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Strategic Perspectives on Public Value
DISSERTATION
of the University of St. Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor of Philosophy in Management
submitted by
Theo Pepe Strathoff
from
Germany
Approved on the application of
Prof. Dr. Peter Gomez
and
Prof. Dr. Timo Meynhardt
Dissertation no. 4566
Difo-Druck GmbH, Bamberg 2016
The University of St. Gallen, School of Management, Economics, Law, Social
Sciences and International Affairs hereby consents to the printing of the present
dissertation, without hereby expressing any opinion on the views herein
expressed.
St. Gallen, May 30, 2016
The President:
Prof. Dr. Thomas Bieger
ACKNOWLEDGEMENTS
First, I would like to express my sincerest gratitude to my supervisor,
Prof. em. Dr. Peter Gomez. I am equally grateful to my co-supervisor Prof. Dr.
Timo Meynhardt. This dissertation could not have been written without an
ongoing dialogue and continuous feedback on new ideas and evolving paper
manuscripts. I could not have wished for a better and more inspirational thesis
supervision. It has been a true privilege to work so closely with these two
distinguished scholars. I also thank Prof. Dr. Timo Meynhardt for co-authoring
four of the papers in this dissertation.
I would also like to thank Professor Mark Moore at Harvard Kennedy
School who has opened the door to this wonderful institution and was extremely
generous in sharing his time and wisdom throughout my fellowship. Working
with him has greatly helped me to situate my research within the broader public
value research community.
I am also grateful to the Fredy und Regula Lienhard-Stiftung for
enabling my research stay in Harvard with financial support.
Four of the papers in this dissertation are the product of inspiring
collaboration with other scholars and practitioners. I would like to thank my co-
authors Steven A. Brieger, Lorenz Beringer, Sebastian Bernard, and Jennifer D.
Chandler for the great collaboration.
Further thanks are also due to Caroline Geissler and Mary Anne
Baumgartner for their kind and enduring administrative support and to the entire
public value research community in St. Gallen, Lüneburg, and Leipzig for many
fruitful discussions.
I would also like to thank my dear friend Andrea Winkelmann for her
outstanding layout support on the finishing straight. It is arguably a sign of a
really good friendship when you don’t hear from someone for a while and that
person is then there when you need it the most.
On a personal level, I would like to express my special gratitude to
Katharina Jaroch. Thank you dear Jaro for your love and ongoing support.
Having you by my side and counting on your support has greatly enabled me
and given me a lot of energy. Thank you for being who you are.
I feel deeply obliged and grateful to my parents and grandparents to
whom I owe so much. Their life story of hard work, dedication, and
achievement has been and always will be an inspiration to me. Their
unconditional love and appreciation has always given me a lot of strength. They
have given me both: roots and wings. It is to them that I dedicate this thesis.
ZUSAMMENFASSUNG
Diese Dissertation wendet die – von Moore geprägte und von
Meynhardt weiterentwickelte – Public Value-Theorie auf Themen des
strategischen Managements an. Strategisches Management beschäftigt sich mit
der Positionierung von Organisationen in einer dynamischen Umwelt. Ein
zentraler Bestandteil der Umwelt von Organisationen ist deren
gesellschaftliches Umfeld.
Die Dissertation setzt sich aus sechs eigenständigen, theoretisch
verbundenen Beiträgen zusammen: Das einleitende Kapitel gibt einen Überblick
zur Public Value-Forschung, und begründet die Wahl von Meynhardts Public
Value-Ansatz als theoretische Perspektive. Das erste Paper schafft einen
Überblick zur Business and Society-Forschung und schlägt darauf basierend
vor, das VBA Modell von Schwartz und Carroll um eine Public Value-
Dimension zu ergänzen. Basierend auf Daten zur Schweizer Bankenindustrie
aus dem GemeinwohlAtlas analysiert das zweite Paper den Zusammenhang
zwischen dem Public Value einzelner Unternehmen und dem Public Value der
zugehörigen Industrie. Ein starker Zusammenhang zwischen Unternehmens-
und Industrie-Public Value deutet auf eine Public Value Allmende in der
Schweizer Bankenindustrie hin. Im dritten Paper wird untersucht, wie der Public
Value der öffentlichen Verwaltung in der Schweiz mit der individuellen
Lebenszufriedenheit zusammenhängt. In Ergänzung zu bestehenden Modellen
der Glücksforschung wird deutlich, dass eine wertschöpfende öffentliche
Verwaltung zur Lebenszufriedenheit beiträgt. Das vierte Paper zeigt in einer
Fallstudie, wie der Fussballverein FC Bayern München mit den Public Value-
Herausforderungen umgeht, welche durch das schnelle Wachstum und die
Internationalisierung bedingt sind. Schliesslich schlägt das fünfte Paper wieder
den Bogen zu den einleitenden konzeptionellen Diskussionen über den
Wertschöpfungsbegriff, indem eine synergetische Perspektive auf
Wertschöpfungsprozesse in Dienstleistungssystemen präsentiert wird.
SUMMARY
This dissertation applies public value theory – which Moore coined and
Meynhardt developed further – to strategic management issues. Strategic
management deals with positioning organizations in dynamic environments. A
key element of organizations’ strategic environment is society. Organizations
perform a societal function and are dependent on social approval assets.
The dissertation consists of six independent yet theoretically connected
contributions. The introductory chapter sets the stage by giving an overview of
the public value literature, sketching the challenge of providing a societal
perspective for strategic management, and arguing why Meynhardt’s public
value approach is chosen as the dissertation’s theoretical perspective. The first
paper is a conceptual piece which reviews the business and society literature and
proposes the inclusion of a public value dimension in Schwartz and Carroll’s
VBA model. The second paper empirically analyzes the relationship between
firm public value and industry public value based on GemeinwohlAtlas data on
the Swiss banking industry. A strong relationship between industry and firm
public value is found, indicating a public value commons in the Swiss banking
industry. Based on the same dataset, the third paper analyzes the relationship
between the Swiss public administration’s public value creation and individual
happiness. It is found that a public value-creating public administration
contributes to individual happiness, extending existing models from economic
happiness research. The fourth paper is a case study on the football club FC
Bayern Munich. It shows how an organization under intense public scrutiny
deals with public value challenges resulting from rapid growth and
internalization. The fifth paper ties into the initial conceptual discussions on
value creation by proposing a synergetics perspective on value co-creation
processes in service ecosystems.
13
OVERVIEW OF CONTENTS
INTRODUCTION 15
PAPER 1: 77
The VBA Model and Public Value: Filling the Value Gap
PAPER 2: 109
Public Value Commons: Evidence from the Swiss Banking Industry
PAPER 3: 155
Public Value and Happiness: Evidence from Public Administration in
Switzerland
PAPER 4: 195
FC Bayern Munich: Creating Public Value Between Local Embeddedness and
Global Growth
PAPER 5: 223
Systemic Principles of Value Co-Creation: Synergetics of Value and Service
Ecosystems
15
INTRODUCTION
Pepe Strathoff
January 2016
Abstract
The introductory chapter sets the stage for the cumulative dissertation.
It starts with a presentation of the public value approach with a focus on its roots
in the public sector, the work of its main protagonists – Mark Moore, Barry
Bozeman, and Timo Meynhardt – and its reception. The need for an approach
that deals with societal issues from a strategic management perspective is then
formulated. It is argued that neither the strategy nor the business and society
field provide such an approach.
Meynhardt’s public value approach is therefore identified as an
approach to deal with societal issues from a strategic management perspective.
It is argued that this transfer of theory from public management is justified due
to shared features of public and private organizations – publicness and being an
institution – and increasingly blurred sector boundaries. A theoretical
background on what the assumption of a public value perspective means for the
evaluating subject (“calling a public into existence”) and for the evaluated
object (“the common good”) is provided. This also sketches the theoretical
context of the five papers pertaining to broader questions of the common good,
values, and political philosophy.
The chapter then provides a brief summary of the five papers. It
concludes by deriving implications for theory and practice as well as avenues
for further research, resulting from a joint reading of the five papers and from
generally assuming a public value perspective on strategic management.
Strategic Perspectives on Public Value
16
PURPOSE
This introductory chapter serves a threefold purpose: First, it gives an
overview of the public value research field and demonstrates how the public
value approach can be seen as a (re-)discovery of a societal dimension in
strategic management. Second, it summarizes the five papers this dissertation
consists of and describes how each one contributes to a societal viewpoint on
key issues of strategic management. Third, the chapter derives common
conclusions, implications, and potential for future research of the dissertation as
a whole.
In this chapter, a lot of authors, themes, and thoughts appear that are
taken up in the five papers that compose the dissertation’s main body. Some will
not appear again explicitly, as they sketch the broader theoretical context of the
focused journal-format papers. In this way, the introduction is supposed to show
the connection of the five papers to broader questions of the common good,
values, and society.
HISTORICAL CONTEXT: PUBLIC VALUE AS A
RESPONSE TO THE NEOLIBERAL ZEITGEIST
Public value was initially conceived as a management approach for the
public sector. The public value idea originated as a response to the neoliberal
zeitgeist of the 1980s/1990s which was skeptical about the public sector’s
capacity to contribute to economic and social progress. In his 1981 inaugural
address, former US President Ronald Reagan proclaimed that “government is
not the solution; government is the problem” (Reagan, 1981) and in the UK,
former Prime Minister Margaret Thatcher (1987) stated: “There is no such thing
as society!”
Introduction
17
This general disbelief in the capacity of government and even in the
very existence of a collective1 is also reflected in the dominant ideas about
public administration of the time (Benington & Moore, 2011; Bryson et al.,
2014). Under the umbrella of New Public Management (NPM), there was an
attempt to make government more efficient and innovative. According to
Bozeman (2007: 7), NPM “has to some extent codified and prescribed
governance approaches based on economic individualism and market
mechanisms.” In this sense, NPM was not value free, but entailed a (neoliberal)
notion of emphasizing the individual over the collective and doubting that a
collective dimension matters to the individual.
Clearly, NPM was inspired by management techniques and practices
from the private sector and it was a core idea to employ these in public
administration (Hood, 1991; Osborne & Gaebler, 1992; Schedler & Proeller,
2006). Among several other actions, this included public service outsourcing, a
view of citizens as “customers” of the government, and the introduction of
controlling measures to be used as key performance indicators for public
managers and their organizations. Public value, the theoretical approach
underlying this dissertation, is based on a more positive attitude towards the
public sector than NPM. Yet, it was not a countermovement in the sense of fully
renouncing NPM ideas and moving back to a more traditional bureaucratic type
of public administration. Instead, it embraced several NPM ideas and objectives,
such as aiming to make government more responsive, innovative and effective
(Bryson et al., 2014).
However, public value differed in a crucial assumption: It was
committed to the “idea that the proper arbiter of public value is society”
(Benington & Moore, 2011: 10). Thus, public value brought the societal
dimension back to the fore in public management and provided a counterweight
to economic individualism (Bozeman, 2007). By acknowledging the need for
1 We use the term “collective” to include both “community” and “society” types of social
organization (see Tönnies, 2012).
Strategic Perspectives on Public Value
18
reform in the public sector, while keeping a notion of a collective dimension
that matters, public value could also be seen as the public management approach
accompanying “third way” thinking (Giddens, 1998). Indeed, an initial major
practical application took place in the UK, where the concept was discovered
and promoted by the Work Foundation, a think tank close to the quintessential
third way government of Labour Party Prime Minister Tony Blair (Crabtree,
2004).
The emphasis on or even rediscovery of a collective dimension in
strategic management is a key feature of the public value approach and a
guiding theme for this dissertation. In the subchapter “Strategy and Society”, we
discuss how the idea that society is a major determinant of an organization’s
environment is a strategic management question. In the subchapter “Extending
Public Value to Other Sectors”, we then present an argument about why the
public value concept is not only useful for strategic management in the public
sector, but can be transferred to organizations in other sectors, especially to
private sector business firms. A little more background on the roots of public
value in public management thinking and on the concept’s theoretical
foundations is given first.
PUBLIC VALUE: ROOTS IN THE PUBLIC SECTOR
The term “public value” as a strategic management concept was first
used in Mark Moore’s article Public Value as the Focus of Strategy (Moore,
1994) and popularized with his seminal book Creating Public Value: Strategic
Management in Government (Moore, 1995). In the book, Moore argues that
while several management concepts from the private sector found their way into
public management (for instance customer orientation and the increased use of
performance measurement), the crucial concept of corporate strategy has not
been translated adequately.
Introduction
19
Given the importance of the strategy concept for business management
in complex environments and the increasingly complex (task and political)
environment around public sector organizations, this appeared to be quite a
research gap. Moore therefore positions his book as an attempt to fill that gap
pertaining to strategic management. Since the publication of Moore’s book two
decades ago, the public value research field has evolved. Research on public
value is frequently published in foremost public management journals and a
number of journal special issues/focal topics (e.g. International Journal of
Public Administration, 2009; Zeitschrift für Organisationsentwicklung, 2013;
Public Administration Review, 2014) as well as edited volumes (e.g. Benington
& Moore, 2011; Bryson et al., 2015a, 2015b) have been devoted to the topic.
This wealth of publications and applications in practice (see the section
“Reception and Criticism”) has made the public value field more diverse and
complex. Accordingly, Williams and Shearer (2011) pointed to a degree of
uncertainty about what public value actually is and what the most important
elements of the literature are. For the purpose of this introduction, we follow the
recent categorization of major theoretical approaches by Bryson et al. (2014,
2015a), which relies on an extensive review of the public value literature and
has been widely received in the public value research community. Bryson et al.
(2015a: 2-11) identify three major streams in the public value literature: Mark
Moore on Creating Public Value, Barry Bozeman on Public Values, and work
concerning Psychological Sources of Public Value by Timo Meynhardt. In this
section, we give a concise overview of all three approaches. This will be an
important foundation for this dissertation’s endeavor to apply public value
theory to strategic management issues and conduct empirical research based on
Meynhardt’s approach.
Strategic Perspectives on Public Value
20
Mark Moore on Creating Public Value
As mentioned above, Mark Moore coined the term “public value” for
public management with the 1995 publication of his book Creating Public
Value: Strategic Management in Government, in which he develops a normative
theory of strategic management for the public sector. He explains that his work
is neither concerned with the behavior of organizations (but managers) nor with
explaining what managers do and why (but what they should do). The purpose
of Moore’s work is to support public managers in making strategic decisions,
thereby increasing the value to the public of the organizations that are entrusted
to them. Moore (1995: 10) defines public value as a notion of “managerial
success in the public sector […] initiating and reshaping public sector
enterprises in ways that increase their value to the public in both the short and
the long run”.
Moore, a professor at Harvard University’s Kennedy School of
Government, points out that he developed the ideas behind his approach through
years of interaction with public management practitioners while teaching in the
School’s executive education programs. He clarifies that the public value idea –
seen as the result of a convergence of public administration (concerned with
management) and public policy (concerned with policies) thinking – is also the
result of a certain institutional way of thinking and culture at the Kennedy
School.
This convergence points to a central aspect in Mooreian public value
thinking: Moore advocates an active, entrepreneurial, and value-creating role for
public managers that goes beyond the mere administrative implementation of
policies produced in the (democratic) political process. He sees the Wilsonian
politics-administration dichotomy (Wilson, 1887) as an impediment to public
managers’ sense of purpose (and to becoming more similar to their private
sector counterparts) when stating that “society denies its public sector the key
ingredient on which its private sector specifically relies to remain responsive,
Introduction
21
dynamic, and value creating, namely the adaptability and efficiency that come
from using the imaginations of people called managers” (Moore, 1995: 19).
Moore therefore advocates a penetration of the line between policy and
administration. In this regard, his approach sits squarely in the Waldonian
tradition of seeing public administration’s task to “help society change and
adjust in ways that maximize the potential for ‘goods’ and minimize the
potential for ‘bads’” (Waldo, 1968: 367).
Essentially, Moore (1995) wants to help public managers assume such
a value-creating role. He explicitly states that he sees the creation of public
value by public managers as an analogy to the creation of private value through
managerial work in the private sector. Moore (1995) argues that such a strategic
conception of public management requires public managers to align three
perspectives: substance, politics, and administration. Accordingly, he presents
the “strategic triangle”, a management framework that is supposed to support
public managers in evaluating their strategies for the creation of public value
from all three perspectives:
1. Public Value: Any appropriate strategy must be substantively valuable,
meaning that it aims at producing something that is considered
valuable by overseers, citizens, and recipients. Such public value to be
created might for example be defined as “cleaning up streets”, “closing
the racial achievement gap in schools” or “making applying for a
passport easier for citizens”.
2. Legitimacy and Support: Any strategy must be considered legitimate
and must find political support in the organization’s authorizing
environment. This consists primarily of those individuals and groups
involved in formal decision-making structures (superiors, politicians,
higher-level public administration, and the electorate) which directly
control the flow of resources (authority and money) to the organization.
3. Operational Capacity: Any strategy in public management has to be
feasible in the sense that the organization has the operational and
Strategic Perspectives on Public Value
22
administrative means to implement it. This means that the organization
is actually capable of delivering to its publicly valuable objectives.
This framework is at the core of Moore’s (1995) public value approach.
In this view, the strategic and entrepreneurial public manager is tasked with
envisioning strategies that are appropriate from all three perspectives
simultaneously. These perspectives are clearly not independent from one
another: It is much easier to garner political support for some public values than
for others and a high level of political support can make it easier to acquire
additional resources and build operational capacity.
In his 2013 follow-up book Recognizing Public Value, Moore focuses
on measuring public value and develops the strategic triangle further to his
version of a public value scorecard. However, the Public Value Account that
Moore presents takes the form of a structured balance sheet-like listing of a
project’s public value costs and benefits (see 2013: 180) and does not allow a
systematic comparison or quantification of public value creation. Moore also
clarifies that the role he gives to public managers poses “a political, technical,
and managerial challenge, as well as a philosophical one” (2014a: 472). This
quote underlines the importance that Moore attributes to the individual public
manager in making public value-creating decisions.
Barry Bozeman on Public Values
As outlined, Moore’s perspective is very managerial, with the clear
purpose to “guide managers of public enterprises” (1995: 1). Barry Bozeman’s
work, in contrast, is more concerned with the societal level (Bryson et al.,
2015a). He defines public values as “those providing normative consensus about
(a) the rights, benefits, and prerogatives to which citizens should (and should
not) be entitled; (b) the obligations of citizens to society, the state, and one
another; and (c) the principles on which governments and policies should be
based” (Bozeman, 2007: 13).
Introduction
23
Importantly, Bozeman (2007) frames his work as a contribution to the
common good discourse. Based on his diagnosis that common good (or public
interest) thinking has been on the decline due to a preoccupation with economic
development and individualism, he formulates the purpose of his work as
providing a theoretical notion of normative publicness. This is based on his
assumption “that the ability to provide strong theoretical rationales for
approaches to public policy and management greatly enhances the ability to
influence policy agendas and choices and, ultimately, advances normative
publicness” (2007: 18).2 For Bozeman (2007), the public interest is a hard-to-
define ideal about what best serves a social collective, whereas public values are
specific and identifiable.
Bozeman criticizes the notion that government is only supposed to step
in when market failure occurs (e.g., due to externalities or monopolies). He
discards this view, as it implicitly assumes that the market will be better in
providing what society needs, giving the public sector a subsidiary role only for
when market mechanisms fail. Instead, Bozeman proposes the idea of public
value failure. This term describes situations in which neither the state nor the
market provide the conditions and outputs that are necessary to achieve public
values (Bozeman, 2007). Bozeman emphasizes societal (public) values and
whether these are met, irrespective of the delivering organization’s legal status
as public or private (Meynhardt 2009).
A crucial question for Bozeman (2007) concerns the identification of
public values. He proposes a public value mapping model with criteria to
identify public values. For Bozeman (2007: 140-141), examples of public values
are “altruism,” “citizen involvement,” “businesslike approach,” or “protection of
rights of the individual,” Building on the public value mapping model, Welch et
2 The notion of publicness is central to Bozeman’s thinking. In the section “Extending Public
Value to Other Sectors”, Bozeman’s claim that publicness is a property of government (“public”) as well as business (“private”) organizations is used to argue why public value
thinking is indeed appropriate for tackling strategic issues in business firms.
Strategic Perspectives on Public Value
24
al. (2015) propose a four-step public value mapping process which involves the
identification of public values, the assessment of public value failures and
successes, the actual public value mapping as well as a consideration of the
relationships between public value and market failures and successes.
Bozeman’s work is not limited to identifying society’s public values as
manifestations of the public interest. His approach also holds direct lessons for
public management, as public values are seen as motivators for public managers
who are motivated by making a contribution to the common good. Bozeman
(2007) agrees with Moore’s claim that public managers are not neutral
competence bureaucrats, but are driven by the opportunity to further their
particular view of the common good. Whereas public value for Moore is the
outcome dimension of public managers’ work, public values for Bozeman can
be antecedents of public service motivation (see Andersen et al., 2012 for a
detailed treatment of the relationship between public service motivation and
public values).
Timo Meynhardt on Public Value Inside
Timo Meynhardt’s public value approach is the third major approach
presented by Bryson et al. (2015a). With a first mention of the term in 2007 (by
Meynhardt and Vaut) and a major conceptual contribution in 2009 (single-
authored by Meynhardt), this approach is also the most recent one. Bryson et al.
(2014, 2015a) point out that Meynhardt’s work on the psychological sources of
public value, while being very important, is less well-known than the other
approaches.
In his major conceptual contribution – an article for a special issue of
the International Journal of Public Administration – Meynhardt (2009) takes a
step back from the public management discourse and asks what the concepts of
“public” and “value” (and “public value”) actually mean. He attempts to answer
these questions and develop a non-normative public value theory by introducing
Introduction
25
concepts from value philosophy, psychology, and economics to the public value
discourse.
As a starting point, Meynhardt gives an overview of the debate on the
ontological status of values, emphasizing the multitude of definitions and the
controversy between value objectivists and value subjectivists. In a nutshell: on
the one hand, value objectivists claim that value is a characteristic of certain
objects that exists a priori independently of an evaluator. On the other hand,
value subjectivists assert that value only comes into being through evaluations
by valuing subjects. Meynhardt synthesizes these competing positions by
drawing on the value philosopher Johannes Erich Heyde, who locates value in
the relationship between an evaluating subject and an evaluated object.
Meynhardt: “By the very act of valuation (or evaluation) a value comes into
being as an abstract entity of desirability or preference.” (2009: 198)
From this definition of value follows an important role of the individual
as an evaluator.3 Therefore, the next question Meynhardt tackles concerns the
basis of evaluations. In other words: what makes individuals evaluate objects in
a particular way? Meynhardt points out that the drivers of evaluation processes
concern emotional-motivational aspects that are captured in psychological
constructs such as needs, motivations, and attitudes. Assuming that the
individual human being is crucial to the understanding of value, a reference
point to human nature is needed.
Meynhardt proposes basic needs theory, because needs drive
individuals and serve as points of reference for evaluations. He specifically
draws on the psychologist Seymour Epstein’s (1989) cognitive-experiential self-
3 Note that Meynhardt does not limit the evaluator role to individuals: “The subject can be a person, a group, a nation, or any other possible entity that is evaluating an object” (2009:
200). For the purpose of this section, we focus on individual evaluators and their basis of
evaluation (psychological basic human needs). In this context, the section “Calling a Public into Existence” can be seen as a discussion of how collective evaluating subjects can be
formed.
Strategic Perspectives on Public Value
26
theory, of which one aspect is a structuring of the basic needs field and a
categorization into four basic needs.
According to Epstein (1989), there are four basic need dimensions:
- positive self-evaluation
- maximizing pleasure and avoiding pain
- gaining control and coherence over one’s conceptual system
- positive relationships with significant others
These four dimensions define an underlying basic needs structure that
can manifest itself quite differently depending on the individual, the cultural
context, and the particular situation. In its most basic form, the need for
maximizing pleasure and avoiding pain takes the form of any organism’s desire
to survive, whereas in a more culturally shaped form it also drives aspects such
as the appreciation of works of arts which the individual “uses” to gain
pleasurable experiences.
Meynhardt translates Epstein’s four basic need dimensions into four
dimensions of public value (moral-ethical, hedonistic-aesthetical, utilitarian-
instrumental, and political social)4. An important implication of basing his
public value theory on Epstein (and not on a hierarchical basic needs theory
such as Maslow’s) is that for Meynhardt there is no a priori hierarchy of public
value dimensions. In a subsequent study on Germany’s Federal Employment
Agency, Meynhardt and Bartholomes (2011) demonstrated the dimensional
structure of public value empirically. This anchoring of public value in human
basic needs is also in line with Moore’s statement (and “first axiom”) that
“value is rooted in the desires and perceptions of individuals” (1995: 52).
These considerations provide a definition of value and a basic
understanding of the psychological structure that drives evaluations on the part
4 See Table 1 in Paper 2 for an overview of the relationship between basic needs and basic
value dimensions.
Introduction
27
of individuals. Having defined value as the quality of the relationship between
an evaluating subject and an evaluated object, we have to enquire about the
object of evaluation.
This is where the notion of a “public” comes in. Again, Meynhardt
takes a psychological approach to defining “the public”. Based on
considerations about society’s perceived complexity – which makes slicing it up
neatly into stakeholder groups impossible – Meynhardt arrives at a view of the
public as an individual’s mental placeholder for community and society. In this
view, “‘the public’ is what individuals perceive as the public” (2009: 205). The
public, then, becomes the object of evaluation by individuals who evaluate the
social collective. Interestingly, this entails “moving the public inside.” The
social collective often intuitively seems to us to be external to the individual, as
it is comprised of more than one individual. Yet, by locating the public inside
the individual, Meynhardt follows the German sociologist Ferdinand Tönnies,
who sees different social collectives as results of different types of mental bonds
(“geistige Verbundenheit”) (Merz-Benz, 2015).
Based on these philosophical, psychological (and sociological)
considerations on the notions of “value” and “the public”, Meynhardt arrives at
the following definition of public value:
Strategic Perspectives on Public Value
28
Public value is value for the public. Value for the public is
a result of evaluations about how basic needs of
individuals, groups and the society as a whole are
influenced in relationships involving the public. Public
value then is also value from the public, i.e., “drawn” from
the experience of the public. The public is an indispensable
operational fiction of society. Any impact on shared
experience about the quality of the relationship between
the individual and society can be described as public value
creation. Public value creation is situated in relationships
between the individual and society, founded in individuals,
constituted by subjective evaluations against basic needs,
activated by and realized in emotional-motivational states,
and produced and reproduced in experience-intense
practices.
Meynhardt, 2009: 212
Neither this definition of public value nor Meynhardt’s (2008)
definition of public value creation is linked to any particular sector or type of
organization. This makes the approach appropriate for the multisectoral
perspective in this dissertation.5 Meynhardt’s approach is also non-normative. It
is not a theory about the impact public administrations, business firms, and other
organizations ought to have on society, but emphasizes their actual public value
creation, resulting from their society-defining role. This non-normativity and the
existence of a validated measurement model (Meynhardt & Bartholomes, 2011)
make the approach particularly suitable for the type of empirical research
conducted for this dissertation.
Having introduced the most important voices in the public value
discourse, we now proceed to a concise overview of the concept’s reception in
academia and practice.
5 Paper 2 is based on empirical evidence from the banking industry, Paper 3 is on the public
sector, and Paper 4 is on FC Bayern Munich, a football club.
Introduction
29
Reception and Criticism
As outlined, public value was partly a response to the neoliberal
Zeitgeist of the 1980s/1990s and can be seen as the public management
approach accompanying third-way thinking. And indeed, it was in Blairist
Britain that the concept was taken up in practice on a broader scale for the first
time (Crabtree, 2004). The first major organization to commit to the concept
publicly was the BBC (BBC, 2004). The BBC’s then Director of Strategy,
Caroline Thomson, declared: “The BBC exists to create public value not only
for individuals as consumers, but also value for people as citizens.” (Thomson,
2006 in Collins, 2007). This is in line with Moore’s (1995) call to distinguish
between clients of a particular public organization and citizens. He warns of an
(NPM-like) overemphasis on customer service and client satisfaction in
evaluating the public sector’s performance and underlines that citizens’ more
impartial judgment should be taken into account.
Overall, the Mooreian public value approach was particularly
successful in countries which had tried NPM before (e.g., Australia and New
Zealand) and were looking for a reorientation towards an approach addressing
NPM’s supposed weaknesses (O’Flynn, 2007). Interestingly, Moore’s work
resonated more strongly in Westminster systems (UK, Australia, and New
Zealand) than in the US, where Moore developed his ideas (Rhodes & Wanna,
2007). In continental Europe, public broadcasting providers used public value
extensively, taking the BBC as a role model (for an overview on public value in
the media, see Karmasin et al., 2011).
The public value approach according to Meynhardt has been employed
by a number of organizations, mainly in German-speaking Europe. The German
Federal Employment Agency uses the approach to understand its social impact
and delivery to its social mission beyond controlling measures (Meynhardt &
Metelmann, 2009; Meynhardt & Bartholomes, 2011; Weise & Deinzer, 2013). It
is also used by the Deutsche Gesellschaft für das Badewesen, the association of
Strategic Perspectives on Public Value
30
public swimming pools in Germany, to sponsor a biannual Public Value Award
for the Public Bath, awarded to the public swimming pools in Germany that
create the most public value (Ochsenbauer & Ziemke-Jerrentrup, 2013).
Meynhardt’s approach is also applied by the private sector. The German stock
exchange has used the Exploring version of Meynhardt’s public value scorecard
to determine its public value (Meynhardt & von Müller, 2013; see also the brief
description of this case in Paper 1; see Meynhardt, 2015 for a description of his
public value scorecard) and the football club FC Bayern Munich has used the
concept to better understand the trade-off it faces between local rootedness and
global growth (Beringer & Bernard, 2013a; also see Paper 4 for an in-depth case
study).6
This short overview of the adoption of public value ideas in practice
shows that the concept was not received identically everywhere, but that the
adoption seems to be highly contingent on cultural and institutional factors. This
is also where Rhodes and Wanna (2007), who published the arguably most
prominent critique of the concept, target their criticism. They argue that
Moore’s concept might be appropriate for the US but that it does not fit
Westminster systems, where officials are not elected and where (two-)party
politics are predominant.
Rhodes and Wanna (2007) claim that Moore puts too much emphasis
on “managerial entrepreneurship” as opposed to “politics” and that giving such
a strong role to (unelected and supposedly neutral) public managers violates
democratic procedures. According to Alford and O’Flynn (2009), such criticism
is based on a misreading of Moore’s work. They point to the strategic triangle
and clarify that politics plays a major role there and is indeed seen as “a
legitimate limit on the public manager’s autonomy to shape what is meant by
public value” (Alford & O’Flynn, 2009: 177). It is also worth noting that Moore
6 For an overview of the practice adoption of Meynhardt’s public value concept, see the articles in Zeitschrift für Organisationsentwicklung, focal topic 04/2013, and for uses of
Meynhardt’s public value scorecard, see Table 10.3 in Meynhardt, 2015: 158 -159.
Introduction
31
acknowledges the cultural contingency of his ideas when he includes the
following disclaimer at the beginning of his theory formulation: “And it may be
that the appeal of such ideas owes more to their fit with cultural trends and
organizational aspirations of the Kennedy School than to their truth and utility
outside the cultural context in which they were developed.” (1995: 8)
Having given an overview of the major theoretical approaches in the
public value research field in public management and on the reception and
practical applications of the concept, we can now turn to the issue of (re-
)discovering society for strategic management. The neglect of societal issues in
strategic management (and the neglect of strategic issues in the business and
society field) will be presented as our major motivation for enquiring into
strategic aspects of public value management.
STRATEGY AND SOCIETY
Society as an Important Environmental Factor
Strategic management is concerned with positioning organizations in
their environment (Nag et al., 2007). In his influential book Competitive
Strategy, Michael Porter claims: “The essence of formulating competitive
strategy is relating a company to its environment” (1980: 3). He argues that “the
key aspect of the firm’s environment is the industries in which it competes”
(1980: 3). Industry-centric approaches to strategic management, for instance
Porter’s, focus on external factors such as market competition, the negotiation
power of suppliers and customers as well as threats from product substitutes and
new market entrants (Porter, 1980). Other major theoretical approaches to
strategic management emphasize organization-internal factors such as an
organization’s set of valuable resources (Barney, 1991), knowledge (Nonaka,
1994), or dynamic capabilities in adjusting the resources and knowledge to
Strategic Perspectives on Public Value
32
changes in the external environment (Teece et al., 1997) to answer the question
why some firms perform better than others.
A crucial factor that is not included in such models is organizations’
embeddedness in a range of societal subsystems. Organizational activity is at
once subjected to efficiency, instrumental performance, moral-ethical, legal,
political, and even aesthetical evaluations (Meynhardt, 2009). Especially for the
business firm, the market environment is clearly a crucial part of an
organization’s surroundings, but also quite clearly not the only one.
Business shapes society and has caused and contributed enormously to
changes in the organization of society. Think about what the Ford Model T
(introduced in 1908) did to mass mobility or what Facebook (introduced in
2004) did to communication and the very notion of “friendship.” Such
organizations and products are society-changing. Firms influence shared values
in society not only by what they produce, but also by how they act,
communicate, and market their products.7 This impact of firms on society
includes, but is not limited to, what economists call “externalities” (Papandreou,
1994; Mankiw & Taylor, 2006). Drucker (1992) used the term “new society of
organizations” to describe organizations’ disruptive effects for traditional social
structures in the knowledge society and points to the outstanding role of
managers in resolving them:
7 The FC Bayern case in this dissertation (Paper 4) is an example where what one would define as the core business – compiling a team of football players and letting them compete
in national and international tournaments – only represents a (small) part of the
organization’s impact on societal values. An insight from the case is that immaterial public
values such as “Societal fair play” or “Community through polarization” depend on which
values the organization stands for publicly and how these are communicated . To mention
another example: a recent commentary in the New York Times about Volkswagen’s Dieselgate scandal also points to the public value damage as the actual major damage that
was done: “But the matter is not just about jobs, market share or corporate and bureaucratic
reputations. The scandal captures Germany at a moment when it has been trying to hold on to values it always saw as defining, but that have become increasingly difficult to maintain as it
becomes drawn into the messy problems of Europe and the world” (Smale , 2015).
Introduction
33
… the tension created by the community’s need for stability
and the organization’s need to destabilize; the relationship
between individual and organization and the
responsibilities of one to another; the tension that arises
from the organization’s need for autonomy and society’s
stake in the Common Good; the rising demand for socially
responsible organizations; the tension between specialists
with specialized knowledge and performance as a team. All
of these will be central concerns, especially in the
developed world, for years to come. They will not be
resolved by pronunciamento or philosophy or legislation.
They will be resolved where they originate: in the
individual organization and in the manager’s office.
Drucker, 1992: 96
As the examples indicate and Drucker’s quote underlines, organizations
can disrupt social structures. Nevertheless, the relationship runs both ways. As
much as societal structures can be vulnerable to corporate actions, firms are
dependent on a “license to operate” (Nielsen, 2013) from society. This includes
“hard” factors such as regulation as well as “soft” factors such as a firm’s
perceived legitimacy (Suchman, 1995) or reputation (Fombrun, 1996). Pfarrer et
al. (2010) point to the still underresearched effects of such “social approval
assets.” Micklethwait and Wooldridge remind us that “[t]o keep on doing
business, the modern company still needs a franchise from society, and the
terms of that franchise still matter enormously” (2003: 186). They are explicit
about corporations’ continued dependence on favorable societal operating
conditions when they claim that “[t]he problems in the future may stem less
from what companies do to society than from what society does to companies”
(2003: 190). Evidently, social approval of business activity is an important asset
which can decisively shape the strategic environment.
Strategic Perspectives on Public Value
34
Two Research Communities that Barely Talk
Walsh et al. (2003) point out that the original mission statement of the
Academy of Management declares management scholarship to be committed to
the advancement of both the economic and social objectives of society. As the
discussion above shows, social issues and “social approval assets” are central to
business success and it seems logical to say that every organization, be it a firm,
a public administration or a non-governmental organization (NGO), is
intertwined with the society around it as any organizational action, including
economic action, is embedded in a broader social context (Granovetter, 1985).
Yet, such thinking has not been of central interest to research in management
recently. As Walsh et al. (2003) put it:
The public interest – as distinct from the private interests
of capital and labor – holds a tenuous place in
management scholarship; the social objectives of society
have not received equal attention in our work.
