Theories and Models of Social Value Creation

Introduction

Social entrepreneurship concerns the creation of social value through entrepreneurial action. Unlike conventional entrepreneurship, whose primary purpose is usually the creation of private economic value, social entrepreneurship addresses significant social, cultural, environmental, or community problems. A social venture may generate revenue, but financial income is generally treated as a means of sustaining and expanding social impact rather than as the sole measure of success.

Social value is created when the well-being, capabilities, opportunities, relationships, or conditions of people and communities improve. This improvement may involve reduced poverty, better health, greater educational access, environmental protection, inclusion, employment, or stronger civic participation. Social value is difficult to measure because it is multidimensional, distributed among different stakeholders, and often realized over a long period.

This chapter examines seven complementary perspectives that explain how social ventures emerge, gain legitimacy, mobilize resources, and create systemic change: theories of change, institutional theory, resource dependence theory, effectuation, bricolage, diffusion of innovation, and collective impact. No single theory explains the entire process. Together, they provide a practical analytical toolkit for entrepreneurs, managers, investors, policymakers, and community partners.

Learning Objectives

By the end of this chapter, you should be able to:

1. Explain the meaning and dimensions of social value creation.
2. Construct and evaluate a theory of change for a social venture.
3. Use institutional theory to explain legitimacy, conformity, and institutional change.
4. Apply resource dependence theory to understand partnerships and power.
5. Distinguish effectuation from prediction-based entrepreneurial reasoning.
6. Explain how bricolage supports innovation under severe resource constraints.
7. Apply diffusion of innovation concepts to the adoption of social solutions.
8. Explain the principles and limitations of collective impact.
9. Integrate these theories when analysing the development of a social venture.

1. Understanding Social Value Creation

Social value creation is the process through which entrepreneurial activities produce beneficial changes for people, communities, institutions, or the natural environment. It is not identical to charitable giving or corporate social responsibility. A donation may support social value, but social entrepreneurship normally involves identifying an opportunity, organizing resources, delivering a solution, and attempting to sustain or scale the intervention.

Social value has at least four dimensions:

Social value is also relational. An intervention may benefit one group while imposing costs on another. For example, a social housing project may improve residents’ security but increase local rents if it attracts investment. Responsible social entrepreneurs therefore ask who benefits, who bears risks, whose voice is included, and whether benefits are durable.

A useful distinction is between outputs, outcomes, and impact. Outputs are the immediate products of an activity, such as the number of training sessions delivered. Outcomes are changes in behaviour, knowledge, income, health, or access that result from the outputs. Impact refers to broader and more lasting changes, including changes in systems or social conditions. The relationship is not automatic: an output may occur without the intended outcome, and an outcome may result from several interacting causes.

2. Theory of Change

A theory of change is an explicit account of how and why a set of activities is expected to produce desired social results. It connects a problem diagnosis with activities, outputs, outcomes, impact, assumptions, and external conditions. It is both a planning model and a learning device.

A simplified causal sequence is:

Inputs include money, people, knowledge, technology, facilities, partnerships, and legitimacy. Activities are what the venture does with those inputs. Outputs are immediate, observable results. Outcomes are changes experienced by participants or systems. Impact is the enduring social condition the venture seeks to influence.

For example, a digital literacy venture might use trained facilitators and low-cost devices to deliver community classes. The classes are activities; participant attendance and completed lessons are outputs; improved digital skills and increased use of online services are outcomes; improved access to employment and public services is the intended impact.

A strong theory of change identifies assumptions. An assumption is a condition believed to be true but not fully controlled by the venture. In the example, assumptions may include reliable internet access, participants’ ability to attend, employers’ recognition of digital credentials, and the availability of suitable jobs. If these assumptions fail, the causal pathway may break.

Theories of change should also identify risks and unintended effects. A platform designed to improve access to finance might increase indebtedness if users lack financial protection. A food-rescue programme may reduce waste but unintentionally weaken local food markets if it displaces small suppliers. Theory of change is therefore not merely a promotional diagram; it should support critical inquiry.

