Social return on investment in the public sector

1. Introduction

Recent years have shown a gradual increase in the amount of literature on social sustainable issues (Carter and Rogers, 2008; Krause et al., 2009; Yawar and Seuring, 2017). Regarding sustainability, quite some studies stress the importance of gaining more in-depth insights into the social aspect of sustainability (Ashby et al., 2012; Meehan and Bryde, 2011; Seuring and Müller, 2008; Touboulic and Walker, 2015). However, it appears scholars have less attention in addressing this particular aspect (Cooper et al., 2000; Leire and Mont, 2010; McCrudden, 2004; Mont and Leire, 2009; Park and Stoel, 2005). In their comprehensive literature study, Yawar and Seuring (2017) conclude that the social dimensions of sustainable development and its impact on supply chains have so far received less attention than the environmental dimension. Notwithstanding existing studies, there appears to be less attention for the social sustainability aspect of including groups of people at risk of exclusion for labour into supply chains (Baumgartner and Ebner, 2010; Lee and Kim, 2009). The procurement function can play an important role in driving the sustainable procurement agenda (Meehan and Bryde, 2011; Preuss, 2009). Public sector spending represents up to 57 per cent of a country’s GDP (OECD, 2017) and because of procurement’s ability to influence supply chains, the magnitude of public procurement is considered significant (Preuss, 2009). Procurement is considered a powerful tool that enables external organizations to implement social sustainability into their strategic agenda (Amann et al., 2014; Brammer and Walker, 2011).

To encourage sustainability in public procurement, environmental and social policies have been implemented in many countries around the world (Andrecka, 2017). However, a major flaw of public procurement relates to the triple bottom line of sustainability, which addresses ecological, social and economic dimensions (Elkington, 1998). Social issues of sustainable development and its impact on public procurement have so far received less attention than the environmental dimension (Walker et al., 2012; Yawar and Seuring, 2017). Social return on investment (SROI) is an instrument used to develop social sustainability (Van Emmerik, Jong and Brouwer, 2014). SROI is designed to help understand, manage and report on the social and economic value created by an organization (REDF, 2001). This study focusses on the concept SROI, with a specific focus on the development of employment opportunities for people who are at risk of exclusion from the labour market. Social return in The Netherlands means creating more employment opportunities for this group of people and public organizations are encouraged to implement social return in a variety of ways. Public organizations that adhere to the principle of social return make purchasing agreements with contractors concerning the creation of additional jobs, work experience jobs or internships for people who are disadvantaged within the labour market (Pianoo, 2015). These people include the long-term unemployed, people who are partially disabled or otherwise impaired, those characterized as unfit for work and underprivileged youth. By creating these additional jobs, the target group can participate according to their ability, hence making use of extra productivity that would otherwise remain unused (Pianoo, 2015). A notable feature of implementing SROI to manage social sustainability in supply chains is that it helps public authorities in fulfilling expectations of stakeholders while aiming for performance improvements (Yawar and Seuring, 2017).

Municipalities in The Netherlands generally outsource the SROI activities to social enterprises, which requires a form of governance between the municipality and the social enterprise to develop activities and generate compliance. The social enterprise acts as a linking pin between contractors and SROI employees. It also facilitates and monitors the SROI process and reports to the municipality. There is still a substantial gap in knowledge on the adoption of social sustainable practices (Amann et al., 2014; Yawar and Seuring, 2017) and scant research is available on the practical challenges of SROI implementation (Moody, Littlepage and Paydar, 2015). This study builds upon existing sustainability knowledge, and elaborates its extension into the realm of public procurement. In addition, its purpose is to shed light on a neglected topic, gaining more in-depth knowledge on social sustainability implementation through SROI by public authorities. By examining several municipalities and their social businesses, this study contributes to the knowledge on social sustainability practices and tries to provide a unique insight into government influence on social purpose businesses that pursue social responsibility directly. Figure 1, line number 1 (highlighted by the blue line), gives an overview of the relations in the process of SROI development. A municipality and its social firm are key players in developing job opportunities for SROI employees through contractors.

