Social Value

Most definitions of social value tend to either refer to activities that create value or the result of such activities. The first group of studies usually treats as the object of interest the prosocial activities, services, interventions, and programs, and conditions that make these activities possible (Dacin et al., Reference Dacin, Dacin and Matear2010). A definition that corresponds to this understanding is ‘the removal of barriers that hinder social inclusion, the assistance to those temporarily weakened or lacking a voice, and the mitigation of undesirable side effects of economic activity’ (Smith & Stevens, Reference Smith and Stevens2010, p. 586). Key to producing social value is increased participation (Mannarini et al., Reference Mannarini, Pozzi and Marta2023), democratization (Donati, Reference Donati2014), empowerment (Bassi & Vincenti, Reference Bassi and Vincenti2015), and advocacy (Unerman & O'Dwyer, Reference Unerman and O'Dwyer2006). Scholars that rely on this understanding of social value often work within the fields of social innovation (Seelos & Mair, Reference Seelos, Mair, Laasch, Suddaby, Freeman and Jamali2020; Van der Have & Rubalcaba, Reference Van der Have and Rubalcaba2016) and social entrepreneurship (Certo & Miller, Reference Certo and Miller2008; Dacin et al., Reference Dacin, Dacin and Matear2010), or both.

The second group views social value as an effect or impact from these activities. Focusing on various forms of social value measurements, its purpose is ‘to understand [in social terms] what difference an organization’s activities make to the world’ (Gibbon & Dey, Reference Gibbon and Dey2011, p. 64). In total, several hundred tools for measuring social value exist, including cost–benefit analyses, social return on investment, value-added assessments, and social impact assessments (Kroeger & Weber, Reference Kroeger and Weber2014; Mulgan, Reference Mulgan2010; Vanclay, Reference Vanclay2002). The approaches typically include gathering baseline data to see which changes are produced by a particular intervention or service, as well as forecasting possible consequences.

Overall, social value is a multivalent construct that helps scholars understand the programs, interventions, activities, services, and projects of many different CSOs as well as their consequences. Importantly, however, none of the approaches outlined above is sufficiently helpful in identifying the social value of CSOs’ activities and social contribution relative to the contributions of public and for-profit providers. For CSOs that face increasing pressures to provide and demonstrate a unique contribution to society (O’Dwyer & Unerman, Reference O’Dwyer and Unerman2008), being able to point to such a relative difference is crucial.

The Challenges of Social Value Creation

Many CSOs base their existence on providing services that are part of the welfare state and funded by national or local authorities. In Western Europe, public sector support has, for the last decade, been the most important source of income for the nonprofit sector (Anheier & Salamon, Reference Anheier and Salamon2006). This is confirmed by a Scottish study where up to 90 percent of charities’ revenues are generated from providing services to local authorities (Lai, Reference Lai2023). In Norway, over 95 percent of the revenues of CSOs operating within healthcare come from government funding (Gurmu, Reference Gurmu2017). Similarly, government funding in the US comprises 65 percent of the budget of the average social service nonprofit (Mosley, Reference Mosley, Powell and Bromley2020).

This dependence on government funding creates two sets of challenges for CSOs. First, the integration of CSOs into the provision of public services through bidding competitions and long-term contracts is likely to occur at the expense of their original identity, leading to ‘mission drift’ (Ebrahim et al., Reference Ebrahim, Battilana and Mair2014; Jones, Reference Jones2007) and the emergence of hybrid organizational identities (Billis, Reference Billis2010). Whereas mission drift implies losing sight of purpose and values (Ebrahim et al., Reference Ebrahim, Battilana and Mair2014), hybrid identities are a characteristic of CSOs that have become more business-like (Maier et al., Reference Maier, Meyer and Steinbereithner2016; Sirris, Reference Sirris, Askeland, Espedal, Løvaas and Sirris2020) through processes of commercialization and marketization (Bassi & Vincenti, Reference Bassi and Vincenti2015). Thus, they have adopted a utilitarian identity in addition to their original normative organizational identity (Jäger & Schröer, Reference Jäger and Schröer2014). For CSOs that deliver services funded by public authorities, the need to prevail in the competition for the right to provide these services challenges their original social, moral, and religious values, making the space in which these CSOs can maneuver increasingly confined (Evans et al., Reference Evans, Richmond and Shields2005; Lai, Reference Lai2023). Their ability to create the type of social value they initially aimed suffers accordingly.

