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OCTOBER 2004 - JANUARY 2006
A BLENDED VALUE FRAMEWORK OF TRUST, REPUTATION AND PARTNERSHIPS IN THE PHARMACEUTICAL INDUSTRY: THE CASE OF MATRICOLE D’ARGENTO
SUPERVISOR: Prof. Flaminio Squazzoni, Department of Social Sciences Faculty of Economics, University of Brescia. CANDIDATE: Dott. Marco Spada
ACKNOWLEDGEMENT It is a pleasure to acknowledge the help received at various stages of this project from Dwight Burlingame and Leslie Lenkowsky, Center on Philanthropy at Indiana University Purdue University (IUPUI) , Philip Cochran, Kelley School of Business, Indiana University. I am grateful to Rob Smith and Jalana C. Eash, Eli Lilly and Company Foundation, for providing me challenging chances during my American adventure. I am also grateful to Maria Pia Ruffilli, Alessandra Santacroce and Giorgia Grossi, Corporate Affairs and Advocacy, Pfizer Italia. I want to thank for his encouraging appreciation of my work, Flaminio Squazzoni, Department of Social Sciences, Faculty of Economics, University of Brescia. Special thanks to a special friend: Jed Emerson, guru of blended value thinking, and his enlightening Rocky Mountains. With gratitude I acknowledge the institutions that made this work possible: Alma Mater Studiorum Università di Bologna, The Master in International Studies in Philanthropy and Social Entrepreneurship (MISP), Center on Philanthropy at Indiana University Purdue University (IUPUI), Kelley School of Business, Indiana University.
THE MASTER IN INTERNATIONAL STUDIES IN PHILANTHROPY AND SOCIAL ENTREPRENEURSHIP
2ND CYCLE OCTOBER 2004 - JANUARY 2006
A BLENDED VALUE FRAMEWORK OF TRUST, REPUTATION AND PARTNERSHIPS IN THE PHARMACEUTICAL INDUSTRY: THE CASE OF MATRICOLE D’ARGENTO
Abstract In the last decades, the orthodox three-sector (i.e. government, business, non profit) perception of contemporary society seems to be under siege. Therefore, a new theoretical framework is required to face the new challenges and the new chances placed by these trends. As a matter of fact, we cannot continue to split up the players in the game - and the value they produce - into separated silos. Value is non-divisible: it blends, from one form to another. Economic Value continuously blends with the Social Value within the framework provided by the Blended Value Proposition (BVP). Hence, all the players – whether government, business or nonprofit - are generating the same blended value. Given such a quantum leap in our perceptions of reality, this paper is focusing on partnership relationships among several different players in the pharmaceutical industry: business-to-business partnerships(b2b), business-to-nonprofit partnerships(b2n) and business-to-government partnerships(b2g). Furthermore, an analysis of partnerships’ dynamics among the different partners, will be conducted. In this regard, a game theoretic approach, namely The Trust Game, may provide an interesting framework both in the context of infinitely repeated games and one-shot interactions between the two partners/players . Nevertheless, this approach demonstrates its limits as a sound theory of co-operation. Therefore, going beyond game theory, the concepts of “trust” and “reputation” are considered, formalized and integrated into an alternative perspective. These intangible values are crucial to facilitate the strategic, organizational and cultural fit within b2b partnerships (e.g. Eli Lilly and its biotech partners), b2n (e.g. Pfizer Inc. and Clark Foundation) and b2g partnerships (e.g. Pfizer Italia and the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma).
The latter example will be investigated more in details, through the development of a case-study focusing on the Matricole d’Argento (MdA) project. This initiative is a public-private partnership between Pfizer Italia and the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma for the empowerment of the elders citizens of the city of Roma (Italy) through educational activities. Finally, drawing on a socio-cognitive theory of reputation, the phenomena of reputation transmission, among the agents involved in the MdA project, will be considered. In conclusion, game theoretical approaches demonstrated their limits just like the three sector partition showed its inability to account for the emerging trends of the global world. Therefore, the Trust Game has being blended with trust and reputation and the Economic Value has being blended with the Social Value, within the framework provided by the Blended Value Proposition. All the players in the game, whether governments, businesses or nonprofits, clearly understood that partnerships and alliances are the winning strategy of the 21st Century, maximizing blended value creation.
Keywords: Corporate Social Responsibility (CSR), Blended Value Proposition (BVP), Taoism, Alliance Management, Game Theory, Prisoner’s Dilemma (PD), Trust, Socio-Cognitive Theory of Reputation, Public-Private Partnerships (PPPs)
Introduction 1. The Blended Value Framework………………..……………………………………………..01 1.1. Blurring Sectors and Hybrid Organizations 1.2. Cross-Sector Partnerships 1.3. Beyond Blurring Sectors: The Blended Value Proposition 2. Business to Business (b2b) Partnerships: Alliance Management……………………......…16 2.1. Biotech-Pharma Alliance: A Corporate Tango 2.2. Alliance Management 2.3. The Trust Game 2.3.1. One-Shot Interaction: Defection 2.3.2. Infinitely Repeated Games: Co-Operation 2.4. Beyond the Trust Game 2.4.1. The Role of Trust in One-Shot Interaction: Co-Operation 3. Business to Non Profit (b2n)Partnerships: The Collaboration Challenge………….….…..42 3.1. Alliance Management: A Lesson from the Corporate World? 3.2. Repeated Games 3.3. The Collaboration Continuum 3.4. The Ultimate Evolution in b2n Partnerships: The International Trachoma Initiative (ITI) 4. Business to Government (b2g) Partnerships: Public-Private Partnerships…………….….52 4.1. Public-Private Partnerships (PPPs) 4.2. Governing by Network 5. The Case of Matricole d’Argento(MdA)……………………………………..………………..58 5.1. Background 5.1.1. World Health Organization (WHO): The Active Ageing Policy Framework 5.1.2. Pfizer Inc.: The Healthy Ageing Campaign 5.2. Pfizer Italia: Matricole d’Argento (MdA) 5.2.1. Overview 5.2.2. True Partnership 5.2.3. MdA: Teachers and Students 220.127.116.11.Corporate Volunteerism: The Teachers of MdA 18.104.22.168.A Learning Experience: The Students of MdA 5.2.4. Results 5.3. Reputation as a Socio-Cognitive Process 5.3.1. MdA: Evaluators and Beneficiaries Concluding Comments………………………………………………………………………….…87 References……………………………………………………………………………………….…88
Introduction In the last decades, the orthodox three-sector (i.e. government, business, non profit) perception of contemporary society seems to be under siege Indeed, the boundaries among this traditional threesectorial partition are certainly blurring, generating hybrid organizations and cross-sector partnerships. Naturally, this chaotic reality needs to be organized. Therefore, a new theoretical framework is required to face the new challenges and the new chances placed by these trends. As a matter of fact, we cannot continue to split up the players in the game - and the value they produce - into separated silos. Value is non-divisible: it blends, from one form to another. Economic Value continuously blends with the Social Value within the framework provided by the Blended Value Proposition (BVP). Hence, all the players – whether government, business or nonprofit - are generating the same blended value. Definitely beyond the blurring boundaries lens, the BVP framework represent a paradigm shift, providing a practical tool to navigate a new land of multiple interconnections, processes and players. Given such a quantum leap in our perceptions of reality, this paper is focusing on partnership relationships among several different players in the pharmaceutical industry: business-to-business partnerships(b2b), partnerships(b2g). Furthermore, an analysis of partnerships’ dynamics among the different partners, will be conducted. In this regard, a game theoretic approach, namely The Trust Game, may provide an interesting framework both in the context of infinitely repeated games and one-shot interactions between the two partners/players . Nevertheless, this approach demonstrates its limits as a sound theory of co-operation. Therefore, going beyond game theory, the concepts of “trust” and “reputation” are considered, formalized and integrated into an alternative perspective. business-to-nonprofit partnerships(b2n) and business-to-government
These intangible values are crucial to facilitate the strategic, organizational and cultural fit within b2b partnerships (e.g. Eli Lilly and its biotech partners), b2n (e.g. Pfizer Inc. and Clark Foundation) and b2g partnerships (e.g. Pfizer Italia and the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma). The latter example will be investigated more in details, through the development of a case-study focusing on the Matricole d’Argento (MdA) project. The above-mentioned initiative is a publicprivate partnership between Pfizer Italia and the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma, aiming at empowering the elders citizens of the city of Roma (Italy), through educational activities. Finally, drawing on a socio-cognitive theory of reputation, the phenomena of reputation transmission, among the agents involved in the MdA project, will be considered. In conclusion, game theoretical approaches demonstrated their limits just like the three sector partition showed its inability to account for the emerging trends of the global world. Therefore, the Trust Game has being blended with trust and reputation and the Economic Value has being blended with the Social Value, within the framework provided by the Blended Value Proposition. The latter finds a solid foundation in the millenary Taoist philosophical tradition: Value blends just like the Tao. Indeed, the Yin naturally blends into the Yang, within a perennial cycle of harmony. The Cartesian, linear logic of reductionism has been overcome by the Taoist, non-linear logic of holism. All the players in the game, whether governments, businesses or nonprofits, clearly
understood that partnerships and alliances are the winning strategy of the 21st Century. A strategy which combines the tangible values of economy with the intangible values of trust and reputation. This is a new land, where [Yin-Economic Values-Game Theory] blends with [Yang-Social ValueSocio-cognitive process] into the oneness of the [Tao-Blended Value-Agent-based Modeling]. Given these reflections, a new and practical vision of our reality arise. We must work for a sustainable development, a long-term process of harmonious development of economics, society and the environment. We need to act in harmony with the natural order flow. ii
THE MASTER IN INTERNATIONAL STUDIES IN PHILANTHROPY AND SOCIAL ENTREPRENEURSHIP
2ND CYCLE OCTOBER 2004 - JANUARY 2006
Marco Spada firstname.lastname@example.org
A BLENDED VALUE FRAMEWORK OF TRUST, REPUTATION AND PARTNERSHIPS IN THE PHARMACEUTICAL INDUSTRY: THE CASE OF MATRICOLE D’ARGENTO
1. THE BLENDED VALUE FRAMEWORK
1.1. BLURRING BOUNDARIES AND HYBRID ORGANIZATIONS
In the last decades, the orthodox three-sector (i.e. government, business, non profit) perception of contemporary society seems to be under siege. Indeed, the boundaries among sectors are
fundamentally blurring, paving the way to a chaotic hotchpotch of roles, uncertainty and unforeseen contingencies.
Corporate approaches and techniques have been increasingly applied to non profit organizations (NPOs), generating hybrid1 organizations. Stemming from market-oriented practices and corporate management, venture philanthropy and social entrepreneurship2 arise as the most innovative and effective approaches to achieve social change. Hence, “measurable outcome”, “performance evaluation” and “cost-effectiveness”, has become the buzzwords of the non profit sector, too. In other words, “non-profit are internalizing the culture and the techniques of market organizations and making them their own”.3 We may say that NPOs are changing their organizational DNA, mutating into hybrid organizations. Management gurus4, are encouraging the adoption of business-like attitudes in the context of non profit management. Therefore, strategies and best practices from the corporate world have been quickly exported and applied into the non profit realm. NPOs are increasingly engaged into revenue-generating activities, just like their for profit colleagues. In sum, the phenomena described, namely the marketization and the commercialization of the non profit sector, are definitely eroding the very meaning and the underpinnings of traditional sector boundaries. On the other side, the corporate world of global business, is increasingly taking the responsibilities for its economic and financial operations. The trend is triggered by several factors among which: corporate scandals and frauds (e.g. Enron, Parmalat), multiple critics (e.g. NGOs, activists), a raising in public awareness and a shift in customers’ preferences. As a matter of fact, corporate responsibility seems to be the business imperative of what we may call the Post-Enron/Post-
See “Blurred Boundaries and Muddled Motives. A World of Shifting Social Responsibilities”. A Report from the W.K. Kellogg Foundation, November 2003. 2 For an extensive paper on the meaning of social entrepreneurship, see: Dees, G. (2001). “The Meaning of Social Entrepreneurship”, Duke University, The Fuqua School of Business, May 30 2001. Visit www.fuqua.duke.edu/centers/case/documents/dees_SE.pdf to download the full document. 3 Young, D. and Salamon, L. M. (2002). “Commercialization, Social Ventures, and For-Profit Competition” in Salamon, L. M. (ed.) The State of Nonprofit America. Washington D.C. : Brookings Institution Press, p.436. 4 In this regard, see Drucker’s seminal book: Drucker, P. F. (1990) Managing the Non-profit Organization. New York: Harper Collins. In addition, Porter, Michael E. and Mark R. Kramer. (1999). “Philanthropy’s New Agenda: Creating Value.” Harvard Business Review, November-December, pages 121-130.
Parmalat Era. In other words, the responsibility of the firm is not only to make profits, maximizing shareholders’ value, but to meet obligations to multiple stakeholders and serve society, as well. Businesses are asked to move beyond the traditional trade-off between the economic and the social spheres. The appropriate role of business in contemporary society is changing, blurring the boundaries among the three sectorial perception. Firms are acquiring “social” responsibilities, i.e. responsibilities towards their stakeholders. Therefore, in this context, new concepts arise: 1. CORPORATE SOCIAL RESPONSIBILITY (CSR): “is the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and the society at large to improve their quality of life”5 2. CORPORATE CITIZENSHIP (CC): “is the impact and outcomes of the strategies and operating practices that a company has in its relationships with primary and secondary stakeholders, societies and the natural environment”6 We may say that firms are changing their corporate DNA, mutating into hybrid companies. Naturally, the blurring of the sectors and the arising of such hybrid companies is conflicting with the opinions of three-sectors’ believers. In this regard we may say that, Milton Friedman’s mantra, namely, “the business of the business is the business”, seems to be still alive and kicking 7 . According to this view, we just need: (1) corporations, accountable just to their shareholders, to make profits and (2) governments, accountable to all the constituencies, to serve the public good.