Building a Theory of Change

A practical process involves five steps:

1. Define the problem. Use evidence and stakeholder perspectives to specify who experiences the problem, where, and why.
2. Define the desired future condition. State the social change in observable terms.
3. Work backward from impact. Identify the outcomes that must occur before the desired impact becomes plausible.
4. Specify activities, outputs, and assumptions. Explain how the venture will contribute to those outcomes.
5. Select indicators and learning questions. Track not only activity but also whether the underlying logic is working.

Indicators may be quantitative or qualitative. A venture could measure the percentage of participants obtaining employment, but it might also collect narratives about confidence, dignity, or exclusion. Attribution should be treated cautiously. A venture often contributes to impact rather than causes it alone because public policy, economic conditions, family support, and other organizations also matter.

3. Institutional Theory: Legitimacy and Social Change

Institutional theory examines how organizations are shaped by social rules, norms, values, beliefs, and taken-for-granted assumptions. Institutions include laws and regulations, but they also include professional standards, cultural expectations, routines, and informal conventions.

Social ventures must gain legitimacy: the perception that their activities are appropriate, acceptable, and worthy of support. Legitimacy can be classified as:

• Pragmatic legitimacy: stakeholders see practical benefits for themselves.
• Moral legitimacy: stakeholders believe the venture is doing what is ethically right.
• Cognitive legitimacy: the venture becomes understandable and taken for granted.

A new social venture may initially lack all three. It can build legitimacy by demonstrating results, obtaining credible endorsements, complying with regulations, employing qualified staff, involving affected communities, and communicating a coherent mission.

Institutional theory also explains why organizations often become similar. DiMaggio and Powell identify three forms of institutional pressure. Coercive pressures arise from laws, funders, or powerful partners. Mimetic pressures occur when organizations copy apparently successful models, especially under uncertainty. Normative pressures arise from professional education, accreditation, and shared standards.

Conformity can provide trust and access to resources, but excessive conformity may reduce innovation. Social ventures often face a tension between adopting accepted practices and challenging the very institutions that reproduce social problems. A venture addressing homelessness, for example, may need to satisfy government reporting requirements while advocating changes to housing policy.

Institutional change occurs when entrepreneurs challenge existing meanings, rules, or resource arrangements. They may reframe a problem, demonstrate an alternative practice, build coalitions, or create new standards. Institutional entrepreneurs do not simply invent services; they attempt to change the environment in which services are produced and consumed.

4. Resource Dependence Theory

Resource dependence theory views organizations as dependent on external actors for resources such as money, labour, knowledge, technology, distribution channels, political access, and legitimacy. Because resources are controlled unevenly, relationships among organizations involve power as well as cooperation.

A social venture may depend on a government grant, a philanthropic foundation, a technology provider, volunteers, or a major institutional customer. Dependence increases when a resource is important, scarce, and difficult to replace. A funder that supplies most of a venture’s budget may influence its strategy, target population, reporting systems, and risk tolerance.

Resource dependence does not mean that a venture is powerless. Organizations can reduce dependence by:

• diversifying revenue sources;
• developing multiple partnerships;
• creating distinctive expertise or intellectual assets;
• building a strong brand and community base;
• negotiating formal agreements;
• generating earned income; and
• participating in networks that increase collective bargaining power.

Partnerships are therefore strategic arrangements, not automatically equal collaborations. A venture should ask what each partner contributes, what each expects, who makes decisions, how data are controlled, and what happens if funding ends. A partnership that provides money but restricts community voice may weaken social value.

Resource dependence also explains mission drift. Mission drift occurs when a venture gradually changes its priorities to satisfy resource providers rather than intended beneficiaries. Diversification can reduce this risk, but it can also increase administrative complexity. The appropriate resource strategy depends on the venture’s mission, stage, environment, and governance arrangements.

5. Effectuation: Creating Ventures Under Uncertainty

Effectuation, associated particularly with Saras Sarasvathy, explains entrepreneurial action when the future cannot be predicted reliably. Instead of beginning with a fixed goal and searching for the resources to achieve it, effectual entrepreneurs begin with available means and allow goals to develop through interaction with stakeholders.

