creation and delivery configurations that maximize benefit to beneficiaries
Public control directs value creation towards creation of public goods Private control legitimizes the balance between market and public in creating and delivering value
Value capture Cost structure Revenue stream
Mission eliminates value capture maximization principle
Private ownership logic allows value capture; yet, due to the mission, value capture is limited
Public funding constrains value capture flexibility; Private funding enables value capture
Public control inhibits value capture Private control encourages value capture
89 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Public control makes the maximization of social benefit in value propositions
and value creation mandatory; in other words, everything in the social venture needs
to be directed towards social value creation and the delivery of social value
propositions. When combined with public funding, social ventures in this category,
where they are constrained from managing surpluses, have less – or no - potential for
value capture. Social ventures in this category may still undertake market activities,
and embrace private ownership logic to supplement their financial needs. However,
due to public funding and control characteristics, market revenues for these social
ventures are less significant and, perhaps, still insufficient to achieve financial
sustainability.
To survive, these social ventures need to ensure that they receive continuous
funding support from government and donor organizations. To do so, they need to
ensure that they continue to receive public/social legitimacy, consistent with the
interests of the government and donor agencies. In the RDT literature, several
strategies are applied to increase the legitimacy of a firm. Among others is by
associating firms with external actors that possess a high level of legitimacy (Baum
& Oliver, 1991; Pfeffer & Salancik, 1978, 2003).
Thus, social ventures in this category need to find appropriate legitimacy
strategies to be sustainable. As an example, IBEKA foundation, a 2012 Ashden
winner from Indonesia for developing micro hydro power in rural villages (Ashden,
2017c), leveraged public legitimacy when former US President, Barack Obama,
mentioned IBEKA during the Presidential Summit on Entrepreneurship (Connell,
2010). IBEKA received strong public support afterwards.
This focus to increase legitimacy resembles a business model design in the
existing business model literature. The lock-in-centred design emphasizes a
90 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
configuration where the aim is to retain stakeholders or participants in boundary-
spanning value creation activities (Amit & Zott, 2001, p. 505). This configuration
makes the costs for participating organizations to switch network, or to leave the
current business model arrangement become high and, therefore, they are
discouraged from doing so. In the end, the focal ventures may secure the resources
they need from external organizations.
Moreover, high public funding and control characteristics allow this
configuration to cater for various types of beneficiaries, especially the poorest of the
poor. However, because of low autonomy and a lack of market legitimacy, profit
may be less possible in this configuration. This particular condition is also due to the
choice of the legal form of the social venture. In many developing countries, such
as Indonesia, an entity with a “foundation” legal structure is prohibited from
appropriating profit because the assets and profits of the foundation belong to
communities (Pratono & Sutanti, 2016). An Indonesian social venture registered as a
“foundation” may, therefore, be inherently low in autonomy, and it has very little
market legitimacy.
Type and design II: Private funding/public control and novelty-centred configuration
Social ventures in this category receive most of their funding from sales and
trading activities. However, they are also characterized by having public control,
which implies that they are subject to public influence. Because of the private
funding characteristic, social ventures in this category also have to cope with market-
based influences.
91 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Table 3.3. Business Model Configurations of Social Ventures
Effective social venture business model configurations Non-existent/non-effective model
Type I: Lock-in-centred Type II: Novelty-centred Type III: Efficiency-centred Type IV Description
Activities are configured in a way that the costs for leaving the network are expensive
Activities are configured in a novel way; innovative approaches
Activities are configured in an efficient manner; low transaction costs
Conflicting activities between public and private priorities
Key characteristics Public funding/public control Private funding/public control Private funding/private control
Public funding/private control
Business model dimensions
Maximization of social benefit in value propositions and value creation is mandatory; value capture is inhibited and constrained
Social value propositions are mandatory; yet, profitable value propositions and value creation may exist; value capture is inhibited and constrained
Profitable value propositions and value creation are legitimized; value capture is enabled and encouraged
-
Degree of autonomy
Low focal firm capability to make independent decisions on the use of resources and on the social mission
Moderate focal firm capability to make independent decisions on the use of resources and on the social mission
High focal firm capability to make independent decisions on the use of resources and on the social mission
-
Degree of legitimacy
Low market legitimacy; high social/public legitimacy
Moderate market legitimacy; high social/public legitimacy
High market legitimacy; lower social/public legitimacy
-
Beneficiaries and profit
General beneficiaries; lower profit
General beneficiaries; lower to moderate profit
Selected beneficiaries; higher profit
-
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Due to the mix between public and market influence, the social ventures in
this category may have a moderate degree of freedom to manage internal resources
(moderate autonomy). Public control, such as from stakeholder boards or community
oversight, may limit the focal social ventures’ ability to arrange their internal
resources. For example, community oversight may exert control over financial
spending of the social ventures. Public control will also exert demands on the social
ventures to develop social value propositions and expect to see the value creation
arrangement, such as activities, channels, etc. to strongly reflect the social mission
and public value that they assert.
In contrast, these social ventures also need to generate market revenue
streams because of the private funding characteristic and, therefore, need to develop
profitable value propositions and value creation along with existing social value
proposition and value creation. Profitable value propositions are needed to generate
sustainable revenue streams from the customers in the market. The private funding
characteristic also gives room for social ventures in this category to generate surplus
or profit. However, due to public control, value capture is rather suppressed, if not
constrained in these social ventures. Subsequently, many social ventures in this
category often reinvest their profit, or do not generate profit at all. The ‘Thank You’
company in Australia is one popular example. One hundred percent of Thank You’s
business profit from selling water, cosmetics, and food in commercial markets is
given to its social mission (Thank You, 2016). How its profits are used is subject to
public control as Thank You needs to work with their partners in developing nations
(Thank You, 2016).
Social ventures in this category may need to introduce a novel and innovative
arrangement to manage different value propositions – both profitable and social –
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 93
and to take care of the conflicting logic of public control and private funding
characteristics. By introducing a novel arrangement, the social ventures in this
category may maximize their social mission and, at the same time, have financial
sustainability and prevent a loss of autonomy and legitimacy. A novel arrangement
brings a new and unique way to design interdependent activities among participants
in the business model networks. The implementation of technology to connect the
commercial customers and beneficiaries may serve as an example of novel business
model arrangements to preserve autonomy and legitimacy. In the Thank You
example, the company introduced an innovative bar-code system where commercial
buyers can track their social footprint. This approach may increase customer loyalty,
brand equity, and may lead to further repeat-buying that correlates with an increase
in social value creation and delivery in developing nations.
This focus on novelty resembles a business model design in the extant
business model literature, which highlights the importance of new combinations of
resources in value creation (Amit & Zott, 2001). Because of novel approaches, this
particular configuration may reach a broad-based outreach of beneficiaries. Thus, we
argue that this configuration may potentially include different types of beneficiaries
(poor and poorest of the poor societies); due to the private funding characteristic, this
configuration may also have the potential to generate surpluses, but it has less
potential for profit – in terms of surpluses that are distributed to owners or equity
investors – because of constraints and restrictions arising from public control.
Type and design III: Private funding/private control and efficiency-centred configuration
Social ventures in this category have the majority of their funding coming
from sales and trading activities. They also have more private control, in the sense
that they are subject to market influence more than public influence.
94 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
This configuration provides the focal social ventures a high degree of
freedom to manage internal resources (high autonomy). Private funding gives
freedom to the focal social ventures to arrange activities, acquire resources, develop
channels, and use technologies to gain profit. Private funding also allows the focal
social ventures to develop profitable value propositions. Private control, such as
strong market influence, encourages profit appropriation. The focal social ventures in
this configuration receive strong market legitimacy and this is often reflected in the
legal form that they adopt (limited liability companies).
However, as social ventures aim to achieve social objectives, their social
mission trades off their profit opportunities. A compromise between social and
business objectives is only possible if the social ventures operate in an efficient
manner. Efficient arrangements reduce operational and transaction costs among
business model participants and, therefore, allow the focal social ventures to generate
more surplus.
Since the social ventures have a rather high degree of autonomy to make
independent decisions on the use of resources and on how to make sense of their
social mission, they can arrange their internal configuration to suit their efficiency
needs. For example, they can reduce transaction and operational costs and achieve
their social objectives by including their beneficiaries in the business value chain, as
customers or as partners and/or employees. Including the beneficiaries in the
business value chain helps to reduce costs because the focal social ventures do not
have to finance separate business and social processes. Some social ventures have
adopted this business model, such as the 2016 and 2012 Ashden International Award
recipients, Nazava and Barefoot Power, respectively (Ashden 2017a; 2017b). Nazava
sells cheap and affordable water filters to their beneficiaries, while Barefoot sells
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 95
cheap LED lights to rural beneficiaries. Both include their beneficiaries in the
business value chain as customers and community entrepreneurs. By doing this, the
social ventures can maintain efficiency and lower operational and transactional costs
across the value creation network.
This focus on efficiency resembles the efficiency-centred business model
design in the business model literature. This efficiency-centred design focuses on
lowering transaction costs across the participating network (Amit & Zott, 2001).
Despite being efficient, we argue that there are logical consequences of this model
for the types of beneficiaries for whom they can cater. While this configuration, due
to private funding and control, may show potential for profit appropriation and
receive strong market legitimacy, these social ventures may have relatively lower
public legitimacy than the other social venture business model types. This is because
to operate efficiently, they need to select beneficiaries with an ability or willingness
to participate in the business value chain, for example as employees or customers.
This, we argue, may limit the scope of the beneficiaries they can support because this
particular business model configuration may not directly support beneficiaries who
are very poor and disadvantaged, and who do not have the capacity to participate in
the business value chain.
Type IV: Public funding/private control
Social ventures in this category may be the most ineffective. They cannot
have conflicting public funding and private control characteristics at the same time to
gain autonomy from external influence and to receive market and social legitimacy.
Receiving more public funding restricts the capability of a social venture to generate
and manage profit; on the other hand, private control encourages social ventures to
gain profit or expects the social ventures to arrange profitable activities.
96 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
These conflicting mechanisms may trigger conflict and may lead to the
collapse of the social ventures. For example, social stakeholders may perceive that
the social ventures are not trustworthy and have a hidden (profit) agenda and,
therefore, the focal venture may receive low social legitimacy. Subsequently, these
focal social ventures may not be able to engage in effective inter-organizational
arrangements. Their business models may not work. Having low social legitimacy,
social stakeholders may be reluctant to collaborate with these focal social ventures.
Similarly, having conflicting mechanisms may send a confusing signal to market
stakeholders so that they may perceive that the focal social ventures do not have the
potential for profit; the focal social ventures may then receive low market legitimacy.
Furthermore, in terms of autonomy, social ventures in this category may also exhibit
rather low autonomy. Any attempt to profit from public funding will immediately
qualify as a corrupt act and the focal social ventures will be prone to penalties.
In the end, having low autonomy and legitimacy make these focal social
ventures unable to acquire necessary resources that they need to survive. Failure to
acquire resources means that the focal social ventures are incapable to cope with
external resource dependency. In this condition, the focal social ventures are prone
to collapse.
Discussion
Declining grant funding support in developing nations leads many non-profits
to seek an alternative survival strategy; among others, this can be by transforming
into social ventures. For these non-profits, embracing a business model, therefore,
becomes an important new strategy. The social entrepreneurship literature has had a
rather extensive discussion on this emerging phenomenon. Defourny and Nyssens
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 97
(2010) categorized this body of literature under the “earned-income” school of
thought of social entrepreneurship research that discusses various aspects of non-
profits with business aspects, or businesses with social aspects.
Despite extensive discussions on the definitions, nature, and processes of the
transformation, there is surprisingly limited research on the potential business models
that these new social ventures may adopt. Potential business models may serve as the
‘light at the end of the tunnel’ for these transforming non-profits. These snapshots of
potential business models may give a sense of destination for these organizations.
Many of these emerging social ventures still need to balance funding from public
sources (such as donors and government funding) and the private market (from
trading and sales) and, therefore, identifying relevant potential business models to
appropriately manage public/private tensions is important.
However, studies on business models of social ventures in the business model
literature are scant because most research in this body of literature focuses on
commercial ventures. Much of the research is also driven by the search for a
competitive advantage under the profit maximization principle. This is not to
mention that the lack of theoretical foundation in the business model literature, which
has been raised by many critiques, has mostly been patched by theorizing from a
resource-based view perspective, which has thus, strengthened the commercial bias
of the extant business model frameworks. This research aimed to make sense of
business model frameworks from different theoretical perspectives so that they could
analyse social ventures to identify their characteristics, and to identify the typology
of effective business model configurations of social ventures.
To make sense of the business models of social ventures, we proposed a re-
conceptualization of the extant business model framework using resource
98 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
dependence theory. Following the tenets of RDT, we argue that business models are
essentially autonomy- and legitimacy-bolstering tactics that focal social ventures
adopt to cope with resource dependence. We further argue that how a business model
- as a resource dependence tactic - is configured will depend on the key
characteristics of the focal firm.
Public administration literature and the dimensional publicness theory helped
us to make sense of the essential characteristics of public and private organizations
and, therefore, we could make sense of business models in the private and public
sectors. Missions, ownership structure, funding, and controls are the key
characteristics that distinguish private and public organizations. Different values in
these characteristics may affect how business model dimensions are configured; the
results are efficient configurations of business models that bolster the autonomy and
legitimacy of the focal organizations in the private and the public sectors.
Social ventures combine logic from different sectors and, therefore, we argue
that they may combine the key characteristics of public and private organizations.
We identified four distinctive characteristics of social ventures: a mission to create
public/social value, a private ownership structure, public or private funding, and
public or private control. These characteristics affect the business model dimensions
and result in three effective social venture business model configurations: lock-in-
centred, novelty-centred, and efficiency-centred. These business model
configurations, as tactics to cope with market and non-market resource dependence,
reflect different degrees of autonomy and legitimacy in the focal social ventures.
These configurations, we argue, have certain implications for the types of
beneficiaries they support and the profit potential.
We make contributions to extant literature in several ways. First, regarding
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 99
the social entrepreneurship literature, we used public administration and business
literature to identify the essential characteristics and business models of social
ventures. The social entrepreneurship literature has been dominated by discussions
of definitions of the domain (social entrepreneurship) and the characteristics of social
entrepreneurs (Choi & Majumdar, 2014). Zahra, Gedajlovic, Neubaum, and
Shulman (2009), for example, developed characteristics and a typology of social
entrepreneurs. Yet, the literature also has begun to embrace discussions on social
entrepreneurship organizations (Doherty et al. 2014; Seanor et al., 2013; Seanor,
Bull, Baines, and Purcell, 2014). Our developed key characteristics and typology of
business models of social ventures contribute to conversations around social
entrepreneurship organizations by drawing from the business and public
administration literature. By doing so, we offer unique insights on the management
of private/public tensions in social entrepreneurship.
Most importantly, in this paper we identified different business model
configurations of social ventures. We responded to a recent call in the literature to
investigate the business models of social ventures (Demil et al., 2015), as much
research in the entrepreneurship and business model literature has focused on
commercial enterprises. By identifying the characteristics and configurations, we
also extend the limited research in the social entrepreneurship literature on the types
and models of social ventures (e.g., Alter, 2010; Diochon & Anderson, 2009; Grassl,
2012). Furthermore, our typology of social venture business models specifically
contributes to the existing discussions on non-profit transformations in the social
entrepreneurship literature (the nature, the processes, and the performance) and
offers a snapshot of their ‘potential destinations’ (the potential outcomes). In
practice, transforming non-profits can see the ‘light at the end of the tunnel’ during
100 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
the process and choose the most appropriate social venture business models that are
suitable for their conditions and environmental contexts.
Second, this paper also makes contributions to the business model literature
by discussing the theoretical foundation of business models of non-commercial
organizations. Our reconceptualization of extant business model frameworks using
RDT and public administration literature provides a theoretical basis to make sense
of why and how a focal firm develops particular business model configurations. By
doing so, we extend the business model literature and open the possibility to use
business model frameworks in non-commercial organizations. At this point, our
effort parallels with emerging research that aims to include non-commercial aspects,
such as the sustainability perspective (Bocken et al., 2014; Boons & Lüdeke-Freund,
2013; Stubbs & Cocklin, 2008; Wilson & Post, 2013), and normative theorizing
(Randles & Laasch, 2016) in the extant business model literature.
Boundary conditions and limitations
Our proposed business model framework is subject to several boundary
conditions and limitations. First, this framework serves to help transforming non-
profits identify the potential business models that they can adopt. Our proposed
typology specifically looks at the potential business models of these emerging social
ventures, particularly in the context where they still need to manage public and
private resources altogether. Transforming non-profits often still need to tap into
their existing public resources, such as government partners, grant agencies, as well
as community networks to survive, in addition to new market-based resources that
they start to embrace. Due to this particular boundary condition, the proposed
typology is not exhaustive and it does not include all kinds of social venture models.
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 101
Other empirical projects, such as the international comparative project on Social
Enterprise business models, may provide diverse empirical models from different
countries and capture different variations of business models from social enterprises
around the world (ICSEM, 2017).
Second, our framework is most likely to work best in supporting social
ventures in developing nations where they often need to juggle between market
funding sources and fluctuating streams of domestic and overseas grant funding
(Parks, 2008). Declining government grant funding pushes non-profits to enter the
market and transform into social ventures. This is a common phenomenon in many
developing nations. As an example, along with the improving economic status of
many developing countries in Southeast Asia, such as Indonesia, grant-making
organizations shift their focus and attention to poorer countries, for example, those in
Africa. While this policy may not completely eliminate grant funding for local non-
profits, this support may no longer be sufficient to sustain the activities of these non-
profits. This condition requires the emerging social ventures to balance market and
non-market resources and manage the tensions arising from market (trading
activities) and non-market (grant funding organizations) forces.
Despite this, we argue that our typology framework may also be useful in
selected developed country contexts. In light of the increasing trends of social
procurement in developed countries, such as in the United Kingdom and Australia
(Furneaux & Barraket, 2014), a focal social venture needs to manage the external,
non-market environment due to the fact that they may be subject to political and
public pressures, in addition to their existing market-based activities. These social
ventures may still need to meet government demands and work with public
organizations to achieve their objectives.
102 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
Third, while the framework might also apply to other types of non-profits,
our business model framework is most useful to support the transforming
‘development non-profits’: NGOs that deal with poverty reduction and livelihood
issues. The main beneficiaries of these emerging social ventures are poor and
marginalized people; some of the beneficiaries are often the poorest of the poor in a
marginalized community. As we theorize on the involvement of selected
beneficiaries in the business process of one of the emerging social venture business
models, our typology might not apply to transforming non-profits where the
beneficiaries are not people, such as environmental non-profits.
Potential future research
We can identify several potential future research areas arising from this
typology framework. First, further research may look at how and why social
entrepreneurs in the non-profit sector develop different social venture business model
designs. Much entrepreneurship research has given its attention to how entrepreneurs
create value and develop new venture ideas (Davidsson, 2015; Scott &
Venkataraman, 2000); business model frameworks have been used to analyse this
particular process (Demil et al., 2015).
Further research in social venture business models may also follow the path
that links social entrepreneurs and venture ideas or venture creation. Understanding
how and why social entrepreneurs choose a particular venture design is important to
the achievement of social goals (Agafonow, 2014). Further research on social
venture business models may develop research questions around the relationship
between different typologies of social entrepreneurs – social bricoleur, social
constructionist, and social engineer - (Zahra et al., 2009) and different social venture
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 103
business model designs. For example, how do social bricoleur types of social
entrepreneurs – those who are motivated to address specific local needs – develop
their business model configurations?
Second, further research may look at how these social ventures innovate or
renew their business models. Understanding business model innovation may help
ventures succeed (Linder & Cantrell, 2000). In existing entrepreneurship and
business model research, scholars have paid attention to business model innovation
or renewal as a source of new sustainable competitive advantage (Casadesus-
Masanell & Ricart, 2010; Demil & Lecocq, 2010; Voelpel, Leibold, & Tekie, 2004).
Future research in social venture business models may use insights in existing
business model innovation and renewal research to make sense of how and why
social ventures innovate and renew their business models for survival. For example,
do social ventures innovate and renew their business models because they need to
adapt to the changing environment (e.g., changes in policy environment)?
Furthermore, other research might approach business model innovation and the
renewal process as a strategy for social venture growth: how do social ventures
innovate and renew their business models for growth?
Third, further research may also look at the consequences of social venture
business models to changes at the societal level. Understanding the dynamics is
important to ensure that the activities of social ventures translate into actual societal
transformation. Several existing business model researchers pay attention to the role
of disruptive innovation to social change and the appropriate business models that
may induce the change (e.g., Brown & Wyatt, 2010; Christensen, Baumann, Ruggles
& Sadtler, 2006). Further research on social venture business models may follow
their path by focusing on how these models may play an important role as vehicles
104 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
for intended social change. For example, how do efficiency-centred social venture
business models – models that only support beneficiaries with willingness to pay –
induce social change?
Implication for national-level policy development
This paper highlights several implications for national-level policy
development. First, national and overseas development assistance organizations need
to develop appropriate phasing-out policies for the non-profits or social organizations
that they support. Due to unequal power relations, grant-making organizations have
often been criticized for creating donor dependence and homogenization (Aldaba et
al., 2000; Kamstra & Schulpen, 2015). In light of this, we believe appropriate
support to help non-profits transform into social ventures should be included in the
project or program plans from the beginning. The proposed social venture business
model configuration typology may serve as one of many available important tools
that could be embedded in this transition support.
Second, we believe that national authorities need to provide supporting
policies for these non-profits to successfully adopt the proposed business models.
Tax incentive schemes and appropriate legal forms that reflect the unique
characteristics of social ventures and the subsequent business model configurations
may become mportant factors that contribute to the success of these emerging social
ventures.
Conclusion
Social ventures are gaining popularity because they offer sustainable
solutions. They have missions to provide solutions arising from the absence of public
services and market solutions to reduce poverty, especially in neglected areas such as
Chapter 3: Paper 1 – A Typology of Social Venture Business Model Configurations 105
developing nations. This popularity has brought many existing non-profits to
embrace business models and to transform into social ventures. The social
entrepreneurship literature has conducted extensive discussions on this subject under
the “earned-income” school of thought. Despite this, few studies have focused on the
potential business models that appropriately manage tensions between business and
public aspects. To fill this gap in the literature, using RDT and public administration
this research re-conceptualized extant business model frameworks to make sense of
social ventures and identified the unique characteristics, type, and business model
configurations of the emerging social ventures. We discussed the implications,
boundary conditions, limitations, as well as potential future research.
106 Chapter 3: Paper 1 - A Typology of Social Venture Business Model Configurations
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116 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Chapter Transition Note (Paper 1 to Paper 2)
Paper 1 highlighted three important results: (a) the paper used resource
dependence theory (RDT) and public administration theory (i.e., publicness theory)
to re-conceptualise the understanding of extant business models; (b) based on this re-
conceptualization, four characteristics of social ventures for transforming non-profits
were conceptually generated (social mission, private ownership logic, private
funding, and public control); (c) three types of effective social venture business
models were theorized (Types I, II and III) and one was characterized as a non-
effective type (Type IV). In this thesis, Paper 1 served as typology-driven theory
generation study and, therefore, the paper served to demonstrate the logical adequacy
of the typology-driven theory using RDT and publicness theory.
In the next chapter (Chapter 4), Paper 2 further elaborates the characteristics
and the typology in Paper 1, aiming to serve the theory elaboration purpose (Fisher &
Aguinis, 2017) by: (a) developing construct validity of the characteristics outlined in
Paper 1 (social mission, private ownership logic, private funding, and public control)
using a qualitative approach; (b) using the validated characteristics to identify the
emerging social venture business model types from data; and (c) generating insights
into the theorized relationship between the types developed in Paper 1 and
organizational effectiveness. In Paper 2 (Chapter 4), Paper 1 is generally referred to
as “the theoretical study on social venture business model forms and outcomes” or
“the theoretical study
Chapter 4: Paper 2 – Organizational Characteristics and Forms 117
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3. there are no other authors of the publication according to thesecriteria;
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5. they agree to the use of the publication in the student’s thesis and itspublication on the QUT’s ePrints site(http://www.moqut.edu.au/F/F_01_03.jsp) consistent with anylimitations set by publisher requirements.
In the case of this chapter:
“Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures”
This manuscript is submitted and currently under review in Organization Studies journal (SCOPUS, Q1)
Contributor Statement of contribution 1.Ari Margiono Wrote the manuscript, conducted data collection, coding, case
narrative development, arranged and facilitated the inter-rater reliability check, data analysis, and developed the storyline 14 Dec 2017
2.Artemis Chang Provided suggestion and feedback on the methodology and thestoryline, read the manuscript and checked the comparison table and analysis
3.Roxanne Zolin Provided general feedback, provided support on the storyline,read the manuscript and checked the comparison table and analysis
Principal Supervisor Confirmation I have sighted email or other correspondence from all co-authors confirming their certifying authorship. (If the Co-authors are not able to sign the form please forward their email or other correspondence confirming the certifying authorship to the RSC).
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118 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Chapter 4: Paper 2 - Organizational Characteristics and Forms:
Empirical Insights from Business Models of Social Ventures
Abstract
Organizational forms affect outcomes; yet, little is known on this mechanism in the
social entrepreneurship context. A recent theoretical study highlights how social
venture characteristics and forms affect outcomes differently from commercial
ventures. By comparatively analyzing 12 cases of social ventures in Indonesia, this
research attempts to empirically elaborate this theoretical study and to extend
understanding of how organizational characteristics and forms affect outcomes in the
social entrepreneurship context. We found that characteristics of social ventures play
an important role in constituting different social venture forms. Our data showed
that different social venture forms can structure business model configurations and
can affect different effectiveness configurations. Four overall configurational
patterns were identified.
Introduction
Organizational forms, defined as arrangements of core features in focal organizations
(Rao & Singh, 1999), influence organizational outcomes. Much research on
structure and forms of organizations indicate that types of organizations, such as
designs of structures (Burns & Stalker, 1961; Sine, Mitsuhashi, & Kirsch, 2006;
Colombo & Grilli, 2013; Csaszar, 2012) or ownership nature (Mahoney, 1992;
Chapter 4: Paper 2 – Organizational Characteristics and Forms 119
Bozeman, 1987) as well as governance of transactions (Williamson, 1973) affect
organizational outcomes (David & Han, 2004). However, the extant knowledge on
the relationship between organizational forms and outcomes is mainly developed
within the context of large, mature, and mostly commercial organizations where the
arrangements of core features are aimed for profit maximization and sustainable
competitive advantage (DaSilva & Trkman, 2014). Thus, there is a need for a better
understanding of the mechanisms that connect organizational forms and outcomes in
an increasingly popular type of hybrid organizations that aim to prioritize social
mission over profit maximization: social ventures (Huybrects & Haugh, 2017; Mair,
Mayer, & Lutz, 2015).
A recent theoretical study indicates that social venture characteristics and the
arrangement of social venture core features, i.e. business model, affect outcomes
differently from other organizations (Margiono, Zolin, & Chang 2017). Defined as
entrepreneurial ventures that combine social, public benefit aims with business-like
management (Anheier & Ben-ner, 2003; Becchetti & Borzaga, 2010; Borzaga &
Defourny, 2001), social ventures are a subset of hybrid organizations that embrace
particular types of business model arrangement due to constant tensions arising from
pressures exerted by public (e.g. government, beneficiaries) and private (e.g.
investors, shareholders) stakeholders (Bull, 2008; Ridley-Duff, 2008). Business
model designs of social ventures – “the system of interdependent activities
performed by a focal firm and its partners and the mechanisms that link these
activities to each other” (Amit & Zott, 2015, p. 331) – are theorized to be configured
by combinations of specific public and private characteristics (social mission, private
ownership logic, funding, and external control); and therefore they are different from
the extant business models of commercial ventures that are mostly driven by sole
120 Chapter 4: Paper 2 – Organizational Characteristics and Forms
characteristic of private organizations, i.e. profit maximization (Margiono et al.,
2017). While this theoretical study offers a unique perspective in understanding
arrangements of core features in social ventures and their consequences towards
outcomes, as far as we know there is not yet any empirical evidence supporting these
arguments. Empirical elaboration of these arguments will further extend existing
literature by validating the role of organizational characteristics and business models
on outcomes, especially in the social entrepreneurship context. Thus, using this
theoretical study as a point of departure we ask: (a) What are the characteristics of
social ventures as they emerge from the empirical data? (b) What are the emerging
social venture forms resulting from these characteristics? and (c) How do different
social venture forms correspond to business models and effectiveness?
Embracing a theory elaboration approach (Lee, Mitchell, & Sablynski, 1999),
this research aims to further elaborate this theoretical study (throughout this paper,
we use the term ‘theoretical study’ to refer to the Margiono et al. (2017)’s study) and
to expand our understanding of how different social venture forms may affect
outcomes, especially by attempting to improve the validity of the characteristics that
constitute different social venture forms (Fisher & Aguinis, 2017) and by looking at
the empirical relationship between social venture forms and their outcomes. To do
so, we utilised multi-case research methods to compare and contrast 12 social
venture cases in Indonesia (Meckstroth, 1975; Seawright & Gerring, 2008).
The major results of the study were the empirical validation of social venture
characteristics that can lead to a better understanding of social venture organizational
forms and insights around the mechanisms that connect social venture forms and
outcomes. In addition to the theorized characteristics (mission, ownership, private
funding, and public control), we empirically found a new characteristic of social
Chapter 4: Paper 2 – Organizational Characteristics and Forms 121
ventures – financial wealth motivation – from our data that resembles Wasserman’s
(2012) tension of wealth and control in entrepreneurial ventures. This finding further
led to the identification in the cases of three forms of social ventures that correspond
to different configurations of social venture business models and effectiveness.
This paper contributes to existing literature in several ways. First, this paper
exhibits an empirical evidence of factors that contribute to organizational design in
the social entrepreneurship context that follow resource dependence theory tenets. By
empirically validating the characteristics, social venture business models and their
connection to effectiveness, our paper extends organizational design and business
model literature where extant research tends to focus on designs of structures (Burns
& Stalker, 1961); ownership (Bozeman, 1987; Mahoney, 1992); or governance of
transactions (Williamson, 1973) as factors that explain organizational outcomes. The
results from the social entrepreneurship context demonstrate the important roles of
public and private organizational characteristics. This paper shows how these
characteristics structure business model designs in social ventures. By this, the
contribution of this paper overlaps with recent efforts in the literature that looks at
the characteristics of founders of a venture and their relationship to organizational
forms and outcomes (Fauchart & Gruber, 2011; Wasserman, 2012; Wasserman,
2017). Second, this paper extends the theoretical study (Margiono et al., 2017) by
identifying a new characteristic that leads to an improved typology of social venture
business models and outcomes. In doing so, this paper also contributes to the social
entrepreneurship literature by providing empirical insights on different social venture
types and business model configurations. This paper extends the discussions in the
literature that investigate different types and models of social ventures (Defourny &
Nyssens, 2017; Ridley-Duff & Bull, 2016).
122 Chapter 4: Paper 2 – Organizational Characteristics and Forms
In the following sections, we first outline the major tenets of the recent
theoretical study that we aim to elaborate on in this paper. We then proceed with the
method section where we describe in detail the processes of case research and
analysis that we utilized in this paper. We then describe our findings and conclude by
linking these insights with extant discussions in the organizational design and
business model literature.
A theoretical study of social venture business model forms
Unlike most organizations, social ventures embrace unique, hybrid
organizational forms (Doherty, Haugh, & Lyon, 2014). Social ventures combine
public and private forms of organization (Ridley-Duff & Bull, 2016) and therefore,
social ventures have different institutional and “core feature” arrangement than those
of commercial ventures (Battilana & Lee, 2014).
In a recent theoretical study, Margiono et al. (2017) argued that
organizational characteristics structure social venture business model forms
differently from those of commercial ventures because social ventures do not aim to
maximize profit and gain sustainable competitive advantage. The theoretical study
borrows from public administration literature and publicness theory dimensions
(Bozeman, 1987) to outline distinctive characteristics of social ventures and build on
resource dependence theory (Pfeffer & Salancik 1978, 2003) to examine the
relationship between social venture forms and their outcomes. The theoretical study
offers unique insights into the link between internal arrangements, forms, and
outcomes in the social entrepreneurship context. Since our research in this paper
attempts to validate and extend our understanding of social venture characteristics,
Chapter 4: Paper 2 – Organizational Characteristics and Forms 123
business model forms and outcomes developed by this theoretical study, this section
briefly outlines the central tenets of the study.