Holme, R., Watts, P. (2000). “CSR: Making Good Business Sense”, World Business Council for Sustainable Development (WBCSD), p.10. Visit www.wbcsd.org for further informations. 6 Waddock, S. (2005). “The Progress of Corporate Responsibility/ Citizenship”, Presentation Slides, Master In Corporate Citizenship, Fondaca Active Citizenship Foundation, Roma, June 21 2005. As a matter of fact, I had the chance to meet Prof. Waddock during my internship at Pfizer Italy, where, as a company’s representative, I participated in the first edition of Fondaca’s Master In Corporate Citizenship. 7 See the recent survey conducted by the magazine The Economist: “The Good Company. A sceptical look at corporate social responsibility”, in The Economist, January 22nd-28th 2005. Visit www.economist.com/surveys for more informations.
On the other side, according to Joel Bakan8, CSR is just a scam to hide corporations’ “pathological pursuit of profit and power”. The law school professor believes that only governments, not firms, have the responsibility to cope with the questions regarding industrial, social and environmental issues and design effective policies. From different perspectives and for different reasons, both market evangelists and corporations’ watchdogs agree on a rejection of the very concept of CSR and the underlying blurring of the sectors. Both of them are asking to go back to the good old days of the three-sectors partition. Is it still possible? Can we do that? Are governments enough powerful institutions to come back to the days of old? At this point, we need to take into consideration the changing role of the last but not least sector: government. How does the blurring boundaries trend affect it? How is its role being re-designed? Since the late 80s, the neo-liberal agenda, universally known as the Washington Consensus 9 , dictated the “rolling-back” of the state from its traditional functions and responsibilities, paving the way to privatization and deregulation policies. Government lost its powers over the multi-national company, which arose as “Global Actor No.1”.10 Bluntly put, governments were de-legitimized while, at the same time, the “invisible hand” of free markets was legitimized as the institution to tackle with all the global issues. It seems that sectors are starting to blur, isn’t it? But the faith in the self-regulating forces of global free markets, loudly bumped into the Mexican crisis 11 , first, and the global financial crisis originated in South East Asia (1997-1999), later. Therefore, the untrammelled forces of über alles turbo-capitalism must be governed, otherwise they
See Bakan, J. (2004). The Corporation: The Pathological Pursuit of Profit and Power. New York: Simon & Schuster. Visit www.thecorporation.com for informations on the book, the movie and further initiatives. 9 The term, provided by John Williams, refers to a set of global policy recommendations, among which: privatization, deregulation and trade liberalizations. 10 Petrella, R. (1997). “Globalization and Internationalization: The Dynamics of the Emerging World Order” in R. Boyer, D. Drache (Eds.) States against Markets: The Limits of Globalization, London and New York: Routledge, p .74. 11 See Krugman, P. (1995). “Dutch Tulip and Emerging Markets”, Foreign Affairs, 74/4:28-44, p 31-5.
are likely to spiral out of control. At this point, free-market was replaced by the non profit sector, following the guidelines of the so-called Post-Washington Consensus. According to this new version of the Consensus, “ the state needed to be replaced not so much by the market as by civil society organisations that represented the aspirations of the people and that strengthened democracy.”.12 Therefore, governments were replaced in their roles by the business and the non profit worlds. Even governments mutated into hybrid organizations, losing their original functions to acquire new ones. As to say, government has been de-legitimized by business and by nonprofits, losing its powers and roles within the society. Therefore, supposing that going back to the days of old is a feasible option (which is not), government has no power to do that. In conclusion, from the scenario depicted, we may infer that: each one of the traditional three sectors have been affected by blurring boundaries phenomena; everything has changed and we cannot re-establish the status quo again. We need new paradigm to cope with this changed scenarios. Actually, new rules for new realities.
Chandoke, N. (2002). “The Limits of Global Civil Society” in H. Anheier, M. Glasius, M. Kaldor (Eds.), Global Civil Society 2002, Oxford: Oxford University Press, p.45.
1.2. CROSS-SECTOR PARTNERSHIPS
As a matter of course, we cannot go back to the three-sectors partition. We cannot re-establish the status quo, since the old rules of the game are not working anymore. Indeed, as the Three-Failures Theory13 suggests, each one of the sectors fails, while other sectors’ interventions demonstrate their inability to fix the problem, within a cyclical loop of failures and domino effects: Market failure – Market and price system cannot successfully handle “pure public goods”14, since the “free-rider” issue arises. To deal with such a “market failure”, government intervenes through a non-market mechanism ( e.g. taxation15), following the choices of the median voter. Government failure - But government fails to answer to minority needs and concerns. Democracy demonstrates its inherent limits, as Alexis de Tocqueville’s concept of the “dictatorship of the majority” arises. Thus, according to Weisbrod, when “market failures” and “government failures” arise, the non profit sector comes into action. In addition, NPOs have a competitive advantage over traditional for-profits to tackle with “contract failures”16. Non profit failure - Anyway, even NPOs fail (e.g. paternalism, particularism, productive inefficiency, etc.), closing the loop of the “three sector fallacy”: market and government come back in the game, again, to solve the “non profit failures”.
For a deeper understanding of the stream of literature originated by such theory, see: Weisbrod, B.A. (1975). "Toward a Theory of the Voluntary Non-Profit Sector in a Three-Sector Economy." Pages 171-95 in Altruism, Morality, and Economic Theory, edited by Edmund Phelps. New York: Russell Sage. Hansmann, H. (1980). "The Role of Nonprofit Enterprise." Yale Law Journal 89:835-901. Salamon, L. M. (1987). "Partners in Public Service: The Scope and Theory of Government-Nonprofit Relations." Pages 99-117 in The Nonprofit Sector: A Research Handbook, edited by Walter W. Powell. New Haven, CT: Yale University. 14 The term 'pure public goods,' refers to “goods or services that are both non rival (consumption by one person does not diminish any other person's consumption of that good) and non excludable (keeping some individuals from consuming the good is costly or impossible once it has been produced).” See Samuelson’s (1954) definition in Steinberg, R (1987). “Economic Theories of Non Profit Organizations” in W. W. Powell. (Ed.) The Nonprofit Sector: A Research Handbook. New Haven, CT: Yale University. 15 As a matter of fact, “only the state, by using the coercive power of law, can avoid free riders[…]achieve a distribution of resources that more closely approximates the collective interests of the community”. See Douglas, J.(1987). "Political Theories of Nonprofit Organizations." Pages 43-54 in The Nonprofit Sector: A Research Handbook edited by Walter W. Powell. New Haven: Yale University Press. 16 According to Steinberg, Brown and Slivinski, NPOs may represent the answer to solve “contract failures”. Indeed, thanks to their unique feature, i.e. the “non distribution constraint”, NPOs can enhance the level of trust (Hansmann, 1980), thus lowering transaction costs, dribbling the” information asymmetry” issue, and facilitating the transactions related to service provisions.
Source: Powell, W. W.(Ed.) The Nonprofit Sector: A Research Handbook. New Haven, CT: Yale University.
As such a solid and consistent stream of literature demonstrated, the old rules of the games are generating failures over and over again. We need to design new rules to live in contemporary society - a planetary world wide web of connections, processes and players. Actually, old-fashioned mantras such as “government should do it” and “business will take care of it”, are not working anymore: we need new strategies and visions. As we are living “in these 7
complex times, when no organization can succeed on its own”, we have no other alternative but embracing the Collaboration Challenge.17 Given these reflections, the “whatever it works”18 mind-set seems to arise as the only feasible, down-to-earth, and effective strategy to tackle with global issues. Hence, in an effort to bridge the silos, collaboration across different players from the different sectors arise as the successful strategy. Hence cross-sector partnerships are thriving in this world of blurring boundaries. Naturally, dealing with cross-sector partnerships within a context of blurring sectors’ boundaries may sound a little bit peculiar. I guess we need a different framework to tackle with the issue. I think we need new coordinates and a new compass to get our bearings in this new land.
Austin, J. (2000). The Collaboration Challenge. San Francisco: Jossey-Bass Publishers Where the term indicates: “a non-formulaic, non-legalistic, non-political, non-categorical approach to getting the job done”. See the already quoted Young, D. and Salamon, L. M. (2002), p.440.
1.3. BEYOND BLURRING SECTORS: THE BLENDED VALUE PROPOSITION (BVP)
Life is the blended harmony of the Yin and Yang. CHUANG TZU19 The perception of reality we develop depends on the lens we use. Perceiving the contemporary world through the lens of the blurring boundaries, seems like eating a soup with a fork: it is not the right tool. At this point, we need to be equipped with the right tools for our scouting expedition. In order to explore this new territory, we need to make the acquaintance of its inhabitants. In this regard, Jed Emerson20 - a pioneer of social entrepreneurship and “an elder in the field” of venture philanthropy, - will be our guide in this new (promise) land of the Blended Value Proposition (BVP). According to the guru of BVP thinking: to use the word "blur" has the connotation of something having gone astray, run amok, become involved in mission drift or a modest distortion of reality…And it is fundamentally the wrong way to think about what is in play, which is (at its core) value creation by organizations and those that provide capital (in whatever form or with whatever expectation of returns) to them... This is not a question of good or bad or what have you, but rather one of folks just looking at the world through their existing lens and not rising above the present framework to understand the emerging, deeper paradigm shift. Value is non-divisible. It is Whole.21 This seems to be a quantum leap in the way we perceive our realities. In other words, giving the changed scenarios, we cannot continue to proceed with the idea that nonprofit are producing social value and businesses are producing economic value. We cannot continue to separate the silos. And we cannot continue to simply perceive a blurring area among increasingly interconnected silos. Indeed, nonprofits are embedded in the business environment, generating economic and financial
Chuang Tzu (1981, Kuo Hsiang chu). Chuang Tzu, Tai Wan Chung-hua shu chu,Tai-pei. The multi-faceted Emerson is currently Senior Fellow with Generation Foundation, the philanthropic arm of Generation Investment Management (London, UK), and a fellow with the Said Business School at Oxford University. Recognized as an international leader in the field of strategic philanthropy, social entrepreneurship and corporate citizenship, Emerson started to developed the BVP and the Social Return On Investments (SROI) metrics in the year 2000. In this regard, consider his seminal paper: Emerson, J (2000). “The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investments and the Blended Value Proposition”. Boston: Harvard Business School. Visit www.blendedvalue.org and www.generationim.com for further informations on his researches and activities. 21 In December 2005, I had the chance to meet Jed Emerson, in his retreat in the heart of Rocky Mountains, in beautiful Colorado (USA).
value as well. On the other side, firms are embedded in the society, generating social value, as well. Thus, the very point is not about silos, it is about value. This is the paradigm shift suggested. Actually, the core concept of the BVP is that: “value is itself a combination, a “blend” of economic, environmental and social factors, and maximizing value requires taking all three elements into account”.22 The traditional understanding of the term “value” has been challenged by the arising of the BVP. Social and financial values are naturally embedded into all traditional categories of investments. Emerson’s Value Map will help us to tackle with the issue (see picture above)23: “ Quad A represents the higher economic value and Quad D the lower social value of a standard investment opportunity. A traditional analysis would demonstrate that while the social capital investments are viewed as having greater social value, they carry lower financial reward (and therefore lower financial returns to investors)”.24 Thus, traditional approach to value production, assumes that the Economic Value and the Social Value are “separate and at odds”. Therefore, they are separately tracked: 1. First Stage: track the financial value. 2. Second Stage: read the social audit from an external source. As a matter of fact, what is termed the “Traditional Value Proposition” calls for “A Zero-Sum Dissonance”. Actually, it “freezes” the concept of value into a static, two-dimensional, linear understanding of it.
Bonini S. and Emerson, J. (2004). “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation”. Visit http://www.blendedvalue.org/Papers/Downloads_GetFile.aspx?id=97 to download the full document. 23 Presentation Slide © 2004 Jed Emerson. All Rights Reserved. Reproduced by courtesy of the Author. 24 Emerson, J. (2000). “The Nature of Returns: A Social Capital Markets Inquiry into Elements of Investment and The Blended Value Proposition”, Social Enterprise Series No.17, Harvard Business School, p.31. Visit http://www.redf.org/results-sroi.htm to download the full document.
Once crossed the Zero-Sum Dissonance, Emerson suggests us to consider “the transformative nature of the investment and the dynamic interplay between its social and economic components”. He is challenging the traditional approach: assumptions, integrate both
suggesting a revolutionary Financial and Social Value into Quad B, where they will be fully assessed, social and “maximizing
financial value creation and shareholder returns”. In other terms, value is not static: it is A dynamically Cartesian evolving.
approach to value, dictates its partition into Economic Value and Social Value blocks, within a zero-sum game. Differently, a complex and systemic approach, considers value as dynamically generated by the continuous interaction between Economic Value and Social Value. Hence, what is Economic Value becomes Social Value and the opposite, in a continuous cycle of transformation. Systemic thinking represents a major revolution in the history of Western scientific thought. Furthermore, systemic thinking converges with Eastern thought, particularly the principles of Taoism25. Tao is the origin of the universe, the entia of nihility and existence, and the ultimate indivisible and interrelated reality. It impenetrates shifts and mutations of all things; all is one. Tao is an intangible entity, which we can’t see, touch, hear, smell, taste, but it does exist in eternity. The essence of Taoism is the awareness of the unity and mutual interrelation of all things and events, the experience of all phenomena in the world as manifestations of the basic oneness—Tao.26 Observing the diagram of the Tao, we may infer two main conclusions: 1. THE INTER-PENETRATING AND UBIQUITY OF YIN AND YANG: The dark Yin and bright Yang are the two intrinsic characteristics of Tao, coexisting harmoniously in any entity and exhibiting itself in any form. We can see from Figure 1 that there is Yin in Yang, and Yang in Yin, no clear boundaries between the two. The two dots in the diagram symbolize the idea that each force contains in itself already the seed of its
In this regard, consider as a starting point, the seminal book by Capra, F. (1975). The Tao with Physics, Boston: Shambhala, where modern quantum physics converges with Eastern thought. Particularly, see Lang, K.R. and Zhang, J. L. “ A Taoist Foundation of Systems Modeling and Thinking“, Department of Information and System Management, HK University of Science and Technology (HKUST), Hongkong. 26 Lang and Zhang, p. 2.
opposite. The two round seeds coincide with the cyclic pattern of the whole, which affirms the invariance between parts and whole. Yin and Yang is a highly abstract yet most common concept that basically captures the very nature of this world, and can thus be used to describe any thing or any phenomena on this world in general.27 2. THE DYNAMIC PATTERN OF TAO: The continuous cyclic movement of the two poles Yin and Yang, generates the Tao: “The Yang returns cyclically to its beginning, the Yin attains its maximum and gives place to the Yang.(Kuei Ku Tzu, fourth century B. C.)”28
Figure 1(left): The Diagram of Tao. Figure 2 (right): The Dynamic Unity of Polar Opposites. Source: Capra, F. (1975). The Tao with Physics, Boston: Shambhala, p.167.