The main principles are:

1. Bird-in-hand: Start with who you are, what you know, and whom you know.
2. Affordable loss: Decide what can be risked rather than estimating uncertain future returns precisely.
3. Crazy quilt: Build partnerships through negotiated commitments.
4. Lemonade: Treat surprises as opportunities for learning and redirection.
5. Pilot-in-the-plane: Focus on controllable actions rather than attempting to predict the entire future.

Effectuation is especially relevant to social ventures because social problems are complex, resources are limited, and stakeholder preferences may be unclear. A founder may begin with personal experience, local relationships, and a small amount of equipment, then refine the venture as users, volunteers, and partners contribute ideas.

Effectuation does not mean that planning is unnecessary. A social venture still requires safeguarding, budgeting, legal compliance, monitoring, and strategic judgement. The distinction is between prediction-based planning, which is more useful when conditions are stable and information is available, and effectual experimentation, which is useful when uncertainty is high.

6. Bricolage: Making Do With Available Resources

Bricolage refers to creating new solutions by recombining resources at hand. A bricoleur uses materials, relationships, skills, spaces, and technologies that were not originally designed for the current purpose. In social entrepreneurship, bricolage is common where formal resources are scarce or inaccessible.

Examples include converting an unused building into a community learning centre, using open-source software to deliver public services, training local residents as peer educators, or combining small donations with volunteer labour and municipal facilities.

Bricolage can be:

• Material: repurposing equipment, buildings, or discarded materials;
• Human: combining local knowledge, volunteer effort, and professional expertise;
• Institutional: working creatively around rigid procedures while remaining lawful; and
• Digital: using freely available tools, platforms, and data.

Bricolage can increase inclusion because it values resources overlooked by conventional organizations. It can also strengthen local ownership. However, it has limits. Improvised solutions may lack reliability, safety, scalability, or professional accountability. Entrepreneurs should distinguish productive resourcefulness from romanticizing deprivation. Beneficiaries should not receive inferior services merely because a venture operates with limited resources.

Effectuation and bricolage are related but distinct. Effectuation describes a logic of decision-making under uncertainty; bricolage describes a mode of resource use. An entrepreneur may use effectual reasoning to form a partnership and then use bricolage to combine the partner’s unused facilities with volunteer expertise.

7. Diffusion of Innovation

Diffusion of innovation theory, associated with Everett Rogers, explains how a new idea, practice, product, or service spreads through a social system over time. Adoption depends not only on technical quality but also on how potential users perceive the innovation.

Rogers identifies five important perceived attributes:

• Relative advantage: Is it better than the existing approach?
• Compatibility: Does it fit users’ values, routines, and needs?
• Complexity: Is it difficult to understand or use?
• Trialability: Can users test it before making a major commitment?
• Observability: Are its benefits visible to others?

Adopters are commonly described as innovators, early adopters, early majority, late majority, and laggards. These categories describe adoption patterns, not personal worth. A person who adopts later may be responding rationally to cost, risk, accessibility, or cultural concerns.

For social ventures, diffusion requires more than marketing. It may require training, trusted intermediaries, adaptation to local language and culture, maintenance systems, and policy support. A clean-cooking technology may have relative environmental advantage but fail to spread if fuel is unavailable, the design conflicts with cooking practices, or households cannot afford repairs.

Diffusion can produce positive or harmful consequences. A social venture should assess who gains, who may be excluded, and whether adoption increases inequality. Digital platforms, for example, may improve access for connected users while leaving people without devices or digital skills further behind.

8. Collective Impact

Collective impact refers to coordinated efforts by organizations from different sectors to address complex social problems. It differs from ordinary collaboration because it emphasizes a shared system of action rather than isolated projects.

The commonly identified conditions of collective impact are:

1. Common agenda: Participants agree on the problem and broad direction.
2. Shared measurement: They use compatible indicators to assess progress.
3. Mutually reinforcing activities: Each organization contributes distinct but coordinated actions.
4. Continuous communication: Participants develop trust through regular interaction.
5. Backbone support: A coordinating organization or team facilitates strategy, data, communication, and accountability.

Collective impact is appropriate for problems such as youth unemployment, climate adaptation, public health, and homelessness, where no single organization controls the causes or solutions. A social venture may act as an innovator, service provider, convener, data partner, or backbone organization.