Social venture characteristics, the public administration literature, and publicness theory
There have been extensive discussions of the distinguishing characteristics of
public and private organizations in the public administration literature (Andrews,
Boyne, & Walker, 2011; Bozeman, 1987; Perry & Rainey, 1988; Wright & Pandey,
2011). The mission of an organization has been the primary locus of the differences.
The primary mission of public organizations is to create value for society (Wright,
2007). In contrast, the mission of private organizations is to capture value for
shareholders (Mizik & Jacobson, 2003). In addition, publicness theory highlights the
dimensions that distinguish public and private organizations (Bozeman, 1987), which
are ownership, funding, and control (Perry & Rainey, 1988). Social ventures, as
organizations that embrace both public and private forms, are assumed to combine
these characteristics.
Based on this point of view, four characteristics of social ventures are
theorized: social mission; private ownership logic; private funding; and public
control. All social ventures exhibit a mission orientation similar to public
organizations, that is they aim to deliver public/social goods. A social mission,
according to the theoretical study, refers to “the prioritization of the creation of
public and social value over value capture”. The focus on public and social value
creation distinguishes social ventures from commercial ventures; and subsequently
this may affect organizational outcomes differently. For example, despite extensive
value creation activities, the effectiveness of Facebook and Google are measured
from the extent to which they can capture this created value for their shareholders.
124 Chapter 4: Paper 2 – Organizational Characteristics and Forms
In contrast, the effectiveness of social ventures may be perceived from the value that
they create for the public. Furthermore, social ventures operate like private
companies and, therefore, they embrace private ownership logic. Private ownership
logic, according to the theoretical study, refers to fact that owners have the exclusive
right to exclude other people inside and outside the organizations in profit
appropriation; and this characteristic separates social ventures from non-profit
organizations. The latter organizations have no private ownership logic because they
are bound with the non-distributive principle. These two characteristics separate
social ventures from other organizations and serve as the main building blocks of a
social venture (see Figure 4.1a).
Further, the privateness and publicness of organizations can be seen as a
continuum (Lewis & Zolin, 2004) and, therefore, among different social ventures,
sources of their funding may vary along a public and private spectrum. Similar to
private organizations, social ventures receive private funding from trading activities,
but some social ventures also receive funding from public sources, similar to public
organizations. Thus, private funding according to the theoretical study refers to
“private sources of funding, such as sales, etc.”. Moreover, different social ventures
have different levels of public control. Just like public organizations, some social
ventures are exposed to higher public control, such as close monitoring from funding
or government grant agencies while some others have lower levels of public control
due to more engagement in business activities. According to the theoretical study,
public control refers to “political and public as well as stakeholder control, such as
terms that are attached within certain government funding, such as oversight”. The
theoretical study argues that social ventures need to manage publicness and
privateness and adopt appropriate business models to ensure effectiveness.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 125
Social venture forms and business model configurations
These tensions between public and private characteristics are theorized to
configure different social venture forms: Types I, II, III and a non-existent, non-
effective Type IV (see Figure 4.1b). Type I social ventures are those with low private
funding and high public control. These social ventures receive most of their funding
from public sources, that is, government grants, and are exposed to high public
control. Building on resource dependence theory (Pfeffer & Salancik, 1978, 2003),
this type is theorized to be associated with lock-in business model configuration
where stakeholders are retained in value creation networks (Amit & Zott, 2001); this
is because to achieve financial sustainability, the social ventures need to lock their
partners (especially their funders) into their network so they can continue providing
necessary resources to these social ventures. Type II social ventures are those with
high private funding yet high public control. These social ventures source their
funding from trading activities, yet they are subject to strong public scrutiny. This
type is theorized to embrace the novelty business model configuration where
participants are innovatively arranged (Amit & Zott, 2001); this is due to the need to
manoeuvre between strong public scrutiny and the need to be financially sustainable
through innovative and novel market activities. Type III social ventures are those
with high private funding and low public control. These social ventures are relatively
independent because they raise their own revenue and have less public scrutiny. This
type is associated with the efficiency business model configuration where transaction
and operational costs are low (Amit & Zott, 2001); this allows these social ventures
to gain financial profit despite their focus on a social mission by acquiring resources
that allow the focal social ventures to reduce transactions efficiency. Lastly, Type IV
126 Chapter 4: Paper 2 – Organizational Characteristics and Forms
is a theorized, non-effective form, that is less likely to exist. This is due to its
conflicting priorities that cancel each other. This form has low private funding (high
public funding) yet low public control (high private control). High public funding is
usually associated with higher public scrutiny and, therefore, social ventures with
high public funding but low public control may be prone to corruption or low social
legitimacy and tend to fail.
Methods
Research design and setting
We embraced a theory elaboration approach that uses “pre-existing
conceptual ideas or [a] preliminary model [to] drive [a] study design” (Lee et al.,
1999, p. 164). We specifically utilized the construct specification tactic in the theory
elaboration approach to improve the construct validity and scope of the existing
theory under investigation as well as to generate insights from empirical evidence
(Bacharach, 1989; Fisher & Aguinis, 2017). In this research, we were interested to
further improve the validity and scope of the theoretical study’s constructs indicated
in the previous section: social mission, private ownership logic, private funding, and
public control. We also took a step further to see how these characteristics
constituted different social venture forms and examined how these forms
corresponded to different outcomes.
Theory elaboration studies have used qualitative methods to achieve their
objectives (Fisher & Aguinis, 2017) and, therefore, this research used a multiple case
study method to select cases and to analyse the data. We employed a multiple case
research strategy of the ‘most different systems design’ (MDSD) (Meckstroth, 1975;
Seawright & Gerring, 2008) that focuses on “formulating statements that are valid
Chapter 4: Paper 2 – Organizational Characteristics and Forms 127
regardless of the systems within which observations are made” (Przeworski &
Teune, 1970, p. 39). Unlike other case methods that examine between-group and
within-group differences (Eisenhardt, 1989), MDSD looks specifically at within-
group (in our case, a group of successful social ventures) variance (Otner, 2010). In
an MDSD research strategy, independent and dependent variables that covary in
cases are held constant to allow maximum heterogeneity in other (independent)
variables (Meckstroth, 1975). Thus, in an MDSD research design, “variation on
independent variables is prized, while variation on the outcome is eschewed”
(Gerring, 2007: 139). While MDSD has been criticized for a lack of robustness in
identifying causality (Gerring, 2007), the method fitted our purpose because in this
paper, we did not intend to explore causality; instead, we sought to elaborate a
theoretical study by developing construct validity of different characteristics and by
seeking further evidence of the connection between characteristics, social venture
business model forms and outcomes within a sample of effective social ventures.
128 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Figure 4.1 Characteristics of effective social ventures, organizational forms and their business models (Adapted from Margiono, Zolin, & Chang, 2017)
Type I: More Public Form and Lock-in centred business models
Effective business model configurations of social ventures (Characteristics 3 and 4 in Figure 4.1b)
Type II: Mixed Form and Novelty-centred business models
Type IV: Non-Existent Category
Cha
ract
eris
tic 4
: pub
lic c
ontr
ol
Figure 4.1a. The characteristics of effective social venture business models.
Figure 4.1b. How private funding and public control identify different business model configurations of social ventures (from Figure 4.1a).
Type III: More Private and Efficiency-centred business models
Characteristic 3: private funding
High
High Low
Purpose: delivering sustainable solutions in neglected areas
Characteristic 1: having a mission to create social/public value
Characteristic 2: having private ownership logic
Low
Chapter 4: Paper 2 – Organizational Characteristics and Forms 129
We used theoretical sampling to select 12 cases of social ventures. We
selected four cases to represent a group of Type I social ventures (Charlie), four
cases to represent a group of Type II social ventures (Beta), and four cases to
represent a group of Type III social ventures (Alpha). For each group of social
ventures, we carefully chose social ventures with different features, for example
different areas of interventions and size, to ensure maximum heterogeneity (see
Table 4.1). Following the MDSD logic, we ensured that each case in our sample had
a similar ‘social mission’, ‘private ownership logic’ (e.g., independent variables) and
‘effectiveness’ (e.g., dependent variable) characteristics. Essentially, by doing this
this paper “selects cases that display some common background features … and that
display some variation on some aspects” (Rihoux & Lobe, 2009: 230) to ensure
representativeness (Gerring, 2007).
The cases were social ventures in Indonesia. Indonesia was selected because
the country represents the contextual boundaries outlined in the theoretical study that
guided the case selection: (a) that there have been systematic programs assisting
NGOs to transition to social ventures in Indonesia (British Council, 2017); and most
importantly (b) that these emerging social ventures need to have combined public
and private organizational forms and face tensions, such as balancing trading
activities with the need to work with government grant organizations. Table 4.1
describes the 12 cases examined in this research.
To ensure that our cases represented the theoretical types of these social
ventures, we conducted a preliminary screening from media reports and from
informants who facilitated many training sessions and workshops with social
ventures in Indonesia. We applied the following procedure: first, we looked at the
130 Chapter 4: Paper 2 – Organizational Characteristics and Forms
media reports to initially identify the potential social ventures for our cases; second,
we asked our informants to verify our analysis (we asked informal questions such as:
“which social enterprises do you think are efficient and profitable, unique and novel,
or dependent – locked-in – to their donor organizations?”; “which social enterprises
have large trading revenue than donor funding?”, etc.). The interviews with these
informants were informal and casual. We also asked similar questions of our
respondents and, thus, some of the selection of the cases also followed the snowball
sampling technique.
Data collection
We collected data from interviews and secondary sources. Semi-structured
interviews using an interview protocol were conducted with the leaders of the social
ventures in our sample. These leaders were CEOs, directors, CFOs and/or owners of
the social ventures. We conducted 12 interview sessions between the end of 2014
and end of 2015 at their offices. Three of these sessions were group interviews
(where directors/CEOs invited their leadership team to participate in the interviews).
In total, we conducted interviews with 17 leaders of social ventures in Indonesia.
Interviews typically lasted between 45 and 90 minutes (see Table 4.1). Interviews
were conducted in Bahasa Indonesia and were transcribed from audio recordings. We
asked the respondents open-ended questions about their organizations, business
models and activities. For example, ‘tell me about your social venture’, ‘what are
your value propositions?’, ‘how do you collaborate with your partners?’, etc.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 131
Table 4.1 Social Venture Cases in This Research
Social ventures
Description of the social ventures
Size Sector Scope of activities
Participants’ position (Duration)
Secondary sources (Type, length)
Length of case narratives (Pages)
Alpha One Offering community/social
strategic development to corporate clients
Medium Community development
National CEO, Directors (60 minutes)
Website (5 pages) 9
Alpha Two Publishing free magazine and facilitating community environment campaigns
Medium Education
National CEO/Director (90 minutes)
Website, flyers (10 pages)
9
Alpha Three Providing safe water in peri-urban and rural areas via cheaper and reliable alternatives to boiling or buying water.
Large Environment
International CEO/Co-Founder (60 minutes)
Media coverage (15 pages), flyers (5 pages)
9
Alpha Four Providing biogas solutions for cooking in peri-urban and poor houses
Small Environment
National CEO/Co-Founder (90 minutes)
Media coverage (10 pages)
7
Beta One Empowering youths through holistic youth development programs and also education and access to finance
Large Education
International CEO/Founder (90 minutes)
Media coverage (15 pages), PowerPoint (56 pages), report (100 pages)
13
132 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.1 - continued Social Venture Cases in This Research Social ventures
Description of the social ventures
Size Sector Scope of activities
Participants’ position (Duration)
Secondary sources (Type, length)
Length of case narrative (Pages)
Beta Two Empowering poor families through work, education, and an increase in their quality of life
Small Community development
National CEO/Founder (60 minutes)
Media coverage (10 pages)
9
Beta Three Connecting simple, life-changing technologies to communities in very remote parts of the worlds
Large Technology
International Director (60 minutes)
Media coverage (15 pages), PowerPoint (40 pages), websites (30 pages)
12
Beta Four Raising people’s awareness to love the environment by selling reusable shopping bags and by doing campaigns
Medium Education and Environment
National CEO/Co-Founder (90 minutes)
Media coverage (10 pages)
8
Charlie One Providing education and awareness of sexual violence and offering recovery programs for survivors
Small Community Development
National CEO/Co-Founder (90 minutes)
Media coverage (10 pages)
8
Charlie Two Facilitating and providing a “creative space” for people in cities
Medium Community Development
Local Coordinator (60 minutes)
Media coverage (10 pages)
6
Chapter 4: Paper 2 – Organizational Characteristics and Forms 133
Table 4.1 - continued Social Venture Cases in This Research Social ventures
Description of the social ventures
Size Sector Scope of activities
Participants’ position (Duration)
Secondary sources (Type, length)
Length of case narrative (Pages)
Charlie Three Providing education facilities, such as a library, in poor, remote, rural areas of Indonesia
Small Education
National CEO/Founder (45 minutes)
Book (246 pages) 6
Charlie Four Focusing on awareness campaigns and developing market access for rice farmers in rural areas
Small Environment National CEO, Director (60 minutes)
Media coverage (5 pages), websites (5 pages)
7
134 Chapter 4: Paper 2 – Organizational Characteristics and Forms
We also collected secondary data to complement the interviews involving
power-point presentations, media coverage, books, and reports from different
sources, including from the owners and the CEOs, that were published between 2014
and 2016. These secondary sources were in both Bahasa Indonesia and English. In
total, we gathered 597 pages of secondary data from all 12 social ventures in our
study (see Table 4.1).
Data analysis
To analyse the collected data, we followed the case data analysis procedure
prescribed by Eisenhardt (1989) and Brown and Eisenhardt (1997) in generating
insights. We built individual case study narratives and developed comparison tables
to compare and to contrast across cases to generate insights. The data analysis
process was divided into three stages. Figure 4.2 depicts the data analysis process
and stages.
Stage 1: Coding the data
In stage 1, interviews from all cases were transcribed from audio recordings
and translated into English, and we then developed the codebook. Since the aim of
this research was to elaborate theory, we developed the codebook according to
theoretical themes outlined in Figures 4.1a and 4.1b: social venture characteristics
(social mission, private ownership logic, private funding, public control). We also
developed the codebook on themes of business model dimensions (value proposition,
value creation and delivery, value capture; Richardson, 2008) as well as on
Chapter 4: Paper 2 – Organizational Characteristics and Forms 135
autonomy, social legitimacy, and market legitimacy themes (see Appendix A for an
example of the codebook). The codebook described the theoretical definitions of
each of the themes as well as the initial qualitative anchors that defined the value of
each theme (high, moderate, low).
In using the codebook, the first author coded the interview transcripts and the
secondary sources. The first author, who is native in Bahasa Indonesia, used both the
original Bahasa Indonesia and English translations of the transcripts during the
development of the case study narrative to ensure that the translations captured the
original meanings.
During the coding process, the codebook was treated as a living document.
Thus, the development of the codebook followed the abductive principle where the
definitions and the qualitative anchors were continuously adjusted to the context of
the data (DeCuir-Gunby, Marshall, & McCulloch, 2011). During this process, we
found the new characteristic of financial wealth motivation. This procedure
demonstrated Eisenhardt’s (1989) suggestion in developing construct validity from
case research: authors should be “(1) refining the definition of the construct and (2)
building evidence which measures the construct in each case” where “[t]his occurs
through constant comparison between data and construct” (p. 541). Table 4. 2
displays an example of a final codebook.
136 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Figure 4.2 Data analysis process
Secondary sources
Continuous check by second and third authors
Stage 0 Stage 1 Stage 2 Stage 3
Interviews
Data collection
Transcribing and translating
Coding process
Case narratives
Codebook development
Comparison tables
Theory framework
Inter-coder reliability process
12 months 6 months 6 months 3 months
Chapter 4: Paper 2 – Organizational Characteristics and Forms 137
Stage 2: Case narrative development
In stage 2, we wrote a case study narrative in English for each case using the
coded interview data and secondary sources. We triangulated data from secondary
sources to complement information that we gathered from the interviews (Denzin,
1978). This process enabled us to construct a more complete picture for each case
using this particular method of triangulation. In total, we wrote 103 pages of case
narratives with an average of 8.58 pages for each case (see Table 4.1). A typical
nine-page double-spaced case narrative (e.g, the case of Alpha Three – see Appendix
A) consisted of a section on the brief history and background of the social venture,
including social mission and private ownership logic characteristics of the social
venture (2 pages, 22%), a section on autonomy and legitimacy (1 page, 11%), a
section on private funding, public control, and financial wealth motivation (2 pages,
22%), and a section on value proposition, value creation, and value capture (4 pages,
44%).
After all the case narratives were completely written, two qualitative PhD
researchers from Australian universities who were researching in the
entrepreneurship and small business fields were invited to check the developed case
narratives. These researchers spoke native Bahasa Indonesia and were fluent English
users and, therefore, they could access the original transcripts and secondary sources
in Bahasa Indonesia, and the translated transcripts as well as the case narratives that
were written in English. They audited 25% of the raw data (33 out of 132 coding
units), as suggested in Hruschka, Schwartz, St. John, Picone-Decaro, Jenkins, and
Carey (2004). The researchers read the raw data (transcripts and secondary sources)
and checked whether case narrative reflected the stories emerging from the raw data.
We reached an acceptable inter-coder reliability score of 0.87 (5 disagreements from
138 Chapter 4: Paper 2 – Organizational Characteristics and Forms
33 coding units) (Miles & Huberman, 1994). Furthermore, these researchers
provided feedback on the disagreement points and the first author adjusted all case
narratives and codebook based on their suggestions. A consensus was reached after
the codebook and case narratives were revised.
Stage 3: Comparison table analysis
We conducted cross-case analyses after we finished writing the revised case
narratives. Using methods suggested by Miles and Huberman (1994) as well as
Eisenhardt (1989), we developed tables to identify similarities and differences among
the cases in our sample. In doing so, using the revised codebook and the revised case
narratives, the first author generated the comparison table of all the cases. To ensure
further reliability in the final stage of the analysis, the second and the third authors
continuously checked the comparison tables against the case narratives in English
using the revised codebook. We report the findings and the insights from the analysis
in the following sections.
Results
Empirical evidence was found from the data that helped to improve the
understanding of each characteristic (construct validity and scope) and the
relationship of the emerging social venture forms with business model
configurations. In this section, we first outline characteristics and empirical
organizational forms found from the data. We then outline the emerging business
model and social venture effectiveness configurations that were found to be
associated with certain types of social venture forms. At the end of this section, we
Chapter 4: Paper 2 – Organizational Characteristics and Forms 139
generate a conceptual framework that highlights the relationship between social
venture forms, business model configurations, and social venture effectiveness.
Characteristics and social venture forms: Construct validity and scope
Social ventures have unique characteristics. As they combine traits from
different sectors, social ventures absorb different characteristics. Following the
abductive reasoning of theory elaboration studies, we used theoretical definitions and
case data to further examine the characteristics of social ventures. We found all four
characteristics in our data and one additional characteristic that emerged from the
data. The first two characteristics were constructs that we found constant in all of our
cases: social mission and private ownership logic. The other three characteristics –
private funding, public control, and financial wealth motivation – had different
values from one case to another. Table 4.2 highlights the constructs, definitions, and
the scope/data-driven qualitative anchors that we developed from the iterative
process of the data analysis.
Social mission
Social mission has been characterized as the main component for social
ventures since it distinguishes social ventures from their commercial counterparts
(see Figure 4.1a). Much literature has argued that social ventures prioritize value
creation over value capture (Agafonow, 2015, 2014; Santos, 2012). Following this
body of literature, the theoretical study offers a theoretical definition of social
mission as “the prioritization of the creation of public and social value over value
capture”. Our data shows consistency with this particular theoretical argument as all
of our cases indicated a social mission characteristic as a position where “social
140 Chapter 4: Paper 2 – Organizational Characteristics and Forms
venture explicitly prioritizes social/public benefit over profit”. As owners of social
ventures, our respondents repeatedly emphasized that they focused on prioritizing
social or public benefit. For example, a director at Alpha One said: “We have
dividends to be shared, but we are activists by heart… so we tell ourselves our
business is commercial but we are inclined to the right (social) one”.
Private ownership logic
Private ownership logic is argued as the characteristic that distinguishes a
social venture from non-profits (see Figure 4.1a). This is due to the non-distributive
principle in non-profits that restricts profit distribution to ‘shareholders’. Social
ventures, on the other hand, seek profit and, therefore, their ownership structure is
designed to allow value capture. Private ownership logic is defined in the theoretical
study as a characteristic where the “owners have the exclusive right to exclude other
people inside and outside the organizations in profit appropriation”. Our data also
supported this argument and revealed this characteristic as an attitude where “social
venture shows intention to seek profit”. As an example, Charlie One, a social venture
that aimed to take care of survivors of sexual violence, has been seen externally as a
non-profit organization because it embraces a non-profit legal structure. Yet, the
owner of Charlie One had a positive attitude towards profit. As she said: “We can
provide consultation on how the safety measures should be run, or how to refer and
so on. All of these can be monetized”.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 141
Table 4.2 Construct Validity and the Scope of the Characteristics (An Example from the Codebook) Construct Definition Scope/data-driven qualitative anchor Example
Social mission
“the prioritization of the creation of public and social value over value capture”
Yes: “social venture explicitly prioritizes social/public benefit over profit”
(YES) “This is not only care of the environment but it is a pity if we throw this manure into the river and make the river become green-coloured because of this. In 2000, I tried to build biogas [reactor] and trialled with different designs”, B
No: “social venture does not explicitly prioritize social/public benefit over profit”
Private ownership logic “owners have the exclusive right to exclude other people inside and outside the organizations in profit appropriation”
Yes: “social venture shows intention to seek profit”
(YES) “We offered a pro-bono to some previous cases requiring supporting counselling. However, we also consider that this can be monetized …”, W
No: “social venture shows no intention to seek profit”
Private funding “Private sources of funding, such as sales, etc.”
High: “social venture receives a significant amount of revenue from private sources, such as sales, investors, etc.”
(HIGH) “[the investor] will provide money for two years … one year for preparing [the social enterprise] … in the second year we will be working on the … programs”, N (MODERATE) “60% restricted (public) and 40% unrestricted (private)… 40% to buy books … send the books …”, N (LOW) “until now [the largest] is … the one with [government]”, L
Moderate: “social venture receives mixed funding from government and trading sales, or from private donors” Low: “social venture receives a significant amount of revenue from government sources”
142 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.2 - continued Construct Validity and the Scope of the Characteristics (An Example from the Codebook)
Construct Definition Scope/data-driven qualitative anchor Example
Public control
“political and public as well as stakeholder control, such as terms that are attached within certain government funding, such as oversight”
High: “social venture receives significant control from external organizations”
(HIGH) “we’ve also got a donor who specifically says that he wants to support us to open a library and he will contribute the operational costs … so we have to make a report”, N (MODERATE) “Of course … we aren’t established yet [since we still have Oxfam as our main funder] … what we want is [to gain profit] … from what I said [catering and business]”, I (LOW) “ … for decision making, we’re planning to do this [involving stakeholders] … [but] we haven’t done that yet”, P1
Moderate: “social venture shows mixed external monitoring and presence of shareholder control” Low: “social venture receives significant owner/shareholder control”
Financial wealth motivation “the motivation of owners (including equity investors) to receive financial return from the social venture”
High: “intention of the owners (including, shareholders or investors) to appropriate profit from the social venture as dividends”
(HIGH) “[we will share dividends] if we have a remaining balance”, P3 (LOW) “That’s okay if it (the business profit) is small but as long as it can support our monthly operational costs”, W
Low: “intention of the owners (including shareholders or investors) to use the profit for social venture missions”
Chapter 4: Paper 2 – Organizational Characteristics and Forms 143
Private funding
Social ventures receive funding from different sources, including private
sources, such as trading activities or private donation, and public sources, such as
government grants. Public administration literature has indicated that the private and
the public funding sources of an organization can be seen on a continuum (Lewis &
Zolin, 2004). We found evidence for this continuum in our data. While the
theoretical study defined private funding as “private sources of funding, such as
sales, etc.”, we found three different variations of private funding in our cases. First
was the high private funding, defined as the situation where “a social venture
receives a significant amount of revenue from private sources, such as sales,
investors, etc”. Second was the low private funding, defined as the situation where
“a social venture receives a significant amount of revenue from government
sources”. In between, there was moderate private funding, defined as the situation
where “social venture receives mixed funding from government and from trading
sales, or from private sources”. Alpha Two, for example, was a social venture with
high private funding because all of its funding sources came from trading sales or
investor support.
Public control
All organizations are subject to public control (Bozeman, 1987). In social
ventures public control is especially important because they aim to deliver
social/public value. In the theoretical study, public control referred to “political and
public as well as stakeholder control, such as terms that are attached within certain
government funding, such as oversight”. Public control increases tensions in social
144 Chapter 4: Paper 2 – Organizational Characteristics and Forms
ventures due to owners’ or shareholders’ interest in independent decision-making.
We encountered evidence of varying levels of public control in our data. High public
control is a situation where “a social venture receives significant control from
external organizations”. Low public control is the situation where “a social venture
receives significant owner/shareholder control”. In between these, moderate public
control is the situation where “a social venture indicates mixed external monitoring
and the presence of shareholder control’. As an example, Charlie Four had high
public control and, therefore, it was not allowed to use the grant money without
appropriate consultation. The co-founder illustrated the scrutiny that the grant
organization made in the day-to-day financial management of the social venture:
“They had arguments with our staff… because he did not tell them that the money
was used for unapproved spending”.
Financial wealth motivation
Another characteristic of social ventures emerged from our data: financial
wealth motivation. Financial wealth motivation is defined as “the motivation of
owners (including equity investors) to receive financial returns from the social
ventures”. Financial wealth motivation indicates whether owners of social venture
are interested in appropriating profit for themselves from the social ventures (high)
or whether owners would like to reinvest the profit, if there is any, for the purpose of
their social mission (low). This characteristic resembles Wasserman’s (2012)
proposal of the tension between wealth and control in entrepreneurial firms.
Entrepreneurs are often faced with having to decide whether they would like to
become ‘king’ (retaining control of the enterprise) or ‘rich’ (accumulating wealth but
losing control of the enterprise to external parties, such as investors) (Wasserman,
Chapter 4: Paper 2 – Organizational Characteristics and Forms 145
2012). Our data revealed that social entrepreneurs seemed to exhibit a similar
tension. In addition to public control, they seemed to also have to deal with the
tension between wealth (high financial wealth motivation) and owners’ control (low
financial wealth motivation) to focus on the creation of social/public value. For
example, Beta One’s owner was reluctant to have investors in her social venture
because she preferred to reinvest all the profit in her social venture activities and
retain control of value creation. When asked whether she would like to work with
investors, she said: “Nope … that’s why when there are investors coming to us and
ask, ‘May I invest equity in your social venture?’ I said I don’t want to have
investors… because if they go into equity, the [ownership] equilibrium will change”.
Social venture forms
Our data indicated that these characteristics served as important building-
blocks of different organizational forms. We identified three broad patterns of social
venture forms emerging from the case data: ‘more private’, ‘more public’, and
‘mixed’. Table 4.3 shows the data that builds these social venture forms.
Social ventures with ‘more private’ organizational forms tended to receive
high/moderate private funding, moderate/low public control, and high financial
wealth motivation. These forms resembled commercial ventures; yet, they differed
because they prioritized their social mission and in some cases had mixed public and
private funding. For example, Alpha Three, a social venture that sold water
purification filters to poor societies to improve their health and to reduce carbon
emissions, received moderate private funding because in addition to sales revenue,
they also received support from grant organizations. Despite receiving support from
146 Chapter 4: Paper 2 – Organizational Characteristics and Forms
grant organizations, the data showed that their trading revenue was significantly
higher.
The ‘more private’ social ventures were less constrained by public control.
Alpha One, a CSR consultant firm that operated in a social entrepreneurship fashion,
exhibited low public control because it used a legal status that was like commercial
ventures. Contrary to a foundation or cooperative legal status (Pratono & Sutanti,
2016), having limited liability status did not require the company to have extensive
relationships with stakeholders. A director in Alpha One indicated that the company
did not involve their stakeholders in corporate decision-making: “we’re planning to
do this… [but] we haven’t done that yet”. All social ventures in ‘more private’ forms
have high financial wealth motivation. Their owners, including investors, were
interested to appropriate profit in terms of dividends. Alpha Two was an example
where its investors invested in the social venture for the first two years and expected
to start gaining financial returns in the third year. The co-founder explained that: “in
the beginning he told me [that] the first two years he will support… in the third year,
he asked me to start profiting”.
In contrast, social ventures with ‘more public’ organizational forms have
low/moderate private funding, high public control, and low financial wealth
motivation characteristics. Charlie Two, a social venture that facilitated ‘creative
city’ movements, received the majority of its funding from the government. A
coordinator of Charlie Two reported that that she received some funding from
donations and small trading activities, such as training that it provided to a few
organizations; however, according to her: “until now, the largest is the one that we
receive from the government”.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 147
Table 4.3 Characteristics and Organizational Forms
Organizational forms
Cases Private funding Public control Financial wealth motivation
More private More private More private
Alpha One
High “So if asked, our income stream is from ..it’s almost all from our clients”, P2
Low “ … for decision-making, we’re planning to do this [involving stakeholders] … [but] we haven’t done that yet”, P1
High “[we made dividend distributions] .. yes in 2011”, P1
Alpha Two
High “[the investor] will provide [all] money for two years …”, N
Moderate Shareholder control: “ … [the investor] asked me to start [profiting]”, N External monitoring: “we can’t be bad [in business] … because of our [close] relationship with communities”, N
High “ensuring (the investor) that investing in [Alpha Two] won’t be useless in the future (good dividends)”, N
Alpha Three
Moderate “we partner with NGOs [that buy our products] and NGOs mostly hand it out for free [to the beneficiaries], L Alpha Three also received grant funding
Moderate External monitoring: Grantees are also contractually bound by control mechanisms, such as providing regular program activity and financial reports (GAIN document) Shareholder control: “the hardest discussion about unit cost and the margins [with investors]”, L
High “they (the investors) talked about their return”, L
148 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.3 - continued Characteristics and Organizational Forms
Organizational forms
Cases Private funding Public control Financial wealth motivation
More private Alpha Four
High “I have never got that kind of [government] grants [our income only from sales]”, B
Moderate External monitoring: “[the NGOs] determined the design and the price”, B Shareholder control: “for me the line between profit and being sustainable is so thin so I have to [properly manage to get sustainable profit]”, B
High “if it’s not giving profit, we don’t have to do it (because we are wasting time)”, B
More public More public
Charlie Two
Low “until now [the largest] is … the one with government”, L
High “[w]e are optimistic that we could report the [use of government] funds”, F
Low “[we don’t take dividends now] we need to assess the risk … when we become profit-seeking”
Charlie Three
Moderate “60% restricted (public) and 40 % unrestricted (private)”, N
High “we’ve also got a donor … so we have to make a report”, N
Low “I don’t think it is right (to take dividends) … I think I can earn money from other sources”, N
More public
Charlie Four
Low “Since 2005, [foreign government donors] have been a major [funding] supporter”, T
High “It is possible to make [budget allocation] changes as long as it was below 10% of the total amount of fund … and there is a prior notice”,
Low “to this day we have never taken it (the financial surpluses)”, T
Chapter 4: Paper 2 – Organizational Characteristics and Forms 149
Table 4.3 - continued Characteristics and Organizational Forms
Organizational forms
Cases Private funding Public control Financial wealth motivation
Mixed 1 (social businesses) Mixed 1 (social businesses) Mixed 1 (social businesses)
Beta One Moderate “ … my revenue is corporate sponsors … donations [and project funds]”, V
Moderate External monitoring: “we [have to] provide reports … [to] the donors”, V Shareholder control: “I’m a control freak … I want to control [the organization] ..”, V
Low [Interviewer: do you wish to take dividends from your social venture?] V: “Nope”
Beta Two High “our [training] services contribute more, around 70% …”, A
Moderate External monitoring: “we determine the price [of products] together [with our stakeholders]”, A Shareholder control: “then I started to control the [quality] of the product [to ensure profit]”, A
Low “I have got another job, stable income, so … I haven’t taken any money from it (Beta Two)”, A
Beta Three
Moderate “60% came in form of grant … 40% came in form of other sort of income generating [activities]”, T
Moderate External monitoring: We will send you (funders) updates as the technology is delivered (FAQ document) Shareholder control: “the profits [we make are] from consultant works with CSR activities”, T
Low “[we’re avoiding dividends] by design, we think the social enterprise is not ready to receive equity investments”, T
150 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.3 - continued Characteristics and Organizational Forms
Organizational forms Cases Private funding Public control Financial wealth motivation
Mixed 1 (social businesses)
Beta Four High “80% [from market]”, P1
Moderate External monitoring: “one more thing about donors, [they became the reason for] the birth of different social divisions [in our organization]”, P2 Shareholder control: “they [the investors] help .. consult … network … establish [new business]”, P1
Low “[no dividends] because we need to make the [social venture] better …”, P1
Mixed 2 Charlie One High
“the large proportion [of it] individual [donations]”, W
Moderate External monitoring: “[supervisory] board [always] monitors … usually reviews on-going program …”, W Shareholder control: “as I have said earlier, we need to ensure [getting less dependent and having] the financial stability ourselves”, W
Low “yes, we need to make money, but that does not mean we want to get dividends”, W
Chapter 4: Paper 2 – Organizational Characteristics and Forms 151
Because they are inclined to more publicness, ‘more public’ social ventures
in the data exhibited high public control. Charlie Three, for example, a social venture
aiming to develop children libraries in remote, rural islands in Indonesia, was
required to provide a report to their funders; the funders controlled the activities of
the social venture by allocating money to particular activities. The co-founder
explained that funders often specified how they wanted their money to be spent:
“we’ve also got a funder who specifically says that he wants to open a library and he
will contribute the costs … we have to make a report”. Furthermore, owners of all
‘more public’ social venture forms had low financial wealth motivation. Their
attention seemed to be on creating profit that they could re-invest in the operations
for the benefit of social/public value creation. For example, all the surpluses from
Charlie Three’s fundraising activities – selling second-hand English novels in urban
areas – were reinvested.