Several stakeholders influence the development of SROI as they interact with each other in diverse settings. Relations between stakeholders can be observed through the conceptual approaches: agency theory (Eisenhardt, 1989) and stewardship theory (Davis, Schoorman and Donaldson, 1997). Agency and stewardship theory can provide insight into the management approach between the principal and the subordinate (Van Slyke, 2007). In the public procurement context, neither theory alone has adequate explanatory power. However, both theories combined provide useful insights on the application of control mechanisms versus empowerment.

The following research question was formulated:

2. Literature review

3. Method

A qualitative research approach was chosen to study social sustainability initiatives in the public sector. Through this approach, salient factors that influence the implementation of SROI initiatives can be identified. Because the aim was to gather more in-depth knowledge on the relation between municipal procurement professionals and social firms as they develop SROI, a case study was deemed the best design. Case research allows to generate a clear view of the nature and complexity of phenomena and lends itself to exploratory investigations when phenomena are still inadequately understood (Eisenhardt, 1989; Meredith, 1998; Seuring, 2008; Yin, 2013). A multiple-case study was preferred over a single-case, to gather data from multiple organizations to contribute to an overall understanding of challenges in SROI implementation within public organizations.

Contact with potential cases was established via a platform dedicated to SROI adoption in The Netherlands. Respondents were sampled through a respondent-driven approach in which the respondents’ network was used to contact other respondents. Respondents were then invited to participate in the study via email or telephone. In the initial conversation, we inquired about the relationship between the municipality and the social enterprise to ensure that both parties were willing to participate in the study. During this initial contact, we were also informed about the respondents’ relationships with actors in other municipalities and/or social enterprises who might participate. We used a checklist with four questions, based on questions derived from the Dutch municipal sustainability ranking (http://www.duurzaamheidsmeter.nl/LDM):

• Does the municipality have a procurement policy?

• Is the procurement policy publicly available?

• Does the municipality have an SROI policy?

• Is the SROI policy publicly available?

Prior to this assessment, we decided that Questions 1 and 3 had to be positive. For this purpose, organizations procurement policies and other internal documents were studied. Questions 2 and 4 were not mandatory but were used to measure the availability and accessibility of information. A case was considered relevant when the municipality, through its purchasing department, had outsourced the SROI activities to a social firm.

Prior to the interviews, all available documentation was studied and its information was used during the interview sessions. Also, before conducting the interviews, a dialogue was entered with procurement officers and/or social return officers aligned with different potential municipalities. During this process, it was possible to determine whether a potential case had enough resources to operationalize its policy. Finally, the pre-selection phase was completed with a selective sample of four cases. This selection was based on the cases high ranking on the Dutch “duurzaamheidsmeter” research for municipalities (www.duurzaamheidsmeter.nl).

Multiple sources of evidence were used to complement each other and to ensure the validity of the study (Yin, 2013). Each case study involved background research and documentary analysis on procurement policies and other internal documents. More specifically, the procurement policy of each municipality was studied with a focus on the sustainability and SROI sections as well as SROI menu options with specific conditions and action plans on socially responsible purchasing. Regarding each social firm, specific policy documents on SROI conditions were studied as well as strategy documents on collaboration with stakeholders such as municipalities and other partners. Semi-structured interviews were held with key actors within each organization. The selected key actors are responsible for the operationalization of the policy during different phases of the procurement process: the pre-award and post-award phase. The municipalities’ procurement function is responsible for policy operationalization during the pre-award phase. The social firms’ SROI department is responsible for policy operationalization during the post-award phase. A selected number of semi-structured interviews were conducted to empirically validate the data gathered from the policy documents: four interviews with senior procurement officers of each municipality and four interviews with each of the SROI officers at the social firms. More specific, the types of actors are as follows:

• Procurement officers (municipality). The interviewed procurement officers were employed by the municipality for 7-20 years and function on a senior level. In three cases, the procurement officer is, or previously was, involved with procurement policy and SROI policy development.

• SROI officers (social enterprise). Each interviewed SROI officer acts as the primary contact person between the social enterprise and the municipality for SROI-related affairs. Each of the four SROI officers is involved in the SROI policy development and operationalization.