Drawing on the Taoist philosophical tradition, I dare to say that Value is generated by the dynamic interaction between Economic Value and Social Value just as Tao is generated by the rhythmical interplay between Yin and Yang. Thus, Value Blends from one form to another as the Tao does it. Actually, I developed what we may call a Taoist Foundation of the Blended Value Proposition. A millenary philosophical tradition to support a state-of-the-art framework. A blend of past and future for the development of the present. Emerson’s proposition, provides us with a new lens to approach contemporary reality. The world of blurring sectors has now been fixed up into its dynamic framework. For-profit and non-profit are, therefore, blended into a dynamic, non-linear fourth dimension where the traditional model of Returns on Investment (ROI) is blended with the Social Returns On Investment (SROI) and then replaced by the Blended ROI: “the Blended ROI is the tool by which one assess the returns generated by the application of social capital in this integrated marketplace.”
Lang and Zhang, p.4. Kuei Ku Tzu, (1978; Chao Chuan-pi chu). Kuei-ku-tzu chu shih, Tai-pei.
As a matter of fact, both non-profit organizations (NPOs) and for profit organizations (FPOs), are pursing social and financial value maximization. The traditional separation for profit/ non profit is
Figure 3: Tao and BVP: A Natural Fit. I modified Capra’s diagram, in order to explain the dynamic of the Blended Value Proposition(BVP).
increasingly losing its meaning. Bluntly put, both NPOs and FPOs are morphing into hybrid organizations, pursuing blended value maximization. Well beyond the debate about the blurring of the sectors, we are talking about organizations – whatever for profit or non profit – maximizing blended values. In conclusion, every organization –whether government, business or nonprofit – is producing value, actually, blended value. Now, the hotchpotch of roles, uncertainty and unforeseen contingencies, starts to make sense. Given this holistic framework, we can apply best practices from the corporate world to non-profit organizations, export nonprofits’ values in the business environment, and address public policies accordingly. All these players must communicate and achieve much more than mere sector blurring: both organizations share the same goal, namely, value production. Value cannot be separated and classified according to an old-fashioned Cartesian model. We now know that the whole is more
than the sum of the single parts. Therefore, we need to get rid of traditional mind-sets and move to different approaches and paradigms. Value is Energy and, therefore, according to the First Law of Thermodynamics, Energy is continuously converted from one form to another. Energy blends, just as the Tao blends. We cannot freeze Energy into static (organizational) forms. Therefore Value cannot be separated into armoured silos (i.e. the sectors: government, business, non profit) but only converted from one form (financial value) to another (social value). Indeed, every organization generates value which is blending from one form to another continuously. Again, as Emerson suggested, value is “fundamentally non-divisible, whole and blended”. The BVP vision is giving us the chance to explore this unknown new land of partnerships and alliances, equipped with a functioning compass and a more detailed map of the territory. Bearing in mind these assumptions, we are going to explore the land of business-to-business (b2B) partnerships, business-to-nonprofit (b2n) partnerships and business-to-government (b2g)
partnerships. The latter will be further analyzed through the development of the case-study regarding the Matricole d’Argento initiative.
2. BUSINESS TO BUSINESS (B2B) PARTNERSHIPS: ALLIANCE MANAGEMENT
2.1. BIOTECH-PHARMA ALLIANCE: A CORPORATE TANGO
In this section, I analyze an emerging trend in one of the most risky and value-generating industry of the planet: the pharmaceutical industry. The emerging trend I am dealing with, is related to business-to-business (b2b) partnerships, namely the alliance between giant pharmaceutical companies and agile biotech firms. Regardless of their overall business strategies, the majority of big pharmas are increasingly relying on alliances, in order to develop innovative products, acquiring new skills and capabilities. Alliances are perceived in the industry as a relatively quick and cost effective tool to keep the pipeline filled with new molecules. As Sidney Taurel, CEO Eli Lilly & Co.29, commented “We pursue partnering in all phases of our business and believe in “research without walls”. Several of the most exciting molecules in our pipeline came from partners.”30 As a matter of fact, Eli Lilly’s growth strategy is characterized by a vibrant presence of partnership and alliances – envisaged as strategic building blocks. Definitely, partnerships are not a temporary option. Indeed, since the year 2001, one of the company’s priorities was to “Ensure the success of our partnerships”.31 Why?
“Lilly, a leading innovation-driven corporation, is developing a growing portfolio of first-in-class and best-in-class pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers -- through medicines and information -- for some of the world's most urgent medical needs.” Additional information about Lilly is available at www.lilly.com 30 Gueth, A., Sims, N. Harrison, R. (2001). “Managing Alliances at Lilly”, IN VIVO, June 2001. 31 Twait, S. (2005). “Eli Lilly and Company. Building Organizational Capabilities for Alliance Management”. Office of Alliance Management. Eli Lilly and Company. Slides presented at The Bio Ohio Conference, Omeris -Columbus, OH, November 1, 2005.
STRATEGIC ALLIANCES AMONG THE TOP 12 PHARMACEUTICALS AND THE TOP 12 BIOTECHS
Source: Recombinant Capital database of alliances in the pharma-biotech industry. The database takes into account approximately 12,500 publicly disclosed contracts and arrangements from 1973 to 2001. Among the major pharmaceuticals, Ely Lilly and Co. (LLY) and Pfizer Inc. (PFE).
According to organizational theories, firms that are facing uncertain environments, are likely to establish joint-ventures both as a means to reduce uncertainty and risk-sharing.32 In highly competitive and uncertain business environments such as information technology, nanotechnology, bio-techs and genetics, traditional mergers and acquisitions (M&A) have been increasingly replaced by strategic partnerships and alliances. Today, a large pharmaceutical firm is not likely to play the M&A Game with an highly promising, innovative bio-tech start-up. On the
Pfeffer, J and Nowak, P. (1976). Joint-Ventures and Interorganizational Interdependence. Administrative Science Quarterly 21: 398-418.
contrary, it is likely to play what we might call The Partnership Game, establishing a dense network of alliances. As Stanford University organizational sociologist Walter W. Powell, brilliantly pointed out in his renowned article: Firms pursue cooperative agreements in order to gain fast access to new technologies or new markets, to benefit from economies of scale in joint research and/or production, to tap into sources of know-how located outside the boundaries of the firm, and to share the risks for activities that are beyond the scope or capability of a single organizations. The ensuing organizational arrangements include joint ventures, strategic alliances, equity partnerships, collaborative research pact of large scale research consortia, reciprocity deals and satellite organizations. There is no clear cut relationship between the legal form of cooperative relationships and the purposes they are intended to achieve. The form of the agreement appears to be individually tailored to the needs of the respective parties, and to tax and regulatory considerations. The basic thrust, however, is quite obvious: to pursue new strategies of innovation through collaboration without abrogating the separate identity and personality of the cooperating partners33 Thus, according to Powell, networks are a form of governance of the economic exchange. This is particularly true in the pharmaceutical industry – an uncertain, competitive and turbulent environment. According to Steven Twait, 34 Lilly’s Office of Alliance Management (OAM), alliances and partnerships represent a competitive advantage and, therefore, an effective tool to provide “a constant stream of innovation” and outgrow the company’s competitors. Thus, partnerships are crucial to survive in the global arena of today’s pharmaceutical business. A biotech CEO recently told Pharm Exec magazine: “our industry can succeed only by collaborations, because no company has the whole of the jigsaw complete – only a piece”35 The comments collected till now, may help us to unfold the rationale of what has been called a “dance between an elephant and a flea”?36 What are the reasons behind such a corporate tango?
Powell, W.W. (1990). “Neither Market Nor Hierarchy: Network Forms of Organizations” in Research in Organizational Behavior, vol.12: 295-336, p. 315. 34 During my internship at Eli Lilly and Co. Foundation, I had the chance to meet Steve Twait at Lilly Corporate Center, Indianapolis, IN (USA). 35 Lam, M.D. (2004). “Biotech + Pharma: Why Alliances Fail” in Pharmaceutical Executive, June 2004, p.1. 36 See the already quoted Lam, p.3.
The rationale behind these b2b alliances is simple: each one of the partners has something the other wants. But, differently from merge and acquisitions (M&A) strategies, new key-words arise: we move from “buying” to “borrow” and from “take control” to “sharing”. Naturally, this pattern of interactions among players cannot be formalized into the traditional complete contract. On the contrary an open-ended, i.e. a relational contract, is needed (see definition below). RELATIONAL CONTRACT: contract that refrains from spelling out every aspect of the final objective and how it will be achieved. Rather than pin down each partners’ behavior beforehand, it obligates them to coordinate and decide matters jointly as events unfold.
Source: Lam, M.D. (2004). “Biotech + Pharma: Why Alliances Fail” in Pharmaceutical Executive, June 2004, p.4.
In other words, relational contracts are kind of fuzzy, relying less on formal agreements and more on mutual trust and cooperation. As suggested by Professor Ben Gomes-Casseres of Brandeis University: you set down as much as you can about the various rights and responsibilities in the relationship. But you realize it will stand or fall on the partners’ ability to come up with answers to questions they haven’t thought about before. The heart of relational contract is a commitment closer in spirit to what binds friends, family members, and spouses than typical business partners. The prevailing attitude is, as the song goes, “we can work it out”37 Trust-based, relational contracts are more suitable under conditions of uncertainty. We may represent the various kind of alliances in a Collaboration Continuum:
Source: Robinson, D.T. Making Strategic Alliances and Networks Work by Mike Peng
At the opposite ends of the Continuum, two classes of alliances arise: 1. CONTRACT-BASED ALLIANCES: are generally formed for a specific purpose, for a limited time and entail a relatively low level of inter-firm involvement 2. EQUITY-BASED ALLIANCES: tend to be more open-ended and usually inspire higher levels of interaction The overall benefit of alliances is risk management: companies diversify the risk by sharing it with the partners in the alliance. In addition, the degree of commitment is incremental – avoiding the risks of premature bets and failures - and it follows the shared strategy as the latter unfolds. But, even alliances entail trade-offs. Indeed, performance risk is reduced through the alliances, but risks reveals itself in a new way: relationship risk. Actually, command-and-control strategies have no meaning in an alliance, where the key approach is about “sharing”. Bluntly put, how do we deal with that?
2.2. ALLIANCE MANAGEMENT On average, cooperation is about 43 percent kindness and 57 percent confusion. ANDREONI38
In sum, partnerships matter but, at the same time, partnerships are likely to fail. Indeed, divorces occurs between the partners of business marriages. Until now, we identified the benefits of alliances, but it is time to deal with constraints and weak points. Several are the reasons of failure. According to the veterans in the field, given the actual situation, the buzzword seems to be “Murphy was an Optimist”, in the sense that Whatever Can Go Wrong, Will. At this point, it seems that the issue is becoming pretty challenging, right? Because of poor governance, defection may arise inside the supposed co-operative relation: the socalled “partner opportunism”. Moreover, companies may lose the “learning race” 39 with their partners. But alliance failure is not just the outcome generated by a rational decision in an uncertain context. Indeed, cognitive and psychological aspects need to be carefully considered. Psychologist Daniel Kahneman, 2002 Nobel Prize in Economic Sciences, and Dan Lovallo, senior lecturer at the Australian Graduate School of Management at the University of New South Wales and a former strategy specialist at McKinsey & Co., wrote: When forecasting the outcomes of risky projects, executives all too easily fall victim to what psychologists call the planning fallacy”—the product of cognitive biases and organizational pressures—“which leads them to make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities.40
Andreoni, J. (1995). “Cooperation in Public Goods Experiments: Kindness or Confusion”, American Economic Review, 85, 4: 891-904. 39 Where the term means: “the contest to unlock their partner’s bag of tricks (firm-specific resources and capabilities) before the partner figures out theirs”. See the already quoted Lam, p.8. 40 Lovallo, D and Kahneman, D. (2003). “The Delusions of Success – How optimism undermines executives’ decisions”, Harvard Business Review, 81:7. 2003, 56-XX.