These two forms are consistent with the theoretical typology presented in
Figure 4.1b. The ‘more private’ form corresponds to the Type III social venture
(high private funding and low public control), while the ‘more public’ form
corresponds to the Type I social venture (low private funding and high public
control). However, in contrast to the theoretical study, we found more diverse
‘mixed’ organizational forms in the data; they included the Type II (high private
funding and high public control) form and another variant that we called ‘social
businesses’. In the ‘mixed’ category were social ventures that received
high/moderate public control and had low financial wealth motivation and
high/moderate private funding. Charlie One, for example, fitted into Type II and the
‘mixed’ classification because it received high private funding and high public
control and low financial wealth motivation. Furthermore, among the ‘mixed’ forms
152 Chapter 4: Paper 2 – Organizational Characteristics and Forms
there were the ‘social business’ social ventures which included Beta One to Beta
Four. These ‘social businesses’ reflected relatively moderate private funding,
moderate public control, and low financial wealth motivation that implied the
characteristics of particular social ventures in the literature that tended to reinvest
their profits back into the operation of the enterprises (Ridley-Duff & Bull, 2016;
Yunus, 2010).
These findings resulted in a different typology of the empirical organizational
forms from the theoretical study’s initial typology (see Figure 4.1b). In Figure 4.3,
we developed a three-dimensional typology that summarizes the characteristics of
social ventures and social venture forms found from the case data.
In figure 4.3 we can also infer the types of ‘hypothetical’, non-effective
organizational forms (grey boxes with thin lines) resulting from our identification of
the characteristics and the effective forms of social ventures, despite the lack of data
of non-effective forms. The non-effective form 1, for example, reflects a
configuration of low private funding, low public control, and low financial wealth
motivation. Social ventures with this configuration may be non-effective because
they will have to face the conflicting logic of public funds and shareholder control
resulting from low public control. Public funds defy shareholder control because the
government grants are restrictive in their nature. Further, the non-effective form 2,
where it has similar characteristics to the non-effective form 1 except that it has high
financial wealth motivation, is also non-sustainable because the social ventures may
be prone to failure from conflicting external and internal interests. The non-effective
form 3, on the other hand, has high public control, low private funding, yet high
financial wealth motivation. A social venture with these characteristics may also be
prone to failure because it embraces strong public characteristics, yet it also expects
Chapter 4: Paper 2 – Organizational Characteristics and Forms 153
to generate wealth. Finally, the non-effective form 4 has high private funding, high
public control, and high financial wealth motivation. Social ventures embracing this
form may also be prone to failure because their high financial wealth motivation
conflicts with external control from government or stakeholders. Our inference of
non-effective forms is consistent with extant configurational approach tenets that
have argued that non-effective outcomes may not be simply expressed by the
absence of characteristics that lead to effective outcomes. Non-effectiveness requires
a configurational ‘causal mix’ that differs from the effective ones (Fiss, 2011; Ragin,
2008).
Social venture forms and patterns of business model configurations
The evidence from this study resonates with the arguments in the extant
literature that predict the relationship between organizational forms and inter-
organizational arrangements (Albers, Wohlgezogen, & Zajac, 2016; Gomes, Barnes,
& Mahmood, 2016; Lavie, Haunschild, & Khanna, 2012). In this research, we
consider that business model configurations represent inter-organizational
arrangements that focal firms engage in because they are essentially arrangements of
activities between focal firms and their partners in a systemic level. Business models
constitute value proposition, value creation, and value capture dimensions
(Osterwalder, Pigneur, & Tucci, 2005; Richardson, 2008).
Our data showed four patterns of business model configurations that were
linked to the emerging social venture forms (see Figure 4.3). Three of these –
efficiency (associated with ‘more private’ forms), novelty (associated with ‘mixed’
forms), and lock-in (associated with ‘more public’) – corresponded to the theoretical
study (see Figure 4.3); however, we also found a hybrid model that combined known
154 Chapter 4: Paper 2 – Organizational Characteristics and Forms
business model configurations. Table 4.4 highlights the characteristics of each
business model configuration and the associated social venture organizational forms
found in the data.
All efficiency business model configurations, where transaction costs among
partners are efficient (Amit & Zott, 2001), in the present study’s cases were
characterized by integrated social and business value propositions, as well as
efficient value creation and value capture activity characteristics. Cases in the data
showed that efficiency business models were also linked to the ‘more private’
organizational form. For example, Alpha Three, a social venture with a ‘more
private’ organizational form, embraced integrated social and business value
propositions. Having one, integrated value proposition allowed the focal social
ventures to achieve the social and business benefits simultaneously and thus they
reduced transaction and operation costs. Alpha Three offered cheap, no-frills ceramic
water-filters to the bottom of the pyramid customers and involved beneficiaries in the
business processes as distributors. By offering this proposition, it achieved its social
objective – to reduce the likelihood of water-borne diseases, such as diarrhoea – and
its business objectives at the same time. As a result, value creation and value capture
activities across the network were cost-efficient.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 155
Figure 4.3 A three-dimensional illustration of effective social venture organizational forms and business models based on the case data.
- PRIVATEFUNDING+
-PU
BLICCONT
ROL+
More private form (Type III) (Moderate/high private funding, moderate/low public control, high financial wealth motivation, efficiency-centred business model)
More public form (Type I) (Low/moderate private funding, high public control, low financial wealth motivation, lock-in-centred business model)
Mixed 2 form (Type II) (High private funding, High public control, Low financial wealth motivation, hybrid business model)
Mixed 1 (“social businesses”) form (Moderate/high private funding, moderate public control, low financial wealth motivation, novelty-centred business model)
156 Chapter 4: Paper 2 – Organizational Characteristics and Forms
In contrast, the lock-in business model configurations – where participants
were locked into the value creation network (Amit and Zott, 2001) – reflected single,
public value propositions, and network lock-in value creation and capture
characteristics. The data showed that social ventures embracing this business model
ensured that participants were reluctant to leave the network and that they continued
to support the focal social ventures. Cases in the data showed that lock-in business
models were empirically associated with the ‘more public’ organizational form. As
an example, Charlie Three’s value proposition was to offer free libraries for children
on remote, rural islands. To achieve this, it collaborated with high profile
organizations and locked their network into its value creation and value capture
activities. Charlie Three worked with a large international publisher and conducted a
‘buy one, donate one’ campaign. The publisher donated a children’s story book to
Charlie Three’s library every time a customer read an e-book. The management of
the company was very excited with the program and they kept supporting Charlie
Three. As the co-founder of Charlie Three mentioned: “In the next two years, they
donated another 5,000 books for us”. This choice, we believed, was associated with
the low private funding and the ‘more public’ form that it embraced. Having low
private funding restricted profit; therefore, Charlie Three might potentially have been
lacking financial sustainability. To cope with this, it had to ensure that their network
– including donors – continued to support and were locked into Charlie Three’s
causes.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 157
Table 4.4. Organizational Forms and Business Model Configurations
Organizational forms
Cases Business model configurations
Value propositions
Value creation and delivery
Value capture
More private More private More private More private
Alpha One
Efficiency Efficiency Efficiency Efficiency
Integrated “so, the [client] pays [for our services] … other parties [local communities] are the ones who benefit”, P3
Efficient “this is also what makes us different … [our network] … provides access [to fulfil our business tasks]”, P2
Efficient “we want things that benefit the network … but [they] should be aligned with our business vision and mission [so we can profit]”, P1
Alpha Two
Integrated “we were closer to community … campaign [with customers] was effective here … changing behaviours [of beneficiaries]”, N
Efficient “we choose journalists [as our beneficiaries] young journalists … and want [them] to report [as campaign and promotion]”, N
No value capture yet “Two years he will support … [the third year] he asked me to start selling”, N
Alpha Three
Integrated “we’re really going to target poor people [as customers] .. that was really like the cheapest container we could find”, L
Efficient “[our distributors are] like mothers who might have another job in a health centre …”, L
Efficient “Kiva [microloans] is free .. I’m really happy with Kiva [to help increase sales and profits]”, L
Alpha Four
Integrated “I sell … organic waste biogas is specifically designed for remote areas, in villages [and waste biogas for urban areas]”, B
Efficient “so the targeted beneficiaries are .. urban for waste biogas and rural for organic waste biogas”, B
Efficient “[the NGOs] came and subsidized 2 million … [so it is easier to sell the products]”, B
158 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.4 - continued Organizational Forms and Business Model Configurations
Organizational forms
Cases Business model configurations
Value proposition Value creation and delivery
Value capture
More public More public
Charlie Two
Lock-in Lock-in
Single, public “this is our proposition: to empower economic potential to improve the wellbeing of local societies, so people, place, and ideas always go together”, L
Network lock-in “the most important is to build trust from communities to governments who will become our clients”, L
Network lock-in “[network capitalization] depends on who is the coordinator .. her network is in business so she gets sponsorship from business”, L
Charlie Three
Single, public “Why books and education … if we want to change something in the future … it should start with [children education]”, N
Network lock-in “[our partners are so happy] in the next two years, they donated another 5,000 books for us”, N
Network lock-in “we’ve got large numbers of volunteers at [fundraising activity] … a hundred can come to us”, N
More public Charlie Four
Lock-in Single, public “we’re trying to connect the dots … what other people don’t do … we aim to connect”, T
Network lock-in “[funding network] needed a partner (us) who was capable of managing campaigns”, T
Network lock-in “we’re not brave enough to flip over to the 90% [donor funding] and 10% [private funding]”, T
Mixed 1 (Social Businesses)
Beta One Novelty Separated Beneficiaries: “ … started from anti-drug campaigns [for children] … [to] microfinance programs for poor housewives”, V Clients: “So, our business model is similar to Timezone … we [open our business units] at malls”, V
Novel “Our micro-finance program is … education-linked microfinance, where children of the mothers who borrow our money have to go to [Beta One] free schools”, V
High Cost “those kinds of things (heavy burden of costs) make difficulties … we are sustaining, but not greatly growing”, C
Chapter 4: Paper 2 – Organizational Characteristics and Forms 159
Table 4.4 - continued Organizational Forms and Business Model Configurations
Organizational forms
Cases Business model configurations
Value propositions
Value creation and delivery
Value capture
Mixed 1 (Social Businesses)
Beta Two Novelty Separated Beneficiaries: “we’ve got all elements: the children, the families, and the teenagers”, A Clients: “we give trainings, consultancies, and stuff like that”, A
Novel “It (our shop) was on Facebook … so many buyers … I felt excited”, A
High cost “if I take [profit] from here, I will have less [swing machines]”, A
Mixed 1 (Social Businesses)
Beta Three
Novelty Separated Beneficiaries: “so main beneficiaries are the community”, T Clients: “we do work with a lot of companies”, T
Novel “so we go to [our beneficiary community] in NTT and then we get the data so that data get into [the clients]”, T
High cost “we need the non-profit model because we want to serve the most difficult places”, E
Mixed 1 (Social Businesses)
Beta Four Novelty Separated Beneficiaries: “the program is called plastic bag diet ... this is one of the campaigns [to public]”, P2 Clients: “we had [reusable] bags production and … sold [them] …”, P1
Novel “As one example, [selling of the bags] helps here … because [the bags] and the plastic bag diet campaigns are connected”, P2
High cost “[we can get] breakeven for a short time … but [because of] operational costs … it’s fluctuating”, P1
Mixed 2 Charlie One
Hybrid Integrated “we start saying straight [to companies]: we offer you the [sexual awareness and education] training … but you need to pay [donation]”, W
Network lock-in “we’ve also got a prominent partner … [they] have been very helpful to ensure our survey went viral …”, W
Network lock-in “we have started partnering [with others] … [to] receive [public] grants”, W
160 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Moreover, the novelty business model configuration – where participants are
combined in novel and innovative arrangements (Amit & Zott, 2001) – is indicated
by the separated social and business value propositions, novel value creation
activities, and high cost operation activities that discourage value capture. The
present study’s data indicated that social ventures with this particular business model
introduced a novel approach to manage different social and business value
propositions. Novel business model configuration cases in the data were linked to
some of the ‘mixed’ organizational forms we identified earlier. We noticed that only
those social ventures with relatively moderate private funding, moderate public
control, and low financial wealth motivation (Mixed 1/‘social businesses’) were
associated with this particular business model configuration. For example, Beta
Three was a social venture that served as a hub that connected simple technology
producers and poor communities and introduced novel value creation activities by
connecting the previously two un-connected markets (poor community market and
technology market). To do this, Beta Three needed to offer separated social and
business value propositions. Managing two different activities may have been
expensive; therefore, value capture seemed less likely in novel configurations. The
co-founder of Beta Three said: “We want to serve the most difficult places that
nobody gets to. It is really expensive to transport goods there. From a market
perspective, it doesn’t make sense”.
Moreover, we found a hybrid business model configuration that was
characterized by a combination of efficiency and lock-in configurations. In the data,
the focal social venture with hybrid business model attempted to offer integrated
social and business value propositions; yet, it operated in a similar way with those
social ventures that embraced lock-in business models. The only case in the data that
Chapter 4: Paper 2 – Organizational Characteristics and Forms 161
embraced the hybrid business model was Charlie One where it had Mixed 2
characteristics – high private funding, has high public control, and low financial
wealth motivation. Charlie One offered paid sexual violence awareness training to
its corporate clients; yet, it showed significant dependency on their value creation
and capture networks.
Social venture effectiveness: Autonomy and legitimacy
Autonomous and legitimate social ventures are able to survive because they
can acquire and maintain resources (Desa & Basu, 2013; Pfeffer & Salancik, 1978,
2003). From the case data, we found evidence that connected different social venture
forms and business model configurations with autonomy and legitimacy
configurations. We also found some cases displayed different configurations of
autonomy and legitimacy. Table 4.5 highlights the emerging focal social venture
autonomy and legitimacy configurations and their association with business model
configurations and social venture forms.
‘More autonomous’ focal social ventures have high autonomy, high market
legitimacy, yet low to moderate social legitimacy. In the data, ‘more autonomous’
social ventures were associated with efficiency business model configurations and
‘more private’ organizational forms. Alpha Four was an example of a ‘more
autonomous’ social venture that exhibited more freedom in managing its internal
resources. As the co-founder argued: “We gave bonuses besides salaries to our
employees”. In the data, autonomy of the focal social ventures seemed to correspond
to the level of market legitimacy that they received, and it seemed that autonomous
organizations sent signals to the market that they offered potential market
performance (Drees & Heugens, 2013).
162 Chapter 4: Paper 2 – Organizational Characteristics and Forms
‘More autonomous’ social ventures seemed to have lower levels of social
legitimacy. In our cases, they had moderate to low social legitimacy. Alpha One, for
example, needed to encounter resentment from stakeholders when they promoted
social entrepreneurship to communities. A director of Alpha One told us, “We got
mocked, they said: ‘what is this, inviting farmers to market? Capitalists!’”.
Alpha Two, on the other hand, showed high social legitimacy. It was a free
environmental magazine that aimed to increase environmental awareness. It had just
recently been bought by a commercial investor who shared Alpha Two’s causes, but
was not expecting profit in the first two years (overlapping with the period of this
study). We suspected that the fact that Alpha Two had yet to capture value may have
been responsible for this anomaly (i.e., having ‘more autonomous’ configuration yet
possessing high ‘social legitimacy’).
In contrast, ‘more socially legitimate’ focal social ventures showed low
autonomy and low market legitimacy, yet high social legitimacy configuration.
‘More socially legitimate’ focal ventures corresponded with lock-in business model
configurations and ‘more public’ organizational forms. Charlie Two was an example
of a ‘more socially legitimate’ social venture. It received high stakeholder supports.
For example, it had an extensive network and was supported inside and outside
Indonesia. Due to this extensive network, people continued to give support to it.
Charlie Two’s coordinator illustrated: “The network support is from local to
international. This is the MoU made with UC Berkeley for youth participation…
then UN habitat”.
Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.5. Organizational Forms, Business Model Configurations and Effectiveness Configurations
Organizational forms
Cases Business model Effectiveness Autonomy Market legitimacy Social legitimacy
More private More private More private More private
Alpha One Efficiency Efficiency Efficiency Efficiency
More autonomous More autonomous More autonomous More autonomous
High “we retained it [the profit] for our own purposes”, P2
High “positioning-wise, we are middle up [in terms of pricing]”, P1
Low “we got mocked … [they said] ‘ inviting [poor] farmers to the market? Capitalist!”, P2
Alpha Two High “we could manage [the money] … for staff salaries”, N
High “[the investor] we’re working together and making money”, N
High “I had discussions with [our stakeholders] … asked for their opinion (and to get supports)”, N
Alpha Three High “make sure [we] hired more staff in the sales department or marketing that will lead to more sales”, L
High “when we’re engaging with [the investors]: ‘okay, show me the cash flow’”, L
Moderate Support: Alpha Three received the prestigious Silicon Valley Tech award 2013 Resistance: “[many said]: [if you] don’t give them for free, you’re not social”, L
Alpha Four High “we gave bonuses besides salary [to our employees]”, B
High “we were able to [sell] and build 1,054 [biogas reactors]”, B
Moderate Support: Alpha Four received a national Social Entrepreneurship award in 2016 Resistance: “But NGO just wants us to do some advocacy. Advocating but not doing sales that is nonsense”,B
164 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.5 - continued Organizational Forms, Business Model Configurations and Effectiveness Configurations
Organizational forms
Cases Business model Effectiveness Autonomy Market legitimacy Social legitimacy
More public More public
Charlie Two Lock-in Lock-in
More socially legitimate More socially legitimate
Low “The rest of [our staff] are volunteers [and we have less control of them]”, L
Low “the market [capacity] is still low”, L
High “network [support] is from local to international”, L
Charlie Three
Low “yeah, it’s pure donation … [donations] are for buying books … depends on the request (so we are less autonomous in resource arrangement)”, N
Low “[we have no market capacity] we only have one project coordinator”, N
High “I received the Tupperware SheCan! award in 2011”, N
More public Charlie Four
Lock-in More socially legitimate
Low “we should communicate [resource allocation change] first to the donor”, T
Low “[the market is] not yet [accepting] … we’re still an NGO”, T
High “we have more connection with [poor] farmers …”, T
Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.5 - continued Organizational Forms, Business Model Configurations and Effectiveness Configurations
Organizational forms
Cases Business model Effectiveness Autonomy Market legitimacy Social legitimacy
Mixed 1 (social businesses)
Beta One Novelty Balanced Moderate “[we design resource arrangement] as shared resources (to ensure flexibility)”, V “But it doesn’t have legality, it means no [legal control]”, V
High “investors coming to us and ask”, V
High “[Beta One] was recommended to receive a UN award”, V
Mixed 1 (social businesses)
Beta Two Novelty Balanced Moderate “[as] foundation [we] cannot take profit”, A “[however, we can arrange that] out of 100, we take 40 and use it [as salaries] for people”, A
Moderate “I will not [fully rely on production capacity] of this area because the community is poor”, A
Moderate Support: Beta Two received the Danone Youth Social Entrepreneurship award in 2015 Resistance: “I was so shocked they would reject [our support]”, A
166 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.5 - continued Organizational Forms, Business Model Configurations and Effectiveness Configurations
Organizational forms
Cases Business model Effectiveness Autonomy Market legitimacy Social legitimacy
Mixed 1 (social businesses)
Beta Three Novelty Balanced Moderate “I think [regulations are] the limitation [and] there are barriers to [autonomy] … so for example, we can’t hire people”, T “[However], that’s (to use the surpluses of business units) within our control, our discretion to use however we want”, T
High “[our] strategy [to attract more clients] is focusing more on kind of early stage testing (of new technologies)”, T
High “This [award for us] is like the Oscar for renewable energy. The prize is granted during the Abu Dhabi Sustainability Week”, E.
Mixed 1 (social business)
Beta Four Novelty Balanced High “so, we never return the surplus … it’s for other activities in the PT (company)”
High “The sales of [bags] was steadily increasing”, P1
Moderate Support: Beta Four selected to participate in various programs (Bayer Young Environmental Envoy, etc) Resistance: “[our colleagues said:] ‘we felt we only talked money .. why is our goal now money? Aren’t we social?’”, P1
Chapter 4: Paper 2 – Organizational Characteristics and Forms
Table 4.5 - continued Organizational Forms, Business Model Configurations and Effectiveness Configurations
Organizational forms
Cases Business model Effectiveness Autonomy Market legitimacy Social legitimacy
Mixed 2 Charlie One Hybrid Balanced Moderate [we’re an NGO but], the donations are not binding (we have some flexibility in using the donations)”, W
Moderate “[our client] is still on-going. Three sessions”, W
High “[stakeholders’] involvements are all pro-bono”, W
168 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Furthermore, ‘balanced’ focal social ventures indicated moderate-to-high
autonomy, market legitimacy, and social legitimacy. The ‘balanced’ configuration
was associated with both novel and hybrid business model configurations. It was also
associated with all types of ‘mixed’ organizational forms. For example, Beta Two
had autonomy because it had relative freedom to manage internal resources, for
example, in managing their own finance and in attracting and allocating volunteers to
participate in their activities. At the same time, it also had social legitimacy, for
example, winning a national social entrepreneurship award.
Venture forms, business models, and effectiveness: A conceptual framework
Our findings indicated that private funding, public control, and financial
wealth motivation seemed to constitute social venture forms and structure the
emerging types of business model and effectiveness (autonomy and legitimacy)
configurations. Table 4.6 summarizes the findings.
We noticed that this relationship seemed consistent with resource dependence
theory (RDT) (Pfeffer & Salancik, 1978, 2003) as indicated in the theoretical study.
Extant research has shown that internal organizational characteristics and
organizational forms can play important roles in configuring external inter-
organizational arrangement (Albers et al., 2016; Gomes et al., 2016; Lavie et al.,
2012). This is primarily due to the fact that focal organizations need to manage
resource dependence from other organizations (Pfeffer & Salancik, 1978, 2003). To
cope with resource dependence, organizations engage in inter-organizational
arrangements to establish autonomy, which is the freedom to arrange internal
resources (Oliver, 1991), and legitimacy, which is social acceptance of a firm’s
Chapter 4: Paper 2 – Organizational Characteristics and Forms 169
actions (Suchman, 1995). Autonomous and legitimate organizations are effective
because they are able to acquire resources that they need (Yuchtman & Seashore
1967). Pfeffer and Salancik (1978, 2003) offered several inter-organizational
engagement strategies that a firm could take. Among others were a merger and
acquisition, joint-ventures, and board interlock.
Yet, Pfeffer and Salancik’s (1978, 2003) proposed inter-organizational
strategies have been criticized as being limited because they are dyadic in nature and
do not reflect the richness of resource dependence theory’s propositions that allow
investigations of complex, non-dyadic, inter-organizational arrangements (Wry,
Cobb, & Aldrich, 2013); a call to further explore other kinds of inter-organizational
arrangement strategies has been made in the literature (Davis & Cobb, 2010).
In light of this, business model configurations qualify as complex, non-dyadic
inter-organizational arrangements that focal firms generate to cope with resource
dependence. From this point of view, business models essentially depict how focal
social ventures manage inter-organizational activities at the system level to achieve
effectiveness
Figure 4.4 displays a conceptual framework that we developed illustrating
this connection. To further understand the connection between social ventures and
outcomes, we outline each emerging pattern in light of the resource dependence
theoretical perspective, as suggested by Short, Moss, and Lumpkin (2009).
In pattern 1, ‘more private’ social ventures with more private funding, less
public control, and high financial wealth motivation are associated with efficient
business models and more autonomous effectiveness configurations because the
focal venture needs to ensure that they are able to acquire and maintain essential
resources. The demands of financial wealth (e.g., return on investment), for example,
170 Chapter 4: Paper 2 – Organizational Characteristics and Forms
put pressure on the focal venture to generate surpluses and profits, which requires the
focal social ventures to be more autonomous so that they can acquire and maintain
resources that they need to make profit while delivering their primary social mission.
Autonomous organizations lead to profit.
To do so, social ventures with high private funding structure their value
propositions, value creation, and value capture configurations in an efficient manner
so that transaction costs are low for every business model participant and the
business model becomes attractive for potential participants. In the study’s cases, this
was evident in the way ‘more private’ social ventures included the beneficiaries in
their business value chain.
Alpha Three, for example, reduced transaction costs in two ways. First, by
having integrated value propositions it could efficiently cater for social and business
consumers at once. Second, inclusion of beneficiaries into the value chain helped
reduced costs because by having them in the business as employees, Alpha Three
reduced transactions to achieve its dual social and business objectives.
While reducing transaction costs and operating in efficient configurations
seemed to increase autonomy, it was also likely to increase market legitimacy
because the focal social ventures seemed attractive to investors. The cases showed
that ‘more private’ social ventures were attractive to investors. Yet, the data also
showed that these social ventures had a lower level of social legitimacy; we
suspected that stakeholders perceived them as operating under profit maximization
principles and, therefore, they were considered to be prone to mission drift.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 171
Table 4.6 Summary of Findings Organizational forms
Cases Business model configurations
Autonomy Private funding
Financial wealth motivation
Market legitimacy
Social legitimacy
Public control
More private More private More private More private
Alpha One Efficiency High High High High Low Low Alpha Two Efficiency High High High High Higha Moderate Alpha Three Efficiency High Moderate High High Moderate Moderate Alpha Four Efficiency High High High
High Moderate Moderate
More public More public
Charlie Two Lock-in Low Low Low Low High High Charlie Three
Lock-in Low Moderate Low Low High High
More public Charlie Four Lock-in Low Low Low Low High High Mixed 1 Mixed 1 Mixed 1 Mixed 1
Beta One Novelty Moderate Moderate Low High High Moderate Beta Two Novelty Moderate High Low Moderate Moderate Moderate Beta Three Novelty Moderate Moderate Low High High Moderate Beta Four Novelty High High Low High Moderate Moderate
Mixed 2 Charlie One Hybrid Moderate High Low Moderate High High
Note. All cases exhibit high social mission and high private ownership logic. aWe suspected that this anomaly (high social legitimacy in a more private organizational form) was due to the fact that Alpha Two had yet to capture value.
172 Chapter 4: Paper 2 – Organizational Characteristics and Forms
Figure 4.4 Effectiveness patterns and conceptual relationship between configurations.
More Private
More Public
Mixed variant 1 (Social Businesses) Mixed variant 2
Efficiency
Lock-in
More Autonomous
Social Venture Organizational Forms Focal Social Venture Effectiveness Configurations Business Model Configurations
Social Mission
Fund
ing
Value Propositions
More Socially Legitimate
Valu
e C
aptu
re
Autonomy
Fina
ncia
l wea
lth m
otiv
atio
n
Patte
rn 1
Pa
ttern
2
Exte
rnal
Con
trol
Patte
rn 3
a Pa
ttern
3b
Private Ownership Logic
Novelty
Hybrid
Value Creation and Delivery
Balanced
Market Legitimacy
Soci
al L
egiti
mac
y
Chapter 4: Paper 2 – Organizational Characteristics and Forms 173
In pattern 2, ‘more public’ social ventures, characterized by less private
funding yet more public control and low financial wealth motivation were associated
with a lock-in configuration and a ‘more socially legitimate’ effectiveness
configuration because they aimed to achieve financial sustainability. Demand to
offer public/social value propositions, reflected in the relatively high public funding
and public control, placed substantial pressures to social ventures, and this may have
reduced their venture autonomy. They were subsequently constrained from
conducting trading activities and generating profits. To ensure sustainability, they
needed to rely on their network, to lock the participants into their network, and to
ensure that their partners always provided resources that the social ventures needed.
Thus, ‘more public’ social ventures structured value creation and value capture in a
way that they reflected the network lock-in principle. Our cases indicated that social
ventures coped with dependency on their network by collaborating with high profile
partners. Because working with high profile partner is likely to increase legitimacy
(Suchman, 1995), this strategy can make other partners ‘fall in love’ with the social
ventures and be willing to participate in the business model and provide necessary
resources for the focal social venture. Charlie Two, for example, established
collaboration with reputable organizations abroad so the social venture became
respected and increased the loyalty of its network.
‘Mixed’ social ventures reflected two distinctive patterns. We argue that
pattern 3a and 3b were cases of equifinality in the configurational analysis where
different starting points may have led to similar outcomes (Doty, Glick, & Huber,
1993). In pattern 3a, for example, social ventures with relatively moderate to high
private funding, moderate public control, and low financial return (Mixed 1/‘social
174 Chapter 4: Paper 2 – Organizational Characteristics and Forms
businesses’) were associated with the novelty business model configuration and with
the ‘balanced’ effectiveness configuration. These social ventures attempted to find a
fine balance between their social and business objectives by introducing novel value
creation approaches. ‘Social businesses’ often need to cater for different kinds of
‘customers’, commercial and beneficiaries, and this particular choice demands
different value creation and delivery approaches. To create a surplus and to be
financially sustainable, these social ventures need to engage in novel value creation
and delivery activities. Engaging in innovative activity arrangements may help them
to acquire and maintain external resources. As an example, the focal social ventures
may link to two previously unconnected markets to offer value to participants in
each market.
In pattern 3b, despite similar ‘balanced’ effectiveness configurational
outcomes, mixed variant 2, where the social venture had high private funding, high
public control, and low financial wealth motivation, was associated with a hybrid
business model configuration that combined the efficient and the lock-in
characteristics. This variant was only represented by one organization in the cases,
Charlie One. This variant was unique because its high private funding came from
private donations that did not require reporting and were non-restrictive. Thus,
despite having high private funding, Charlie One seemed to structure their value
creation activities in similar ways to those with ‘more public’ social venture forms
that were lock-in value creation activities. Yet, unlike these social ventures that
received larger public funds, Charlie One may have had the freedom to use private
donation funds. We suspected that because they did not have appropriate market
revenues, they were dependent on donors to support them with resources and,
Chapter 4: Paper 2 – Organizational Characteristics and Forms 175
therefore, this explained why Charlie One needed to lock their donors into their
value creation activities to be sustainable.
Discussion and conclusion
We started this study by indicating that there was limited understanding in
the organizational design literature of the relationship between organizational forms
and outcomes in small, social entrepreneurial firms because extant literature had
focused on the relationship in large, commercial organizations. A recent theoretical
study (Margiono et al., 2017) attempted to address this issue and built a typology of
social venture business model forms based on their unique characteristics and further
theorized on the relationship between social venture characteristics, business model
forms and outcomes. However, to the best of our knowledge there is not yet any
empirical research that validates the theoretical study. By comparatively analysing
12 cases from different types of social ventures, we aimed to empirically identify the
characteristics of social ventures, to explore the social ventures that emerged from
these characteristics, and to seek insight into how social venture forms affected
outcomes. We used the ‘construct development’ tactic in the theory elaboration
strategy to improve the construct validity and scope of the theoretically-derived
characteristics of social ventures in the cases - social mission, private ownership
logic, private funding, and public control – and of a new construct found from the
data of financial wealth motivation. We also found that these characteristics
constituted different social venture forms of ‘more private’, ‘more public’, ‘mixed’
and ‘social business’. The data indicated that these forms corresponded to different
business model (efficiency, lock-in, and novelty) and effectiveness configurations
(‘more autonomous’, ‘more socially legitimate’, and ‘balanced’). We then
176 Chapter 4: Paper 2 – Organizational Characteristics and Forms
developed a conceptual framework that captured four unique patterns that linked
venture forms, business models, and effectiveness.