The research is designed to elaborate (Ketokivi and Choi, 2014) on existing social sustainability theory. By generating a better understanding on social sustainability development within the public sector and the relationship between municipalities and social firms, existing knowledge on sustainability development is expanded. The interview protocol covered the themes as presented in the theoretical framework (Table I) and also allowed a certain amount of serendipity to explore experts reflections on experiences with SROI operationalization. Interview questions were designed to address relational mechanisms between stakeholders as well as factors influencing SROI implementation. Each interview lasted between 60 and 90 min. Interviews were audiotaped and verbatim fully transcribed. The data were analyzed using thematic analysis (Creswell, 2003) where the themes were extracted and coded until saturation was attained (Miles and Huberman, 1994). To facilitate analysis, and allow for a systematic comparison of variables in and across the cases, two phases were used:

1. a within-case analysis in which the focus was on the relationship between the municipality and the social enterprise; and

2. a cross-case analysis in which similarities and differences between the cases were analyzed. All transcripts were manually analyzed for patterns and alignment with the concepts from the theoretical framework (Yin, 2013).

4. Results

5. Discussion

To create a stimulating environment for sustainability development, public organizations should support its development by generating a driving force with the right incentives (Amann et al., 2014; Walker et al., 2008). Public authorities would be well advised to incorporate considerations of socially responsible policy goals within their procurement activities (Amann et al., 2014). This study confirms the theoretical basis as shown in Table I and elaborates on this knowledge.

In all the case organizations, management support for social sustainability development is high, suggesting that (top) management supports the implementation and adoption of SROI and functions as an enabling factor (Brammer and Walker, 2011; Crespin-Mazet and Dontenwill, 2012; Preuss, 2009; Walker and Brammer, 2009). Because management emphasizes the importance of SROI and provides incentives (Walker and Brammer, 2009), the SROI initiatives are likely to succeed in their purpose of generating jobs for people who are less able to create their own chances on the labour market. SROI development needs constant attention, which increases the importance of information dissemination and communication within the case organizations. Within all case organizations, policy information is accessible and considered transparent by users. The information available allows for a good understanding of the policy by the actors involved. Familiarity with the policy by internal actors was high, enabling the actors to execute the policy as intended (Brammer and Walker, 2011; Georghiou et al., 2013). In spite of the internal familiarity, external actors are actually not familiar with the municipalities’ policy and possibilities. This confirms previous research which has identified poor supplier commitment as a barrier and linked this to a lack of knowledge and a supplier’s fear of performance penalties (Testa et al., 2012; Walker et al., 2014). Besides this, our study suggest suppliers are willing to deliver SROI purposes but need a clearer view on the policy implications on their business. This problem cannot just merely be addressed by distributing information on policy implications. It is stressed public authorities need to develop a more active role in collaborating with external parties to try and generate more knowledge on and better fitting incentives for entrepreneurs. Also, we argue that in the process of collaboration development, municipalities need to focus on the needs of small entrepreneurs as they are often unable to meet all requirements set in the pre-award phase. The data show social enterprises can play a prominent part in filling this knowledge gap between municipalities and entrepreneurs. Social enterprises can be the linking pin in facilitating more social sustainability development.

Collaboration between the municipality and social enterprises is strong, as can be concluded by the extent to which the organizations work on overcoming opposing interests. Strong collaboration is caused by a high amount of trust between the actors. There is no evidence of distrust in the process which makes a clear statement the actors prefer to develop the managerial component through a stewardship lens. This approach could be seen as contradictory regarding monitoring SROI outcomes, and sanction possibilities are part of the contracts. However, in spite of these controlling elements, actors are willing to focus on stimulating SROI possibilities instead of threatening to penalize on any possible occasions. Another possibility for a failing monitoring process is that it is assigned to various officials, such as contract managers, who are not part of either the procurement department or the social firm. It seems the monitoring process is not aligned, which is often the case within public organizations (Schneider et al., 2014). We argue that public organization would benefit from assigning crucial tasks to less departments and officials. This might have a positive impact on SROI implementation by simplifying processes and reducing the number of officers included in the performance phase.

