# Redefining value(s) to understand social enterprises' business models

Adélie Ranville

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Adélie Ranville. Redefining value(s) to understand social enterprises' business models. 4th International Conference on New Business Models, New Business Models for Sustainable Entrepreneurship, Innovation, and Transformation, Jul 2019, Berlin, France. hal-04961353

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# Redefining value(s) to understand social enterprises' business models

Adélie RANVILLE¹,.*

¹Grenoble Ecole de Management

*adelie.ranville@grenoble-em.com

## Abstract

Through the exploration of value theories, this conceptual papers aim at proposing conceptualizations of ‘value’ that could serve as a basis to theorize social business models. Preliminary conclusions suggest that we should separate monetary value, use value and social value.

## Keywords

Value theory, social business model, social enterprise,
# Main text

## Introduction

How can we describe adequately the business models of social enterprises? Business model theory propose a clear approach to explain how companies create value and survive in competitive environment. Students of social enterprises tend to rely on traditional business model frameworks to describe social business models (see for example: Margiono, Zolin, & Chang, 2017; Spieth, Schneider, Clauß, & Eichenberg, 2018; Yunus, Moingeon, & Lehmann-Ortega, 2010). However, they do not justify the theoretical adequacy of such transposition, while for-profit companies and social enterprises are unlikely to have the same success drivers. The goal of this paper is to draft more solid theoretical foundations for social business models. On the theoretical side, this task is important to find how activity configurations lead to success or failure of social enterprise. On the practical side, a valid theory of social business model will help identify important factors and build relevant tools and frameworks to help social entrepreneurs model their activity.

To define possible theoretical foundations for social business models, I explore the concept of value. Indeed, the concept of value is central in business model theories, but the 'value' that is created by classical businesses may not be the same as the 'social value' that social enterprises aim to create. Thus, if we want to explain the different value creation mechanisms in the case of social enterprise, we need to define more precisely what 'value' means in that case. The question addressed by this paper is then: **How value is theorized in traditional business theory? And how can we adapt these concepts to the case of social business models?**

To answer this question, I explore the theoretical foundations of seminal papers on business model (by going back to the references they cite). Then I discuss their relevance for social business model, in comparison with existing work on social business model. The paper is organized as following: first, I briefly review the literature on social enterprises and business model theory. Then I show that what tend to be quite indistinctively called "value" in traditional business model literature covers in fact many concepts like: use value, willingness to pay, revenues, margin, profits... that can be sorted into use value and monetary value. Then I discuss the concept of "social value" emerging in the social business mod-
el literature. I conclude that a social business theory should account for these
three type of value : monetary value, use value and social value.

Social enterprises and business model theory

Social enterprises (SE) are organizations pursuing both social goal and economic activities. The economic dimension is defined by the EMES network through a bundle of indicators like the production of good/service, a high autonomy, the existence of economic risk taken by the organization and the presence of paid workers (Defourny & Nyssens, 2010, p. 43). Concerning the social dimension, it can be related to the specific need addressed; the relation between actors, the population targeted or to general values that the organization defends (Defourny & Nyssens, 2017). A recent stream of research is trying to identify which kind of business models social ventures can adopt to fulfil their social mission (Margiо- no, Zolin & Chang, 2017; Mair & Schoen, 2007; Woolley, Bruno & Carlson, 2013). Scholars define a business model as the description and combination of re- sources and activities used by an organization to create, deliver, and capture value (Amit & Zott, 2001; Casadesus-Masanell & Ricart, 2010; Demil & Lecocq, 2010; Zott, Amit & Massa, 2011). Three main elements constitute a business model (Osterwalder & Pigneur, 2010): the value proposition (product/service offering, customer segments, customer relationships), value creation (activities, resources, partners, distribution channels) and value capture (revenue/cost model). The contributions on social business model usually rely on these frame- works. However, several problems rise when we examine the fit between the activities of social enterprise and the business model framework.

First, the objective of a classic business model is to creates value for the parties
involved and generates profit for the focal firm (Zott & Amit, 2010). However,
the absence of the profit motives is usually cited as a core difference between
social and classical enterprises, even if this difference can be seen as a continu-
um rather than strict categories (Peredo & McLean, 2006). Secondly, in the case
of social enterprises, those who pay are not necessarily those who receive the
good or services (the payer or client is not always the target beneficiaries). Social
business models are thus likely to be multi-sided business models and novel cog-
nitive frames may be needed to understand these complex business models (Ba-
den-Fuller & Mangematin, 2013). The third difficulty, that I try to adress in this
paper, is to conceptualize adequately the notion of value for social business
model. The concept of value is central in the literature on social business models (as in the classical literature). Questions such as the characterisation of value proposition, social value propositions, value creation or value capture are crucial to describe business models. Below, I explore the conceptualisation of value related to the notions of value proposition, value capture and social value.