In doing so, we contributed to the theoretical advancement in the literature in
several ways. By empirically validating the characteristics (social mission, private
ownership logic, private funding, public control, and financial wealth motivation)
and their importance to business models and effectiveness in the social
entrepreneurship context, our paper extends existing organizational design literature.
Much research in this body of literature focuses on designs of structures (Burns &
Stalker, 1961); ownership (Bozeman, 1987; Mahoney, 1992); or governance of
transactions (Williamson, 1973) in explaining organizational effectiveness. In
contrast, the findings in this research show an empirical evidence that connects
social venture characteristics, business models, and effectiveness in a way that is
consistent to the tenets of resource dependence theory. The characteristics of an
organization seem to structure its forms to achieve organizational effectiveness.
Therefore, in doing so, the research in this paper parallels with the recent works in
the literature that focus on the role of founder characteristics and organizational
arrangement in venture outcomes, such as the role of founder identity (Fauchart &
Gruber 2011; Sieger, Gruber, Fauchart, & Zellweger, 2016), and the role of founder
strategic choices (Wasserman, 2012; Wasserman, 2017) in entrepreneurial venture
outcomes. The results of this study also have implications for the business model
literature. The extant business model literature has used commercially-based theories
and the framework to analyse commercial firms. Our findings extend the business
model literature by providing empirical evidence of business model designs in social
ventures. The data showed that business models of social ventures were best
perceived as inter-organizational arrangements that these ventures enter to establish
Chapter 4: Paper 2 – Organizational Characteristics and Forms 177
autonomy and legitimacy. With this point of view, we depart from the commercial-
centric view of business models, which tends to consider business models as
strategies to achieve competitiveness. Our findings also enrich the understanding of
how organizational forms structure business model configurations. The extant
business model literature has assumed that only commercial characteristics structure
business models (DaSilva & Trkman, 2014; Wirtz, Pistoia, Ullrich, & Gottel, 2016).
Commercial characteristics, such as profit maximization and sustainable competitive
advantage, condition the selection of value propositions and value creation so that
the focal firm can maximize value capture. In contrast, our study, using insights from
the public administration literature, showed that public and private characteristics,
and their cross-overs, played important roles in structuring the business model
configurations. By doing this, we answered a recent call made in the literature to
further examine business models of social ventures (Demil, Lecocq, Ricart, & Zott,
2015).
This paper also extends the theoretical study (Margiono et al., 2017) by
empirically validating a new characteristic that leads to the identification of new
business model typology of social ventures and outcomes. In doing so, this paper
also contributed to the social entrepreneurship literature, especially the “earned-
income” school of thought (Defourny & Nyssens, 2010), since this paper further
highlights the ways in which distribution of revenues and profits are managed in
effective social ventures.
Limitations and future research
There were several limitations of this research. First, due to the selected case
method, our study did not establish causal relationships between social ventures and
178 Chapter 4: Paper 2 – Organizational Characteristics and Forms
outcomes. Most different system design (MDSD) case research has been recognized
for its lack of robustness in establishing causal relationships between variables under
investigation (Gerring, 2007); therefore, we did not attempt to do so. This limitation
of MDSD case research is due to the ways in which cases are selected. MDSD
focuses on within-group variance (i.e., cases with one similar IV and DV, but vary in
other variables). By not considering between-group differences, or systemic
differences among cases (Yin, 2009), MDSD “truncates” the dependent variable
which make it difficult to isolate variables that are responsible for the emergence of
a dependent variable. Thus, to explore causality, future research should employ case
research or inductive studies that allow the elimination of alternative plausible
explanations from the selection of contrasting cases, such as those suggested by
Eisenhardt (1989) and Yin (2009).
Second, our sampling was limited to successful social ventures in Indonesia
and, therefore, more research is required to ensure results that can be generalized to a
broader context. Our sampling is also limited to the theoretical types outlined in the
theoretical study (Types I, II, and III). A consequence of this sampling approach is
that this research did not cover other social venture types that may empirically exist
outside the theoretical typology. Future studies may employ statistical techniques,
such as taxonomic analysis, to identify different social venture organizational forms
and their corresponding business models. Moreover, examining the configurations
via set-theory methods, such as fuzzy set qualitative comparative analysis (Fiss,
2011; Ragin, 2008) may also be useful because this particular method may reveal
causal relationships among relevant concepts in this research.
In conclusion, organizational forms affect outcomes in both large and small
organizations. In social ventures, the results of this study suggested that the
Chapter 4: Paper 2 – Organizational Characteristics and Forms 179
mechanism were influenced by their characteristics and the types of organizational
forms that emerged. Using public administration literature and publicness theory, as
well as resource dependence theory, we identified patterns that describe how
organizational forms structure inter-organizational arrangements in order to reach
effectiveness. Recognizing these patterns may help social entrepreneurs to steer their
organizations to success. In the end, successful social ventures may help increase the
quality of life of people in their respective areas.
Chapter 4: Paper 2 – Organizational Characteristics and Forms 181
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Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 187
Chapter Transition Note (Paper 2 to Paper 3)
Paper 2 generated several findings; they were: (a) four social venture
characteristics developed in Paper 1 (social mission, private ownership logic, private
funding, and public control) were validated using a case study approach; (b) a new
social venture characteristic emerged from the data - financial wealth motivation; (c)
a new, improved typology emerged based on five social venture characteristics; and
(d) insights into the relationships between emerging social venture forms, business
model types and organizational effectiveness were generated. Paper 2 fulfilled the
theory elaboration role (Fisher & Aguinis, 2017) by developing construct validity of
the characteristics. Paper 2 also improved the typology and generated insights into the
relationship between emerging social venture forms, business model types and
organizational effectiveness. In the next chapter (Chapter 5), Paper 3 uses five
qualitatively validated characteristics from Paper 2 as a basis to develop measurement
scales of social venture characteristics (see Appendix B). The development of the
measurement scales employs scale development steps (DeVellis, 2012) to achieve
further construct validity (convergent and discriminant validity); and predictive
validity by testing the developed scales against dependent variables in a larger sample.
Using developed measures, Paper 3 aims to generate an empirical taxonomy and to
establish a preliminary indication of predictive adequacy of the relationship between
social venture types (or taxonomy), business model configurations, and organizational
outcome (social and financial performance) as part of a theorizing effort to establish a
falsifiable, typology-driven theory of social venture business models for transforming
non-profits. In Paper 3, Paper 1 is referred to as “the theoretical study”; and a specific
reference to Paper 2 was not made in Paper 3.
188 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
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Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 189
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business
Models for Transforming Non-Profit Organizations
Abstract
Many non-profit organizations in developing countries have been transforming to
become social ventures due to declining public funding support. Social ventures can
provide innovative avenues for these non-profit organizations to achieve financial
sustainability and, at the same time, to create value for society. A growing body of
literature has discussed these transformation processes. Despite this, limited
research has focused on the business models of the social ventures emerging from
these transformation processes. By analysing 205 social ventures that underwent
transformation from non-profits in Indonesia, this study developed a taxonomy of
social venture business models based on their theorized unique characteristics using
latent profile analysis (LPA). Three types of social ventures associated with
different levels of locked-in, efficient, and innovative business models and
performance outcomes were found: The “enterprise-focused”, The “mixed-focused”,
and The “social-focused”. Several policy and management insights were generated
and discussed in this paper.
Keywords: typology, venture forms, business models, social venture, social
entrepreneurship, taxonomy
190 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Introduction
The non-profit sector, along with the state and market sectors, serve as
important building blocks in an economy (Considine, 2003; Hansmann, 1980). The
non-profit sector has played an important role in providing unmet public and social
services in societies, especially in many developing countries (Anheier & Salamon,
1998). Many organizations in the non-profit sector receive funding support from
government and grant-making agencies in performing these tasks.
In the last few years, especially in developing countries that are now
categorized as middle income countries (World Bank, 2017), such as Indonesia, the
Philippines, and Cambodia, there has been a decline in public funding support from
grant-making agencies to the non-profit sector organizations (Khieng, 2013; Parks,
2008). This decline in public funding support has presented challenges, as well as
opportunities for existing organizational practices. For non-profit organizations, the
decline in funding support served as a catalyst to embrace innovation and novel
approaches in managing their organizations (Dart, 2004). This environmental context
has encouraged many non-profit organizations to transform into social ventures
(Bull, 2008; Nicholls, 2006; Pearce, 2003). Defined as an entrepreneurial form of an
organization that uses innovation in combining social, or public benefit aims with
business-like management (Anheier & Ben-ner, 2003; Becchetti & Borzaga, 2010;
Mair & Martí, 2006), social ventures have provided avenues much needed by these
non-profit organizations to achieve financial sustainability in creating public and
social value.
A growing body of literature has studied the transformation of non-profits in
becoming more entrepreneurial and business-like (Defourny & Nyssens, 2010), and
much research in this area has investigated the processes of the transformation of
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 191
non-profit organizations (Davis et al., 2011; Gras et al., 2014; Guo, 2006). Other
research has focused on income-generation strategies taken by non-profits in
developing countries to perform effectively amid increasing scarcity in grant funding
(Khieng, 2013). Various research has concentrated on the boundaries and the
definition of market-based non-profits (Dart 2004; Defourny & Nyssens, 2010;
Eikenberry & Kluver 2004). Some other streams have focused on ethics in the
marketization of non-profit organizations (Eikenberry, 2009).
Despite much research in these areas, there have been limited insights in this
body of literature regarding the social venture business models that these non-profits
may adopt when they transform (Demil et al., 2015). In contrast to the commercial
context of the existing business model frameworks (DaSilva & Trkman, 2014; Wirtz,
et al., 2016; Zott et al., 2011), the business model context of these emerging social
ventures is unique. They do not only embrace the social elements (Wilson & Post,
2013) that are absent in most commercially-driven business model analyses (Wirtz et
al., 2016), but they also need to address the continuing tensions from public and
private forces that affect the ways they manage value creation activities (Margiono et
al., 2017; Ridley-Duff, 2008).
An empirical, taxonomic analysis of emerging social venture business model
configurations is, therefore, necessary to achieve improved insights into what they
are and how they affect outcomes, especially in a developing country context where
tensions between public and private forces are high. A taxonomy refers to an
empirically derived classification of organizations (Rich, 1992). Focusing on this
effort has important managerial and policy purposes because this helps the emerging
social ventures navigate the public and private tensions during the transformation
process by identifying high performing business models. Furthermore, an
192 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
understanding of this could also support policy-makers in identifying the appropriate
policy environment, such as the supportive legal structure and incentives that
correspond to particular business model arrangements, to ensure social venture
performance and sustainability. Thus, this paper puts forward the following research
questions: Are there different social venture business models that are empirically
identifiable, and if so, how do they differ?
This paper employs a taxonomic analysis of social venture business models
by using survey data of 205 non-profits that have transformed to social ventures in
Indonesia. These non-profit organizations were involved in the non-profit
transformation training conducted by the British Council in Indonesia, and they had
undergone a transformation process to become social ventures. Latent profile
analysis (LPA) was used to generate the taxonomy (Gabriel et al., 2015; Lanza et al.,
2013). LPA is an appropriate method for capturing sub-population heterogeneity in a
particular sample (Muthen, 2001; Muthen, 2004; Nylund et al., 2007). An existing
typology of social venture business models was used to further interpret the
empirical taxonomy findings (Margiono et al., 2017). A typology refers to
conceptually defined organizational types that are believed to affect particular
outcomes (Doty & Glick, 1994). Using a typology to interpret an emerging
taxonomy is advised in the configuration literature to establish a better understanding
of particular phenomena (Khelil, 2016).
This paper provides several contributions to the literature. First, it
contributes to the social entrepreneurship literature by providing a more nuanced
understanding of social venture business models grounded in unique empirical data
of transformed non-profits in a developing country. Second, this paper also makes
an empirical contribution to the business model literature by showing the
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 193
relationship between social venture forms and business models; thus, this paper
responds to the call in the business model literature to further investigate the
business model of social ventures (Demil et al., 2015).
In the next section, business models in a social entrepreneurship context are
outlined, highlighting extant literature that discusses business models of social
ventures. In the following section, an existing conceptual framework is described
that is used as the basis for generating the empirical taxonomy. The study design is
described in the next section. The results from the LPA are reported along with a
discussion of the emerging social venture business model configurations. The paper
closes with a discussion on the contributions, limitations, and suggestions for further
research.
Business models in social entrepreneurship
A business model illustrates how a firm conducts its business and reflects a
“system of interdependent activities performed by a focal firm and its partners and
the mechanisms that link these activities to each other” (Amit & Zott 2015, p. 31).
Business models originated in the information technology literature (Zott et al.,
2011) and they have now spilt over into different kinds of literature. There are many
“streams” of business model perspectives in the literature, yet most are dominated by
discussions of the business models of commercial firms (Wirtz et al., 2016). Zott et
al. (2011) identified three broad areas in the commercial literature that have used
business models: e-commerce, strategy, as well as technology and innovation
management. Wirtz et al. (2016) highlighted that the literature has identified
different building blocks of business model components, although these different
components can be collapsed into three essential dimensions: value proposition,
value creation, and value capture (Richardson, 2008).
194 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
In recent years, emerging business model research has started to discuss
sustainability and business models of non-commercial entities (Bocken et al., 2014;
Boons & Lüdeke-Freund, 2013; Osborne et al., 2014; Randles & Laasch, 2016).
These studies have attempted to incorporate socio-environmental (Bocken et al.,
2014), public (Osborne et al., 2014), as well as normative aspects (Randles &
Laasch, 2015) with the existing understanding of business model configurations.
In the social entrepreneurship literature, an exploration of different social
venture models has also taken place (Defourny & Nyssens, 2016; Wilson & Post,
2013; Yunus et al., 2010). A recent theoretical study has specifically focused on the
public and private tensions that social ventures can face in developing countries and
it explains how business models are configured as a response to these aspects
(Margiono et al., 2017). This paper draws from this theoretical study to describe the
typology of social venture business models that are outlined in the next sections.
Public and private tensions, social venture characteristics, and business models
Emerging social ventures that are transformed from non-profits must deal
with public and private tensions (Bull, 2008; Margiono et al., 2017; Ridley-Duff,
2008). This means that from the perspective of resource dependence theory (Pfeffer
& Salancik, 1978, 2003), these emerging social ventures are dependent on both
public (non-market) and private (market) resources that are available in other
organizations to survive (Yuchtman & Seashore, 1967). Organizations often enter
into inter-organizational arrangements to cope with these resource dependencies
(Pfeffer & Salancik, 1978, 2003). Business model configurations, understood as a
system of interdependent activities, are essentially non-dyadic, inter-organizational
arrangements between focal firms and partners that ventures embrace to achieve
effectiveness (Margiono, et al., 2017). Business models are inter-organizational
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 195
arrangements of how value propositions, value creation, and value capture activities
are configured between the focal firm and its key partners (Osterwalder et al., 2005;
Richardson, 2008). Since the configuration of these business model dimensions are
dependent on organizational characteristics (see Figure 5.1), in this section the
characteristics of social ventures are outlined to make sense of the corresponding
social venture business model configurations.
Social venture characteristics
The public administration literature has hosted extensive discussions on the
distinguishing characteristics of public and private organizations. In addition to the
differences between their missions (Wright, 2007), public and private organizations
differ according to their ownership nature, funding, and control (Bozeman, 1987;
Perry & Rainey, 1988). In public organizations, ownership is public and, therefore,
unlike private organizations, owners have no property rights over their organizations
(Demsetz, 1967). Similarly, funding in public organizations is from public money
and, therefore, they cannot appropriate profit like private organizations. Unlike
private organizations, public control is high in public organizations and this affects
their decision-making processes, especially in relation to value capture and profit.
Social ventures combine the logic of different sectors (Doherty et al., 2014);
therefore, they display characteristics of both public and private organizations. The
‘publicness’ and ‘privateness’ of organizations can be considered a continuum
(Lewis & Zolin, 2004); thus, social ventures embrace different degrees of publicness
or privateness. In light of this, on the one hand social ventures have a social mission
and public control characteristics like public organizations, but on the other hand,
they can simultaneously have private funding and use ownership logic like private
organizations.
196 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Figure 5.1 Configuring effective business models in public and private organizations (from Margiono et al. 2017).
Market resource dependence
Non-market resource dependence
Mission to profit/capture value
Priv
ate
fund
ing
sour
ces
Priv
ate
owne
rshi
p
Private control
Public control Mission to create public/social value
Publ
ic fu
ndin
g so
urce
s
Publ
ic
owne
rshi
p
Publ
ic o
rgan
izat
ions
Pr
ivat
e or
gani
zatio
ns
Key characteristics of private organizations
Key characteristics of public organizations
Effective business model configurations
Commercial value proposition
Public/social value proposition
Val
ue c
aptu
re
Val
ue c
reat
ion
and
deliv
ery
Extant business model Dimensions
Leg
itim
acy
Aut
onom
y
Effective business model configurations – those that strengthen the autonomy and the legitimacy of focal organizations from market and non-market resource dependence – reflect how the characteristics of public and private organizations configure traditional business model dimensions.
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 197
These four unique characteristics (social mission, private ownership logic,
private funding, and public control) of social ventures are summarized next, as
outlined in the theoretical study by Margiono et al. (2017). However, since recent
literature has indicated that the financial motivation of entrepreneurs can also affects
the various ways in which a venture manages resource dependency (Wasserman,
2012, 2017), this paper also considers the financial wealth motivation of owners (i.e.,
social entrepreneurs) as an important theoretical characteristic in addition to the
original characteristics outlined in the theoretical study.
Social mission
A social mission distinguishes social ventures from their commercial
counterparts (Austin et al., 2006; Seanor et al., 2013). This is because in contrast to
commercial ventures a social venture aims to prioritize value creation over value
capture (Santos, 2012). Even though social ventures use business methods in
achieving their objectives, they put a social mission ahead of their business mission.
This differs from commercial ventures where the aim is primarily to capture value
(Bowman & Ambrosini, 2000).
Private ownership logic
Private ownership logic, the logic of exclusive profit distribution to owners
of social ventures, distinguishes social ventures from non-profit organizations. In
private organizations, owners and shareholders have the exclusive right to exclude
others in profit appropriation (Demsetz, 1967). In contrast, since the public is the
“owner” of a public entity, public and non-profit organizations are not allowed to
distribute profit to a group of people. Social ventures, despite their social mission,
198 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
use private ownership logic as they can have limited profit distribution (Defourny et
al., 2014; Defourny & Nyssens, 2008, 2010). This, therefore, separates them from
non-profit organizations where in the latter, an organization’s profit distribution is
restricted due to the non-distributive nature of non-profits (Ben-ner & van
Hoomissen, 1991; Defourny, 2001; Hansmann, 1980).
Private funding
Social ventures usually receive funding from different sources (Dees, 1998;
Seanor, et al., 2013), and each funding source can affects social ventures differently.
Sales revenue from private or market sources allows social ventures to be flexible in
surplus management. In contrast, government funding restricts social ventures to
generate and manage financial surpluses. Private funding, thus, refers to the
proportion of funding received by social ventures from market activities. The degree
of private funding eventually influences how a business model is configured in the
social entrepreneurship context (Margiono et al., 2017). For example, larger private
funding directs the value propositions of the social venture towards value creation
that also has the potential for profit generation (value capture).
Public control
Different levels of public control can affect different social venture business
models (Margiono et al., 2017). Public control refers to the extent to which a social
venture is dependent on external public organizations, such as governments, grant
making organizations, or stakeholder organizations. In social ventures with high
public control, value capture is limited. Therefore, these social ventures are less able
to generate profit for shareholders. Similar to public organizations, business model
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 199
decision-making in social ventures with high public control is rather constrained; for
example, these social ventures need to develop value propositions and have value
creation activities that serve the interests of the public or the stakeholders.
Financial wealth motivation
Social ventures may be owned or operated by different types of social
entrepreneurs (Zahra et al., 2009). Therefore, they may also differ in their levels of
wealth motivation. A recent study on the founders of enterprises showed that
founders differed in wealth motivation levels (Wasserman, 2012). Founders who
sought wealth often needed to give up their control of the ventures because
generating wealth required the focal ventures to acquire resources that were only
available externally (Wasserman, 2012). Working with investors, for example,
increased the potential to generate more profit but the founders needed to give up
some aspects related to the control of the ventures to them as founder control
contradicted with the valuation of the start-ups (Wasserman, 2017). In contrast,
founders who sought to retain control of the ventures may have kept their ventures
small and needed to manage their wealth motivation or expectations (Wasserman,
2012).
Social venture business model configurations
Altogether, these five characteristics form different types of social ventures
business models. These types are “ideal types” (Weber, 1978), meaning that in real
life it is likely that these types and models are combined (Cahnman, 1965). Based on
the social venture characteristics, the types and configurations that are proposed to
lead to particular performance characteristics are described in Table 5.1.
200 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Table 5.1. A Typology of Social Venture Business Model Configurations (Adapted from Margiono et al., 2017)
Type
Social venture characteristics Business model configurations
Performance characteristics Social
mission Private
ownership logic
Financial wealth
motivation
Private funding
Public control
Type I (more public)
High
High
Low
Low
High
Lock-in-centred business model
Higher social performance (more legitimacy)
Type II (mixed)
High High Low High High Novelty-centred business model
Relatively balanced
Type III (more private)
High High High High Low Efficiency-centred business models
Higher financial performance (more autonomy)
Type I (more public) and lock-in business model configurations
Social ventures in Type I are rather similar to public organizations because
they have low financial wealth motivation, low private funding, and high public
control. Their low private funding and high public control make social ventures in
this configuration less able to generate profit and dependent on external
organizations and, therefore, to establish financial sustainability, these social
ventures need to ensure that their value creation partners are locked into a network
that continuously supports the focal social ventures (Margiono et al., 2017). Thus, to
effectively perform, these emerging social ventures establish a business model like a
lock-in configuration in the literature. A lock-in-centred configuration discourages
partners to leave the network because the costs of doing so are high (Amit & Zott,
2001, 2015). Being more public, this type of a social venture may have higher social
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 201
performance but lower financial performance than others. Social performance is
defined as the outcomes that social ventures have in the environmental, social and
governance domains (Orlitzky et al., 2015), while financial performance refers to the
achievement of set financial/profit targets (Cowen et al., 1987).
Type II (mixed) and novelty business model configurations
In Type II, the emerging social ventures have low financial wealth
motivation, high private funding, and high public control. They have a mixture of
high private funding and high public control. As a result, they need to introduce
novel and innovative inter-organizational arrangements to ensure value creation in
this conflicting environment between external control (public control) and the need
for surplus generation and management (private funding) (Margiono et al., 2017).
This particular inter-organizational arrangement is similar to the novelty-centred
business model in the literature (Amit & Zott, 2001, 2015). Furthermore, having
mixed private funding and public control may yield a balanced social and financial
performance.
Type III (more private) and efficiency business model configurations
Type III social ventures resemble private organizations due their similar
characteristics (high financial wealth motivation, high private funding, low public
control); however, unlike commercial companies, they prioritize value creation over
value capture (Agafonow, 2015; Santos, 2012). These social ventures have high
financial wealth motivation and high private funding. Therefore, they need to
manage their value creation activities in a way that transaction costs are reduced.
With low public control, these emerging social ventures can generate and manage a
surplus to fulfil both their wealth motivation and social mission (Margiono et al.,
2017). In doing so, they embrace a business model similar to an efficiency-centred
202 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
business model (Amit & Zott, 2001, 2015) in the literature due to their interest in
reducing transaction costs across the value creation network. Being more efficient,
these social ventures may exhibit more financial performance but less social
performance than others.
Method
This paper uses a configurational approach (Fiss, 2011; Miller, 1996; Short et
al., 2008), as opposed to the conventional variable-centric approach, to analyse 205
empirical cases collected from transformed non-profits associated with the British
Council NGO transformation training programs. A configurational analysis
perceives organizations as a whole and focuses on the relationship between
dimensional variables that configure typologies and taxonomies of organizations
(Fiss, 2011; Short et al., 2008).
This paper uses the configurational approach method of latent profile
analysis (LPA) to generate an empirical taxonomy of social venture business models.
Unlike other configurational analysis methods, such as a traditional cluster analysis
(Ketchen & Shook 1996), LPA uses a probabilistic method to generate sub-
population profiles (Nylund et al., 2007). LPA uses three simultaneous steps to
determine the number of profiles and to analyse how these resulting profiles differ
significantly for selected dependent variables. The first step, which establishes the
most appropriate number of latent classes, is conducted by specifying a two-profile
latent class up to a number where the fit indices indicate that the number of profiles
is no longer useful. In the second step, with the number of classes specified, as
explained by Asparouhov and Muthen (2014), class membership of the individual
case is obtained based on the posterior distribution taken from the previous step. In
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 203
the third step, auxiliary variables, the distal outcomes, are examined against the
profile solutions.
Context, participants, and procedures
The context of this paper is the developing country of Indonesia, which has
recently been ranked as a lower middle income country by the World Bank (2017).
In Indonesia, social entrepreneurship has been present since the pre-independence
era (Idris & Hati, 2013). During the pre-independence period, social
entrepreneurship mainly contributed to the country’s struggle for independence. In
the post-independence period, the popularity of social entrepreneurship was
relatively in decline because non-profit sectors received substantial financial support
from the government as well as from foreign grant-making agencies (Harney &
Olivia, 2003). This dynamic started to change in the first half of the decade of 2010
because foreign grant-making agencies shifted their funding policy and reduced
public funding to non-profits (Aspinal, 2010; UNESCO, 2014), partly due to the
status of Indonesia as a lower middle income country. As a result, along with the
rising popularity of the entrepreneurship movement in Indonesia, social
entrepreneurship started to regain its ground. During this period, many non-profits
started transforming into social venture to survive.
The sampling frame of this study was 834 social ventures from British
Council’s Indonesian social entrepreneurship development programs. The program
helps non-profits to transform to become social enterprises by providing various
kinds of training programs and assistances (British Council, 2017). These programs
were started in 2012 and consisted of training in a social venture design. Many of the
social enterprises in the sample were relatively new and young, and they may still be
204 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
experimenting with different business model types. Thus, the sample in this study
was heterogeneous and it was suitable for an analysis of different social venture
business model configurations.
The data was collected in two stages via a telephone survey in 2016. A
telephone survey was chosen because the respondents were scattered across different
Indonesian cities and islands. Initially, the invitations were sent to social
entrepreneurs in the list via email and/or text messages and asked for their
willingness to participate in the survey. In total, 307 social ventures responded to the
invitation (36% response rate). During the first stage, 102 social ventures were
telephone surveyed. This pilot sample was used as the development sample to
develop scales for the social venture characteristics and to conduct an initial
exploratory factor analysis (EFA) following the expert panel consultations and a pre-
test of the initial scales with the social entrepreneurs to ensure content validity. In
the first stage, data was collected on four characteristics of the social ventures (social
mission, private ownership logic, private funding, and financial wealth motivation).
In the second stage, using the improved survey questions based on the
findings in the pilot study, a further 205 social ventures were telephone surveyed. In
the second stage, data was collected on all five characteristics of social ventures
(social mission, private ownership logic, private funding, financial wealth
motivation, and public control) as well as the business model configurations
(efficiency, novelty, lock-in) and the social and financial performance data. To
reduce common method bias (Podsakoff et al., 2003), the social and financial
performance data was collected two weeks after the data on the characteristics and
business model configurations were gathered. The second stage of data was used to
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 205
conduct the final EFA and confirmatory factor analysis (CFA). The second stage of
the data was also used to conduct the LPA.
Measures
The measures were self-report/subjective and were utilized to capture latent,
psychologically abstract constructs in the minds of the social entrepreneurs. “Hard
data” was not used for several reasons. First, since the size of the social ventures in
the sample was small and they were transformed from non-profits, they tended not to
keep actual metrics or “hard data” – such as public vs. private funding.
Subsequently, there was no published data on the financial characteristics of social
ventures in Indonesia. Second, using direct measures could be misleading in a social
entrepreneurship context; for example, using the proportion of private ownership
(e.g., using shareholder data) to determine the ‘privateness’ of social ventures may
be misleading, as many social ventures have a non-company legal status and yet still
reflect private logic (e.g,. profit distributions) in their activities. Third, using
subjective and perceptual measures in social entrepreneurship literature is common
(Liu et al., 2015), and because managerial decisions are driven by perceptions (Dess
& Robinson, 1984), perceptual measures have been used as reliable and valid
assessments of a construct to replace actual “hard data”, for example: subjective
measures of financial performance (Gu et al., 2008). The following is a descriptive
summary of the measures used. All of the items were measured by a 6-point Likert
scale, from 1 = strongly disagree to 6 = strongly agree (Appendix B in this thesis
provides the details of measurement item development).
206 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Social mission: Three items measured the social mission orientation of the social
venture (e.g., “you prioritise aspects that benefit society when doing organizational
planning”).
Private ownership logic: Six items measured the private ownership logic of the
social venture (e.g., “your social enterprise is not restricted to distribute financial
returns to owners”).
Private funding: Five items measured private funding, using a proxy of surplus
management capability (e.g., “your social enterprise has high flexibility in managing
generated surplus”).
Public control: Two items measured external public control, using perceived social
entrepreneurs’ dependence on NGOs and the government (e.g., “how dependent are
you on the following institutions”).
Financial wealth motivation: Three items measured the financial wealth
motivation of owners (e.g., “owners establish a social enterprise because they want
to gain financial return”).
Efficiency-centred business model configuration: Three items measured the
efficient business model configuration of the social venture, which was adapted from
Zott and Amit (2007, 2008) (e.g., “the business model of your social enterprise
offers transaction efficiency”).
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 207
Novelty-centred business model configuration: Five items measured the novelty
business model configuration of the social venture, which was adapted from Zott and
Amit (2007, 2008) (e.g., “there are aspects of the business model that make it
novel”; “the business model of your social enterprise is novel”).
Lock-in-centred business model configuration: Six items measured the lock-in
business models of the social venture, which was developed from Amit and Zott
(2001) and adapted in the social entrepreneurship context (e.g., “loyalty of the
stakeholders to your social enterprise needs to be properly maintained”; “the
business model of your social enterprise maintains the loyalty of the stakeholders”).
Social performance: Six items measured the social performance that were adapted
from Liu et al. (2013) (e.g., “your social enterprise serves more beneficiaries”).
Financial performance: Two items measured the financial performance that were
adapted from Liu et al. (2013) (e.g., “last year’s financial target was achieved”).
Measurement model
Social mission, private ownership logic, private funding, public control, and
financial wealth motivation were newly developed measures, while business model
configurations (efficiency, novelty, and lock-in) and performance measures were
adapted from the extant literature. Appendix 5A lists the items of the newly
developed measures. A CFA model with 10 latent factors (i.e., all variables involved
in this study) showed that all items loaded above .30 and the model exhibited good
fit when analysed using IBM AMOS version 23 (χ2 = 1018.18; df = 933; p = .00 ;
208 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
NFI = .80; CFI = .93; IFI = .93; TLI = .92; SRMR = .05; RMSEA = .04). All the
factors showed discriminant validity, yet one scale (public control) exhibited lower
construct reliability than the recommended cut-off of .7, possibly because the scale
only had two items (Cortina, 1993). As expected, the scale showed a rather low AVE
(average variance extracted) score.
Analytical method
An LPA guideline was followed, as outlined in Nylund et al. (2007) to
determine the number of profile solutions. A latent statistical software, MPlus
version 8, was used to conduct the LPA. Since the typology (see Table 5.1) indicated
that the variance among different types exists only in three characteristics (financial
wealth motivation, private funding, and public control), these variables were used as
profile indicators in the LPA. First, a two-latent class/profile analysis was specified.
The number of profiles estimated was increased sequentially until the model fit
indices showed that an increase in the number of profiles was no longer useful.
Then, the model fit indices were examined to determine the optimum number of
profiles. Following Gabriel et al. (2015) and Foti et al. (2012), seven fit statistics
were examined: LL (log likelihood), Akaike information criterion (AIC), Bayesian
information criterion (BIC); sample-size adjusted BIC (SSA-BIC), Lo-Mendell-
Rubin (LMR) likelihood ratio test, Bootstrap likelihood ratio test (BLRT), and
entropy.
Unlike other fit indices in a statistical analysis, there is no cut-off point for
the LPA indices (Gabriel et al., 2015). According to previous research, an ideal
model tends to have the LL, AIC, BIC, and SSA-BIC scores lower than the other
profile solution. BIC and SSA-BIC are considered superior fit indices as a basis to
Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models 209
decide the number of clusters when the LPA uses continuous variables (Nylund et
al., 2007). Researchers have also interpreted the statistical results of the LMR and
BLRT tests. However, the sample size may affect the result of these fit indices
(Dziak et al., 2014); the normality of the data can also yield an incorrect p value of
the BLRT (Nylund et al., 2007). Further, entropy needs an inspection and ideally
needs to be higher than .7 to ensure classification accuracy (Jung & Wickrama,
2008).