Second, increased detailed requirements for service delivery imposed by public authorities reduce the possibility for variation and service innovation. Given that public authorities are ultimately responsible for all services provided under the welfare state umbrella, their interest is more in similarity and standardization of services rather than differences and decentralization. Many regulations exist by law to ensure official standards on public health and safety, but standardization is also achieved through terms specified in contracts (Trætteberg, Reference Trætteberg2015). A homelessness charity, for example, has no choice but to comply with the terms dictated by the contract they have signed with the authorities if they want to continue to operate as a provider of public services. Public authorities can specify which services they want provided and how they want them provided. For many CSOs, especially social mission-based ones that have taken pride in being ‘pioneers’ in identifying and addressing unmet social needs, standardization means less leeway to pursue such innovative endeavors (Askeland et al., Reference Askeland, Espedal and Sirris2019). Consequently, CSOs create the social value that public authorities ask for, but not necessarily the social value the CSOs themselves originally had in mind.

The result of these mechanisms is that the social value created by one CSO will be similar to the social value created not only by other CSOs but also for-profit providers and the government itself. When this is the case, comparing social value across different types of organizations is a challenge (Kroeger & Weber, Reference Kroeger and Weber2014). CSOs that find themselves in such a situation may begin to question the purpose of offering services that do not differ from those of government and for-profit providers with respect to the social value they create. They may also experience uncertainty regarding the prospect of getting their contracts with public authorities renewed. They might even decide to cancel the contract if the constraints imposed on them are too inconvenient (AbouAssi & Tschirhart, Reference AbouAssi and Tschirhart2018). Perhaps they will even ask themselves if it would not make more sense to let public authorities take over the services, as it is unclear whether the CSOs are adding any social value beyond what is required of them, and the services are ‘public’ anyway. Similarly, this situation is also a challenge for public authorities, who might begin to question why they should award contracts to or fund CSOs if they are not convinced that the CSOs provide a unique contribution to society. In such a situation, the notion of added value emerges as a critical and promising focal area.

What is Added Value?

Added value is an abstract concept that is used and defined in varying ways in the context of CSOs. Going beyond a simplistic economic dimension that emphasizes production and customer satisfaction, the literature on CSOs describes added value as a ‘a function of the social impact’ of a CSO’s activity (Jönsson & Scaramuzzino, Reference Jönsson and Scaramuzzino2022, p. 3), ‘the ability to produce, maintain, and regenerate relational goods for [CSO] members and the broader community’ (Mannarini et al., Reference Mannarini, Pozzi and Marta2023, p. 2), and ‘the benefits that actions bring to the community in terms of long-term social impact or environmental impact’ (Zimnoch & Mazur, Reference Zimnoch and Mazur2018, p. 44).

Only a few studies explicitly address the comparative aspect of added value. Hart and Haughton (Reference Hart and Haughton2007, p. 14) point out the need to understand ‘what does the social enterprise model contribute over and above that contributed by other models.’ Ryan and Lyne (Reference Ryan and Lyne2008, p. 226) build on a similar view, stating that ‘competitive social enterprises need to prove the ‘added value’ of their social contribution [which is] not provided by another model.’ Muñoz and Tinsley (Reference Muñoz and Tinsley2008, p. 47) note that the added value of social enterprises go ‘over and above private sector provision.’

We build on these understandings to support the view that added value is not an ‘objective’ or tangible construct. Rather, it is a perception held by certain actors, particularly the beneficiaries and funders of CSOs, based on a comparison of the social contributions of a focal organization’s services against others. Thus, a key aspect pursued in this paper is that the added value of CSOs implies a contribution that is different from or better than that provided by government or commercial providers, as seen from the perspective of beneficiaries and funding agents. Added value implies a perception of more social value, or different social value, or both. This means that all CSOs that operate in a sector may provide social value although not necessarily generate added value. Given the competitive environment in which many CSOs currently operate, as outlined earlier, it is important to advance a better understanding of the ways in which these CSOs can and do provide added value compared to government and for-profit providers.

To do so, this paper proposes a typology of four different forms of added value that potentially can be provided by CSOs. The typology is comprehensive in the sense that it is meant to encompass all relevant forms of added value generated by CSOs that could be of significance for beneficiaries and public authorities. Our typology builds on a holistic approach to CSOs’ activities by going beyond simply considering measurable outputs (O’Dwyer & Unerman, Reference O’Dwyer and Unerman2008). As our study does not present data and is not a literature review, the forms of added value proposed here are derived partly from the existing literature on CSOs that provide welfare state services, and partly from our own conceptualizing. We use examples from the literature to illustrate our main points. The four forms of added value are not to be understood normatively, nor should they be seen as mutually exclusive.