Furthermore, policies are supported by working with instructions and schedules, and are in most cases reviewed with management periodically. Also, policies come with a clear division of tasks and responsibilities for both the procurement officers and the SROI officers, enabling both to perform their own task the best way possible (Crespin-Mazet and Dontenwill, 2012). Organizations need to consider the expectations of various external stakeholders regarding sustainability development (Schneider et al., 2014). The results of this study do not support a high salience for external parties in the development of social sustainability. This finding suggests a low amount of external pressure. A significant external factor influencing municipalities is the regulation by the national government. The Dutch government promotes SROI and has developed legislation and policy on the topic. However, this legislation and policy does not provide clearly stated guidelines and is considered to be ambiguous by all respondents. Contrary to previous sustainability research, we argue that external factors such as ethical concerns (Ates et al., 2012; Giunipero et al., 2012) and supplier resistance (Walker and Brammer, 2009) have little influence on social sustainability implementation.

At the functional level, organizations need contractor engagement strategies and sufficient information provision to help develop their policies (Uttam and Roos, 2015). Besides these factors, the administrative burden of social sustainability registration is seen as a barrier by all respondents. According to the SROI officers, especially smaller contractors lack priority and/or resources to comply with a varying set of instructions from every municipality. This study confirms findings by Millar and Hall (2013) and Moody et al. (2015) that the adoption of management systems lags behind in implementation, and that the majority of systems are developed based on yesterday’s needs. Another new aspect we found to be of impact on information sharing comes from privacy legislation. Municipalities, social enterprises and contractors share information about SROI participants, which is needed to determine rates of success. Privacy legislation makes it ever harder to collect information and use this information for social parameters. This is considered to be a pesky issue on the functional level, though not recognized on the corporate level as management is not interested in too much detailed information. When not managed with the required amount of attention, this might become a barrier to be reckoned with in social sustainability development.

Reporting on sustainable initiatives through measurement and management is of critical importance for its development (Schaltegger and Burritt, 2014). A leading purpose of SROI measurement is to help capture the social impact sustainability initiatives (Richmond et al., 2003). Our findings suggest that SROI development is not measured well enough to lead to measurable and reportable results. In spite of the effort of all case organizations to develop measurement tools, the needed analysis to help assess potential benefits and costs remains rare (cf. Moody et al., 2015). At the moment, the municipalities are able to provide anecdotal evidence of SROI results with a focus on “soft” outcomes. Dutch municipalities use SROI as an instrument to enable social sustainability, rather than to capture its impact in financial terms. SROI development via public procurement requires appropriate governance between the two main actors: the municipality and the social enterprise. Creating better governance between the actors will have a positive impact on the implementation of social sustainability. This strengthens the call for more measurement and data analysis of SROI outcomes (Montalbán-Domingo et al., 2018; Moody et al., 2015; Polese et al., 2017).

6. Conclusions and recommendations

The social dimension of sustainable development and its impact on public organizations have received less attention than the other sustainable dimensions (Yawar and Seuring, 2017). This also has effect on the knowledge about the implementation of social sustainability. SROI implementation was investigated in four cases at different municipalities in The Netherlands. The findings show differences between the policy as intended and its actual execution on the functional level. On the latter, we mostly found factors that hinder the functional implementation of SROI, such as limitations of management systems, the administrative burden and little dissemination of information towards external organizations. Besides this, new salient factors were identified, such as legal restrictions in relation to privacy legislation and more strongly engaging suppliers in the development of SROI.

In the studied cases, the management of SROI occurs in a similar manner. Differences are related to the organizational structure of each organization, the maturity of the SROI policy and mutual entanglement between organizations. For all four case organizations, it can be concluded that management of SROI is based on an equal relationship between the procurement officer and the SROI officer. The relationship between actors shows many strong characteristics such as trust and commitment, which require collaborative efforts and development strategies to realize SROI. These characteristics are allied to the theory of stewardship, whereas only few signals indicate that there is a principal–agent relationship based on hierarchy.

The SROI policies of the cases showed both differences and similarities. Some policies are strict and prescribe how SROI has to be developed in practice, whereas others are loose and show a great amount of freedom for the SROI officer to have ownership on how to meet the contractual requirements. Both types of policies seem to work. Policy design should be clear and simple to understand and apply for all the stakeholders involved (Georghiou et al., 2013). We have added to the concept that the policy, no matter how strict or loose, should leave possibilities to create alternative solutions for a situation that may occur somewhere along the implementation process, especially during the performance phase. Additionally, it is suggested that a very strict policy provides challenges on the functional level to respond to unforeseen situations, whereas a very loose policy is prone to provide difficulties on the corporate level because management is unable to generate and analyze data to improve the process. We stress that organizations should focus on the thin line between these two opposite sides when developing a social sustainability policy and be aware of all the benefits and drawbacks.