Despite these fit statistics, deciding the number of profiles should be done
according to the theoretical meaning of the solutions, and researchers may select the
profile solutions by heavily using theories and past research (Foti et al., 2012;
Lawrence & Zyphur, 2011; Lubke & Muthén, 2005; Morin et al., 2011). To
determine the number of profiles, researchers should also inspect whether profiles
are redundant and whether the membership in each profile is sufficient (Bennett et
al., 2016; Nylund, et al., 2007), for example, more than 20 (Hair et al., 2010).
Appendix 5B at the end of the chapter illustrates the flowchart to decide the number
of profiles using LPA.
Having decided the number of profiles, a test was conducted to determine
whether the profiles differed significantly along selected distal outcomes (business
model configurations, and social and financial performance) by using an approach
described by Lanza et al. (2013) and programmed into MPlus via the DCON
command which automatically estimated the relationship between cluster
membership and a set of distal continuous outcome variables. To make further sense
of the results, differences among profiles were transformed into a standardized effect
size (Cohen’s d) to see the effect of each resulting profile on the emerging business
model configurations and performance. The effect size is considered small if the
210 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
value of Cohen’s d score falls below < .20; moderate if it is equal to .50; and large if
it is larger than .80 (Cohen, 1988).
Results
The means, standard deviations and correlations of the variables are
presented in Table 5.2. Furthermore, an inspection of the fit statistics resulting from
the LCA revealed several potential profile solutions (see Table 5.3). The six-profile
solution was first inspected. One profile contained only 10 members (less than 5% of
the total sample); thus, the six solutions may not have been reliable (Arnold et al.,
2017), and no further increase in the number of profiles was requested. The six-
profile solution was not selected. The two-profile solution was then investigated. The
fit statistics showed that the two-profile solution provided a better model fit because
it had a lower LL, BIC, a highly significant LMR and BLRT as well as high entropy
(> .8). However, a further investigation showed that the two-profile solution was less
theoretically meaningful because 70% of the social ventures in the sample fell into
one profile; therefore, there was a possibility that more than one profile was
collapsed into one profile. Therefore, the two-profile solution was not selected. The
four-profile solution was then inspected, for which some of the fit indices were
supported as a viable solution. However, an ANOVA showed that the profile
indicator variables did not differ significantly across the profiles: financial wealth
motivation, F(3, 201) = 1.11, p = .345; private funding F(3, 201) = .63, p = .597;
public control, F(3, 201) = 2.23, p = .086; and, therefore the four-profile solution
was also not selected.
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 211
Table 5.2 Means, Standard Deviations, and Correlations of the Variables
M SD 1 2 3 4 5 6 7 8 9 10 Social mission 5.42 .51 .68
Private ownership logic
4.58 1.04 -.12 .96
Financial wealth motivation
3.45 1.14 .03 .46** .78
Private funding 4.17 1.10 .09 .18** .37** .90
Public control 3.34 1.24 .04 -.07 -.01 .06 .51
Lock-in business models
5.32 .48 .16* .00 .20** .02 .07 .80
Efficiency business models
4.73 .72 .17* .05 .02 .16* -.02 .17* .77
Novelty business models
4.89 .69 .20** .14* .10 .10 -.00 .22** .29** .83
Social performance
4.88 .77 .35** -.10 .04 -.01 .06 .29** .22** .16* .82
Financial performance 4.01 1.06 .22** -.01 .13 .03 .00 .12 .28** .06 .36** .82
Note. Cronbach’s alphas are in the diagonal. *p < .05; ** p < .00
212 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Table 5.3 Fit Statistics of the LPA (Three-Profile Solution Selected)
Fit Statistics Solution
Two-profile Three-profile
Four-profile
Five-profile
Six-profile
LL -933.57 -927.90 -918.12 -908.74 -902.81 AIC 1887.15 1883.80 1872.25 1861.47 1857.62 BIC 1920.38 1930.33 1932.06 1934.58 1944.02 SSA-BIC 1888.70 1885.97 1875.03 1864.88 1861.64 LMR p = .00 p = .12 p = .03 p = .17 p = .06 BLRT p = .00 p = .09 p = .01 p = .01 p = .25 Entropy 0.83 0.69 0.74 0.83 0.85
Note. LL = log-likelihood; AIC = Akaike information criteria; BIC = Bayesian information criteria; SSA-BIC = sample-size-adjusted BIC; LMR = Lo-Mendell-Rubin test; BLRT = bootstrapped log-likelihood ratio tests.
The three-profile solution was finally selected. Inspecting the BIC
and SSA-BIC fit statistics has often been used in previous research to select
the best profile solutions because these two fit statistics are seen as superior
indices when the indicators are continuous (Abenavoli et al. 2017; Lee &
Bierman, 2016; Nylund, et al., 2007). A recent study indicated the
importance of considering the AIC statistic in conjunction with the BIC and
SSA-BIC (Dziak et al., 2014). In the present research, SSA-BIC showed
that the three-profile solution had a lower score than the two-profile
solutions, which was preferable. An inspection of the AIC statistic also
showed that the three-profile solution had a lower score than the two-profile
solution and was, therefore, also preferable, even though the entropy
statistic was rather low and the results of the LMR and BLRT were
marginally significant in the three-profile solution. Furthermore, the
ANOVA analysis showed that private funding served as the most
distinguishing indicator, F(2, 202) = 357.13, p = .00, followed by financial
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 213
wealth motivation, F(2, 202) = 64.69, p = .00, and public control, F(2, 202)
= 4.28 p = .01.
The cut-off ranges were determined for the low (M = 1.00 to M =
3.49) and high mean scores (M = 3.50 to M = 6.00) to interpret the profiles.
Using dichotomous scores (high and low) was consistent with the theoretical
typology (see Table 5.1). This made the interpretation of the empirical
taxonomy more meaningful as the results could be mapped against the
identified typology outlined in section 2. An initial inspection of the means
indicated that the emerging profiles could be classified as social ventures, as
opposed to commercial ventures and non-profit organizations, because they
had a high social mission (between M = 5.39 and M = 5.55) and high private
ownership logic (between M = 4.38 and M = 4.97). Further inspection of the
mean scores of the indicators showed that they were hybrids, meaning that
they combined different characteristics despite some salient appearances
being similar to the types identified in the typology. The distribution of
profile membership showed that profile 1 consisted of 28.3% of the sample,
profile 2 consisted of 16.1% of the sample, and profile 3 consisted of 55.6%
of the sample.
The LPA result showed that profile 1 had low financial wealth
motivation (M = 2.91, SD = .97), low private funding (M = 2.67, SD = .50),
and low public control (M = 3.19, SD = 1.32). This profile was labelled as
“social-focused” because it was similar to a Type I/more public typology.
These social ventures have low private funding and low financial wealth
similar to their original non-profit organizations where they tend to have
rather low market revenue and low financial wealth because of non-
214 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
distributive principles in many non-profits. Yet, in contrast to Type I, this
profile had relatively low public control which implied that the social
ventures in this type were less dependent on external public organizations.
Profile 2 has high financial wealth motivation (M = 5.04, SD = .53),
high private funding (M = 5.31, SD = .47), and high public control (M =
3.91, SD = 1.29). They were social ventures that had Type III/more private
characteristics as they had higher mean scores for private funding and
financial wealth motivation than the other profiles. The social ventures in
this profile were labelled as “enterprise-focused” because they had more
market and wealth orientation (high private funding and high financial
wealth motivation); yet, profile 2 also embraced a characteristic of Type
I/more public social ventures as they had a higher public control mean
compared to others, implying that these social ventures were still dependent
on external public organizations, such as other NGOs and government
agencies.
Profile 3 had low financial wealth motivation (M= 3.25, SD =.94),
high private funding (M = 4.59, SD = .54), and low public control (M =
3.33, SD = 1.16). Social ventures in this profile seem to have had high
market activities but their mean score was lower when compared to the
“enterprise-focused”, and despite the low financial wealth motivation, they
seemed to have a slightly higher mean score than the “social-focused”
ventures. They were closer to Type II/mixed yet with lower public control.
This may indicate that the social ventures in this profile occupied the middle
ground and, therefore, they were labelled as mixed-focused”.
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 215
Following the interpretation of the profile solution, the results of the
auxiliary variable (distal outcome) analysis were examined. The results of
the DCON test in MPlus showed that all profiles were significantly different
across different business model configuration scores and financial
performance scores, except for social performance. This indicated that the
profiles were associated with different levels of business models and
financial performance but not social performance. The profiles exhibited a
significant variation in the lock-in business model (χ2 = 19.708, df = 2, p <
.001), the efficiency business model (χ2 = 8.089, df = 2, p < .05), the novelty
business model (χ2 = 18.238, df = 2, p < .001), and financial performance (χ2
= 20.512, df = 2, p < .001). This particular finding highlighted two
important interpretations. First, a significant difference between the profiles
and the business model configurations indicated a reflection of the resource
dependence theory logic highlighted in the theoretical typology argument.
An interpretation can be made that these social ventures embraced business
models to ensure performance because the profiles showed significant
associations with different business model configurations and performance.
Second, in contrast to the theoretical prediction, the empirical taxonomy
analysis showed that business models seemed only to be associated with
financial performance; they did not differ in social performance. Since the
profiles differed most significantly on the private funding and financial
wealth motivation characteristics, this may have indicated that revenue and
financial aspects of the social ventures were not directly relevant to the
social performance of the transforming non-profits; instead, they mattered to
the financial sustainability of the social ventures.
216 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Further inspections of the effect sizes (Cohen’s d) of the distal
outcomes were conducted to interpret the differences between the profiles
according to different business model configurations and financial
performance. Table 5.5 indicates that most of the effects were relatively
small/medium to trivial (between d = .68 to d = .01) and Figure 5.2
illustrates the standardized mean differences of the distal outcomes. Despite
the small/medium effect sizes, substantial and meaningful differences were
observed among the profiles. The “enterprise-focused” were substantially
higher on the efficiency-centred business model than the “social-focused”
(Cohen’s d = .27); this is consistent with the extant literature because the
“enterprise-focused” had higher private funding and financial wealth
motivation mean scores compared to the “social-focused”. The “enterprise-
focused” showed a higher level of the lock-in business model than the
“mixed-focused” and the “social-focused” (Cohen’s d = .63 and .40);
although the differences between the “social-focused” and the “mixed-
focused” were small (Cohen’s d = .20). This is also consistent with the
literature where higher public control seems to lead to the higher level of
lock-in. The effect size analysis further showed that the “enterprise-focused”
tended to be the most innovative social ventures by substantially adopting
more novel business model configurations compared to the “mixed-focused”
and the “social-focused” (Cohen’s d = .38 and .37, respectively). The
“social-focused” and the ‘mixed-focused” showed no substantial differences
in innovation (Cohen’s d = .01).
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 217
Table 5.4 Profile Information and Interpretation
Profile information (LPA Outputs) M(SD) ANOVA Indicator variables Profile 1 (A) Profile 2 (B) Profile 3 (C) df F p Financial wealth motivation
2.91(.97)B,C
5.04(.53) A,C
3.25(.94) A,B
2,202
64.69
.00**
Private funding 2.67(.50)B,C 5.31(.47) A,C 4.59(.54) A,B 2,202 357.13 .00** Public control 3.19(1.32) B 3.91(1.29) A,C 3.33(1.16) B 2,202 4.28 .01* Profile membership 58 (28.3%) 33 (16.1%) 114 (55.6%) DCON χ2 Distal outcome variables df χ2 p Lock-In 5.36(.50) B,C 5.54(.38) A,C 5.26(.49) A,B 2 19.70 .00** Efficiency 4.62(.76) B 4.83(.75) A,C 4.75(.70) B 2 8.08 .01* Novelty 4.84(.69) B 5.10(.70) A,C 4.83(.69) B 2 18.23 .00** Social performance 4.94(.75) 5.08(.61) 4.78(.82) 2 4.40 .11 Financial performance 4.01(1.04) B 4.58(1.24) A,C 3.80(1.01) B 2 20.51 .00**
Profile Interpretation Configurational names “The social-
focused” “The
enterprise-focused”
“The mixed-focused”
Social venture characteristics
Social mission High High High Private ownership logic High High High Indicator variables Financial wealth motivation Low High Low Private funding Low High High Public control Low High Low Theoretical typology mapping
Type I/ more public
Type III/more private
Type II/mixed
Employees <10 persons 56.9% 69.7% 67.5% >10 persons 29.3% 24.2% 14% No Employees 13.8% 6.1% 18.4% Revenue from market 51% of total revenue 63.2% 78.8% 61.8% Revenues (monthly) <US$5,000 85.9% 75.8% 87.6% >US$5,000 14.1% 24.2% 12.4% Supported beneficiaries >500 individuals 32.76% 21.21% 30.97%
Note. ** p < .001; * p < .05; ^The analysis of the distal outcome variables used the DCON function in Mplus ver. 8. The analysis of variance (ANOVA) of indicator variables used SPSS ver. 23. The subscripts (A,B,C) next to the means and standard deviations of the indicator variables and distal outcomes indicate significantly different profiles at p < .05. For example, subscripts B and C in Financial Wealth Motivation variable in Profile A indicate that the Profile A is significantly different at p < .05 from Profile B and C in the variable.
218 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Again, this is consistent with the extant literature because the
“enterprise-focused” may have exhibited a higher level of tension resulting
from higher levels of private funding and public control than the others.
Furthermore, the “enterprise-focused” also showed substantially higher
financial performance than the ‘mixed-focused” and the “social-focused”
(Cohen’s d = .68 and .49, respectively). “The “social-focused” only had
small differences in financial performance compared to the “mixed-focused”
(Cohen’s d = .20).
This analysis seems to indicate that the best performing social
ventures were those that had the highest scores in private funding, public
control, financial wealth motivation, and in all business model
configurations. Lower performing social ventures had relatively lower
private funding, public control, and financial wealth motivation and they did
not differ in efficiency and novelty levels. Instead, their levels of the lock-in
business model seemed to correspond to their financial performance. Thus,
these findings supported the extant business model literature which indicates
that the most innovative and efficient firms may yield highest financial
performance (Zott & Amit, 2007). However, these findings further indicate
that for social ventures, the lock-in business model seemed to play an
important role in determining the performance differences across different
profiles. The highest financially performing social ventures had the highest
lock-in business model, while the lowest financially performing social
ventures had the lowest.
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 219
Table 5.5 Cohen’s d Effect Size of the Distal Outcome Variables
Outcomes The “enterprise-focused” vs. the “social-focused”
The “enterprise-focused” vs. the “mixed-focused”
The “social-focused” vs. the “mixed-focused”
Lock-in .40 .63 .20 Efficiency .27 .11 .17 Novelty .37 .38 .01 Financial performance .49 .68 .20
Note. < .20 = small; > .80 = high.
These results may be because transformed non-profits need to ensure
that their traditional participants are still loyal and locked into the business
model network to guarantee that their network continues to contribute to the
focal social ventures. It is suspected that trust from stakeholders may play
an important role in this matter. Transformed non-profits may face a
legitimacy crisis due to dissipating trusts from their traditional stakeholders,
especially because social ventures are perceived to be associated with pro-
business, neo-conservatives and pro-market political ideology (Dart, 2004).
By increasing network loyalty, for example, via donor-organization
engagement activities, and ensuring that the new social ventures are “cut
from the same cloth” as the original non-profits in terms of their social
mission, they can regain their network trust and continue to receive
important support that connects them with higher financial performance.
A regression analysis was conducted to supplement the analysis and
to see whether the results of LPA differed from the conventional, variable-
centric approach, as suggested in the literature (Bennet et al. 2017; Gabriel
et al. 2015; Stanley et al. 2017). A hierarchical regression with three models
was conducted to analyse the role of the control variables – age and revenue
220 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
– (Model 1), social venture characteristics (Model 2), and a three-way
interaction (Model 3) towards five dependent variables (lock-in, efficiency,
novelty, social performance, and financial performance). The regression
analysis showed a significant relationship between private funding and
efficiency (B = .12, SE = .05; p = .01), which was consistent with the extant
business model literature that has found an association between more market
revenue with efficient transaction costs (Amit & Zott, 2001). However, the
regression analysis did not distinguish the difference between the
“enterprise-focused” and the “mixed-focused” profiles – both of them
embraced high private funding and efficiency configuration. In contrast, the
LPA enabled a logical analysis of the sub-population differences and
established a meaningful interpretation between these two profiles.
Furthermore, the regression analysis also showed a significant three-way
interaction of the three variables (private funding, public control, and
financial wealth motivation) on novelty business models, but not on the
other dependent variables. This revealed that focusing on patterns of
variables (i.e. the configurations) may be more important and meaningful
because they can generate more insights for an organizational analysis,
especially in non-finding cases as suggested in the literature (Carney et al.,
2014; O’Boyle et al., 2012; Stanley et al., 2017).
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 221
Figure 5.2 Standardized means of the distal outcome variables.
Discussion
This paper began with a need to answer questions regarding the
empirical taxonomy of business models of social ventures that had
transformed from non-profits in developing countries. Using the LPA
method, this paper analysed 205 cases of social ventures collected from the
British Council NGO transformation program’s sampling frame that were
transformed from non-profits, which generated several findings. First, the
analysis revealed three hybrid types of emerging social venture business
model configurations in the data: the “enterprise-focused” – that represents
social ventures with the highest financial wealth motivation, private
funding, and public control, the highest in all business model configurations
and with the highest in financial performance; the “social-focused” – social
222 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
ventures with the lowest financial wealth motivation, private funding, and
public control embracing a lower lock-in business model configuration and
with a relatively higher financial performance; and the “mixed-focused” –
those social ventures that were in the middle, embracing the lowest lock-in
business model and with the lowest financial performance.
The “enterprise-focused” social ventures may look similar to the
Nazava Water Filter social venture (Ashden 2017a). The 2016 Ashden
social entrepreneurship award recipient offers cheap and no-frills water
filters to poor, bottom of the pyramid customers in developing countries. A
typical market-performing social venture like Nazava is a limited liability
company that usually works with investors that have high financial wealth
motivation and are expecting financial returns from the business operations.
Nazava has gained high private funding from market activities (selling
water-filter) that reached US$180,000 income from sales in 2015 (Ashden
2017a); it also has high public control via its donor-funding and stakeholder
involvement in their business value chain (as suppliers and distributors of
the water filters). Having these activities, Nazava needs to be effective (to
generate surpluses for profit), be innovative (to ensure market and social
impacts), and ensure that their participants are locked-in (to ensure financial
sustainability from donors and the continuous participation of other non-
profits in the business value creation network).
Furthermore, the typical “social-focused” social ventures may be
similar to another Ashden award recipient, the IBEKA foundation (Ashden,
2017b). The foundation installed 2,260kW of micro-hydro rural power
plants in 57 off-grid communities in Indonesia. In doing so, the foundation
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 223
worked together with different organizations, including community-based
organizations. The foundation is a non-profit entity, so it has low financial
wealth motivation and it has rather low private funding because it does not
maximize its revenue from trading activities. Instead, it tends to rely on third
party support, such as government agencies and private sectors, to help
build the micro-hydro plants. In having done so, the foundation still needs
to ensure that the networks – donor funders, community organizations, etc. –
are locked-in to continuously support the cause of the social venture.
The “mixed-focused” social ventures, on the other hand, may be
similar to the reinvesting social business model outlined by Yunus (2007).
Social businesses are non-loss and non-dividend businesses where the
profits are distributed back to the social business firms (Yunus, 2007). The
“mixed-focused” may be similar to this type because they have high market
activities and, therefore, high private funding. However, they may reinvest
their surplus back to the activities as indicated by low financial wealth
motivation. Like social businesses, they are more independent because they
have the lowest lock-in business model. However, in the sample these social
ventures were associated with the lowest financial performance that may
have been related to stakeholder trust issues relevant in the context of
transformed non-profit organizations.
The second finding from the study was that different social venture
hybrids were significantly, but differentially, associated with several
business model configurations and with performance. Therefore, they
reflected the logic of resource dependence theory. Organizations engage in
an inter-organizational arrangement to ensure effectiveness and performance
224 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
(Pfeffer & Salancik, 1978, 2003). This data illustrated that social ventures
entered into inter-organizational arrangements in the form of business
models to ensure financial sustainability. This paper further showed that
different social ventures entered into different inter-organizational
arrangements, and the data indicated that these different tactics
corresponded to different levels of financial performance. These findings
indicated that business models only seemed to affect financial performance.
In contrast to the theoretical prediction, the analysis indicated that social
venture business model configurations did not significantly differ on social
performance.
Despite some consistencies with the theoretical predictions, there
were no clear-cut and linear associations found between the taxonomy and
the outcomes as theorized in the literature section in this paper, although this
was expected because the profiles were hybrids. The findings revealed that
efficiency, novelty, and lock-in business models were important for the
highest performing social ventures in this sample (the “enterprise-focused”),
showing that innovation and efficiency, along with stakeholder trust were
essential for the highly performing social ventures in the sample. However,
since the lower performing social ventures (the “social-focused” and the
“mixed-focused”) only differed on lock-in business models, the findings
seemed to imply that their ability to manage stakeholder trust may have
been responsible for the different levels of financial performance among
these profiles.
These findings generated several important insights for policy and
managerial practices. First, this data seemed to imply that to become high
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 225
performing transformed non-profits, they need to radically change their
organizational forms and business models. This dramatic transformation
path is recognized in the punctuated equilibrium model of change literature
(Gersick, 1991; Romanelli & Tushman, 1994; Tushman & Romanelli,
1985). According to this perspective, transformation should be conducted in
a radical way because ransformation is a discontinuous and pervasive
change that alters the basic and fundamental characteristics of an
organization, the “deep structures” of organizations (Gersick, 1991). This
kind of transformation is important to “break the grip of strong inertia”
(Hannan & Freeman, 1977; Romanelli & Tushman, 1994). In this data, the
“enterprise-focused” social ventures broke from their non-profit routines.
They discontinued the non-distribution principle by adopting high private
ownership logic; they also adopted higher financial wealth motivation and
private funding similar to commercial companies. They combined business
models to perform. A further interpretation of the findings (see Table 5.4)
indicated that the “enterprise-focused” social ventures also seemed to have
the smallest number of volunteers (or non-employees working in the
company) (6%) compared to others (14% and 18%), indicating that they
may have hired more commercial professionals to perform the tasks.
On the other hand, transformation can also be incremental,
continuous and linear (Brown & Eisenhardt, 1997; Feldman, 2000). This
data also showed that this pattern of change can also be rewarding for
transformed non-profits. The “social-focused” social ventures type and
configuration indicated an incremental and linear transformation from their
original non-profit organizations. Change in this perspective was achieved
226 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
via continuous improvement (Brown & Eisenhardt, 1987). For example,
non-profits transform by adopting more efficient procedures and
continuously improving their activities through organizational routines
(Feldman, 2000). Thus, they retain many attributes close to their original
non-profit “deep structures”, yet they still have better performance. The
“social-focused” had lower public funding and financial wealth motivation
similar to many non-profits, and they had low but substantial public control.
They started changing incrementally by slowly adopting private ownership
logic, which allowed them to distribute profits to their owners. This may
partly explain why the “social-focused” had a lower mean of private
ownership logic (M = 4.37), compared to the “enterprise-focused” (M =
4.97) and the “mixed-focused” (M = 4.56). Furthermore, they also started
embracing market revenues by starting to develop market-based activities.
In this data, only 60% of the the “social-focused” had market revenue above
51% of their total revenue. This was different from the more radical
“enterprise-focused” where almost 80% received a market revenue of 51%
from the total revenue of the social ventures.
The second implication is that these findings indicate that “muddling
in the middle” is less useful for the transforming non-profits. The “mixed-
focused” in this data had substantially higher financial wealth motivation
and private funding mean scores than the the “social-focused”; yet, they had
lower performance than the “enterprise-focused”. This may indicate that
they put forth a lot of effort to generate more market revenue and intended
to become more market-based by trying to distance themselves from their
original non-profit forms. However, many of their characteristics, including
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 227
their social and financial performance, were similar to the the “social-
focused”. For example, only 60% had market revenue above 51% from the
total revenue. Similarly, they were also on a par with the the “social-
focused” because they seemed to aim for a larger number of beneficiaries
(30% of them had beneficiaries of more than 500 individuals). Many of the
“mixed-focused” social ventures also seemed to rely on volunteers, similar
to the “social-focused”, as this data indicated that a number of emerging
social ventures with this type and configuration in this sample did not have
permanent employees (18% for the “mixed-focused” and 14% for the
“social-focused”).
Despite this, the “mixed-focused” may also be seen as non-profits
that were experiencing on-going transformation processes and embracing
both radical change and linear progression at the same time; this is
especially because about half of the social ventures in this sample belonged
to this category. Several scholars of the punctuated equilibrium model
(Chang, Bordia, & Duck, 2003; Wollin, 1999) have argued that
revolutionary and radical change may co-exist with an incremental and
linear transformation. Thus, from this point of view, the “mixed-focused”
may possibly have been in the process of variation and sorting through
various different forms, prior to reaching established retention (Wollin,
1999). In the variation process, a transforming entity sees the “new forms
of deep structure emerge in the vacuum of disorder” (Wollin, 1999, p. 363).
At this stage, the “mixed-focused” have begun to embrace a higher level of
private ownership logic (M = 4.56). Thus, they radically changed the
original deep structure of non-distributive principles in a non-profit
228 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
organization. However, at the same time, incremental changes at a more
“superficial” level, such as embracing a more efficient business model and
having less of a lock-in business model, show independence from their
traditional non-profit networks serving as a source of competing variations
that will affect the “deep structure” of the transforming organizations. These
processes may have taken place before the “mixed-focused” hybrids moved
into the sorting and retention stages, where the surviving variations were
selected (Wollin, 1999) and more stable social venture forms were
established.
Concluding remarks
This research contributes to the existing literature in several ways.
First, the results of this study contributed to the social entrepreneurship
literature by offering a more nuanced understanding of social venture
hybrids and how they relate to different business models, as well as to social
and financial performance, is provided. These findings extend discussions
in the social entrepreneurship literature, especially on the “earned-income”
school of thought (Defourny & Nyssens, 2010) by providing empirical
taxonomy and its interpretation using the existing typology of social venture
business models. The discussion on the transformation of non-profits in the
social entrepreneurship literature is also enriched by linking these findings
to the punctuated equilibrium model of change perspective. These findings
indicate that emerging social ventures need to embrace radical and
revolutionary change to be successful; otherwise, they need to focus on core
non-profit competence.
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 229
Second, for the business model literature, this study provided a
contribution by responding to the calls made in the literature for the need to
further understand the business models of social ventures (Demil et al.,
2015). The empirical data enriches the business model literature by
providing empirical insights from organizations that combine public and
private characteristics and face public and private tensions. While most
business model studies have focused on commercial organizations, the
present research is one among the first studies (Grassl, 2012: Wilson &
Post, 2013; Yunus et al., 2010) to investigate how business models are
configured in a social entrepreneurship context. In this context, this
research also offers empirical insights into how focal social ventures
structure business models to achieve their objectives. These findings offer
empirical insights in understanding business models as inter-organizational
arrangements that social ventures forge to cope with resource dependence
discussed in earlier literature (Margiono et. al., 2017).
This paper has several limitations. First, telephone surveys were
used to collect the data. While this approach was practical for covering
large areas of Indonesia, there were several downsides with this method.
One important issue was the participants’ willingness to participate in the
telephone interview. In this research, data from only 30% of social ventures
from the sampling frame were collected because participants were reluctant
to engage in telephone interviews. Further research may use more reliable
data collection procedures, such as face-to-face surveys, to establish trust.
Another issue was related to the time when the sample was collected.
This sample consisted of social ventures that “graduated” from different
230 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
batches of training since it was first conducted by the British Council in
Indonesia in 2012. This meant that the sample in this study was
heterogeneous across the stages of the transformation processes. Some of
the social ventures were newly transformed while others had been
transformed for many years This paper attempted to capture cross-sectional
data of social venture business models from transformed non-profits
captured at one moment in time and this was one of the first studies of its
kind. Future studies may analyse the taxonomies of individual British
Council’s training groups. This may allow researchers to compare and
analyse the taxonomies according to their position in the transformation
process.
Second, all of this study’s measures were self-report and perceptual
measures. This was due to the limited availability of hard data in social
entrepreneurship research, especially among small non-profits that had
transformed to social enterprises. The self-report and perceptual measures
were subjective and the social entrepreneurs may not have been telling the
truth regarding the conditions of their ventures, especially when asked about
their social and financial performance; thus, this may reduce the validity of
the constructs measured in this paper. Further research could attempt, as
much as possible, to use objective measures from social ventures.
The research measures of business model configurations were also
limited. While it is common in the literature to measure business model
configuration using a Likert scale and self-report (e.g,. Zott & Amit, 2007,
2008), developing configuration measures this way has been criticized in the
literature. Fiss (2011), for example, argued that using a Likert measure to
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 231
capture complex dynamics within a configuration can undermine its causal
complexity and therefore reduce the content validity of the constructs.
Thus, further research could measure business model dimensions (value
propositions, value creation, and value capture) individually and factor them
in the configuration analysis to capture the complex relationships between
different characteristics of social ventures and different business model
dimensions.
Moreover, the theoretical typology implies there were causal
connections between social venture forms, business model configurations,
and venture performance. This paper only tested associations between
empirical taxonomy, business models and venture performance. Thus, a
further analysis could test the causal connections between these constructs
and identify factors that could be eliminated to establish causal relationships
between venture forms, business models, and performance. Employing a
different method that allows a causal analysis, such as a fuzzy set qualitative
comparative analysis (fsQCA), may be necessary. In addition, fsQCA
allows for a relatively lower sample number, which is suitable for the
analysis of small and new organizations. In contrast, a latent class analysis
requires a large number of sample. When using latent class analysis, the
number of cases often range between 400-800 (e.g. Gabriel et al. 2015).
232 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
Appendix 5A
Items of the Newly Developed Measures - Social Mission, Private Ownership Logic, Financial Wealth Motivation, Private Funding, and Public
Control
Constructs/Items Survey question
Social mission
Item 1 To solve social and community problems are most important aspects of your social enterprise
Item 2 You prioritise aspects that benefit the society when doing organizational planning Item 3 You prioritise social mission when developing organizational strategy Private ownership Logic
Item 1 Your social enterprise is not prohibited from distributing profit to owners Item 2 You believe that profit distribution from your social enterprise to owners is all right Item 3 Owners can profit from your social enterprise Item 4 Owners can receive financial benefit from your social enterprise Item 5 Your social enterprise can distribute financial profit to owners Item 6 Social enterprise is not restricted in distributing financial return to owners Financial wealth motivation
Item 1 Offering financial profit to owners is a moral responsibility of your social enterprise
Item 2 Owners establish a social enterprise because they want to gain financial return Item 3 A good social venture is the one that provides financial return to owners Private funding
Item 1 Your social enterprise has high freedom in surplus management Item 2 Your social enterprise has high flexibility in managing generated surpluses Item 3 The use of surplus is not restricted in your social enterprise Item 4 Your social enterprise is free to use financial surplus Item 5 Your social enterprise is very free to utilize generated financial surplus Public control “Provide answers related to the degree of dependency of your social enterprises
on the following organizations/institutions”
Item 1 Non-profit organizations Item 2 Government institutions
Chapter 5: Paper 3 - A Taxonomy of Social Venture Business Models 233
Appendix 5B Flow Chart to Decide the Number of Profiles
Start LPA
Run MPlus; start with 2 profile solution
Useful Profile?
Stop Mplus; check potential profiles
Lower BIC/SSA-BIC?
Significant LMR & BLRT?
Reject Profile(s)
Check theoretical interpretation; use
ANOVA test
Good Interpretation?
Reject Profile(s)
End
Select Profile Solution
Yes
No
No No
Yes
No
Yes Yes
234 Chapter 5: Paper 3 – A Taxonomy of Social Venture Business Models
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244 Chapter 6: Discussion and Conclusion
Chapter 6: Discussion and Conclusion
Introduction
The purpose of this chapter is to provide an overall discussion and conclusion
for the thesis. This chapter first summarizes the papers and their results. It then
continues with a discussion of the theoretical contributions and implications of the
thesis. A discussion of the limitations and potential avenues for further research are
presented prior to the concluding remarks.