Walsh et al., 2003: 860
“Business and society” (Schwartz & Carroll, 2008) has developed as a
subfield that deals with the role of business and society under such terms as
“corporate social responsibility” (Carroll, 1991, 1999), “business ethics” (Crane
& Matten, 2007) or “stakeholder management” (Freeman, 1984; Freeman et al.,
2004). Stakeholder theory assumes that several individuals and groups have an
interest (“a stake”) in a firm, and this has to be taken into account in managerial
decision-making. The stakeholder view is frequently contrasted with a
shareholder value orientation (Freeman, 1984; Sundaram & Inkpen, 2004). In
the discussion section below, we identify the need for further research on public
value and stakeholder theory, as the stakeholder concept is very popular in the
business and society field (Schwartz & Carroll, 2008) and as stakeholder issues
feature in different papers of the dissertation.
Introduction
35
The mentioned approaches from the business and society field see
themselves in opposition to mainstream management scholarship and are
located “at the periphery” of the research community (Walsh et al., 2003).
Walsh et al. (2003) therefore argue that there is not enough interaction and
communication between “mainstream” management scholars and scholars that
work in the business and society field. The latter often focus their work solely
on negative effects (e.g., working conditions in developing countries) and fringe
activities (e.g., corporate volunteering).
However, firms are value-creating and productive social systems
(Ulrich, 1968) that can have disruptive effects on the organization of society that
extend beyond the issues that are commonly associated with corporate social
responsibility, business ethics, or sustainability. A theoretical approach to
grasping their role in society from a strategic perspective needs to do justice to
their value-creating core. The aforementioned approaches from the business and
society field are therefore not suitable candidates for furthering our
understanding of a societal dimension in strategic management. We outlined
that the major strategic management theories neglect societal issues. In contrast,
this paragraph showed that the major business and society theories lack a
strategic perspective that is aligned with firms’ core business. We therefore
formulate a need to identify a theory that is able to deal with organizations’
societal embeddedness from a strategic vantage point.
Porter and Kramer on Strategy and Society and Creating Shared Value
In a similar vein, in their article Strategy and Society: The Link
Between Competitive Advantage and Corporate Social Responsibility, Michael
Porter and Mark Kramer (2006) argue that companies’ efforts to be more
socially responsible are unproductive because they are detached from strategic
considerations. They call for an increased awareness of the reality that business
and society are dependent on each other and provide ideas around how to
identify “social issues” stemming from “inside-out” as well as “outside-in”
Strategic Perspectives on Public Value
36
linkages. They map these linkages on Porter’s classic models of the Value Chain
and the Five Forces Framework. One might argue that their description of
bilateral business and society linkages is rather mechanistic, overly focused on
material economic aspects, and does not do justice to the systemic nature of
social embeddedness (see Paper 5 on embeddedness and value co-creation).
Nevertheless, Porter and Kramer’s bottom line, that societal issues in business
ought to be treated as strategic issues (and vice versa) is very much within the
spirit of this dissertation’s argument and underlines the need for a theoretical
approach to tackle these issues.
With their Creating Shared Value concept, Porter and Kramer (2011)
provide an approach which is supposed to move societal issues from the “social
responsibility periphery” to the center of strategic management attention.
According to Porter and Kramer (2011), companies should look for
opportunities where they can create economic value and value for society
simultaneously. Companies can tap this potential by exploring new markets at
the bottom of the pyramid, by making their processes more efficient in a way
that also reduces externalities, and by fostering productive clusters of suppliers
that benefit both the company and the suppliers. Leaders of major multinational
corporations responded enthusiastically to the concept (Paul Polman of Unilever
repeatedly committed in public to doubling the company’s shared value creation
and Nestlé publishes an annual report on Creating Shared Value).
Nevertheless, the concept also spurred debate (Strathoff, 2013),
attracted ardent criticism from established scholars in the business and society
field focused on its supposed unoriginality and neglect of trade-offs (Crane et
al., 2014), and was even ridiculed in The Economist’s Schumpeter column
(2011) as “a bit undercooked.”
Introduction
37
EXTENDING PUBLIC VALUE TO OTHER SECTORS
We have identified the need for a theoretical approach to grasp
organizations’ societal embeddedness from a strategic perspective. In this
dissertation, we attempt to deal with the need of incorporating a societal
dimension into strategic management by employing the public value concept to
management issues of public as well as private sector organizations.
In this paragraph, we demonstrate with three lines of argument why a
theory transfer from public to private sector management is appropriate. First,
we draw on Bozeman’s theory of dimensional publicness, which posits that
publicness is a property of government as well as business organizations.
Second, we describe Selznick’s argument about the value-infused nature of
institutions, which applies to all types of large organizations – public and
private. Third, we present an empirical argument about the increased blurring of
sectors, resulting from privatizations and social demands being increasingly
addressed at business organizations, subjecting the latter to the rulings of the
court of public opinion.
All Organizations are Public
Building on his critique of market failure approaches to define the
public sector’s tasks and responsibilities, Barry Bozeman argues that
organizations are not either public or private, but can be more or less public,
depending on “the degree of political authority constraints and endowments
affecting the institution” (2007: 8). This dimensional publicness approach
acknowledges that there are fundamental differences between private sector and
governmental organizations.
Both types can be more or less public and in some instances private
sector business organizations might be more public than particular government
organizations (Bozeman, 2007). This is captured in the title of Bozeman’s 2004
Strategic Perspectives on Public Value
38
book All Organizations are Public. We also observe a blurring of sectors, where
business and government organizations are becoming increasingly similar in
their approach to management, visibility to the public as well as tasks to
perform (Bozeman, 2004). Thus, we do not view publicness as a feature that is
exclusive to government sector organizations, but as a gradual property of all
types of organizations. It therefore seems sensible to employ the public value
approach to strategic management – which is built around the idea that
organizations have a public role that needs to be managed – to private sector
business firms as well.
The Value-Laden Nature of Institutions
A second argument for the applicability of the public value concept to
other sectors’ strategic issues (especially in the business sector) can be made by
drawing on Selznick’s (1957, 1992) work on institutions. Philip Selznick, a
communitarian sociologist and philosopher, sees institutions as shapers of social
collectives because they give normative order and are valued by individuals due
to their particular place in a social system. He explains that institutions are more
than rational instruments to fulfill particular tasks, but are places for the
realization of values. This converges in his famous dictum that “‘to
institutionalize’ is to infuse with value beyond the technical requirements of the
task at hand” (1957: 17 [emphasis in original]).
For Selznick, organizations become institutions when they develop
their own culture with coherent values and become an integral part of the
surrounding community. Selznick underlines that all sorts of large and durable
organizations carry features of institutions, as they all develop self-defining
values to a certain degree. The fact that for Selznick all large organizations carry
institutional features, or in his words are “vehicles for meaningful, self-
affirming participation” (1992: 243), makes us confident that in the realm of
values a concept from public management might well be applied to business
management issues.
Introduction
39
Selznick (1992) also argues that it is a misconception of the business
enterprise to see it as an instrumental and fully rational economic system to be
organized around a profit-maximization doctrine. Corporations are in fact social
as well as economic institutions. From this assertion flows a notion of corporate
responsibility that is closely linked to a corporation’s behavior in its core
business. In Selznick’s words: “Philanthropy is morally proper and legally
permissible, but it is not at the center of moral responsibility” (1992: 350).
This position underlines the need for viewing societal issues from a
strategic perspective that is closely aligned with the core business of the
corporation. This need represents the central motivation of this dissertation’s
attempt to approach strategic issues from a public value perspective. Selznick
explicitly connects management and the long-term survival of corporations to
public interest ideas when he states that “[i]n the large complex corporation,
what constitutes such a long-run benefit is most likely to be obvious. It requires
an assessment more akin to defining the public interest than to any tight
managerial logic” (1992: 350). The institutional properties of corporations –
being value-infused vehicles for individuals’ meaningful participation – increase
our confidence to apply the public value concept to strategic management issues
in the private sector.
Blurring Sector Boundaries and the Court of Public Opinion
Our third argument for the applicability of public value for private
sector management issues is empirical: we observe a blurring of sector
boundaries which results in some public sector organizations becoming more
like businesses, and vice versa. A driver of this development is the wave of
privatizations of infrastructure and former government services that started in
the UK in the 1980s. Several services considered to be in the public interest
have since been contracted out and are delivered by the private sector
(Micklethwait & Wooldridge, 2003). At the same time, business has
dramatically increased its financial and organizational capacities relative to
Strategic Perspectives on Public Value
40
government. Therefore, demands for solving public problems are increasingly
directed at the private sector (Moore & Khagram, 2004).
Consequently, societies have found a lot of ways to call business to
account which do not involve governmental action. Think of NGOs’ powerful
naming and shaming campaigns or journalists’ power in shaping the reputation
of large corporations. Moore calls this the court of public opinion, which he
defines as “an interested public composed of many different kinds of social
actors who seek to impose external accountability on large, powerful
organizations” (2014b: 633). The focus, clearly, is on “organizations”, which
encompasses the private and public as well as the non-profit sector. Moore
(2014b) explains that this assertion calls for a legitimacy perspective where the
appropriateness of an organization’s behavior is determined by public judgment
(Yankelovich, 1991), as opposed to a limited group of self-proclaimed
accountability agents (Moore’s notorious “three kooks and a fax machine”).
Further, Moore and Khagram (2004) underline that societal issues – even
though quite often not included in business strategy – are de facto taken
seriously by firms, as evidenced by the existence of dedicated public affairs,
CSR, or community relations departments. Moore and Khagram (2004) see this
as evidence for the applicability of Moore’s strategic triangle to private sector
management in general and of the importance of the legitimacy and support
perspective in particular.
Taking all three arguments – Bozeman’s All Organizations are Public,
Selznick’s value-laden nature of institutions, and Moore’s blurring sector
boundaries – into account, we are confident in applying Meynhardt’s public
value concept, which has its roots in the public management literature (see
above), to strategic management issues in both the public and private sector.
Introduction
41
PUBLIC VALUE IS WHAT THE PUBLIC VALUES
Assuming a public value perspective on strategic management implies
that we give a huge role to the public’s judgements about organizations’
contribution to the common good. As Talbot (2006: 7) put it: “Public value is
what the public values". Following the logic of Meynhardt’s (2009) public value
theory, outlined above, public value is always the result of an evaluation process
where the public evaluates whether organizational action contributes to the
common good.
A major theoretical contribution of Meynhardt’s (2009) psychology-
based theory is to “move” the public inside. This is evident in his definition:
“The ‘public’ – psychologically speaking – is an individually formed abstraction
generated on the basis of experiences made in daily practices, analytical insight,
and all sorts of projections as to complex phenomena” (Meynhardt, 2009: 205).
Meynhardt (2009) underlines that such a mental conception of “a whole” is
necessary in complex societies, where it is simply impossible to identify and
manage all stakeholders. Values and the public as a mental conception of the
social collective are then vehicles for the individual to make sense of the
environment. This dissertation subscribes to this definition of public value, as is
evident in the conceptual discussions on value creation (Paper 1) and valuing
dynamics (Paper 5) as well as the methodological choices in the qualitative
(Paper 4) and quantitative (Papers 2 and 3) empirical papers.
Despite the theoretical focus on (individual) psychological processes of
valuing and seeing the public as a mental conception (and public value as a
resource for the individual), public value is essentially a theory about what
society as a whole regards as valuable and how organizations can contribute to
this common good. In this view, which makes the perspective more “macro”,
Strategic Perspectives on Public Value
42
the evaluating subject is the public, whereas the evaluated object is the common
good, respectively the contribution of organizations to the common good.8
This leads to two sets of questions: First, we will discuss how a
“public” can come into being. This includes questions about processes of public
deliberation and the emergence of a “public opinion”. Second, we have to ask
how the common good can be defined and measured. This includes a discussion
of how organizations contribute to the common good. The two questions can
also be understood as touching on a process (calling a public into existence9)
and an outcome (common good) dimension. Moore (2014a) proposes a similar
dimensionality in his “degress of publicness” framework. He distinguishes
between “arbiters of value” and “valued objects”, which can both be more or
less public. For Moore, the “most public” question to ask when valuing social
conditions is: “How do we citizens want to use the powers of government to
create a good and just society?” (2014a: 468)
For analytical reasons we will keep both questions – about calling a
public into existence and about defining the common good – separate. These are
both major questions of philosophy and political theory and it is certainly not
this introductory chapter’s intention to contribute to answering them. Yet, it will
be useful to outline some thoughts which will help the reader to understand how
this dissertation’s results and discussions around the societal perspective in
strategic management relate to broader questions.
8 In this sense, the “public” in Meynhardt’s (2009) theory has a dual role. As outlined, it
refers to individuals’ mental conception of community and society. In this sense, it can be
seen as the evaluated object. Through the idea that evaluations are made by a public
composed of more than one individual, the public also assumes the role of the evaluating subject. Interestingly, Moore (2014a) adopts a similar structure, where an increasing “degree
of publicness” is derived from both “the arbiters of value” as well as the “valued objects.” 9 The term “call into existence a public” was actually coined by Dewey (1927). Moore (1995, with Fung, 2012) frequently uses the expression when referring to what he calls “political
management.”
Introduction
43
CALLING A PUBLIC INTO EXISTENCE
The first question asks how a collective (that is more than a mere
“collection” of individuals) comes into being. Put differently: how can
individuals come together and decide what they as a whole regard as valuable?
This concerns emergent properties of valuations, where the sum is not only
more than, but also different from the addition of the parts.
The Rawlsian Veil of Ignorance – Public Through Ignorance
In his opus magnum A Theory of Justice (1971), the political
philosopher John Rawls proposed one (hypothetical) way of organizing such
processes. Rawls is concerned with deriving principles on which the institutions
of a just society could be built.10 Following a contractarian tradition of
reasoning, Rawls proposes the thought experiment of an original position, in
which the individuals to form a society come together and deliberate about the
principles on which their society’s institutions ought to be built.
The decisive feature of this original position is the veil of ignorance,
which Rawls defines as a situation in which the parties “do not know how the
various alternatives will affect their own particular case and they are obliged to
evaluate principles solely on the basis of general considerations” (1971: 136-
137). Rawls argues that “a conception of justice is to be the public basis of the
terms of social cooperation” (1971: 142). In a way, the Rawlsian approach
constitutes the creation of a public through ignorance. It is implicitly based on a
conception of humans being narrowly self-interested and only being able to
think in terms of the public interest once their knowledge about their position in
society is erased, respectively hidden behind the veil of ignorance.
10 Here, we focus on the process that drives the Rawlsian thought experiment and not on the
outcome. There has been a fair amount of criticism of the two principles at which Rawls
arrives and also on the importance he attributes to institutions (as opposed to actual human behavior). See Amartya Sen’s The Idea of Justice (2009) for a comprehensive (and
appreciative) criticism of Rawls’ approach.
Strategic Perspectives on Public Value
44
Moore’s Political Marketplace – Public Through Representative
Democracy
Moore (1995) refers to the Rawlsian conception in terms of
philosophical foundations. Yet, he also provides ideas about how public
deliberation processes take place in reality and how they fit into his public value
approach. Moore starts his discussion of public deliberation processes by putting
a problem on the table: Whereas the fact that people are willing to pay for
private sector products indicates that they regard them as valuable, such an
indication is not available for (most of) the public sector’s products because the
latter’s production is funded by (coercive) taxation.
Moore argues that despite the absence of an economic marketplace, it is
in the political marketplace that resources are made available for the public
sector. He acknowledges that representative democracy is not perfect for calling
a public into existence that can articulate which public values ought to be
produced. Nevertheless, Moore points out that the “processes of representative
democracy come as close as we now can to creating the conditions under which
individuals can voluntarily assemble and decide collectively what they would
like to achieve together […]” (1995: 30). Moore and Fung (2012) argue that
political management cannot rely on elections and formal representative
mechanisms alone, but that public managers have to engage in consultative
processes to build legitimacy for their actions. However, “delegating” public
engagement to the representative political process is only an option for public
sector organizations (and limited to democratically organized polities).
Public Opinion and Judgment as an Emergent Phenomenon
Another way of thinking about how a public can come into being that is
more than the mere sum of the individuals is to focus our attention on the public
opinion. We then do not need to devise thought experiments where individuals
are taken away (part of) their knowledge or rely on processes that are only
Introduction
45
applicable in particular contexts. Public opinion is a case in point for a public
coming into existence that is different from the sum of the individuals: Public
opinion can be relatively stable and seemingly independent from particular
individuals who change their mind. Yet, the general “mood” can also change in
ways that cannot simply be explained by a large number of individuals having
adjusted their opinion.
Yankelovich (1991) sees public opinion as a value-laden form of
knowledge. He is confident about the public opinion and argues that experts
have gained too much influence on policy-making, which is erroneously seen as
a predominantly technical exercise. He clarifies that what he calls “public
judgment” is much more stable than what is commonly understood by the
volatile “public opinion”.11 Yankelovich is explicit that in the domain of values,
public judgment deserves more attention than seemingly rational expert opinion:
One can readily see that the dominance of instrumental
rationality as a world view is ill-suited to the domain of
human concerns – the everyday world of human bonds,
beliefs, and feelings, in which love, loyalty, politics, family
relations, and friendship shape a moral life. That is the
domain of public judgment, the domain of values.
Yankelovich, 1991: 186
The emergence of public judgment as a collective perspective out of
individual evaluations can be understood by employing the principles of
synergetics after the physicist Hermann Haken (1984, 1993). Synergetics entails
a circular process of bottom-up “emergence” and top-down “enslavement.”
11 Interestingly, in this respect, Yankelovich’s (1991) conception of public judgment comes
very close to Bozeman’s (2007) delineation of “public opinion” and “public values.”
Bozeman points out that “the distinction is one of temporal duration. Whereas public opinion is highly volatile, both in its concerns and in its directions, public values are much more
stable.” (2007: 14)
Strategic Perspectives on Public Value
46
Paper 5 includes a detailed description of synergetics and how it can be applied
to value co-creation processes in service ecosystems.
Synergetics is a formal theory about the behavior of self-organizing
systems. The theory is independent from any particular social scientific
discipline (and its underlying assumptions). This makes it an appropriate
formalized apparatus to study the link between micro- and macro-levels in
general (Meynhardt, 2004) as well as the link between individual perceptions
and evaluations and public judgment in particular. Viewing the question of how
to call a public into existence from a synergetics perspective is therefore less a
programmatic call to start participatory processes or a “how to” for deliberative
exercises. Instead, it is an attempt to better understand and structure the
systemic properties of such processes.
Introduction
47
THE COMMON GOOD AS A SYSTEMIC PROPERTY
Meynhardt’s (2009) public value approach clearly locates the ontology
of contributions to the common good (i.e. public value) in individual cognitive-
emotional processes. In this view, public value cannot be created without
individual appraisal. There is no such thing as “objective” public value creation
that has just not yet been “discovered.” From this follows that there is no such
thing as a common good that can be defined objectively by relating to some
broader system (religion, ideology, or presumed expertise). It is tempting to
argue that from this theoretical provision follows a view of the common good as
the mere sum of preference satisfaction for self-interested individuals.12
Meynhardt and Gomez (2015a) argue that the common good can neither be
defined as the sum of individual interests being satisfied nor as an “objective”
macro-property which can be defined without taking individuals into account.
Instead, they propose a functional definition of the common good. In
their view, the common good is a mechanism in large groups without which
sociality is not possible. They explain that a functioning society needs an idea of
the common good, which links the individual to the collective. By adding a
psychology of needs perspective to the common good discourse, Meynhardt and
Gomez (2015a) confront the collective common good level with the human
condition and relate it to each other.
Such a definition of the common good resonates with Selznick’s (1992)
discussion of the term. Selznick rejects Bentham’s crude utilitarian view of the
common good and advocates a more systemic perspective, which takes into
12 This view of the common good is narrow in two ways: First, it limits human motivation to
a notion of “interest,” which seems overly rationalist and calculating. Second, it assumes that
the overall state of a social system can be understood by adding up its parts and thereby neglects systemic properties. Complexity research shows that systems can behave in ways
that are not at all predictable by observing the behavior of the parts (Holland, 2014).
Strategic Perspectives on Public Value
48
account that individuals are embedded in a social collective which is “real” in
individuals’ experience as they derive value from it13:
We may well agree that groups are composed of individual
persons and that the well-being of persons is the final
criterion of morality and utility. This does not, however,
settle what constitutes well-being or what it depends on.
Personal well-being requires moral competence, which
includes loyalty, trust, and other group-centered virtues,
and it depends on group participation, nurture, and
support. Therefore, from the standpoint of the individual
the community is hardly ‘a fictitious body.’ Both the
opportunities it offers and the constraints it imposes have a
vivid reality.
Selznick, 1992: 53614
In this view, the common good is a property of social collectives that
cannot be limited to the satisfaction of individual interests (or preferences, as
economists would say). This does not mean that the common good is something
abstract that can be defined or “found” without taking the individual into
account. It is again Selznick who puts the idea in a nutshell: “The alternative [to
a focus on individuated satisfaction P.S.] is to think of the common good as
more profoundly systemic, not reducible to individual interests or attributes, yet
testable by its contribution to personal well-being” (1992: 537 [emphases in
original]).
Meynhardt’s public value approach, which is the theoretical
perspective of this dissertation, subscribes to this communitarian (and
functional) understanding of the common good. Whereas Selznick’s focus is on
13 It is based on an understanding of the individual being dependent on a social collective to
flourish (even for the development of an – individual – identity), that Meynhardt claims: No
freedom without common good - Ohne Gemeinwohl keine Freiheit (Meynhardt, 2014). 14 The term “a fictitious body” is put in quotation marks in Selznick’s original text, as he is
referring to Bentham’s use of the term.
Introduction
49
political philosophy and social theory, Meynhardt emphasizes the contribution
of organizations to the common good and the managerial consequences thereof.
This dissertation is firmly embedded in Meynhardt’s public value perspective
and aims to make a contribution by relating public value ideas to different issues
of strategic management.
THE GEMEINWOHLATLAS – PUBLIC VALUE ATLAS
This dissertation is one result of a unique research project – The
GemeinwohlAtlas (Public Value Atlas). For the GemeinwohlAtlas, a public was
called into existence by having representative samples of the Swiss and German
populations evaluate major organizations’ contribution to the common good, i.e.
their public value. The collected data is presented online in an accessible way to
allow discussions about organizations’ contribution to the common good and
their role in a functioning society (see www.gemeinwohl.ch and
www.gemeinwohlatlas.de). Besides this important function for public debate,
the GemeinwohlAtlas also represents a unique dataset on public value creation
and related variables. Papers 2 and 3 of this dissertation are based on data
collected in the first Swiss GemeinwohlAtlas survey in 2014. More detailed
information on the process of data collection, determining samples of
organizations as well as respondents, and the measurement scales chosen are
included in the respective papers.
The idea of the GemeinwohlAtlas is in line with Meynhardt’s public
value theory, because a public (evaluating subject) is created (by having a
sample of the population take the online survey and by presenting the results
publicly) to evaluate how major organizations contribute to the common good
(evaluated object). Meynhardt and Gomez (2015a) underline that one has to ask
individuals about their evaluations when they state: “What else could serve as
the thermometer for the state of society?”
Strategic Perspectives on Public Value
50
Having given an overview of public value theory and its theoretical
context as well as of the GemeinwohlAtlas as the dissertation’s main source of
data, we now proceed to a synopsis of the five papers.
TABLE 1:
Overview of the five papers
No. Title Author(s) Type Conference Presentation Publication
1 The VBA Model and Public Value:
Filling the Value Gap
Pepe Strathoff Conceptual Association of Business in
Society Doctoral Summer
School 2013, Academy of
Management Annual Meeting
2014
Business and
Professional
Ethics Journal
33(4)
2 Public Value Commons: Evidence
from the Swiss Banking Industry
Timo Meynhardt, Pepe
Strathoff, & Steven A.
Brieger
Quantitative - tbd
3 Public Value and Happiness:
Evidence from Public
Administration in Switzerland
Timo Meynhardt, Pepe
Strathoff, & Steven A.
Brieger
Quantitative International Symposium on
Public Sector Management 2015,
Academy of Management
Annual Meeting 2015
tbd
4 FC Bayern Munich: Creating
Public Value Between Local
Embeddedness and Global Growth
Timo Meynhardt, Pepe
Strathoff, Lorenz Beringer,
& Sebastian Bernard
Qualitative - The Case Centre
Teaching Case
5 Systemic Principles of Value Co-
Creation: Synergetics of Value and
Service Ecosystems
Timo Meynhardt, Jennifer
D. Chandler, & Pepe
Strathoff
Conceptual Academy of Management
Annual Meeting 2014
Journal of
Business Research
69(8)
Strategic Perspectives on Public Value
52
OVERVIEW OF PAPERS
Table 1 gives an overview of the five papers that compose this
dissertation. They provide five different yet theoretically connected perspectives
on issues of strategic management and society. Figure 1 illustrates the structure
of the dissertation.
FIGURE 1:
Structure of the Dissertation
The three empirical papers at the core of the dissertation deal with three
phenomena – industry patterns, performance measurement, and growth – that
are central to strategic management from a public value perspective. They are
framed by two conceptual papers which discuss public value in relation to other
Paper 1The VBA Model and Public Value:
Filling the Value Gap
Paper 5Systemic Principles of Value Co-Creation:
Synergetics of Value and Service Ecosystems
Paper 2
Public Value Commons:
Evidence fromthe Swiss Banking Industry
Paper 3
Public Value and Happiness: Evidence from
Public Administration in Switzerland
Paper 4
FC Bayern Munich: Creating
Public Value Between LocalEmbeddedness
and Global Growth
Introduction
53
business and society paradigms and public value as an emergent order parameter
from a value co-creation perspective.15
Paper 1:
The VBA Model and Public Value: Filling the Value Gap
The central idea of the first paper, which is a conceptual piece, is to
discuss the predominant understanding of value creation in the business and
society field and to present public value thinking as an approach to extend the
notion of business’s value creation for society. The paper draws on Schwartz
and Carroll’s (2008) value balance accountability (VBA) model. This model
identifies value creation as an essential element of the business and society field.
The paper critically evaluates Schwartz and Carroll’s (2008) value notion and
proposes Meynhardt’s (2009) public value approach as a way of tackling the
identified gaps.
Public value enables a holistic capturing of value creation for society,
as it takes multiple dimensions of value creation into account and is not limited
to material and instrumental aspects. It also adds specificity, as due to its
anchoring in psychological basic human needs it has a microfoundation (Barney
& Felin, 2013) and a stable basis to derive its claims, providing a quasi-ontology
(Meynhardt & Gomez, 2015b). The paper includes a short discussion of how the
insertion of public value into a combined public value-balance-accountability
model changes the understanding of accountability and requires a broader
notion of accountability, including heightened value awareness (Gomez &
Meynhardt, 2012).
15 Note that in line with the cumulative format of this dissertation, all five papers are
included in the dissertation following the format guidelines of the respective (target)
publication outlets. However, some layout adjustments were made to enhance readability and presentation. This introductory chapter follows the Academy of Management Journal’s style
and citation guidelines.
Strategic Perspectives on Public Value
54
Earlier versions of this single-authored paper were presented at the
2013 Doctoral Summer School of the Academy of Business in Society in
Lüneburg and at the 74th Annual Meeting 2014 of the Academy of Management
in Philadelphia. The paper was published in 2015 in a special issue of the
Business & Professional Ethics Journal.
Paper 2:
Public Value Commons: Evidence from the Swiss Banking Industry
The second paper deals with industry patterns in public value creation.
Competitive dynamics in industries are a classic research topic in the strategic
management field and Porter (1980) has prominently claimed that the industry a
firm competes in is the most important environmental factor. Paper 2 is
empirical, and based on data from the first Swiss GemeinwohlAtlas of 2014. We
take the banking industry subset of this dataset to show the effect of the industry
public value and of respondents’ familiarity with a particular firm on that firm’s
public value. We find that both variables have a significant influence on public
value: The better (worse) one’s public value evaluation of the banking industry,
the better (worse) one’s evaluation of individual banks. Also, the more familiar
respondents are with a particular bank, the better they evaluate that bank’s
public value. The influence of industry public value is particularly strong for the
major private banks (UBS and Credit Suisse) and is not weakened even if the
respondent is more familiar with the bank.
The paper contributes to the public value literature as the first study on
industry patterns in public value creation. It makes a theoretical contribution by
analyzing parallels and differences between public value (Meynhardt, 2009) and
the seemingly similar construct of organizational reputation (Fombrun &
Shanley, 1990; Lange et al., 2011). An important implication for practice based
Introduction
55
on the findings is that cooperative approaches to manage public value at the
industry level are more promising than firm-level competitive approaches.
The paper is written in co-authorship with Timo Meynhardt and Steven
A. Brieger.
Paper 3:
Public Value and Happiness: Evidence from Public Administration in
Switzerland
Paper 3 is also empirical, and based on data from the Swiss
GemeinwohlAtlas of 2014. It attempts to connect the field of happiness research
in economics (cf. Frey & Stutzer, 2002), where institutions have been found to
be an important factor in explaining people’s life satisfaction, with research in
the public administration field that investigates the broader impact of public
organizations on society (i.e. public value, Meynhardt, 2009). With data from
the GemeinwohlAtlas we can (partly) reconstruct the standard happiness model
(cf. Frey & Stutzer, 2002) with individual-level variables such as age, sex,
income, and marital status. To this model, we add an individual’s public value
evaluation of the public administration in Switzerland. We find that the public
value evaluation of public administration indeed has a positive influence on life
satisfaction (happiness). We also show that the extended model fits the data
significantly better than the standard happiness model.
Both happiness and public value are subjective measures of quality of
life and public sector performance, respectively. We have included a discussion
on the need for future research that takes “objective” measures of public sector
performance (Schachter, 2010; Behn, 2014) and their impact on life satisfaction
into account. We conclude that the findings emphasize an underlying key idea
of the public value research program: rediscovering public administration as a
positive force for society at large.
Strategic Perspectives on Public Value
56
The paper is co-authored by Timo Meynhardt and Steven A. Brieger. It
was presented in an earlier version at the 15th International Symposium on
Public Sector Management in Hamburg in 2015 and at the 75th Annual Meeting
of the Academy of Management in Vancouver in 2015.
Paper 4:
FC Bayern Munich: Creating Public Value Between Local Embeddedness
and Global Growth
The fourth paper is a case study on the football club FC Bayern
Munich. It deals with a phenomenon central to strategic management – growth.
The case study depicts how FC Bayern Munich – a small organization by
objective measures; a society-maker by its actual impact – dealt with tensions
arising from its rapid global growth by employing the public value scorecard in
its Exploring version (Meynhardt, 2015). The case is not written as a case study
in the methodological sense (cf. Yin, 2009), but as a teaching case that recounts
how the club management became aware of tensions and how these were
mapped and analyzed by means of the public value scorecard. These tensions
included the European Championship 2012 in Poland and (then dictatorial)
Ukraine as well as the introduction of access control in parts of the club
stadium. The case is based on qualitative empirical research on the public value
of FC Bayern Munich that was carried out by Lorenz Beringer and Sebastian
Bernard (Beringer & Bernard, 2013a; 2013b). It also demonstrates how an
organization deals with ambidextrous challenges (Birkinshaw & Gupta, 2013),
in this case the trade-off between local rootedness and global ambitions.
The paper is co-authored by Timo Meynhardt, Lorenz Beringer, and
Sebastian Bernard. It is available in the collection of The Case Centre
(document no. 215-131-1) with a corresponding teaching note (document no.
215-131-8).
Introduction
57
Paper 5:
Systemic Principles of Value Co-Creation: Synergetics of Value and Service
Ecosystems
Paper 5 is a conceptual piece on systemic dynamics in service
ecosystems. The paper assumes a service dominant-logic (SD-logic) perspective
(Vargo & Lusch, 2004) with a focus on service ecosystems (Lusch & Vargo,
2014). It is argued that the understanding of value co-creation in service
ecosystems can be furthered by employing a systemic perspective, where value
is seen as a systemic property. We propose to employ synergetics (cf. Haken,
1984, 1993) with its core principles of emergence and enslavement to unravel
the complexities of the systemic interplay between individual value (micro-
level) and collective value (macro-level). Accordingly, we introduce nine
systemic principles of value co-creation (cf. Ebeling & Feistel, 1994) and
illustrate these with vignettes from the failed market introduction of New Coke
in the 1980s. The paper thereby contributes to a better understanding of the
interplay between customer value and public value. The assumed perspective
can contribute to making sense of changed control parameters (increasing
embeddedness, acceleration, and moralization of markets) and their impact on
service ecosystems in future research.
The paper is written in co-authorship with Timo Meynhardt and
Jennifer D. Chandler. An earlier version of the manuscript was presented at the
74th Annual Meeting of the Academy of Management in Philadelphia in 2014.
The paper was published in 2016 in a special issue of the Journal of Business
Research.
Strategic Perspectives on Public Value
58
DISCUSSION
This section discusses overarching implications and the potential for
future research of the dissertation as a whole. Each paper (excluding the FC
Bayern case study) has a discussion section with research and practice
implications of the paper’s findings in the respective discourses. This section is
therefore deliberately kept short and focuses on implications that came up
throughout and on overall implications that stem from taking a strategic public
value perspective on the role of organizations in society. Figure 2 gives an
overview of the implications of regarding public value management as a
strategic issue.
We do not include a section on limitations, as these are discussed in
detail in the respective papers pertaining to the relevant methodological
approach. We should note, however, that the papers in this dissertation take
different approaches (conceptual, quantitative-empirical, and qualitative-
empirical), complementing each other and balancing the respective
methodological weaknesses.
FIGURE 2:
Overview of implications
Bridge business & society-
strategy gap
Public value is a strategic issue
Public value perspective on
strategic issues
Public value to be handled as a
strategic topic
• PV regards societal issues
from a descriptive and
pragmatic angle
• PV anchors societal role in
core business
• Critique of stakeholder theory
• Industry competition
(Paper 2)
• Performance measurement
(Paper 3)
• Growth and ambidexterity
(Paper 4)
• Topic deserves top-
management attention
• „Diagonal“ topic not limited
to particular function or
product
• Does justice to complexity of
societal role
Introduction
59
Implications for Theory
One theme that consistently comes up in the various papers in this
dissertation is the relationship between public value and stakeholder theory
(Freeman, 1984). Stakeholders are all the individuals or groups that have an
interest (“a stake”) in the organization. Stakeholder value, then, is the sum of the
value that a firm creates for all its stakeholders. This view assumes that value
for a particular stakeholder is created when that person or group’s (self-
interested) preferences are satisfied.
The dissertation deals with stakeholder theory in different papers:
Paper 1 distinguishes between public value and other theories in the business
and society field, one of them being stakeholder theory. A crucial difference is
the public value concept’s holistic and specific value definition. The comparison
of organizational reputation and public value in Paper 2 carves out the role of
the evaluator as a core difference between the two concepts. We found that the
evaluator is in a citizen role when it comes to public value and in a stakeholder
position when making judgments about organizational reputation. The data
analysis for Paper 4 revealed that different (stakeholder) groups associate
similar public values with FC Bayern Munich. This observation points to
societal value creation not being dependent on a particular stakeholder position,
but cutting through such group affiliations.
Stakeholder theory has been very influential and has been the subject of
major debates in the business and society field (Schwartz & Carroll, 2008).
Walsh has criticized stakeholder theory for not being theoretically precise,
stating that “the stakeholder arena is filled with contest and controversy” (2005:
435). Winn (2001) points to the hard to handle complexity that is associated
with weighing the interests of different stakeholders.
From a public value perspective, there is another challenge to
stakeholder theory: positionality. Stakeholder theory assumes that value creation
is fully dependent on the (material) position of an individual or group vis-à-vis
Strategic Perspectives on Public Value
60
the organization. In essence, this is what defines a stakeholder role. Sen (2009:
155-156) describes the problem with positional judgments when he asserts that
“[w]hat we can see is not independent of where we stand in relation to what we
are trying to see. And this in turn can influence our beliefs, understanding and
decisions.” As outlined in the description of Meynhardt’s public value approach
and the “Public Value is what the Public Values” section, public value theory
assumes that individuals are to some extent capable of evaluating what is good
for society, in other words what contributes to the common good. Such
evaluations entail an abstraction from one’s own parochial interests and
position.16 This is not to say that public value judgments are entirely positionally
independent. Being capable of thinking in terms of a public is not dependent on
a Rawlsian veil of ignorance, where all information on an individual’s position
in society is erased. In a similar vein, Sen warns that “the hope of proceeding
smoothly from positional views to an ultimate ‘view from nowhere’ cannot hope
to succeed fully” (2009: 169).
