The challenges our society faces ahead are undeniably substantial and unrelenting. Increasingly, the role of private organizations and businesses has exceeded the one of economic value creation for its shareholders, to include the creation of non-economic value—e.g., mitigating negative effects on climate change or improving societal wellbeing inside and outside organizational boundaries. It is thus now recognized that to make impactful and lasting change, organizations need not only to create value but also to strategically manage how to appropriate and distribute economic and non-economic value among a multiplicity of stakeholders. However, because most organizations are resource-constrained, they need to choose how to prioritize value allocation among multiple, and often competing, demands.

Advancing theory of stakeholder governance through the lens of value allocation

We combine two main theories of management (value-based strategy and stakeholder theory) and design a three-stage model of value allocation to address grand challenges. In current management theories, the stages of value appropriation and value distribution are conflated, leading to two issues. First, both words are used interchangeably without distinction. Second, different theories rest on different assumptions about which stakeholders have the power to appropriate or distribute value. Our study, published in the Journal of Management Studies, advances understanding of how organizations allocate economic and non-economic value by defining the direction of value allocation in two distinct ways. First, value appropriation entails governance mechanisms through which an organization either defends itself against unintended stakeholders’ attempts to appropriate value, or lets go of some value to other intended stakeholders. Conversely, value distribution entails governance mechanisms through which an organization shares the value with its set of intended stakeholders.

Engaging stakeholders through social entrepreneurship and responsible innovation

In the face of such intractable grand challenges, numerous organizations nowadays pledge to create value for multiple stakeholders through developing new products or services that avoid doing harm and improve conditions for people and the planet—i.e., responsible innovation. Take social enterprises, for example: They innovate to create economic and social value from an embryonic stage and seek to sustain their dual goals in the long term. In addition to running financially sustainable activities, they strive to address societal grand challenges, such as eradicating poverty; ensuring reliable access to high quality and affordable basic necessities, including primary education, quality healthcare, clean water, and banking services; and establishing sustainable consumption and production systems. These societal grand challenges often affect groups and individuals who are not core participants in the traditional decision-making of these organizations, e.g., employees, consumers, beneficiaries. We contend that to achieve their responsible innovation goals, organizations need to rely on effective stakeholder governance, that is, to allocate the value created in a sustainable and desirable way to their set of intended stakeholders. We set forth a model of stakeholder governance in which stakeholders are salient in the management of value creation, appropriation, and distribution through deliberation processes.

How innovative organizations do it: The case of Sanergy

Attempting to address the societal grand challenge of “water and sanitation,” Sanergy is at the root of a responsible innovation: a franchising system of low-cost, high-quality toilets, Fresh Life Toilets, deployed in the urban slums of Nairobi. Its innovation can only be considered responsible innovation if the value created (i.e., safe drinking-water and quality sanitation) is allocated in an affordable and inclusive manner to the groups of individuals (stakeholders) who have been consulted in the creation process and are the intended beneficiaries.

Engaging in a deliberation process to create value, Sanergy consults Nairobi NGOs and marginalized citizens in deciding how these toilets can be best used and who should get them (i.e., to whom value should be allocated). Once Sanergy has created value in close interaction with its main stakeholders, it ensures that the value created reaches its intended users, that is, slums’ inhabitants lacking access to proper sanitation solutions. To defend against value appropriation by unintended stakeholders who could destroy the positive public goods externalities produced by Sanergy (e.g., healthier populations in the slums), such as a profit-driven competitor or an opportunistic local entrepreneur, Sanergy can adopt value appropriation mechanisms that protect its innovation from an economic value standpoint but also from a social value generation one. Once the value it has created has been appropriated, Sanergy can then rely on other stakeholder governance mechanisms to distribute the economic and non-economic value to its intended users. Stakeholder governance thus guides organizations engaged in responsible innovation in their allocation of value among intended value recipients.

Stakeholder governance in three questions about value allocation

We invite practitioners and business organizations to consider stakeholder governance along three key organizational decisions:

1. what value do they create, and for whom?
2. how to appropriate the value created vis-à-vis unintended value appropriators such as competitors or free-riders?
3. how to distribute the value appropriated among intended stakeholders?

For each of these questions, our study outlines novel mechanisms by which organizational decision-makers and their affected stakeholders can deliberate on how to allocate value among their multiple principal stakeholders as part of participative processes.

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