According to a recent survey41, the main drivers of partnership failures, across the years, are the following:
Source: Courtesy of Eli Lilly & Co, *PriceWaterhouseCoopers, ** IBM Business Consulting Service
Furthermore, some additional observations may complete the scenario: • • ALLIANCES FAIL: 50 to 70 per cent of all partnerships fail to fully meet expectations. FAILURE
NON-TECHNICAL: The reasons for alliance failure most cited by
participants are non-technical i.e. culture, communication, strategy, leadership • PARTNERS ARE RESPONSIBLE FOR FAILURES: Only 13 per cent of failures mentioned are for reasons felt to be beyond the partners’ control. Given such figures and observations, it seems that the dynamic of the relationships among all the players involved must be effectively managed, in order to avoid unsuccessful partnerships. If firms want to take advantage of relational contracts, the commitment among partners needs to be improved. If we want a long-lasting marriage between two companies, the degree of trust and
PricewaterhouseCoopers, Preferred Partner Survey, 2003. Visit www.pwcglobal.com/ for more informations.
commitment must be enhanced, fostering communication and sharing. Cultural differences must be mediated. Kahneman and Lovallo’s “cognitive biases and organizational pressures” must be taken into the due account. Value alignment must be achieved. Yes, but how? According to Stuart Kliman, 42 ”Good management is about figuring out how to handle cultural differences. […] The goal is not to eliminate differences, but to create value out of them, turn them from a liability into an asset. Relationship management is the solution” . Once again, opposites must be blended into a value-generating harmony. Taking the Cartesian point of view, we might think that successful alliances occur because each one of the partners is smart. The idea is that [1+1=2]. But, as we have seen, surveys describe a different reality, where the interactions and the relation between partners are the crucial point to build successful partnerships. In other words, taking a systemic i.e. Taoist view of the issue, we may say that [1+1=3], where the additional value is generated by the relation itself. Therefore, the relationships within the alliance must be effectively managed, in order to develop a successful alliance. We are moving from a linear, reductionist logic to a non-linear, holistic logic. Similar reflections were taking into the due account by Eli Lilly. Since partnering has become one of Lilly’s strategic imperatives, the company’s goal is to become “World-famous at Alliance Value Creation” within the framework of Lilly’s Alliance Management Vision: “Establish Lilly as the most reputable pharmaceutical company for creating and capturing partnership value in a way that drives both Lilly’s, and our partners’ growth”. In sum, partnership is about value generation for all the partners involved – within a win/win framework. In this perspective, Lilly chose to establish an Office of Alliance Management (OAM)43, namely an ad hoc internal agency, committed to provide:
Co-founder of relationship consultants Vantage Partners. Visit www.vantagepartners.com for more informations. For a more extensive analysis on the assessment of the role played by Lilly’s OAM in strategic alliances within the pharmaceutical industry, consider the 10 year study on alliances and joint ventures conducted by M. A. Lyles, AUL Chair of Business Administration, Professor of International Strategic Management, Kelley School of Business, Indiana University. Visit www.kelley.iu.edu for further informations.
1. Alliance Planning and Organization 2. Alliance Start-up 3. Implementation and Value Creation The OAM was born to generate, support and enforce the so-called three dimensional fit: the Holy Grail of any successful alliance. These three dimensions are: 1. the strategic fit between partners: alignment of partners’ goals, plus, quality relationships between them (e.g. trust, fairness) 2. the operational fit including the key attributes of effective management, leadership, communication, conflict management 3. the cultural fit including value compatibility and alignment, partners’ skills, tasks to be performed, the environment in which the alliance will operate
Source: The Warren Company, an Andersen Consulting Alliance Partner
But what were the tools to practically manage the alliances? The tools, developed by Lilly’s OAM, to assess partnering capabilities were the following: 1. PricewaterhouseCoopers (PVC) Benchmark Survey: a survey, conducted yearly by PWC in the pharmaceutical and biotechnology industries. It analyzes the critical factors of a successful alliance, giving a broad general view of what is “out there”. 24
2. Voice of the Alliance (VOA): Lilly chose to develop its own proprietary tool in order to get a much more “finer-grained picture” of the issue. The main broad categories of the three dimensional fit are articulated into more detailed 14 dimensions: I. STRATEGIC FIT: commitment, strategy, trust, fairness II. OPERATIONAL FIT: communication, conflict management, decision making, leadership, performance management, roles, skills/competence, team coordination. III. CULTURAL FIT: organisational values, knowledge management, flexibility. The survey is administered both to the company itself and its alliance partners: they rate each category and each dimension. The results are then compared to each other: the congruence between Lilly and other partner is observed through a radar chart, giving the degree of fit-ness.
Source: Futrell, D., Slugay, M., Stephens, C. H. (2001). “Becoming a premier partner: Measuring, managing and changing partnering capabilities at Eli Lilly and Company” in Journal of Commercial Biotechnology, Vol. 8, 1, 5-13.
In the radar chart above, both Lilly and the partner gave a favourable score rating (80%) of the “leadership” dimension. This means that they strongly agree on that dimension of the Operational 25
Fit. On the other side, “strategy” seems to be a weaker dimension (about 60%) to both partners, and, therefore the Strategic Fit must be improved. Finally, a consistent gap arise in terms of “trust/fairness”: Lilly participants gave an 80 per cent favourable rating , while its partner a fairly less than 60 per cent favourable rating. Therefore “trust/fairness” came out to be a sensitive area: a joint effort must be done by both partners to improve it, in the general interest of the partnership – not of the single players. Through the data collected, Lilly and its partners can evaluate the weak and strong points of their alliances. Therefore, each one of the partners involved may identify a more effective strategy to enhance the alliance, for the mutual benefit of all.
Source: Twait, S. (2005). “Eli Lilly and Company. Building Organizational Capabilities for Alliance Management” .Copyright © 2005 Eli Lilly and Company
The VOA has been used to investigate alliances of different scale: from 20 to 100 members’ alliances to 1,770 participants. Obviously, in the latter case, the dynamics of relationships among so many different players, makes the nature of the survey much more complex.
Thanks to alliance management and the tools implemented, Lilly improved its performance in terms of being an Alliance Partner. As commented by Patty Martin –Executive Director at Alliance Management - the company shifted from merely being perceived by the market as “one of the most attractive alliance partners” (1999) to being perceived as “the most attractive alliance partner”(2005).44 Lilly’s reputation as a reliable and effective partner in the pharmaceutical industry, definitely improved (1999-2003), as shown in the chart in the previous page. In conclusion, partnerships and alliances are the strategy to survive in the turbulence of today’s global business. Lilly, through a wise alliance management, improved its reputation as a reliable partner, enhancing the level of trust perceived by its (potential) partners in the pharmaceutical industry. Hence, the company’s strategic imperatives – e.g. becoming “World-famous at Alliance Value Creation” by “Establish Lilly as the most reputable pharmaceutical company for creating and capturing partnership value in a way that drives both Lilly’s, and our partners’ growth” – seems to be achieved. A successful initiative that clearly leveraged intangible values such as trust and corporate reputation, within a world of tangible (economic) values. Alliances generate value both for the benefit of Lilly’s shareholders and the benefit of Lilly’s stakeholders, namely the shareholders of the biotech firm. In other words, b2b partnerships produce stakeholders’ value, as well. From a business perspective, Social Value may be residually formalized as “shareholders’ value”, i.e. value produced for the benefit of “other players but shareholders”. Thus, Pharma-Biotech alliances generate Social Value, too. A consideration that seems to find further theoretical underpinnings in Putnam’s idea of social capital: “social capital” refers to features of social organization such as networks, norms and social trust that facilitate coordination and cooperation for mutual benefit.45
Martin, P. (2003). “Aligning Your Alliance Commitments: One Global Corporation’s Observations”. Association of Strategic Alliance Professionals (ASAP) Summit, October 28, 2003. 45 Putnam, R. (1995). “Bowling Alone: America’s Declining Social Capital”, Journal of Democracy 6: 1 (January 1995), 65-78.
As we have seen, b2b alliances in the pharmaceutical industry, produces economic value for both partners. Value is generated both for the shareholders of the big pharma company and for the biotech firm. The networks of pharma-biotech alliances represent “features of social organization” that “facilitate coordination and cooperation for mutual benefit”. Thus, business-to-business partnerships in the pharma industry, generate Social Capital and Social Value. In conclusion, the value generated by these partnerships is a blend of Economic Value and Social Value. This seems to be a clear and practical example of the Blended Value logic within the context of the pharmaceutical industry.
2.3. THE TRUST GAME
trust is, after all, the single most important precondition for knowledge exchange ROLLAND AND CHAUVEL46
In this section, a more detailed analysis of the interaction dynamics among partners will be provided. Through a game theoretic approach. Furthermore, the role played by trust in such a context will be considered. But, first, a crucial preliminary question needs to be answered. What is trust? Trust is an essential feature to avoid defections and foster cooperation and sharing. This assertion is going to find a solid and formalized underpinning in this section. In the global business arena, trust is basically perceived as “[t]he confidence between parties in a relationship that neither party will be harmed or put at risk” and/or “[g]oodwill between parties in a
Rolland, N. and Chauvel, D. (2000). “Knowledge transfer in strategic alliances” in Despres, C & Chauvel, D (Eds.) Knowledge Horizons: The Present and the Promise of Knowledge Management. Boston, MA: Butterworth Heinemann.
relationship.[…]Goodwill in business relationships helps individuals and organizations exchanging ideas, informations, products, services. […]Trust enables parties to work together over time”.47 Trust is a critically important element of business relationships, because “it oils the wheels of business”. Trust facilitates the transactions among economic agents. Trust is crucial for companies, since helps to secure repeat business - and this is vital for companies especially when there is interdependence and uncertainty. Actually, the turbulences of global markets are triggering a paradigm shift in the framework of (business) relationships among multiple agents. Redefining their corporate strategy practices, companies are moving away from traditional power-based relationships to embrace trust-based relationships. An evolution that combines with the corporate paradigm shift already considered: companies are moving away from complete contracts to embrace relational contracts. Basically, a company forging a strategic alliance (e.g. a pharmaceutical company and a biotech firm and/or a pharmaceutical company and a non-profit organization or public institution) in a new and uncertain market is likely to stress trust, since: • The parties are interdependent • The situation is uncertain • The consequences of choosing a poor alliance partner could be major
Power-based Relationships: Rely on fear Are guided by the pursuit of selfinterest Communication is one-way and formal (e.g. formal contracts) Power is exercised through coercion and recourse to the legal system
Trust-based Relationships: Rely on trust Are guided by the pursuit of what is fair Communication is through dialogue and quite open contracts Trust is exercised through expertise and mutual understanding - but if conflict arises, both parties are prepared to accept mediation and arbitration
Trust-based relationships mean cooperating in order to gain mutual benefits. In order to illustrate the role played by trust in the context of partnerships, I suggest to draw on Game Theory. Particularly, the Trust Game may help us to better understand the interaction
Bannock, G. Davis, E. Trott, P. and Uncle, M (2002). Dictionary of Business. London: Penguin Books
dynamics between the two partners in the alliance. This game is one of the members in the popular family of Prisoner’s Dilemma (PD) games. What is a PD game? A solid and significant answer comes from Robert Axelrod, guru of co-operation theory and PD games: In the Prisoner’s Dilemma game, there are two players. Each has two choices, namely cooperate or defect. Each must make the choice without knowing what the other will do. No matter what te other does, defection yields a higher payoff than cooperation. The dilemma is that if both defect, both do worse than if both had cooperated.48 We apply Game Theory to better understand the dynamics and the driving forces ruling the interactions between two players in a partnership. To be clear in my explanation, we first start to cope with a simple one-shot interaction and, then, we consider a sequence of that interactions, infinitely repeating over time, i.e. an infinitely repeated game.
2.3.1. The One-Shot Interaction: Defection As we said, the Trust Game can help us to better understand the mechanism governing partnerships among two players. We suppose a mechanism based on a simple interaction - where the latter is a single one-shot interaction. The game starts with a decision node for Player A: (s)he can choose either to Trust or Not Trust his partner Player B. If Player A chooses Trust then the game reaches a decision node for Player B. At this stage of the interaction, Player B can choose to Honor or Betray Player A’s Trust. Differently, if Player A chooses Not Trust, then the game ends. As to say, Player A terminates the interaction with Player B (Payoff 0,0) Following the assumption that Player A accept to be engaged in a relationship with Player B (i.e. Player A chooses Trust) and Player B chooses Honor, then there is a positive payoff for both players (Payoff is 1,1).
Axelrod, R. (1984). The Evolution of Cooperation. New York: Basic Books, p. 7-8.
On the other hand, if Player A chooses Trust, Player B can choose either to Honor (Player B’s Payoff is 1) or to Betray (Player B’s Payoff is 2, while Player A’s Payoff is -1). Therefore, Player B is likely to Betray Player A, in order to get a higher payoff (since 2 > 1). Thus, in this case we have a Payoff 2, -1. Bearing this in mind, Player A chooses Not Trust (in fact 0 > -1) and, therefore, transaction will not occur. Therefore, in the One-Shot Interaction, Defection arises as the most suitable option.
Player B 0 0 Honor Betray
1 1 .
The Trust Game: The case of a One Shot- Interaction between two players.
2.3.2. Infinitely Repeated Games: Co-Operation What happen when we move from One-Shot Interaction to Infinitely Repeated Games? If we assume that the interactions among agents are repeated over time, we have to take into account that the current behaviour of a player may be influenced by the threats and promises related to future behavior. 31
Exactly at this point, repeated game come into action. Indeed, repeated game – which is just one of the game-theoretic models – is able to grasp the above mentioned mechanism, which, as we said, influences the players’ behaviours and interactions over time. If we suppose the Trust Game is “infinitely” repeated over time, we are simulating a long-period relationship between Player A and Player B. This means that, today’s payoff of the Player B - i.e. actions which are not in the Player B’s self-interest in the short-term – must be consistent with Player B ’s total payoff over time – i.e. its overall self-interest. How does a long-term perspective influences the players’ choices? The behavior of players changes dramatically. Indeed, to be clear and simple: in the one-shot interaction (short-term), assuming that Player A chooses Trust, Player B maximize its payoff by choosing Betray (Payoff -1,2 now). But in repeated games (long-term), the above mentioned betrayal by Player B, pushes Player A to choose Not Trust forever after. In this case, the payoff for Player B is equal to zero for each subsequent period (Payoff 0,0 forever after). Thus, in every interaction with Player A, Player B has to trade off the [short-run temptation, i.e. Payoff is 2 instead of 1 now] vs. [ long-term consideration, i.e. Payoff is 0 instead of 1 forever after]. What is Player B likely to choose? The choice of Player B is related to its patience. But how do we formalize the concept of “patience”? We assume a discount rate r, used to compute present values of future payoffs across periods. When r is high, the present value of a future payoff of $1 is not worth much today [ $1/ (1+r)]. This means that, when r is high, Player B is not patient: today interaction is its last interaction. Thus, Player B chooses the short-term payoff. Instead, when r if sufficiently low, present value of future payoff is higher. Hence, when r is low , i.e. Player B is “patient”, long-term consideration dominates over short-term temptation.
As to say, Player A chooses Not Trust but Player B chooses Honour as a long-term strategy. Player B is building its reputation, stimulating Player A to choose trust in the future periods. Player A’s answer to this strategy is: if Honor have been chosen in all the previous periods, play Trust…else choose Not Trust. Thus, assuming that the interactions Player A - Player B are repeated over time – which means that Player B’s action today may affect Player A’s expectation of Player B’s actions tomorrow, influencing Player B ‘s payoffs tomorrow – Player B has an incentive to build trust. Player B has an incentive to build its reputation over the long-term.