Familiarity with the policy is considered elementary in achieving social sustainability outcomes. All SROI officers and some procurement officers mentioned that there is still a gap regarding the knowledge and awareness about the possibilities of SROI, both within the case organizations but mostly with suppliers. SROI officers mention that a great deal of effort goes to educating suppliers about the possibilities of SROI and facilitating the process of SROI. Increasing familiarity with SROI removes a threshold for entrepreneurs to engage in contracts with an SROI component. Informing and educating suppliers about SROI is considered paramount to achieve sustainable social outcomes and is likely to increase SROI adoption.

Legal boundaries and government regulation play an important role in the implementation process of social sustainability. Respondents mention that the national government plays an important role in establishing a sustainable climate to develop SROI. Efforts by the Dutch government have increased awareness about the possibilities and benefits of SROI. At the same time, the Dutch government provides few guidelines on how SROI is to be implemented. As a result, local policies are established by the best effort and by copying policies previously established by other municipalities. It is suggested that national guidelines should be more clearly formulated without ambiguous SROI goals and guidelines.

The observed management approach between the municipalities and the social firm can be linked to stewardship theory. However, the actors may also be aware of some agency theory-like characteristics that can have a positive effect on the development of their relationship, such as a periodic review of all SROI-related contracts and periodic monitoring at management level. Adding these characteristics will likely emphasize SROI awareness within both municipalities and social firms and to a great extent stimulate information analysis. Additionally, this will emphasize the relationship between the actors as they become more aware of each other’s SROI development challenges. It is recommended to improve SROI monitoring and controlling elements as well as limit the officers involved with these tasks. Monitoring and controlling can be stimulated by developing software applications. These applications need to be integrated in the governance structure of municipalities and used for periodic SROI reporting. This allows for better measurement and monitoring application and can have a positive effect on the current administrative burden as experienced by respondents. A wide variety of SROI applications and processes to enable SROI adoption have been observed in the case organizations. At the managerial level, periodic review of the status of SROI development can be discussed in board meetings. Also, frequent reporting on the overall implementation progress can help drive forward SROI awareness and improve involvement by management. On the functional-level working instructions, schematics and checklists can provide a basis for SROI operationalization. These interventions contribute to more sufficient attention for SROI, without rewarding employees personally for stimulating SROI development.

The results of this study show that social sustainability in general, and SROI in particular, is gradually evolving and maturing as organization are actually operationalizing policies. The respondents in this study were public procurement officers and SROI officers who are directly involved in enabling SROI via municipal procurement. Because of their active involvement in SROI development, a limitation is the risk of respondents’ bias. Second, the number of cases provide a limitation of the study. The four cases selected are not representative for all Dutch municipalities. Future research could focus expanding the number of cases to enrich the results of this study. There are studies that address SROI implementation in The Netherlands with a sole focus on the condition “if” SROI is implemented (Brouwer et al., 2011; Van Emmerik et al., 2014). This study explores “how” SROI is implemented and what factors contribute to its implementation as well as “how” the main actors govern their relationship. The data suggest that stakeholder involvement increases prior to, during and after the procurement phases. Besides procurement professionals and SROI officers, future studies on public social sustainability development could consider involving:

• budget holders;

• contract managers within municipalities; and

• contractors (private sector).

Another limitation of this study is the focus on municipalities who are leaders on social sustainability development. It is suggested future research might include cases who are lagging behind on implementing social sustainability initiatives. Furthermore, an interesting perspective would be to look into the regional hub-function of large municipalities and see how they are able to influence the development of SROI policy with nearby municipalities. Another interesting perspective for further research would be to look into the position of the procurement department and the social firm, as there are indicators that the position of these actors has different impact on the implementation process. Future studies may compare the national legislation and policy with local policies on social sustainability development. Findings of this study suggest that a stewardship approach is used to manage the relationship between the municipalities and social enterprises. Better understanding of how this stewardship approach is established and evolves may contribute to knowledge on implementation of social sustainability initiatives.