Public value judgments are individuals’ overall evaluation of an
organization’s contribution to the common good. Such evaluations are
influenced by individual experiences with the organization (e.g., as customer,
product user, or employee) as well as an overall evaluation of the organization’s
value for society (stemming for instance from word of mouth, media reports,
organizational image as well as personal intuition). It therefore seems
appropriate to assume that individuals are at once stakeholders (positional) and
citizens (non-positional) and adopt a systemic conception of value creation that
does justice to this.
16 This is also the rationale behind Moore’s distinction between customers/clients and citizens: “[I]t is important to distinguish the evaluation that citizens and their representatives
give to governmental activities from the evaluation that would be given by clients. [...] The
ultimate consumer of government operations is not the individuals who are served or obliged in individual encounters (the clients of the enterprise) but citizens and their representatives in
government who have more general ideas” (1995: 37-38 [emphasis in original]).
Introduction
61
Such a systemic and holistic conception of value creation resembles
what Selznick (1992) calls a functional theory of corporate social responsibility.
He states that “[r]ather than ask what groups have a claim, we ask what values
should be protected and enhanced. [...] Responsibility runs to the social
function, not to a constituency” (1992: 351).
Further theory-building conceptual research on public value and
stakeholder theory should analyze to what extent stakeholder evaluations and
public value evaluations meet the requirements of objectivity (Nagel, 1986) or
positional objectivity (Sen, 2009). Based on this, a more empirical endeavor on
the relationship between the two constructs could be launched and tackle
research questions such as: What is the influence of stakeholder group
affiliations on public value evaluations? Is there a way of aggregating
stakeholder value creation to obtain a useful proxy for public value creation? Do
public value and stakeholder value share similar antecedents?
Another potential avenue for further research concerns the formulation
of a public value-based theory of the firm. Micklethwait and Wooldridge (2003)
point out that two recurrent themes shaped companies in the past and will
continue doing so: First, the balance between organizational hierarchy costs and
market transaction costs determines whether companies make sense from an
economic perspective. Second, firms need an – implicit or explicit – license to
operate from society, which can take different forms. The public value research
program, of which this dissertation is one part, developed some ideas for
answering the second question. From a public value perspective one might
argue that the two questions are not that distinct and that it is somewhat limited
to explain the existence of firms by economic factors only.
Coase’s (1937) theory, which predicts that firms emerge when the costs
of organizing processes based on the division of labor are lower in an
organizational setting (hierarchy costs) than in a market setting where the
individual actors involved in the value creation process buy and sell their
Strategic Perspectives on Public Value
62
intermediary products (transaction costs), certainly has a lot of explanatory
power. Nonetheless, a different perspective – towards a public value-based
theory of the firm – might open up avenues for understanding the existence and
shape of firms (and other organizations) with an emphasis on their social
function. This undoubtedly ambitious theoretical endeavor could complement
existing approaches to explaining the existence of firms.
These two areas – the relationship of public value with stakeholder
theory and the development of a public value-based theory of the firm – promise
a lot of potential for the continuation of the public value research program.
Implications for Practice
The papers show that public value management issues permeate
conventional management functions. The analogy with organizational reputation
(Paper 2) points to public value as a general management issue. The dissertation
shows that public value aspects apply to performance management (Paper 3),
communication management (Paper 4), growth management (Paper 4) as well as
service-oriented marketing (Paper 5).
The fact that public value questions cut through conventional functions
and permeate classical top management team roles – which tend to be defined
either hierarchically in terms of products or geographic divisions (vertical) or
functionally (horizontal) – calls for the creation of a topic-specific (diagonal)
role that deals with public value. Such topic-specific (Type 3) top management
roles have lately been observed for a number of issues, for instance “Chief
Digitalization Officer” or “Chief Strategy Officer” (Menz, 2014). Consequently,
we propose the creation of a “Chief Public Value Officer” role, especially in
organizations that have an exposed public role which they need to manage
actively. Examples of such organizations include football clubs (see Paper 4),
media companies, and basically all organizations which are in “the public eye”
due to their scale and scope.
Introduction
63
The creation of a dedicated managerial role on board level would
certainly give the topic a lot of clout and top management attention. Where such
an arrangement is not (yet) feasible or desired, public value issues should
nevertheless not be assigned to the corporate social responsibility or public
affairs department. Our results indicate that public value is a strategic issue that
must be handled by an organization’s top management or by the strategy
department.
We demonstrated that public value considerations are relevant in
several areas. Public value should therefore not be dealt with on a project basis
as a “nice to have add-on,” but should be incorporated in existing management
systems and tools. A public value scorecard analysis (Meynhardt, 2015) can for
instance be made a standard step in M&A due diligence processes (see Müller et
al. 2013), in the development of new marketing campaigns and products (see
Paper 5), or in the evaluation of strategic initiatives (see Paper 4). Public value
is, however, not always manageable on an individual firm level. Paper 2
indicates that public value commons need to be managed cooperatively on an
industry level. Thus, existing institutions, such as industry associations and
alliances, can play an important role and create value for their members and
society alike.
CONCLUSION
We can conclude that it is promising to see the social function of
management and organizations from a (public) value creation perspective. This
vantage point enables us to break out of a trade-off logic that juxtaposes
“business” and “social” logic. On the contrary, a public value perspective does
justice to the conception of organizations as social systems (“institutions”) that
are firmly embedded in their societal environment and need to be managed
accordingly. Shifting the strategic management focus to public value creation is
also more helpful, as it links organizations’ societal role to value creation in
Strategic Perspectives on Public Value
64
their core business and sees managers – public and private alike – as value
creators for society, offering them a positive and meaningful function.
All this being said, public value research has come a long way. What
started as a somewhat obscure public management approach that initially
gathered dust on library shelves is evolving as an interdisciplinary research
program on society-oriented strategic management in both the public and the
private sector. In the end, we can assert that there is such a thing as society that
matters in strategic management and that organizations – whether public or
private – can be and should be part of the solution to society’s most pressing
challenges.
Introduction
65
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77
PAPER 1:
THE VBA MODEL AND PUBLIC VALUE: FILLING THE
VALUE GAP
Pepe Strathoff
February 2015
Abstract
The basic idea of the conceptual paper is to discuss the notion of value
creation in the business and society field and to present the public value concept
as a way of extending the understanding of business’s value creation for society.
First, the paper draws on the value balance accountability (VBA) model by
Schwartz and Carroll, in which value creation is identified as a central element
in the business and society field. Second, based on this, we critically evaluate
the VBA model’s value notion, which appears to be relatively vague and
narrow. Third, in order to tackle these gaps, we present Meynhardt’s public
value approach, which provides an extended notion of value creation. We
further propose a combined public value-balance-accountability-framework.
Public value fills the framework’s value dimension with actual content and
provides a microfoundation. It helps to overcome the separation fallacy. The
combined framework contributes to both theory and practice in the business and
society field.
Publication: Business and Professional Ethics Journal, 33(4): 297-319.
Strategic Perspectives on Public Value
78
INTRODUCTION
The role of business in society has recently been one of the major
issues in public and academic debates. Movements such as Occupy Wall Street
and public calls for tighter banking regulation are just two examples of instances
in which business’s role has been called into question. At the same time, The
Economist sees a megatrend in the redefinition of business’s role “[f]rom profit
to purpose” (The Economist, 26.11.2012), while the renowned strategists
Michael Porter and Mark Kramer state that firms should assume leadership for
bridging the divide between business and society (Porter and Kramer 2011).
Consequently, the relationship between business and society and the value that
business creates for society is an important issue for managers and scholars, as
well as for society as a whole.
This paper specifically addresses the questions of how scholars can
conceptualize the value that business creates for society. In their review of the
most prevalent approaches in the business and society field, Schwartz and
Carroll (2008) identified value creation for society as a core category in
different approaches, such as corporate social responsibility (CSR), stakeholder
management, and corporate citizenship.
In this paper, we argue that, by employing the public value approach,
which Moore (1995) coined originally and which Meynhardt (2009) developed
further, it is possible to innovatively conceptualize business’s value for society.
Public value emerged in the public sector and describes how, by shaping
individuals’ experience of the social collective along different dimensions, an
organization contributes to society. Public value theory complements existing
approaches in the business and society field. The approach provides a
microfoundation for its claims at the individual level (cf. Aguinis and Glavas
2012; Morgeson et al. 2013) and helps overcome the separation fallacy (cf.
Freeman 1994; Harris and Freeman 2008; Parmar et al. 2010). Consequently,
Paper 1: The VBA Model and Public Value
79
this paper’s contribution consists in offering an extended notion of value
creation for the business and society field in the form of public value theory. In
doing so, we build on Schwartz and Carroll’s (2008) study, in which they
systematically review the business and society literature, and identify value
creation as a core element that appears consistently in the literature’s different
streams. We point out that, by including public value as the outcome dimension,
it would be possible to develop their value balance accountability (VBA) model
further.
In order to gain an overview of the existing literature in the business
and society field, we draw on the VBA framework—an especially coherent
approach—that Schwartz and Carroll (2008) proposed. Reviewing the
approaches in the business and society field that Schwartz and Carroll (2008)
regard as dominant, we first find that most authors focus on business practices’
negative consequences and do not conceptualize business’s contribution to
society holistically. Nevertheless, regarding business as an essential and
embedded part of society in a Druckerian (1942/2002; 1973) sense, requires a
deeper and more holistic understanding of how business creates (and destroys)
value for society. Second, most approaches run into problems when it comes to
substantiating their claims regarding the responsibilities that businesses have or
do not have. In respect of filling these gaps, a more precise definition of the
value dimension in the VBA framework is an interesting point of departure.
The remainder of this text is structured as follows: First, we provide an
overview of business and society scholarship, which we base on Schwartz and
Carroll’s (2008) article. Based on this overview, second, we describe the VBA
model and critically discuss the value definition that Schwartz and Carroll
(2008) provide. Third, we position public value as a complement to business
and society scholarship, explain the concept’s roots and theoretical assumptions,
and discuss how it can help us better understand and conceptualize the value
that business creates for society. Further, we point out the effect that including
public value in the VBA model would have on the balance and accountability
Strategic Perspectives on Public Value
80
dimensions. In the end, we discuss the limitations and criticism of the proposed
public value-balance-accountability model, discuss its contribution to academic
thinking and managerial practice, and derive a conclusion.
Figure 1 provides an overview of the VBA model and shows where we
contribute by introducing public value. The five vertical columns represent the
five streams that Schwartz and Carroll (2008) identify as dominant in the
business and society field. The darker horizontal bars represent the VBA
model’s three dimensions: value, balance, and accountability. This article’s core
contribution is, however, our proposal of the public value approach as a
complement to the VBA model.
FIGURE 1
Public value in the VBA model
Paper 1: The VBA Model and Public Value
81
BUSINESS AND SOCIETY: SO CLOSE AND YET SO FAR
There are many different approaches to defining business’s role and
responsibilities in society. Carroll describes the business and society literature as
“an eclectic field with loose boundaries, multiple memberships and differing
training/ perspectives” (1994, 14). Windsor points to the need to find some form
of overarching approach when he makes clear that different approaches in the
business and society field do not share a common paradigm (2001). Freeman
(2000) states that, in the field, there is a deep divide and disconnect between
normative work, based on applied philosophy, and more descriptive, often
empirical, approaches.
Nevertheless, different attempts have been made to systemize the field.
For example, Garriga and Melé (2004) divide different theories into four
groups: instrumental theories, political theories, integrative theories, and ethical
theories. They base their classification on the assumption that most approaches
focus on certain aspects of social reality, such as economics or politics. Matten
and Moon (2008) distinguish between “implicit” and “explicit” CSR. Their
approach is aimed at explaining empirical differences in the implementation of
CSR practices in different cultural settings. Aguinis and Glavas (2012), who
conduct an extensive literature review and classify existing research according
to its level of analysis, suggest yet another approach. They distinguish between
contributions on an institutional, organizational, and individual level. In
addition, they find that there is a lack of microfoundations at the level of
individuals. Several other scholars have also systematically reviewed the
literature in the field (see Hansen 2010, 9 for an overview).
In this paper, we follow the approach of Schwartz and Carroll (2008),
who include a broad range of perspectives and provide a detailed account of
how they derived their VBA framework from the classification of approaches.
They claim that the different approaches can be collapsed into five major
streams of thought, namely corporate social responsibility, business ethics,
Strategic Perspectives on Public Value
82
stakeholder management, sustainability, and corporate citizenship. In this
framework, CSR is just one stream in the business and society literature. It is
important to note, however, that some authors (e.g. Porter and Kramer 2006) use
the term to describe the entire business and society field. Based on Schwartz and
Carroll (2008), our following selective literature review provides a brief
description of the different streams. The referenced contributions epitomize the
respective streams’ foundations, authors who have introduced a differentiation
in different sub-streams, as well as important controversies, all of which
delineate the core aspects of each stream. Schwartz and Carroll (2008) adopt a
similar approach, but go into much more detail (cf. 156–165 of their article).
CSR is the most prominent approach and has also received widespread
attention from practitioners (Lee 2008). The CSR debate dates back to Bowen’s
seminal book in which he asks: “What responsibility to society will
businessmen reasonably be expected to assume?” (1953, xi). In his Pyramid of
Corporate Social Responsibility article (1991), Archie Carroll distinguishes
between corporate responsibilities on the philanthropic, ethical, legal, and
economic levels, thus providing an answer to Bowen’s question and making a
major contribution to the field. All CSR theories have their conceptualizing of
corporations’ role in society in terms of responsibility in common. Wheeler et
al. (2003) argue that most CSR approaches focus on business activity’s negative
externalities. This focus on negative social impacts is also where most criticism
of CSR is targeted at (see e.g. Porter and Kramer 2006; 2011; Davis 2005).
Business ethics is another stream in the business and society field that
is so close to CSR that certain authors have proposed to subordinate one concept
to the other (De George 1987; Joyner and Payne 2002). However, here, we
follow Schwartz and Carroll (2008), who regard CSR as a distinct stream.
Business ethics is a normative approach that uses concepts from moral
philosophy and applies them to a business context (Freeman 2000).
Accordingly, Goodpaster defines business ethics as “the study of business action
Paper 1: The VBA Model and Public Value
83
– individual or corporate – with special attention to its moral adequacy” (1997,
51). According to Schwartz and Carroll (2008), utilitarian and deontological
arguments are dominant in business ethics thinking.
Stakeholder management is the third relevant approach in the business
and society field. This stream of thought goes back to the book Strategic
Management:A Stakeholder Approach by Edward Freeman (1984). Stakeholder
theory argues that a firm’s management cannot focus solely on its shareholders’
interests but needs to take into account the consequences of its actions in respect
of all groups with a stake in the firm (Freeman 1984). In his review of
stakeholder theory, Walsh (2005) points out that the stakeholder arena is filled
with contest and controversy, and does not provide an alternative to the
neoclassical theory of the firm, but complements it by shedding light on its blind
spots. Schwartz and Carroll (2008) distinguish between “broad” versions of
stakeholder theory, in which everyone in some form of relationship with a firm
is considered a stakeholder, and “narrow” versions, in which only those groups
who are necessary for a firm’s survival are considered stakeholders. This aspect
also draws criticism: Stakeholder theory is basically a good idea, but it is hard to
draw the line between who should be a stakeholder and who should not, and
how the different stakeholders’ potentially diverging claims should be
prioritized.
The fourth stream, sustainability, focuses on the long-term
consequences of business activities, often emphasizing ecological factors. The
1972 book The Limits to Growth by Meadows et al., written under the auspices
of the Club of Rome, was a groundbreaking work, leading to the issue of how an
exponentially growing world population and economy interact with the world’s
finite resources being put on the agenda. The World Commission on
Environment and Development’s book Our Common Future, known as
Brundtland Report, subsequently introduced this issue to the corporate level.
Elkington, who has made a major and widely received contribution with his
triple bottom line (people, planet, profit), claims that sustainability “is the
Strategic Perspectives on Public Value
84
emerging 21st century business paradigm” (1999, 20). Other authors focus on
business opportunities that arise when business model innovation is directed
towards sustainability (Schaltegger et al. 2012). Schwartz and Carroll argue that
sustainability underemphasizes ethical aspects and does not address legal issues
(2008).
Fifth and finally, the corporate citizenship concept deserves our
attention. Corporate citizenship draws an analogy between an individual citizen
with rights and obligations and a firm’s status in society. Matten et al. (2005)
distinguish between three definitions of the concept: 1) In a limited view,
corporate citizenship mainly describes a firm’s philanthropic and community
engagement. 2) In an equivalent view, corporate citizenship is more or less a
synonym for CSR. 3) In an extended view, corporate citizenship includes
political connotations, such as a firm’s involvement in the making and
implementing of laws. Carroll (1998) subscribes to the second view, seeing
corporate citizenship as a new framing for CSR and also attributing his CSR
pyramid’s four dimensions to the construct. The above enumeration points to
the major challenge to corporate citizenship approaches: The concept is
relatively vague and not sufficiently distinguished from CSR (Schwartz and
Carroll 2008).
SCHWARTZ AND CARROL’S VBA MODEL: THREE
LETTERS SAY IT ALL
The brief description of the different streams has shown that there is
considerable overlap, which causes confusion and differentiation problems.
Nonetheless, the streams certainly have different foci, areas in which they
position themselves, and are particularly prevalent, such as sustainability when
it comes to business in its natural environment. Schwartz and Carroll (2008)
argue that by carving out the essential features of each stream, one can discover
Paper 1: The VBA Model and Public Value
85
three core concepts, or dimensions, that appear consistently and cut across all
frameworks. These concepts are: value, balance, and accountability. Carroll and
Shabana (2010, 86) maintain that these three concepts represent “key,
underlying themes.” In the following, we take a brief look at all three concepts
or dimensions. Owing to this paper’s focus on value creation for society, we will
examine the value dimension in more detail than the others.
According to Schwartz and Carroll, the “generation of value” is the
“fundamental element underlying the entire business and society field” (2008,
168). They make a strong argument for the creation of value being a central
element in each of the five above-mentioned frameworks, and validate this with
quotes from authors of all five streams of thought (cf. 168–169). However,
given the importance they attribute to the concept, their definition of value
remains both vague and narrow: “Value is primarily created when business
meets society’s needs by producing goods and services in an efficient manner
while avoiding unnecessary negative externalities” (ibid., 168). The definition is
vague as neither “society’s needs” nor “unnecessary negative externalities” are
further specified. It also remains unclear how to measure value and what they
actually understand by “value.” This vagueness stems from the lack of a value
creation microfoundation in Schwartz and Carroll’s framework.
Simultaneously, the definition is narrow, as it is very focused on
business activity’s instrumental and material aspects, i.e. the efficient
production of goods and services, but ignores other important value dimensions,
such as a firm’s impact on the quality of public life or on social cohesion. This
focus on instrumental aspects is also evident in the authors’ claim that Wal-Mart
is “arguably generating net value for society through employment and more
affordable consumer goods” (ibid., 176). The definition is also caught in what
Freeman would call the separation fallacy, as doing business efficiently
(business side) is opposed to the avoidance of negative externalities (moral
side). However, in itself, the conduct of business is never value-free and
influences societal values beyond questions of material needs fulfillment and
Strategic Perspectives on Public Value
86
efficiency. Freeman, Wicks, and Parmar make clear that theories which
distinguish between an economic dimension on the one hand and values on the
other hand arrive at an overly narrow perspective “that cannot possibly do
justice to the panoply of human activity that is value creation” (2004, 364). One
might even argue that the separation fallacy prevents some of the streams in the
business and society field from focusing on value creation as their central idea.
Schwartz and Carroll also clarify that the creation of value for society
is their framework’s outcome dimension. In a later section, we will argue that
“filling” Schwartz and Carroll’s value dimension with the public value concept
can provide this outcome component with a microfoundation, thereby making
the VBA model an even more convincing meta concept for the business and
society field. Wheeler et al. (2003) state that the creation of value is the most
important motivator of all business activity and emphasize the “importance of
acknowledging multiple perspectives in defining ‘value.’” They explain that the
“process of defining and creating value is fundamentally pluralistic and
iterative” (15). In a similar vein, focusing on Carroll’s (1991) pyramid
framework, Meynhardt and Gomez (2014) show that CSR lacks an explicit
framework to link business’s postulated responsibilities to values held in
society. In other words, a psychological microfoundation (Barney and Felin
2013) is needed. Aguinis and Glavas (2012) have called for such
microfoundation of CSR research at the level of individuals. In the section in
which we describe Meynhardt’s (2009) value notion, we also discuss how
public value contributes to a microfoundation that links the individual to the
collective level, without assuming that simply adding up individual-level factors
explains collective phenomena (cf. Barney and Felin 2013).
The second dimension of the VBA framework is balance. In this
context, balance refers to appropriately taking all the stakeholders’ interests and
needs into account and finding a balance between different moral standards.
Schwartz and Carroll point out that “balance is the process component of the
VBA framework” (2008, 170; emphasis in original).
Paper 1: The VBA Model and Public Value
87
Third, accountability forms the framework’s principles dimension.
Accountability means that actors accept responsibility for their actions and the
public can hold them accountable, because sufficient information is available.
Therefore, transparency is an important condition for accountability (Schwartz
and Carroll 2008).
The business and society literature refers to the VBA framework as a
systematic literature review (Hahn et al. 2010; Hansen 2010), a clarification of
existing constructs concerning CSR (Castelló and Lozano 2010), a
demonstration of the diversity of the streams in the field (Néron 2010), and an
attempt to reframe the field (Antal and Sobczak 2013). However, there is not
much constructive debate on the model’s strengths and weaknesses and how it
could be developed further. This paper contributes to closing this gap.
PUBLIC VALUE: FILLING THE VALUE GAP
This paper’s key idea is the inclusion of public value in the VBA
framework in order to develop the model further and address some of the
concerns about the employed value definition. In the following, we introduce
Meynhardt’s public value concept. We start with the concept’s roots in public
administration, carry on to its positioning in value philosophy, and describe
how, on the basis of basic needs theory, it is possible to derive public value
dimensions. Further, we use an example – the Deutsche Börse AG (the German
stock exchange) – to describe how public value can holistically capture
organizations’ value creation for society.
Strategic Perspectives on Public Value
88
PUBLIC SECTOR ORIGINS AND TRANSFER TO
PRIVATE FIRMS
In 1995, Mark Moore’s book Creating Public Value—Strategic
Management in Government coined the term “public value” as a frame for
thinking about organizations’ contribution to society (cf. Bryson et al. 2014).
Moore was the first to understand public value as an outcome variable of
managerial action in the public sector, or as a measure of organizational
performance. Public value enables public managers to understand their role and
manage their activities in terms of creating value for society (Moore 1995). The
public value concept gained prominence in the early 2000s, when it was “the
talk of Westminster,” because think tanks close to Britain’s Blair government
adopted it (Crabtree 2004).
How does this debate on value creation by public agencies contribute to
the business and society field? As outlined above, Schwartz and Carroll’s value
definition can be criticized, because it is simultaneously too vague and too
narrow, caught in the separation fallacy and in need of a microfoundation. The
public value concept seems to be a promising candidate to tackle these
weaknesses, which requires applying a public administration concept to private
firms. Meynhardt supports this transfer and states that:
In my view a more general theory of PV [public value]
should not be restricted to public administration. . . . Since
any organizational action is always subjected to
heterogeneous “external” evaluation and changing
expectations in pluralist societies, there is always a
feedback from and to society. With or without formal
obligations one cannot but influence public values.
(Meynhardt 2009, 193)
This statement expresses a Druckerian sense of organizations being
embedded in society, and therefore impacting on and receiving feedback from
Paper 1: The VBA Model and Public Value
89
society. According to Moore and Khagram (2004), the power of private firms
has increased relative to that of government due to their accumulation of
financial and organizational resources. Therefore, political and social actors are
increasingly directing demands about the production of social goods towards
private corporations which nowadays have to actively develop legitimacy and a
license to operate from the public. Hence, in this case, it might make sense to
transfer theory from public administration research to the role of private sector
firms in society.
In their attempt to reconstruct Archie Carroll’s famous pyramid,
Meynhardt and Gomez (2014) suggest a distinct approach to link the public
value approach to the business and society debate. They draw on Garriga and
Melé’s (2008) classification of CSR theories, who distinguish between
stakeholder theory, shareholder value theory, corporate citizenship theory, and
corporate social responsibility, and link them to Meynhardt’s four public value
dimensions (2009; see description below). Meynhardt and Gomez (2014) argue
that “no CSR theory captures the full roundedness of human nature,” that there
is no “further room for a fifth CSR theory, except one which tries to integrate
the others,” and that the approaches should not be regarded as alternatives, but
rather as equally important complements. Their reasoning does not contradict
this paper’s argument, but goes hand in hand with it, as Meynhardt and Gomez
refer to specific streams of thought, while this paper deals with the overarching
dimensions as suggested by Carroll and Schwartz (2008). However, this paper
argues that it is not reconstruction work that is needed but rather the inclusion of
an extended value definition – public value – on a meta-level.
VALUE IS LOCATED IN RELATIONSHIPS
Public value can complement the VBA framework, because it is both
specific and holistic, and anchors the notion of “value” as well as the notion of
“public” in cognitive processes. Most importantly, the concept offers a clear
Strategic Perspectives on Public Value
90
definition of value (for more details, cf. Meynhardt 2009; Forthcoming).
Meynhardt (2009) returns to value philosophy and discusses the opposing
strands of value objectivists – who view value as a characteristic of an object –
and value subjectivists – for whom value is bound to subjective evaluations.
Drawing on Heyde, he takes a middle ground and places value between an
evaluating subject and the evaluated object—“value is in the relationship”
(Heyde 1926, 77, in Meynhardt 2009, 198, translation by Meynhardt). Value,
then, cannot be ascribed as a property of a certain object, but is always the result
of some evaluation process involving an evaluator. Despite this value relativist
notion, a certain objectivity can arise when a number of individuals share
comparable evaluations. In this understanding, any value (public or private) is
located in relationships and value creation always requires an evaluating
subject’s positive evaluation.
Public value is therefore value that comes into being when the object of
evaluation is the public as an individually formed mental representation of
community and society (Meynhardt 2009). According to Meynhardt, “[t]he
‘public’ – psychologically speaking – is an individually formed abstraction
generated on the basis of experiences… And any other sociological definition is
only relevant for action if it is reflected on the psychological level” (2009, 204).
Public value is created (or destroyed) when an organization’s actions positively
(or negatively) affect the relationship between an individual and the public. A
positive or negative impact on that relationship has to be reflected in peoples’
perception, otherwise no public value creation takes place (Meynhardt 2009,
Forthcoming).
Moore underlines that “managers must satisfy some kinds of desires
and operate in accord with some kinds of perceptions” (1995, 52). This
statement points to values being the result of psychological and emotionally-
laden evaluation processes. Value does not exist per se, but has to be reflected in
perception and desirability on an individual level.
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91
According to Schwartz and Carroll (2008), ultimately, most claims
about business’s role in society rely on some form of normative reasoning about
what is valuable. The underlying ideas – such as the preservation of the planet
or solidarity – are derived from huge and abstract thought constructs and
describe outcomes on a macro level. Anchoring value creation in evaluation
processes, as described above, contributes to the field’s microfoundation.
Meynhardt (Forthcoming) also describes how these values can achieve some
degree of objectivity when different individuals share them, leading to the
emergence of values as collective properties that link the individual to the
collective level. Thereby, he contributes to a microfoundation that explicitly
takes emergent collective phenomena into account and goes beyond a simple
additive aggregation (Barney and Felin 2013).
BASIC NEEDS AS YARDSTICKS OF VALUATION
So far we have outlined the basing of public value in evaluation
relationships and the consequential focus on perception and desirability.
However, we still need to explain on which basis individual evaluations are
made. Basic needs theory provides insights into what individuals ultimately find
desirable and on what they base their evaluations. The idea behind this is
simple: Every time a basic need is fulfilled, people have positive and pleasant
feelings and, hence, value is created (Meynhardt 2009). According to
Meynhardt and Gomez: “Our basic premise is that any contribution of an
organization with consequences for its societal environment is regarded as
impacting the fulfillment of basic human needs” (2014). Linking CSR to basic
human needs is not an entirely new idea. Tuzzolino and Armandi (1981) have
attempted to derive CSR dimensions from Maslow’s hierarchy of needs model.
They propose that organizations – just like human beings – have certain needs.
This leads them to the statement that human needs theory is “a useful
framework for conceptualizing the organization in its emerging socially
Strategic Perspectives on Public Value
92
responsible role” (1981, 22). Melé states that a “good normative theory needs a
good philosophical foundation, which has to include a correct view of human
nature, business, and society, and the relationship between business and society”
(2008, 76). Linking the creation of value for society to the fulfillment of basic
needs also contributes to a corporate responsibility microfoundation at the
individual level, for which there has recently been a call (Aguinis and Glavas
2012). The anchoring of social responsibility in basic human needs by including
Meynhardt’s (2009) value notion in the VBA model (Schwartz and Carroll
2008) is this paper’s core idea.
The broad field of human motivations and basic needs has been
conceptualized and structured in many different ways. Popular examples include
Maslow’s (1943) hierarchy of needs and Herzberg’s (1968) two-factor theory.
The psychologist Seymour Epstein provides a meta-analysis of existing theories
on human basic needs and finds that no hierarchy of needs can be derived
empirically. The weight given to any motive can vary between individuals and
over time (1989 in Meynhardt 2009). According to Epstein, there are four
dimensions of basic needs which Meynhardt (2009) relates to basic public value
dimensions: first, a basic need for a positive self-evaluation translates into a
moral-ethical public value dimension. Here, the focus is on the individual.
Second, the basic need to avoid pain and maximize pleasure relates to a
hedonistic-aesthetical public value dimension with an emphasis on positive
experiences. Third, the need for control over one’s environment and the
coherence of the conceptual system leads to a motivation for predicting cause
and effect relationships and can be described as a utilitarian-instrumental public
value dimension that focusses on utility. Finally, a basic need for positive
relationships with other individuals is the basis of a political-social public value
dimension. This dimension’s focus is on the group. Figure 2 provides an
overview of the four public value dimensions.
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93
PUBLIC VALUE: TOWARDS A HOLISTIC
UNDERSTANDING OF VALUE CREATION
As described above, the value dimension in the VBA framework is not
only vague, but also relatively narrow, because it reduces value creation for
society to instrumental aspects. From a public value angle, we would argue that
these fall into the instrumental-utilitarian dimension of public value. However,
based on public value research, an argument can be made for there being more
to the role of business in society than the efficient production of goods and
services with a minimum of negative externalities.
FIGURE 2
The four dimensions of public value
Note: adapted from Meynhardt 2009, p. 209
By opening up value creation to different dimensions, the public value
concept offers a more holistic concept of value creation. The example of the
Deutsche Börse AG (the German stock exchange) helps illustrate this point: A
qualitative empirical study (Meynhardt and von Müller 2013; Meynhardt
Forthcoming) assessed this organization’s public value. Interestingly, this
Strategic Perspectives on Public Value
94
organization’s value to the public is focused on, but not limited to, generating
returns for its shareholders and providing a functioning financial market
infrastructure. However, its public value goes beyond that, because the
organization also serves as a role model and identity anchor. The Deutsche
Börse AG is seen as a symbol of Frankfurt as a financial center in its own right.
Moreover, it plays an important role in the protection of investors’ rights and is
considered a “fair player” in the financial market. Owing to its prominence and
its special configuration as a for-profit organization (whose shares are listed)
with a public law mandate to provide part of Germany’s financial infrastructure,
the Deutsche Börse AG is certainly a special case regarding public value
creation. Yet, it illustrates that we do not get the full picture if we understand
value creation as a purely instrumental endeavor only concerned about
efficiency and the avoidance of negative externalities. As described above, this
is where we go beyond Schwartz and Carroll’s (2008) value notion.
The public value notion explicitly acknowledges that the role and
actions of any organization – whether a public administration, a non-
governmental organization, or a private sector firm – impact values along
different dimensions and, as described above, are subject to evaluation based on
basic needs. In doing so, public value integrates economic and moral, as well as
political and hedonic considerations. The Deutsche Börse AG example
illustrates how an organization creates public value on different dimensions and
thereby suggests that this perspective is appropriate. Whereas Schwartz and
Carroll’s (2008) value definition seems to be caught in the separation thesis,
public value acknowledges that there can be no differentiation between value-
free business logic on the one hand and normative concerns on the other hand
(cf. Harris and Freeman 2008). Therefore, public value with its focus on value
creation along different dimensions in an organization’s core business helps
overcome the separation fallacy that plagues the business and society field.
Public value advocates a holistic view, taking value creation in all four
dimensions into account and making trade-offs visible. This anchoring of value
Paper 1: The VBA Model and Public Value
95
creation in empirically derived psychological human needs eliminates the
vagueness of Schwartz and Carroll’s value concept and infuses the value
dimension with concrete content.
THE “B” AND THE “A”: HOW PUBLIC VALUE ADDS TO
THESE DIMENSIONS
As described in the last section, the public value concept mainly adds
to the VBA framework in the value dimension. However, there are also some
insights for the “balance” (“B”), as well as the “accountability” (“A”)
dimension.
Balance refers to appropriately prioritizing conflicting moral standards
and stakeholder claims. In his review of major books on stakeholder theory,
Walsh (2005) finds that even the very basic question of who should be
considered a stakeholder and who should not is not easy to answer. This issue
becomes even more complex when the claims of different – in themselves
potentially heterogeneous – stakeholder groups need to be weighed against each
other (Winn 2001). The public value approach can help solve this problem by
taking a step back and replacing a scattered landscape of conflicting stakeholder
interests with the idea of a public that exists in people’s minds as an
“operational fiction” (Meynhardt 2009, 205). At the same time, the public value
approach can contribute to balancing conflicting perspectives by looking at
different value dimensions simultaneously without assuming an a priori
hierarchy. This enables value conflicts’ resolution on a case by case basis, and
the four dimensions open up a public value landscape (see Meynhardt 2009),
which can help us to empirically and theoretically identify blind spots. Public
value also challenges the notion that, assuming a (partial) incommensurability of
values, it is at all possible to achieve a stable balance or equilibrium of different
values (Meynhardt 2009; Forthcoming).
Strategic Perspectives on Public Value
96
Public value can also add to the VBA framework’s accountability
dimension. The anchoring of public value creation in psychological basic human
needs allows organizations and researchers to create questionnaires in order to
measure public value creation (for such an empirical study on the public value
of Germany’s federal labor agency, see Meynhardt and Bartholomes 2011). This
can help hold executives accountable, especially because it enables us to
compare different organizations’ public value creation. The initial empirical
studies have shown that public value creation varies greatly between
organizations (for a public value ranking, see www.gemeinwohl.ch – in German
only). The use of public value scorecards is another approach to measuring
public value creation (Moore 2013, Meynhardt Forthcoming). Mark Moore
advocates the use of such a tool in order to hold (public) managers accountable
and to enable a public dialogue that goes beyond formal levels of accountability
and focuses on “substantive concerns about the values at stake” (2013, 169).
Schwartz and Carroll’s (2008) accountability notion is focused on information
disclosure and being able to hold actors accountable for wrongdoings.
According to Moore (1995; 2013), public value with its focus on calling public
deliberations into existence adds a notion to accountability that goes beyond the
formal ability to attribute cause and effect-type responsibility for wrongdoings.
Consequently, public value contributes to a broader understanding of
accountability in the business and society field, which we address in the
discussion below.
BRAVE NEW WORLD OF PUBLIC VALUE?: DISCUSSION
Public value seems to fill certain gaps in the business and society
debate; most notably it provides a workable and holistic value definition that is
microfounded and helps overcome the separation fallacy. This work’s key
contribution is including an innovative way of looking at how firms create value
for society into an established framework (VBA model). Nevertheless, some
Paper 1: The VBA Model and Public Value
97
qualifications are needed regarding the combined public value-balance-
accountability model (see figure 1). These mostly stem from criticism of the
initial public value approach, but need to be taken into account when discussing
a combination of the VBA model and public value:
First, linking public value to the VBA model by no means replaces
existing approaches in the field. As Schwartz and Carroll (2008) show, the five
frameworks all have their merits regarding emphasizing certain aspects of
business’s role in society. By providing a value definition that is holistic and
very open, public value adds something substantial on a meta level. This
definition does not allow us to rule out existing approaches, nor does it provide
decision-makers with clear rules on what (not) to do. It does, however, show us
that different approaches can exist side-by-side, making trade-offs visible.