Functional Added Value

When a CSO’s services or programs add functional value, it means that they are delivered with higher efficiency or quality than what similar providers are able to do, and thus with higher impact. For example, if a faith-based hospital is able to treat its patients with better results compared to other hospitals that receive the same amount of funding, then this hospital provides a functional added value (Nyongesa et al., Reference Nyongesa, Onyango and Ombaka2015). A CSO that assists immigrants with paperwork provides functional added value if the immigrants move through the bureaucracy faster than what other organizations that try to do the same can accomplish. A CSO running a welfare-to-work program provides functional added value if the program is more efficient than others at helping people enter the workforce (Monsma, Reference Monsma2006). These CSOs are able to deliver more or better results with the same amount of resources or achieve the same with less. Thus, functional added value can be associated with a relatively higher social impact (Rawhouser et al., Reference Rawhouser, Cummings and Newbert2019). Functional added value can also imply a better ability to innovate, traditionally a hallmark of CSOs (Fischer et al., Reference Fischer, Foord, Frecè, Hillebrand, Kissling-Näf, Meili, Peskova, Risi, Schmidpeter and Stucki2023).

Functional added value is important to the funders of a CSO, typically local or national authorities and donors. This is because functional added value assures them that the resources are well spent and they get their money’s worth. Although it is debatable how and whether the performance of CSOs can and should be measured, including whether it is higher than for-profits and government providers (Ebrahim & Rangan, Reference Ebrahim and Rangan2014; Jun & Shiau, Reference Jun and Shiau2012; Murray & Tassie, Reference Murray, Tassie, Renz and Herman2016; Witesman & Fernandez, Reference Witesman and Fernandez2013), existing research offers some evidence that CSOs spendings have satisfactory impact. For example, looking at panel data from 14,423 facilities, a study from the US compared the quality of nursing homes owned by government, for-profit, and private nonprofit organizations, respectively (Amirkhanyan et al., Reference Amirkhanyan, Kim and Lambright2008). The researchers found that the quality of care was higher in nonprofits than for-profit ones. However, they did not find a difference in quality between public and nonprofit homes. A systematic review covering financial performance, employee well-being, and client well-being in public, for-profit, and not-for-profit nursing homes in the US found that for-profit nursing homes scored higher on financial performance, but lower on employee and client well-being (Bos et al., Reference Bos, Boselie and Trappenburg2017). Additionally, a study from Switzerland that compared nursing homes run by nonprofit organizations, local foundations, and nursing homes integrated in public administration found the two former to be almost equally efficient (Farsi & Filippini, Reference Farsi and Filippini2004). Both delivered services more cost-effectively than the latter.

The research suggests that CSOs may be able to operate more efficiently and thus provide functional added value compared to public sector providers because they do not have to deal with the bureaucracy of public administration (Farsi & Filippini, Reference Farsi and Filippini2004; Graddy & Morgan, Reference Graddy and Morgan2006; Howell-Moroney, Reference Howell-Moroney2015; Knapp et al., Reference Knapp, Chisholm, Astin, Lelliott and Audini1998). Compared to for-profit providers, CSOs create greater social value because they spend all the funding they receive toward the creation of social value, whereas for-profits typically pay out part of the funding as dividends to owners. As a result, public authorities will have to worry less about how the money they give to CSOs is spent and less about monitoring performance compared to for-profit contractors, which helps reduce transaction costs (Witesman & Fernandez, Reference Witesman and Fernandez2013).

An additional insight that can be derived from the literature is that CSOs provide functional added value because they rely on volunteers to a much greater extent than government and for-profit providers (Rider & Hall, Reference Rider and Hall2002; Studer & Von Schnurbein, Reference Studer and Von Schnurbein2013). CSOs are able to attract committed volunteers who identify with a specific cause and who often do important work that contributes to the creation of social value (Bittman & Fisher, Reference Bittman and Fisher2006; Haldane, Reference Haldane2014; Wu, Reference Wu2011). Because the volunteers do not require financial compensation, they potentially represent a significant resource for CSOs with respect to their ability to provide functional added value (Manetti et al., Reference Manetti, Bellucci, Como and Bagnoli2015).

Altruistic Added Value

Altruism means to act out of selfless concern for the well-being of others. Altruism is of key importance in many CSOs’ self-understanding as well as to their constituencies, especially in charities and other social mission-driven CSOs whose raison d’être is to serve those in need. We propose that a CSO provides altruistic added value when relevant stakeholders, typically beneficiaries and public authorities, perceive the CSO to better safeguard and reflect values pertaining to the common interest or the well-being of underprivileged individuals than other providers.