## From value proposition to use value

The notion of value proposition can be related to the one of use value. In this section, I explore the concept of use value, which on subjective judgements such as utility, perceived utility, and pro-social preferences.

## Utility

In the philosophical tradition, utilitarian define utility as happiness, pleasure or the satisfaction of informed preferences. Informed (or rational) preferences are the preferences someone would have if she had all the information concerning the consequences of her actions, and if these preferences were not restrained by any beliefs that could lead to self-censorship (Kymlicka, 2002). Utility can stem from any experience someone wants to accomplish.

## Perceived utility or perceived use value

Perceived utility is “the consumer's overall assessment of the utility of a product based on perceptions of what is received and what is given” (Zeithaml, 1988:p.12). The concept of perceived utility is close to the definition of value proposition in business model theory. Osterwalder define value proposition as a mix of element catering customer's needs (Osterwalder & Pigneur, 2010), it represents value for a specific target customers (Osterwalder, 2004). More precisely he cites Kambil for who customer value is “the difference between perceived benefits (the extent to which a product or service fulfills or exceeds customers needs) and perceived costs (the full costs associated with the product or service)” (Kambil, 1996:p.10).

Making the distinction between utility and perceived utility is usefull to understand what social enterprises are doing. For some social enterprises, what beneficiaries want is not necessarily what is good for them (Ansari, Munir & Gregg, 2012; Lumpkin et al., 2013). The goal of a social enterprise can be to change the perceived value of the beneficiaries concerning a product.

## Pro-social preferences
Social enterprise business models are likely to rely at least partially on pro-social behaviour and stakeholders intentions to benefit society: some donators will provide money, some consumers will accept to pay a premium; the social entrepreneur will take the risk of starting an activity that may not be sustainable... Many mechanisms can explain why people judge valuable enact such pro-social behaviours. First, donators or volunteer can experience direct personal utility from their participation to a social enterprise such as acquiring new skills, create new social relationships, gain prestige or reputation. Secondly, people conducting pro-social behaviour can just feel good about helping others. Charitable help is indeed linked to well-being and happiness (Post, 2005), the “warm glow effect” in economic theories (Graff Zivin & Small, 2005:p.3). People can also behave in a certain way to respect social norms.

## From value capture to money

### Money

For Bowman and Ambrosini, value capture consist in capturing exchange value (Bowman & Ambrosini, 2000). On the other hand, concerning strategic network theory, Jarillo define value added as margin: "when business people talk of activities with more or less value added, they are actually referring to activities with better or worse margins" (Jarillo, 1995:p.32). This definition is different but there is still the idea of generating exchange value that will lead to better margins and profit, in the form of money. Monetary value or prices are not necessary related to the usefulness of a product. Adam Smith explains this with the diamond-water paradox. Water have a great value in use but a low value in exchanges, on the contrary, the diamond has a low use value but is can be used to get great quantity of other goods in exchange for it (Smith, 1817).

### Willingness to pay

Perceived use value is sometime translated into monetary terms (Bowman & Ambrosini, 2000) through willingness to pay. This definition of value using monetary proxies is used in the business model literature. In their seminal paper, Amit and Zott, citing Porter, define value as 'the amount buyers are willing to pay for what a firm provides them. Value is measured by total revenue... A firm is profitable if the value it commands exceeds the costs involved in creating the product' (Porter, cited by Amit & Zott, 2001:p.496). Amalgamate perceived utility and
willingness to pay can be misleading in the case of social enterprises because the targets are sometime are sometime disadvantaged population who can be unable to pay even if they value the product (Santos, Pache & Birkholz, 2015). In that case the willingness to pay, or actual purchase behaviour do not always equals the perceived utility.

## Social value

In this section, we review the definitions of ‘social value’ in the literature on social enterprise and discuss how it could be conceptualized in social business model.