Summary of the papers
This thesis started with a discussion of the challenges related to the limited
understanding of and extant research on social venture business models for
transforming non-profit organizations in developing countries. This thesis addressed
the challenges by (a) developing a typology of social venture business model
configurations for transforming non-profits in developing countries; (b) establishing
construct validity of the characteristics in the typology of social venture business
model configurations; and (c) testing the typology via examination of its association
with business models and performance. In doing so, this thesis documented a
theorizing process (Weick, 1995) and employed a theory-advancement framework
(Fisher & Aguinis, 2017) to develop a falsifiable, typology-driven theory of social
venture business model configurations. The thesis developed three sequential papers
of typology-driven theory generation, theory elaboration, and theory testing. Table
6.1 summarizes the key findings of the papers in this thesis.
Chapter 6: Discussion and Conclusion 245
Table 6.1 Summary of the Papers
Paper Research question Result
Theory advancement roles and theory
evaluation criteria
Paper 1: “A Typology of Social Venture Business Model Configurations”
RQ1: How do RDT and public administration theories make sense of business model configurations, especially in social ventures? RQ2: Following this, what are the key characteristics of social ventures and how do they configure extant business model dimensions? RQ3: What are the types of social ventures for transforming non-profits in developing countries and how are these types associated with effective business model configurations?
RDT and public administration theories reconceptualise the understanding of business models
Four characteristics of social ventures: social mission, private ownership logic, private funding, public control.
Three typologies of effective social venture forms and business model: Type III/Efficiency-centred; Type II/Novelty-centred; Type I/Lock-in-centred; and a Type IV/Non-effective type
Typology theory generation Demonstrated the logical adequacy by using resource dependence theory as a guideline to develop theoretical propositions
Paper 2: “Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures”
RQ4: What are the characteristics of social ventures as they emerge from the empirical data? RQ5: What are the emerging social venture forms resulting from these characteristics RQ6: How do different social venture forms correspond to outcomes?
Developed construct validity of four characteristics of social venture forms. Found another new, emerging characteristic of social venture from the data: financial wealth motivation.
Improved typology of social ventures: more private, more public, mixed, and social businesses
Corresponding relationships between social venture forms, business model configurations and effectiveness configurations.
Typology theory elaboration Demonstrated the construct validity by improving the definition and scope of constructs
•
246 Chapter 6: Discussion and Conclusion
Table 6.1 – continued Summary of the Papers
Paper Research question Result Theory advancement roles and theory
evaluation criteria Paper 3: “A Taxonomy of Social Venture Business Models for Transforming Non-Profit Organizations”
RQ7: Are there different business model of social ventures that are empirically identifiable; if so, how do they differ?
Three latent profiles of hybrid forms: the “enterprise-focused” (close to Type III), the “mixed-focused” (close to Type II) and the “social-focused” (closer to Type I).
The “enterprise-focused” was associated with the highest levels of lock-in, efficiency, and novelty business model configurations. The “social-focused” and the “mixed-focused” only differed on lock-in business model configurations.
These profiles differed on financial performance, but not on social performance with the “enterprise-focused” as the most profitable, followed by the “social-focused” and the “mixed-focused” as the least profitable.
Typology theory testing Demonstrated further the construct validity – discriminant and convergent validity Demonstrated the preliminary indication of predictive validity and adequacy by testing the typology with distal outcomes
Chapter 6: Discussion and Conclusion 247
Paper 1: “A Typology of Social Venture Business Model Configurations”
Many non-profits in developing countries embrace business models and
become social ventures because they are faced with declining funding support from
external aid agencies. Despite extensive research on transforming non-profits in the
literature, knowledge of the forms and business models that these non-profits can
adopt was scant. This may be because extant business model frameworks are
designed to provide solutions to commercial ventures and, therefore, are insufficient
to analyse social ventures. Social ventures, despite their market activities, aim to
achieve sustainable social solutions and prioritize social mission over business
objectives.
Paper 1 identified the characteristics and developed a typology of social
venture business model configurations by reconceptualising the extant business
model frameworks so that they can analyse social ventures. The paper argued that
resource dependence theory and public administration theories (i.e., publicness
theory) provide the appropriate frameworks to re-conceptualise business model
configurations, so that they can analyse conflicting public and private tensions that
transforming non-profits encounter in developing countries
The paper asked the following research questions: (a) how do resource
dependence theory and public administration theories (i.e., publicness theory) make
sense of business model configurations, especially in social ventures? (b) following
this, what are the key characteristics of social ventures and how do they configure
extant business model dimensions? (c) what are the types of social ventures for
transforming non-profits in developing countries and how are these types associated
with effective business model configurations?
248 Chapter 6: Discussion and Conclusion
Using public administration literature, the paper identified four characteristics
of social ventures that configure business model dimensions in the social
entrepreneurship context. These characteristics were social mission, private
ownership logic, (private) funding, and (public) control. The first characteristic –
social mission – distinguished social ventures from their commercial counterpart.
The second characteristic – private ownership logic – distinguished social ventures
from non-profit organizations. The paper argued that these two characteristics
served as the foundational building block of social ventures. The other two
characteristics – (private) funding and (public) control – were responsible for
different forms of social ventures (three effective forms and one not-effective form):
Type I (low private funding, high public control), Type II (high private funding, high
public control), Type III (high private funding, low public control), and a non-
effective/non-existent type (low private funding, low public control).
Following the logic of resource dependence theory, the paper further argued
that these characteristics configured business model dimensions (value creation,
value capture, and value propositions) and thus, the types employed particular
business model configurations to achieve effectiveness. In the paper, business model
configurations were seen as inter-organizational arrangements and, therefore, from a
resource dependence theory perspective, business models could be seen as tactics
that focal firms embrace to achieve effectiveness. Building on these theoretical
arguments, Paper 1 theorized that Type I social ventures corresponded to lock-in
business model configurations because of high public control and low private
funding (high public funding) that required the social ventures to ensure that partners
were loyal to the value creation network, thus providing continuous support to the
social ventures. Type II corresponded to novelty business model configurations
Chapter 6: Discussion and Conclusion 249
because the tension between high private control and high public funding required
the focal social ventures to be innovative in value creation. Type III corresponded to
efficiency business model configurations because high private funding and low
public control provided freedom to the focal social ventures to arrange the
transaction costs across the network in efficient manner, thus increasingthe
possibility of generating surpluses and profits. Type IV was identified as a non-
effective model due to its conflicting nature.
These emerging types are novel because they differ from existing social
venture types in the literature (see Table 1.1 in Chapter 1). Unlike the existing types,
the typology in Paper 1 specifically focused on explanatory types that explain
effective types of social venture business model configurations.
Although the typology is substantially different from the existing types of
social ventures in the literature, it also shares some properties of the “socially
responsible business” category in Ridley-Duff and Bull’s (2016) classification of
social ventures because the typology in this thesis implied the use of innovative
business models to reduce poverty that were broadly similar to the characteristics of
the “socially responsible business” category (Ridley-Duff & Bull, 2016).
Paper 1 exhibited logical adequacy by developing propositions from existing
well-established management theories. Logical adequacy refers to the logic, implicit
or explicit, that is reflected in developed propositions. The paper used publicness
theory and resource dependence theory propositions to theorize the relationship
between social venture characteristics and forms, business model configurations and
effectiveness. Using existing and widely used theoretical frameworks to develop
propositions allowed the thesis to further empirically test the propositions.
250 Chapter 6: Discussion and Conclusion
Paper 2: “Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures”
Paper 2 established construct validity of the characteristics in the typology-
driven theory developed in Paper 1. Paper 2 used a theory elaboration tactic to
establish construct validity of the characteristics generated in Paper 1 (social mission,
private ownership logic, private funding, and public control). Paper 2 also aimed to
seek further insights from gathered empirical data. It asked: (a) what are the
characteristics of social ventures as they emerge from the empirical data? (b) what
are the emerging social venture forms resulting from these characteristics? (c) how
do different social venture forms correspond to outcomes?
Using a qualitative approach and the case research method, Paper 2
comparatively analysed 12 cases of successful social ventures in Indonesia. The
paper used the “most different system design” (MDSD) approach in case study
research where researchers can focus on within-group variance (in this case a group
of successful social ventures) from a specifically selected sample. In MDSD
research, the independent and dependent variables that covary in cases are held
constant to allow maximum heterogeneity in other (independent) variables.
Using this particular case method and by embracing the abductive approach,
Paper 2 developed construct validity of four characteristics of social ventures and
provided the scope/qualitative anchor for each characteristic. Paper 2 followed the
technique suggested in Eisenhardt (1989) by refining the definition of the construct
and by building evidence from the cases. For example, from the construct validation
process in Paper 2, the social mission variable was defined as “the prioritization of
the creation of public and social value over value capture” and it had a “yes/no”
qualitative anchor/scope; “yes” when “the social venture explicitly prioritizes
social/public benefit over profit” and “no” when “the social venture does not
Chapter 6: Discussion and Conclusion 251
explicitly prioritize social/public benefit over profit”. Furthermore, from the analysis,
Paper 2 found a fifth characteristic that makes social venture forms: financial wealth
motivation. From the data, the construct was defined as “the motivation of owners
(including equity investors) to receive financial return from the social venture”, and
the construct had “high/low” scope.
Paper 2 further used these five social venture characteristics and identified
different forms of social ventures: the “more private” form tended to have
moderate/high private funding, moderate/low public control, and high financial
wealth motivation. This model corresponded to the Type III form in the theoretical
typology in Paper 1. The “more public” forms had low/moderate private funding,
high public control, low financial wealth motivation. This model corresponded to
the Type I form in the theoretical typology in Paper 1. The “mixed 1” form had
moderate/high private funding, moderate public control, and low financial wealth
motivation. The paper labelled “mixed 1” as “social businesses” because of the
resemblance with the social business model introduced by Yunus (2007). The
“mixed 1” types reinvested their profit in the social venture activities. The “mixed
2” form was the one where they had high private funding, high public control, low
financial wealth motivation. This model was similar to the Type II form in the
theoretical typology in Paper 1.
Paper 2 further found that these types corresponded to different business
model configurations. For example, the “more public” form, which was similar to
the Type I form, corresponded to lock-in business model configurations due to higher
public control; the public control drove legitimacy and the focal social ventures
needed to ensure that the costs of participants in leaving the network were expensive
so they could continue supporting the focal social ventures. The “more private”
252 Chapter 6: Discussion and Conclusion
form, which was similar to the Type III form, corresponded to efficiency business
model configurations due to higher financial wealth motivation and the relatively
high private funding; fulfilling the financial wealth demands required the focal social
ventures to reduce transaction costs across the network and become efficient
operators. The “social businesses” form corresponded to novelty business model
configurations due to the relatively higher tensions between private funding and
public control; conflicting forces between these characteristics required the “social
businesses” to develop innovative business models to navigate the tensions. “Mixed
2”, which was a Type II social venture, corresponded to hybrid business model
configurations – a configuration that combined both efficiency and lock-in business
models.
Paper 2 also found different configurations of effectiveness that corresponded
to different business models and venture forms. “More autonomous” effectiveness
configurations corresponded to the efficiency business model and the “more private”
venture forms. “More socially legitimate” configurations corresponded to the lock-in
business model and the “more public” venture form. “Balanced” configurations
corresponded to both the novelty and hybrid business models and to the “social
businesses” and “mixed 2” forms.
Paper 2: Insights into the typology-driven theory
These findings in Paper 2 offered several important insights to advance the
typology-driven theory developed in Paper 1. First, Paper 2 advanced four
characteristics (social mission, private ownership logic, private funding, and public
control) outlined in Paper 1 by establishing the validity of these constructs. Paper 2
further advanced the theorized characteristics by identifying the fifth characteristic of
Chapter 6: Discussion and Conclusion 253
social ventures, financial wealth motivation, that affects the ways in which business
models are configured. The fifth characteristic fitted with the logic of resource
dependence theory that served as the theoretical foundation of the typology
developed in Paper 1 and, therefore, ‘financial wealth motivation’ was
complementary to other four characteristics, as some entrepreneurship research has
shown that the founders’ choices matter to resource acquisition mechanisms in
emerging ventures (Wasserman, 2012, 2017). Using these characteristics, Paper 2
improved the typology outlined in Paper 1.
Second, Paper 2 showed empirical evidence of the re-conceptualization of
business model frameworks presented in Paper 1. Data in Paper 2 suggested evidence
of the theorized relationship between social venture characteristics, business model
configurations, and outcomes in Paper 1. Paper 2 showed four patterns of empirical
connection between venture forms, business models, and effectiveness. This
resonates with resource dependence theory arguments that build the re-
conceptualization of business model configurations in the social entrepreneurship
context presented in Paper 1 – that transforming non-profits engage in particular
social venture business models because they seek effectiveness.
Third, Paper 2 also showed a preliminary indication of predictive adequacy,
that is, that the theory approximated the reality of the theory-driven typology
developed in Paper 1. The analysis revealed social venture business model forms that
were similar to the “ideal types” (Types III, II, and I) as outlined in Paper 1 along
with two emerging hybrid configurations.
254 Chapter 6: Discussion and Conclusion
Paper 3: “A Taxonomy of Social Venture Forms and Business Models for Transforming Non-Profit Organizations”
Paper 3 tested the typology by testing its association with business models and
performance. It asked the following research questions: are there different business
models of social ventures that are empirically identifiable? If so, how do they differ?
Paper 3 used the characteristics of social ventures identified in Paper 1 (social
mission, private ownership logic, private funding, and public control) and the
emerging characteristic found in Paper 2 (financial wealth motivation) to generate
the empirical taxonomy.
Paper 3 used data collected from telephone interviews of 307 social
enterprises that transformed from non-profits. The sampling frame was 834
transformed non-profits from the British Council NGOs transformation to social
enterprises program in Indonesia. This was to ensure that the test of the typology and
its association to distal outcomes were conducted within the boundary conditions
outlined in the theoretical typology in Paper 1. Paper 3 used newly developed self-
report measures and, to do so, it conducted data preparation and scale development
processes prior to conducting the analyses. The process of scale development is
reported in Appendix B.
The latent profile analysis (LPA) in Paper 3 resulted in three profile solutions.
Further inspections of the means revealed that these profiles consisted of hybrid
social ventures, yet with some salient characteristics close to the typology theory
identified in Papers 1 and 2. Paper 3 revealed that these profiles were: the
“enterprise-focused” forms which were hybrid social ventures with high financial
wealth motivation, high private funding, and high public control. Social ventures in
this cluster were similar to Type III or the “more private” forms, yet with high public
control similar to Type I. The “mixed-focused” forms which were hybrid social
Chapter 6: Discussion and Conclusion 255
ventures with low financial wealth motivation, high private funding, and low public
control similar to Type II or the “mixed” forms with low public control similar to
Type III or the “more private” forms. The “social-focused” forms which are hybrid
social ventures with low financial wealth motivation, low private funding, and low
public control. Social ventures in this profile were similar to Type I or the “more
public” forms yet with low public control similar to Type III or “more private”.
Further testing showed that these hybrid social ventures significantly differed on
different types of business model configurations, financial performance, but not on
social performance.
Paper 3: Insights to the typology-driven theory
The findings in Paper 3 offered several insights into the developed theoretical
typology in Papers 1 and 2. First, the LPA exhibited hybrid social venture forms, yet
with close similarity to the theoretical types developed in Paper 1. This was
expected since the typology reflects “ideal types” and, therefore, in reality social
ventures tended to be hybrids. This finding shows an indication of predictive
validity of the social venture characteristics developed in Papers 1 and 2 and the
measure development that are described in Appendix B.
Second, the results of the tests of association with business model
configurations and performance indicated the validity of the theoretical relationship
developed in Paper 1, which was further indicated in Paper 2. This demonstrates a
further support of the predictive adequacy of the typology-driven theory, meaning
that the typology may approximate the reality. The taxonomic analysis in Paper 3
exhibited significant and substantial associations between the typology and certain
theoretical outcomes. However, Paper 3 found that the patterns of
256 Chapter 6: Discussion and Conclusion
relationship/association were not linear and clear-cut as indicated in Papers 1 and 2.
One of the explanations for this finding may, theoretically, be sought in the emerging
discussions around the identity of entrepreneurs in the entrepreneurship and social
entrepreneurship literature. The identities of entrepreneurs may play an important
role in influencing the forms of established ventures (Fauchart & Gruber, 2011). In
the social entrepreneurship context, Wry and York (2017) further highlighted that the
‘dual’ identities of the social entrepreneurs that are associated with welfare and
commercial logics may affect the type of organizations that are being developed. For
example, the combined social activist and business manager role identities within
social entrepreneurs may lead to social ventures with strong tensions in social and
business processes. Thus, in light of this, the findings seem to imply that there may
be an important role for social entrepreneur identities in better explaining the
relationship between the typology and the business model and performance
outcomes. A social entrepreneur with a dominant social activist role identity may be
less inclined to develop a social venture with a higher profit potential (i.e., high
efficiency business models) even though the venture receives substantial amounts of
private funding. Further investigations to understand the relationship between hybrid
social venture types and business model configurations and performance are
necessary in future studies.
Theoretical contributions and implications
The overall thesis, including the papers, documents a theorizing process, and in
doing so, the thesis makes theoretical contributions to and implications for the social
entrepreneurship and business model literature.
Chapter 6: Discussion and Conclusion 257
Theoretical contributions to and implications for the social entrepreneurship literature
The social entrepreneurship literature is diverse and marked with discussions
from different perspectives. The papers and the thesis addressed the identified
research gaps and contributed especially to the discussions on social ventures that
transformed from non-profit organizations. In the social entrepreneurship literature,
this discussion has been hosted under the “earned-income” school of thought
(Defourny & Nyssens, 2010). The papers and the thesis make several contributions
to this body of literature.
First, Paper 1 contributes to the discussion in the literature by identifying
social venture characteristics and a typology of business models of social ventures
that face the continuing tensions from public and private forces in developing
countries. The paper offers novel theoretical insights by combining knowledge in the
public administration and resource dependence theory literatures. By using the
dimensions of publicness theory, the paper extends the social entrepreneurship
literature and identifies important characteristics of social ventures for transformed
non-profits – acknowledging the public and the private tensions that these social
ventures face in the developing country context. These characteristics, following
resource dependence theory logic, configure business models that social ventures
embrace to achieve effectiveness. Second, Paper 2 further contributes to the literature
by providing construct validity of the characteristics, including a new characteristic
developed from the data. Paper 2 contributes to the social entrepreneurship literature
further by offering empirical insights into the relationship between the typology and
outcomes. Third, Paper 3 further enriches the social entrepreneurship literature by
providing a test of the typology and its association with distal outcomes.
258 Chapter 6: Discussion and Conclusion
Overall, this thesis extends the social entrepreneurship literature, especially
the “earned-income” school of thought (Defourny & Nyssens, 2010) by presenting
an initial indication of the validity of the typology of social venture business models
for transforming non-profits in developing countries, especially from an Indonesian
context and, therefore, there is potential utility of the proposed explanatory
framework for researching different types of social venture business models in other
contexts similar to the one examined in this thesis.
By doing so, this thesis advances the existing classifications and types of
social ventures in the extant literature (e.g., Defourny & Nyssens, 2017; Ridley-Duff
& Bull, 2016, etc) where most are descriptive/classificatory and are used for general
and global classification purposes. This thesis broadly builds the typology on the
“social responsibility business” type outlined in Ridley-Duff and Bull’s (2016)
classification, especially because of its poverty-reduction and innovation foci.
However, the typology may also overlap with the “public-sector social enterprises”
classification model (Defourny & Nyssens, 2017) due to the typology’s focus on
organizational tensions arising from public and private stakeholder demands.
Although the typology is developed for developing countries, especially Indonesia,
because of its attention to public and private tensions, the typology may also be
useful in selected developed country contexts where public and private tensions
exist, especially in relation to the increasing popularity of social procurement in
developed countries (Furneaux & Barraket, 2014).
Chapter 6: Discussion and Conclusion 259
Table 6.2 This Thesis’s Typology among Extant Approaches to Classify Social Ventures in the Literature
Approach 1 Approach 2 Approach 3 Approach 4 This thesis Factors/Dimension Market-social spectrum
History/origins, development path
Principles of interest, resource mix
Governance, ethics, social impact
Public/private organizational tensions
Scope Global National (developed country)
Global Global
National (developing countries)
Purpose General classification, distinction with commercial ventures
General classification, distinction with commercial ventures
General classification, identification of different models from around the world
General classification For transforming non-profits in developing countries
Example types Commercial non-profits Mutual, trading charities, public sector spin-off
Entrepreneurial non-profit, social cooperative, social business, public-service social enterprise
Cooperative and mutual enterprises, socially responsible businesses, Charitable trading activities
Type I (more public), Type III (more private), mixed/hybrid types (Type II, social business, enterprise-focused, mixed-focused, social-focused)
Analytical framework
Descriptive/Classificatory Descriptive/Classificatory Deductive/Theoretical framework
Descriptive/Classificatory Explanatory Typology/Business Model Framework
Examples in the literature
Alter (2010); Kerlin (2009); Dees (1998)
Spear (2009); Gordon (2015); Teasdale (2012); Young & Levy (2014)
Defourny & Nyssens (2017)
Ridley-Duff & Bull (2016)
260 Chapter 6: Discussion and Conclusion
As a consequence, this thesis opens up avenues for social entrepreneurship
researchers to develop business model research agenda in the social entrepreneurship
organization sub-domain (Choi & Majumdar, 2014). As an example, this thesis’s
typology allows further investigation of the factors and mechanisms related to the
‘fit’ between new venture ideas (Davidsson, 2015) that social entrepreneurs develop
in non-profits that have transformed to social ventures and the materialized business
model types. Focusing on Zahra et al.’s (2009) typology of social entrepreneurs may
be a starting point to gain insights into how different types of social entrepreneurs in
non-profit organizations may find ways to materialize their new venture ideas into
effective business models.
By developing the explanatory typology using existing management theories
(resource dependence theory) this thesis also connects social entrepreneurship
research to the broader entrepreneurship and management literature as suggested by
Short and colleagues (Short et al., 2009). Social entrepreneurship research has often
been seen disconnected from the entrepreneurship and management studies because
the research often focuses on the tales of the heroic entrepreneur as well as the
advocacy of the world-views of the researchers (Nicholls, 2010), and thus, many
build and contribute less to the existing knowledge in the entrepreneurship and
management literatures.
This thesis makes two further linkages to the extant entrepreneurship
research. First, by identifying the roles of external factors, such as the public and
private forces in business model configurations, this thesis links social
Chapter 6: Discussion and Conclusion 261
entrepreneurship research to a recent discussion of external enablers of new venture
creation in the entrepreneurship literature (Davidsson, 2015). External enabler refers
to distinct, external circumstances such as political changes, demographic, and
technologies that enable a venture creation (Davidsson, 2015). By identifying the
public and private factors that contribute to the configuration of business models in
social ventures, this thesis indicates a parallel process of the roles of external
enablers in the social entrepreneurship context.
Second, this thesis provides an example of how typology-driven theorizing
can benefit entrepreneurship research. A number of studies in the social
entrepreneurship literature have utilized typologies and classification to understand
different types of social enterprises (see Table 6.2.). This thesis provides further
evidence that typology-driven theorizing is useful to understand entrepreneurship
phenomenon as highlighted by Harms et. al. (2009). This thesis demonstrates that
the configuration approach reveals more interesting and meaningful insights by
focusing on the analysis of ‘organizational wholes’ instead of the individual focus of
their parts.
Theoretical contributions to and implications for the business model literature
The papers and the thesis address the identified research gap and make several
contributions to the business model literature (see Table 6.3). This thesis answers a
call to investigate business models of social ventures (Demil et al., 2015) and extends
the existing business model literature by re-conceptualizing extant business model
frameworks so that they can analyse conflicting public and private tensions in
transforming non-profits in developing countries (Paper 1) and providing empirical
evidence of this re-conceptualization (Papers 2 and 3). In doing so, this thesis
262 Chapter 6: Discussion and Conclusion
extends existing popular business model frameworks and typologies (Amit & Zott,
2001, 2015) so that they can be used not only in the commercial and strategic
management domain but also in the social entrepreneurship context. Three extant
business model types (lock-in-centred, efficiency-centred, and novelty-centred) were
re-conceptualized using public and private dimensions (private funding, public
control, and financial wealth motivation) to make sense of the value creation and
value capture dynamics in transforming non-profits. By doing this, this thesis
parallels with the recently emerging works in the business model literature that
aimed to include non-commercial aspects in the extant business model frameworks
(e.g., Bocken et al 2014; Boons & Ludeke-Freund 2013; Randless & Laasch 2016;
Stubbs & Cockin 2008; Wilson & Post 2013;).
Furthermore, this re-conceptualization also overlaps with a recent
interpretation in the business model literature that takes the meaning of business
model frameworks as “semi-permeable membranes” that link different concepts and
theoretical perspectives (Ritter & Lettl, 2017). Scholars have demonstrated that
business models can play an important role in linking different concepts in strategic
management research, such as organizational design (Fjeldstat & Snow, 2017),
complexity (Snihur & Tarzijan, 2017), industry dynamics (Hacklin, Bjorkdahl &
Wallin, 2017), as well as different theories, such as the resource-based view (Barney,
2001), and transaction cost economics (Williamson, 1975). By re-conceptualizing
extant business model frameworks using management theories, this thesis provides
initial evidence that may strengthen this interpretation. Business model frameworks
in this thesis connect value creation and value capture analyses among different
organizational types.
Chapter 6: Discussion and Conclusion 263
Practical implications
The thesis has several practical implications for non-profits that are
transforming into social ventures, aid organizations, and developing country
governments. This thesis provides a typology of business models for transforming
non-profits that they can be used to manage public and private tensions that they face
during the transformation processes. The typology shows that there are different
ways for transforming non-profit organizations to manage public and private tensions
(e.g., from different public and private missions, ownership, funding, control, as well
as from the wealth motivation of owners). The empirical insights further show that
successful social ventures are those that are radically transformed from non-profits
and have distance themselves from their original forms or are those that retained
their non-profit forms and focused on their non-profit core competences. The insights
indicate that muddling-in-the-middle should be avoided if possible.
264 Chapter 6: Discussion and Conclusion
Table 6.3 Summary of Contributions to the Literature
Main contributions to address research gaps
Contributions to social entrepreneurship literature
Contributions to business model literature
Paper 1: “A Typology of Social Venture Business Model Configurations”
Contributes to the discussions on the “earned-income” school of thought (Defourny & Nyssens, 2010) by providing social venture characteristics (using publicness theory) and the typology of business models of social ventures for transforming non-profits in developing countries
Answers the call to investigate business model configurations in social ventures (Demil et al., 2015). Contributes to discussion on the literature by re-conceptualising extant business model frameworks so they can analyse social ventures
Paper 2: “Organizational Characteristics and Forms: Empirical Insights from Business Models of Social Ventures”
Contributes to the “earned-income” school of thought by providing construct validity of the characteristics and the typology
Provides indicative empirical evidence of the re-conceptualization of the business model frameworks
Paper 3: “A Taxonomy of Social Venture Forms and Business Models for Transforming Non-Profits”
Contributes to the “earned-income” school of thought by providing an empirical taxonomy of different social venture forms, business models and performance
Provides indicative empirical evidence of the re-conceptualization of the business model frameworks
Overall contributions of the thesis Extends the literature by providing an indication of a valid and useful typology of social venture business models for transforming from non-profit organizations using existing management and entrepreneurship theories
Extends the literature by re-conceptualising the existing business model frameworks and providing an indication of the validity of the re-conceptualised framework.
Chapter 6: Discussion and Conclusion 265
For aid organizations, this thesis suggests that phasing-out policies should be
developed and implemented to assist non-profits that need to transform to social
ventures. For example, aid organizations may incorporate the typology, as one
among many available tools, to complement the existing phasing-out program and
training schemes so non-profits that they assist can be guided to achieve financial
sustainability once aid organizations no longer provide financial support to them.
For developing country governments, this thesis implies the need for
government support in providing appropriate legal structures and providing an
enabling environment for transforming non-profit organizations. An appropriate legal
structure that reflects the business models of the social ventures is essential for social
ventures to operate in an efficient manner. Tax incentives and other financial
schemes may also be provided to help social ventures achieve financial sustainability
and continue to create social/public value in neglected societies. Furthermore,
governments may also use the typology to inform policy development in relation to
cross-sectoral social partnerships (CSSP) (Selsky & Parker, 2005, 2010). Successful
partnerships require effective organizations and the typology may help government
agencies to ensure that non-profit or social venture participants in the partnership
adopt financially sustainable business models.
Limitations and directions for future research
This thesis, through the papers, aimed to develop and establish construct
validity of social venture forms and business model configurations, and to test the
typology-driven theory. In doing so, the thesis used a theory advancement framework
(Fisher & Aguinis 2017) and theory evaluation criteria developed by Bacharach
(1989). As a theorizing process (Weick, 1995), this thesis documents the first attempt
266 Chapter 6: Discussion and Conclusion
to develop a falsifiable typology-driven theory of social venture business model
configurations in developing countries for transforming non-profit organizations
(Bacharach, 1989; Doty & Glick, 1994). Despite this, the thesis has several
limitations. Table 6.4 outlines the limitations of this thesis and direction for future
research using Bacharach’s (1989) criteria as a framework.
First, in terms of relationships among constructs, the logical adequacy of this
thesis was developed by building the propositions and the arguments in Paper 1 using
the publicness theory and resource dependence theory tenets. Logical adequacy
refers to the extent to which theoretical arguments can be disconfirmed. However,
due to the purposes of and the selected methods in Paper 2 (MDSD) and Paper 3
(LPA), causal logic theorized in Paper 1 was not empirically validated in this thesis.
Paper 1 theorized the causal connection between venture characteristics and forms,
business model dimensions and configurations, and outcomes. Both MDSD and
LPA are less powerful in analysing complex causal relationship. Further research
may employ methods that are able to capture complex causal relationships in
configuration analysis. The use of these methods may also generate more insights to
further uncover and understand the mechanisms of complex causal relationships in
hybrid social venture business model configurations found in Papers 2 and 3.
An example is by using the set-theoretic approach (Fiss, 2011; Fiss et al.,
2015). Important to set-theory approaches are the ideas of necessity and
sufficiency in making sense of the causal connections between concepts (Ragin,
2008). The analyses of necessity and sufficiency are the fundamental building
blocks in understanding causation (Goertz & Levy, 2007) and an important
requirement in establishing the logical adequacy of a theory (Bacharach, 1989). By
identifying the necessary and sufficient conditions of cases, and then comparing
Chapter 6: Discussion and Conclusion 267
them across different cases, the set-theory approach can make sense of complex
causal configurations. There are two techniques in set-theory methods that future
research could use: crisp-set and fuzzy-set qualitative comparative analysis
(QCA). Crisp set sees the variables (high/low) and the membership of sets as binary
values (membership/non-membership). Using binary values, crisp-set qualitative
comparison analysis (csQCA) has several advantages (Marx, Rihoux & Ragin,
2014). csQCA can reduce complexity and find a general pattern by using a truth
table. A truth table highlights the value of variables (1/0) and defines the
relationship (or membership/non-membership) of these configurations of variables
with an outcome. However, csQCA is often criticized for only accommodating
dichotomous variables (Fiss et al., 2015) and does not reflect the complexity of social
life. Social realities are more complex and things are often in shades of grey. Set-
theory has responsed to this issue is by developing a “fuzzy” sets approach (Ragin,
2008). In fuzzy set QCA, set membership is no longer defined in binary values, but
instead according to ordinal and continuous values. Fuzzy set allows a more fine-
grain analysis of each set membership and allows researchers to specify their
constructs appropriately. Thus, future researchers of social venture typologies, for
example, can use the fuzzy set approach to identify the extent to which inter-
organizational arrangement intensity may causes autonomy and legitimacy in a focal
social venture and to further comprehend the causal relationships in hybrid
configurations.
Second, an appropriate theory needs to establish empirical adequacy.
Empirical adequacy refers to where “the propositions and hypotheses [of the theory]
may be operationalized in such a manner as to render the theory subject to
disconfirmation” (Bacharach, 1989, p. 506). For a theory to be appropriately
268 Chapter 6: Discussion and Conclusion
operationalized and disconfirmed, variations of empirical analyses are important
according to Bacharach (1989); in other words, to establish empirical adequacy the
theory needs to be subjected to empirical analyses from different contexts
This thesis does not establish empirical adequacy because the analysis is
limited to one developing country and the thesis also only uses a cross-sectional
analysis collected at a single point of time. As transformation processes unfold in
stages (Chang et al., 2003), analysis of the business model typologies from different
stages is also important for a robust, typology-driven theory for business models for
transforming non-profits.