Additionally, one could argue that the combined model loses its validity, as the
assumptions of the public value approach are not in line with those of the single
approaches. However, the public value approach explicitly allows different
approaches to be included and can cope with them all. Therefore, it can
complement a meta framework even if it does not share all assumptions with the
included approaches.
Second, we should nevertheless bear in mind that the proposed public
value approach is based on very specific assumptions. One central claim is that
values can be derived from favorable individual perception that is driven by the
fulfillment of basic needs (see Meynhardt 2009). In this view, “the public” is an
abstract concept that individuals hold, an operational fiction. Put differently, the
public “is what individuals perceive as the public” (Meynhardt 2009, 205;
emphasis in original). One could refute this position as psychologism and
comment that there is more to the public and to the notion of a common good
than what individuals perceive it to be. One could even argue that individuals
are not capable of thinking in terms of a public that adds quality to their life
unless there is a Rawlsian (1971) veil of ignorance that enables them to abstract
from their position in society. However, this criticism of public value implicitly
Strategic Perspectives on Public Value
98
assumes that there is some form of common good that exists apart from
individual perception. The question then arises to whom this is valuable if
individuals do not appreciate it. Discussing this criticism underscores the point
that public value is not value for the public for its own sake, but ideally serves
as a resource for individuals to live a good life in a functioning society (Drucker
1942/2002).
This paper has only touched on what the inclusion of public value
might mean for the balance and accountability dimensions. Introducing a new
outcome dimension to the framework certainly also influences the process
(balance) and principles (accountability) dimensions. In terms of conceptual
work, an interesting discussion would be the delineation of the notion of
accountability and responsibility, or the difference between a narrow and a
broad understanding of accountability. As described above, Schwartz and
Carroll’s (2008) accountability notion is focused on information disclosure and
transparency for an audience with the power to sanction corporate actions.
Providing a certain level of disclosure is seen as part of acting responsibly.
However, one might also argue that accountability is actually the broader term
that goes beyond assignments of guilt, but includes a notion of principle and
mental attitude. Such an approach might be more suitable if the model’s
outcome dimension – value – is understood in terms of public value. An
accountability notion focused on holding wrongdoers accountable (i.e. external
sanctioning power) is no longer deemed appropriate. The relativist nature of
public value and the complex dynamics at play when public value is created (cf.
Meynhardt Forthcoming, Meynhardt and von Müller 2014, Haken 1977, Haken
and Mikhailov 1993) make clear attributions of right or wrong, as well as cause
and effect, far more difficult. Therefore, public value requires a notion of
accountability that is broader and entails an attitude and commitment that foster
value creation for society, as well as a heightened value awareness (Gomez and
Meynhardt 2012). Interestingly, this brings an old debate in ethics to the fore,
namely Max Weber’s (1919) distinction between an ethic of responsibility
Paper 1: The VBA Model and Public Value
99
(Verantwortungsethik) and an ethic of conviction (Gesinnungsethik). Further
conceptual work should dig deeper here and enquire what the consequences for
moral philosophy are if we adopt an understanding of value creation such as the
one this paper proposes.
CONCLUSION
We started this paper with the assertion that the academic business and
society debate abounds with different and partly conflicting approaches. At the
same time, businesses feel an increasing need to position themselves in society
and to define the values they contribute to society. As the famous management
thinker Peter Drucker has put it: “free enterprise cannot be justified as being
good for business. It can be justified only as being good for society” (Drucker
1973, 41).
Schwartz and Carroll’s (2008) VBA model was presented as a very
comprehensive and coherent attempt to systemize the business and society field.
However, some of the model’s weaknesses, especially concerning its value
concept, have been carved out. Subsequently, it was argued that the model,
representative of the entire business and society field, could profit from refining
its value concept. The public value concept, which Moore (1995) proposed and
Meynhardt (2009) developed further, was presented as a candidate to fill this
void. Public value anchors value contributions to society in basic human needs
and assumes that value is only created when it is reflected in individual
perceptions and positive evaluations. Thereby, it adds specific content and a
microfoundation to the VBA framework’s value dimension. The anchoring in
human basic needs also provides a holistic understanding because value creation
and value destruction in different dimensions are included. Therefore,
embedding economic value in a broader notion of value creation can also help
overcome the separation fallacy present in a lot of thinking on business and
society. Overall, the revised model’s contribution consists of a well
Strategic Perspectives on Public Value
100
microfounded value notion for the business and society field and a broadening
of the accountability and balance dimensions.
The revised model opens up avenues for exciting new theorizing about
the role of business in society. This theoretical endeavor can lead to
theoretically derived hypotheses on the antecedents and consequences of public
value creation being tested empirically at a later stage of the research process.
Further, this study highlights the field’s core question: What makes business
valuable for society?
Anchoring the role of business in society in basic human needs and
individuals’ perception not only adds to theoretical thinking, but has many
important implications for practitioners as well. New questions emerge
regarding the existing tools and corporate functions that firms use to position
themselves in society, such as sustainability reports and CSR departments.
Firms need to ask themselves whether the public appreciates these efforts in
terms of public value recognition and whether they are at all valuable if the
public does not acknowledge them. Here, corporate executives and
communicators face new strategic challenges.
Taking all these aspects into consideration, we conclude that public
value is a promising candidate to resolve enduring problems and stumbling
blocks in the business and society field, especially concerning the understanding
of value.
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101
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PAPER 2:
PUBLIC VALUE COMMONS: EVIDENCE FROM THE
SWISS BANKING INDUSTRY
Timo Meynhardt, Pepe Strathoff, & Steven A. Brieger
January 2016
Abstract
Using a new and unique Swiss dataset, we investigate the relationship
between individual banks’ public value and the banking industry’s public value,
as well as the relationship between familiarity with a bank and its public value.
Empirically, we find that industry public value has a major influence on
individual firm public value and that the more familiar respondents are with
firms, the more positively they evaluate them. In addition, we find that the
strong relationship between industry and firm public value is not significantly
weakened if respondents are more familiar with a particular firm. Accordingly,
we confirm that public value is a common good within the Swiss banking
industry. In terms of theory, the paper contributes to a better understanding of
the conceptual similarities and differences between organizational reputation
and public value. Our study’s most important practical implication is that
collective approaches to managing a bank’s public value are needed at the
industry level.
Publication: tbd
Strategic Perspectives on Public Value
110
INTRODUCTION
Organizational reputation (OR) is attracting increasing attention from
management researchers in different areas. Although the concept is intuitively
appealing and seems quite straightforward, it has deep-seated complexities,
especially concerning the emergence of reputation (Lange, Lee, & Dai, 2011).
Reputation is objectively held by an organization. However, third parties create
this reputation subjectively in processes that involve cognitions and evaluations
(cf. Suchman, 1995; Lange et al., 2011). In this regard, the public value (PV)
construct appears – at first sight – to be particularly similar to organizational
reputation. An organization’s public value, while objectively held, is a result of
the public’s evaluation of an organization’s contribution to society (Meynhardt,
2009). Whereas the axiological structure of reputation and public value is
similar, the content of the evaluations differs. In the reputation literature,
particular attention has been paid to the issue of “reputation commons,” defined
as situations where the reputation of an industry is seen as a common good
shared by all firms in that particular industry with all the problems associated
with a good that is rivalrous, but non-excludable (e.g. free riding) (King, Lenox,
& Barnett, 2002). Owing to the similarities between the constructs
organizational reputation and public value, especially concerning their structural
aspects, this paper is aimed at determining whether public value has a similar
industry pattern. Our research question is therefore: How are industry and firm
public value related?
We have chosen the Swiss banking sector as our empirical setting due
to its enormous importance for the Swiss economy and society. We see this
sector as a case in point, which lends itself perfectly to study the research
question at hand.
The remainder of the paper proceeds as follows: First, we outline the
main ideas of the public value construct and discuss in depth how it relates to
Paper 2: Public Value Commons
111
organizational reputation, with a special emphasis on carving out commonalities
and differences. Based on this, we, secondly, develop our hypotheses and the
model to be tested. Third, we report our data collection and analysis methods.
Thereafter, we present our results and discuss the limitations and the
implications for research and practice. Finally, we conclude.
THEORETICAL BACKGROUND
Public value research is an emerging field (Bryson, Crosby, &
Bloomberg, 2014; 2015) originally developed in the public management field
(e.g. Moore, 1995; Meynhardt & Bartholomes, 2011). The concept is
increasingly also used in the (private sector) management literature (e.g.
Strathoff, 2015; Meynhardt, Chandler, & Strathoff, forthcoming). Public value
rankings draw widespread media attention (www.gemeinwohl.ch/atlas;
www.gemeinwohlatlas.de/atlas) and a number of firms have conducted public
value studies (e.g. Swiss insurance Mobiliar, German stock exchange operator
Deutsche Börse AG, and plastics producer Bayer Material Science – for an
overview see Meynhardt, 2015: 158-159). In the following, we first describe the
theoretical considerations of public value. In a second step, we discuss the
commonalities and the differences between the public value construct and the
organizational reputation construct.
Public Value
The public value notion is a novel way of understanding the value that
organizations create for society (Moore, 1995; Meynhardt 2009, 2015). The
notion builds on a perspective according to which every organization not only
creates economic value, but also values in a number of dimensions, i.e. public
value contributes to producing and reproducing society. Public value is based on
the Druckerian idea that every organization, whether a firm, a public
Strategic Perspectives on Public Value
112
administration, or an NGO, influences how well society functions (Drucker,
1992). Initially, public value emerged in public sector management research,
where the concept was presumed to help public managers with their strategic
decision making (Moore, 1995). According to the father of public value, Mark
Moore, “managers must satisfy some kinds of desires and operate in accord with
some kinds of perceptions” (1995: 52).
This is where Meynhardt’s (2009, with Bartholomes 2011) notion of
public value, which positions public value creation in the fulfillment of basic
human needs, becomes relevant. According to Meynhardt (2008, 2009, with
Bartholomes 2011, 2015), the public value approach explicitly takes the
culturally contingent nature of corporate responsibility (Campbell, 2007) and its
reflection in stakeholders’ and the general public’s subjective evaluations into
account.
In this view, a firm’s responsibility to society comprises creating value
for the public – public value. Organizations shape and co-create our experience
of society and social reality. Public value has been defined as “[a]ny impact on
shared experience about the quality of the relationship between the individual
and ‘society’” (Meynhardt, 2009: 212). At a deeper level, public value can, as a
regulative idea, be seen as a new way to consider notions such as the common
good, public interest, or bonum commune, in a managerial way; that is, a way
that complements a legal perspective and the operationalization of philosophical
ideas. Public value is thus:
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“…situated in relationships between the individual and
‘society,’ founded in individuals, constituted by subjective
evaluations against basic needs, activated by and realized
in emotional-motivational states, and produced and
reproduced in experience-intense practices.” (Meynhardt,
2009: 212).
We follow Meynhardt’s public value theory as a way of understanding
firms’ role in society. In this respect, we outline three main pillars of the theory,
which, in a later step of our argument, will prove important for carving out the
commonalities and the differences between the public value construct and the
reputation construct, and for developing our hypotheses.
1. Value is in the relationship. One ongoing debate about values
relates to the question regarding where value resides (Rescher, 1969). Following
the value philosopher Johannes Erich Heyde (1926), value is conceptualized as
a result of the relationship between a subject valuing an object and the valued
object. Value thus describes this subject-object relationship. In Heyde’s words,
“Value is the relationship” (1926: 77, own translation). Without a subject, there
is no value. In this sense, value is subjective. When a subject relates to an object
during the act of valuation or evaluation, value emerges. Value is “value for a
subject” (Heyde, 1926: 46f., own translation). In this view, value is always
bound to relationships and is always relative. Given this philosophical
perspective, public value is also a result of a relationship. Public value is thus a
relational concept.
2. The public is inside. The “public” part of public value also needs
explicit consideration. Public value is about the individual’s experience of a
social environment, including, but certainly not limited to, experiences with
organizations. Many different institutions may contribute to an individual’s
perception of ‘the public.’ Following Meynhardt, such a reference to the ‘whole’
(e.g. society, community, the common good, etc.) is an abstraction “generated
on the basis of experiences made in daily practices, analytical insight, and all
Strategic Perspectives on Public Value
114
sorts of projections as to complex phenomena” (2009: 204). This concept of
“public” follows Vaihinger’s idea that individuals and groups need to act ‘as if’
(Vaihinger, 1911/2008).
“This constantly (re)negotiated, tested, or invented
‘operational fiction’ forms the ‘Gestalt,’ ‘generalized
other’ (Mead 1934/1962) or ‘quasi-object’ (Latour 2000),
as the reference point for action. The ‘state,’ the ‘market,’
or the ‘society’ are emerging functional generalizations,
often necessary to arrange and interpret data or events in
a meaningful way. Following Luhmann, meaningfulness
then is ‘a self-referential attitude towards complexity’
(Luhmann 1984, p. 107, own translation).” (Meynhardt,
2009: 205).
The public is, thus, seen as a reality construction emerging at the level
of human experience – the public is inside.
3. Public value is grounded in basic needs. Since public value views
organizations’ contribution to society as the result of individual perceptions and
the ensuing evaluations, it needs to answer the question regarding which
psychological processes drive these perceptions. In other words, public value
requires a psychological microfoundation at the level of individuals. In public
value theory, four different basic needs are related to public value. Table 1
illustrates the conceptual link.
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TABLE 1
Relationship between Basic Needs and Basic Value Dimensions
Basic need for … Translation into a motivation for …
(examples)
Basic value
dimension
positive self-
evaluation
positive self-concept and self-worth
consistent relationship between self and
environment
feeling of high self-esteem (in social
comparison)
Moral-
ethical
maximizing
pleasure and
avoiding pain
positive emotions and avoidance of negative
feelings
flow experience
experience of self-efficacy due to action
Hedonistic-
aesthetical
gaining control
and coherence
over one’s
conceptual system
understanding and controlling one’s
environment
predictability of cause and effect
relationships
ability to control expectations to cause
desired outcomes
Utilitarian-
instrumental
positive
relationships
relatedness and belongingness
attachment, group identity
optimal balance between intimacy and
distance
Political-
social
Note: adapted from Meynhardt 2009: 203
Each of the four needs forms the background of public value
evaluations. Put differently, basic needs provide the psychological source for
public value to become a social reality. Once established, a public value
Strategic Perspectives on Public Value
116
functions as a resource for need fulfillment and development. For example, if a
firm is perceived to be an ethical company, this perception may serve as a
reference for the formation of an individual’s attitude to morality. Given the
broad spectrum of a person’s social experience, any specific product, service, or
corporate behavior, will potentially impact his or her generalized image of
society and the values that “really count” in a given social context.
To summarize: Public value is a construct that links an organization’s
societal impact to human experience. As such, public value is linked to
relationships between individuals and organizations, in which “images” of
society are formed and modified. As a consequence, public value only exists in
the eye of the beholder. Although it is contingent on perception (“public value is
what the public values”), public value is not arbitrary, but is firmly grounded in
basic needs. These motivational dispositions serve as reference points for
recognizing and evaluating public value. Basic needs form the psychological
sources of public value, which in turn serves as a resource for the individual to
fulfill basic needs.
Organizational Reputation
As was outlined above, public value is based on very specific
theoretical assumptions. Nevertheless, adjacent research streams, especially the
one on organizational reputation, exhibit commonalities and patterns that also
apply to public value. Therefore, in this section, we describe the organizational
reputation construct, in order to provide a basis for carving out how public value
is related to the organizational reputation concept in the subsequent section. In
their comprehensive literature review on organizational reputation, Lange et al.
(2011) warn that despite its apparent intuitive meaning and attractiveness, the
organizational reputation concept is actually quite complex. These authors
identify three prevalent understandings of organizational reputation in the
literature.
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According to certain authors, organizational reputation describes how
well known an organization is. This “being known” understanding of
organizational reputation is apparent in Shamsie’s (2003: 199) definition of
organizational reputation “as the level of awareness that the firm has been able
to develop for itself.” Interestingly, this view takes into account whether an
organization is known or not, irrespective of an observer’s evaluations or
judgements (Lange et al., 2011). A number of authors do not limit their concept
of corporate reputation to this dimension, but include it as just one dimension in
their multidimensional understanding of organizational reputation. Rindova,
Williamson, Petkova, and Sever (2005) add this familiarity dimension to a
perceived quality dimension, which represents stakeholders’ evaluation of an
organization in respect of specific attributes. Other authors argue that reputation
and prominence are actually distinct constructs. Boyd, Bergh, and Ketchen
(2010: 6) argue that: “The distinction between prominence and reputation is that
prominence refers to the degree to which an organization is visible and well
known, whereas reputation involves an assessment of being good, bad, or
somewhere in between”. Yet other authors conceptualize familiarity not as a
dimension, but see it as an important antecedent of organizational reputation. In
an experimental setting, Brooks, Highhouse, Russell, and Mohr (2003) find a
positive relation between familiarity and organizational reputation. However,
they also find that more well-known firms are evaluated more ambiguously due
to more information being available. Turban, Lau, Ngo, Chow, and Si (2001)
have shown that familiarity is positively associated with a firm’s reputation as
an attractive employer. The finding that increased exposure to an object, i.e.
familiarity, is associated with positive evaluations of that object, has also been
found to be a general psychological mechanism (Zajonc, 1968).
Another prevalent understanding of the organizational reputation
construct is what Lange et al. (2011) call “being known for something.”
Differing from the “being known” notion, this understanding of organizational
reputation explicitly entails an observer’s evaluative judgement of an
Strategic Perspectives on Public Value
118
organization that goes beyond knowing or not knowing it. Importantly, this
understanding of reputation focusses on organizations’ reputation for very
specific characteristics (Fischer & Reuber, 2007), such as the quality of their
products (Rindova et al., 2005). As this understanding of organizational
reputation focusses on certain components of an organization that are relevant to
particular stakeholder groups, it has been called the “componential perspective
on organizational reputation” (Fischer & Reuber, 2007: 57). Love and Kraatz
(2009: 317-318) see this view of corporate reputation as focused on an
organization’s “technical efficacy” in delivering tangible outputs that evaluating
audiences value, because it helps them fulfill their material needs. Accordingly,
organizations are seen “as a means to audiences’ parochial ends.” This is a
rather narrow instrumental view that limits organizational reputation to very
particular attributes identified by stakeholders with a narrowly defined self-
interest as their basis of evaluation. This view is clearly very different from the
rather holistic public value construct presented above. Therefore, the “being
known for something” perspective on corporate reputation seems less suited to
further our understanding of industry dynamics in public value creation.
A third conceptualization of corporate reputation is what Lange et al.
(2011) term “generalized favorability.” They define it as “an overall,
generalized assessment of the organization’s favorability” (2011: 159). This
understanding of reputation includes valuations of an organization by perceivers
who take multiple organization attributes into account; they do not limit their
judgements to an organization’s performance regarding meeting their parochial
interests (Fischer & Reuber, 2007). Clearly, such a more encompassing
perspective on an organization is more in line with the public value concept than
the rather narrow “being known for” perspective. Authors who subscribe to this
view of organizational reputation build on Fombrun’s classic (1996: 72)
definition of reputation as “a perceptual representation of a company’s past
actions and future prospects that describes the firm’s overall appeal to its key
constituents when compared to other leading rivals.” This definition entails two
Paper 2: Public Value Commons
119
important theoretical ideas: First, it clarifies that reputation is a relational
construct that emerges when a firm’s, or another organization’s (object of
evaluation) key constituents (evaluating subjects) evaluate it postively. In this
sense, reputation can be seen as outsiders’ “affective evaluation” of an
organization (Rhee & Valdez, 2009). Second, the definition clarifies that the
reputation construct entails a competitive aspect, with evaluations based on a
comparison of organizations and with certain organizations having a
higher/lower reputation than others.
Love and Kraatz (2009: 316) point out that “reputational assessments
are shaped by an organization’s symbolic conformism with external, socially
constructed standards and categories.” In this sense, organizational reputation
stems from an organization’s cultural fit in its given environment. This also
means that reputation is not universal and absolute, but contingent on the
cultural context. There is a complex interplay between cultural factors,
constituents’ judgement and organizational self-representation. Therefore, even
though reputation is objectively held by an organization, it is subjectively
created through cognitions and evaluations of third parties (Lange et al., 2011,
cf. Suchman, 1995).
Public Value and Organizational Reputation – Quite similar, but not quite
the same
The aim of this section is to carve out the commonalities and the
differences between organizational public value and organizational reputation.
This comparison will, in the next step, enable us to derive hypotheses on
patterns of public value creation already identified in organizational reputation
research.
Table 2 provides an overview of the commonalities and differences
between organizational public value and organizational reputation, and the
dimensions according to which we compare the two constructs.
Strategic Perspectives on Public Value
120
TABLE 2
Comparing Public Value and Organizational Reputation
Dimension Public Value Organizational
Reputation
Axiology Relational Relational
Strategic Relevance Yes Yes
Locus of Control External External
Frame of reference for
evaluations /
microfoundation
Explicit microfoundation Implicit / lacking
microfoundation
Process Dynamics Synergetic dynamics Dynamic, no system theory
Measurement unit /
baseline,
No absolute zero, not
absolute, no adding up
No absolute zero, not
absolute, no adding up –
but: inherent
competitiveness
Role of evaluator Citizen Stakeholder
Dominant logic Contribution logic to
common good, integrate
the individual with society
Logic of conduct and
meeting expectations
Axiology. Axiology is a field of value theory dealing with the inner
structure of values (evaluating subject, evaluated object, basis, and character of
evaluation). In terms of axiology, public value and organizational reputation
share an important similarity: Both are relational in the sense that they only
emerge when a perceiver judges an organization. In public value theory, the
contruct’s building on value philosophy, which sees a relational understanding
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121
of value creation as the middle ground between value subjectivist and value
objectivist positions, establishes this relationality (Heyde in Meynhardt, 2009).
Similarly, organizational reputation is the result of how a public evaluates a
firm’s activities. According to Fombrun and Shanley (1990: 234), “[p]ublics
construct reputations.” Hence, the two constructs are relational in terms of their
basic axiology, as they only emerge when a public (subject) judges an
organization (object).
Strategic relevance. Whether organizations have a high or low public
value matters to them. Case study research has shown that public value
potentials are associated with growth opportunities (Meynhardt, Strathoff,
Beringer, & Bernard, 2015), and that public value risks over time translate into
financial risks. Interestingly, a portfolio analysis has shown that firms with a
higher public value outperform those with a lower public value on the
stockmarket (Berndt, Bilolo, & Meynhardt, 2015). Creating public value can be
regarded as the raison d’être of public sector organizations (Moore, 1995), and
if they are not seen to do so, their very existence is endangered (Meynhardt &
Bartholomes, 2011). Having a high public value is therefore strategically very
relevant for organizations. In this regard, organizational reputation is no
different. Reputation has been found to be a valuable asset for firms, because it
reduces stakeholder uncertainty (Benjamin & Podolny, 1999) and enables firms
to charge price premiums (Shapiro, 1983), leading to an increased financial
performance (Roberts & Dowling, 2002). Therefore, we note that both public
value and organizational reputation are material and strategically highly relevant
assets for organizations.
Locus of control. Given the strategic importance of public value and
organizational reputation as “social approval assets” (Pfarrer, Pollock, &
Rindova, 2010: 1131), it is striking that both represent assets which
organizations cannot control. Organizations legally own (or are in a contractual
relationship with) other strategically relevant assets, such as financial means,
patents, and other production factors, which they can control. However, a high
Strategic Perspectives on Public Value
122
public value, or a favorable reputation, might be similarly important – as the
preceding paragraph showed – but an organization cannot control this, despite a
certain notion of ownership, as when we talk about “Nestlé’s public value” or
“BMW’s reputation.” The notion of organizational reputation often implies that
organizations are anthromorphized (Davies, Chun, da Silva, & Roper, 2003;
Dowling, 2001), because they are viewed as coherent and purposive entities
(Love & Kraatz, 2009) with certain character traits, such as reliability or
trustworthiness (Fombrun, 1996). We suggest giving this anthromorphization
another twist by framing the separation of public value, or organizational
reputation, ownership and control, phenomenon as an instance of an external
locus of control. This idea, which originates from personality psychology,
describes individuals’ psychological disposition to attribute the outcomes of
events in their life to external factors, and to subsequently believe that they have
less control over their fate (Rotter, 1954, 1966). This applies to organizations
which are dependent on a high public value and a favorable reputation, but feel
that they cannot control either and are dependent on the evaluating public’s
judgement. Yet, we should bear in mind that even though organizations cannot
control their public value, they can mostly at least influence it. Public value is
not a subjectivist construct limited to arbitrary individual sentiments, but is
relational in the sense that an evaluator and and evaluated object (the
organization) co-produce value. As organizations have control over most of
their actions and communications, they can at least influence the evaluated
object side (themselves). Lange et al. (2011) point out that even though
reputation is objectively held by an organization, it is subjectively created
through third party cognitions and evaluations. Consequently, we can state that
in terms of public value and organizational reputation, organizations’ locus of
control is clearly external.
Frame of reference for evaluations – microfoundation. We have
established that both public value and organizational reputation emerge through
perceivers’ judgements; a logical next question is therefore: On what are these
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judgements based and how do individuals form – consciously or unconsciously
– judgements of organizations? In other words, we have to determine the two
concepts’ microfoundation in individual cognitive processes (Barney & Felin,
2013). Meynhardt (2009) has microfounded the public value construct. He
points out that value “must show up in phenomena of emotional-motivational
states described via psychological constructs” (2009: 200). Meynhardt identifies
psychology’s basic needs research, especially Epstein’s (1989, 2003) four-
dimensional approach, as a suitable reference point for public value evaluations
and translates this dimensional structure into his four dimensions of public value
(Meynhardt, 2009). Public value obviously has a microfoundation in
psychological basic needs. In contrast, the field of organizational reputation
needs more work on the underlying cognitive processes. Reputation has been
described as “affective evaluation” (Cable & Graham, 2000: 929; Rhee &
Valdez, 2009: 146), but reputation research still has to “get inside the heads of
those whose perceptions determine reputation” (Barnett & Pollock, 2012: 13).
Consequently, as far as a clear microfoundation is concerned, the public value
literature has developed more explicit foundations than the organizational
reputation field.
Measurement unit/baseline. When refering to PV and OR, we tend to
make statements such as “organization A has a high PV,” or “the reputation of
firm A is higher than that of firm B.” We thus think about the constructs as
measured on some form of ordinal scale, which allows comparisons of which
organizations have more or less PV/OR. At the same time, statements such as
“organization X has a public value of five,” or “organization Y’s reputation is
100,” make no sense: No measurement unit is associated with either construct,
and neither of the scales has a zero point. We can, however, compare
organizations. This is frequently done in public value
(www.gemeinwohl.ch/atlas, http://www.gemeinwohlatlas.de/atlas) and
reputation (http://www.reputationinstitute.com/research/Global-RepTrak-100)
rankings. This approach to measuring and comparing corporate reputations is in
Strategic Perspectives on Public Value
124
line with Fombrun and Shanley’s (1990) understanding of reputation as the
result of a competition between firms to maximize their social status. By
signaling to managers how successful they are in this competition, reputational
rankings constitute a significant form of normative control (Fombrun &
Shanley, 1990). We see this inherently competitive aspect of corporate
reputation as another form of the construct’s relationality. Reputation is thus not
only the result of a public’s evaluation of an organization, but is always a
comparative evaluation (Iwin, 1975) of a particular organization and its
competitors. On the contrary, public value theory is more open regarding the
character of the evaluation. Certainly, comparative evaluations may be done,
which public value rankings show, but the theory is also open to absolute
judgements of a single organization’s public value. This openness to absolute
evaluations stems from the concept’s microfoundation, which allows for making
judgements of basic needs fulfillment as opposed to competitive judgements of
other firms, and also from the idea that there is no fixed amount of public value
for which firms compete, but that public value potentials are theoretically
unlimited, as organizations might always find new ways of enhancing
individuals’ experience of community and society.
Process Dynamics. The process dynamics criterion refers not only to
the process of an overall PV/OR emerging from individual evaluations, but also
to the PV’s and OR’s stability and change over time. PV’s process dynamics are
synergetic. In this sense, PV is a systemic property (an order parameter)
emerging from the interaction between and micro-macro links of individual
evaluations. As an emergent phenomenon, PV takes a qualitatively different
“gestalt” at the macro level; that is, more than – yet contingent on – individual
evaluations. In turn, as a systemic order parameter, PV influences, or even
determines, the structure and content of individual evaluations (enslavement; for
a detailed account see Meynhardt, 2015; Meynhardt et al., forthcoming).
Accordingly, PV’s stability over time depends on the strength of the order
parameter and the extent to which new developments can (de-)stabilize the
Paper 2: Public Value Commons
125
system (Ebeling & Feistel, 1994; Haken, 1977, 1984; Meynhardt et al.,
forthcoming). In contrast, OR’s process dynamics are less clear. OR’s dynamic
nature has been identified as an important feature of the construct and as a field
deserving more research attention (Lange et al., 2011; Kraatz & Love, 2006).
Kraatz and Love (2006: 344) point to a “need to study reputation dynamically,
and the specific need to examine how it is affected by various corporate
actions.” These authors provide guidelines for such studies and discuss how the
issue can be addressed in terms of methodology and multi-theory approaches in
the reputation field. However, while acknowledging OR’s dynamic nature, there
is no link to a broader formal theory of system behavior that would enable a
more systematic, theory-driven conceptualization of OR dynamics.
Role of evaluator. According to Fombrun and Shanley (1990: 235),
“reputation reflects firms’ relative success in fulfilling the expectations of
multiple stakeholders.” The individual who evaluates whether a firm has met
her or his expectations is, accordingly, in a stakeholder role. Typical stakeholder
roles include those of customers, employees, suppliers, or local communities. In
terms of judgements, these groups’ relative position to the evaluated object – the
firm – is a major determinant of reputation evaluation. In contrast, public value
sees the evaluator in the role of a citizen, who evaluates whether a firm
contributes to her or his positive experience of the social collective. The
“public” is seen as some sort of mental representation of community and society
that goes beyond the definition of a dyadic stakeholder relationship, that
permeates vested interests, and allows for a more impartial evaluation
(Meynhardt, 2009). This does not necessarily imply that public value statements
are entirely positionally independent. However, compared to reputational
evaluations, stakeholder group affiliations play a less pronounced role.
Dominant logic. Finally, we compare the two constructs’ respective
dominant logic, their implicit underlying mechanism. On the one hand,
organizational reputation follows a logic of conduct. A reputation is built when
a firm conducts itself as the evaluator expects. Accordingly, Sorenson (2014)
Strategic Perspectives on Public Value
126
states that reputation actually only matters in terms of the experience attributes
of a good or service, i.e. the attributes of a good or service that cannot be (fully)
evaluated prior to consumption, but whose quality the consumer can only judge
after consuming this good or service (e.g. the taste of a bottle of Bordeaux). On
the other hand, public value follows a logic of value creation towards the
common good (Meynhardt, 2008). Public value describes the mediating role of
organizations by connecting the individual to the social collective. Public value
emerges through individual evaluations (as is also acknowledged in the
methodological approach chosen in this research). However, on a higher level,
public value also describes organizations’ value creation towards the common
good. In this sense, public value follows a Druckerian (1973) logic of
contribution.
PUBLIC VALUE COMMONS – HYPOTHESES
DEVELOPMENT
Industry and Firm Public Value
The above discussion has shown that there are a number of parallels
between public value and reputation regarding structural factors – most notably
the relational nature, the importance of (external) perceptions for both
constructs, and the absence of any absolute measurement unit. In contrast, in
terms of content, the constructs describe different things, because reputation is
about the fulfillment of stakeholder expectations, whereas public value is about
the public evaluation of organizations’ contribution to the common good.
However, the structural similarities call for an examination of whether a
particular structural feature of corporate reputation – reputation commons – also
applies to public value.
Tirole (1988) coined the notion collective reputation, which was
subsequently applied to the industry level (Barnett & Hoffman, 2008). Firms
Paper 2: Public Value Commons
127
facing a reputation commons (King et al., 2002) are dependent on the reputation
of the industry as a whole, and any firm actions that harm or support the
industry’s reputation have consequences for all firms in the industry. Reputation
commons are especially pronounced when the firms within one industry are
very similar, leading to situations where the most ardent competitors are also the
most interdependent in terms of sharing an industry reputation (Yue & Ingram,
2012).
The cognitive tendency to extend judgements of a certain object to
other, seemingly similar, objects – the halo-effect (Thorndike, 1920) – increases
our confidence that this is a pattern not only applicable to reputation, but also to
public value. Public value’s roots lie in evaluation processes (Meynhardt, 2009),
which makes it prone to the halo-effect. Another psychological factor that was
applied in industry reputation research (Yue & Ingram, 2012), the availability
heuristic (Rothbart, Fulero, Jensen, Howard, & Birrell, 1978), can also be
applied to public value with a similar reasoning: If an individual has any
information about a firm, it will use this piece of information when evaluating
similar organizations and the industry as a whole, instead of endeavoring to
acquire additional information.
Such patterns will not only apply to the overall public value evaluation,
but also to the dimensional level, as well as to judgements of a firm’s public
value trend. For this reason, we assume that a firm’s public value is related to its
industry’s public value. We develop the first set of hypotheses as follows:
Hypothesis 1a: Industry public value is positively
related to individual firm public
value.
Hypothesis 1b: Industry public value in the public
value dimensions is positively
related to individual firm public
value in the respective dimensions.
Strategic Perspectives on Public Value
128
Hypothesis 1c: The public value trend of the
industry is positively related to the
public value trend of individual
firms.
The Role of Familiarity with a Firm
As outlined above, in reputation research, familiarity with a firm has
been found to be a central factor for understanding organizational reputation
dynamics (Mariconda & Lurati, 2000). In this context, familiarity has been
defined as “a general overall level of acquaintance with the firm, most likely
without reference to a specific, identifiable source of information” (Luce,
Barber, & Hillman, 2001: 401). Most studies find a significant positive
relationship between familiarity and reputational evaluations (Mariconda &
Lurati, 2000). Fombrun and van Riel (2004: 104) state that “the more familiar
you are to the public, the better the public rates you.”
Accordingly, we again use the organizational reputation analogy for
public value and posit that the public value that a firm creates is higher if
respondents are more familiar with this firm. This is also very much in line with
a basic tenet of public value theory, which assumes that value is not just
delivered, but perceived (Meynhardt, 2009), and in line with the general
psychological disposition to evaluate familiar objects more positively (Zajonc,
1968). Therefore, we hypothesize that familiarity is positively related to public
value (H2a). In addition, we assume that familiarity with a firm negatively
moderates the relationship between industry and firm public value (see H1a-c
above), because a higher familiarity with a specific firm will result in a more
firm-specific public value evaluation and weaken the influence of industry
public value commons (H2b).
Hypothesis 2a: Familiarity with a firm is
positively related to public value.
Paper 2: Public Value Commons
129
Hypothesis 2b: The relationship between industry
public value and individual firm
public value is weaker the more
familiar respondents are with a
specific firm.
Figure 1 summarizes the theoretical model with the hypothesized
relationships between the core variables. This model is subsequently tested
empirically.
FIGURE 1
Theoretical Model
METHODS
Data Collection
An organization-level construct measured at the individual level.
Owing to the theoretical positioning of public value as value that is created
Strategic Perspectives on Public Value
130
when individuals evaluate how organizations influence their experience of
community and society, we measure public value at the level of individuals.
Nonetheless, these measurements inform us about organizational and industry-
level public value patterns, as these categories are objects of evaluation.
Accordingly, this method section includes a description of our sample of
respondents, as well as of our sample of evaluated organizations.