Whereas functional added value is based on a cost–benefit logic, the altruistic added value of a CSO is based on the CSO’s identity, values, and motives. Being altruistic by default arguably conveys reassurance to constituents that the services and activities are provided on the basis of genuine altruistic intent. Accordingly, when a CSO demonstrates long-term moral commitment to a humanitarian or charitable cause, it establishes a strong signal that creates added value for beneficiaries, donors, and public authorities compared to the social value provided by commercial providers. Similarly, a CSO that consistently promotes values such as equity, solidarity, and compassion consistent with its own mission and identity creates added altruistic added value to its constituents compared to commercial providers. This added altruistic value, underpinned by the CSO’s values, motives, and identity, could make the CSO the preferred service provider over other providers as seen by clients and public authorities.

CSOs are not mainly driven by financial motives and are not accountable to shareholders who expect a return on their investment. They are values-based, integrating a symbolic dimension into their activities and programs (Askeland et al., Reference Askeland, Espedal and Sirris2019). Any financial surplus created by a CSO will almost always be reinvested toward the creation of more social value. This stands in contrast to commercial providers that typically distribute their profits among their owners. It is also different from many government providers that often operate under rules and regulations determined by politicians regarding the use of surplus funds (Wilson, Reference Wilson1989). Thus, CSOs’ concern for social and environmental needs is less likely to be regarded as insincere compared to for-profit companies. Whereas for-profits that engage in social and environmental initiatives have been accused of using altruism as a strategic means to an end (negatively referred to through labels such as green-washing, rainbow-washing, pink-washing, feminism-washing, social-washing, and blue-washing (Bernardino, Reference Bernardino2021; Pope & Wæraas, Reference Pope and Wæraas2016; Sailer et al., Reference Sailer, Wilfing and Straus2022)), CSOs instill more trust among stakeholders because altruism is an end in itself (Chapman et al., Reference Chapman, Hornsey and Gillespie2021).

This does not mean that CSOs do not engage in image- and reputation-building activities on the basis of their social and environmental value creation (Sepulcri et al., Reference Sepulcri, Mainardes and Belchior2020), nor does it mean that CSOs never commit unethical acts (Prakash & Gugerty, Reference Prakash and Gugerty2010) or never engage in cost–benefit thinking. Nevertheless, creating altruistic social value by serving the greater good is an essential aspect of CSOs’ organizational identity orientation – it is what they do and who they are (Brickson, Reference Brickson2007). This potential for altruistic added value could offer a competitive advantage for CSOs in the quest for government funding. A CSO could point to its altruistic added value, as perceived by individuals and various communities, as an argument for why a funding agency should continue to support its programs. This could result in public authorities offering contracts to CSOs with longer duration and higher levels of task uncertainty than for-profits because they trust the CSOs more than for-profits (Witesman & Fernandez, Reference Witesman and Fernandez2013).

Emotional Added Value

Emotional added value results from emotional connections that a CSO develops with its stakeholders. For example, if a CSO creates more joy, optimism, mutual trust, hope, and a feeling of being respected through its services and programs than other organizations, then it provides emotional added value. If a CSO’s beneficiaries generally report a higher level of pride, self-esteem, and sense of agency than similar organizations, then this CSO creates emotional added value. A CSO that is able to connect emotionally with donors and volunteers creates emotional added value if the donors and volunteers experience more empathy, compassion, and identification with this CSO and its cause than other organizations’ beneficiaries and donors. Thus, in contrast to functional and altruistic added value, emotional added value may not be a primary objective of CSOs’ work but can emerge as a significant side effect.

Studies suggest that CSOs are in a good position to create such emotional bonds. First, most CSOs, especially charities, faith-based organizations, and other social mission-based CSOs are known for traditionally pursuing values (e.g., compassion, kindness, and care) that can form the basis for bonding on an emotional level (Jeavons, Reference Jeavons1992). These organizations are normative (Albert & Whetten, Reference Albert and Whetten1985), values-based (Bruni & Smerilli, Reference Bruni and Smerilli2014), or pattern-maintenance organizations (Parsons, Reference Parsons1956) whose values are expressed through their activities. Despite the fact that these organizations have lost some of their idiosyncratic features and their values-laden aspects have become downplayed, values can still be a source of significant competitive advantage (Frumkin & Andre-Clark, Reference Frumkin and Andre-Clark2000). A Christian faith-based hospital, for example, delivers healthcare on the basis of ‘divine law’ that promotes mercy and love for one’s neighbor (Askeland et al., Reference Askeland, Espedal and Sirris2019; Espedal, Reference Espedal2021; Espedal & Carlsen, Reference Espedal and Carlsen2021). By doing so, it could produce a positive difference from other hospitals in the sense that their patients experience more compassion and kindness than patients who receive care at public or private hospitals (Sirris, Reference Sirris2023). A faith-based hospital can also connect with its patients on a spiritual level, which could be important for patients with religious convictions who perhaps feel more ‘at home’ in and trust faith-based hospitals more than other hospitals.

