Download Market-driven Strategies

CSI brief! ings
03
A Service of the Centre for Social Investment at the University of Heidelberg
Market-driven Strategies
A Path to Achieving Sustainable Social Impact
In A Nutshell
Take Advantage of Market Forces
Unlike classical grantmaking foundations: Market-driven strategies take
advantage of market forces to achieve
social goals.
Increase Sustainability
Through the use of market forces, the
sustainability of a solution can be enhanced: In the best-case scenario, they
will be able to function independent of
additional donations or future foundation grants.
The Approach
For Whom?
Background
Market-driven social investment strategies describe how
social investors can take advantage of the self-interested
behaviour of market actors to achieve public benefit
‘nonprofit goals’. Thus, these social investors act differently than in the classical model of grantmaking foundations or traditional giving: They advance their social goal
not through direct support to those who implement programmes – generally, nonprofit organisations. Rather, they
influence the context for the behaviour of market actors.
They use the market actors’ self-interested activity strategically to realize their actual social objective (see the examples on Page 3). Such an approach has the advantage that
the investors can aim for sustainable impact, without having to make long-term financial commitments.
Market-driven social investment strategies are of interest to donors, foundations, venture philanthropy funds,
and CSR managers that seek to achieve high levels of
sustainability for their social investments with a comparatively minimal input.
Many social investors consider one of their key challenges to be the creation of real social value-added over the
long term. A CSI survey of more than 750 award-winning social entrepreneurs demonstrated how this can be
accomplished through recourse to market forces. Ten
types of market-driven strategies were identified. They
are approaches that prove: If you are successful, then the
financing of the approach emerges almost on its own
(Sample Strategies in the Table on Page 4).
Intelligent Synergies
This will be achieved through strategies
that intelligently link the ‘nonprofit
goal’ of a social investor to the selfinterested behaviour of market actors.
The CSI briefing Series
The titles in the ‘CSI briefing’ Series inform
social investors such as donors, foundations,
and firms about practice-relevant topics,
approaches and methods.
Other Titles:
Doing Good: Successfully!
How the Theory of Change Method
Helps to Achieve Goals
Measuring and Proving Success
Create Transparency Using the Social
Return on Investment‘ Method
Effective Corporate Responsibility
What Counts Is the Actual ValueAdded for Society
These and other titles in the CSI briefing
Series can be downloaded at:
www.csi.uni-heidelberg.de/briefings
CSI briefing 03 | Market-driven Strategies | Updated: November 2013 | www.csi.uni-heidelberg.de/briefings
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CSI brief! ings
03
Useful for Whom?
The application of market-driven social
investment strategies can be of interest to
a variety of different actors:
Existing Foundations
Our study of more than 750 award-winning social entrepreneurs shows that market-driven strategies can be applied to
achieve a variety of objectives in diverse
social contexts. They are thus appropriate
for foundations active on various topics
and in various regions of the world.
Market-driven Strategies
Re-Thinking Support
According to the classical models of grantmaking and sponsorship, a social investor supports nonprofit organisations
with financing so that they can achieve their goals.
Linking
Performance
and Financing
Nevertheless, even though today numerous alternative approaches and forms of financing complement this basic
model, a fundamental deficiency remains: No linkage between performance and financing is made. That means
that improvements in reaching social goals do not automatically lead to enhanced financing of the respective public
benefit activity. Thus, a very basic problem remains unsolved: The approach can be further developed neither sustainably nor independent from the social investor.
The Logic of Market-driven Strategies
However, there is an alternative: Public benefit goals can
be achieved in many cases also by linking them to market
forces.
Social Investor
Nonprofit Goal
Founders
When one wishes to create a new foundation, it is worthwhile considering how the
planned goal can be achieved through intelligent links to economic incentive systems. This could be a way to stimulate positive social development with relatively
minimal investment – and that without
having to make financial commitments
over the long term on a larger scale.
Venture Philanthropy Fonds
Market-driven strategies can help venture
philanthropists support the organisations
already in their portfolio as well as existing business models and, with them,
create additional options for sustainable
growth.