Sample. The empirical testing of our hypotheses was based on Swiss
survey data collected over a three-week period in February/ March 2014. A
professional market research firm with access to a sample of 50,000 Swiss
respondents, forming a representative sample of the Swiss population, collected
the data. In an online survey, 4,483 subjects were asked how they evaluate the
public value of major Swiss organizations. The respondents were given a
random set of up to six organizations that they knew to evaluate. Each
organization was evaluated by at least 400 respondents. After evaluating
specific organizations, the respondents were asked to evaluate industries along
similar measures. Our respondents are between 18 and 88 years old (mean 48),
50.8% are female, they all come from German-speaking cantons (a relative
majority of 1028 respondents are from Zurich) and roughly 47.4% percent are
married, while 29.7% are single. 36.7% of the respondents are employed and do
not have leadership responsibility, whereas 21% are employed and do have
some leadership responsibility. 21.5% of the respondents are pensioners. The
others are self-employed, still in education, homemakers, or unemployed. The
majority of the respondents (53.8%) has completed a professional
apprenticeship with vocational school. 15.5% of the respondents hold a degree
from a university of applied sciences; 13.2% graduated from university. 12.2%
of the sample indicated Mittelschule (high school) as their highest education
level. The remaining respondents have a lower education. The respondents’
median gross household income ranges between 6,000 and 9,000 Swiss Francs
per month.
Paper 2: Public Value Commons
131
Measures for public value. We relied on measures used in earlier
studies to assess firms’ and industries’ public value. The set of items used had
been validated in a former study (Meynhardt & Bartholomes, 2011). We rely on
single-item measures of each public value dimension (see table 3), as these have
been shown to load strongly on the respective factors in preliminary studies, and
are also advantageous in terms of research efficiency. Using single-item
measures is in line with the recommendations by Wanous, Reichers, and Hudy
(1997) and Nagy (2002). The respondents were asked to indicate on a 1 (full
disagreement) to 6 (full agreement) Likert scale whether they agreed with the
statements.
TABLE 3
Items for Measuring Public Value
Dimension Item
Organization/Industry XY…
Moral-ethical …behaves decently.
Hedonistic-aesthetical …contributes to the quality of life in Switzerland.
Utilitarian-instrumental …does good work in its core business.
Political-social …contributes to social cohesion in Switzerland.
Additionally, we measured the public value trend with the following
item: “The public value orientation of organization/industry XY during the last
two years has…” Respondents were asked to indicate on a 1 (decreased
strongly) to 6 (increased strongly) Likert scale how they assessed the public
value trend of a particular organization or industry. In our questionnaire, all
items were given in German. We included a filter to make sure that respondents
Strategic Perspectives on Public Value
132
only evaluate organizations that they knew. First, each respondent was given a
list of approximately 20 organizations and asked to indicate how familiar he or
she is with the organizations on a 1 (not familiar with at all) to 6 (very well
familiar with) Likert scale. This is in line with familiarity measures from
reputation studies (Mariconda & Lurati, 2000). In a second step, each
respondent was given up to six randomly chosen organizations with which he or
she is familiar (a self-reported familiarity of “4” or higher). A qualitative and a
quantitative pretest (n=60) showed that the questions were well understood and
that public value indeed seems to correspond to mental patterns of evaluating
organizations.
Control variables. We controlled for gender, age, highest level of
education, media consumption, internet usage, and whether the participant
works or not. We used a dummy for gender, called “Gender” (female=1,
men=0). In our sample, 51% were female and 49% were male. The participants
answering the “banking” questions ranged from 18 years to 87 years, and the
average age was 48 years (SD=16.0). The highest degree of education is
considered in a categorical variable “Education” (coefficients are not listed for
simplicity). A distinction was made between 6 categories ranging from the
lowest category “primary school” to the highest category “university, college,
Federal Institute of Technology, polytechnic university.” We considered the
media consumption (“Media”) and internet usage (“Internet”) of each
participant to control for the information each participant could have had about
the organizations or sectors. The respondents were asked to rate how often they
read specific newspapers. The answer categories in this respect ranged from
“daily/almost daily” (coded 1) to “never” (coded 6). The variable “Media” is
dummy-coded with 1 if the respondent mentioned reading one the newspapers
“daily/almost daily” or “several times a week,” and 0 if the respondent indicated
that he or she reads one of the presented newspapers fewer than several times a
week. The mean of the variable is 0.42 (SD=0.49), which implies that 42% of
the respondents read at least one newspaper several times a week.
Paper 2: Public Value Commons
133
The variable “Internet” has 6 categories ranging from “daily” (coded 1)
to “rarely” (coded 6). A mean of 1.26 (SD=0.60) shows that most people use the
internet frequently. The last control variable “Employed” is a dummy for people
who work (coded 1). Students attending school or universities, housewives and
homemakers, unemployed persons, and pensioners were coded 0. In our dataset,
64% (M=0.64; SD=0.48) of the respondents are employed. Table 4 provides an
overview of the descriptive statistics and correlations.
TABLE 4
Descriptive Statistics and Correlations
Variable Mean SD Min Max 1 2 3 4 5 6 7
1. Industry PV 3.24 1.25 1 6 1.00
2. Age 47.42 15.96 18 87 -0.02 1.00
3. Gender (Female=1) 0.51 0.50 0 1 0.09 -0.13 1.00
4. Employed (Dummy) 0.64 0.48 0 1 -0.06 -0.38 -0.06 1.00
5. Media (Dummy) 0.42 0.49 0 1 -0.03 0.14 -0.16 -0.02 1.00
6. Internet 1.24 0.58 1 6 0.00 0.05 0.10 0.00 -0.08 1.00
7. Education 3.81 1.20 1 6 -0.09 -0.07 -0.02 0.04 0.07 -0.13 1.00
Note: n=2762
Sample of firms and industry affiliation. We collected data on public
value creation in respect of 47 Swiss firms. The firms included in the survey
were chosen by means of the following procedure: First, we compiled a list of
Switzerland’s biggest firms. This list included the 50 largest Swiss firms in
terms of sales, all firms listed on the major Swiss stock market index SMI, as
well as the ten biggest insurance companies in terms of gross inflow of
premiums, the ten largest banks in terms of balance sheets, and the ten biggest
cooperatives (“Genossenschaften”) in terms of sales. This yielded a list of 79
Strategic Perspectives on Public Value
134
firms. Second, more than 800 people from German-speaking Switzerland
assessed how well they knew these firms. They were given an alphabetic list
with the firms’ logos and were asked to assess their knowledge on a 1 (not
familiar) to 6 (very familiar) Likert scale. This was done in a street intercept
survey. Third, we calculated the mean of all the respondents’ valuations of each
organization. The values ranged from 5.93 for Migros (major retailer) to 1.27
for Trafigura (commodity trading). Fourth, we ranked all 79 firms according to
how well-known they are. We defined “3” as the cut-off value. Consequently,
every company with a mean value of less than “3” (rounded) was excluded from
the sample. This approach generated a sample of the 47 largest and best-known
Swiss firms. These firms were assigned to industries according to the NOGA
2008 scheme in its medium-grained SNA/ISIC-Aggregat A*38 version as used
by the Swiss Federal Statistical Office (Bundesamt für Statistik, 2008). Two
researchers did this classification independently and then compared their
classifications. Finally, an expert of the Federal Statistical Office approved the
classifications.
Data Analysis
We calculated the public value score as the unweighted average of the
four public value dimensions on an organizational and sectoral level. We used
OLS regression analysis to determine the banking sector effects on the
perception of individual banks (Hypotheses 1a, 1b, and 1c). The OLS equation
for H1a is arranged in the form: PV Bank = α + β1 × PV Banking Industry + β2
× Age + β3 × Gender (Female=1) + β4× Employed (Yes=1) + β5 × Media
(Consumer=1) + β6 × Internet (Very frequent use=1) + β7 × cat. Education + Ɛ,
where Ɛ is the error term and α is the constant. We used the same OLS
regression structure for hypotheses 1b and 1c. The only difference is that we
used the single public value dimension variables. For example, the OLS
equation for the Moral dimension is: Moral Bank = α + β1 × Moral Banking
Industry + xiβ + Ɛ. We find evidence of heteroscedasticity in the residuals of the
Paper 2: Public Value Commons
135
regressions in respect of the Raiffeisen and ZKB banks. To control this, we also
ran the regression models for both banks with robust standard errors, found
similar results, and no differences in significance. The control variables are
expressed by the vector xiβ. Hypothesis 1c was tested by using a variable of the
dataset called “Public value trend.” The equation form is: Public value trend
Bank = α + β1 × Public value trend Banking Sector + xiβ + Ɛ, where the control
variables are expressed by the vector xiβ.
We tested the hypothesis 2a and 2b by adding a categorical variable to
consider how familiar people are with the respective bank in our presented OLS
regression, with the public value of each bank as the dependent variable. We
assume that higher familiarity with a bank goes hand in hand with higher public
value. Thus, our null hypothesis states that knowledge about a firm has no
effect, while the alternative hypothesis states that it has a significant effect on
the public value. The last hypothesis, 2b, was tested by including an interaction
term (familiarity with a bank × PV Banking Industry) in the final multivariate
model.
RESULTS
The banking industry has a mean public value score of 3.24 (n=2841).
Furthermore, the respondents think that the banking industry does not work
morally, which the score of 2.68 for the moral-ethical dimension illustrates.
Contrary to this, the hedonistic-aesthetical dimension is evaluated most
positively (3.70). Interestingly, five of the seven banks in our sample have a
higher public value than the industry, showing that, in general, the banking
industry is accepted less than its members are. There are only two banks, UBS
and HSBC, whose public value is lower than the banking industry’s public
value. Moreover, the moral-ethical dimension, and the utilitarian-instrumental
dimension of all the individual banks are more positively evaluated than the
industry’s public value dimensions. Table 5 provides an overview of the public
Strategic Perspectives on Public Value
136
value (overall, dimensional, and trend) means of all the banks in the sample, as
well as of the banking industry.
TABLE 5
Means of Banking Industry and Banks
Pu
bli
c V
alu
e
Mo
ral-
eth
ical
Po
liti
cal-
soci
al
Uti
lita
rian
-
inst
rum
enta
l
Hed
on
isti
c-
aest
het
ical
Pu
bli
c v
alu
e tr
end
N
Banking Industry 3.24 2.68 3.11 3.46 3.70 3.42 2841
Banks
Raiffeisen 4.85 5.11 4.53 5.18 4.57 4.33 402
ZKB 3.99 4.10 3.60 4.40 3.86 3.50 436
BKB 3.97 4.09 3.74 4.26 3.78 3.54 405
Julius Bär 3.53 3.56 3.17 4.03 3.35 3.00 407
CS 3.44 3.43 3.16 3.69 3.48 3.04 422
UBS 3.19 3.13 2.93 3.48 3.23 2.88 408
HSBC 3.14 3.38 2.53 3.71 2.94 2.58 409
Note: Public Value = (Moral-ethical + Political-social + Utilitarian-instrumental +
Hedonistic-aesthetical) / 4
The regression results presented in table 6 show the significant effect
the banking sector has on the perception of banking sector institutions, which
indicates that the public value of the banking industry can partly explain the
public value of an individual bank. The coefficients of the explanatory variable
“Industry PV (Public Value)” are positive, highly significant on a 1% level, and
vary between banks, implying that the influence of the banking sector public
value on the public value of a particular institution is stronger in respect of some
Paper 2: Public Value Commons
137
banks, such as UBS and Credit Suisse, than in respect of others, such as
Raiffeisen. The high R2 of 0.52 for CS and 0.54 for UBS indicates that the
model built for banking industry public value explains more than half of the
variation in these firms’ public value. Interestingly, the public value of the
banking sector does not adequately explain the variation in the public value of
the cooperative bank Raiffeisen, which has the highest public value (4.85) of all
the banks in the sample, showing that the sector’s public value influences this
bank to a lesser extent. It can thus be confirmed that higher public value of the
banking industry leads to higher public value of individual banks.
Strategic Perspectives on Public Value
138
TABLE 6
Regression Results
Banks
BKB CS HSBC Raiff-
eisen UBS ZKB
Julius
Bär
Industry PV 0.43*** 0.70*** 0.44*** 0.30*** 0.80*** 0.54*** 0.45***
Age 0.00 0.00 0.00 0.00*** 0.00 0.00 0.01***
Gender
(Female=1) 0.31*** 0.04 0.29*** 0.14 -0.1 -0.14* 0.07
Employed 0.27** 0.08 -0.03 0.16 0.06 -0.10 -0.06
Media 0.04 0.23** 0.13 -0.02 0.23** 0.259*** 0.11
Internet -0.12 -0.05 0.032 0.05 0.04 0.00 0.17**
Education Yes Yes Yes Yes Yes Yes Yes
Constant 1.56 0.95** 0.58 2.88*** 0.45 1.16** 1.28***
N 394 408 399 395 395 429 393
R2 0.28 0.52 0.33 0.17 0.54 0.4 0.3
Adj. R2 0.258 0.506 0.31 0.145 0.529 0.38 0.277
F 13.46 38.97 17.29 7.07 41.23 24.85 16.03
Notes: Dependent variable: Public Value of the individual bank; * p<0.10, ** p<0.05,
*** p<0.01
Paper 2: Public Value Commons
139
All the coefficients of the four dimensional items and of the public
value trend item are positive and highly significant on a 1% level (see table 7).
This result supports hypotheses 1b and 1c. Hence, we confirm H1a-c.
TABLE 7
Regression Results
Banks
BKB CS HSBC Raiff-
eisen UBS ZKB
Julius
Bär
Moral-ethical 0.283*** 0.551*** 0.313*** 0.174*** 0.657*** 0.376*** 0.370***
Political-social 0.336*** 0.555*** 0.286*** 0.275*** 0.556*** 0.428*** 0.317***
Utilitarian-
instrumental 0.329*** 0.614*** 0.384*** 0.233*** 0.697*** 0.441*** 0.399***
Hedonistic-
aesthetical 0.385*** 0.615*** 0.416*** 0.311*** 0.687*** 0.506*** 0.386***
Public value
trend 0.384*** 0.664*** 0.399*** 0.262*** 0.696*** 0.553*** 0.431***
Notes: Dependent variable = Dimension of the individual bank. The dimension of the
Banking Industry is the explanatory variable. *** p<0.01
The results of the control variables included in our analysis are also
shown in table 6. The media variable shows positive, highly significant
coefficients in respect of CS, UBS, and ZKB, i.e. their public value increases if
a respondent is better informed due to reading newspapers. Moreover, females
show a more positive evaluation of the BKB and HSBC, but a more negative
one of the UBS. With a few exceptions, being employed, internet usage, and age
show no clear pattern. Employed people evaluated the BKB higher than
Strategic Perspectives on Public Value
140
unemployed people. Respondents who use the internet more frequently,
evaluated the four dimensions of Julius Bär higher, while age has a significant
positive impact on the public value of Raiffeisen and Julius Bär. Overall, the
control variables can only explain 2-4% of the variation in banks’ public value.
Hypothesis 2a, which posits that higher familiarity with a bank leads to
a higher public value, was also confirmed. The results of the regression model
(1) presented in table 8 demonstrate the relationship between higher public
value and higher familiarity with a bank if the reference category 4 indicates
that the bank is known. Nevertheless, knowing a firm increases its public value.
All the coefficients of category 6 (the respondent is very familiar with a bank)
are positive and highly significant in respect of all banks. In respect of the banks
Julius Bär, Zürcher Kantonalbank, HSBC, and BKB, the coefficients of the fifth
category are also significant. Further, there is no evidence to support the
assumption made in hypothesis 2b that the relationship between the banking
industry public value and individual bank public value is moderated by the
respondent’s degree of familiarity with a bank. The interaction term is not
significant for any bank, which the results of regression model (2) in table 8
show. Hence, we reject H2b.
Overall, our model can explain between 29% (for Raiffeisen) and 56%
(for UBS) of the public value variance. Industry public value and the
respondents’ familiarity with a bank thus seem to be major factors in
determining the public value of banks.
TABLE 8
Regression Results
Banks
BKB CS HSBC Raiffeisen UBS ZKB Julius Bär
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Industry PV 0.41*** 0.40*** 0.69*** 0.63*** 0.44*** 0.39*** 0.28*** 0.24*** 0.77*** 0.72*** 0.52*** 0.49*** 0.44*** 0.52***
Age -0.00 0.00 0.00 0.00 0.00 0.00 0.01** 0.01** 0.00 0.00 0.00 0.00 0.01*** 0.01***
Gender 0.27** 0.27*** 0.03 0.02 0.31*** 0.31*** 0.11 0.11 -0.11 -0.12 -0.14 -0.13 0.08 0.09
Employed 0.30*** 0.32*** 0.09 0.08 -0.01 0.00 0.15 0.16* 0.03 0.03 -0.07 -0.07 -0.08 -0.07
Media 0.02 0.00 0.21** 0.20** 0.12 0.09 0.03 0.04 0.16* 0.16 0.02 0.22** 0.11 0.12
Internet -0.12 -0.11 -0.03 -0.04 0.03 0.02 0.02 0.03 0.03 0.04 0.22** 0.05 0.20** 0.20**
Education Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Familiarity
4 Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref. Ref.
5 0.26** 0.38 0.13 -0.04 0.29*** 0.02 0.15 -0.18 0.11 -0.19 0.24** 0.28 0.23** 0.63**
6 0.66*** 0.43 0.27*** -0.05 0.29** -0.03 0.77*** 0.73** 0.45*** 0.33 0.51*** 0.27 0.58*** 1.09***
Interaction term
4
Ref.
Ref.
Ref.
Ref.
Ref.
Ref.
Ref.
5
-0.03
0.05
0.08
0.1
0.1
-0.01
-0.12
6
0.06
0.1
0.1
0.02
0.04
0.08
-0.16
Constant 1.06 2.43*** 0.94** 1.25*** 0.4 1.34*** 2.34*** 2.87*** 0.46 0.59* 1.06** 1.95*** 1.16*** 1.02***
N 394 394 408 408 399 399 395 395 395 395 429 429 393 393
R2 0.33 0.32 0.53 0.53 0.35 0.34 0.29 0.29 0.56 0.56 0.43 0.43 0.33 0.34
Adj. R2 0.31 0.30 0.51 0.51 0.33 0.32 0.26 0.27 0.55 0.55 0.42 0.41 0.31 0.32
F 14.33 16.44 33.91 39.94 15.75 17.83 11.85 14.04 55.07 45.01 24.42 28.30 15.61 17.48
Notes: Dependent variable: Public Value of the individual bank; * p<0.10, ** p<0.05, *** p<0.01
Strategic Perspectives on Public Value
142
DISCUSSION
Limitations
Our study has limitations concerning the data collection method (online
survey), the type of data (cross-sectional), and the external validity concerning
the transferability of the findings to other industries or cultural settings. Since
industry and firm public value are measured in the same survey, common
method bias might be a problem (Podsakoff, MacKenzie, Lee, & Podsakoff,
2003). However, we have mitigated this problem by means of various
procedural techniques. In order to reduce people’s evaluation apprehension and
concerns regarding socially desirable behavior, we assured the respondents full
anonymity, stressed that there were no right or wrong answers in the
introductory text, and urged them to provide honest personal evaluations. In
order to control for the effects of the question order (context-induced mood,
priming) we rotated items randomly, while the list of organizations and
industries the respondents were asked to evaluate was also randomly determined
from the organizations that the respondent knows. Another way to reduce
method biases is by carefully constructing items that are unambiguous, specific,
and simple. In order to do so, we used measures from earlier studies (Meynhardt
& Bartholomes, 2011) that we adapted after extensive qualitative and
quantitative pretesting. By adopting these measures, we follow Podsakoff et al.
(2003), who recommend such an approach, especially when other remedies
(different data sources, separation of measurement) are not feasible.
As we used cross-sectional data to test our hypotheses, we need to be
cautious when attributing causal inference. Our hypotheses are drawn from
theoretical ideas. Nonetheless, other mechanisms than the ones envisioned
might come into play and cause the relationships we find. This might be due to
reversed causality, or an overlooked exogenous variable that is not part of our
Paper 2: Public Value Commons
143
analysis (Backhaus, Erichson, Plinke, & Weiber, 2008). Especially the
relationship between industry and firm public value might not be unidirectional,
but we can assume that firm public value also has an influence on industry
public value.
A third limitation concerns the external validity of our study. The
hypotheses that we could confirm, were confirmed for all banks in the sample.
This increases our confidence in the external validity of our results for other
banks in Switzerland. However, banking differs greatly from other industries in
its structure (more concentrated than, for instance, food production) and in its
public perception (negative and intense media scrutiny). Further studies should
therefore assess whether the findings can be generalized to other industries and
different cultural contexts.
Research Implications
Existing research on public value in the public sector, as well as in the
private sector, has concentrated on answering the question of what makes
particular organizations valuable to society, mainly by means of single case
studies (Meynhardt & von Müller, 2013; Meynhardt & Bartholmes, 2011;
Meynhardt et al., 2015). The present study is the first to draw on a unique
dataset of public value creation by different industries and is, hence, an
important development in public value research. This paper enables us, for the
first time, to systematically compare different organizations on the basis of their
public value creation. Our results clearly show that public value commons do
exist: Belonging to a certain industry largely predetermines an individual firm’s
public value. Further research should therefore systematically build on existing
case study evidence, as well as on our research to examine whether the pattern
we found in the banking industry also holds for other sectors. This might
include large-scale comparative quantitative studies like the present one, or in-
depth case studies of specific industry associations. Further, our data suggests
that some firms are more closely identified with their industry (e.g. UBS,
Strategic Perspectives on Public Value
144
HSBC, and CS) than others (e.g. Raiffeisen). It might therefore be worth
exploring which factors determine the extent to which firm public value depends
on industry public value. Variables that might play a role include firm size,
market dominance, legal structure, and degree of internationalization.
Additionally, our conceptual comparison of public value and organizational
reputation opens up the potential for empirical research to include PV and OR
variables. Future studies should also include time series data to examine, for
instance, how stable/volatile the two measures are and how they contribute to
explaining performance differences between firms.
Practical Implications
The most important finding from the practitioner’s perspective is the
very strong relationship between banking industry and individual bank public
value. In the adjacent field of reputation management, this taring of all with the
same brush and the consequences thereof have been referred to as reputation
commons (Aldrich & Fiol, 1994; King et al., 2002). Our analysis shows a public
value commons in the Swiss banking industry. The public value of the industry
influences each bank significantly, but no collective action is undertaken to
foster a favorable public perception of the industry as a whole. Banks need to
decide between a collective and a competitive public value management
strategy. Interestingly, increasing the public’s knowledge and information about
one’s company does increase its public value (H2a), but does not have a
significant influence on the dominant role of industry public value (rejected
H2b). In reputation management research, different factors have been identified
that allow firms to engage in either collective or competitive reputation
management (Winn, MacDonald, & Zietsma, 2008). However, our findings
suggest that, as far as public value is concerned, collective public value
management is not an option, but a necessity. Therefore, a key managerial
implication of our research is that firms in an industry have to cooperate to
enhance their industry’s public value and, thus, their own. In order to do so,
Paper 2: Public Value Commons
145
firms will have to overcome their collective action problems (Olson, 1965). This
might be achieved if a dominant player takes the lead, or if some form of
institutionalization (e.g. via industry associations) occurs.
CONCLUSION
Public value is a new and promising concept in strategic management
research. It opens up new perspectives and relates different discourses in new
ways. This paper has shown that public value shares structural similarities with
the corporate reputation concept, but is different in terms of substance, as it
captures organizations’ contribution to the common good. The present research
shows that industry is a crucial factor in public value creation, which firms
cannot avoid. In fact, we found that public value commons exist and are shared
by the members of an industry. Our findings open up avenues for exciting
research and have important lessons for practitioners who want to enhance the
public value of their organizations.
Strategic Perspectives on Public Value
146
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155
PAPER 3:
PUBLIC VALUE AND HAPPINESS: EVIDENCE FROM
PUBLIC ADMINISTRATION IN SWITZERLAND
Timo Meynhardt, Pepe Strathoff, & Steven A. Brieger
January 2016
Abstract
In public management research, the focus in the public value debate has
been on public administration organizations’ broader societal outcomes. Public
value describes how public administrations form a vital part of the social
context in which people develop and grow. However, there has not yet been an
analysis of the way in which public administration contributes to happiness. In
this paper, we empirically analyze the relationship between people’s happiness
and the public value of public administration. Our approach is based on a unique
Swiss survey dataset comprising 870 individuals. Using ordered logit
regression, we find support for a positive relationship between public
administration’s public value and happiness. We also find preliminary evidence
that the relationship between a value-creating public administration sector and
self-reported happiness is stronger for public administration employees. We
discuss the implications of our findings for public sector performance
measurement and the economic models that explain well-being.
Publication: tbd
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INTRODUCTION
The quality of institutions has been found to be an important factor to
explain people’s life satisfaction and happiness.1 In their studies, economists
have consistently demonstrated that individual-level factors (e.g. psychological
traits, health), socioeconomic factors (income, level of education,
unemployment), and macroeconomic conditions (inflation, unemployment rate)
play a major role when it comes to explaining happiness. At the same time,
institutional factors, such as the development of democratic institutions and the
degree of autonomy on the local level, are important to explain why some
people are happier than others (Frey and Stutzer 2002). Consequently,
institutions make up a vital part of the social context in which people develop
and grow.
It is curious to note that public management research has not explicitly
acknowledged the importance of public sector institutions in discussions of
people’s life satisfaction. There is some research on how public sector
organizations influence the well-being of their employees (e.g. Berry 2011) and
how well-being can be measured to design public policy (Forgeard,
Jayawickreme, Kern, and Seligman 2011), but research regarding public sector
organizations’ external influence on the communities and societies they serve
has been sorely lacking. The present study is an attempt to close this gap. The
research question is: What is the relationship between public administration’s
public value and people’s happiness?
We address this question and contribute to closing the gap in the
literature by systematically analyzing the impact of public administration’s
1 In the following, we use the terms “life satisfaction” and “happiness” interchangeably. We
use the term “well-being” as a broader term that encompasses objective aspects of an individuals’s life and circumstances, as well as the subjective evaluation of life
satisfaction/happiness.
Paper 3: Public Value and Happiness
157
broader societal outcomes (public value) on individuals’ happiness. In so doing,
in order to include public sector institutions’ perceived performance as
measured by their public value, we expand the model that economists have
developed in happiness research (Frey and Stutzer 2002). We propose using the
concept of public value to link the debate in economics to public sector
management, because public value focuses explicitly on the manner in which
public administration creates value for society (Moore 1995; Meynhardt 2009).
Our empirical approach is based on a new and unique dataset of the public value
creation by major Swiss organizations and institutions.
The paper proceeds as follows: First, we review the literature on both
happiness research in economics and (public) organizations and well-being. We
introduce the public value concept as a way to link the well-being discourse in
economics to public management research. Having linked the discourses to each
other, we derive hypotheses and develop a theoretical model that we
subsequently test. Third, we describe our data collection and analysis
procedures. Fourth, we present our empirical findings. Finally, we discuss our
results, point out the study’s potential limitations, and conclude the paper.
BACKGROUND
Happiness Research in Economics
It appears that a consensus has emerged from the well-being debate in
economics that a society’s well-being cannot be adequately measured by
exclusively examining economic indicators, such as the gross domestic product
(GDP). Stiglitz, Sen, and Fitoussi clarify that there is “an increasing gap
between the information contained in aggregate GDP data and what counts for
common people’s well-being” (2009, 12). Distinguishing between objective and
subjective indicators is one way of categorizing the non-economic approaches
that define and measure the quality of life (Diener and Suh 1997). Objective or
Strategic Perspectives on Public Value
158
“social” indicators measure people’s objective life circumstances (e.g. the
degree of air pollution, the number of doctors per capita, or homicide rates).
These indicators quantitatively measure very specific features of societal well-
being, because there is an assumption that a good life’s characteristics can be
derived from normative ideals on the basis of a religious, philosophical, or other
system. Therefore, such approaches to understanding quality of life rely neither
on an individual’s subjective experience nor on the satisfaction of an
individual’s preferences. Brock (1993) calls these the “ideal theories” of a good
life.
By contrast, subjective indicators are based on the premise that, in
order to measure well-being, it is necessary “to directly measure the individual’s
cognitive and affective reactions to her or his whole life, as well as to specific
domains of life” (Diener and Suh 1997, 200). Consequently, these indicators
focus on individuals’ experience of their own lives, assuming that if an
individual experiences his or her life as good and desirable, then this
individual’s life is indeed good and desirable. According to Brock (1993, 270),
this understanding of the good life is derived from hedonist theories that “take
the ultimate good for persons to be the undergoing of certain kinds of conscious
experience.” The discourse on happiness and life satisfaction in economics and
the measurement that we use to assess public administration’s influence on
people’s well-being fall into the subjective indicator category. It is worth noting
that the term “happiness” includes both an emotional (“Were you happy
yesterday?”) and an evaluative (“Are you happy with your life as a whole?”)
component (Helliwell, Layard, and Sachs 2013). We focus on the latter, because
we seek to understand how public administration influences life satisfaction
overall.
A whole host of studies have indicated various factors that influence
happiness, and several authors have pointed out that personality disposition is
one of the most potent influences on average happiness levels. Strong control
beliefs (Lachman and Weaver 1998; Stocks, April, and Lynton 2012), optimism
Paper 3: Public Value and Happiness
159
(Seidlitz and Diener 1993; Arrosa and Gandelman 2015), and extroversion
(Lucas, Diener, Grob, Suh, and Shao 2001; Lü, Wang, Liu, and Zhang 2014;
Oerlemans and Bakker 2014) can have a positive impact on self-reported
happiness. A large number of studies (Ellison 1991; Diener 2000; Lu, Gilmour,
and Kao 2001; Inglehart and Welzel 2005; Diener, Lucas, and Smith 1999;
Welzel and Inglehart 2010; Pfeifer 2013; Braakmann 2014) have found that
socio-demographic factors, such as age, sex, ethnicity, religion, culture, health,
intelligence, education, values, and marital status, are also major determinants
of happiness. Several studies (Frey and Stutzer 2000a; Frey and Stutzer 2002;
Di Tella, MacCulloch, and Oswald 2003; Inglehart, Foa, Peterson, and Welzel
2008; Diener, Tay, and Oishi 2013; Welzel 2013; Senik 2014; Clark, Flèche,
and Senik 2015) have also found a positive association between economic
factors, such as income, GDP per capita, or economic growth, and happiness.
Frank (1999) emphasizes income relative to other people’s income as an
important variable to explain happiness. Easterlin (1995, 44) states that “raising
the incomes of all does not increase the happiness of all […] because the
material norms on which judgments of well-being are based increase in the
same proportion as the actual income of the society.” Unemployment and
inflation have been found to have a negative impact on self-reported happiness
(Clark and Oswald 1994; Di Tella, MacCulloch, and Oswald 2001; Dolan,
Peasgood, and White 2008; Dolan and Powdthavee 2012; Mikucka 2013;
Helliwell and Huang 2014; Helliwell, Huang, and Wang 2014).
Dorn, Fischer, Kirchgässner, and Souza-Poza (2007) observe a
significant, positive relationship between democracy and happiness. Frey and
Stutzer (2000a; 2000b; 2002) state that political variables – including the degree
of government decentralization (federalism), trust in government, and political
participation rights – are closely related to happiness. Higher trust in
government and more political participation rights affect human well-being
positively.
Strategic Perspectives on Public Value
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Public Value
The public value lens may offer additional perspectives on how public
administration influences happiness. Over the past two decades, there has been a
great deal of inquiry into the value-producing nature of public administration
and how it can be incorporated into performance measurement systems.
Moore’s seminal book Creating Public Value: Strategic Management in
Government (1995) rejuvenated Waldo’s (1948) idea that public administration
is deeply embedded in society’s value dynamics. At the heart of Moore’s (1995)
approach lies the strategic triangle, which posits that strategies in public
management have to be analyzed simultaneously from substantive, political, and
operational vantage points. Since Moore, “public value” has been developed as
a new notion to address the reflexive and pluralist perspectives on public
administration’s role in society.
Moore’s energizing thought was to shift the grounds of thinking about
public administration toward an entrepreneurial, value-creating perspective, and
this shift has inspired an entire field of study. According to Bryson, Crosby, and
Bloomberg (2014, 445), with public value, “[a] new public administration
movement is emerging to move beyond traditional public administration and
New Public Management. The new movement is a response to the challenges of
a networked, multi-sector, no-one-wholly-in-charge world and to the
shortcomings of previous public administration approaches.” These authors thus
describe a zeitgeist in the public sector that calls for new ways of thinking.
Against this background, public value has been viewed as a paradigm,
rhetoric, or a narrative, but also as a performance perspective (Alford and
O’Flynn 2009). We focus on it as a performance perspective, because we regard
public value’s impact on people as performance – whether intentional or not. In
public management, one of the public value discourse’s central ideas is that the
role of public organizations goes beyond Musgrave’s (1959) triad of stabilizing
the economy, (re-)distributing income, and allocating merit goods. Their role
Paper 3: Public Value and Happiness
161
also includes a normative function that shapes both how citizens perceive the
state’s legitimacy and trust in public action (Rainey 2003) and the relationships
between the individual and the social collective. Van Dooren, Bouckaert, and
Halligan (2015) argue that the public value literature can help us make sense of
government performance by adding substantive content to output and outcome
(i.e. performance) measures.
As Bryson et al.’s (2014) authoritative literature review shows,
multiple sources fuel the public value discourse. While Moore’s work considers
(from a managerial viewpoint) how to mobilize people to become aware of a
public dimension regarding certain actions or initiatives, Bozeman (2007) is
more concerned with the societal level, in particular the question of how to
reach a normative consensus on public values.
Interestingly, neither of the two authors above say anything about the
psychological mechanisms behind how people come to value public value, nor
about the basic needs against which such an evaluation takes place. However,
unless public value is grounded in psychological realities, it is almost
impossible to derive measures that can relate public value experience and
happiness on a subjective level. This is where Meynhardt’s (2009; 2015)
approach comes in. Bryson et al. (2014) present Meynhardt’s approach as one of
the major approaches in the field and make clear that while the approach is less
well-known, it is still quite important, especially because of its strong
psychological basis. Therefore, we follow this public value approach and
conceptualize public value as “[a]ny impact on shared experience about the
quality of the relationship between the individual and ‘society’” (Meynhardt
2009, 212). More concretely, public value creation “is situated in relationships
between the individual and ‘society,’ founded in individuals, constituted by
subjective evaluations against basic needs, activated by and realized in
emotional-motivational states, and produced and reproduced in experience-
intense practices” (ibid., 212).
Strategic Perspectives on Public Value
162
Recognizing the relationship between individuals and society reveals
that institutions play an important role, whether intentional or not, in co-creating
people’s experience of society and social reality. Figuratively speaking, any
interaction with a public administration is an “encounter” with community and
society, and thus it contributes to people’s attitudes and images of the social
collective. In this sense, public value is created or destroyed when the
experiences and behaviors of individuals and groups are influenced in a way
that (de)stabilizes social order evaluations, the sense of community, or self-
determination in a societal context.
In this light, public value creation can be seen as a public
administration performance perspective (Meynhardt and Bartholomes 2011).
Typical performance criteria include output quantity, output quality, efficiency,
equity, and consumer satisfaction (Boyne 2002; 2003, 368; Behn 2014). Broader
societal outcomes have largely been missing from the debate. Andrews, Boyne,
Moon, and Walker (2010, 107) even argue that there has generally been a lack
of empirical studies on public sector performance that focus on “wider
organizational outcomes associated with the delivery of services.”
Here, public value adds a further perspective, since it questions whether
an individual values a public administration’s contribution to a community and
society beyond what this means in terms of his or her immediate personal gain.
Accordingly, public value is a resource for the individual and stems from the
awareness of being part of a social collective, which public administrations also
express. As social beings, humans need to be part of a functioning social
collective to live prosperous and satisfied lives. As an embodiment of the
collective’s will to achieve joint objectives, public administration shapes
individuals’ experiences with the collective. Psychology has identified four
basic needs that serve as a frame of reference to evaluate this experience.