Table 6.4 Limitations and Directions for Future Research
Bacharach (1989) criteria of theory
evaluation
This thesis Limitations
Future research
Variables
Measurement issues Face and content validity, measurement reliability (Appendix B)
Developed in one developing country, not thoroughly validated; using proxy (Paper 3)
Further studies to validate scales using appropriate development sample and conducted in multi-context environment
Variable scope Established domain (Paper 1)
Only conceptually developed
Further studies may explore variable scope using qualitative research
Construct
Construct validity Definitions (Paper 2), discriminant validity, convergent validity (Paper 2), predictive validity (Paper 3)
Developed in one developing country, not thoroughly validated; using proxy (Paper 3)
Further studies to ensure discriminant validity, convergent validity, predictive validity in different developing country contexts
Construct scope Qualitative anchors (Paper 2)
Scopes for the construct were developed from one developing country
Further studies to investigate construct scope in other developing countries
Chapter 6: Discussion and Conclusion 269
Table 6.4 – continued Limitations and Directions for Future Research
Bacharach (1989) criteria of theory evaluation
This thesis Limitations Future research
Relationship Logical adequacy Propositions derived
using existing theory (Paper 1)
No empirical validation on the logical adequacy, especially on the theorized causal relationship
Further studies using MSSD method or fs/csQCA to examine hybrids and the causal relationship from empirical data
Empirical adequacy Not provided Only using cross-sectional sample in one country
Longitudinal studies in one developing country or cross-sectional studies in different developing countries
Predictive adequacy Preliminary indication (Paper 3)
Relationship testing only in one study
Further testing studies to minimize the probability of disconfirmation
Thus, future research design may include longitudinal analyses that capture
different stages of the non-profit transformation process. Using an extension of
LPA, latent transition analysis (LTA) (Collins & Lanza, 2013), researchers could be
able to capture the changes and transformation paths that non-profits may embrace
when they are in the transformation process to become social ventures. LTA operates
by modelling the change of the LPA over time. The analysis is conducted by
regressing the latent class variable at one point against the previous ones (Nylund,
Grimm, Quirk & Furlong, 2014). Additionally, other research may also conduct
cross-sectional analyses of the typology in different developing countries to further
investigate different contextual factors and to establish empirical adequacy.
Third, in testing the relationship in Paper 3, this thesis exhibited an indication
of a predictive adequacy, that is, whether theoretical propositions reflect “reality”.
270 Chapter 6: Discussion and Conclusion
By developing an empirical taxonomy and testing it on a set of distal outcomes, this
thesis tested the relationship between social ventures, business models, and
performance. However, establishing appropriate predictive adequacy needs further
research. Predictive adequacy requires that “two alternative theories [are]
comparatively assessed on the basis of the degree of confidence researchers have in
the theory (i.e., statistical significance)” (Bacharach, 1989, p. 510), indicating that
alternative theories need to be identified and tested along with the proposed typology
in this thesis. This is important because the “key to predictive adequacy is
minimizing the probability of disconfirmation” (Bacharach, 1989, p. 510).
Thus, in this light, future research could establish predictive adequacy of the
proposed typology in this thesis by conducting further tests using alternative theories.
For example, further research could use other typologies in the literature to test the
relationship between social venture forms and outcomes in transforming non-profit
samples; this may be necessary to see whether the predictive validity of the proposed
typology in this thesis is superior to other, alternative theories (existing social
venture typologies in the literature) in predicting outcomes.
Fifth, an appropriate theory needs to have reliable and valid constructs and
measurement. In terms of construct validity, this thesis conducted two construct
validity efforts. The first was via a qualitative study (Paper 2) and the second was via
a quantitative study (Paper 3 and Appendix B). However, there were several
limitations. First, construct validity and measurement development were conducted
in a rather small sample size (12 qualitative and 307 quantitative cases). They were
also conducted using data from one developing country and therefore the results of
the reliability tests are not generalizable to other contexts. Second, in Paper 3
(Appendix B), construct validity and measurement development were conducted
Chapter 6: Discussion and Conclusion 271
using proxy and self-report items due to the lack of availability of “hard data” in the
social entrepreneurship context. Self-reports are prone to bias and therefore there
may also be a content validity issue in the measures. Third, there were also issues
related to the convergent validity in some constructs because of limited data. Few
constructs (social mission and public control) had low CR (construct reliability) and
AVE (average variance extracted) scores in the CFA analysis, which indicated that
there were issues in the items that represent the latent constructs.
Thus, further studies need to conduct measurement development and
construct validity in larger samples. A recent entrepreneurship study, for example,
conducted construct validation of founders’ identity constructs (Fauchart & Gruber,
2011) using almost 10,000 respondents in different country contexts to ensure
sample heterogeneity (Sieger, Gruber, Fauchart & Zellweger, 2016). The study
established appropriate convergent, discriminant, and predictive validity by testing
measures in a set of antecedent and consequent variables. The study also continued
to conduct validation testing in different countries around the world. Further studies
may also follow this similar design and combine the measurement development tests
with other theorizing efforts, for example, to further achieve predictive and logical
adequacy as well as improve construct and variable scope. Further research may also
need to collect “hard data” from social enterprises; while this may be difficult, using
“hard data” may further ensure content validity of the measures.
Concluding remarks
Social entrepreneurship and social ventures are important for transforming
non-profit organizations in developing countries but there is still limited
understanding on the business models that these transforming non-profits can adopt.
272 Chapter 6: Discussion and Conclusion
Unfortunately, despite the extensive research on transforming non-profits, only few
studies have investigated the social venture business model configurations that these
non-profits can adopt. Building on public administration theory and resource
dependence theory, this thesis addressed the problems and filled the gaps in the
literature by developing a typology of social venture forms and business model
configurations, elaborating and testing it.
This is a thesis by published papers that utilized a theory advancement
framework to develop three interlinked papers. The first is a conceptual paper
aiming to develop a theoretical typology of social venture business model
configurations. The second paper is a qualitative elaboration theory study aiming to
establish construct validity and to generate further insights; the second paper
improved the typology and generated insights on the connection between social
venture forms, business model configurations, and outcomes. The third paper is a
quantitative theory testing research aiming to test the typology and its association
towards a set of distal outcomes.
This thesis made two main contributions addressing the identified research
gaps. First, it extends the social entrepreneurship literature by presenting an
indication of a valid and useful typology of social venture business model
configurations. The thesis also extends the business model literature by re-
conceptualizing the extant business model frameworks so they can analyse social
ventures. The thesis made sense of business model configurations for focal firms to
configure inter-organizational arrangement to achieve effectiveness. However, due
to the boundary condition of this thesis focusing on one developing country,
Indonesia, the results in this thesis need to be cautiously interpreted if generalized to
Chapter 6: Discussion and Conclusion 273
other contexts. Thus, the thesis acknowledged several limitations and provided some
suggestions for further research.
Bibliography 275
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Appendix A 299
Appendix A An Example of Case Narratives and the Code Book (Paper 2)
This appendix presents an example of the 12 case narratives developed as part of Paper 2’s qualitative analysis procedures. In this appendix, a code-book that was used to define the constructs and to conduct data coding is also presented. This appendix is divided into two parts. The first part consists of an example of a case narrative with efficiency model (Alpha Three). In the second part, a code book is presented. Part One: Case Alpha Three Background of the Organization: the Social Mission and Private Ownership Logic Alpha Three is a social enterprise aiming to provide safe water in peri-urban and rural areas via cheaper and a reliable alternative to boiling or buying water: the water purification system. “With [Alpha Three] filter, you don’t need to boil water. That’s good because people don’t do it correctly. They turn the stove off as soon as the water comes to the boil, then wonder why their children fall sick so often”, according to Indra, [Alpha Three] customer and agent, Duwet village.
Alpha Three sells low-cost water filters; this filter is developed using locally-available transparent plastic containers. Unfiltered/untreated water is poured on a stacked water container; ceramic “filter-candle” filters out pathogen and dirts, as well as chemical contamination (see figure 1). User should pour the water in the evening and it will slowly trickle via the ceramic filter. In the morning, fresh and clean water will be available at the bottom of the plastic containers. Figure 1. Alpha Three Water Filter
Alpha three was established by former development workers in Indonesia who saw problems in the provision of safe water for poor people: “I think this goes back to the founders who were me and my husband. And, we came to Aceh in 2007 to do relief work after the tsunami and then while living there, we found it’s complicated to get drinking water cause we’re from Holland. So, in Holland you’re really spoiled you can get and open the tap everywhere and drink as much as you want. Then you were looking for this device to filter our own water because we have this well water in our garden that has iron content that looks like this tea so you can’t boil it right? You can boil that as long as you want the concentration of dirt will only get higher and it will never get clean, because boiling is only effective to kill the bacteria if you know how to boil the water, sound simple but we found out that actually most people don’t know how long the water should be boiled. So we made this device of existing ceramic filter and then we made the housing and then we use it to ourselves, and 20 neighbours were like,
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‘Hey, that was really interesting. I need it as well.’ And then we were thinking like, ‘Okay, we need this, our friends and neighbours need it.’ 250 million Indonesians, they have no drinking water from the tap. They’re wasting their money, they’re wasting their resources, they’re risking the health of their children”, the co-founder reflecting on the starting up of Alpha Three. “So I opened up a shop, and hired our first staff and then we started selling”, she continued.
Alpha Three’s first sales was to NGOs where they bought the products to freely distribute them to poor beneficiaries. “Like one of the big sales was then two NGOs that were providing our water filters for the earthquake victims in Padang because of 2009. And, we started realize, okay we’re really going to target the really poor people so we used the housing that was really like the cheapest container we could find on the market”, said the co-founder. Alpha Three worked with financial investors and, as a result, they need to distribute profit of the sales back to these investors.
Alpha Three filters have been exported to Pakistan, Mozambique, and Ghana. They have sold 75,000 filters. 140 million litre of safe water supplied each year, and because people shift from kerosene’s stove water boiling, Alpha Three filters save 10,000 tonnes/year of carbon-dioxide.
Autonomy Alpha Three is a “for-profit businesses”, with US$180,000 income from sales in 2015. Alpha Three hired 20 employees and 15% of them is female. Alpha Three has high freedom to acquire and allocate the staff they need. For example, when they needed to increase sales, they hired appropriate staff who were proficient in doing these activities. “As concern sale mandatory, then to make sure [we] hire more staff in sales department or marketing department, that will lead to more sales.”, according to the co-founder. They have the autonomy on the decision to not include their beneficiaries as employees. “We are not like, you see for instance in the Netherland also in Singapore where there are many social enterprises, they hire marginalized people, for instance. Then these marginalized people they do something or make something”, added the co-founder. Social Legitimacy
Alpha Three won several international awards, among other the prestigious 2013 Silicon Valley’s Tech Award (https://www.thetech.org/tech-awards-honors-top-international-innovators) that honors innovators who have improved the lifes of people. Alpha Three won $75,000 prize. This award was received as an acknowledgement of Alpha Three’s effort to help Indonesians to access clean water.
Alpha Three also faced some resistances from the public regarding the idea of social enterprise that sells equipment to poor people and to those in needs. Talking about selling the water filter during earthquake, “we will go bankrupt if we give for free”, according to the co-founder, “that’s something challenging for Indonesia to understand”. Many of them think, “[if you] don’t give them for free, you’re not social”, said the co-founder. In a presentation in Dutch Embassy, “There were many people in the room that were asking like, “why don’t you give them for free” ..”, added the co-founder.
Market Legitimacy In the early days, Alpha Three worked with angel investors, a venture capital from Netherland. This indicates that Alpha Three received market legitimacy. “When we started when we’re engaging with [the investor], ‘okay show me the cash flow, show me the cash flow, show me the cash flow’ … And I think these questions are crucial actually when you’re at the early stage in designing your business because it really helps you to stay in line and at the same time makes sure your businesses they will be sustainable”, according to the co-founder. Private Funding Alpha Three receives mixed private and public funding from sales of the products and government grants. In 2015, “we were breakeven, we started making profit. I think that was important so far”, informed the co-founder. Although Alpha Three offered their products to NGOs and government agencies for disaster relief, for example, they sold the products. These NGOs and government agencies were considered as Alpha Three’s distributors. “We try to reach NGO like if they are like disasters victim earthquake or volcanoes, then we partner with NGOs and NGOs mostly hand it out for free.”, according to the co-founder. When asked whether they are paying for the price of the water filters, the co-founder responded: “they pay”.
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An Example of Case Narratives and the Code Book (Paper 2) Recently, Alpha Three also received US$100,000 public grant from Global Alliance for Improved Nutrition (GAIN) for safe drinking water program. Alpha Three piloted a micro-entrepreneurship model for the distribution of community water filters. GAIN funds allowed the distributors (women) to receive stock of filters and sell them in instalments. “GAIN did not want program funds to be used to provide free equipment because we know from experience that anything given for free has little or no value to recipients who eventually stop using that item.”, according to GAIN’s country manager. Public Control Alpha Three has moderate public control because in addition to shareholder control they received supervision from GAIN on the grant that they receive. GAIN requires due diligence and subject to close monitoring. In their website, the obligation of grantees is clearly outlined: “Grantees are also contractually bound by control mechanisms such as providing regular program activity and financial reports”.
Yet, on the other hand, Alpha Three also shows evidence of private control. For example, investors always asked how Alpha Three manage their financial arrangement: “the hardest discussion about unit costs and the margin [with investors] … [investor asked:] ‘so how are you going to reduce your operation costs? How are you going to reduce your margin? How are you going to increase your sales?’”, according to the co-founder
Financial Wealth Motivation Alpha Three’s investors expected and was motivated to receive financial return, “No, no, they talked about [financial] return”, according to the co-founder, “ … they’re like if you’re selling that cheap [they can’t get profit], because our first time the product was sold 65,000 rupiah, and we are now selling that similar product to 250,000 so we have to increase it by 100,000 rupiah”, added the co-founder. Value Proposition Alpha Three offers integrated social and business value proposition by selling cheap equipment to produce safe water for poor people in rural and peri-urban area. “We’re really going to target [our products to]… poor people [who need clean water] so we used the housing [of the filter] that was really like the cheapest container we could find on the market [so they can buy it].”, according to the co-founder. These poor people could buy water filter at the price of Rp. 205,000. In contrast, the “competitor” commercial water filter costed around Rp. 700,000 – Rp. 800,000. Not only that, to ensure that poor families could access safe water, the filter could be paid in ten instalments, each costed Rp. 20,500. Most of the customers, especially in the rural areas, were women who were concerned with healt . “It’s almost 75% of the meetings is actually about health and water. Because to build up awareness is very difficult than to some people is really easy but like people who are low educated and don’t understand about health issues, safe drinking was very helpful to educate them about the important of boiling water long enough, hand-washing with soap, using the well that is not close to the toilet, and standards of sanitation issues”, added the co-founder.
The people who buy Alpha Three products are the beneficiaries because they benefit from the product. These poor people will be able to access safe water, without boiling – mostly with kerosene or wood stove – that may have damaging effect to their family’s health. Safe water is important for poor people, especially for their family. Poor children often can’t get access to safe water and are therefore suffering from diarrhoea.
Value Creation and Delivery Alpha Three employed efficient value creation and delivery arrangement by integrating partners, activities, and beneficiaries in efficient configuration to increase sales and magnify impact. First, they developed effective rural sales network, by training local and rural people, i.e. their beneficiaries, as sales persons. Alpha Three included their beneficiaries in their business network. “They’re like mothers who might have another job in a health centre or something and they just want to generate extra fund [for their livelihood]”, according to the co-founder. To help these women beneficiaries to perform, Alpha Three provides sufficient training to these beneficiaries. “Sales training, yeah, how to deal with complicated customers also knowledge training on water and diseases”, continue the co-founder. Those who had the capacity and were willing to invest in product stocks will become “direct
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resellers” – buy products from Alpha Three, sell them at a profitable price and make about Rp. 500,000 per month.
Second, direct reseller could buy the product from Alpha Three with lower prices and with loan from Alpha Three to increase the stock: “Our resellers they can get loans up to US$ 2,000 to increase their stocks and reduce the shipping costs”, according to the co-founder.
Third, Alpha Three also worked with crowdfunding platform Kiva to get seed funds for these “direct reseller”. Kiva helped Alpha Three direct reseller to get more funding and created more demands for Alpha Three water filters. Funding from Kiva was channeled to direct resellers – after a trial period to assess the eligibility of the direct reseller.
Fourth, Alpha Three worked with NGOs to widen their coverage. NGOs usually distributed the water filter products for free to beneficiaries. For example, in disaster events or in areas where beneficiaries are not able to pay for the products.
Fifth, those who were not interested to become direct reseller can still become “partner reseller”. They earned commissions from each product that they sell.
Figure 2. Kiva profile page
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An Example of Case Narratives and the Code Book (Paper 2) Figure 3. Value creation and delivery flow. Value Capture
Alpha Three made breakeven in 2015 and started to make profit since then. Alpha Three made this profit from managing efficient revenue and cost arrangement. By integrating value creation and delivery aspects, especially by involving beneficiaries in the process, they increase revenue and reduce distribution costs, as well as achieve their social objectives. For example, having Kiva to support sales help Alpha Three to efficiently generate significant surpluses (due to the scale of the sales via direct reseller). “The good thing is Kiva is interest free, and that’s … this is I’m really happy with Kiva financeship. We really appreciate [it]. Because it’s quite difficult to … yeah it’s not simple to get access to finance here in Indonesia”, according to the co-founder. Alpha Three empowers a network of 122 resellers (with 69 females) and this network covers 70% of Alpha Three’s filter sales. 20% are sold via NGOs and the other 10% is sold directly by Alpha Three.
Alpha Three
Direct Reseller
Customers and/or Beneficiaries
Kiva Crowdfunding Platform
Investors
Distributors (NGOs, etc)
Partner Reseller
Grant Organizations (GAIN)
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Data Sources
Primary Data • In-depth interview (60 minutes) transcript with co-founder of the Case Alpha Three Social
Enterprise (August 2015)
Secondary Data Company Video Profile
• https://www.youtube.com/watch?v=bmItlxbxtM8
Donor’s Document • http://www.gainhealth.org/about/our-policies/#fraud-
Media Coverage • The Tech Awards 2013 Laurate - https://www.youtube.com/watch?v=4GB9Gdv1Dh0 • http://www.theecologist.org/blogs_and_comments/Blogs/2987757/solving_the_problem_of_s
afer_drinking_water_with_simple_technologies.html • http://www.theepochtimes.com/n3/363789-silicon-valley-tech-award-winner-talks-water-filter-
that-could-help-millions/ • https://www.ashden.org/files/case_studies/Nazava%20-
%20Ashden%202016%20case%20study.pdf • http://www.thejakartapost.com/adv/2016/04/21/helping-villagers-have-access-to-safe-
drinking-water.html • http://www.thejakartapost.com/adv/2016/04/20/good-nutrition-entails-safe-drinking-water.html • https://kopernik.info/sites/default/files/instructions/Nazava%20more%20info_0_0.pdf
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Part Two: the Code Book for Qualitative Research (Paper 2)
Constructs/Themes Definitions from theory/literature
Qualitative anchors Example quotes
Autonomy “freedom to make own decision about the use and allocation of internal resources (within the boundary of the social venture) without references or regard to the demands or expectation of potential linkage partners”
High: “social venture is enabled to make own decision about the use and allocation of internal resources”
“ … we could manage [the money]…to print [the magazines] out this many…and this [money is also] for staff’s salaries”, N
Moderate: “social venture is rather constrained, e.g., structurally via regulations, but finds way to make own decision about the use and allocation of internal resources”
Evidence of constraint: “[as] yayasan (foundation) [we] cannot take profit …”, A Evidence of allocation of internal resources: “So, if we get project A, we’ve got surplus 100. Out of 100, we take 40 and use it [as salaries] of people who work in this project. The [other] 40, we use it to buy equipment, materials … and [the other] 20 we use it for community development”, A
Low: “social venture is constrained, e.g., structurally via regulations, to make own decision about the use and allocation of internal resources”
“Yeah, it’s … donation … depends on the request [of the donors] … for example, the charity [donation] is for buying books in 4 locations”, N
Social legitimacy “support of stakeholders and partners, including grant organizations, for the activities of focal social ventures”
High: “social venture receives support and no evidence of critique from stakeholders”
“The network [support] is from local to international. This is the MoU made with UC Berkeley for youth participation … then UN Habitat …”, L
Moderate: “social venture receives mixed support and critiques
Evidence of support: “We have more connection with [poor] farmers … they need an
306 Appendix A
and/or resistance from stakeholders”
organization which can promote [campaign] their product … healthy rice … organic rice”, T Evidence of critiques: “Until now, the sources [of the rice] are diverse … because basically we are not [seen as] businessmen or entrepreneurs [by the farmers] … farmers and their mentors often look us down … meanwhile we must be serious because we’re dealing with consumers”, T
Low: “social venture receives critiques and/or resistance and less support from the stakeholders”
“we got mocked .. [they said] ‘Inviting [poor] farmers to the market? Capitalist!’ …”, P2
Market legitimacy
“acceptance of actions of the focal social ventures within the market norms, such as seeking potential profits, etc”
High: “customers, investors, and other market stakeholders show interest (to buy, to invest) in the social ventures because of the profit potentials”
“When we started when we’re engaging with [the investors], “okay show me the cash flow, show me the cash flow, show me the cash flow”, L
Moderate: “less interests from the market stakeholders because social venture shows less or limited capacity to profit ”
“[the business is] not yet [large] … we want to, but we are still [perceived as] an NGO”, T
Low: “there is no interest from market stakeholders due to lack of capacity to profit”
“The market [capacity] is still low … we are about to enter the market … upgrading is not that simple”, L
Social mission “the prioritization of the creation of public and social value over value capture”
Strong Focus on Value Creation: “social venture explicitly prioritizes social/public benefit over profit”
“This is not only care to the environment; but it is a pity if we throw this manure to the river and make the river becomes green-coloured because of this. In 2000, I tried to build biogas [reactor] and trialled with different design”, B
Appendix A 307
Private ownership logic
“owners have the exclusive right to exclude other people inside and outside the organizations in profit appropriation”
Evidence of profit logic: “social venture shows intention to seek profit”
“We offered a pro-bono to some previous cases requiring supporting counselling. However, we also consider that this can be monetized in the future.”, W
Private funding “private sources of funding, such as sales, etc”
High: “social venture receives a significant amount of revenue from private sources, such as sales, investors, etc”
“[the investor] will provide money for two years … one year for preparing [the social enterprise] … in a second year we will be working on the … programs”, N
Moderate: “social venture received mixed funding from government and from trading sales, or from private sources”
Example 1: Example of private funding from Alpha Three: “we partner with NGOs [that buy our products] and NGOs mostly hand it out for free [to the beneficiaries]”, L Example of government funding from Alpha Three: Alpha Three receives US$ 100,000 from Global Alliance for Improved Nutrition (GAIN) to develop women micro-entrepreneurship program (Ashden, 2017) Example 2: “60% restricted (public) and 40% unrestricted (private)… 40% to buy books … send the books …”, N
Low: “social venture receives a significant amount of revenue from government sources”
“until now [the largest] is … the one with [government]”, L
Public control “political and public as well as stakeholder control, such as terms that are attached within certain government funding, such as oversight”
High: “social venture receives significant control from external organizations”
“we’ve also got a donor who specifically say that he wants to support us to open a library and he will contribute the operational costs … so
308 Appendix A
we have to make a report”, N
Moderate: “social venture shows mixed external monitoring and presence of shareholder control”
Example of external monitoring from Charlie Four: “[The fund] wasn’t supposed to [be used] to buy [rice] since it was [allocated] for planting … later, [Oxfam] had argument with [our staff] … [Oxfam] argued, if we did that, then who’s going to buy this [fertilizer]?”, T Example of presence of shareholder control from Charlie Four: “Of course … we aren’t established yet … what we want is [to gain profit] … from what I said [catering and business]”, I
Low: “social venture receives significant owner/shareholder control”
“ … for decision making, we’re planning to do this [involving stakeholders] … [but] we haven’t done that yet”, P1
Value proposition “what the focal social venture delivers to its customers and beneficiaries, why are they proposing this value”
Integrated: “social venture focuses on offering value proposition that is often integrated with the one that is offered to beneficiaries”
“we’re really going to target … poor people [who need clean water] so we used the housing [of the filter] that was really like the cheapest container we could find on the market [so they can buy it].”, L
Separated: “social venture offers different value propositions to commercial customers and public/social beneficiaries”
Beneficiaries of Beta One: “… started from anti-drugs campaigns [for children in schools] … [to] microfinance programs … for poor housewifes”, V Clients of Beta One: “So, our business model is similar to Timezone … we open [our business units] at … malls … the revenue is [from] doing business as usual”, V
Appendix A 309
Single, Public: “social venture focuses and prioritizes on offering only social/public value proposition”
“Why books and education … why children … because I believe that if we want to change something in the future … then it should start with children … and one of the key factors is education”, N
Value creation and delivery
“how the focal social venture creates and delivers that value to its customers and to its beneficiaries)”
Efficient: “social venture shows evidence of efficient transaction and operational costs in value creation and delivery activity arrangement, for example beneficiaries are involved in the business process”
“We choose journalist [as our beneficiaries]…young journalist … who can cycle at far distance and want to report [as campaigns and marketing materials for promotion]”, N
Novel: “social venture shows new, unprecedented value creation and delivery activity arrangement, for example linking different markets, activities, or products”
“Our micro-finance program is … education-linked microfinance, where children of the mothers who borrows our money have to go to [Beta One] free schools”, V.
Lock-in: “social venture shows value creation and activity arrangements that depend or rely on stakeholders”
“We’ve also got a prominent partner that is change.org. Change.org has been very helpful to us particularly when we wanted to ensure that our survey went viral to support the ratification of the Draft Law on Sexual Violence.”, W
Value capture “how the firm generates revenue and profit”
Efficient: “social venture shows evidence of efficient revenue and cost arrangement that leads to surplus appropriation, e.g., via external subsidy, financing, cost sharing, etc”
“The good thing is Kiva (financing) is interest free, and that’s … this is I’m really happy with Kiva financeship. We really appreciate. Because it’s quite difficult to … yeah it’s not simple to get access to finance here (to increase sales) in Indonesia”, L
Novel: “social venture shows evidence of high cost management due to the need to manage different value propositions”
“Because like I told you before, if I take [profit] from here, I will have less [sewing] machines then. So I think let it just be here now [and don’t
310 Appendix A
have to appropriate profit]”, A
Lock-in: “social venture shows evidence of strong external dependence in revenue and cost arrangement”
“We are not brave enough to flip over the 90% [donor funding] and 10% [private funding] revenue sources … and we wish we could do that”, T
Emerging constructs/themes
Definitions from the Data Qualitative anchors Example quotes
Financial wealth motivation
“the motivation of owners (including equity investors) to receive financial return from the social venture”
High: “social venture shows intention of the owners to appropriate profit from the social venture as dividends”
“[we will share dividends] if we have remaining balance”, P3
Low: “intention of the owners (including shareholders or investors) to use the profit for social venture missions”
“That’s okay if it (the business profit) is small but as long as it can support our monthly operational costs”, W
Appendix B 311
Appendix B Data Preparation, Scale Development and Testing (Paper 3)
This appendix describes the data preparation, scale development and testing processes in Paper 3. This appendix consists of three parts. It starts by elaborating the data preparation procedures (part one) and it continues with the scale development processes of the social venture characteristics (content domain and item generation, expert panel test, initial test with social entrepreneurs, EFA, and CFA processes) (part two). This appendix continues with the factor analysis results of the distal outcomes: business model configurations and performance and CFA of all variables involved in the analysis in Paper 3 (part three). The following diagram displays the flow of this appendix.
Part 1 Data Preparation -Missing values -Outliers -Normality Batch 1 and Batch 2 Data
Part 2 Scale Preparation -Item Development -Expert Panel -Test with Social Entrepreneurs
EFA of social mission, private ownership logic, private funding, financial wealth motivation
Batch 1 Data
EFA of social mission, private ownership logic, private funding, financial wealth motivation, public control
Batch 2 Data
CFA of social mission, private ownership logic, private funding, financial wealth motivation, public control
Batch 2 Data
EFA lock-in, novelty, efficiency, social performance, financial performance, and alpha scores and CFA of all variables
Part 3
Batch 2 Data
312 Appendix B
Appendix B - continued Data Preparation, Scale Development and Testing (Paper 3)
Part One: Data Preparation (Batch 1 and Batch 2 Data)
Treatment of Missing Values
Using Little’s MCAR test in SPSS, missing data was identified as both MCAR (random) in some variables and MAR (non-random) in a few variables, with the missing data percentages in the cases or observations being below 5% (ranging from 1% - 4%). Although according to Hair et al. (2010) missing data below 10% can be generally ignored, due to a few non-random missing data, this thesis imputed the missing data. Following Hair et al.’s (2010) suggestion, the thesis used the estimation–maximization (EM) approach for missing data imputation due to its ability in making “the most accurate and reasonable estimate possible” (p. 50).
Outliers
Outliers were identified using the univariate approach in SPSS and by visually inspecting the z score of each item (Hair et al., 2010). Several outliers were detected (above the threshold of 2.5 and in some cases reached 4.5); however, according to Hair et al. (2010) this range (between 2.5 and 4) is acceptable for a sample size above 80 respondents. After visually inspecting the outlier cases, and following advice from Hair et al. (2010), we retained these cases to ensure generalizability.
Normality Assessments
The results of the Komolgorov-Smirnov and Shapiro-Wilks tests were significant and, therefore, the data in our sample was non-normally distributed (Hair et al. 2010); this is common in social research. To assess the eligibility in conducting multivariate analyses, kurtosis and skewness were used to evaluate the severity of non-normality of the data. Following Kline (2016), the interpretation of kurtosis and skewness in this thesis used the absolute value (or statistics value in SPSS), instead of the z test suggestion in Hair et al. (2010).
“The ratio of either [skew index] or [kurtosis index] over its standard error is interpreted in large samples as a z test of the null hypothesis that there is no population skew or kurtosis. These tests may not be helpful in large samples because even slight departures from normality could be statistically significant, and low power in small samples means that appreciable skew or kurtosis can go undetected. Significance testing with [skew index] or [kurtosis index] is not generally helpful in data screening. An alternative is to interpret absolute values of [skew index] or [kurtosis index].” (Klein 2016, p. 76)
Kline (2016) further continued to offer the “rule of thumb” cut-off based on computation of simulation studies where skew index was below 3.0 and kurtosis index was below 10.0 is considered acceptable and data can be assumed to be normally distributed. Using Kline’s (2016) rule as a guideline, all data in this thesis was within the acceptable cut-off: all kurtosis indices were < 10 (ranging from .004 to 8.2) and all skewness indices were < 3 (ranging from .233 to 2). Thus, the non-normality of the data in the sample was not severe and it did not violate the normality requirement for conducting multivariate analysis
Part Two: Scale Development of Social Venture Characteristics (Batch 1 and Batch 2 Data) Content Domain and Item Generation To operationalize the characteristics of the social ventures, items were generated using the deductive approach (Burisch, 1984; Hinkin, 1995). The theoretical (Paper 1) and qualitative (Paper 2) studies were used as the guide to determine the content domain in developing the items for the scale. The specific content domain of interest helped to define the constructs and what should be included and excluded in the items to ensure content validity. Since the measures were to be used to collect data in Indonesia, the Paper 3 developed the initial items in Bahasa Indonesia. The social mission characteristic was defined as “the prioritization of the creation of public and social value over value capture” (Paper 1, Paper 2), and Paper 3 developed 12 initial items that measured whether social ventures prioritized the social mission over the business mission.