2.3.3. BEYOND THE TRUST GAME
Does logic prevent cooperation? D. R. HOFSTADTER49
The transactions between two players in a partnership have been investigated through repeated games, within a game theoretic framework. The Trust Game explains why and to what extent players may trust to each other and co-operate over the long term. An issue that is crucial for the development of successful partnerships. In repeated games, Player B’s trade-off between [short-run temptation] vs. [long term consideration] is solved in favour of the latter. As to say, Player B chooses to adopt “Trust” as a long-term strategy. Indeed, building a long-term reputation, (s)he going to achieve a higher payoff in the long term. The findings arising from the Trust Game – played by Player A and Player B – are essential to better understand the underlying dynamics of long-term partnerships But the Trust Game consider trust and reputation as useless ingredients on single-shot games. Indeed, trust and reputation come into action only in repeated games over the long-run. Therefore,
Hofstadter, D. R. (1985). Metamagical Themas: Questing for the Essence of Mind and Pattern. New York: Basic Books, p.716.
cooperation may represent a viable strategy in the long term, but not in the short term. It’s the business (and the rational choice), stupid! Nevertheless, it seems that we need to add more ingredients in our recipe to grasp reality. Let’s start again from the beginning. According to the Prisoner’s Dilemma, on single-shot interactions, cooperation will never be chosen: the [temptation to defect T] has a payoff value (5) which is higher than the [reward for mutual cooperation R] payoff (3). Indeed, the traditional constraint of Prisoner’s Dilemma (PD) games, as originally stated by Axelrod,50 is the following:
T > R > P > S : It means that T (i.e. the temptation to defect), represents the higher payoff (5),
followed by R (i.e. reward for mutual cooperation) providing a lower payoff (3), than P (i.e. punishment for mutual defection) with a payoff (1) and, finally, the Sucker’s payoff S, namely (0).
Column (2) Player C D
Row (1) Player
Row: R(3) Column: R(3) Row: T(5) Column: S(0)
Row: S(0) Column: T(5) Row: P(1) Column: P(1)
T - temptation to defect R - reward for mutual cooperation P - punishment for mutual defection S - sucker’s payoff
Hence, the PD game incentives to defection. A conclusion which may be expressed through a probabilistic approach: Given:
(1 − p)
as the probability the other player will cooperate
as the probability the other player will not cooperate
Axelrod, R. (1984). The Evolution of Cooperation. New York: Basic Books.
Expected utility of Collaboration is: U (C ) = 3 p U ( D) = 5 p + 1(1 − p) = 4 p + 1 U ( D) > U (C )
Expected utility of Defection is:
In conclusion, according to the PD – namely, the most popular model for the study of cooperation two players are likely to choose Defection D instead of Cooperation C in the context of a one-shot interaction. But this statement is not so obvious as it may seem. Surprisingly enough, PD games are not able to grasp all the aspects of reality. Indeed, game theoretic expectations fail to predict the players’ decisions to cooperate or defect. According to Conte and Paolucci, from the Institute for Cognitive Sciences and Technology (ISTC/CNR), several experimental studies regarding collective dilemmas51, provide evidences that “the level of cooperation effectively achieved by participants significantly exceeds expectations even in the one-shot condition”52. Particularly, it has been found that face-to-face communication among subjects increased cooperation. Why?
2.3.4. THE ROLE OF TRUST IN ONE-SHOT INTERACTION
Why do “real” players achieve a level of cooperation which exceeds game-theoretic expectations – even in the one shot interaction? In this regard, communication seems to play a crucial role. According to the theory of rationality, “communication[..] is a means to persuade others to cooperate”53. Therefore, through the communicative action “the recipient is induced to cooperate in order to give an advantage to the speaker at the expenses of the recipient”54.
See the experimental studies conducted in: Marwell and Ames (1981). “Economists Free Ride: Does Anyone Else?”, Journal of Public Economics, 15: 295-310. Schneider and Pommerehne (1981). “Free Riding and Collective Action: An Experiment in Public Microeconomics”, Quarterly Journal of Economics 96: 689-704. Kim and Walker (1984). “The Free Rider Problem: Experimental Evidence”, Public Choice, 43,1: 3-24. Isaac et al. (1985). “Public Goods Provision in an Experimental Environment”, Journal of Public Economics, 26: 51-74. 52 Conte, R. and Paolucci, M. (2002). Reputation in Artificial Societies: Social Beliefs for Social Order. Dordrecht: Kluwer Academic Publishers, p.43. 53 See the already quoted Conte et al., p. 44. 54 Ibidem..
The model of the communicative action is described below:
Non-communicative Goal (agents exploit cooperation)
2nd Communicative Goal (other behaves on the round of her expectations)
1st Communicative Goal (other expects promise to be fulfilled)
Communicative Action (agent makes a promise) A Communication Plan
Source: Conte, R. and Paolucci, M. (2002), p. 44.
What is the impact of such a “manipulative” and “deceptive” model of communicative action within the PD framework? Two alternatives arise: 1. if the promise is not believed payoff S 2. if the promise is believed higher than R (T>R) Hence, we can conclude that the impact of communication, in terms of rationality, over PD games is useless. Actually, in both cases the player is likely to choose Defection D, instead of Cooperation C. Thus, the findings of the Trust Game are confirmed. So what? Conte and Paolucci are warning us again: despite PD game theories, experimental findings demonstrate that communication matters. Indeed, face-to-face communications among subjects has proven to increase cooperation – in both one-shot and finitely repeated games. Thus, we may conclude that, PD and game theoretic approaches are missing something. Something that really matters in term of impact over co-operation. And that something is communication. the recipient choose to defect (again!), since the T payoff is the recipient choose to defect, thus avoiding the lowest
According to experimental findings, communication matters for several reasons55: “Communication allows information about optimal strategies to be transferred, thereby facilitating cooperation” “Communication allows for the exchange of mutual commitment, i.e. a reciprocal promise to cooperate” “Communication increases trust and thus affects expectations about others’ behaviour” “Communication modifies the subjective payoff structure” As suggested above, communication is triggering mutual commitment among players. Thus, each player feels the commitment “to do what one has committed to do”. In other words, communication, allowing a mutual commitment, generates a norm. The latter has a meaningful impact on the decision-making mechanisms of players: the norm modifies the payoffs of the game. How? Agents choose to cooperate or defect, taking into consideration the goal generated by the norm i.e. to observe the norm itself. A small goal, but with the unquestionable power to influence the whole payoff system for each player. Thus, within a PD framework, communication modifies payoffs. But a question arises: what is the expectation of each player in respect to the willingness of the opponent to obey to such a norm? Good question, but difficult answer. In other words, communication is not enough to account for cooperation. At this point in our reasoning, we have to take into account “trust”. Trust is an essential feature of co-operation. As a matter of fact, “ [a]gents need to trust each other, i.e., to expect the opponent to be willing to obey the norm, in order to risk a still considerable share of their own profits”.56 But, even in this case, the commitment and the norm can be unilaterally broken by one of the players. As a result communication as mutual commitment and trust are still not enough to account for co-operation. Things are getting complicated more and more, isn’t it? It seems we are playing a hard game over cooperation. We are trekking on a slippery path.
Conte et al., p.45. Conte et al. p.46.
Actually, if we consider the trusted agent perspective:
s/he can freely choose to defect
s/he breaks the promise given to his/her opponent s/he breaks the norm associated with the promise given
Cost of breaking the norm
Value of defection
Therefore, trust cannot affect the options’ outcomes. But, at the same time, we may say it can affect the probability of the options’ outcomes. In a probabilistic approach, the utility functions are the following: Expected utility of Collaboration is: U (C ) = pR + (1 − p) S U ( D) = pT + (1 − p ) P
Expected utility of Defection is:
Given the utility functions above, trust is likely to impact the distribution of p (i.e. the probability the other player will cooperate). This means that: the higher the trust, the higher is likely to be the “weight” of the cooperation option. Hence, since:
Trust = expectation about the opponent’s willingness to obey the norm
We try to differently write the expected utility of Collaboration and Defection for each player, introducing the two constants N v and N c as a means to take into account trust: 38
Given: N v cost of violating the norm N c value of complying with the norm
Expected utility of Collaboration is:
U (C ) = pR + (1 − p) S + N c U ( D) = pT + (1 − p ) P − N v
Expected utility of Defection is:
This effort conducts us to a mutation of the Prisoner’s Dilemma, where, anyway, in the end:
The trusted agent betrays the trusting agent
Cost of breaking the norm
Certainty of Cooperative Outcome
Therefore, considering both cases of higher and lower degrees of trust:
Higher degree of trust: the trusted agent betrays the trusting agent if the cost of norm
violation N V is lower
Lower degree of trust: players break the promise given, even if the cost of norm violation
N V is high Hence, the impact of trust does not affect the option’s outcomes.
It seems we arrived to a dead end. We need to better understand and model the very concept of trust. In this perspective, we need to understand the connections among: Trust The cost of violating the norm The value of complying with the norm
If we can find the linkages among these three key factors, we may assess the impact of trust over the decision-making dynamics of players. Not an easy task, indeed. Reflecting on such issues, a consideration must be taken into the due account: if I break my word under the assumption that you will break yours, my fault, if any, will be mild. But what about breaking a mutual commitment when the other is faithful? The more faithful the opponent is believed to be, the higher the value of compliance and the costs of violation. Consequently, trust modifies the outcome of moves, not only the probability of obtaining them.57 Therefore, under conditions of mutual commitment, the payoff of defection is decreased by an amount f ( p ) which is related to the degree of trust: Outcome of Cooperation is: U (C ) = pR + (1 − p) S + N c U ( D) = pT + (1 − p) P − N v − f ( p ) U ( D) < U (C )
Outcome of Defection is:
f ( p) is proportional to the value of trust in the opponent’s keeping to the word given.
Bearing in mind the reasoning done, defection does not represent anymore the option chosen according to the theory of rationality. Indeed, taking into account f ( p ) , the traditional constraint of the Prisoner’s Dilemma disappears: the constraint that T > R , i.e. the incentive to defect, has been substituted by the constraint R > T . As a result, instead of the PD game, namely, “a game for defection”, we developed “a game for collaboration”. Well beyond the PD game approach, this new model seems to better understand the complex dynamics found in the several experimental studies previously considered. Indeed, taking into the
Conte et al., p.48.
due consideration mutual commitment, trust and reputation opportunely formalized, cooperative behaviours arise even in the context of one-shot interactions. As our Conte and Paolucci put it: Perhaps, in nature, or at least in society, no PD game applies at all! Indeed, players assign a moral, psychological, or affective value to norm compliance. Reasonably, we can expect people to suffer, to sustain psychological costs when breaking a mutual promise in the eyes of the recipients and the beneficiaries of this promise. They may feel guilty, disloyal, etc.[…] In addition, commitment breaking has a social cost. The transgressor is exposed to the opponent’s punishment. Both the psychological and the social costs increase in the case of prolonged face-to-face communication: disloyal players are exposed to the opponents’ disappointment, indignation, and even insults, which is exactly what happens in the experiments with real subjects58 Finally, it seems we can consciously give an answer to the question raised by Hofstadter. Indeed, we may conclude that logic does not prevent cooperation. Surprisingly, logic supports cooperation! Trust triggers co-operation, well beyond Game Theory’s expectations. Therefore, trust need to be fostered and supported through the continuous activities of a dedicated, ad hoc agency of alliance management. The result is a modified Trust Game, where trust and therefore reputation, shape cooperation as the option providing the highest payoff for each player. Hence, from now on, we can consciously state that trust is an essential feature of cooperation – where cooperation gains the highest option’s outcome in respect to defection. The name of the game is no longer “defection” but “cooperation”. Rational choice theory is stretched out from its comfort zone, to cover new issues - social, psychological and emotional. The game theoretic paradigm demonstrates its limits as a sound theory of co-operation. As we have seen, intangible factors such as trust and reputation are crucial to co-operation. Business marriages are generated by the chemistry between partners, not just by their rational choices. As stated by John Nash, 1994 Noble Prize in Economic Sciences, “it is only in the mysterious equations of love that any logic or reasons can be found”.
3. BUSINESS TO NON PROFIT (B2N) PARTNERSHIPS: THE COLLABORATION CHALLENGE
3.1. ALLIANCE MANAGEMENT: A LESSON FROM THE CORPORATE WORLD?
Alliance management practices among big pharmas and small biotechs, may present similarities to the alliances among firms and NPOs. The successful model implemented by Lilly may be exported into the non profit world: a dense network of alliances among non profit organizations (NPOs) and for profit organizations (FPOs), would generate value for the mutual benefit. Indeed, “ in these complex times, when no organization can succeed on its own, nonprofits and businesses are embracing collaboration for mutual benefits. Non profit are partnering with businesses to further their missions, develop resources, strengthen programs, and thrive in today’s competitive world. Companies are discovering that alliances with non profits generate significant rewards: increasing customer preference, improving employee recruitment and morale, promoting brand identity, strengthening corporate culture, building goodwill and testing innovations”59. Bluntly put, businesses and nonprofits have to face the challenge of cooperation, namely, what Austin, John G. McLean Professor of Business Administration at Harvard University Graduate School of Business Administration, identified as “The Collaboration Challenge”. Particularly, during my internship at the Eli Lilly and Company Foundation, I proposed to apply the company’s approach to alliance management in the context of the Foundation. The corporate foundation may benefit from the in-house expertise and the knowledge of Lilly’s Office of Alliance Management. In other words, within a framework of blended values, key resources of the firm may
Austin, J. (2000). The Collaboration Challenge. San Francisco: Jossey-Bass Publishers p. 2.
be shared by the foundation60. In this case, the best practices are exported from the corporate world to the non profit world – but within a common Lilly Universe. Thus, Lilly’s alliance management may be applied to the management of the alliances between the Foundation and its partners (non profit, government, business). Finally, the suggestion to apply corporate tools to the nonprofit world is definitely compatible with the Blended Value framework considered 61 . In addition, as we may see in the next paragraph, interaction dynamics between the players of business-to-nonprofit partnerships (b2n) is compatible with the role of trust played in the Trust Game previously discussed.