Meynhardt (2009; 2015) has translated these basic needs into four public value
dimensions, as summarized in table 1:
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163
TABLE 1
Relationship between Basic Needs and Basic Value Dimensions
Basic need for … Translation into a motivation for …
(examples)
Basic value
dimension
positive self-
evaluation
positive self-concept and self-worth
consistent relationship between self and
environment
feeling of high self-esteem (in social
comparison)
Moral-
ethical
maximizing
pleasure and
avoiding pain
positive emotions and avoidance of
negative feelings
flow experience
experience of self-efficacy due to action
Hedonistic-
aesthetical
gaining control
and coherence
over one’s
conceptual system
understanding and controlling one’s
environment
predictability of cause and effect
relationships
ability to control expectations to cause
desired outcomes
Utilitarian-
instrumental
positive
relationships
relatedness and belongingness
attachment, group identity
optimal balance between intimacy and
distance
Political-
social
Note: adapted from Meynhardt 2009, 203
Strategic Perspectives on Public Value
164
This dimensionality, as well as the existence of a second-order factor,
namely public value, has been empirically corroborated (Meynhardt and
Bartholomes 2011). Besides the theoretical considerations that have already
been outlined, this empirical support increases our confidence in choosing
Meynhardt’s public value approach for our empirical enquiry into the
relationship between public sector performance and individuals’ life
satisfaction. In addition, Meynhardt’s four-dimensional public value construct
has been proposed as a performance measure for corporate entrepreneurship
strategies in the public sector (Kearney and Meynhardt, forthcoming).
Public Administration and Well-being
A core tenet of public value theory is that public administration and its
managers create value for individuals in society (Meynhardt 2009; Moore
2014). If individuals find this value important and appreciate it, we can expect it
to influence individuals’ well-being and happiness. Hollar (2003) points to
efforts in the 1970s to develop a holistic perspective on quality-of-life
measurement to be used for evaluation work in public administration. He notes
that this perspective disappeared in the 1980s but has recently made a comeback
in different fields, including economics, development studies, and business.
However, public administration literature has not put quality-of-life questions
back on the agenda, and as a result, there is a conspicuous research gap in terms
of the relationship between public sector performance and people’s happiness.
However, the happiness discourse in economics proves to be somewhat
more useful. As outlined above, Frey and Stutzer (2002) identify two
institutional factors, namely political decentralization and the political
participation possibilities available to people, that crucially affect subjective
well-being. Both are structural features of a (democratic) political system and
are not directly linked to public sector performance in terms of creating value
for the public. However, drawing on the work by Veenhoven (1993), who
undertook comparative research on happiness across 56 nations, Frey and
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Stutzer (2002) point out that in Europe there is a high correlation between
(dis)trust in government and average happiness. On a larger scale, however,
when developing countries are included, this relationship is not empirically
significant. Frey and Stutzer (2002) explain this finding by pointing to the
prevalence of authoritarian governments in the developing world. People in
these countries have no say in the political process and have low expectations
concerning the work of public institutions. Consequently, they tend not to relate
their life satisfaction and happiness to the public realm. Conversely, citizens of
European democracies expect governments and public managers to fulfill their
needs and act in their interests. Once they feel that they can no longer trust the
government, however, their life satisfaction shrinks.
Above, we have outlined that the public value creation concept (Moore
1995; Meynhardt 2009; Meynhardt and Bartholomes 2011) offers very different
perspectives for assessing public sector organizations’ performance. However,
certain parallels do exist, as both concepts – public value and trust – focus on
individuals’ subjective evaluations of public sector performance. Since both
approaches share this view, examining the relationship between public
administrations’ public value performance and happiness should be a
worthwhile endeavor.
At this point, we should also note that our study views public
administration as a special kind of institution. We are fully aware that the term
‘institution’ is also used far more broadly to encompass not only organizational
entities but also formal rule sets (North 1990), taken-for-granted assumptions
(Meyer and Rowan 1991), less formal shared interaction sequences (Jepperson
1991), and ex ante agreements (Bonchek and Shepsle 1996). According to
DiMaggio and Powell (1991), institutions – regardless of their formal or
informal shape – are value-laden and define what is legitimate in a certain
context. In this context, we follow Selznick’s (1984, 17) famous dictum that “‘to
institutionalize’ is to infuse with value beyond the technical requirements at
hand.” From a public value viewpoint, this value infusion is part of public value
Strategic Perspectives on Public Value
166
creation, since institutions produce and reproduce values in society.
Nevertheless, our study focuses solely on public administrations as
organizational entities.
THEORETICAL MODEL
The literature review has provided a brief overview of the happiness
research program in economics and points to the still underresearched role of
institutions. We introduced Meynhardt’s public value concept and presented it
as a way of substantiating public sector performance by relating it to
individuals’ experience of the social collective. Furthermore, we uncovered a
more general research gap with regard to the relationship between public
administration performance and societal well-being. In this present section, we
will strive to connect these dots and theoretically derive hypotheses to be
empirically tested.
We assume that public administrations are not value-free (quasi-
mechanistic) providers of public goods and services. On the contrary, we see
them as value-infused institutions (Selznick 1984) that embody society’s will to
achieve joint purposes (Moore 2014). Clearly, these joint purposes include
instrumental tasks, where performance can be adequately measured and
managed in terms of task fulfillment (Behn 2014). However, owing to the value-
laden nature of public administration as a symbol of the collective will, a more
comprehensive notion of performance is appropriate. Meynhardt’s public value
approach gives an important role to the assessment of task fulfillment but
complements it with a moral, political, and hedonic perspective. In this view, it
is public administration that connects the individual to the social collective, and
it is public value that measures its performance in terms of how well it does.
From this role of public administration as a “mediator” of the collective
experience flows our central theoretical argument that public value has a
Paper 3: Public Value and Happiness
167
positive influence on individual life satisfaction (happiness). In the end, public
value measures how positively an individual perceives the impact of the public
sector (as a whole or of particular organizations) on his or her experience of the
social collective. Humans are social beings in need of a functioning social
collective to prosper and live satisfied, happy lives. Public value creation entails
a strengthening of the social collective that serves as a resource for the
individual and will therefore increase its self-reported happiness. Thus, we
assume a direct relationship between the public value of a public administration
and people’s happiness, and we formulate our first hypothesis as follows:
Hypothesis 1: The public value of the public
administration is positively related
to self-reported happiness.
We continue by investigating whether the model that includes the
public value variable (defined as the public value model) fits the data better than
the standard happiness model (defined as the standard model), which mainly
emphasizes the socio-demographic and economic factors of happiness. Our
second hypothesis is therefore:
Hypothesis 2: The public value model fits self-
reported happiness better than the
standard happiness model does.
Lastly, we assume that the positive relationship between public value
and happiness is even stronger for individuals who work in public
administration. Research under the heading of public service motivation has
shown that individuals who choose to work in the public sector do so (partly)
out of a motivation to serve the public interest and to do something good for
society (Rainey and Steinbauer 1999; Perry and Hondeghem 2008; Homberg,
McCarthy, and Tabvuma 2015). This motivation distinguishes public sector
employees from their private sector counterparts (Perry 2000). We can
hypothesize that individuals who work in the public sector link their happiness
Strategic Perspectives on Public Value
168
more strongly to the public sector’s contribution to the common good (i.e.
public value). When such individuals make public value evaluations, they also
indirectly evaluate themselves and their work. For them, public value
evaluations are linked to their own self-concept and identity, since they see
themselves as guardians of the common good. Furthermore, quite obviously, the
public sector – being a workplace as well as a service provider – plays a much
bigger role in public administration employees’ lives than in the lives of people
working in other industries and sectors. Thus, it is an even more important
shaper of the collective experience from which value is drawn. This value
contributes to individual happiness. Accordingly, we formulate our third
hypothesis as follows:
Hypothesis 3: The relationship between the public
value of public administration and
self-reported happiness is stronger
for individuals employed in public
administration than for individuals
who are not employed in public
administration.
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169
METHODS
Data Collection
Our empirical work is based on data collected by intervista, a market
research institute with its own panel of Swiss citizens, during the spring of 2014.
Data was collected from a sample of the Swiss population – 4,483 subjects from
the German-speaking cantons – by means of an online survey. The sample was
representative of the German-speaking Swiss population in terms of sex, age,
level of education, and region of residence. The participants for the survey were
asked to evaluate the public value of major Swiss organizations and sectors.
Owing to the number of organizations in our study, not all of the subjects were
asked to evaluate the same selection of organizations. In this study, we consider
only those 870 randomly selected respondents who evaluated public
administration.
The public value of the Swiss public administration sector is our major
explanatory variable. Validated measures from earlier studies were used to
assess public administration’s public value (Meynhardt and Bartholomes 2011).
Following the recommendations of Wanous, Reichers, and Hudy (1997), as well
as those of Nagy (2002), we used single-item measures for each public value
dimension. In the marketing context, Bergkvist and Rossiter (2007) show that
single-item measures have the same predictive validity as multiple-item
measures when a doubly concrete construct (concrete singular object and
concrete attribute) is measured. Our items fit these criteria, as the respondents
were asked to evaluate a concrete object, namely the Swiss public
administration sector, along clearly defined dimensions by stating whether they
agreed with specific statements on a Likert scale from 1 (full disagreement) to 6
(full agreement). In Table 2, we report the items that we used to measure public
value.
Strategic Perspectives on Public Value
170
TABLE 2
Items for Measuring Public Value
Dimension Item
Public Administration …
Moral-ethical …behaves in a decent manner.
Hedonistic-aesthetical …contributes to the quality of life in Switzerland.
Utilitarian-instrumental …does good work in its core business.
Political-social …contributes to social cohesion in Switzerland.
Loo (2002) points out that single-item measures can be used for short
and homogenous scales where unidimensionality is established by means of
factor analysis. The items we used to measure the four public value dimensions
have been shown to be anchor items for the relevant dimensions in a factor
analysis (Meynhardt and Bartholomes 2011). Although our approach to
measuring the four public value dimensions relies on single-item measures, we
aggregated these measures to obtain a respondent’s overall public value
perception. This approach fits the public value construct’s multidimensionality.
One quantitative (n=60) and one qualitative pretest showed that the questions
were well understood and that the public value appears to correspond to how
people evaluate organizations.
Importantly, when we considered the “public value of public
administration” sector variable, we relied on people’s individual evaluations.
According to our understanding of the concept, public value emerges from
individuals’ mental image of community and society (Meynhardt 2009) and
should therefore be measured at the individual level. Hence, we consider public
value to be a public administration performance indicator measured at the
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171
individual level. As can be seen in Table 3, the Swiss public administration is
evaluated as having an average public value of 4.35, which suggests that the
respondents are relatively satisfied with it. The utilitarian-instrumental
dimension is evaluated most positively (4.45), while the moral-ethical
dimension shows the lowest score (4.25). Table 3 indicates that only
approximately 20% of the respondents chose disagreement categories (1–3) for
each dimension.
TABLE 3
Means and Distribution of Public Administration’s Public Value
Evaluation
Mo
ral-
eth
ical
Po
liti
cal-
soci
al
Uti
lita
rian
-
inst
rum
enta
l
Hed
on
isti
c-
aest
het
ical
Pu
bli
c V
alu
e
N
Public Administration 4.25 4.36 4.45 4.37 4.35 870
Percent Distribution
1 – full disagreement 2.18 2.76 1.38 1.72
2 6.67 5.98 5.86 5.17
3 16.21 14.37 14.02 16.78
4 27.24 25.17 23.45 24.60
5 34.25 33.10 35.98 34.48
6 – full agreement 13.45 18.62 19.31 17.24
Note: Public value = (moral-ethical + political-social + utilitarian-instrumental +
hedonistic-aesthetical) / 4
Strategic Perspectives on Public Value
172
Self-reported happiness as the dependent variable is based on the
following single-item measure (Wanous et al. 1997; Nagy 2002; Bergkvist and
Rossiter 2007): “How satisfied are you in general with your life?” (Helliwell et
al. 2013). The respondents were asked to evaluate this question by using a six-
point Likert scale ranging between two extreme values (“completely dissatisfied
– 1” and “completely satisfied – 6”). Figure 1 shows that, with an average of 4.7
out of six points, the sample population of Swiss respondents has a very high
level of self-reported happiness. Some 16% of respondents perceive themselves
as completely satisfied (6), 54% report a 5, and 18% a 4, while only 1% are
completely dissatisfied (1); 3% and 7% of the respondents chose options
number 2 and 3, respectively.
FIGURE 1
Distribution of Happiness
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173
In our first model, we regress the indices of individual happiness only
on the socio-demographic and the economic variables. The socio-demographic
variables comprise age, gender, degree of formal education, marital status, and
individual employment status. We include the individual’s gross income as the
only economic variable in the model. The age variable comprises seven groups.
The participants who answered the questions relating to the public
administration sector ranged in age from 19 to 85 years, with an average age of
50.5 years (SD=15.1). Six age groups are explicitly accounted for and range
from “29 years and younger” to “80 years and older,” while the constant term
includes the reference group “29 years and younger.” We use “female” as a
dummy for gender (female=1, men=0). In our sample, 41% of the respondents
were female, and 59% were male. We use the following classification for the
degree of formal education: “low education” (5.63%), “middle education”
(61.03%), and “high education” (33.33%). The reference group comprises
people with a low education. Marital status includes the following six groups:
“unmarried” (reference group), “concubinage,” “married/with partner,”
“married but living alone,” “divorced,” and “widowed.” Most of the individuals
in our sample (55%) are married, or live in a registered relationship. The
individual employment status variable comprises seven groups: “employed
(non-executive)” (reference group), “employed (executive),” “self-employed,”
“student,” “housewife,” “retired,” and “unemployed.” The economic variable
“income” has six groups, ranging from a gross income (per month) of “less than
3,000 CHF,” which is the reference group, to “more than 12,000 CHF.” Most
people (31.26%) in our sample earn an average gross income of between 6,001
and 9,000 CHF. Table 4 shows the descriptive statistics and correlations of all
the variables.
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174
TABLE 4
Descriptive Statistics and Correlations
Variable Mean SD Min Max 1 2 3 4 5 6
1. Happiness 4.71 0.99 1 6 1
2. Age 2.61 1.51 1 6 0.23* 1
3. Sex
(female=1) 0.41 0.49 0 1 0.09* -0.23* 1
4. Education 3.86 1.23 1 6 0.08* -0.03 -0.07* 1
5. Gross
income 4.04 1.28 1 6 0.10* -0.02 -0.11* 0.26* 1
6. PV public
administration 4.36 1.08 1 6 0.28* 0.14* 0.05 0.07* 0.04 1
Notes: * Correlations are significant on a 5% level; N = 870.
Data Analysis
For the purpose of our data analysis, we calculate the public value of
Swiss public administration as the mean of the four public value dimensions:
moral-ethical, political-social, utilitarian-instrumental, and hedonistic-
aesthetical.2 Owing to the ordinal dependent variable, we use an ordered logit
approach to determine the effect of public administration’s public value on
happiness. Following hierarchical regression logic, we analyze the effects of
socio-demographic and economic factors on happiness in the first model. In the
second model, we add “public value of public administration” as an explanatory
variable. Using likelihood ratio testing to compare the two models’ levels of
goodness of fit with each other, we analyze whether the public value model fits
2 We used STATA version 11 to do the analyses.
Paper 3: Public Value and Happiness
175
the data better than the standard happiness model does. Finally, we determine
the effect of the interaction term of being an employee in public administration
(coded as 1; otherwise coded as 0) and public administration’s public value on
self-reported happiness. Out of the sample’s 870 individuals who evaluated the
public administration sector, 87 are employed in the Swiss public
administration.
ANALYSIS AND FINDINGS
Socio-Demographic and Economic Factors of Happiness
The results of the standard model confirm that socio-demographic
factors influence happiness. We find that older people are happier than young
people. Swiss people aged 60–69 years and 70–79 years report significantly
higher levels of well-being than the reference group (29 years and younger).
This result is consistent with predictions in the literature. In line with previous
research results (Wood, Rhodes, and Whelan 1989; Welzel 2013), we also find a
higher level of self-reported happiness for women than for men. Both gender
coefficients are highly significant at a 1% level. However, we have not found
any evidence that there is a positive correlation between happiness and the level
of education. We also find that unemployed people are unhappier than
employed people. Both coefficients are highly significant at a 1% level. The
happiness mean presented in table 5 shows that unemployed people living in
Switzerland are much less satisfied than employed people, students, retired
persons, and housewives. Moreover, housewives show significantly lower well-
being than employed people. As has also been found in a large number of other
studies (Gove, Hughes, and Style 1983; Diener et al. 1999), the influence that
being married has on happiness is positive and highly significant. Married
individuals, or people with a partner, show higher self-reported happiness than
do unmarried people, married people who live alone, people living in
Strategic Perspectives on Public Value
176
concubinage, or divorced persons in our sample. Likewise, other stable
relationship categories have a significant, positive effect on well-being, even
when controlling for the influence of variables such as age, education,
profession, and income. It is interesting to note, however, that widowed
individuals report greater subjective well-being than unmarried individuals.
Higher gross income correlates positively with higher happiness. Nevertheless,
the difference in happiness is rather small, which is why we did not find a
significant effect.
Paper 3: Public Value and Happiness
177
TABLE 5
Ordered Logit Regression Results
Happiness Statistics
Mean
(1)
Standard Model
(2)
Public Value Model
(3)
Interaction Model
Coeffi-cients
z- statistics
Coeffi-cients
z- statistics
Coeffi-cients
z- statistics
Age 29 and younger 4.46 Reference Group Reference Group Reference Group
Age 30-39 4.52 0.146 (0.49) 0.122 (0.41) 0.123 (0.41) Age 40-49 4.51 0.020 (0.07) -0.011 (-0.04) -0.015 (-0.05)
Age 50-59 4.63 0.138 (0.47) 0.101 (0.34) 0.108 (0.37)
Age 60-69 5.03 0.781** (2.26) 0.760** (2.21) 0.777** (2.25) Age 70-79 5.17 1.037** (2.31) 1.094** (2.44) 1.132** (2.51)
Age 80 and older 5.00 0.288 (0.35) 0.140 (0.17) 0.215 (0.26)
Male 4.64 Reference Group Reference Group Reference Group Female 4.82 0.760*** (5.05) 0.658*** (4.32) 0.672*** (4.40)
Low education 4.73 Reference Group Reference Group Reference Group
Middle education 4.63 -0.532* (-1.69) -0.453 (-1.41) -0.455 (-1.41) High education 4.86 -0.287 (-0.86) -0.248 (-0.73) -0.254 (-0.74)
Unmarried 4.35 Reference Group Reference Group Reference Group
Concubinage 4.75 0.532** (2.04) 0.589** (2.23) 0.597** (2.25) Married/with partner 4.88 0.798*** (3.78) 0.788*** (3.72) 0.784*** (3.68)
Married but living alone 4.38 0.127 (0.28) -0.060 (-0.13) -0.001 (-0.00)
Divorced 4.47 0.105 (0.36) 0.0464 (0.16) 0.038 (0.13) Widowed 5.05 0.890* (1.80) 0.935* (1.88) 0.956* (1.91)
Employed (non-Executive) 4.59 Reference Group Reference Group Reference Group
Employed (executive) 4.70 0.190 (1.02) 0.111 (0.59) 0.106 (0.56) Self-employed 4.86 0.417 (1.46) 0.573** (1.99) 0.594** (2.06)
Student 4.66 0.651 (1.53) 0.567 (1.34) 0.601 (1.41)
Housewife 4.47 -0.806*** (-2.70) -0.766** (-2.54) -0.751** (-2.48) Retired 5.09 0.585** (2.07) 0.373 (1.32) 0.366 (1.30)
Unemployed 2.95 -2.549*** (-5.50) -2.300*** (-4.86) -2.301*** (-4.85)
Gross income < 3,000 CHF 4.48 Reference Group Reference Group Reference Group 3,000 - 4,500 CHF 4.47 -0.386 (-0.86) -0.376 (-0.84) -0.418 (-0.93)
4,501- 6,000 CHF 4.68 0.004 (0.01) -0.017 (-0.04) -0.050 (-0.11) 6,001- 9,000 CHF 4.71 -0.035 (-0.08) -0.091 (-0.22) -0.142 (-0.34)
9,001- 12,000 CHF 4.80 0.294 (0.69) 0.229 (0.54) 0.177 (0.42)
more than 12,000 CHF 4.83 0.340 (0.77) 0.253 (0.57) 0.206 (0.46) PV of Public Admin. - - - 0.430*** (6.65) 0.389*** (5.79)
PA Employee 4.95 - - - - -2.254 (-1.59)
PV of Public Admin. x PA Employee
- - - - - 0.508* (1.81)
McFadden R2 0.080 0.100 0.102
LR Chi2 176.6*** 221.7*** 226.4***
∆LR Chi2 for step 2 45.14*** Observations 870 870 870 870
Notes: DV: Happiness (six-point scale). PV=Public value; PA=Public administration; *
p<0.10, ** p<0.05, *** p<0.01. Source: Public Value Atlas Switzerland (2014).
Strategic Perspectives on Public Value
178
The Effect of Public Administration’s Public Value on Happiness
Table 5 also shows the results of the institutional variable of public
administration’s public value. Swiss public administration’s public value has a
highly significant, positive effect on happiness, which suggests that a value-
creating public sector increases the likelihood of reporting higher happiness. We
also ran the regression analysis with all four public value dimensions separately,
and this analysis yielded similar results (not reported). All coefficients were
positive and significant at a 1% level. The estimated positive effect is strong,
and the z-statistics is comparable to others reported in the table. This result is
consistent with our first hypothesis that a higher public value of public
administration increases self-reported subjective well-being. Hence, hypothesis
1 is confirmed.
The public value variable increases the goodness-of-fit measure in the
second model. McFadden’s pseudo R2 increases from 0.08 to 0.10. The results
of the likelihood ratio test indicate that the public value model fits the data
significantly better than the standard happiness model (LR chi2 change of 45.14,
p<0.001). Thus, hypothesis 2 is confirmed.
Furthermore, we find evidence that the relationship between the public
value of public administration and self-reported happiness is stronger for
individuals employed in public administration than for individuals who are not
employed in public administration. However, this moderation effect is
significant only at a 10% level. Hence, hypothesis 3 is rejected.
Paper 3: Public Value and Happiness
179
DISCUSSION
Limitations
Despite the strength of our findings, our analysis inevitably has some
limitations. Since happiness and the public value of the Swiss public
administration are measured in the same survey, common method bias might
influence the results of our statistical analysis (Podsakoff, MacKenzie, Lee, and
Podsakoff 2003). We attempted to mitigate common method bias by employing
several procedural techniques (Podsakoff et al. 2003) and a survey design that
minimizes it (Jakobsen and Jensen 2015). To this end, we first avoided socially
desirable behavior and reduced the respondents’ evaluation apprehension by
guaranteeing them full anonymity and informing them that there were no right
or wrong answers to any of the questions. Moreover, we explicitly requested
honest personal evaluations. Second, to minimize any ordering effect (context-
induced mood, priming, etc.), we rotated the items at random. Third, we used
proven measures (Meynhardt and Bartholomes 2011) that earlier studies had
tested in qualitative and quantitative settings. Fourth, we used different scales to
measure our independent and dependent variables (see the description of data
collection procedures above).
We find that people who evaluate public administration more positively
are more likely to report higher happiness. This correlation does not, however,
establish causality, as happier people may, for example, simply regard their
institutions more benevolently. Along these lines, we also point to the
conceptual similarities and differences between public value and happiness.
Both concepts focus on individual subjective evaluations. Yet, the object of
evaluation is different: Public value is about how individuals perceive the public
sector’s contribution to a functioning social collective, whereas happiness (as
conceptualized here) entails an overall evaluation of one’s life. Our replication
of the standard happiness model with the subsequent insertion of public value as
Strategic Perspectives on Public Value
180
an additional variable (hypothesis 2) shows that there are many other factors
that influence happiness. Nonetheless, public value can help us understand a
little better why some people are happier than others.
Implications for Public Administration Performance
Our central insight that people who assign a higher public value to
public administration tend to be happier has important implications for public
management research, especially regarding performance measurement. Public
management research tends to distinguish between objective and subjective
performance measures.
On the one hand, objective performance measures focus on the
measurement of specific public agency outputs, which these agencies mostly
generate themselves (Dalehite 2008; Schachter 2009; Behn 2014). New public
management proponents embrace such measures, as there is an assumption that
the latter allow for public sector management to be based on objective
assessments, to detach public management from the political process, and
thereby allow efficiency gains. According to Osborne and Gaebler (1992 cited
in Schachter 2010, 552), “politics focuses on perceptions and ideology, not
performance.”
On the other hand, subjective performance measures are derived from
surveys of a particular service’s clients, or of a sample of the general population
(Dalehite 2008; Schachter 2009), with respect to their satisfaction with public
agencies’ performance. Brodsky (2014) essentially sees the public value debate
as an attempt to shift from objective to subjective measures of government
performance.
Our finding that public value – a subjective measure of government
performance – has a significant influence on people’s happiness can be viewed
as an argument in favor of subjective measures of public sector performance. If
public agencies concentrate their efforts on the creation of public value, and
Paper 3: Public Value and Happiness
181
even engage in public value entrepreneurship (Meynhardt and Diefenbach 2012;
Kearney and Meynhardt, forthcoming), they can contribute to the subjective
well-being of people in the communities they serve. Contributing to the
happiness of the citizenry seems to be a very attractive value proposition for
public agencies. Yet, we should keep in mind that, by law, the public sector
performs certain functions – such as policing and tax collection – that involve
state authority and are necessary regardless of the current public value
appreciation.
Further research might examine whether the relationship between
public sector performance and citizens’ happiness also holds when objective
performance measures are used. As such research cannot just be carried out by
means of analysis at the individual level, as in the present study, it could adopt a
multilevel perspective (Hitt, Beamish, Jackson, and Mathieu 2007) that would
allow more differentiated research on the impact and importance of different
levels of public administration (local, state, national).
When comparing the debate on the measurement of well-being with
that on public sector performance, it is striking that both discussions revolve
around a subjective-objective divide. The gap that we have identified above
pertains to the general relationship between public sector performance and
citizens’ well-being. In this sense, one might argue that whether a subjective or
an objective approach is taken to measure the independent and dependent
variables is merely a matter of operationalization. However, we have indicated
above that the use of objective or subjective indicators is in fact based on very
different philosophical ideas about what constitutes “the good life” (Brock
1993). A systematic enquiry into the relationship between public sector
performance and well-being therefore requires an analysis of the relationship
between objective public sector performance and subjective well-being.
Moreover, it seems worth exploring how both objective and subjective public
sector performance can explain well-being. Our research into the relationship
between public value and happiness can thus be seen as a starting point for
Strategic Perspectives on Public Value
182
future conceptual and empirical research on the relationship between public
sector performance and well-being
Further research might analyze whether the relationship we discovered
is also found in other countries, especially in a non-European context. Such
research is especially relevant given that the relationship between trust in a
government and happiness might be limited to Europe (Veenhoven 1993; Frey
and Stutzer 2002). It should be interesting to see whether a different pattern
emerges when we take a public value perspective on public sector performance.
Public Value, Public Values and Public Service Motivation
Despite rejecting the third hypothesis, we found preliminary evidence
that working in the public sector moderates the relationship between public
value of public administration and self-reported happiness. This finding points
to an adjacent research stream: public values. Moore (1995) conceptualizes
public value as an outcome dimension of public sector activity that can be seen
as a subjective but substantive measure of government performance (Meynhardt
and Bartholomes 2011; Brodsky 2014; Van Dooren et al. 2015), but the plural
‘public values’ have been defined as “those providing normative consensus
about (a) the rights, benefits, and prerogatives to which citizens should (and
should not) be entitled; (b) the obligations of citizens to society, the state, and
one another; and (c) the principles on which governments and policies should be
based” (Bozeman 2007, 13). In other words, public values deal with the
normative principles guiding governmental action and therefore give direction
to public sector employees’ behavior (Andersen et al. 2013; Bozeman and Su
2015).
While developing the third hypothesis, we drew on public service
motivation literature, which (among other things) shows that public sector
employees are motivated by serving the public and making a contribution to the
common good (Perry and Vandenabeele 2015). Andersen et al. (2013) carve out
Paper 3: Public Value and Happiness
183
commonalities and differences between the public service motivation and public
values literatures. They find that the literatures clearly overlap, mainly because
values have a strong normative appeal that translates into a norm-based driver of
motivation. One could also argue that public values represent intentions driving
(part of) the public service motivation, which in turn enables public managers to
create public value. One implication of our research is that the intention and the
perceived actual public value performance interact to have a strong influence on
individuals’ life satisfaction (happiness). There has been some research on the
relationship between public service motivation and public values (Andersen et
al. 2013). Both public value and public values have been identified as two
components of an emerging paradigm in public management (Bryson et al.
2014). However, our findings suggest that the relationship between the
constructs is quite complex and warrants further (conceptual and empirical)
enquiry. In terms of empirical research, we point to the need for studies with
bigger samples (our subsample of public administration employees comprised
only 87 subjects) that could show the effect we found at a higher level of
significance.
CONCLUSION
Public administrations matter in people’s lives. In this study, we
demonstrated the impact of public administrations’ public value on individual
happiness. Future happiness research must not ignore this effect, since it extends
existing models that explain the drivers behind happiness. Research on public
administrations may benefit from a public value perspective, which captures
broader societal outcomes that are otherwise not considered from a performance
perspective. This approach would do justice to the value-infused nature of
institutions. In other words, our study helps to reclaim public administration as a
positive force for society at large.
Strategic Perspectives on Public Value
184
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PAPER 4:
FC BAYERN MUNICH: CREATING PUBLIC VALUE
BETWEEN LOCAL EMBEDDEDNESS AND GLOBAL
GROWTH
Timo Meynhardt, Pepe Strathoff, Lorenz Beringer, & Sebastian Bernard
July 2015
Abstract
The case study describes how FC Bayern Munich – Germany’s most
successful football club – has dealt with the challenges of the club’s
international growth and role in society. We describe how the club management
handled the balancing act between its local rootedness in the German state of
Bavaria and its ambitions to be a global player in the football industry.
Specifically, we show how the management became aware of rising tensions,
how these were analyzed and mapped by means of the Public Value Scorecard®
tool and the measures taken to unite and balance the seemingly paradox goals of
strengthening the club’s Bavarian roots and achieving global growth.
Publication: The Case Centre teaching case (document no. 215-131-1)
Strategic Perspectives on Public Value
196
INTRODUCTION
Arjen Robben’s unforgettable last-minute goal for FC Bayern Munich
earned it the 2013 UEFA Champions League final and a new pinnacle in its
extraordinarily successful history. At that moment, FC Bayern Munich was the
first professional male football team in Germany to win the triple crown, i.e. the
Champions League, the national Bundesliga, and the German knockout cup
DFB-Pokal.
As you know, football is more than a mere sports game. It takes place
in society with a multitude of expectations and full of diverse interests. A few
months before the said match, in January 2013, a meeting was scheduled to
begin in the meeting room of the club’s headquarter in Säbener Strasse in
Munich. The room looked out on the vast training pitches – now covered with
snow and deserted. The gloom outside contrasted sharply with the brightly lit
meeting room in which everything – from the coffee pots, to the carpet, and
even the door and window handles – is branded with the club logo. But the
atmosphere was tense, reflecting the tension of the only three persons in the
room: Andreas Jung, a member of the executive board responsible for the club
sponsoring, brand management, and merchandising; Stefan Mennerich, the
digital media director, and Lorenz Beringer, the social media head.i
The topic of their meeting was neither normal, nor easy. Various public
debates about the club’s stance towards the European Championship 2012,
which had been held in Poland and the Ukraine, the introduction of turnstiles in
parts of its Allianz Arena stadium, and a public debate about who was
responsible for the security costs in and around the stadium, had again
underlined the need to deal with ever-present societal and political issues. The
three managers found these “fuzzy” topics hard to grasp, as they were geared to
address clearly defined topics with clear alternatives and decisions to be made.
Their ordinary talk usually focuses upon the world of sports. At that moment,
Paper 4: FC Bayern Munich and Public Value
197
they all felt that an unknown animal called society was in the room and had to
be dealt with.
The men put down their coffee cups and got down to business. Their
discussion evolved and it quickly became clear that a coherent approach to the
raised problems had to go beyond issue management. The crux was that the
club’s identity and what it represents from the public’s viewpoint – its public
valueii – had to be thoroughly thrashed out. This was an especially important
task: The club was experiencing a period of rapid growth, was looking for new
fans all around the world, while simultaneously fostering its roots in the German
state of Bavaria.
Jung: “We need to describe and further sharpen our brand.
We really need to emphasize this – it is essential for
the future of FC Bayern Munich.”
Mennerich: “Yes, and this is not about creating something new.
Rather, we need to make explicit what we live
implicitly every day. While growing, we must not lose
sight of who we are, we must not lose our public
value. Our global growth will only be successful if it
is based on our values, on what we stand for.”
Beringer: “I have an idea! In the executive master program I
am currently following at the University of St.Gallen,
I heard about a new tool with which to assess public
value – the Public Value Scorecard. It is very
different from typical corporate social responsibility
or sustainability stuff. I could gather information on
the tool and if it is suitable, I’ll conduct a public
value assessment.”
Mennerich: “That is a very interesting idea. Go ahead and let us
know if you need help.”
Strategic Perspectives on Public Value
198
This talk marked the kick-off of a process described in this teaching
case, which shows that the club took advantage of its broader impact by
systematically exploring its value for society. The case focusses on the 2012-
2014 period. In particular, the board wanted to assess this value by means of the
Public Value Scorecard® tool. After a short overview of the club’s history and
organizational setup, we provide a description of how the club became
increasingly aware of its societal role due to emerging tensions, as well as how
these tensions were mapped and analyzed. Finally, we illustrate how the
management team moved forward to not only explore, but also to exploit, the
club’s public value to increase the company value and tap new growth
potentials.
HISTORY AND PROFILE OF THE ORGANIZATION
FC Bayern Munich is Germany’s most popular and successful football
club. It has the largest supporter base and polarizes public opinion like no other
football club in the country. The club was founded in 1900 and was soon known
as an open-minded institution attracting members from different parts of
Germany and across all social classes. With its first German championship in
1932, it demonstrated its role as one of Germany’s best football clubs. As there
were many Jewish members, the club suffered substantially during Nazism and
war. In this darkest chapter of Germany’s history, the club was forced to expel
all Jewish members, including its then president, Kurt Landauer. Further, many
of its players and members lost their lives, leaving the club struggling for
existence. In the early post war years, the club was of little note. When the
Bundesliga (the first national football league in the western part of the then
divided Germany) was founded in 1963, the club was not selected to become
member of the first season.
However, Wilhelm Neudecker, who was the club president at the time,
and his coach, Zlatko Čajkovski, built up a new team with players such as Franz
Beckenbauer. With this strong team, Bayern Munich qualified for the
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Bundesliga in 1965. The club won the German cup (DFB-Pokal) in 1966 and
1967 and from there onwards it seemed unstoppable. In 1969 it won the double
(the Bundesliga and the DFB-Pokal) for the first time. In the mid-1970s, it
actually won the European Champions Club’s Cup (predecessor of the UEFA
Champions League) three times consecutively (1974, 1975, and 1976). The
period from 1965-1976 is still regarded as the most successful period in the
club’s history, as it won 13 titles. FC Bayern Munich players also contributed
significantly to the German national team’s success in the 1972 European
Championship and the 1974 World Championship. These successful years
contributed to the increasing popularity of football in Germany and underscored
FC Bayern’s ambition to be counted among the world’s best football clubs.
In the following period, the team was restructured, but nevertheless
failed to win a title. This changed after a subsequent restructuring. Under the
leadership of its manager, Uli Hoeness, the club won the national league six
times in the 1980s. But there was a long haul ahead: The club only returned to
international fame when, under the watchful eye of its coach, Ottmar Hitzfeld, it
won the Champions League in 2001 and several national titles. However, by
winning the triple crown in 2013, FC Bayern Munich reached the pinnacle of
success in the 2012/2013 season.iii
In May 2013, FC Bayern’s company value was believed to be USD 860
million, making it the world’s most valuable football club.iv In recent years, the
club has developed its professionalization and marketing. In 2002 it spun off its
professional football team in an incorporated company, the FC Bayern Munich
AG. The club holds 75% of the company shares. The remaining shares are held
by the club’s longstanding partners Adidas, Allianz, and Audi (each 8.33%).v
Unlike many other clubs, FC Bayern is also known for its stable finances and
conservative financial policy, which is manifested in its legendary
“Festgeldkonto” (fixed-term deposit account). The club operates at a profit and
its management follows the principle of never spending more money on new
players and infrastructure development than it earns in revenue. The club’s
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earnings comprise the following major categories: 39% come from match
operations, 24.8% from sponsoring and marketing, 17.3% from merchandising,
and 11.2% from the commercialization of media rights. Compared to other
major international clubs, this is a very balanced distribution, providing a stable
base for ongoing success.vi In terms of overall sales, FC Bayern is fourth in the
world, with annual sales of EUR 368.4 million in the 2011/2012 season.vii The
club employs about 600 people.