Collective impact is not automatically equitable. Powerful institutions may define the common agenda while affected communities are treated as recipients rather than decision-makers. Effective initiatives therefore establish shared governance, transparent resource allocation, accessible information, and mechanisms for resolving conflict. Shared measurement should not become surveillance or a reason to exclude people who are difficult to serve.

9. Integrating the Theories

The theories in this chapter answer different questions:

An integrated analysis might proceed as follows. First, the entrepreneur uses effectuation and bricolage to develop a small intervention from available means. Second, the venture constructs a theory of change to clarify its causal assumptions. Third, it gains pragmatic and moral legitimacy through evidence, community participation, and partnerships. Fourth, resource dependence analysis helps it negotiate funding and avoid mission drift. Fifth, diffusion theory guides adaptation and adoption. Finally, collective impact arrangements connect the venture with organizations capable of changing the wider system.

10. Applied Case: GreenSteps Community Energy

The following is a fictional illustrative case based on common social entrepreneurship conditions.

Background

GreenSteps is a community energy venture established in a low-income urban district where households experience high energy costs, poor housing insulation, and limited access to renewable technologies. The founders include an energy engineer, a tenant association leader, and a youth employment specialist.

Problem

Households spend a large proportion of their income on energy. Many residents distrust external energy companies and lack the capital to install solar equipment. Previous programmes provided equipment but limited follow-up support, resulting in low maintenance and uneven participation.

Analysis

The founders develop a theory of change. If residents receive trusted advice, basic home improvements, access to shared solar generation, and paid training, then energy use and bills may fall, employment skills may improve, and community capacity may increase. Assumptions include landlord cooperation, reliable maintenance, and stable regulation of community energy.

Institutional theory reveals a legitimacy challenge. Residents view previous programmes as imposed from outside, while regulators require technical certification. GreenSteps responds by appointing a resident advisory board, obtaining professional accreditation, and publishing performance data in accessible language.

Resource dependence analysis shows that the venture depends on a municipal grant, a cooperative bank, equipment suppliers, and volunteer installers. To reduce dependence on one funder, GreenSteps combines service contracts, modest membership fees, grant income, and revenue from surplus electricity where legally permitted.

Effectuation shapes the initial launch. Rather than waiting for a complete district-wide plan, the founders begin with a school roof offered by a partner and a small group of tenant associations. Bricolage occurs when unused municipal storage space is converted into a training workshop and retired technicians mentor young residents.

Diffusion theory informs adoption. The project offers household energy audits as a low-risk trial, uses respected local ambassadors, demonstrates savings publicly, and adapts communication for different languages. The technology is not presented as sufficient by itself; maintenance and user support are treated as part of the innovation.

Finally, GreenSteps joins a collective-impact partnership involving the municipality, housing associations, schools, a public employment agency, and a health organization concerned with cold homes. The partners agree on shared indicators, including household energy burden, completed insulation improvements, resident employment, system reliability, and resident perceptions of control.

Outcome

After three years, the pilot reports lower energy use among participating homes, several new local jobs, and stronger resident participation in housing decisions. However, results are uneven because some landlords refuse improvements and households with irregular tenancy are difficult to include. The partnership therefore revises its agenda to address landlord incentives and tenant protections rather than simply expanding installations.

Learning Points

The case demonstrates that technology does not create social value independently. Value emerges from a causal theory, legitimate governance, resource strategy, adaptive experimentation, local resourcefulness, adoption support, and cross-sector coordination. It also illustrates contribution rather than simple attribution: GreenSteps contributes to outcomes that depend on policy, housing conditions, energy prices, and the actions of partners.

11. Evaluation, Ethics, and Governance

Social ventures should evaluate both performance and justice. Important questions include whether intended beneficiaries participate in decision-making, whether data collection is proportionate, whether benefits are distributed fairly, and whether the venture creates dependency or dignity.

Governance mechanisms may include a community board, beneficiary representation, transparent impact reporting, conflict-of-interest policies, independent financial controls, safeguarding procedures, and accessible complaints systems. Legal form does not guarantee ethical conduct. A nonprofit can exclude stakeholders, and a mission-led company can create meaningful accountability.