3.2. REPEATED GAMES
As we have seen in the previous paragraphs, repeated games can simulate long-term interactions between two players (e.g. pharmaceutical companies and biotech firms). Therefore, my suggestion is to apply this game theoretic model within the framework of the partnerships between pharmaceutical firms and non-profit organizations (NPOs). Once formalized a model, it may illustrate the complex dynamics of negotiations among players. In the framework of a NPO/ Firm collaboration, the long-term strategies of the players may be the following:
NPO: choose Trust in the first period, then if Honor have been chosen in all the previous
periods, play Trust, else choose Not Trust.
I had the chance to interview both Steve Twait, Manager at Lilly Office of Alliance Management, and Jalana C. Eash, Vice President, Eli Lilly and Co. Foundation, in a meeting at the Lilly Corporate Center, Indianapolis, IN (USA), December 2005. Despite some obvious differences, both Jalana and Steve agreed on common points: 1) the need to develop trust by walking their talk; 2) the need to overcome the cultural and the organizational differences among partners, in order to achieve a cultural and organizational fit, within the common framework of a shared strategy. 61 Caveats: Obviously, non profit may benefit from corporate mind-sets, but few caveats must be taken into the due account. Indeed, importing business-like approaches into the non profit sector does not mean to erase NPOs’ mission & values, only if NPOs are able to: 1) Stick to their mission & values, 2) Walk their talk, 3) Leverage business to achieve social change (e.g. social entrepreneurship). In a blended value framework, alliances may involve any kind of organization –whether business or foundation – to generate blended values.
Firm: choose Honor if Trust and Honor have been chosen in all the previous periods, else
choose Betray. According to these strategies, when cooperation is not achieved in a given period, short-term temptations triumphs over long-term consideration, namely, cooperation terminates for the rest of the game. On the other side, at this stage of the interaction, it may also happen that (one or both) players choose to re-establish the relationship. How to choose between this trade-off? Again, the choice is tightly linked to the value of the interest rate r. As in the pharmaceutical/ biotech alliances, even in this case, the observations about the role of trust and a necessary alliance management hold true. In addition, as previously done for the corporate version of partnership relations (i.e. b2b partnerships), is it possible to identify some common stages in the relation. Indeed, a Collaboration Continuum arise in the environment of b2n partnerships, as well.
3.3. THE COLLABORATION CONTINUUM
In his book The Collaboration Challenge, James Austin investigates about the different stages in the evolution of partnerships between businesses and NPOs. Inspired by the vast business literature on management and strategic alliances, he identifies three milestones in what he calls the “Collaboration Continuum”. As a matter of fact, businesses and NPOs, go through three different stages in their relationship: 1. PHILANTHROPIC STAGE: “the nature of this relationship between corporation and nonprofit is largely that of charitable donor and recipient[…] the engagement between organizations
is generally limited to an annual solicitation from an NPO that elicits a donation from a corporation”62 2. TRANSACTIONAL STAGE: it is compared to a commercial exchange, “because it is analogous to a buyer-seller relationship dominated by the parties’ search for specific value transactions” where “interactions between the parties broadens and intensifies”63 3. INTEGRATIVE STAGE: it is compared to “an equity-based relationship, comparable to a joint venture”, characterized by a “mutual mission relationship”64 The Philanthropic Stage is marked, on the NPOs side, by the “gratefulness syndrome: its task was to extract resources and, if successful, graciously issue thanks but not “bother” the donor thereafter”. While, on the corporate side, it is marked by the “charity syndrome: give to good causes that solicit assistance but deal with these donations as peripheral part of your activities and minimize your time investment”. The modus operandi of this phase is “minimizing interaction and communication”65. Therefore, it seems we are in a case of a mere one-shot transaction. If we consider these low-engagement interactions over the long-term, i.e. repeated games, we may find that r is high: both players consider future payoffs not worth much today. At the Transactional Stage, “organizations carry out their resource exchanges through specific activities, such as cause-related marketing, event sponsorship, licensing, and paid service arrangements. Engagement of the partners is more active at this stage and the value flow more significantly two-way. For corporations, in particular, the relationship begins to connect more directly with business operations”66. We might say that r is starting to increase and, therefore, both players consider future payoffs worth much today. Once built, Trust starts to be further improved
Austin, J. (2000). The Collaboration Challenge. San Francisco: Jossey-Bass Publishers p. 20. Op. Cit. p. 23-4. 64 Op.Cit. p. 26, 28. 65 Op.Cit. p. 22. 66 Ibidem.
by the two players. At the Integrative Stage, r is sufficiently low to guarantee long-term transactions with mutual benefits.
Source: Austin, J. E. (2000). The Collaboration Challenge. San Francisco Jossey-Bass Publishers
Finally, when the relationship reaches the Integrative Stage, players’ attitude evolves dramatically along the path to cooperation. In other words, a business/ NPO partnership evolving into a jointventure, is taking the issue of stakeholder engagement and corporate social responsibility (CSR) to another dimension.
3.4. THE ULTIMATE EVOLUTION INITIATIVE (ITI)
IN B2N PARTNERSHIPS:
THE INTERNATIONAL TRACHOMA
A practical example of the evolution in the partnership between a pharmaceutical industry and a non profit organization is given by the International Trachoma Initiative (ITI). ITI was generated in November 1998, by a joint effort of giant pharmaceutical company Pfizer Inc. and The Edna McConnell Clark Foundation.
Pfizer Inc. is the world’s largest pharmaceutical company, employing more than 122,000 persons
in 60 different countries, manufacturing and marketing medicines for humans and animals on a planetary scale. Its numbers are stunning: according to Fortune magazine, Pfizer is the America’s fifth-best ‘wealth-creator’; in the year 2003, the company’s sales exceeded $ 45 billions (up 40 percent over 2002) and the year 2004 marked the 37th consecutive year of dividend increases67. As a research-based company, it actually manages what we could define, without exaggerating, the world’s largest pharmaceutical research effort: Pfizer’s funding for Research and Development (R&D) were $ 7.1 billion during 2003 and the projection for the year 2004 are $ 7.9 billion investments. Biomedical R&D investments are expected to be heavily improved in the next years On the other hand, the figures and scale of the firm’s financial performance seem to be symmetrically reflected into a large range of corporate giving projects and programs. Indeed, the company “donates $2 million every working day to provide medicine, medical care and community service to people who need help”68. The Chronicle of Philanthropy designated Pfizer as the world’s most generous company in 2002.
The Edna McConnell Clark Foundation (Clark) is a New York-based private philanthropic
foundation, endowed with large financial resources. In the year 1998, it awarded $28 million in grants. The Clark Foundation, through its Program in Tropical Disease Research, has supported
“Medicines to Change the World”, Pfizer’s 2003 Annual Review. Visit http://www.pfizer.com/are/investors_reports/annual_2003/review2003.pdf to download the full document. 68 “Toward a Healthier World”, Pfizer’s 2002 Annual Report, p.2. Visit http://www.pfizer.com/are/investors_reports/annual_2002/pfizer2002.pdf to download the full document.
many of the studies that had contributed to the understanding of major diseases, among which the trachoma. According to World Health Organization (WHO), trachoma is the world’s leading cause of preventable blindness, with a threatening global impact: six million people in 48 countries are blinded by the disease. Since 1985, the Clark Foundation, provided grants for the development of an effective and holistic approach to this global pandemic: the SAFE strategy.69 Over the last five years, Pfizer Inc. administered eight million treatments via the donation of its Zithromax – highly effective against trachoma. In addition, the company is going to donate more treatment worth $135 million in the next years. Thanks to the combined efforts of Zithromax and SAFE strategy, stunning results were achieved: “in Morocco, the first country too implement an ITI trachoma elimination strategy, there has been a 90 percent reduction in the prevalence of active trachoma infection among children under ten since 1997.” 70 According to Jacob Kumaresan, Director ITI, “building on the momentum of our achievements to date, we are broadening the scope of the trachoma programs already in place and will launch at least 10 new country programs” Hank McKinnell, chairman and chief executive officer of Pfizer, commented “Trachoma has been one of humankind’s most challenging public health problems for centuries. Based on the progress to date, it is now realistic to hope for something that was unimaginable just a few years ago, that within the next 20 years we will ensure that no one anywhere in the world is ever blinded by trachoma again.”71 Back to our analysis on the nature of the relationship between the two partners, we may say that ITI has been generated by the ultimate evolution of the Clark-Pfizer alliance. Let’s see why.
Edna McConnell Clark Foundation (1988-1999). Annual Reports. New York. For additional informations on facts and figures related to the ITI programme, download the ITI Annual Reports at www.trachoma.org 71 “From Night to Light: Citing 'Remarkable Results,' Pfizer Boosts Support for ITI” Pfizer Inc. Press Release, November 17 2003- New York. Copyright © 2005 Pfizer Inc.
The stages of the partnership, envisaged in the context of Austin’s Collaboration Continuum are the following72: 1. PHILANTHROPIC STAGE: The two partners collaborated at some level (pilot studies to test Pfizer’s antibiotic Zithromax) But the scope of activities was narrow Interaction centered around the research and clinical staff in Pfizer’s International Pharmaceutical Group and the researchers’ team funded by Clark 2. TRANSACTIONAL STAGE: The level of engagement between the two organizations increased Strategic importance of the program for both organizations increased Interaction improved and integration arose between research and clinical staff in Pfizer’s International Pharmaceutical Group and the researchers’ team funded by Clark 3. INTEGRATIVE STAGE: The level of engagement between the two organizations significantly increased Strategic importance of the program for both organizations significantly increased Magnitude of resources significantly increased Decision to jointly create a new organization: The International Trachoma Initiative (ITI) was born as a new non profit organization. The main features of ITI were: a. A joint venture b. Shared funding c. Combined governance d. Fusion of both partners’ core competencies
See Barrett, D. Austin, J., McCarthy, S. (2002). “Cross-Sector Collaboration: Lessons from the International Trachoma Initiative” in Rich, M.R. (Ed.) Public-Private Partnerships for Public Health. Cambridge: Harvard University Press.
In other words, the nature of the interaction evolved from arm’s length philanthropic relationship (i.e. mere sponsorship) to a collaborative partnership and, therefore, to joint value-creation through a new non profit player.
THE INTERNATIONAL TRACHOMA INITIATIVE (ITI): THE NETWORK OF PARTNERSHIPS
Source: Barrett, D. Austin, J., McCarthy, S. (2002). “Cross-Sector Collaboration: Lessons from the International Trachoma Initiative” in Rich, M.R. (Ed.) Public-Private Partnerships for Public Health. Cambridge: Harvard University Press.
Indeed, receiving the 501(c)(3) tax status in 1999, ITI attained its independency. Moreover, this new player in the game generated additional institutional synergies, expanding the dyadic boundaries of the Clark-Pfizer partnership into a vast network of allies. A dense web of partners, ranging from international government organizations to non-government organizations and national governments. As a matter of fact, I dare to say that the Clark-Pfizer partnership has become a planetary public-private network, fighting the global pandemic of trachoma. Beyond a mere sponsorship relation, Clark and Pfizer, dribbling both the gratefulness syndrome and the charity syndrome, established a successful marriage. A marriage that produced a wonderful child: ITI, the enfant prodige of business-to-nonprofit partnerships. We may certainly identify ITI as the ultimate evolution of the b2n partnerships. Finally, ITI being a stunning example of Economic Value, blending into Social Value, embodies the Blended Value logic. Business and nonprofits co-operate to maximize blended value creation. Indeed, as Austin and his colleagues concluded, “ the Pfizer-Clark collaboration provides a rich example of how the core capabilities of corporations and non-profit organizations can be powerfully combined to create mutually and socially beneficial undertakings.”73
Barrett et al., p.64.
4. BUSINESS TO GOVERNMENT (B2G) PARTNERSHIPS: GOVERNING BY NETWORK
4.1. PUBLIC-PRIVATE PARTNERSHIPS (PPPS)
Given the detailed analysis of business-to-business (b2b) and business-to-nonprofit (b2n) partnerships conducted in the previous sections of this paper, it is time to deal with business-togovernment partnerships (b2g). The global network of private and public actors unleashed by the successful Clark-Pfizer partnership, illustrated the emerging trend of contemporary public policy frameworks: publicprivate partnerships (PPPs). The latter came into the scene as the new buzzword. The term public-private partnership means different things to different people. But, as a matter of fact, what is a public-private partnership? Particularly what is the meaning of the term in the context of the pharmaceutical industry? It seems necessary to find a “working definition”, able to fit this environment and describe its crucial features. According to Michael R. Reich, Harvard Center for Population and Development Studies, the main points of a public-private partnership are the following: First, these partnerships involve at least one private for-profit organization and at least one not-forprofit or public organization. Second, the partners have some shared objectives for the creation of social value, often for disadvantaged populations. Finally, the core partners agree to share both efforts and benefits.74 Obviously, Reich’s definition, even if tailored for the environment of “public health”, do not clearly separate business-to-nonprofit from business-to-government partnerships. Strictly speaking, PPPs are partnerships between “public” authorities (i.e. governments) and “private” partners, such as business or non profit. Hence, in this section I want to use the term “public-private partnership” to
Rich, M.R. (2002). Public-Private Partnerships for Public Health. Cambridge: Harvard University Press.
identify “business-to-government partnerships”75. Next section, will cope with the changing role of government, coupled with b2g alliances.
4.2. GOVERNING BY NETWORK
The co-evolution of Public-Private Collaboration and Network Management Capabilities
Source: Goldsmith, S. and Eggers, W.D. (2004). Governing by Network. The New Shape of the Public Sector. Washington: The Brooking Institution, p.20.
As we have seen in the beginning of our journey, the blurring boundaries, first, and the blended value framework, later, pushed all the players to operate in a “whatever it works” approach, in order to get the things done. This trend stimulated governments to bridge the silos and to contract-out service provision to non profit and for profit actors. Third-party Government76 was born.