The club’s athletic and economic success is also reflected in its stable
and growing fan base. The Allianz Arena, its stadium, is always packed with
supporters and tickets for more than 200 consecutive matches are sold out long
before. Its public training sessions regularly attract more than 3000 supporters.
Its approximately 9 million supporters in Germany make FC Bayern Germany’s
most popular football club. Worldwide, there are more than 3000 fan clubs. A
dedicated department at its headquarters allows the club to focus on all of its
fans. Fan club activities include supporter representatives regularly consulting
with the club management and celebrities (coach, player, former players)
appearing at events that fan clubs host. A football match between a selection of
supporters and the professional football team is an annual highlight for the fan
clubs.
MORE THAN A FOOTBALL CLUB
Its recent extraordinary success has again underlined the club’s
outstanding role in German football. Bayern Munich’s success nurtures the
club’s growth in terms of supporters, finances, and public recognition. As a
football club, Bayern Munich plays an important role in the lives of a great
many people in Germany and abroad. Every weekend, its fans passionately
follow the team, identify with individual players, and attach meaning to the club
that goes well beyond a specific sport event. Conversely, its enormous success
attracts envy and rejection, while the club’s practice of purchasing the best
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201
players of its competitors in the German national league has attracted criticism
and polarizes friends, families, and colleagues. Whatever the case, FC Bayern
Munich is an organization that enormously impacts people’s emotional state,
their perception of right or wrong, their social relationships, and ultimately their
images of society. For many fans, the daily life is heavily influenced by
activities to follow the club, either on TV, in fan club activities, or in the
stadium. Taken together, FC Bayern Munich contributes to the making of
society, since it creates a social context, which people relate to, and which they
experience as a source of satisfaction, energy, and even identity. In other words,
the club creates public value by shaping people’s attitudes and values about
their life and the society in which they live. The club’s recent success has again
strengthened this impact.
This societal role provides tremendous opportunities, but also poses
challenges for the club management. The management cannot merely focus on
being successful in football tournaments, but has to take the societal
implications of its actions into account. This involves balancing its stakeholders’
(e.g. sponsors, who aspire to a global reach, vs. local fans, who want direct
access) legitimate claims, choosing the right competitive strategy (purchasing
ready-made players on the international market vs. investing in the club’s young
players through talent development), and taking a stance on societal issues, such
as immigration and social inequality. Basically, the club increasingly finds itself
having to trade off its local embeddedness and global growth ambitions.
TENSIONS EMERGE
The European Championship 2012
The first sign of trouble ahead came in the run-up to the 2012 European
Championship to be held in Poland and the Ukraine. Comments appeared on FC
Bayern Munich’s Facebook wall asking the club to take a position on the
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202
Ukraine’s problematic human rights situation. Calls were made to bar the club’s
players from participating in the tournament as part of their national teams and
to publicly condemn the government’s treatment of the opposition leader, Julia
Timoschenko. Some comments showed very explicitly that FC Bayern was seen
to have a responsibility to take a stand and that some people were very
disappointed:
“That is an insult for every football supporter that cares
about human rights issues.”
“How can the club just ignore this?”
“Shabby, shabby, FC Bayern!”viii
These statements showed that the club could no longer refrain from
taking a position on political and social issues. The club’s president, Uli
Hoeness, subsequently stated his view of the issue publicly:
“I very much hope that Michel Platini [the UEFA
president] will at the right moment express his opinion
clearly.”
“I trust that the players are wise enough to form an
opinion. I will respect any player who takes a public stand
on this issue.”ix
Hoeness’ statements showed that, in 2012, the club felt the need to
comment on the issue, but delegated the responsibility for this from the club as
an institution upwards to the European football association and downwards to
individual players. Nevertheless, the club’s top management commenting on the
issue was sufficient to show that it was aware of its role as a social institution
that influenced societal values. It could no longer refrain from societal and
political debates by using the excuse that it was “just a football club.”
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Struggle on the Stands
But this was not the end of the public debate. The introduction of
turnstiles on the southern stands of the Allianz Arena led to a debate among its
fans. The southern stands, right behind the goal, are known as the area where
fans with the greatest propensity to kindle the well-known stadium atmosphere
gather. Here, football chants are started, which fans in other parts of the stadium
join. No wonder fans with tickets for seated terraces – often in other parts of the
stadium – frequently joined the fans with tickets for the standing terrace, which
is part of the southern stands, to help create the unique stadium atmosphere.
Together, their passion seemed to carry the team.
Nevertheless, the club management decided to limit access to the
southern stands by introducing turnstiles, which would only allow holders of
tickets for this specific area of the stadium access to the stalls. This led to an
outcry, especially from the club’s “ultra” fans, who are well-organized groups of
fans that regard themselves as a fan elite. “Schickeria,” one of FC Bayern’s
most famous “ultra” fan groups, issued the following statement:
“These turnstiles are a manifestation of the top
management’s wish to exert total control. For the club’s
leadership, they have the agreeable side effect of gagging
critical voices and expelling disagreeable fans, because
the electronic turnstiles make these stadium visitors totally
transparent. The turnstiles are destroying the fan culture
on the southern stands. Fan culture thrives through
spontaneity and freedom, and dies if totally controlled.”x
A Munich newspaper photograph caption read:
“Atmosphere killer turnstiles? This is what they look like
in action.”xi
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However, the club clarified that the turnstiles were necessary for
security purposes and to comply with building regulations. The turnstiles would
prevent more fans from entering certain areas of the stadium than for which
these were originally designed. The fans, especially the ultra fan groups,
responded to the introduction of the turnstiles by boycotting some games, which
influenced stadium atmosphere, making it far less passionate. In the end, the
club agreed with a compromise: The number of people allowed into the stalls
would still be limited but allocated on a first come-first served basis on the day
of the match.xii
This issue demonstrated that while certain club decisions are based on a
business sense and on compliance with legal requirements, (part of) its fans may
consider them contrary to the club spirit. In this sense, FC Bayern Munich is a
unique organization due to its fans’ extreme emotional attachment and support
of the team. Consequently, any changes to the status quo lead to acute public
attention and emotional reactions.
TENSIONS ARE MAPPED AND ANALYZED
The calls to take a stand on the human rights situation in Ukraine and
the conflict regarding the turnstile introduction made the club’s leadership
aware that its enormous growth and success were not without growing pains,
and that it needed more information on its role in society. That was when
Lorenz Beringer, the club’s head of social media and customer relationship
management, had an epiphany. During an executive training course at the
University of St.Gallen in Switzerland, he had heard about a tool that helps
organizations understand what makes them valuable for society: the Public
Value Scorecard® (PVSC).xiii
Public value is a unique concept to explicitly analyze how an
organization contributes to the quality of relationships between an individual
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and what is called “society”, i.e. collectively shared values, which constitute
social relations and help integrate individuals in a social system. Whereas the
notion of corporate social responsibility takes primarily moral-ethical
considerations into account, public value broadens the perspective to a number
of other collectively shared values. Thus, it calls for a holistic viewpoint by
relating “value” to the fulfillment of basic human needs, i.e. to instrumental-
utilitarian, moral-ethical, political-social, and hedonistic-aesthetical needs at the
same time. In effect, public value rejuvenates the idea of the common good as a
precondition for individual development and growth beyond specific values or
different stakeholder interests. While stakeholder approaches, for example,
focus on legitimate claims of particular groups, public value addresses a public
dimension, which touches upon the experience of society itself, on systemic
properties – or: common good. For example, a sense of belonging, cultural
traditions, or solidarity can be understood from a public value perspective much
more easily than from fragmented stakeholder perspectives.
In contrast to other management concepts, public value systematically
takes a societal viewpoint, since it presumes that individuals develop and grow
depending on the society they live in. More precisely, it is about the images
about societal values, which people construct and internalize. Along these lines,
organizations create value for society, which is often underestimated or not fully
analyzed. It is definitely not fully captured in an annual report or financial
statement.
For Lorenz Beringer, it was very obvious that the new language of
public value could help to better see how FC Bayern Munich shapes value in
and for society. He convinced and persuaded his colleagues that the information
provided by the PVSC would clearly support the club’s strategic decision
making in facing the challenges described. The board subsequently mandated
Beringer to use the PVSC to identify the club’s public value.
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206
The Method
During the project, the PVSC was used in its exploratory version. This
approach provides managers with a tool to get to know how stakeholders think
about their company’s public value. The central question is: What makes your
organization valuable to society? Beringer used the Value Knowledge Guide
(WertwissensGuide - an adaption of the repertory grid) interview techniquexiv to
conduct interviews with 26 internal and external club stakeholders.
The interviewees were chosen to represent all relevant stakeholder
groups, namely the club itself, its fans, business, sponsors, the media, and
broader society. Beringer interviewed personalities such as Paul Breitner, a
former player and club consultant, Heinrich von Pierer, a former Siemens CEO,
and Herbert Henzler, a former European Chairman of McKinsey & Company.
These interviews gave Beringer 324 pairs of constructs, each of which
representing an aspect of the club’s public value and an alternative path to
action (e.g. How it should not become: Developing the club into a pure business
venture vs. FC Bayern’s visibility as a sports club). These construct pairs were
then clustered to carve out the club’s unique public values. The clustering was
done in a workshop with internal and external experts. The tensions between the
different public values were mapped on the basis of the construct pairs’
composition. These pairs not only represented alternative courses of action, but
also indicated the differences between the respondents and stakeholder groups.
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The Results
FIGURE 1
Public Values of FCBxv
The above figure shows the club’s identified eight public values, which
cluster the results from the exploratory Public Value Scorecard interviews. This
tool allowed the club management to obtain information on its role in society
that went beyond classical market research. It became clear that the stakeholders
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208
value the club’s role as a melting pot in which players and fans from different
origins and social backgrounds come together. Interestingly, one of the
identified public values is “community through polarization”. The club’s
polarizing capacity is actually regarded as a public value. In other words, you
cannot be indifferent towards the organization – you either love it or hate it.
Both attitudes, support and animosity, unite the respective groups and contribute
to a feeling of community. This means that the club management cannot expect
the public to ignore any of its actions and that fans and opponents will mostly
rate these differently. Simultaneously, however, it shows that the club’s often
lamented arrogance does actually contribute to its public value.
The club’s maximum drive for success is seen as a role model of
striving for performance. It always strives to be the number one and expects all
its players, other employees, and partners to constantly go an extra mile to
reflect their commitment. This performance culture is also manifested in the
club’s policy of “buying out” the best players from its competitors in the
German national league, thereby strengthening its team. Its board member
responsible for sports, Matthias Sammer, has made this commitment very clear
in a recent press statement in which he stated that: “We are in a merciless
competition … We always want to be the number one. We will do everything to
achieve this goal.” Clearly, such attitude is sometimes at odds with societal fair
play as a public value, which focusses more on football’s uniting character than
on its competitive character.
As the example of these public values shows, complexities and tensions
abound and public values cannot be examined individually. When Beringer
discussed the results of his initial research with Mennerich and presented him
with the eight public values, the two of them therefore quickly sensed that more
analysis was needed of how the different public values relate to each other.
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209
Mennerich: “I really like what you did and think that this is an
important step in making the values, which are so
deeply ingrained in our club’s day-to-day life,
explicit. What you did also comes very close to the
image we reflect in our “Mia san mia”-brochure.
Your results would, however, be more actionable and
their managerial relevance would increase if you
added a dynamic component. Don’t you also think it
would be interesting to see how the identified values
interact with each other?”
Beringer: “Stefan, I’m really pleased that you agree with the
findings. We should of course go a step further and
analyze how the different public values relate to each
other. The data that I have collected allows such
analysis.”
Mennerich: “Then go right ahead! I am looking forward to the
results.”
Mennerich thus mandated and encouraged Beringer to take one further
step and analyze the possible tensions between the club’s public values.
In a workshop with internal and external experts, Beringer identified
the trade-offs between FC Bayern’s public values as revealed by the data he had
collected through his stakeholder interviews by means of the exploratory Public
Value Scorecard. Figure 2 below maps the public values, as well as the trade-
offs and tensions between them. Interestingly, the public values can be mapped
along the two axes: “local rootedness – global presence” and “identity through
polarization – integrative power/ FC Germany.” These axes indicate the basic
dimensions along which tensions may emerge, while the arrows indicate the
trade-offs between the public values. The arrow size shows how often a certain
trade-off was mentioned in the interviews.
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210
FIGURE 2
Tensions between Public Values of FCBxvi
The trade-off most often quoted is between the public values
“maximum drive for success” and “societal fair play” (Arrow “A” in Figure 2).
The former describes the club’s attitude of always wanting to be a top performer
and to be counted as one of the most successful teams in Europe, whereas the
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latter points to the club being a role model for social engagement and fostering
solidarity in society. However, these two values could collide if the club has to
decide between striving for success at any price (moral, as well as monetary)
and prioritizing its adherence to its values that go beyond mere victories. This
would, for example, be relevant if the club needs to determine whether to
purchase ready-made players on the international market, thereby ensuring
success, or to invest in its own youth teams and integrate young players from its
own talent development into the first team. The club management is very well
aware that the implications of its transfer policy go well beyond ensuring
success on the pitch. When asked in an interview whether FC Bayern risked
making the national Bundesliga a boring competition, Karl Heinz Rummenigge,
the CEO, replied:
“I have for weeks been pondering this question about what
our job exactly comprises. It is about composing a high-
quality team which plays football successfully? Further, it
is about which debate about morals we would trigger if we
were to purchase a player from a direct competitor? There
always are pros and cons.”xvii
A second trade-off is between the public value of the club’s Bavarian
identity and rootedness (manifested in the club’s Bavarian slogan “Mia san mia”
(“we are we”) and its global brand image and aspirations to be a global player in
the football industry (Arrow “B” in Figure 2). The club emphasizes its Bavarian
origins and roots. The club’s logo is the checkered blue and white pattern of the
Bavarian flag and its recently introduced Bavarian slogan is the self-confident
“Mia san mia”xviii. Further, the players appear in public in traditional
Lederhosen when celebrating victories, all of which point to the importance that
the club attaches to its Bavarian heritage. The club thus also fosters the Bavarian
people’s regional identity. Simultaneously, the club sees enormous potential for
growth in international markets, where even in non-traditional football countries
(such as China) an increasing number of people are engaging in the sport and
Strategic Perspectives on Public Value
212
looking for a team to support. If the club wants to reach its economic goals
abroad, it also has to nurture its worldwide fans, as well as cooperation and
marketing partnerships. This could lead to a situation in which the needs of its
regional fans cannot be taken into account to the same extent as previously and
with the club losing touch with its fans in Bavaria and Germany. The following
dialogue on the club’s official Facebook channel in February 2014 illustrates
this potential conflict well:
User A: Why is everything here in English when it is the
official [FC] Bayern page? Damn!
User B: Because there are many international fans and
Germans also understand it [the Facebook page] ;-)
User C: I do not understand it.
User D: Can I read the article in German?!
User E: 1. There is an older generation of fans who did not
grow up in an internationalized society and therefore did
not have an opportunity to learn English. 2. It is also about
principles: FC Bayern is a Munich football club. One
expects them [the club] to communicate everything in
German or Bavarian. Or is this Facebook page only for
‘international fans’?”xix
A focus on global rather than regional markets can therefore lead to a
dilution of the club’s brand and identity. In addition, unhealthy growth and an
overly rapid global expansion might divert the club management’s attention
from its core business – managing a successful football team. However,
forfeiting opportunities for international growth and remaining stuck in Bavaria
might lead to a situation in which the club is not open to new influences and
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213
development, and starts falling behind in terms of sport achievement and
financial means. The club therefore has to find a balance between its regional
identity and global growth.
A third trade-off is between financial strength and (short-term) sport
success (Arrow “D” in Figure 2). On the one hand, the club’s financial strength,
exemplified by its legendary “Festgeldkonto” (fixed-term deposit account), is
regarded as a public value, because the club is a role model of how to deal with
money prudently and achieve success sustainably. On the other hand, the club’s
drive for maximum success requires investments in new players and
infrastructure, which will allow the club to keep competing on an international
level. Rich patrons often enable such success, or debt can finance it (see Chelsea
London and Real Madrid as examples). FC Bayern’s prudent approach can clash
with its (short-term) success orientation when it bids for an outstanding player
on the international level, but a competitor, who incurs debt to buy that player,
outbids it. Here, the club has to find a balance between its short-term and long-
term orientation.
These trade-offs describe challenges requiring the club to balance its
competing goals and to simultaneously take two conflicting actions (e.g.
maintain its Bavarian identity and achieve global growth). These goal conflicts
can be characterized as a combination of exploitation and exploration, for
example, catering to the fans in the original market and making inroads into new
markets, or maximizing the club’s short-term success and ensuring tomorrow’s
financial strength. In the scholarly debate on management, the ability to deal
equally well with two incompatible goals, especially exploitation and
exploration, is called organizational ambidexterity.xx
Beringer presented his findings on the club’s public values and the
trade-offs between them to the club management. The results were received
with great interest and he was asked to derive actions which the club could take
to balance these ambidextrous challenges well.
Strategic Perspectives on Public Value
214
TENSIONS ARE RESOLVED
A number of measures have been taken since then to deal with the
apparent paradox between global growth and local rootedness.
With its appointment of Jörg Wacker as the new board member
responsible for internalization and strategy in July 2013, the club emphasized its
internalization strategy in the organizational setting. Wacker drove the club’s
internalization recently with the opening of an office in New York City to
support its American market entry. He is also putting more emphasis on the
Chinese market. Nevertheless, Wacker is well aware that such growth has to be
based on the club’s roots. In a recent interview, he mentioned:
“Our activities are based on certain values that we find
extremely important. We want to convey what we
represent, for example, success, a sense of family,
tradition, a connectedness to home, innovation, as well as
sensible financial dealings. With these values we reach out
to people in different regions all over the world.”xxi
Further, the club has increased its reach by making information
available in an increasing number of languages on its different channels. Its
Facebook posts are in ten languages and it uses German, English, and Spanish
Twitter accounts. It has launched a presence on the Russian language social
network VKontakte and also on a Chinese social media platform. It has
launched an American website, an American mobile phone app, and an
American online shop to support its expansion into the American market.
Further, it employs an American presenter for an English news program about
the club. It has also relaunched its YouTube channel, in order to include more
languages and increase its international reach even further. These measures have
all had an impact. The share of international visitors to the club’s Facebook
page has increased from 50% in 2011 to more than 80% in 2014. The club’s
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215
self-produced TV show is now broadcasted in more than 75 countries, while its
international supporter clubs have grown from 2.952 in 2010 to 3.774 in 2014.
However, the club does not only invest in gaining new fans on a global
scale, but also fosters its local Bavarian fan base. This is manifested in its use of
additional languages: The club has launched a version of the website in
Bavarian, the local German dialect spoken in Munich and surroundings. Before
every home game, the regional radio station, Bayern 3, raffles free tickets. With
a camera crew on hand, the winners are picked up from their homes and
conveyed to the stadium – all cost free – to underscore the club’s commitment
to its Bavarian roots. The club is also committed to the local media by giving
them privileged access to news. The FC Bayern Kids Club (www.fcb-
kidsclub.de) is a supporter club for children aged 6-12. It is directed at children
in Munich and other parts of Germany. According to Mennerich: “The Kids
Club is a strong statement emphasizing our roots here and aimed at the children
here, at our basis.”
The club has also taken the tension between international growth and
local embeddedness into account in core business decisions, involving
considerable financial consequences. For example, the club is part of a central
marketing system for TV rights to the entire German football league. By
participating in this system, the club also supports weaker and smaller clubs
which would earn less by selling the TV rights to their matches if they were to
market these individually. In addition, FC Bayern is pushing the broadcasting of
Bundesliga matches on free TV channels, as opposed to pay TV channels. In the
short run, this practice could lead to lower earnings; however, in the long run, it
makes the German football league as a whole more attractive and increases the
reach of football broadcasting. In turn, this increased reach will allow more
people to access this kind of entertainment, which will again drive the club’s
and the Bundesliga’s internationalization. The club’s digital media channels
have adopted a similar approach by making a lot of formerly paid content
available for free in order to increase its access and reach.
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216
The club’s commitment to international growth and its local roots is
also manifested in the club’s cooperation with sponsors. Mennerich states: “Our
strategy is to work with global industry leaders and if they have their roots in
Bavaria, that is even better.” As mentioned previously, the club’s main
sponsors, which also hold minority shares in its football business, are the car
manufacturer Audi, the insurance group Allianz, and the sportswear producer
Adidas. All three firms have their roots and headquarters in Bavaria, but have
expanded globally and are among the foremost firms in their respective
industries. By cooperating with such firms, the club can also reconcile its global
ambitions and local roots in terms of sponsoring.
THE ROAD AHEAD – BACK TO THE FUTURE?
The FCB and its trainer Pep Guardiola are focused on athletic success
in the foreseeable future. In the 2014/2015 season, the club is once again a clear
frontrunner in the German national league. Nevertheless, its continuing
international growth and the opening of its office in the US and the marketing
strategy in China mean its balancing act between local rootedness and global
ambitions will be even more challenging in the future. Other major international
football clubs, such as FC Barcelona, Real Madrid, and Manchester United, are
pursuing a similar global expansion, but vary in their responses to the challenges
that this poses for their role in society. With its Catalan slogan “més que un
club” (more than a club) FC Barcelona has a public value associated with a
commitment to its Catalan identity, as well as to universality and a social
commitment.xxii Other clubs, such as Real Madridxxiii and Manchester Unitedxxiv,
seem to adopt a more conventional CSR strategy by operating charitable
foundations. Different clubs do, of course, need to adopt different approaches to
deal with their particular situation regarding dealing with growing pains. In
terms of public value, football clubs are very special organizations, as they
enjoy much more public attention than most other firms. Their core business
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217
might be to play football, but their societal role and their public value creation
go far beyond that.
The Public Value Scorecard assessment and, especially, the mapping of
the tensions and trade-offs between the club’s public values, help the club’s
leadership anticipate the public value consequences of management decisions.
In a debrief meeting in September 2014, Jung, Mennerich, and Beringer
gathered in the same meeting room where they had initially kicked-off the
project. It was a warm, late-summer day and there were loads of supporters
outside the building cheering the players arriving for their training sessions. The
three managers were in a far more optimistic mood than at their initial meeting.
They considered the project a success and were confident that the right steps had
been taken to engage with that unknown animal called society, thus turning the
club’s public value into a resource in the process of aligning the club’s global
growth and its local roots.
Jung: “The public value assessment has really helped us to
further sharpen our brand and communicate what we
represent to a wider public. By investing in our
Bavarian heritage, we have successfully ensured that
the club will, in the long term, maintain its position as
an authentic brand in the football market.”
Mennerich: “Lorenz, thank you for this great work. We can build
our strategic management decisions on your results.”
Beringer: “Thank you, Andreas and Stefan, for your support
with this project. I really learned a lot from talking to
our stakeholders and collecting information.
However, what struck me most was that all this is not
really new, but has been the leitmotiv of our club for
most of its history. I became aware of this when I
recently watched the new Kurt Landauer movie.”
Strategic Perspectives on Public Value
218
In this movie, Kurt Landauer, who was the club’s legendary president
during the post WW II reconstruction, states:
FC Bayern Munich will definitely revive the traditions that
it cultivated before the war: Its Bavarian heritage,
cosmopolitanism, and internationality. Professional
football is our guiding principle and we will – even more
than in the past – focus on developing our youth team.xxv
Paper 4: FC Bayern Munich and Public Value
219
ENDNOTES
i Disclaimer: Co-author of this teaching case
ii Meynhardt, Timo. 2009. Public Value Inside: What is Public Value Creation?
International Journal of Public Administration 32 (3-4): 192-219;
Meynhardt, T. (2013). Public Value: Organisationen machen Gesellschaft.
OrganisationsEntwicklung. Zeitschrift für Unternehmensentwicklung und
Change Management. 4: 4-7; see also the video: Public Value: Common
Good and the Society on Youtube:
https://www.youtube.com/watch?v=tLGAQ4q_Sb0
iii Bausenwein, C., Schulze-Marmeling, D. (2012). FC Bayern München: Unser
Verein, unsere Geschichte. Göttingen: Die Werkstatt; Schulze-Marmeling,
D. (2009). Die Bayern – Die Geschichte des deutschen Rekordmeisters.
Göttingen: Die Werkstatt.
iv Brand Finance (2013): Brand Finance Football 50:
http://www.brandfinance.com/images/upload/brandfinance_football_50_hig
h_res.pdf
v FC Bayern München (2014) Website: http://www.fcbayern.de/de/club/fcb-
ag/organe/
vi FC Bayern München (2012): Jahresabschluss der Saison 2011/12:
http://www.fcbayern.telekom.de/media/native/pressemitteilungen/finanzzahl
en_2011_12.pdf
vii Deloitte & Touche (2013): Die Spielführer der Branche – Football Money
League, Berlin.
viii Exemplary quotes drafted by the authors
Strategic Perspectives on Public Value
220
ix Spiegel online (2012): http://www.spiegel.de/politik/ausland/fussball-em-
bayern-praesident-hoeness-fordert-solidaritaet-mit-timoschenko-a-
830453.html
x Roßman, Fabian. (2013) on Goal.com:
http://www.goal.com/de/news/3642/editorial/2013/07/31/4147296/fc-
bayern-schr%C3%A4nkt-seine-fans-ein-drehkreuze-ja
xi Abendzeitung (2013): http://www.abendzeitung-muenchen.de/inhalt.fc-
bayern-muenchen-freier-blockzugang-in-der-suedkurve-test-
gelungen.66903155-d102-487d-bb2a-d167a8b67185.html
xii Roßman (2013)
xiii Meynhardt, Timo; Gomez, Peter; Schweizer, Markus (2014) – What makes
an organization valuable to society? EY Performance Journal 6(1): 1-8;
Meynhardt, Timo. (2015). Public Value – Turning a Conceptual Framework
into a Scorecard. In: Public Value and Public Administration, edited by
John. M. Bryson, Barbara C. Crosby and Laura Bloomberg. Georgetown
University Press. Upcoming book.
xiv See: Meynhardt (2015)
xv Beringer and Bernard (2013a), p. 73 (own translation).
xvi Beringer and Bernard (2013a), p. 91 (own translation).
xvii Rummenigge-Interview “Unser Geschäft ist irrational” in Der Spiegel
(10.11.2014)
xviii http://www.sueddeutsche.de/bayern/ursprung-des-fc-bayern-mottos-wer-
san-mia-1.1742394
xix www.facebook.com/fcbayern retrieved on 24.02.2014
Paper 4: FC Bayern Munich and Public Value
221
xx Birkinshaw, Julian M. and Gupta, Kamini (2013). Clarifying the Distinctive
Contribution of Ambidexterity to the Field of Organization Studies.
Academy of Management Perspectives 27(4): 287-298.
xxi DER SPIEGEL, 28.07.2014 – Rakete auf der Rampe
xxii http://www.fcbarcelona.com/club/detail/card/fc-barcelona-the-members-club
xxiii http://www.realmadrid.com/en/about-real-madrid/foundation
xxiv http://www.mufoundation.org/
xxv Movie: Kurt Landauer – Der Präsident (minute 1:24) Available at
amazon.com, or contact the authors ([email protected])
223
PAPER 5:
SYSTEMIC PRINCIPLES OF VALUE CO-CREATION:
SYNERGETICS OF VALUE AND SERVICE ECOSYSTEMS
Timo Meynhardt, Jennifer D. Chandler, & Pepe Strathoff
January 2016
Abstract
While most investigations of value and value co-creation empirically
focus on either the individual micro-level or the collective macro-level, a
systemic perspective asserts that investigations at one level, in isolation from the
other, are incomplete. Based on synergetics and its core principles of emergence
and enslavement (consensualization), we argue that value is a systemic property
(i.e. an order parameter) that emerges from micro-macro links in service
ecosystems. We propose a framework that begins to unravel the complexity of
value co-creation and the dynamics of service ecosystem evolution. We
introduce nine systemic principles of value co-creation: critical distance,
stability, amplification, internal determination, nonlinearity and feedback,
phase transitions, symmetry-breaking, limited predictability, and historical
dependence. Based on these, we outline future research opportunities in three
areas: the moralization of markets, an acceleration of societal dynamics, and the
increasing embeddedness of service in society.
Publication: Journal of Business Research, 69(8): 2981-2989.
Strategic Perspectives on Public Value
224
INTRODUCTION
Although there has been a surge of research on value co-creation in
recent years, the direct topic of value has not received equal empirical attention,
perhaps because value is inherently and implicitly present in any study that
investigates satisfaction, profit, or firm performance (Grönroos & Voima, 2013).
This includes studies that for instance emphasize value-creating practices
(Kjellberg & Hellgesson, 2006; Schau, Muniz, & Arnould, 2009), value co-
creation and co-production processes (Etgar, 2008; Payne, Storbacka, & Frow,
2008), value networks (Lusch, Vargo, & Tanniru, 2010), and value propositions
(Frow & Payne, 2011; Chandler & Lusch, 2015).
Fortunately, extant literature on service ecosystems has given some
form and substance to the study of value. The service-dominant logic (SDL)
literature places value at the center of service ecosystems, or systems of
resource-integrating actors (Lusch & Vargo, 2014), in which actors are joined
by value and, specifically, mutual value co-creation efforts (Vargo & Lusch,
2011). Societal megatrends such as a moralization of the markets (Stehr, 2007),
an acceleration of society (Rosa, 2005), and an increasing awareness of the
social embeddedness of economic actions (Granovetter, 1985) emphasize
mutuality in social systems, underlining the need for a systemic approach that
considers the dynamic properties of value co-creation.
Based on this, our proposed framework conceptualizes value as a core
organizing principle – or, what synergetics calls an order parameter – of service
ecosystems. Because value is simultaneously an individual and collective
phenomenon, it is important to study value at the micro-level, meso-level,
and macro-level of a service ecosystem (Chandler & Vargo, 2011). To do this,
we go beyond a network perspective that is rather static, to focus on the
dynamic aspects of system behavior across these levels (Lusch & Vargo, 2014;
Haase & Pick, 2015). Because value cannot be separated from either the
Paper 5: Systemic Principles of Value Co-Creation
225
individual micro-level (e.g. customer value) or the collective macro-level (e.g.
public value), it is necessary to develop a theoretical foundation for exploring
the systemic nature of value and value co-creation (Prahalad & Ramaswamy,
2004; Lusch & Vargo, 2006).
This is not to say that investigations of value and value co-
creation at either the individual micro-level or the collective macro-level
perspectives are incorrect; but a systemic perspective would view each of
these perspectives, in isolation from the other, as incomplete (Pires, Dean, &
Rehman, 2014). We emphasize that value – as a systemic property – cannot be
reduced to the individual or the collective level. Although this has been
acknowledged from the service ecosystems perspective (Chandler & Vargo,
2011), there has not yet been a comprehensive framework that accounts for
dynamic multilevel systems from an SDL perspective. As a result, it is difficult
to systematically assess and operationalize the (self-organized) workings of
service ecosystems. Current theoretical “tools” are insufficient for opening up
the black box “system” and clarifying its behavior. This leads us to the
following research question: What are the systemic principles of value co-
creation in service ecosystems?
We seek to contribute to the ongoing debate regarding value and value
co-creation within service ecosystems by drawing on self-organization theory,
namely synergetics, to catalyze a dynamic perspective on value as a systemic
property (Haken, 1977; 1984; 1993). The theory of synergetics, as developed by
Hermann Haken (Haken, 1977; Haken & Schiepek, 2005), can help us to
explain how individual experience (e.g. customer value) interacts with collective
phenomena (e.g. public value). Based on the idea of formalizing micro-macro
links (Alexander, Giesen, Münch, & Smelser, 1987) in a system, the synergetics
perspective formally articulates when and how a system order changes in a self-
organized way. Synergetics asserts that relatively stable macroscopic states tend
to emerge out of complex systems of interacting parts. In turn, these order
parameters inform how the parts abide by the rules of the game (enslaving or
Strategic Perspectives on Public Value
226
consensualization). Its independence from a particular (social) scientific
discipline makes synergetics a suitable formalized apparatus for inquiry to the
dynamic properties of system behavior (Meynhardt, 2004).
Based on the core synergetic processes of emergence and enslavement1,
we introduce nine systemic principles of value co-creation: critical distance,
stability, amplification, internal determination, nonlinearity and feedback,
phase transitions, symmetry-breaking, limited predictability, and historical
dependence. These principles clarify the sensing and collating nature of value
co-creation when viewed from a systems perspective (Lusch, Vargo, & Tanniru,
2010). They begin to shed light on the complexity of service that has recently
become salient because intersections between the micro-level of value and
macro-level of value have blurred lines among the traditional tasks, roles, and
responsibilities of customers and firms (Jaakkola & Alexander, 2014; Piller,
Moeslein, & Stotko, 2004; Schau et al., 2009).
The paper is structured as follows. We explore the origins of the
service ecosystems concept, emphasizing how value has been conceptualized
within service ecosystems. We then explain how synergetics can help to clarify
value as a systemic property, and explain the nine systemic principles of value
co-creation. Subsequently, we provide illustrative examples of how a
synergetics approach can further our understanding of current phenomena that
alter the context in which value co-creation processes take place. We end with a
discussion of theoretical and practical implications.
1Enslavement is the technical term used in the synergetics literature for processes of top-
down ordering of the system according to the order parameter. Another term for this phenomenon is consensualization.
Paper 5: Systemic Principles of Value Co-Creation
227
CONCEPTUAL BACKGROUND
Service Ecosystems
The service-dominant (SD) logic of value creation emphasizes
knowledge and skills as primary resources for exchange (Vargo & Lusch, 2004;
2008). By doing so, SD logic emphasizes the activities and processes of value
co-creation, rather than its outputs and outcomes. According to SD logic, these
activities and processes are catalyzed by service – the application of
competences for the benefit of others (Vargo & Lusch, 2004; 2008). This
intertwines an actor’s competences with the other actors’ knowledge, skills, and
competences (Lusch & Vargo, 2015). As a result, these actors are joined
together by service and their behaviors synchronize with wider market norms
and expectations (Akaka, Vargo, & Schau, 2015). Because of this, a service
ecosystem, or a “relatively self-contained, self-adjusting system of resource-
integrating actors connected by shared institutional logics and mutual value
creation through service exchange” emerges (Lusch & Vargo, 2014, p. 161).
Actors are thus joined because of mutual value co-creation efforts, and the
actors together constitute a self-adjusting, self-contained service ecosystem.
Viewing service in this way, we can begin to clarify the mechanisms of
self-organizing, complex, and adaptive systems because of the “multiple
interrelated actors, processes and systems that together move through phases
and cycles” in service ecosystems (Chandler & Lusch, 2015, p. 15). As these
different processes and actors jointly evolve over time, they effect change on
one another in nonlinear and dynamic ways. As a result, some service
ecosystems thrive, while others wither away (Vargo, Maglio, & Akaka, 2008).
To advance the SDL literature, the proposed systems-level theory offers some
explanation about why and how this occurs.
Strategic Perspectives on Public Value
228
Value and Value Co-creation
We draw attention to value as a core organizing principle, or systemic
property, of a service ecosystem. Value binds together different systemic parts
in a coherent way (Edvardsson, Tronvoll, & Gruber, 2011). As a systemic
property, value cannot be understood by focusing only on a single component or
level of a service ecosystem (Corsaro, 2014; Akaka, Vargo, & Lusch, 2013). It
often involves large, expansive networks of actors (Tax, McCutcheon, &
Wilkinson, 2013). Because value is simultaneously an individual and a
collective phenomenon, the micro, meso, and macro levels of a service
ecosystem characterize its emergence (Xie, Bagozzi, & Troye, 2008; Chandler
& Vargo, 2011).
For these reasons, it is important to study value as unique to the service
ecosystem and context in which it emerges, as well as to the actor for whom it
emerges. The micro individual level of value is not isolated from a macro
collective level of value. The micro-level is embedded within a meso-level,
which is itself embedded simultaneously in a macro-level (Chandler & Vargo
2011). The meso-level focuses on a collective, intersection, or relationship of an
individual, while the micro-level focuses on the individual, and the macro-level
focuses on the environment in which the meso-level and the micro-level exist.