## Social value in social enterprise literature

Authors who study social business models tend to as the idea of social value named social profit (Yunus, Moingeon & Lehmann-Ortega, 2010), mission (Mair & Schoen, 2007; Margiono, Zolin & Chang, 2017; Vial, 2016; Woolley, Bruno & Carlson, 2013) or social value (Hlady-Rispal & Servantie, 2018; Sparviero, 2019). The idea of social value or social mission is a recurring idea in the literature on social enterprise, however it is difficult to define what is ‘social’ and what is not. Various definitions co-exist within the literature. Michelini and Fiorentino use business models and refer to Porter and Kramer’s idea of shared value (Michelini & Fiorentino, 2012). In their “big idea” of creating ‘shard value’, Porter and Kramer define shared value as “practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions of the communities in which they operates”, and value is defined “as benefits relative to costs” (Porter & Kramer, 2019). Spieth et al. identified empirically “three categories of social missions: Enhancing the availability and accessibility of resources, supporting people with disadvantages, and achieving fairness.”(Spieth et al., 2018:p.5). Defourny and Nyssen note that an enterprise may be qualified as social because of the nature of the goods or services they provide (health, education...), because they pay attention to disadvantaged social groups or aim at promoting broader societal values like economic democracy or sustainability (Defourny & Nyssens, 2017:p.18). Several authors mention the potential contribution of social enterprises to the Millennium Development Goals (Seelos & Mair, 2005; Vial, 2016; Woolley, Bruno & Carlson, 2013). Other authors make some more technical attempts to describe the mission of SE such as addressing neglected problems with positive externalities (Santos, 2012) or solve market failures (Austin, Stevenson & Wei-Skillern, 2006). As Santos note, the definition of the ‘social’ is either tautologic or normative (Santos, 2012) because it would necessitate to define what is a ‘social’ need and who deserve ‘social’ help. San-
tos’s ‘positive theory’ is that the domain of social entrepreneurship are neglect-
ed positive externalities. However, we cannot escape normativity: when we qual-
ify an externality as positive or negative we implicitly rely on moral criteria
(Claassen, 2016). Economic theories are rooted in utilitarian philosophy and San-
tos’s perspective too, as he rely explicitly on them and define social welfare as
the aggregation of utilities (Santos, 2012). Even if a normative discussion con-
cerning social enterprise may be usefull, we will try to avoid normativity in the
framework we are building.

Social value as social expectations

How to escape subjectivity and normativity in the definition of social value? We
believe that an exit door for this dilemma might be to describe the normative
reasoning of actors themselves rather than trying to find an objective definition.
For example, in her research about price determination in a fair trade organiza-
tion, Reinecke distinguish subjective value and the social process of valuation
(Reinecke, 2010). Social value would correspond to this social process. The con-
cept of utility is powerful because it does not imply to define substantively what
each people desire. Similarly, the concept of social value could be a black box
representing what people evaluate collectively as valuable for society. The em-
pirical definitions of what is ‘social value’ can thus be diverse and could be de-
scribed using various theories such as economics of convention (Boltanski & Thé-
venot, 1991), descriptive ethics, institutional theory...

Propositions

After this review, we propose to keep three main construct to study social busi-
ness model : money, utility and social value. I will not enter the debate about the
nature of money and will simply define it as an item accepted as payment. I de-
fine utility according to the philosophical perspective as the satisfaction of sub-
jective preferences. These preferences can concern a personal benefit (use of
goods and services, money, reputation...), or include benefits for others through
pro-social preferences (helping others, reduce inequality...).Then, I define social
value as a collective perception of the fairness of the social business model out-
comes. As this perception may depend on the goal of the social enterprise and
on the definition of fairness used, I leave voluntarily a relativist criteria to evalu-
ate social value.
<table><caption>Table 1 – Three types of value</caption><thead><tr><td>Type of value</td><td>Definition</td><td>Evaluation before relationship</td><td>Evaluation after relationship</td></tr></thead><tbody><tr><td>Money</td><td>Item accepted as payment</td><td>Ideal price or willingness to pay</td><td>Payed price</td></tr><tr><td>Use value</td><td>Satisfaction of personal or pro-social preferences</td><td>Perceived value</td><td>Satisfaction</td></tr><tr><td>Social value</td><td>Improvement of fairness within society</td><td>Judgement concerning the fairness of a state of the world</td><td>Evaluation according to the business model according to fairness criteria</td></tr></tbody></table>

I argue that we need these different types of value because they are not necessarily commensurable with each other. The link between money and use value is easily made in the context of trade and the exchange of commodities. However, social enterprises may partially evolve in non-market environment. They may create use value that do not find a monetary counterpart when beneficiaries are unable to pay, and receive monetary income that do not correspond to the sale of commodities. The resources they manipulate does not necessarily go through money and market exchanges. Then, we need to be able to describe these resources for themselves as use value. Volunteering may be seen as relationship generating use value of different types for the volunteer (social relationships, recognition...) and the organization (labor helping to achieve the organization's goal). On another hand, producing social value, attaining a more desirable state of the world, may include the production of use value or the use of money, but is not limited to this. For example, decreasing inequalities imply generating use value for the disadvantaged population but the measurement of the satisfaction of their needs tells nothing about the reduction of inequalities.

Furthermore these three type of value may correspond to three different types of forces in social enterprise environment : generating monetary may be necessary to survive in a market environment, the generation of use value imply that
the activity is in adequacy with stakeholders' needs, and the production of social
value may interact with institutional pressures.

Crafting a theory of value for social business models is an ambitious task and I
only drafted a few propositions that need to be refined and tested empirically. I
also did not discuss the question of "value creation" and the value of labour and
resources (especially natural ones) that may be employed in this process. I
choose a quite agnostic definition of "social value", however, it would be worth
exploring more precisely the different types of social goals that social enterprises
have in order to define which social business model fits which goal.

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