I consciously chose to tackle with government-to-nonprofit partnerships in future papers and researches. Goldsmith, S. and Eggers, W.D. (2004). Governing by Network. The New Shape of the Public Sector. Washington: The Brooking Institution, p.10.
THIRD-PARTY GOVERNMENT: the decades-long increase in using private firms and nonprofit organizations – as opposed to government employees – to deliver services and fulfil policy goals
In other words, government outsourced services, once directly provided via its agencies. Actually, government is ceasing to be a service provider. It is operating through outsourcing, privatization, contracts between government agencies and public-private partnership. Government’s hierarchical and bureaucratic structure is changing to provide more integrated services. A paradigm shift: from Hierarchical Government to Outsourced Government. But the evolution related to the role of governments in the global world is far from being complete. Indeed, this institutional revolution has just begun. In United Kingdom, the Blair administration asked for “better coordination and more teamwork”77 to meet the 21st century challenges: Joined-Up Government78 was born.
JOINED-UP GOVERNMENT: the increasing tendency for multiple government agencies, sometimes even at multiple levels of government, to join together to provide integrated service
Naturally, the co-ordination of this web of multiple levels and government agencies may be achieved in real time, thanks to the digital revolution. A paradigm shift: from Hierarchical Government to Joined-Up Government. Finally, the co-evolution of Public-Private Collaborations, i.e. Outsourced Government, and Network Management Capabilities, i.e. Joined-Up Government, generated Networked Government. Bureaucratic, hierarchical and one-size-fits-all governing, morphed into Governing by Network, “combining the high level of public-private collaboration characteristics of third-party government with the robust network management capabilities of joined-up government, and then using
See United Kingdom Cabinet Office (2000). “Wiring It Up: Whitehall’s Management of Cross-cutting Policies and Services”. London: U.K. Performance and Innovation Unit, December 2000, p.3. 78 Goldsmith, S. and Eggers, p.10.
technology to connect the network together and give citizens more choices in service delivery options[…] A government network that manages a network of nonprofit and for-profit providers.”79 Government ceased to be a service provider, increasingly becoming a service facilitator.
Government as the facilitator of a public-private network of contractors and subcontractors.
Source: Goldsmith, S. and Eggers, W.D. (2004). Governing by Network. The New Shape of the Public Sector. Washington: The Brooking Institution, p.77.
In sum, government is co-ordinating this network of public and private actors, in order to provide services to its citizens. Naturally, such a network comes in a wide range of forms and may serve to various purposes.
Goldsmith, S. and Eggers, p.19.
That being said, it is possible to identify a Collaboration Continuum, in order to track down the degree of government involvement with its private partners.
Source: Goldsmith, S. and Eggers, W.D. (2004). Governing by Network. The New Shape of the Public Sector. Washington: The Brooking Institution, p.71.
In a similar way to business-to-business and business-to-nonprofit partnerships, business-togovernment partnerships, seems to present the same issue of alliance management, trust and reputation. The Collaboration Challenge seems to design the new shape of public policy frameworks Moreover, even in the b2g environment economic and social value is produced, within a shared framework of blended values. Certainly, this paradigm shift in public policy may require time, but governments at the four corners of the world are adopting this new approach. What is happening in Italy? In this regard, the policy framework developed by the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma80 seems to follow this global trend. The Assessorato developed an effective policy framework to involve non profit and for profit players in social service provision. The operating tool, designed to implement such a new approach is called “Piano Regolatore Sociale”(PRS). The latter is a unique and cutting-edge attempt of the Assessorato, to plan social policies - providing the guidelines for their implementation on a three-years period basis.
Council Department for Social Policy and the Promotion of Health, Municipality of Rome, Italy.
PRS’ inspiring principles may be summarized in the follows points: 1. Citizens are recipients of programmes and policies and, at the same time, they represent active actors, resources and opportunities for the local communities 2. Promote a culture of evaluation among social service interventions – in order to enhance the effectiveness of the projects, track down the value generated and avoid inefficiencies 3. Experience new metrics to track down the quality, the efficiency and the effectiveness of programmes 4. Give a chance to the corporate world to practice an active “corporate citizenship” 5. Promote a culture of alliances and public-private partnerships (PPPs), involving companies and civil society organizations (CSOs), within the policy framework of a New Local Welfare (Un Nuovo Welfare Locale) All the above mentioned points, seems to be definitely compatible with the Networked Government framework provided. The PRS is an institutional revolution, operated within an environment of bureaucracy, red-tape and resistance to change. It is time to pursue new approaches, and the Assessorato, together with the Comune di Roma, is bravely and consistently following this path into these new territories. Given this framework, last section will tackle with a case-study I developed during my internship experience at Pfizer Italy – the Italian affiliate of the already mentioned pharmaceutical company Pfizer Inc. The case-study will focus on the Matricole d’Argento (MdA) project - a public-private partnership, involving the Assessorato and Pfizer Italy. The MdA initiative aims at empowering elder citizens of the city of Roma, through educational activities.
5. THE CASE OF MATRICOLE D’ARGENTO (MDA)
5.1.1. World Health Organization (WHO): The Active Ageing Policy Framework
First of all, I would like to contextualize Pfizer’s Matricole d’Argento (MdA) project into the realworld where we all are living. Indeed, I think it is vital to provide a correct framework, in order to truly understand the vision and goals of the MdA initiative. Facts and figures will help me to accomplish this task. In the last decades we have been witnessing a demographic revolution on a planetary scale: the Ageing of Population. As a matter of fact, the proportion of people age 60 and over increased faster than any other age group. According to World Health Organization’s (WHO) long-term projections, “between 1970 and 2025, a growth in older persons of some 694 million or 223 percent is expected. In 2025, there will be a total of about 1.2 billion people over the age of 60. By 2050 there will be 2 billion with 80 percent of them living in developing countries”81 Population ageing means that the proportion of over 60s is increasing while the proportion of children and young people is increasingly declining. This phenomenon will turn the triangular population pyramid of the year 2002 into a more cylinder-like structure in the year 2025, as shown in Figure 1. Not surprisingly, the largest proportion of older people on a global scale will be located in Europe. Indeed, by the year 2025, people aged 60 and over will grow up to one-third of the population in countries like Italy, Germany and other European countries (See Table 1). Given the above mentioned facts and figures, longevity seems to be a mission accomplished. Hervé Le Bras,
World Health Organization (WHO) (2002), Department of Health Promotion “Active Ageing: A Policy Framework”, Geneva, p.6.
demographer and Director of Studies at the School of Higher Studies in Social Sciences, commented “[longevity is] a myth that has become reality”.
Source: United Nations (UN) (2001). World Population Prospects: The 2000 Revision.
Source: United Nations (UN) (2001). World Population Prospects: The 2000 Revision.
But longevity, once acquired, must be effectively managed. Naturally, extending life expectations through science, technology and research is not enough. It must be coupled with an overall expansion of the quality of life of people, as they are getting older and older – taking into the due account disabled, frail elders in need of care. Therefore, population ageing is a “triumph” (longevity) but it represents one of the “challenges” of the 21st century, as well. In an effort to cope with such an hot issue, the WHO develop the concept of “Active Ageing”, defined as follows:
ACTIVE AGEING is the process of optimizing opportunities for health, participation and security in order to enhance quality of life as people age.
Source: World Health Organization (WHO) (2002), Department of Health Promotion “Active Ageing: A Policy Framework”, Geneva 2002.
In other terms, physical health is a crucial factor but must be coupled with participation into a safe and secure society. Therefore, health is much more than absence of sickness or a sound physical status. Health is an holistic concept, inherently linked to the concept of “quality of life”. The latter is formalized by WHO through the following definition:
QUALITY OF LIFE is an individual perception of his or her position in life in the context of the culture and value system where they live, and in relation to their goals, expectations, standards and concerns. It is a broad ranging concept, incorporating in a complex way a person’s physical health, psychological state, level of independence, social relationships, personal beliefs and relationship to salient features in the environment.
Source: World Health Organization (WHO) (1994). Statement developed by WHO Quality of Life Working Group. Published in the WHO Health Promotion Glossary 1998. WHO/HPR/HEP/98.1
Therefore, autonomy, independence and an active and continuous participation of elders into society is as much important as physical wellbeing. According to this vision, ageing people are not a burden to society: they represent a vibrant resource to its development. Elders cannot be “separated”, shut out from a society made up of younger generations. Interdependence and “intergenerational solidarity” 82 are the main points of an Active Ageing strategy to secure a
The term “intergenerational solidarity” is formalized as follows: “two-way giving and receiving between individuals as well as older and younger generations”. World Health Organization (WHO) (2002), Department of Health Promotion “Active Ageing: A Policy Framework”, Geneva 2002, p.12.
peaceful old age to elders and the continuous improvement of society – in a cross-generational process of sharing and “moving ahead together”. In conclusion, according to WHO documents, Active Ageing “allows people to realize their potential for physical, social and mental well being throughout the life course and to participate in society according to their needs, desires and capacities, while providing them with adequate protection, security and care when they require assistance […] The word “active” refers to continuing participation in social, economic, cultural, spiritual and civic affairs, not just the ability to be physically active or to participate in the labour force”. Now, once formalized the key concepts related to Active Ageing, it is time to understand how to design effective policies and programs.
Source: World Health Organization (WHO) (2002), Department of Health Promotion “Active Ageing: A Policy Framework”, Geneva 2002.
The policy response to tackle with such issues has been developed through a systemic approach and via an integrated framework. It is based on three main pillars of action: Participation, Health and Security (See Figure 14).
As a matter of fact, the policy framework developed by WHO, follows U.N. guidelines83, while the decision-making processes are taking into the due account the several determinants of active ageing. Indeed, health and quality of life of elders are affected by several sets of determinants. Given the main determinants, we can proceed to design and implement policies and programs (See Figure 8).
Source: World Health Organization (WHO) (2002), Department of Health Promotion “Active Ageing: A Policy Framework”, Geneva 2002, p.19.
Among the determinants, a specific set of factors seem to be particularly relevant to our case-study, namely, the Social Determinants. According to WHO’s Active Ageing policy framework two main considerations arise: 1. “Social support, opportunities for education and lifelong learning, peace and protection from violence and abuse are key factors in the social environment that enhance health, participation and security as people age” 2. “Inadequate social support is associated not only with an increase in mortality, morbidity and psychological distress but a decrease in overall general health and well being. Disruption of personal ties, loneliness and conflictual interactions are major sources of stress,
United Nations Principles for Older People, namely, Independence, Participation, Care, Self-fulfilment and Dignity
while supportive social connections and intimate relations are vital sources of emotional strength" Given this assumptions, WHO’s “call to action” stated: “Decision-makers, nongovernmental organizations, private industry and health and social service professionals can help foster social networks for ageing people by supporting traditional societies and community groups run by older people, voluntarism, neighbourhood helping, peer mentoring and visiting, family caregivers, intergenerational programmes and outreach services.”
5.1.2. Pfizer Inc.: The Healthy Ageing Campaign
Answering to WHO’s “call to action”, Pfizer launched several initiatives and programmes around Pfizer’s “Healthy Ageing” global campaign. Indeed, as Jack Watters - Vice President, Medical and Regulatory Affairs, PPG EuCan, Pfizer Inc. – commented “ We believe that Pfizer can contribute significantly to stimulating the debate around healthy ageing and helping to develop solutions with governments, clinicians, advocacy groups, and older citizens themselves”. 84 The company’s commitment to Healthy Ageing is a synergic combination of Pfizer’s traditional effort in the R&D field, coupled with an innovative role of the firm as an “Active Partner in the Community and with Institutions” triggered by Pfizer Silver Summit event, in order to effectively provide medicines to “Ensure Healthy Living”. (See Slide below) In an effort to transform “the greying of Europe” phenomenon into a positive opportunity for all European “silver citizens”, Pfizer commissioned in the year 2002 a survey of 2,500 people aged 55 or over in Italy, France, Germany, United Kingdom and Spain. The Pfizer Healthy Ageing Survey, focused on crucial issues related to health, happiness and the role of ageing Europeans.
Quoted from company’s internal communication review Pfizer World Café, October 15 2002. Copyright © 2005 Pfizer Inc.
Pfizer’s commitment to Healthy
Research & Development of Medicines Active Partner in Community & Institutions
Delivering Medicines to Ensure Healthy Living
Source: Watters, J. (2003). “Healthy Neighbourhood”, Presentation Slides from Pfizer Europe-Canada (EuCan) Meeting, London October 1, 2003
The results were unveiled during the Pfizer Silver Summit ( Rome, September 2002): Europeans over 55s feel isolated, abandoned, undervalued and lonely. Increasingly isolated from their families and definitely undervalued by society. Almost a third of respondents consider being perceived as a burden (to family and to society) as the main issue they would like to change. As Anne-Sophie Parent – director of AGE, the main advocacy group for Europeans aged 55 and over – puts it, during the Silver Summit: “healthy ageing is not just about managing the diseases and frailties associated with growing old, it’s about playing a full and active part in society”. Her view is definitely in line both with Active Ageing policies suggested by WHO and Pfizer commitment to an Healthy Ageing for Europeans. In this regard Watters commented: "The fact that people are living longer is a positive trend. Positive, that is, so long as those citizens are ageing healthily, maintaining their independence, included by and contributing to society, and have access 64
to quality health care and information. If those factors are not in place, there are serious issues for individuals, their families, and society as a whole.” In such a regard, the results from the recent Pfizer Healthy Neighbourhood Survey 2003 are not encouraging, especially for Italy. Actually, Italians are dissatisfied with the Community and Social support provided; they are dissatisfied with the level of Social Services provided. In addition they are definitely dissatisfied with Adult Education Opportunities. (See Charts below). The scenarios provided, through the different sets of facts and figures considered in these paragraphs, may be helpful to understand the rationale of the MdA project, its vision, evolution and goals. An overview of the initiative will be given in the following section.