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Data Preparation, Scale Development and Testing (Paper 3) The private ownership logic characteristic was defined as the fact that “owners have the exclusive right to exclude other people inside and outside the organizations in profit appropriation” (Paper 1, Paper 2), and 12 initial items were developed to measure whether the social venture allowed profit distribution. In the literature, profit distribution is seen as a reflection of the logic of private organizations. While the private funding characteristic was defined as “private sources of funding, such as sales, etc.” (Paper 1, Paper 2), due to limited availability of “hard data” in most social ventures, Paper 3 used a social venture’s capability in managing surplus they generated as a proxy for this particular characteristic. Private organizations, according to publicness theory, receive a majority of their revenue in the form of private funding. This allows them to have a high surplus management capability because the nature of private funding is non-restrictive. This is different from public funding where the nature of the funding is restrictive to surplus management. In organizations with high public funding, such as public organizations, surpluses are prohibited due to the fact that public funding is usually tax-payers’ money and organizations are not allowed to trade or distribute surpluses generated from taxpayers funds (Ferris, 1993). Thus, the degree of surplus management capability corresponds to the degree of private funding in social ventures. The higher the surplus management capability indicates the higher the proportion of private funding of a social venture. Twelve initial items were developed to measure surplus management capability as a proxy for private funding in social ventures. Financial wealth motivation was defined as “the motivation of owners (including equity investors) to receive financial return from the social ventures” (Paper 2). Twelve initial items were developed to measure the social venture owners’ financial motivation. The public control characteristic was defined as “political control or terms that are attached within certain government funding, such as public oversight and accountability, etc.” (Paper 1, Paper 2). However, since Paper 3 aimed to develop a self-report measure of public control, a scale measuring the social entrepreneur’s perceived dependence on external parties, such as NGOs, Government, Suppliers, and Beneficiaries was developed as a proxy. This perceived dependence reflected the degree of external control. The more dependent, the more control an external organization had over the social venture. Four items to measure the dependence of social venture on NGOs, government, suppliers, and beneficiaries were the proxies to measure public control characteristics. Expert Panel Scale development literature suggests that items developed by researchers should undergo expert panel verification (DeVillis, 1995). Four characteristics (social mission, private ownership logic, private funding, and financial wealth motivation) were verified for content validity with business management experts in Indonesia. Ten business management experts in Indonesia were invited to rate the content validity of the items. The experts were asked to give a score of 1 if they did not think the items showed content validity, and to give a score of 3 if they thought the items displayed content validity. They were asked to score 2 if they felt that the items showed moderate content validity. Nine business management experts responded and returned the survey. Following Polit and Beck (2006), a composite score (CVI index) was created for each item; the index was then ranked. After face and content validity inspection, items with the six lowest CVI indices in each characteristic were excluded; and a semi-final survey that consisted of six items for each characteristic was established.
314 Appendix B
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Data Preparation, Scale Development and Testing (Paper 3) Initial Test with Social Entrepreneurs To further ensure the content validity of the developed scale, much scale development research suggests testing the survey questions developed by the researchers using a small sample target audience (or practitioners). The semi-final survey questions were tested on 20 social entrepreneurs in Indonesia via a web-survey. The social entrepreneurs were also asked to provide feedback in a column at the end of the web-survey. They provided substantial feedback in relation to the clarity of the questions and to the confusing items. Based on their feedback, it was decided to eliminate the questions that were not clear. A scale of 6 items for each characteristic was generated, except for social mission (3 items). At the end, a 4-construct, 21-item scale was established (see Table A). Initial Exploratory Factor Analysis (EFA) of the 4 constructs, 21 items scale (Batch 1) Factor analysis was conducted using the first batch of the data. The sample size of batch 1 (N = 102) met the minimum requirement of a 1:5 ratio between items and observations (Hair et al., 2010). The Kaiser-Meyer-Olkin (KMO) sampling adequacy test resulted in a score of .841, which exceeded the cut-off of .5 (Kaiser, 1970). Furthermore, as required, Bartlett’s test of sphericity was significant in our factor analysis (chi-square 1425.024, df = 210; p < .001) (Bartlett, 1950). The principal axis factoring extraction method was used to conduct the EFA. Much literature indicates that principal axis factoring method is suitable for developing scales from scratch, especially because this method is useful in identifying latent dimensions in the new scales (Hair et al. 2010; Worthington & Whittaker, 2006), although a number of studies argue that both the principal axis factoring method and principal component analysis techniques yield similar results (Sieger et al., 2016; Velicer & Jackson, 1990). As a robustness check, both extraction methods were conducted and are reported in Table B. They yielded similar results from the data. Furthermore, the oblique rotation method was used as the items were assumed to be correlated (Gorsuch, 1983; Hair et al., 2010). The analysis resulted in four strong components with eigenvalues of 7.66 (36.48%), 3.049 (14.52%), 1.95 (9.32%), and 1.62 (7.75%). The total explained variance was 68.07%, which was above the cut-off of 60% (Hinkin, 2005). The pattern matrix showed four items that cross-loaded, and after inspection of ethface and content validity of the items, three items were excluded (WEALTH_2, 3 and PRIVATE_4) and one item was retained (WEALTH_1) for the final survey questions in the second batch. Face and content validity were important to ensure construct validity in this case (Hair et al., 2010). This resulted in a survey of the four characteristics that consisted of 18 items.
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Data Preparation, Scale Development and Testing (Paper 3) Table A The Initial Survey Questions of 4 Constructs and 21 Items Scale
Constructs/Items Survey questions
Social mission
SOCMIS_1 To solve social and community problems are most important aspect of your social enterprise
SOCMIS_2 You prioritise aspects that benefit the society when doing organizational planning SOCMIS_3 You prioritise social mission when developing organizational strategy Private ownership Logic
PROF_1 Your social enterprise is not prohibited to distribute profit to owners PROF_2 You believe that profit distribution from your social enterprise to owners is all right PROF_3 Owners can profit from your social enterprise PROF_4 Owners can receive financial benefit from your social enterprise PROF_5 Your social enterprise can distribute financial profit to owners PROF_6 Social enterprise is not restricted to distribute financial return to owners Financial wealth Motivation
WEALTH_1 Your social enterprise has high social value, but owners also need to gain financial return
WEALTH_4 Offering financial profit to owners are moral responsibility of your social enterprise WEALTH_5 Owners establish social enterprise because they want to gain financial return WEALTH_6 A good social venture is the one that provides financial return to owners Private funding
PRIVATE_1 Your social enterprise has high freedom in surplus management PRIVATE_2 Your social enterprise has high flexibility in managing generated surplus PRIVATE_3 The use of surplus is not restricted in your social enterprise PRIVATE_5 Your social enterprise are free to use financial surplus PRIVATE_6 Your social enterprise are very free to utilize generated financial surplus
316 Appendix B
Table B Batch 1 - Comparing the Result of Initial Factor Analysis of Social Venture Scales (PCA and PAF with Oblique Rotation) (Item Scores < .3 are Suppressed)
Pattern matrix Pattern matrix
Component
Factor
1 2 3 4 1 2 3 4 SOCMIS_1 .781 SOCMIS_1 .661 SOCMIS_2 .774 SOCMIS_2 .668 SOCMIS_3 .814 SOCMIS_3 .700 PROF_1 .827 PROF_1 .783 PROF_2 .887 PROF_2 .855 PROF_3 .735 PROF_3 .677 PROF_4 .871 PROF_4 .850 PROF_5 .868 PROF_5 .847 PROF_6 .886 PROF_6 .861 WEALTH_1 .405 .571 WEALTH_1 .332 .580 WEALTH_2 .610 .399 WEALTH_2 .532 .439 WEALTH_3 .511 .493 WEALTH_3 .431 .526 WEALTH_4 .656 WEALTH_4 .589 WEALTH_6 .770 WEALTH_6 .749 WEALTH_5 .760 WEALTH_5 .698 PRIVATE_1 .639 .356 PRIVATE_1 .577 PRIVATE_2 .781 PRIVATE_2 .750 PRIVATE_3 .805 PRIVATE_3 .776 PRIVATE_4 .541 .608 PRIVATE_4 .491 .560 PRIVATE_5 .343 .699 -.344 PRIVATE_5 .604 PRIVATE_6 .658 PRIVATE_6 .550 Note. Extraction method: principal component analysis; Rotation method: Oblimin with Kaiser normalization..
Extraction method: principal axis factoring; Rotation method: Oblimin with Kaiser normalization.
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Exploratory Factor Analysis (EFA) of the 5 constructs, 25 items scale (Batch 2) Based on the results of the initial EFA using data from the first batch, an improved survey was developed. In the second batch, the measure of public control as a characteristic of social venture was also included. In this batch 6 items of public control were added to the 18 items that resulted from the initial factor analysis. In total, there were 25 items in the second batch survey. After the second batch data was collected, a factor analysis of all five characteristics of social ventures (social mission, private ownership logic, private funding, financial wealth motivation, and public control) was conducted. The factor analysis resulted in a good KMO test (.841), and also showed significance in Bartlett’s Test (Chi-Square = 3034.299, df = 300; p < .001). Seven components with eigenvalues of 6.74 (26.94%), 3.58 (14.33%), 1.97 (7.86%), 1.74 (6.96%), 1.47 (5.89%), 1.22 (4.86%), and 1.2 (4.69%), with the total variance of 71.54% (see Table C). Inspection of the pattern matrix showed cross-loading items and, therefore, after inspection of face and content validity of the cross-loading items, WEALTH_1, BUSCON_3, PUBCON_2 were decided to be dropped. Another factor analysis without these items was then conducted. Another cross-loading item was found, BUSCON_2, and this item was dropped. Following this decision, a scale of 6 constructs and 21 items was established. Table C Rotated Pattern Matrix of the Initial 5-Construct Social Venture Scale (Batch 2) (Item Scores < .3 are Suppressed)
Pattern Matrix
Factor
1 2 3 4 5 6 7 SOCMIS_1 -.580 SOCMIS_2 -.700
SOCMIS_3 -.676
PROF_1 .845
PROF_2 .944
PROF_3 .867
PROF_4 .907
PROF_5 .920 PROF_6 .882
WEALTH_1 .320 -.525
WEALTH_4 -.536
WEALTH_6 -.790
WEALTH_5 -.801 PRIVATE_1 .860
PRIVATE_2 .810
PRIVATE_3 .915
PRIVATE_5 .678
PRIVATE_6 .742
BUSCON_1 .468 BUSCON_2 .436 BUSCON_3 -.305 .364 PUBCON_1 .598
PUBCON_2 .349 -.428
PUBCON_3 -.752
PUBCON_4 .562
Note. Extraction method: principal axis factoring; rotation method: Oblimin with Kaiser normalization.
318 Appendix B
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Data Preparation, Scale Development and Testing (Paper 3) Final Exploratory Factor Analysis (EFA) of the 6 constructs, 21 items scale (Batch 2) A final exploratory factor analysis of the 6 constructs and 21 items using the principal component analysis (PCA) method was conducted since in this stage data, reduction was the concern of the analysis to achieve a stable factor structure (Hair et al., 2010). KMO test indicated a good sample (.841) and Bartlett’s test was significant (Chi-Square = 2749.781, df = 210; p < 0.001). Inspection of the communalities showed that all of the items scored above .5, thus showing common variance among the items. Analysis showed six factors/components with eigenvalues of 6.27 (29.83%), 3.52 (16.75%), 1.81 (8.63%), 1.39 (6.61%), 1.32 (6.27%), and 1.07 (5.08%). This added up to 73.16% of the variance explained, which was above the required cut-off of 60% (Hinkin, 2005). All factor loadings were above .550 and, therefore, in a sample of 205 (Batch 2), it was statistically significant as, according to Hair et a.l (2010), a minimum sample of 100 and a factor loading above .550 is required to ensure statistical significance of the factor loading. As indicated in Table D, all six constructs in the final EFA were Social Mission (SOCMIS_1 to SOCMIS_3), Private Ownership Logic (PROF_1 to PROF_6), Financial Wealth Motivation (WEALTH_4 to WEALTH_6), Private Funding (PRIVATE_1 to PRIVATE 3 and PRIVATE_5 to PRIVATE_6), Public Organization Control (Government and NGOs) (PUBCON_1 and PUBCON_4), and Business Supplier Control (Beneficiaries and Business Suppliers) (BUSCON_1 and PUBCON_3). Table D Final Pattern Matrix of the 6-Construct And 21 Items of Social Venture Scale (Batch 2 Result) (Item Scores < .3 are Suppressed)
Pattern Matrix
Component
1 2 3 4 5 6 SOCMIS_1 .753
SOCMIS_2 .789
SOCMIS_3 .794
PROF_1 .875
PROF_2 .947
PROF_3 .881
PROF_4 .916
PROF_5 .937
PROF_6 .911
WEALTH_4 -.603
WEALTH_6 -.810
WEALTH_5 -.885
PRIVATE_1 .879
PRIVATE_2 .847
PRIVATE_3 .912
PRIVATE_5 .756
PRIVATE_6 .816
BUSCON_1 .803 PUBCON_1 .795 PUBCON_3 .649 PUBCON_4 .826
Note. Extraction method: principal component analysis; Rotation method: Oblimin with Kaiser normalization.
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Confirmatory Factor Analysis (CFA) of Social Venture Characteristics A confirmatory factor analysis (CFA) using AMOS version 23 was conducted to further assess the factor structure of the 6-construct, 21-item scale. CFA is another way of assessing whether items represent a number of constructs (i.e., a measurement theory) (Hair et al., 2010). CFA also helps to produce a robust factor structure because it allows researchers to compare a model of measurement theory with alternative factor structures (Kline, 2016). CFA uses the normed fit index (NFI), the comparative fit index (CFI), the incremental fit index (IFI), the Tucker-Lewis fit index (TLI), the standardized root mean square residual (SRMR), and the root mean square error of approximation (RMSEA) as fit indicators in testing the models (Hu & Bentler, 1999). CFI and IFI indices are suitable for smaller samples (Fan et al., 1999). Two models were analysed: (a) the first was the model of 6-construct, 21-items scale generated from the EFA; (b) the second was an alternative model where all 21 items loaded onto a single factor. The first model (M1) was significant and all model fit indicators showed good fit after modifying the indices between e4 and e5. Items loaded onto factors with above .4 score cut-off (Hinkin, 1995) with the exception of PUBCON_3 which had a very low loading score (. 22) on the Business Supplier Control latent construct. The Business Supplier Control was then dropped from the M1 model. Another model was then developed (M1a) without the Business Supplier Control construct. This model was significant, with all model fit indicators showing good fit and retaining the modification indices between e4 and e5. All items loaded onto factors with an above .4 score cut-off (between .57 to .94) and were significant (p < 0.001). Each construct had a minimum of three items, as suggested by Hair et al. (2010), with the exception of the Public Control construct that only had 2 items. Kline (2016), however, indicated that two items are still acceptable and can be used as a minimum number of items for latent analysis. This resulted in the final 5 factor scales with 19 items. The second model (M2) was an alternative model where all items loaded onto a single factor. Model fit indicators showed that the second model did not achieve a fit. The final factors were checked for consistency with Cronbach’s alpha for Social Mission (α = .682), Private Ownership Logic (α = .963), Private Funding (α = .905), Public Control (α = .517), and Financial Wealth Motivation (α = .788). Social mission and public control had low reliability as the cut-off for Cronbach’s alpha is .7; however, Nunnally (1967) described that an alpha of .05 - .06 is still acceptable for “first time” or preliminary studies. Table E displays the CFA fit indice results of the final 5 factor scales with 19 items (M1a) and the alternative model (M2) Table E CFA Model Specifications and Fit Indices of the Final Social Venture Characteristics Model
Fit Indices M1a (5 factor, 19 items) M2 (Single factor)
NFI
.909
.555
CFI .947 .583
IFI .957 .586
TLI .956 .531
SRMR .050 .179
RMSEA .063 .189
Chi-Square 257.64 1255.108
df 142 152
p value .000 .000
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Convergent validity
Further inspection of the convergent validity was conducted to ensure construct validity (Hair et al., 2010). Inspection of the CFA analysis (Bagozzi et al., 1991) showed convergent validity was evident when the theorized items loaded on the factors (Chandler et al., 2011). This was strongly evident in the CFA analysis where factor loadings of all items were significant atby< 0.001. However, as suggested in Hair et al. (2010), the AVE (average variance extracted) score was further calculated to check convergent validity. Score ranges between .351 and .806 emerged from the AVE analysis. Two constructs, public control (AVE = .351) and social mission (AVE = .427), had AVE scores below the required cut off of .5 (Fornell & Larcker, 1981). This implied that more items were required to measure public control and social mission. However, since this was a first study testing social venture forms, business models, and performance, these constructs were kept. Two further reasons justified this decision. First, inspection of the fit indices of the CFA model that included these low AVE and CR variables (M1a) showed good fit, indicating that overall, the structure of the items and constructs was good. Second, further inspection of discriminant validity (next part) showed that all constructs differed from one another, suggesting that these constructs measured different things. Thus, despite the low AVE and CR, these constructs – social mission and public control – were retained (see Table F). Table F AVE and CR scores from CFA
Social venture characteristics Construct reliability
(CR)
Average variance
extracted (AVE) Social mission .689 .427 Private ownership logic .961 .806 Financial wealth motivation .790 .558 Private funding .908 .668 Public control .519 .351
Discriminant validity
The CFA result can be used to assess discriminant validity (Bagozzi et al., 1991; John & Benet-Martinez, 2000). The results of the CFA analysis showed that M1a (5-factor model) was superior to the one-factor model (M2); this suggested that the constructs were different from each other. A more conservative way to assess discriminant validity is by calculating the square root of AVE and comparing the score with the correlation of the focal variable with others (Fornell & Larcker, 1981; Hair et al., 2010). Table G shows that the square roots of AVE of the variables were larger than any correlation between the focal variables with other variables; therefore, the discriminant validity among the social venture characteristics was established. Table H shows the final 5 constructs and 19 items.
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Table G Factor Correlation Matrix and Square Root of AVE on the Diagonal
Social mission
Private ownership logic
Financial wealth motivation
Private funding
Public control
Social mission .653 Private ownership logic -.133 .898
Financial wealth motivation .072 .537 .747 Private funding .137 .192 .423 .817
Public control .061 -.109 -.013 .128 .592 Table H Final 5 Constructs and 19 Items Scale for Social Venture Characteristics
Constructs/Items Survey questions
Social mission
SOCMIS_1 To solve social and community problems are most important aspect of your social enterprise
SOCMIS_2 You prioritise aspects that benefit the society when doing organizational planning SOCMIS_3 You prioritise social mission when developing organizational strategy Private ownership Logic
PROF_1 Your social enterprise are not prohibited to distribute profit to owners PROF_2 You believe that profit distribution from your social enterprise to owners is all right PROF_3 Owners can profit from your social enterprise PROF_4 Owners can receive financial benefit from your social enterprise PROF_5 Your social enterprise can distribute financial profit to owners PROF_6 Social enterprise is not restricted to distribute financial return to owners Financial wealth Motivation
WEALTH_4 Offering financial profit to owners are moral responsibility of your social enterprise WEALTH_5 Owners establish social enterprise because they want to gain financial return WEALTH_6 A good social venture is the one that provides financial return to owners Private funding
PRIVATE_1 Your social enterprise has high freedom in surplus management PRIVATE_2 Your social enterprise has high flexibility in managing generated surplus PRIVATE_3 The use of surplus is not restricted in your social enterprise PRIVATE_5 Your social enterprise are free to use financial surplus PRIVATE_6 Your social enterprise are very free to utilize generated financial surplus Public control “Provide answers related to the degree of dependency of your social enterprises with
the following organizations/institutions”
PUBCON_1 Non-profit organizations PUBCON_4 Government institutions
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Part Three: EFA of Business Model Configurations and Performance Variables and CFA of all variables (Batch 2 Data) EFA of Business Model Configurations (Efficiency, Novelty, and Lock-in) Following the factor analyses of the social venture characteristics, this appendix continues to report the factor analysis of business model configurations and performance variables (see Tables I and J). Business configuration items were adapted from Amit and Zott (2001) and Zott and Amit (2007). Five items for efficiency and novelty business models were developed. Six items for lock-in business models were also developed. An initial exploratory factor analysis (EFA) was conducted to analyse the factor structure of the business model configurations. Cross-loading was found and after inspecting the face value of the items, they were dropped from the item pool. The final factor analysis showed a relatively good factor structure of business model configurations. KMO test indicated a good sample (.812) and Bartlett’s test was significant (Chi-Square = 1001.520, df = 91; p < 0.001). Analysis showed three factors/components with eigenvalues of 4.07 (29.08%), 2.35 (16.81%), and 1.75 (12.50%). This added up to 58.39% of the variance explained, close to the required cut-off of 60% (Hinkin, 2005). All items loaded onto factors above .550, implying statistical significance for the data set with a sample of 205 respondents. EFA of Social and Financial Performance Factor analysis of the performance variables was also conducted (see Tables K and L). Social and financial performance items were adapted from Liu et al. (2015). Six items of social performance and six items of financial performance of social ventures were developed based on previous literature. An initial EFA was conducted to analyse the factor structure of social and financial performance. Cross-loading items were also found, and a three-factor solution was indicated instead of two factors. After inspecting the survey questions for face and content validity, the third emerging factor was named “business customer satisfaction” because the survey asked about customer satisfaction (FINPER_3; FINPER_5; FINPER_6). After dropping the cross -oading items, a final EFA was conducted. The KMO test indicated a good sample (.792); and it was above the .7 cut-off. Bartlett’s test was significant (Chi-Square = 841.422, df = 55; p < 0.001). Analysis showed three factors/components with eigenvalues of 4.29 (39.02%), 1.38 (12.57%), and 1.32 (12.03%). This added up to 63.62% of the variance explained, above the required cut-off of 60% (Hinkin, 2005). All items loaded above .400, and this was statistically significant, as Hair et al. (2010) indicated that for a sample above 200 respondents the items needed to load above .400.
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Table I Rotated Pattern Matrix for the Final Business Model Configuration Items
Pattern matrix
Component
1 2 3 EFFICIENCY_1 .781 EFFICIENCY_4 .799 EFFICIENCY_5 .843 NOVELTY_1 .568 NOVELTY_2 .887 NOVELTY_3 .838 NOVELTY_4 .584 NOVELTY_5 .868 LOCKIN_1 .675 LOCKIN_2 .769 LOCKIN_3 .789 LOCKIN_4 .650 LOCKIN_5 .555 LOCKIN_6 .742
Note. Extraction method: principal component analysis; Rotation method: Oblimin with Kaiser normalization.
Table J Final 3 Constructs and 14 Items Scale of Business Model Configurations
Constructs/Items Survey questions
Efficiency
EFFICIENCY_1 The operational aspect of your social enterprise is rather efficient EFFICIENCY_4 Activities of your social enterprise are efficient EFFICINECY_5 Overall, the business model of your social enterprise operates efficiently Novelty
NOVELTY_1 Your social enterprise applies innovation to achieve the objectives NOVELTY_2 There are unique ways in running your business NOVELTY_3 There are aspects of your social enterprise’s business model that can be considered
unique NOVELTY_4 The business model of your social enterprise involve unique partners NOVELTY_5 Overall, the business model of your social enterprise is novel Lock-in
LOCKIN_1 Accountability of your social enterprise is very important LOCKIN_2 Trust of the stakeholders is very important LOCKIN_3 The reputation of your social enterprise is very important LOCKIN_4 The loyalty of the stakeholders to your social enterprise needs to be properly
maintained LOCKIN_5 Your social enterprise does extensive consultation with stakeholders (for example,
donor organizations) LOCKIN_6 Overall, the business model of your social enterprise maintains the loyalty of the
stakeholders
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Table K Rotated Pattern Matrix for the Social and Financial Performance Items
Pattern Matrix
Component 1 2 3
SOCPER_1 .695 SOCPER_2 .525 SOCPER_3 .799 SOCPER_4 .775 SOCPER_5 .884 SOCPER_6 .595 FINPER_2 -.889 FINPER_3 .842 FINPER_4 -.874 FINPER_5 .810 FINPER_6 .721 Note. Extraction method: principal component analysis; Rotation method: Oblimin with Kaiser normalization.
Table L Final 3 Constructs and 11 Items Scale of Social Performance, Financial Performance, and Business Customer Satisfaction Constructs/Items Survey questions
Social performance
“In the last 12 months …..”
SOCPER_1 Your social enterprise serves more beneficiaries SOCPER_2 Your social enterprise offers more services for the beneficiaries SOCPER_3 Your social enterprise offers services to more new locations SOCPER_4 The total number of beneficiaries that your social enterprise caters increases SOCPER_5 The location of your social enterprise beneficiaries increases SOCPER_6 Types of services that social enterprise offer increases Financial performance
“In the last 12 months …”
FINPER_2 Your social enterprise meets financial targets FINPER_4 Financial target is achieved Business customer satisfaction
“In the last 12 months …”
FINPER_3 Business customers are satisfied FINPER_5 Customer satisfaction is high FINPER_6 Business customers feel they buy valuable products and services
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Data Preparation, Scale Development and Testing (Paper 3) Confirmatory Factor Analysis (CFA) of all Variables Confirmatory factor analysis (CFA) of all variables (social mission, private ownership logic, private funding, financial wealth motivation, public control, efficiency business model, lock-in business model, novelty business model, social performance, and financial performance) was conducted to ensure the factor structure of all variables involved in the latent class analysis (LCA). Business customer satisfaction was not included in the analysis because it was not used in the LCA. This model was significant, with all model fit indicators showing good fit and retaining the modification indices between e4 and e5 and between e37 and e39. All modifications were conducted within a construct and, therefore, were justified. All items loaded onto factors with an above .4 score cut-off (between .48 to .94) and were significant (p < 0.001). Table M highlights the fit indices of all variable model. Table M Fit Indices of All Variable Model
Fit Indices All variable model (social venture characteristics, business model configurations, social and financial performance)
NFI
.804
CFI .935
IFI .936
TLI .927
SRMR .055
RMSEA .044
Chi-Square 1018.180
df 733
p value .000
Convergent Validity of all Variables Inspection of the CFA analysis (Bagozzi et al., 1991) showed convergent validity was evident when the theorized items loaded to the factors (Chandler et al., 2011) and this was evident where factor loadings of all items were significant at p < 0.001. AVE scores were also calculated to check convergent validity. A few constructs had AVE scores below the cut-off of .5. However, the variables were kept and were not dropped. Two reasons justified this. First, fit indices showed good fit, indicating that overall, the structure of the items and constructs were good. Second, further inspection of discriminant validity (next part) showed that all constructs significantly differed from one another (see Table N).
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Table N CR and AVE of All Variables
Variables Construct reliability (CR) Average variance extracted
(AVE)
Private ownership logic .961 .806
Social mission .690 .427 Financial wealth motivation .791 .559
Private funding .908 .668
Public control .518 .350 Efficiency business model .773 .534
Novelty business model .837 .519
Lock-in Business Model .801 .406 Financial performance .822 .699
Social performance .820 .443 Discriminant Validity of all Variables To assess discriminant validity, the square root of AVE scores were calculated and compared with the correlation of the focal variables (Fornell & Larcker, 1981; Hair et al., 2010). Table O shows that the square roots of AVE of all variables are larger than any correlation between the focal variables with the other variables and, therefore, the discriminant validity among the variable involved in the analysis was establishe
Appendix B 327
Table O Factor Correlation Matrix and The Square Root of the AVE Scores In Diagonal
Private ownership logic
Social mission
Financial wealth motivation
Private funding
Public control Efficiency Novelty
Lock-in
Financial performance
Social performance
Private ownership
logic .898
Social mission -.137 .653
Financial
wealth motivation .532 .065 .748
Private funding .192 .138 .423 .817
Public
control -.108 .064 -.011 .128 .592
Efficiency .059 .239 .008 .219 -.022 .731
Novelty .139 .249 .111 .083 -.037 .347 .720
Lock-in .007 .271 .248 .036 .035 .194 .274 .637
Financial performance -.024 .288 .145 .040 .028 .344 .057 .156 .836
Social
performance -.087 .414 .063 .001 .065 .285 .137 .326 .440 .665
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Survey Questions (Batch 1 and 2)
Telephone Survey Questions AND SPSS Codes
A. General Information
1. How many employees? (EMP) 2. a. What is your monthly revenue? (MONREV)
b. What is the proportion of your business/market-based revenue? *) (MONREV – BUSPROP)
3. a. What is the size of your beneficiaries in the last year? (BENEF) b. Are there any of these beneficiaries involved in social enterprise’s business process (as employees or as customers)? *) (BENEF – BUS)
4. What is the age of your social enterprise (in months)? (AGE) 5. What is the legal status of your social enterprise (LEGAL)
B. Characteristics of Social Enterprise – Likert Scale: 1 (Strongly Disagree) – 6
(Strongly Agree)
Social Mission
6. Provide answers based on the mission of your social enterprise a. To solve social and community problems are most important aspect of your
social enterprise (SOCMIS_1) b. You prioritise aspects that benefit the society when doing organizational
planning (SOCMIS_2) c. You prioritise social mission when developing organizational strategy
(SOCMIS_3)
Private Ownership Logic
7. Provide answers based on your social enterprise’s capacity to distribute profit to owners.
Owners, in this case, are founder, co-founder, or equity investors. a. Your social enterprise are not prohibited to distribute profit to owners (PROF_1) b. You believe that profit distribution from your social enterprise to owners is all
right (PROF_2) c. Owners can profit from your social enterprise (PROF_3) d. Owners can receive financial benefit from your social enterprise (PROF_4) e. Your social enterprise can distribute financial profit to owners (PROF_5) f. Social enterprise is not restricted to distribute financial return to owners
(PROF_6)
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Financial Wealth Motivation
8. Provide answers based on owners’ motivation to gain financial return as of now. Owners include founder, co-founder, and equity investors
a. Your social enterprise has high social value, but owners also need to gain financial return (WEALTH_1)
b. You believe that it is common for owners get profit from your social enterprise (WEALTH_2)
c. Your social enterprise has to provide financial profit to owners (WEALTH_3) d. Offering financial profit to owners are moral responsibility of your social
enterprise (WEALTH_4) e. Owners establish social enterprise because they want to gain financial return
(WEALTH_5) f. A good social venture is the one that provides financial return to owners
(WEALTH_6)
Private Funding
9. Provide answers based on the ability of your social enterprise to manage financial surplus as of now
a. Your social enterprise has high freedom in surplus management (PRIVATE_1) b. Your social enterprise has high flexibility in managing generated surplus
(PRIVATE_2) c. The use of surplus is not restricted in your social enterprise (PRIVATE_3) d. Your social enterprise can use generated surplus (PRIVATE_4) e. Your social enterprise are free to use financial surplus (PRIVATE_5) f. Your social enterprise are very free to utilize generated financial surplus
(PRIVATE_6)
Public and Market Control
10. Provide answers related to the degree of dependency of your social enterprises with the following organizations/institutions *)
a. Supplier (BUSCON_1) b. Business Competitors (BUSCON_1) c. Buyers (BUSCON_2) d. NGOs (PUBCON_1) e. Community (PUBCON_2) f. Beneficiaries (PUBCON_3) g. Government (PUBCON_4)
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C. Business Model Configurations – Likert Scale: 1 (Strongly Disagree) – 6 (Strongly Agree)
11. Provide answers based on your social enterprise’s efficiency characteristics *) a. The operational aspect of your social enterprise is rather efficient
(EFFICIENCY_1) b. Coordination activities with your partners (supplier, government, beneficiaries,
etc) are conducted in an efficient manner (EFFICIENCY_2) c. Coordination costs are relatively smaller than other operational costs
(EFFICIENCY_3) d. Activities of your social enterprise are efficient (EFFICIENCY_4) e. Overall, the business model of your social enterprise operates efficiently
(EFFICIENCY_5)
12. Provide answers based on your social enterprise’s novelty characteristics *) a. Your social enterprise applies innovation to achieve the objectives
(NOVELTY_1) b. There are unique ways in running your business (NOVELTY_2) c. There are aspects of your social enterprise’s business model that can be
considered unique (NOVELTY_3) d. The business model of your social enterprise involve unique partners
(NOVELTY_4) e. Overall, the business model of your social enterprise is novel (NOVELTY_5)
13. Provide answers based on your partners loyalty (lock-in characteristics) *)
a. Accountability of your social enterprise is very important (LOCKIN_1) b. Trust of the stakeholders is very important (LOCKIN_2) c. The reputation of your social enterprise is very important (LOCKIN_3) d. The loyalty of the stakeholders to your social enterprise needs to be properly
maintained (LOCKIN_4) e. Your social enterprise does extensive consultation with stakeholders (for
example, donor organizations) (LOCKIN_5) f. Overall, the business model of your social enterprise maintains the loyalty of the
stakeholders (LOCKIN_6)
D. Performance – Likert Scale: 1 (Strongly Disagree) – 6 (Strongly Agree) **)
14. Provide answers based on the social performance of your social enterprise in the last 12 months
a. Your social enterprise serves more beneficiaries (SOCPER_1) b. Your social enterprise offers more services for the beneficiaries (SOCPER_2) c. Your social enterprise offers services to more new locations (SOCPER_3) d. The total number of beneficiaries that your social enterprise caters increases
(SOCPER_4) e. The location of your social enterprise beneficiaries increases (SOCPER_5) f. Types of services that social enterprise offer increases (SOCPER_6)
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15. Provide answers based on the financial performance of your social enterprise in the last
12 months a. Your social enterprise delivers better value to your business customers
(FINPER_1) b. Your social enterprise meets financial targets (FINPER_2) c. Business customers are satisfied (FINPER_3) d. Financial target is achieved (FINPER_4) e. Customer satisfaction is high (FINPER_5) f. Business customers feel they buy valuable products and services (FINPER_6)