CSR Managers
Approaches to social investment are also
of interest to firms engaged in corporate
social responsibility, especially since they
are often related to the firm’s own corporate goals and seek to achieve a high
degree of impact with relatively minimal
input.
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Psychological Factors
Economic Factors
Legal Factors
(e.g., decision design,
norms/values)
(e.g., risk, return, transaction
costs, unit costs)
(e.g., regulations,
legal framework)
MARKET SPHERE
Market Actors: Self-interested Behaviour
Sustainability
Achievement of
Nonprofit Goal
The Logic of Market-driven Strategies (CSI Figure)
That a ‘market-driven social investment strategy’ aims
to achieve ‘nonprofit goals’ through market forces seems
at first glance to be a paradox: ‘Nonprofit goals’ focus on
providing services for which, in principle, a societal interest exists, but which are not suitable for generating
profit, i.e., they are not provided by the market. – So how
can market-driven strategies work?
CSI briefings | Centre for Social Investment | University of Heidelberg | www.csi.uni-heidelberg.de/briefings
Using self-interested behaviour
to achieve social
goals
CSI brief! ings
03
Market-driven Strategies
How does the approach work?
Market forces are generated when people make demands
for or offer goods or services as they seek to achieve their
own individual goals. With a market-driven strategy, a social investor intentionally takes advantage of the self-interested behaviour of market actors: Through clever interventions, the investor links up to economic incentive
systems so that what happens serves his/her social goal.
The participants act mainly for their own benefit; still,
through their actions, they contribute at the same time to
achieving the social nonprofit goal.
Example:
Jobs for the
Blind
Take the case of a social investor whose goal is to integrate
blind persons into the job market. The design of an ‘Exhibit in the Dark’ as a type of leisure-time activity can be understood as a market-driven strategy to pursue this goal:
Blind persons can act as excellent guides, taking visitors
through an exhibition in the dark.
Did you know, …
... that only 16 percent
of the Ashoka-sponsored
social entrepreneurs
pursue approaches that
apply market-driven
strategies like those
described here?
16 %
Market-driven
Strategies
Example: Ethical Consumption
Coffee Farming: A Classic for Fair Trade Approaches
Market-driven strategies of ‘ethical consumption’ are based on the willingness of
consumers to prefer certain products or
services over others on ethical grounds
and even pay more for them than regular
market prices.
To the extent that they create such an ‘ethical’ market, they secure market entry for
otherwise disadvantaged suppliers or
higher sales revenues – as, for example,
fair trade approaches do.
To make this happen, the supply and distribution of the ‘fair trade’ goods must be
organised.
In addition, a corresponding demand has
to be stimulated, for example, through
campaigns.
Example:
Filling Information Gaps
750 Social Entrepreneurs, CSI Sample (2010) of Ashoka Fellows from USA, Western Europe, Brazil and India
Furthermore, since visitors pay entrance fees to experience
the ‘Exhibit in the Dark’, revenues can be earned from
which salaries for the blind guides can be paid. The visitors
act out of self-interest in a market (i.e., by paying entrance
fees for the experience), but at the same time contribute
thereby to achieving the nonprofit goal of the social investor (i.e., jobs for blind persons; see other examples).
Tip!
Through its review of the cases of more than 750 awardwinning social entrepreneurs, the CSI was able to identify
ten types of market-driven strategies (see overview of the
most prominent strategies on the next page).
The ‘market-driven’ principle solves the paradox described above of realizing nonprofit objectives through market forces. The market alone does not produce the desired
result (delivery of a particular product or service), but
rather a social investor acts ‘close to the market’: Through
strategic interventions, the social investor initiates or reinforces market activities that produce the desired result
(social objective).
Photo of Johannes Hengstenberg, Founder of co2online
When market participants have access to better information, they can discover new alternatives for action. With his Internet platform
www.co2online.de, Johannes Hengstenberg
contributes to the fight against climate
change: By providing information about potential ways to save energy, he brings about
reductions in household and business energy consumption because the information
also suggests ways to ‘save money’. People
won‘t necessarily act in order to help the climate, but effects rather come about because
people try to save money.