Digital tools and artificial intelligence may support needs assessment, service personalization, translation, and impact monitoring. However, automated systems can reproduce bias, expose sensitive data, or make decisions that affected people cannot challenge. Social ventures using AI should establish data minimization, informed consent where appropriate, human review, security controls, explainability, and procedures for correcting errors. Technology should strengthen agency rather than replace community judgement.

12. Practical Guidance for Social Entrepreneurs

A social entrepreneur can use the following sequence:

1. Listen to affected communities before defining the intervention.
2. Describe the problem without assuming that the proposed solution is already known.
3. Build a theory of change with explicit assumptions and risks.
4. Map institutions, resource holders, partners, and power relationships.
5. Start with a feasible experiment, using effectual reasoning where prediction is weak.
6. Recombine available resources responsibly, while maintaining safety and quality.
7. Design for adoption, adaptation, affordability, and maintenance.
8. Develop partnerships with clear roles, decision rights, and exit arrangements.
9. Measure outputs, outcomes, unintended effects, equity, and learning.
10. Revise the model when evidence or community experience challenges initial beliefs.

Challenges and Limitations of the Theories

These theories are valuable analytical lenses, but none is a universal recipe. Theories of change can create false confidence if causal pathways are presented as linear. Institutional theory may understate individual creativity if organizations are treated as passive. Resource dependence can frame relationships primarily in terms of power and overlook solidarity. Effectuation may be difficult to apply when safeguarding requires strict advance planning. Bricolage can conceal underinvestment and unfairly shift responsibility onto communities. Diffusion theory may imply that adoption is always desirable. Collective impact can become bureaucratic, with extensive coordination but little action.

Theories should therefore be used critically. Entrepreneurs should combine formal evidence with lived experience, treat models as revisable, and remain alert to unintended consequences. Social value is not established merely because an organization has a social mission; it must be demonstrated through responsible practice and credible evidence.

Chapter Summary

Social value creation is the production of beneficial and durable changes in individual well-being, collective capacity, institutional quality, or environmental conditions. A theory of change explains how inputs and activities are expected to produce outputs, outcomes, and impact, while making assumptions and risks visible.

Institutional theory explains how social ventures gain pragmatic, moral, and cognitive legitimacy and how they may either conform to or transform existing rules and norms. Resource dependence theory highlights the influence of funders, partners, regulators, and other resource holders and helps entrepreneurs manage power and mission drift.

Effectuation explains action under uncertainty through available means, affordable loss, partnerships, surprises, and control. Bricolage describes creative recombination of resources at hand. Diffusion of innovation explains how social solutions spread according to perceived advantage, compatibility, complexity, trialability, and observability. Collective impact describes coordinated action among organizations using a common agenda, shared measurement, mutually reinforcing activities, continuous communication, and backbone support.

Together, these theories show that social ventures create value through more than products or services. They must construct credible causal pathways, build legitimacy, negotiate resources, mobilize communities, support adoption, coordinate across systems, and govern ethically.

Key Terms

Social value: Beneficial change for people, communities, institutions, or the environment.

Social venture: An organization or initiative that uses entrepreneurial methods to pursue social value.

Theory of change: An explanation of how activities are expected to produce outcomes and impact.

Input: A resource used by a venture, such as money, people, knowledge, or equipment.

Output: An immediate and observable product of an activity.

Outcome: A change in behaviour, condition, capability, or experience resulting from an intervention.

Impact: A broader and lasting change associated with an intervention.

Assumption: A condition believed necessary for a theory of change to work.

Institutional theory: A perspective explaining how organizations are shaped by rules, norms, values, and shared beliefs.

Legitimacy: The perception that an organization or activity is appropriate, acceptable, and worthy of support.

Institutional entrepreneur: An actor who seeks to create, maintain, or transform institutions.

Resource dependence theory: A perspective emphasizing organizational dependence on external resources and the power relationships this creates.

Mission drift: Movement away from a venture’s intended social purpose.

Effectuation: Entrepreneurial reasoning based on available means and controllable action under uncertainty.

Bricolage: Creative recombination and use of resources at hand.

Diffusion of innovation: The process by which an innovation spreads through a social system.

Adoption: The decision to use or implement an innovation.