Thus, the meso-level points attention to ecosystem subsystems that interconnect
micro-levels and macro-levels of value (Pires et al., 2014).
These parts contribute holistically to the whole. The study of one level
without the other would be akin to for instance studying the value of the human
eye (micro-level) without studying the optic nerve and the brain’s ability (meso-
level) to translate signals into meaningful information for the body (macro-
level). The value of the human eye cannot be fully understood by simply
looking at the parts it is composed of (iris, pupil, ocular lens, etc.). Rather, if we
are to make sense of the eye and understand its value, we need to look at it as
part of our complex visual and cognitive system.
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229
Similarly, the disparate elements of a service ecosystem make more
sense when they are viewed as synergistic parts of a whole, especially
concerning value. Any individual actor that experiences value does so in a
specific context while, conversely, value that is realized in a specific context can
be shared by an individual in that context. Thus, the mutual constitution of
individuals and their contexts makes it difficult to study value as extracted from
one level vs. another (Giddens, 1984).
A SYNERGETICS PERSPECTIVE OF VALUE CO-
CREATION
What is Synergetics?
To explore the dynamic interplay between individual and collective
value, we draw on the synergetics literature. Synergetics furthers our
understanding of how value emerges as an order parameter, and offers
principles that clarify how bottom-up emergences and top-down enslavement
unfold in service ecosystems (Ebeling & Feistel, 1994; Meynhardt, 2004).
Synergetics is based in the natural sciences but has also been applied to other
disciplines such as management, economics, and psychology (Haken &
Mikhailov, 1993; Haken & Schiepek, 2006). It offers principles that cannot be
found in other theories, such as autopoiesis by Maturana and Varela (1987),
describing self-reproduction of organisms, or Giddens’ structuration theory
(1984), with its focus on the interplay between action and structure, or Weick’s
concept of sensemaking (1995). While these theoretical approaches emphasize
nonmechanistic processes and phenomena that elude linear causalities, only
synergetics offers a formal approach that explains when and how a system’s
order changes in a self-organized fashion. According to synergetics, order
parameters inform and define how the parts of a system abide by the rules of the
Strategic Perspectives on Public Value
230
game through processes of enslaving or consensualization, as we will explain
below (Meynhardt, 2004).
We begin by asserting that value is situated in the social environment
of a market object and a subject’s appraisal of the object. On the one hand,
viewing value in this way emphasizes the recent conceptualization of service
experience that establishes a role for service in shaping collective value beyond
an economic transaction (Meynhardt, 2009). The idea is that a third-party (often
a firm) can influence the service experience so as to influence a subject’s
appraisal of an object. On the other hand, this perspective also underscores the
unpredictable individual psychological process of valuing (Eagly & Chaiken,
1993). The emphasis is on individual engagement in value co-creation, which
can range from a literal, physical, or emotional involvement to the conscious
shaping of context to enable certain experiences (Chandler & Lusch, 2015).
Owing to this mechanism for engagement, individual actors often become
integrative mechanisms of larger value co-creation systems (Brodie, Hollebeek,
Juric, & Ilic, 2011).
As Vargo and Lusch argue, “co-creation of value is not an option”
(2009, p. 9). Thus, it is necessary to explore the distinction between objectivist
and subjectivist views of value. Value objectivists basically argue that value is;
in other words, they argue that value is a characteristic of an object, embedded
in matter, almost physically attached to it. This view implies that value exists
regardless of somebody valuing and thus leads to the question how value can be
identified and experienced (Dworkin, 2011). However, value subjectivists
basically argue that something has a value – that value is not determined as an
external entity or truth but is agreed upon through evaluation. This view
emphasizes the roles of individual actors in identifying, realizing, and creating
value while processing information and experiences. The language of being vs.
having value to describe the positions of value objectivists and value
subjectivists has been used by Heyde (1926).
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Attempting to reconcile the objectivist and subjectivist views, Heyde
(1926) highlights the location of value and the process of human appraisal that
occurs within particular relationships and social contexts. Value is seen to
emerge from a relationship between an object and a subject who is valuing the
object. Value does not exist independently of this relationship. Value is thus an
emergent order parameter that is based on a relationship; it requires subjects to
relate to, or value, an object(s) in order for value to exist. Through the act of
valuation (i.e. evaluation), value comes into being as an emergent phenomenon.
Because service triggers relationships, and these relationships form the
context in which value emerges (ecosystem), value is not a separate entity with
its own ontological status. By focusing on value as an order parameter, system
analysis need not rely on a detailed analysis of the parts of a service ecosystem
(firm behavior, individual consumers, etc.) (Ebeling & Feistel, 1994;
Meynhardt, 2004). Rather, focusing on value as an order parameter can help one
to compress complex information about service ecosystems by revealing the
quality of the system as a whole. In other words, clarification regarding the
location and nature of value (i.e. the nature of relationships among individuals
and parts) are at the heart of understanding a system.
Relationships and the individual parts they connect constitute service
ecosystems. Service ecosystems include relationships that mediate how
individual experiences intersect with societal norms and/or market trends.
Desires, needs and evaluative efforts are not independent from the service
ecosystems or the social contexts in which they occur. Thus, concerning value
co-creation in service ecosystems, synergetics outlines a perspective that
accounts for multilevel interactions. As illustrated in Figure 1, systemic (macro-
level) properties emerge from the interactions of a system’s parts (micro-level)
(Haken, 1977; 1984; 1993). This often follows a nonlinear process that is
catalyzed when the system is destabilized from its old state. Synergetics asserts
that fluctuations from state to state occur until, finally, a coherent new
macroscopic state takes hold (see Figure 1, on the left). These order parameters
Strategic Perspectives on Public Value
232
exist as long living systems that enslave short living systems (the parts),
influencing them to abide by the rules of the game (Haken, 1984) (see Figure 1,
on the right). The interplay between emergence and enslaving is a central tenet
of the approach (circular causality).
FIGURE 1
The Principle of Order Parameter
Note: adapted from Meynhardt, 2004, p. 84
Because of this, the micro-macro link is important, because it is the
mechanism upon which the ordering of a service ecosystem can emerge, change,
or solidify. Such micro-macro links can often be captured as relationships. As
shown in Figure 1, circular causality occurs when micro-level elements
(individuals, groups, etc.) interact; this catalyzes emergences of macro-level
Order parameter
Parts
Makro level
Micro level
Emergence:
Parts create order parameter
Enslaving:
Order parameter consensualizes parts
Macro level
Paper 5: Systemic Principles of Value Co-Creation
233
properties (e.g. shared worldviews, norms, values in context). It is not one
element or the other that gives rise to an emergence; rather, it is the relationships
– and the relationships among the relationships – between the elements (and the
elements themselves) that give rise to emergences. Over time, these emergent
patterns (order parameters) gradually give order to – and, in some cases –
coordinate most micro-level elements. Generally, they provide the system with
coherence and orientation. The macro-level properties can enslave a system’s
elements (see Figure 1), because the micro-level elements cannot escape these
systemic properties. This is because a solid logic enmeshed in mutual, systemic
value co-creation efforts binds the elements to the system. Elements that do not
adhere to this logic fall away from the system, while elements that adhere to the
logic are strongly attracted to the system.
In these ways, micro-macro links provide a fundamental mechanism for
self-organization in service ecosystems. Macro-level properties emerge from
micro-level interactions in ways that are not determined by any single element
in the system. Yet, interestingly, changes in macro-level properties can also
stimulate change in micro-level elements. Once firmly established, macro-level
properties can enslave micro-level elements and, when this occurs, such
properties can be referred to as order parameters (e.g. a trend, a collective
preference, a cultural norm or attitude). These systemic properties are emergent,
i.e. they are qualitatively different from a mere sum of the parts. They form a
gestalt that cannot be discovered by simply looking at the parts and adding them
up.
Based on this, as Meynhardt (2004) explains, micro-level value and
macro-level value2 are related in the following ways. At the micro-level,
psychological processes form elements (e.g. motivation, emotion, affect, etc.) in
the system. If an evaluation of a product or service is perceived as a positive
contribution to one’s own basic needs (fulfilment/satisfaction), value is created.
2 For a detailed description of emotional self-organization and different views in psychology, for instance on unconscious and conscious evaluations, see Meynhardt, 2004.
Strategic Perspectives on Public Value
234
The current order parameter is stabilized. However, if there is a negative
(conscious or not) evaluation, various psychological mechanisms accommodate
it (e.g. distortion, denial). Past experience is questioned, established practices
and routines no longer work – and an actor may for instance feel psychological
discomfort (Festinger, 1957). In such situations, the system might be
destabilized to a point where elements can ‘break free’ of an ‘old order’, and a
‘new order’ parameter can emerge (see Figure 1, on the left). However, the main
point is that the system stabilizes the new order via feedback to individual actors
(Figure 1, on the right). In this circular process of bottom-up emergence and
top-down consensualization (enslavement), the parts – together – lead to a
collective, systemic property – that is, a systemic emergence arises. This is
shown in Figure 1.
Order parameters only change when a system is critically destabilized
(e.g. a massive loss of trust or a frame-breaking experience). But once the old
order is critically challenged (bifurcation points), the system behavior becomes
largely unpredictable. Different emergent order parameters may compete with
each other or stabilize each other, such that the system oscillates between
different states until a new equilibrium is achieved. If a certain mode of value
co-creation loses its function as the order parameter in a service ecosystem (e.g.
the traditional cab ride for inner city transportation), it might for a while be
unclear what the new mode of value co-creation would look like (e.g. car-
sharing vs. ride-sharing vs. public transport). In such systemic states where an
order parameter has been destabilized and a new one has not yet been
established, there is much space for diversity and the coexistence of competing
order parameters. Very small fluctuations and interactions can then exert large
consequences as they might push a system over a tipping point, after which a
certain new order parameter can emerge and can dominate the system. In the
following paragraph, we take a closer look at a number of principles that
provide a more detailed understanding of service ecosystem behavior and value
co-creation.
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235
Systemic Principles of Value Co-creation
Based on synergetics and its core processes of emergence and
enslavement, we propose nine systemic principles of value co-creation in
service ecosystems: critical distance, stability, amplification, internal
determination, nonlinearity and feedback, phase transitions, symmetry-
breaking, limited predictability, and historical dependence. As shown in Table
1, these are based on work by Ebeling and Feistel (1994).
Each systemic principle is detailed below and illustrated with an aspect
of the failed introduction of New Coke in 1985. This move was an attempt by
Coca-Cola to replace its existing original soft drink with a similar but even
sweeter product in order to stop the rise of its competitor Pepsi. The new
product fared very well in consumer research and a vast majority of subjects
preferred it over both the original recipe Coke and Pepsi in blind tests. However,
when the new product was introduced in April 1985, replacing the original one,
consumers were outraged that ‘the real thing’ was removed from the market.
Sales plummeted, and Coca-Cola was caught by surprise by the public’s passion
for its original product. In July 1985, the company reintroduced the original
Coca-Cola.3
3 For a more detailed account, see www.marketing91.com/coca-cola-brand-failure
TABLE 1
Systemic Principles of Value Co-Creation
Systemic principle Systems theory foundation
(based on Ebeling and Feistel, 1994: 40) Relevance for value co-creation in service ecosystems
Systemic principle 1:
Critical distance
Self-organization only occurs if a system
is beyond its equilibrium; only under
conditions of uncertainty and/or arousal can stable values be challenged.
A stable service ecosystem (in equilibrium) has its own propensity to continue on its
unique trajectory into the future. Only when a service ecosystem is in disequilibrium can
value propositions elicit new logics or orders of engagement. Based on the systemic principle of critical distance, value can be co-created by participating according to the
existing logic of the service ecosystem.
Illustrative example: The New Coke formula was not attractive enough to critically challenge the original one.
Systemic principle 2:
Stability
System stability depends on the intensity
of perturbations; relative stability against small perturbations. In stable
environments, a system is relatively
reluctant to change.
Established service ecosystems in stable environments adhere to the established logic.
Based on the systemic principle of stability, value can be co-created by ensuring continuity of the service ecosystem.
Illustrative example: Versions of Coke such as Diet Coke, Caffeine-Free Coke could not
destabilize the general appraisal, but New Coke led to reactions of systemic resistance.
Systemic principle 3:
Amplification
In transition periods, there may be
fluctuations among subsystems within a
system; amplifications influence emergences.
In service ecosystems, fluctuations can arise from new evaluations, trial-and-error,
creative search processes, and new amplified modes. Based on the systemic principle of
amplification, value can be co-created by catalyzing emergences and making the optimal emergences more salient in the service ecosystem.
Illustrative example: Unexpected customer reactions were amplified without warning.
Systemic principle 4:
Internal
determination
Emergences heavily depend on existing
internal parameters; they can never be solely injected into a system by an
external force. Further, it is impossible to
predict systemic reaction to external
forces because of the internal stability.
Service ecosystems have a stable logic that largely determines systemic emergences.
Owing to this, the effects of external efforts to inject new parameters to an existing service ecosystem are generally unpredictable. Based on the systemic principle of
internal determination, value can be co-created by allowing for emergences.
Illustrative example: Without knowing the system with its parts and internal dynamics, isolated, classic market research may fail utterly. In the New Coke example, at the outset,
success was predicted.
Systemic principle 5:
Nonlinearity and
feedback
Self-organization requires nonlinear
dynamics, basically caused by feedback loops.
Service ecosystems facilitate (social) psychological internalization (i.e. the establishment
of new subjective evaluations and preferences). Based on the systemic principle of nonlinearity and feedback, value can be co-created by seeking and understanding
nonlinear dynamics in a service ecosystem.
Illustrative example: In the beginning, only 12% of tasters expressed dislike when testing
New Coke. But during the process, this minority gained huge influence.
Systemic principle 6:
Phase transitions
Processes of self-organization are
analogous to phase transitions in equilibrium. A change in values
(individually and collectively) is
experienced as a transition from one stable state to another stable state.
Service ecosystems are dynamic, continuous, and ever-changing. Based on the systemic
principle of phase transitions, value can be co-created by enhancing changes in a service ecosystem.
Illustrative example: A new order emerges in a process of synchronization until yet
another equilibrium is achieved. This was not achieved with New Coke.
Systemic principle 7:
Symmetry-breaking
New orders are realized only after an
emergence has become established as an
order parameter.
While emergences are at first unpredictable, over time, they become more established
and can catalyze new order parameters for service systems. Based on the systemic
principle of symmetry-breaking, value can be co-created by emphasizing a new order or logic in a service ecosystem.
Illustrative example: A new order could not be established, because the new recipe did
not emerge as a systemic order parameter.
Systemic principle 8:
Limited
predictability
The result of irregular (chaotic)
processes is not predictable beyond the
short term.
The individual or social process of changing values cannot be predicted. Based on the
systemic principle of limited predictability, value can be co-created by expecting changes
in the long-term viability of a service ecosystem. Illustrative example: See the list of New Coke resistance actions.
Systemic principle 9:
Historical
dependence
A system can only be understood on the
basis of insight into its developmental
history.
To understand a certain system of subjective evaluations, one needs to know its history.
A single connection or link between actors can seldom be understood by itself. Based on
the systemic principle of historical dependence, value can be co-created by viewing the service ecosystem holistically and historically.
Illustrative example: In the Coke example, one needs to know the basic history. Coca-Cola has been around since 1886, and thus already had a long history by the time New
Coke appeared in 1985.
Strategic Perspectives on Public Value
238
Systemic principle 1: Critical distance. Self-organization only occurs
when a system is beyond its equilibrium – stable values can be challenged only
under conditions of uncertainty and/or arousal. A stable service ecosystem (in
equilibrium) has its own propensity to continue into the future on its unique
trajectory. Value propositions can elicit new logics or orders of engagement
only when a service ecosystem is in disequilibrium. The introduction of New
Coke was a case in point: The system was in a very stable equilibrium, with the
parts (the consumers) strongly attached to the order parameter of the original
formula. Therefore, New Coke could not lead to a reorganization of the system.
Systemic principle 2: Stability. System stability depends on the
intensity of perturbations or disturbances; there is strong stability against small
perturbations in systems that are in equilibrium. Thus, in stable environments, a
system is relatively adverse to change. Based on this, established service
ecosystems in stable environments adhere to the established logic. The
introduction of new versions of Coke such as Diet Coke or caffeine-free Coke
did not lead to strong systemic reactions, as the perturbations were too small.
However, the introduction of New Coke along with the withdrawal of the
existing product led to strong systemic reactions.
Systemic principle 3: Amplification. In transition periods, there may be
fluctuations among subsystems within a system; amplifications influence
emergences. In service ecosystems, fluctuations can arise from new evaluations,
trial-and-error, creative search processes, or new amplified modes. In the New
Coke example, some negative customer reactions developed into outrage by
people who regarded the ‘real’ Coca-Cola as part of their American identity.
Even Fidel Castro stated his opinion by pointing out that New Coke was a
symbol of American capitalism’s decadence. When a small change in the sugar
content of a soft drink triggers such reactions, we observe amplification
dynamics.
Paper 5: Systemic Principles of Value Co-Creation
239
Systemic principle 4: Internal determination. Emergences depend
strongly on existing internal parameters; they can never be injected into a
system by an external force. Further, it is impossible to predict systemic
reactions to external forces owing to systemic internal stability. Established
service ecosystems have a stable internal logic that largely determines the
emergence of order parameters. Because of this, the effects of external efforts to
inject new parameters into an existing service ecosystem are generally
unpredictable. With the introduction of New Coke, Coca-Cola attempted to
externally determine an order parameter without knowing or appreciating the
system’s internal dynamics. It did not understand that the strong role of its brand
in the eyes of the public was not due primarily to its taste, but to it being a
symbol of American patriotism and originality. Thus, the market research,
which relied on blind testing, led to erroneous predictions.
Systemic principle 5: Nonlinearity and feedback. Self-organization
follows nonlinear dynamics that are basically caused by feedback loops. This is
one reason why, in complex systems, the macro-level is different from a
summation of its micro-level parts (emergence). Service ecosystems facilitate
(social) psychological internalization (i.e. the establishment of new subjective
evaluations and preferences). Based on the systemic principle of nonlinearity
and feedback, value can be co-created by seeking, understanding, and acting
according to nonlinear dynamics in a service ecosystem. In the New Coke case,
consumers, when asked individually, preferred the new formula over the old
one. However, as a collective forming a public, they strongly objected to it, and
the initial minority that refused New Coke gained huge influence.
Systemic principle 6: Phase transitions: Processes of self-organization
are analogous to phase transitions in equilibrium. A change in values
(individually and collectively) is experienced as a transition from one stable
state to another. Service ecosystems are dynamic, continuous, and ever-
changing. Based on the systemic principle of phase transitions, value can be co-
created by enhancing changes in a service ecosystem and embracing emerging
Strategic Perspectives on Public Value
240
equilibria. In the New Coke example, the system was destabilized away from
equilibrium, but finally returned to the same equilibrium – the same stable state
it was in before.
Systemic principle 7: Symmetry-breaking. New orders are realized
only after an emergence has become established as an order parameter. While
emergences are unpredictable at first, over time, they become more established,
and can catalyze new order parameters for service systems. The failed
introduction of New Coke is an example of a case in which a new order could
not be realized, since the new phenomenon (the New Coke recipe) could not be
established as a systemic order parameter.
Systemic principle 8: Limited predictability. The result of irregular
(chaotic) processes is not predictable beyond the short term. The individual or
social processes of changing values cannot be predicted. The fact that the
predictions derived from consumer research proved entirely wrong and the
variety and extent of resistance actions in the New Coke example underline the
limited predictability of system behavior.
Systemic principle 9: Historical dependence. A system can only be
understood based on insight into its developmental history. To understand a
certain system of subjective evaluations, one needs to know its history. A single
connection or link between actors can seldom be understood by itself. In this
sense, a complex system is unlike a board of chess, where all information
relevant for future actions can be derived from the current position of the
chessmen on the board. Many Americans’ attachment to the original Coke
recipe cannot be understood without considering the company and its product
history since 1886.
Paper 5: Systemic Principles of Value Co-Creation
241
DISCUSSION
General Discussion
Our proposed framework deepens and develops the service ecosystems
perspective by outlining dynamic mechanisms by which service ecosystems
evolve. Based on synergetics and its core principles of emergence and
enslavement, we introduced nine systemic principles of value co-creation:
critical distance, stability, amplification, internal determination, nonlinearity
and feedback, phase transitions, symmetry-breaking, limited predictability, and
historical dependence. These principles clarify the complexity of value co-
creation when viewed from a service ecosystems perspective.
Specifically, each of these principles can extend how service
ecosystems are viewed and studied (as shown in Table 1). Each principle
corresponds with a different stage of system evolution. For instance, according
to the systemic principle of critical distance, a stable service ecosystem (in
equilibrium) has its own propensity to continue on its unique trajectory into the
future. This propensity entails that a service ecosystem in equilibrium does not
easily adapt to new logics or orders of engagement. So, in these situations, value
can be co-created by participating according to the service ecosystem’s existing
logic. Additionally, as outlined by the systemic principle of stability, established
service ecosystems in stable environments are more likely to adhere to
established logics. In these situations, value is co-created by ensuring continuity
of the service ecosystem, as well as the status quo in its environment.
However, if systemic change is desired, or if it is observed, value is co-
created in the system via the emergence of new order parameters. Such
emergences arise from system-level fluctuations that radiate from different parts
of the system – including new evaluations, trial-and-error, creative search
processes, or new amplified modes. Thus, based on the systemic principle of
amplification, systemic change can arise from the magnification of potential
Strategic Perspectives on Public Value
242
emergences in a service ecosystem. However, outcomes of such efforts are
difficult to predict, because – as asserted by the systemic principle of internal
determination – most thriving service ecosystems resist external efforts to inject
new order parameters. It is not that there will be an absence of an effect; rather,
it is often the case that the effect cannot be easily determined or controlled. As a
result, value is co-created by allowing space for emergences to mature.
When systems are already in disarray, value can order a service
ecosystem according to the systemic principle of nonlinearity and feedback.
Here, conventional cause-effect mechanisms are not as helpful to study as
feedback loops (circular causality), which indicate which parts of service
ecosystems drive the dynamic, continuous, and ever-changing nature of the
system. For instance, a service ecosystem perspective views (social)
psychological internalization (i.e. efforts to establish new evaluations or
preferences) as a feedback loop that facilitates or inhibits change (i.e. that
stabilizes the existing order). When old preferences diminish, new preferences
may alter behaviors in the system, which – in turn – may change the nature of
the system. The change(s) may not be immediately evident, and such efforts
might require time and effort. What is important here is that a feedback loop
catalyzed the change(s), which then altered the system’s characteristics.
This points to the systemic principle of phase transitions. Because it is
necessary to recognize the characteristics of a service ecosystem as it moves
through time, it is important to recognize system evolution in stages. As noted,
while emergences are at first unpredictable, over time, they become more
established and recognizable. Eventually, they may catalyze new order
parameters for a service ecosystem. Through this process, the system takes on
new characteristics. According to the systemic principle of symmetry-breaking,
value is co-created when a new order or logic in a service ecosystem enhances
the system’s vitality. This may influence individual or social processes of
changing values, but cannot be controlled or predetermined – as asserted by the
systemic principle of limited predictability. It is expected that change is constant
Paper 5: Systemic Principles of Value Co-Creation
243
and necessary to ensure the long-term viability of a service ecosystem. And,
finally, to understand a system, one needs to know its history. A single
connection or link between actors can seldom be understood by itself, much like
a single photo taken during a motion picture can seldom capture the storyline
and character development of a screenplay. Based on the systemic principle of
historical dependence, a service ecosystem must be viewed holistically as
uniquely determined by its idiosyncratic trajectory.
Every service ecosystem is unique and complex. As firms and
customers become more integrated owing to technology and globalization, the
context in which the nine systemic principles of value co-creation play out is
also changing. To illustrate this, consider three areas of society that are
undergoing significant transformation: the moralization of markets, an
acceleration of societal dynamics, and the increasing embeddedness of service
in society. From a synergetics perspective with a focus on service ecosystems,
we can see these developments as changes in a system’s control parameters.
Control parameters are system-external factors that influence system behavior,
but are not changed through the system. In physical systems, one might think of
temperature or air pressure; in social systems such as service ecosystems, one
can think of broader societal developments, such as the ones described below.
Certainly, with another focus of enquiry or a higher aggregation level, these
could also be conceptualized as order parameters within the system.
Systemic Value Co-creation and the Moralization of the Markets
First, according to Stehr (2007), global-level growth in prosperity,
knowledge, and skills have contributed to a moralization of the markets, which
refers to the influence that increased consumer politics, consciousness, and
mindfulness have had and continue to have on market exchange. In other words,
social norms, cultural world views, and non-economic interests have exerted
more influence on contemporary markets than they did in yesteryear, when
markets were more dominated by self-interest and mechanistic acquisition of
Strategic Perspectives on Public Value
244
money. This includes for instance a consciousness that is attached to the types
and manners of service and production by firms; firms must now be more
transparent in their manufacturing processes and market entry efforts and must
ensure that these activities are ethical and socially responsible. At the same
time, modern communication tools (e.g. social media such as Facebook,
LinkedIn, or Twitter) have enabled customers and interest groups to gather and
disseminate information among themselves; this leads to order parameters that
can influence market moralization, because firms learn about consumer
sentiment, perceptions, and attitudes via social media. These feedback loops
render salient the demands made by ‘political’ or ‘ethical’ customers (e.g.
Harrison, Newholm, & Shaw, 2005). This has contributed to faster transitions
between systemic states: a continuous moralization and re-moralization of
markets according to amplified emergences.
However, it has become ever-more difficult for firms to focus on single
and isolated stakeholders, especially when there may also be incompatible
demands and interactions that are hard to analyze (Walsh, 2005). Too many
diverging expectations, unknown preferences, and legitimacy issues make it
almost impossible to engage uniformly with stakeholders (Phillips, 2003). The
following research questions can be investigated: What are the factors that
influence the timing and continuity of systemic transitions in moralized
markets? Should an emergence be amplified? If so, when and how can an
emergence be amplified? Are these principles characteristic of all service
ecosystems? How can heterogeneous stakeholders be dealt with in moralized
service ecosystems?
Systemic Value Co-creation and the Acceleration of Society
A trend of acceleration (Rosa, 2005) in modern society, characterized
by high instability and change, calls for research into the orientation, adaptation,
and learning capabilities at every level of a service ecosystem. Rosa (2005)
argues for an increased need to ‘coordinate’ at the macro-level in order to
Paper 5: Systemic Principles of Value Co-Creation
245
reconcile the accelerated speed of economic processes, the pace of life, and the
relentless chasing of social change. Publicly sensitive topics such as pollution,
food quality, or medical progress concern society as a whole. At the micro-level,
these topics manifest as anxieties, hopes, opinions, or perceived fairness, for
instance, and can determine the evaluation of a product, service, or firm. This
issue is even more salient since, owing to the increasing strength of business
relative to government in terms of organizational and financial resources, more
and more demands concerning the production of social goods are directed
towards firms instead of the government (Moore & Khagram, 2004). The
following research questions can be investigated: What does systemic
enslavement look like? What become of the elements of a system that fall away?
How does the general acceleration of society impact on service ecosystems?
Systemic Value Co-creation and Social Embeddedness
Granovetter makes clear that “there is evidence all around us of the
extent to which business relations are mixed up with social ones” (1985, p. 493).
Similarly, Layton (2011) proposes that economic exchange is at all times
embedded in an institutional, social, and cultural context. Service managers
need to consider multiple stakeholders’ perspectives. Value co-creation
relationships extend beyond the traditional dyadic bonds (company-customer)
that have been associated with exchange relationships (Vargo, 2009). The
following research questions can be investigated: What are the best practices for
cultivating system equilibrium? When a service ecosystem is thriving, how does
a manager ensure its continuity? How are service ecosystems affected by social
embeddedness?
Strategic Perspectives on Public Value
246
IMPLICATIONS
Research: The Interplay between Customer Value and Public Value
Value is a systemic property that exists at all levels of a service
ecosystem, including the micro-level, meso-level, and macro-level. Against the
background of co-creation, the moralized and accelerated society in which
service is embedded cannot be addressed without controversy, because many
different elements are simultaneously catalyzing emergences in a stable system;
this illustrates the systemic principles of critical distance, stability, and
amplification. This draws attention not just to immediate micro-level actors such
as customers, but also to meso-level actors such as special interest groups,
lobbyists, or socially conscious consumers as well as macro-level actors such as
governments and institutions that may potentially want to disrupt established
systems. Such disruption would illustrate the systemic principles of internal
determination, nonlinearity and feedback, and phase transitions. If a firm co-
creates value with a specific customer, but destroys value for all other actors in a
system, it risks systemic disruption; micro-level value conflicts with macro-
level values. The firm risks losing its license to operate. In this way, co-creation
can lead to positive and negative value at the same time, thereby illustrating the
systemic principles of symmetry-breaking, limited predictability, and historical
dependence. An essential question here is the consistency between the firm’s
value proposition and its corporate strategy. The firm’s core values and core
purpose are defined in the corporate mission statement, and these should be
ideally aligned with the external environment in which the firm competes in
order for the service ecosystem to thrive.
Because value co-creation is a key characteristic of service ecosystems,
the proposed framework shows how value as an order parameter can be better
understood by employing a synergetics approach. If we take the co-creation
perspective seriously and apply it to the link between micro-level and macro-
Paper 5: Systemic Principles of Value Co-Creation
247
level, we need to analyze its mutual impact and synergetic interplay. For
instance, questions articulated at the macro-level (Meynhardt, 2009) can be
worded for the micro-level using the criteria of customer value configuration
(Belz & Bieger, 2004, p. 101). Table 2 shows how micro-level customer value
can be related to macro-level public value. Customer value propositions (left
column) focus on delivering a particular product or service and experience to
individual customers. This includes emotional aspects of a product, how well its
use is explained, how high its quality is, and how cost-effective it is for the
customer (Belz & Bieger, 2004). A public value perspective (columns 2 to 5)
places the value proposition of a product or service into a societal context and
asks what the properties of the customer value proposition mean for societal
value dynamics and the value that individuals can derive from being part of a
social collective. Accordingly, public value creation has been defined as “any
impact on shared experience about the quality of the relationship between the
individual and ‘society’” (Meynhardt, 2009, p. 212). Table 2 contains
exemplary questions to be asked from a public value perspective along the four
public value dimensions (see Meynhardt, 2009). For instance, quality (e.g. food
ingredients) as a customer value is placed into a broader context by asking how
this value proposition affects society’s functioning (e.g. the prevalence of
obesity).
From a systems perspective, we argue that customer value and public
value are linked in a synergetic interplay. This leads to a value proposition that
links micro-level value and macro-level value in concrete terms – that is, the
value proposition purposefully relates the micro-level, meso-level, and macro-
level to one another. Thus, capitalizing on value dynamics requires a framework
that explicates both chances and limits.
Strategic Perspectives on Public Value
248
TABLE 2
Relationship between Customer Value and Public Value
Customer
value
(focus on the
individual)
Public value functions (focus on society)
Ethical-moral Political-social Hedonistic-
aesthetic
Instrumental-
utilitarian
Emotion What type of
acknowledgem
ent and
valuation of the
sense of self-
worth/identity
do we want to
achieve through
customer
value?
How much
personal
responsibility
do we want to
remove from or
ascribe to the
individual
customer
through
customer
value?
How do we
justify dealing
with customers
ethically in a
differentiated
way?
What culture
of
interpersonal
contact do we
want to
promote in
realizing
customer
value?
What
interests of
groups or
stakeholders
in society will
be
strengthened/
weakened by
the customer
value?
What kind of
social
dialogue do
we want to
conduct by
implementing
individual
customer
values?
What
negative
experiences
do we want to
avoid through
each
individual
customer
value?
What positive
experiences
do we want to
promote
through
customer
value?
What
experiences
among
noncustomers
are we
striving for as
a company or
do we want to
avoid?
What is the
basis of every
individual
customer
value
concerning
facts and
content?
How is the
use value for
the customer
instrumental
for a
functioning
society?
What
standards of
problem-
solving do we
want to set
and determine
through every
customer
value?
Relationship
Explanation
Individuali-
zation
Relief/
Security
Quality
Innovation
Cost-
effectiveness
Speed
Coordination
Note: adapted from Meynhardt and Stock, 2009, p. 56
Paper 5: Systemic Principles of Value Co-Creation
249
Further research may conceptualize a co-creation relationship at
different levels by applying synergetic ideas of order parameters’ emerging /
enslaving processes as well as ideas of phase transitions by applying the self-
organization principles introduced above. It calls both approaches to better
understand a system’s history and context, and methodologies to identify
emerging instability points or amplifications of certain states. It points in
particular to process studies (Pentland, 1999) and the reconstruction of patterns
and system properties (order parameters).
Practice: Identifying Opportunities for Co-creation
Our research also has some implications for practice, especially for
managers who continuously deal with that “unknown animal called society”.
Systemic principles such as nonlinearity, internal determination, and historical
dependence call for the extensive collection of process data, in order to be able
to spot early weak signals that might be harbingers of systemic change. The fact
that service ecosystems are self-organizing and thus fairly resistant to external
‘shocks’ points to a humble attitude to attempts to change shared values in
society. The New Coke example is a case in point. It demonstrates that attempts
to manage against stable system logics are prone to fail. To be successful,
managers need to accept the system dynamics as they are, but need to be able to
spot irregularities in patterns that might destabilize the system. In such
situations, their potential for successful interventions is multiplied, owing to
amplification and feedback loop dynamics. However, these windows of
opportunity, where quick and resolute actions have the potential to shape long-
term trends, tend to be infrequent and temporary. This observation points again
to managers’ need for collecting on-time process data, in order to be able to take
appropriate actions.
Increasing moralization of the markets as well as acceleration of and
embeddedness in society have forced firms to face the question of the extent to
which their products and services are perceived as valuable for the community
Strategic Perspectives on Public Value
250
beyond customer value. However, because examining all stakeholders in so
many different ways would not be practical (Walsh, 1995), it is preferable to
also reflect more abstractly on a societal level: value creation for the community
legitimizes the entrepreneurial activity in the sense of a social basis of a
transaction, while also serving as the basis for the many diversified
characteristics of customer value. Thus, managers need to keep in mind that
each co-creation of value has consequences both for the individual and the
community.
CONCLUSION
Value co-creation should be described as a synergetic interplay between
the levels of a service ecosystem, and this interplay can be better understood and
structured with self-organization theory. As Mittelstaedt, Kilbourne, and
Mittelstaedt (2006, p. 131) note: “[The] activities and actors of the marketplace
cannot be understood fully without also understanding the interdependence of
markets and marketing systems with other dimensions of civic life.” So, service
ecosystem research is based on phenomena at the intersection of marketing and
society. This requires recognition of emergent phenomena in service ecosystems
and their embeddedness, and of potentially unexpected social consequences
owing to the complex interplay of individual and collective phenomena. This is
the root of our unique contribution: By applying synergetics to questions of
value co-creation at both the societal public value (macro) level and the
individual customer value (micro) level, the proposed nine systemic principles
help to bridge the micro-macro gap (Domegan et al., 2012). Thus, value must be
viewed as a systemic property, and value co-creation must be regarded as an
organizing principle not only for service but also for society.
Paper 5: Systemic Principles of Value Co-Creation
251
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CURRICULUM VITAE
Theo Pepe Strathoff - [email protected]
PROFESSIONAL EXPERIENCE
University of St. Gallen, CLVS-HSG
Research Assistant & Fellow
St. Gallen, CH
2013-2016
Leuphana University
Visiting Lecturer
Lüneburg, GER
2014-2016
Bayer (China) Ltd.
Intern
Beijing, Shanghai, CHN
2011
Bayer AG
Intern
Leverkusen, GER
2011
Nothardt & Company GmbH
Intern
Stuttgart, GER
2010
Federal Ministry for Economics and Technology
Intern
Berlin, GER
2010
University of St. Gallen
Student Assistant
St. Gallen, CH
2008-2010
EDUCATION
University of St. Gallen
PhD, Strategy & Management
St. Gallen, CH
2016
Harvard University
Innovation in Government Program Fellow
Cambridge (MA), USA
2015
London School of Economics and Political Science
M.Sc., International Political Economy
London, UK
2012
University of St. Gallen
B.A., Business Administration
St. Gallen, CH
2011
University of St. Gallen
B.A., International Relation
St. Gallen, CH
2010
Deutzer Gymnasium Schaurtestrasse
Abitur
Cologne, GER
2007