CSI briefings | Centre for Social Investment | University of Heidelberg | www.csi.uni-heidelberg.de/briefings
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CSI brief! ings
03
A Service of the Centre for Social Investment at the University of Heidelberg
For more information
Database of Ashoka-awarded
social entrepreneurs:
www.ashoka.org/fellows
Article on the CSI study on
types of market-driven strategies
Münscher (2012): Marktnahe Strategien
der sozialen Investition. In: Anheier,
Schröer & Then (Eds.): Soziale Investitionen. VS Verlag für Sozialwissenschaften [in German; english version
in preparation].
Selected Types of Market-driven Strategies
Market-driven
Strategy
Example
(in parentheses the corresponding nonprofit goal…)
Mechanism
1. Link to related
goals that can be
brought to market
Andreas Heinecke: Dialogue in the Dark
(Jobs for blind persons)
Cross-subsidisation
2. Market segmentation / Establishing
protected submarkets
David Green: Affordable Hearing Aid Project
(Hearing aids for people in developing countries)
Price reduction
3. Patriotic
behaviour
Christian Hiß: Regionalwert AG
(Regional promotion)
Regionalwährungen, z. B. ‘Chiemgauer‘,
‘Roland‘ in Bremen (Regional promotion)
New markets/
target groups
Chittenden Bank, Vermont / USA
(Regional promotion)
4. Change of
provider risk
CSI Advisory Services
Muhammad Yunus / Grameen Bank:
Group-based microcredit
(Business start-up for people without
access to regular credit market)
Change of
provider risk
Rockefeller Philanthropy Advisors:
Carbon Disclosure Project
5. Filling
information gaps
Johannes Hengstenberg: co2online
(Reduction of energy consumption)
Filling
information gaps
Bruce Cahan: Sustainable Resiliency Bank
(Regional promotion)
Using Market-driven Strategies
The Centre for Social Investment (CSI) is
a central academic institute of the University of Heidelberg. It combines interdisciplinary research on social investment with extensive practical experience in the areas of
strategy and management of social institutions. Through our advisory services department we offer a broad range of clients the
knowledge existing and developed at CSI.
Contact us:
Dr. Volker Then
CSI Managing Director
Tel.: +49-6221 / 54119-55
Carsten Eggersglüß
Advisory Services
Tel.: +49-6221 / 54119-56
[email protected]
You know what your goals are. Would a market-driven
strategy or a combination of such strategies be appropriate for pursuing your goals?
Now it’s
your turn!
As a first step, determine with whom you are dealing
in the context of your involvement: What moves these
people? What are their interests? Can a link be made
between their behaviour and the social goals you want
to pursue?
Next, find out how your objectives can be analysed
economically: Why has what you seek to achieve not
yet been achieved? Are there any possibilities for
changing these economic conditions?
Finally, check whether the prevailing legal framework
supports your concern or rather stands in its way:
Could you possibly effect change here?
When a market-driven strategy seems to be appropriate
for your objectives, the key success factors for their application in your concrete case need to be identified. If
these success factors can be fulfilled, the chances are
good that you can use market forces to pursue your social objectives.
Credits
‘CSI briefing’ is series of briefings prepared by the Centre for Social Investment (CSI) of the University of Heidelberg | Editor: Robert Münscher | Authors of this title:
Robert Münscher, Thomas Deistler © 2012 CSI | Photo credits: Fotalia (1,2), Istockphoto (3), Johannes Hengstenberg/co2online (4), CSI (5,6,7).
Printing: Baier Digitaldruck, Heidelberg | Contact: [email protected] | Internet: www.csi.uni-heidelberg.de/briefings | Telephone: +49 (0)6221-541195-0
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CSI briefing 03 | Market-driven Strategies | Updated: November 2013 | www.csi.uni-heidelberg.de/briefings