Collective impact: Coordinated cross-sector action directed toward a shared social problem.

Backbone organization: An entity that supports coordination, communication, measurement, and strategy in a collective-impact initiative.

Social impact: Significant change in social conditions attributable partly to an intervention or set of interventions.

Review Questions

Short Answer Questions

1. Distinguish between outputs, outcomes, and impact.
2. What are the three forms of legitimacy identified in institutional theory?
3. State two principles of effectuation.
4. How does bricolage differ from effectuation?
5. What is the purpose of a backbone organization in collective impact?

Long Answer Questions

1. Explain how a theory of change can improve both planning and evaluation in a social venture.
2. Discuss how institutional pressures can simultaneously support and constrain social innovation.
3. Analyse the relationship between resource dependence and mission drift.
4. Compare prediction-based planning with effectual reasoning in conditions of uncertainty.
5. Explain the five conditions of collective impact and discuss why they may be difficult to achieve.

Analytical / Application Questions

1. A community health venture has strong evidence of effectiveness but little public trust. Use institutional theory and diffusion of innovation to recommend a legitimacy and adoption strategy.
2. A social enterprise relies on one government contract for 80% of its income. Apply resource dependence theory to assess the risks and propose a responsible diversification plan.
3. Design a brief theory of change for a venture addressing youth unemployment. Identify its activities, outputs, outcomes, assumptions, one possible unintended effect, and suitable indicators.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes an outcome from an output?

A. An outcome is a resource used by the venture.

B. An outcome is an immediate count of activities delivered.

C. An outcome is a change experienced by participants or systems.

D. An outcome is always identical to long-term impact.

Correct Answer: C. An outcome is a change experienced by participants or systems.

Question 2

A funder requires a social venture to adopt specific reporting procedures. This is an example of which institutional pressure?

A. Coercive pressure

B. Mimetic pressure

C. Normative pressure

D. Informal diffusion

Correct Answer: A. Coercive pressure

Question 3

Which effectuation principle emphasizes deciding what can safely be risked?

A. Bird-in-hand

B. Affordable loss

C. Crazy quilt

D. Pilot-in-the-plane

Correct Answer: B. Affordable loss

Question 4

Using an unused municipal building as a community workshop is best described as:

A. Institutional conformity

B. Bricolage

C. Mission drift

D. Cognitive legitimacy

Correct Answer: B. Bricolage

Question 5

Which factor is most likely to support diffusion of a social innovation?

A. High complexity and no opportunity for testing

B. Low compatibility with users’ routines

C. Visible benefits and the possibility of trial use

D. Dependence on a single anonymous supplier

Correct Answer: C. Visible benefits and the possibility of trial use

Question 6

In resource dependence theory, an organization is especially vulnerable when a resource is:

A. Unimportant and widely available

B. Important, scarce, and difficult to replace

C. Free and internally produced

D. Unrelated to organizational strategy

Correct Answer: B. Important, scarce, and difficult to replace

Question 7

Which feature is central to collective impact?

A. Organizations work independently without shared indicators.

B. One organization controls all activities.

C. Partners coordinate around a common agenda and shared measurement.

D. Only nonprofit organizations may participate.

Correct Answer: C. Partners coordinate around a common agenda and shared measurement.

Question 8

Which type of legitimacy exists when stakeholders believe a venture is ethically appropriate?

A. Pragmatic legitimacy

B. Moral legitimacy

C. Cognitive legitimacy

D. Technical legitimacy

Correct Answer: B. Moral legitimacy

Question 9

Why should a theory of change identify assumptions?

A. To eliminate the need for evaluation

B. To show conditions that must hold for the causal pathway to work

C. To guarantee that impact is caused only by the venture

D. To replace stakeholder participation

Correct Answer: B. To show conditions that must hold for the causal pathway to work

Question 10

A venture combines volunteer labour, open-source software, and donated equipment to deliver a new service. Which integrated interpretation is most appropriate?

A. It uses bricolage to recombine available resources.

B. It demonstrates only coercive institutional pressure.

C. It avoids all resource dependence.

D. It represents diffusion without adoption.

Correct Answer: A. It uses bricolage to recombine available resources.