Second, it is well-known that many CSOs operate in local communities or deal directly with specific target groups identified by them as in need of help. A hallmark of the work of CSO representatives and volunteers is that they often operate ‘on the ground,’ actively seeking out target groups in challenging circumstances to whom they provide food, shelter, healthcare, job training, and education (Offe, Reference Offe2018). By doing so, they build local knowledge and relationships, thereby not only creating a basis for improving the lives of the people in the community but also fostering a sense of gratitude and appreciation among beneficiaries and other stakeholders that support the CSO’s mission (Schmid, Reference Schmid2013). This appreciation is likely to translate into trusting and emotionally supportive relationships between the CSO and its stakeholders (Frumkin & Andre-Clark, Reference Frumkin and Andre-Clark2000). Such relationships are of long-term strategic importance for CSOs, not least concerning the prospect of renewing contracts with public authorities in competition with for-profit providers.

Social Added Value

A CSO provides social added value when beneficiaries believe that the CSO builds more social capital or gives individuals more benefits in their social environments than public and private sector organizations.Footnote ² For example, a CSO that creates more civic engagement in a local community compared to private and public sector organizations provides social added value compared to those organizations. A CSO that gives beneficiaries the feeling of being more strongly connected to a valuable social network compared to other providers also produces social added value (Jönsson & Scaramuzzino, Reference Jönsson and Scaramuzzino2022).

At the societal, community, and organizational levels, bolstering social capital and fostering civic engagement has for a long time been a major contribution of CSOs (Donati, Reference Donati2014; Putnam, Reference Putnam2000). An important part of their work is to build and strengthen relationships between individuals in a community and through membership in CSOs. Such membership organizations rarely exist in the public and for-profit sector. Because CSOs depend on goodwill and funding from external stakeholders, they typically build long-term, reciprocal, and trust-based relationships with individuals, other organizations, and communities (O'Dwyer & Unerman, Reference O'Dwyer and Unerman2010; Schneider, Reference Schneider2009). Additionally, CSOs promote transparency, democracy, and empower citizens to hold the state accountable (Trägårdh, Reference Trägårdh2022). These last two perspectives emphasize the societal role of CSOs rather than service provision (Anheier, Reference Anheier2009).

CSOs can also provide social added value to individuals indirectly through their specific services. This could occur when receiving services from a CSO gives beneficiaries higher social status or prestige than what other providers can create. Some CSOs are associated with a favorable status because their services and programs are regarded as of high quality. This could be because they are more successful in procuring funding or because they are part of an exclusive network (Galaskiewicz et al., Reference Galaskiewicz, Bielefeld and Dowell2006). Being a beneficiary of such high status, CSOs could produce a positive spillover effect from the CSO to the beneficiary in the sense that the positive characteristics associated with the CSO become characteristics with which the beneficiary is associated. For example, a welfare-to-work program run by a faith-based or values-based CSO could produce more successful job applicants because employers assume that the CSO’s values and ethics have been transferred to the applicant. The effect is likely to be reinforced if receiving such services from the alternative provider in the public sector is associated with social stigma. Receiving government welfare services, for example, may be perceived as a negative social signal (Xuan & Mingang, Reference Xuan and Mingang2019), whereas receiving them through a CSO may be less socially stigmatizing or perhaps not at all.

Additionally, vulnerable groups, which often are recipients of social support, could relate more easily to social mission-based CSOs than to public authorities because public authorities have a control function. In the field of social work, for example, child protection services provided by public authorities are for many families associated with control and power (Tembo & Studsrød, Reference Tembo and Studsrød2019). CSOs that provide such services are not an extension of public authorities’ control function nor do they run the same risk of being accused of paternalism. In addition, they have the benefit of relying on committed volunteers that are not accountable to any public authority. As a result, the volunteers could enable identification and empowerment (Fisher et al., Reference Fisher, Lawthom, Mitchell-Smith, O’Neill and McLaughlin2019). Doing so invokes a personalization principle, giving citizens power of choice and voice (Hemerijck, Reference Hemerijck2012). In this way, voluntary work enables social bonds that prevent isolation, thereby improving quality of life, health, and well-being far beyond the instrumental effects of the work itself (Loga, Reference Loga2010).