Value creation and appropriation in economic, social, and environmental domains: resolving asymmetries

“Today’s economy is highly destructive of natural and social capital, and is characterized by large and growing gaps between rich and poor” (Elkington, 2013, pp. 10).

Vallue creation and appropriation are much-studied processes in business and management, but research and practice has focused mainly on how economic value is created and appropriated by businesses. This over-emphasis on the economic logic has created institutionalised asymmetries in the relationship between business, society and the natural environment. 

In this paper, co-authored with Prof. Paavo Ritala and Dr Laura Albareda, we ask ourselves the following question: what are the main asymmetries involved in the economic, environmental and social domains for specific types of goods, and what are the most promising solutions to those asymmetries from the viewpoint of business?

We answer this question by addressing: 

(1) the type of economic goods used to create value (private and club goods, public goods and common goods) 

(2) value creation and appropriation domains (economic, social, and environmental)

Based on Samuelson (1954) we define the types of goods as follows: 

Private and club goods such as cars (private) and cinemas (club goods) are those that are excludable from others and are therefore subject to rivalry by private consumption. While private goods are privately owned, club goods include private but shared systems, such as cinemas and sport clubs. 

Public goods such as public defence and education, are those of which the use of them does not exclude others; in other words, they cause no rivalry as their individual use does not typically reduce the availability to others

Common goods like forests and the ocean are those typically available to everyone and are defined as non-excludable because while it is impossible to exclude a person from their consumption, they do involve rivalry as their (mis)use precludes their future use by others.

The main domains are:

Economic domain: market-based activities, such as production, distribution and consumption of goods and services.

Social domain: human activities, including issues around social equity and justice, health, education, culture etc.

Environmental domain: the natural environment and its longterm sustainability.

Building on the framework that brings the types of goods and domains together, we argue that there are several institutionalised asymmetries, between the goods used to create value and the domains in which the value is eventually appropriated. The table below shows an overview of the problems or assymetries and potential solutions. 

Table. Overview of problems or asymmetries across the domains and examples of solutions

 Economic domainSocial domainEnvironmental domain
Private & club goodsProblems: Overproduction, planned obsolescence, overconsumption, bargaining power and information asymmetry
Solutions: Business creating private goods that individuals desire or need and capturing financial value by sales
Example: long-lasting functional products, classic design
Problems: Business fostering the regeneration and maintenance of common goods, improving the environmental outcomes 
Solutions: Business creating private goods that contribute positively to society 
Example:  business providing language services
Problems: Negative environmental externalities promoted by the production of private goods or services 
Solutions: Business creating private goods that do not contribute negatively, or contribute positively, to natural environment 
Example: frugal innovations 
Public goodsProblems: Abuse and overexploitation of a public good for private self-interest; Teamwork and free-riding problem 
Solutions: Business contributing their knowledge and capabilities to the generation of improved
public goods 
Example: companies supporting health, former initiative Google Health 
Problems: Corruption; Privatisation of public goods  
Solutions: Business contributing and partnering and using their knowledge and capabilities to build improved public goods and social welfare 
Example: public-private partnerships; B corporations in education and health systems
Problems: Negative environmental externalities promoted by the production of public goods
Solutions: Business contributing to the positive environmental impacts of public goods  
Example: Net positive initiatives 
Common goodsProblems: Tragedy of the commons 
Solutions: Business participating in the management of common goods, improving collective economic outcomes 
Example: soil remediation services, sustainable forestry initiatives
Problems: Collective action and policy failures  
Solutions: Business adopting collective action to manage common goods, improving social outcomes 
Example: businesses involving underprivileged members ofsociety in value chain
Problems: The (mostly hypothetical) case of overprotection of natural resources 
Solutions: Business fostering the regeneration and maintenance of common goods, improving the environmental outcomes 
Example: Sustainable agriculture; regenerative agriculture

The full paper can be read here.

Sources: 

Elkington, J., (2013). Enter the triple bottom line. In: Henriques, A., Richardson, J. (Eds.), The Triple Bottom Line: Does it All Add up. Routledge.

Ritala, P., Albareda, L., & Bocken, N. (2021). Value creation and appropriation in economic, social, and environmental domains: Recognizing and resolving the institutionalized asymmetries. Journal of Cleaner Production290, 125796.

Samuelson, P. A. (1954). The pure theory of public expenditure. The review of economics and statistics36(4), 387-389.

The integration of a stakeholder perspective into the front end of eco-innovation

It is often recognised that stakeholder concerns are important for companies’ strategic processes towards sustainability (Bansal, 2005, Stubbs and Cocklin, 2008 and Bocken et al., 2013). Stakeholders are any person(s) or any organisation(s) potentially (directly or indirectly) affected by the operations of the organisation and vice versa (Freeman, 1984). In the value mapping tool for example, Society and Environment, are key stakeholders to take into account in the sustainable innovation process, in addition to the ones that are more familiar to business such as customers, suppliers and owners/ shareholders.

The front-end of eco-innovation, or the early stages of the eco-innovation process, including opportunity identification, opportunity analysis, idea generation, idea selection, concept and technology development (Koen et al., 2001) of eco-innovations is a key stage to start integrating these stakeholder concerns. At later stages of the innovation funnel, it is harder and costlier to change innovations. There are real opportunities in ensuring key stakeholders such as “Society” and “Environment” are integrated early-on into the innovation process. See for example this collection of studies on the business case for sustainability.

This research investigated how stakeholder concerns can be embedded in the from end of the eco-innovation process. This was investigated by running multiple scenarios with innovation teams (students and business) using different tools and approaches at the front end of eco-innovation. Tools such as the value mapping tool and eco-ideation were used with different innovation teams.

It was found that, although trying to integrate a variety of stakeholders in the innovation process is good to enrich the ideas, it can lower the number of relevant ideas generated. Furthermore, visualisation of stakeholder concerns, interests and conflicts is essential to enrich the process. Finally, during the facilitation of such sessions it is important to pay more attention to less familiar stakeholders such as “Environment” and “Society” than to ‘easy’ ones such as “Customers” and “Suppliers”. If easier, participants might imagine certain NGOs as proxies for Society and Environment when they brainstorm about these less familiar stakeholders.

Overall, the integration of multiple stakeholder concerns in the front-end of eco-innovation looks like a promising approach for sustainable innovation.

The full paper is available here.

 

Sources:

Bansal, P. 2005. Evolving sustainably: a longitudinal study of corporate sustainable development. Strategic Manag. J., 26, pp. 197–218

Bocken, S. Short, P. Rana, S. Evans. 2013. A value mapping tool for sustainable business modelling. Corp. Gov., 13 (5) (2013), pp. 482–497

Freeman, R.E. 1984. Strategic Management: A Stakeholder Approach. Pitman Publishing, Bosto

Koen, P., Ajamian, G. Burkart, Clamen, A. et al. 2001. Providing clarity and a common language to the ‘Fuzzy Front End’. Res. Technol. Manag., 44 (2).

Stubbs, W., Cocklin, C. 2008.Conceptualizing a “Sustainability business model”. Organ. Environ., 21 (2) (2008), pp. 103–127

Tyl, B., Valet, F., Bocken, N., Real, M. The integration of a stakeholder perspective into the front end of eco-innovation: a practical approach. Journal of Cleaner Production, Volume 108, Part A, Pp. 543–557: http://www.sciencedirect.com/science/article/pii/S0959652615010768