Community and Social Support - Satisfaction
35 40 45 50 55 60 65 70 75 80
Ireland France UK Belgium Germany European Average Italy Norway Spain Greece
Source: Watters, J. (2003). “Healthy Neighbourhood”, Presentation Slides from Pfizer Europe-Canada (EuCan) Meeting, London October 1, 2003
Satisfaction with social services
25 30 35 40 45 50 55 60 65
Ireland France UK Germany European Average Belgium Italy Spain Norway Greece
Dissatisfaction with Adult Educational Opportunities
0 10 20 30 40
Italy Greece Spain European Average Norway Germany France Ireland Belgium UK
Source: Watters, J. (2003). “Healthy Neighbourhood”, Presentation Slides from Pfizer Europe-Canada (EuCan) Meeting, London October 1, 2003
5.2. PFIZER ITALIA: MATRICOLE D’ ARGENTO (MDA)
Pfizer Italia, the Italian affiliate of Pfizer Inc., operates in Italy since 1955, employing more than 2000 employees is producing pharmaceutical products for human and animals both for the Italian and the global markets, with a 774.1 billion euros sales in the year 200385 . The company is committed to implement in the Italian environment the strategies and programmes designed by Pfizer Inc., developing, at the same time, its own strategies, vision and programmes. According to Maria Pia Ruffilli, Executive Director, Pfizer Italia, through the Healthy Ageing campaign, chose to be an active partner, together with public institutions, companies and non profit organizations (NPOs), in the creation of a positive framework for the ageing people in our society. It is time to develop a different approach to elders: they are not simply a burden to society. Elders are role-models for younger generations; elders are curious about the new challenges placed by modern societies and want to get involved in such processes in order to give their valuable contributions. The “greying of Europe” previously described, requires the Healthy Ageing of Italian “silver citizens”. Longevity must be combined to well being, independence, self-fulfilment and participation in the communities and society at large. Pfizer Italia envisages elders as valuable resources to our societies. As a matter of fact, new needs arise, and the company is providing answers through an ad hoc initiative: Matricole d’Argento (MdA). The initiative is focusing on the empowerment of elders inside local communities, through education and socialization programmes. MdA was born from a partnership between Pfizer Italia and the Assessorato alle Politiche Sociali e Promozione della Salute, Comune di Roma86 (April 2004). Starting from September 2004, more
“Bilancio d’esercizio 2003”, Pfizer Italia’s 2003 Annual Review. Visit www.pfizer.it/ to download the full document.
than 1000 elders from the city of Roma, participated in several educational courses – from computer literacy and informatics to hata yoga, English language and literature. The “Silver students” (i.e. the Matricole d’Argento) took advantage of more than 1000 fellowships, provided by Pfizer Italia, in order to attend the courses, provided by Upter87 (Università Popolare per la Terza Età), for free. The computer literacy and informatics class was directly planned and managed by Pfizer Italia through the valuable contribution of its high skilled employees, on a voluntary basis. In my opinion, the main points arising from the project were basically two: 1. The agreement between Pfizer Italia and the Assessorato was not a mere sponsorship, but a true partnership. 2. Corporate Volunteerism played a crucial role in the success of the initiative, providing benefits for all the stakeholders involved.
5.2.2. True Partnership
Regarding the first key point, I would like to briefly sketch out the evolution of the agreement and its milestones, in order to clarify its nature and identify the underlying dynamics. According to the collaboration proposal88, feasibility, scale and further developments of the MdA project were to be jointly evaluated by both partners, through the following steps: A survey on the outcomes achieved in the previous year (i.e. 2003) - in terms of class attendance, elder’s commitment to study, knowledge acquired and degree of socialization for every participant Identify weak and strong points of the project
Council Department for Social Policy and the Promotion of Health, Municipality of Rome, Italy. Visit www.upter.it for more informations. 88 Naturally, thanks to my three-months internship experience at Public Affairs and Advocacy, Pfizer Italia, I had the chance to access the internal resources and conduct interviews, in order to acquire a clear picture of the partnership, its dynamics and main actors.
Implementation, through a joint effort, of the plan of action for the year 2004 (evaluate the option to add new courses) Evaluation of project’s milestones and timing Evaluation of the costs: Pfizer Italia takes part in the project providing scholarships and educational resources - from learning materials (e.g. books) to experts (people) Economic and technical feasibility of the project – jointly conducted by both partners Evaluating synergies with other players The Assessorato, together with National & Regional Healthcare Operation (NRHO), Pfizer Italia, evaluated the new needs arising from the Piano Regolatore Sociale (PRS)89. The PRS provided a detailed scenario of the ageing population in the city of Roma. Indeed, the Eternal City is populated by more than half million of over 65s – 120.000 of them are over 80 years old. Apart from these figures, the ageing process seems to be pretty fast in the city: in 1961, over 65s were the 7.7% of the population of the entire Lazio Region, while in 2002 over 65s grew up to 18,3% . The “greying” of Roma is producing more burdens, expenditures and responsibilities for the Assessorato. But at the same time, it is unleashing new chances and opportunities for new services and their “markets” (free time, education and so on). Therefore, the vision developed by the Assessorato is to envisage elders as resources, with an active role within Roma’s community. A vision to be pursued through a dense web of partnerships and alliances with the main players: national and local governments, non profit organizations and companies. In July 2005, I had the chance to discuss these issues with Francesca Marchetti, Delegate of Elders Area at Assessorato per le Politiche Sociali e la Promozione della Salute del Comune di Roma. In line with the guidelines of the PRS, the efforts and the commitment of the Assessorato may be summarized as follows:
Assessorato alle Politiche Sociali e alla Promozione della Salute (2002). “Il Piano Regolatore Sociale”. Roma, August 2, 2002. Visit www.comune.roma.it/dipsociale to download the full document.
Bravely triggering an evolutionary process inside the organizational culture of municipalities, local governments and public institutions at large. In other words, the challenge was to promote a different culture of the public institution
Not mere sponsorships but partnerships. The municipality of Roma wants to promote a different way to behave in respect to for-profit, in order to provide elevate quality services and opportunities to its citizens. Naturally, this shift does not compromise local governments’ reputation and its role as a public institution.
The public institution is the “facilitator”: it catalyzes and facilitate the inter-actions forprofit/no-profit90. A different culture of the public institution: Simplify and de-bureaucratize the procedures. According to Marchetti, the paradigm shift inside the organizational culture of public institutions may seem “slow but once started, cannot be stopped”. The apparatus of municipalities and local governments is complex and highly bureaucratized, but “once culture has changed, it is changed”, irrespective of political equilibria and political
elections in the years to come. The PRS represented a wonderful opportunity, both for Pfizer Italia and the Assessorato, to achieve a Strategic Fit within their partnership process. Actually, there was a consistent alignment among partners’ objectives and visions. The pharmaceutical firm shared with its partner both financial resources and human resources, in order to get things done. On the other side, Pfizer Italia taped into the dense network of public institutions and nonprofits provided by the municipality of Roma. Thanks to the MdA project, the company started to provide services for the citizens of the Eternal City. The MdA initiative seems to be a unique example in the Italian context, of the cutting-edge Networked Government approach.
In addition, since norms regulating local government dos and don’ts are prohibiting an increasing in the budget higher than 2% of the previous year, the municipality cannot directly receive and manage contributions coming from a private organizations (both FPOs and NPOs). Thus PPPs, where local governments act as facilitators, represent a new tool to implement projects otherwise not possible by each one of the single partners alone (local government: lack of financial resources. FPO: no knowledge of local communities’ needs, lack of legitimacy and accountability).
From the Comune standpoint, Pfizer Italia represents a solid company, rooted into the local community and endowed with a corporate reputation and organizational culture consistent with social initiatives and corporate citizenship practices. According to Marchetti, corporate reputation was carefully evaluated before selecting the Assessorato’ potential partners. Therefore, Pfizer Italia, was selected as a potential partner because of its solid corporate reputation. Furthermore the public institution recognized and trusted its partner’s commitment to “think outside the box”, avoiding a mere sponsorship relationship. From the Cultural Fit standpoint, the culture of Alliances and PPPs91 promoted by the Assessorato was crucial. A satisfactory degree of value alignment was achieved through the joint efforts of both partners. The Assessorato was well beyond the red-tape, bureaucratic approach – a traditional feature of public institutions. Pfizer Italia, was ready to acquire a better understanding of the issues related to social services’ provision, while sharing its corporate culture. It was the firm’s chance to act as a responsible corporate citizen. The company promptly gave its contributions in terms of effective planning, and outcome-driven management, achieving good results in terms of Operational Fit. The joint planning of the project paved the way for a true partnership relation: from the Philanthropic Stage, Pfizer Italia and the Assessorato moved, through the Transactional Stage, towards the Integrative Stage. According to both partners, the interaction evolved from a mere one-shot interaction to a long-term partnership, where new initiatives continuously arise, within a self-sustaining process of innovation and value-generation. As Alessandra Santacroce, Public Affairs and Advocacy Associate Director, Pfizer Italia, commented, “partnerships are a continuous discovering”. A reflection that, given the several new
See the previously quoted PRS’ inspiring principle no.5
jointly planned projects and programs triggered by the MdA success, 92 seems to be shared by her partner Raffaela Milano, Assessore alle Politiche Sociali, Comune di Roma. Not surprisingly, the reflection developed by Santacroce-Milano in the real-world, finds a consistent theoretical underpinning in The Seven C’s 93 of successful partnerships, developed by Austin: 1. Connection with Purpose and People 2. Clarity of Purpose 3. Congruency of Mission, Strategy and Values 4. Creation of Value 5. Communication between Partners 6. Continual Learning 7. Commitment to the Partnership
Continual Learning is a crucial issue. Furthermore, from the interviews conducted an interesting element arose: personal connection. In my view, the personal connection at the institutional level between Santacroce-Milano and the personal connection at the operational level between Marchetti, Delegate of Elders Area at Assessorato, and Grossi, Public Affairs and Advocacy Associate, Pfizer Italia were vital for success of the project. Such strong personal connections, unleashed Connection with Purpose and People and Communication between Partners, while strengthening Commitment to Partnership. A strong personal connection is essential to Clarity of Purpose, within the Strategic Fit framework. Finally, personal connections seem to be crucial for value creation within the partnership. The personal connection issue, seems to be consistently compatible with Austin reflections on the Pfizer Inc. – Clark Foundation partnership previously considered.
In this regard, consider brilliant imitative such as Progetto Rebibbia and Pony della Solidarietà. Visit www.comune.roma.it/dipsociale and www.pfizer.it for more informations. 93 For a more practical approach to Austin’s work, see Austin, J (2002). Meeting the Collaboration Challenge. Workbook. New York: Jossey-Bass.
In this regard, he suggests that the ultimate evolution of the Clark-Pfizer relationship is tightly connected to personal connection, direct communication and psychological factors: He has found that beyond traditional measures of effective leadership such as involvement, consensus building, and strategic implementation, these innovative partnerships are fueled by the emotional connection that key participants make not only with the social mission, but also with their counterparts in the partnering organization (Austin, 2000). Perhaps this personal connection is at the nexus of the confidence and trust that allows these collaborations to develop. Personal connections become invaluable in developing the necessary levels of trust to proceed as the alliance unfolds and matures. This is particularly important when operating in an uncertain environment without the clear benchmarks that are often used by corporate managers. There was a range of personal connections that helped to facilitate and solidify the Clark-Pfizer relationship. For example, some of the researchers funded by Clark had worked previously with Pfizer’s scientists, so the two organizations had a small historical base of cooperation. This scientific connection continued with the trials of Zithromax. At the corporate level, the positive relationship between Ms. Luff [Manager of Corporate Philanthropy Program at Pfizer Inc.] and Dr. Cook [Director of the Program for Tropical Disease Research at the Clark Foundation] was facilitated by a personal connection that helped to initiate the relationship.94 In other words, Austin is confirming that there is something “out there”, that cannot be grasped by game theory approaches, but that is crucial to develop a successful partnership. Thus, the emphasis on the role of reciprocity, reputation and trust conducted by Conte and Paolucci, finds a practical evidence in Austin’s reflections. A game theory approach to co-operation is limited, because it does not take into the due account the socio-cognitive mechanisms behind the communication process. What does that mean? This is what we are going to discover in the section focusing on Reputation. But before that, few more considerations about the MdA project. More in details, I summarized my reflections both on Pfizer Employees and on the MdA Students (i.e. the elders participating in the project) in the next paragraphs.
Barrett et al., p.45.
5.2.3. Mda: Teachers and Students
22.214.171.124 Corporate Volunteerism: The Teachers95 of MdA Regarding the second key point of the MdA initiative, namely, the contribution given by the voluntary efforts of Pfizer Italia’s employees generated positively outcomes, as stated by the interviews I conducted inside the firm. I summarized my reflections on the interviews conducted as follows: Dr. D’Attili, leveraging the robust expertise regarding training programs96 of his colleagues at the Business Technology Dept. (BT), Pfizer Italia, planned, organized and managed two training courses (computer literacy – basic level & computer literacy – advanced level) inside the MdA initiative. Stefano Gandolfi, as a skilled trainer, enthusiastically participated into the initiative. They consider the above, a positive experience and an opportunity to contribute to answer to community’s needs. The purpose of the courses was to change elders’ perspectives and perceptions on information technology (“Technology: Friend or Foe?” “Is computer a monster?” “Something impossible to handle, for it is too complex!?”), paving the way for information technology as an effective tool to connect generations, integrating, at the same time, elders in the community and society at large. We might say that the MdA initiative meant empowering elders through information technology (IT). Furthermore, once technology has become “friendly”, elders can use it to satisfy the practical needs of their everyday life (e.g. services can be delivered, in a quick and reliable way, directly in their houses at low/zero costs, without leaving home – naturally, the above are big issues for elder peoples).
Roberto D’Attili, BT Business Partner; Stefano Gandolfi, BT Partner Marketing; Moreno Perugini, PKP Analyst, Pfizer Italia, Roma July 14 2005 96 Most of the employees at the BT Dept., had a solid background in training programs: they were former academics, teachers and experienced trainers at universities, public institutions or inside firms.
• • • • • • •
• • • • •
An experience to be repeated: enthusiastic attitude and future plans to participate in similar initiatives97 A chance to experience job-related skills in different contexts and acquire new skills, as well Official recognition by public institutions Unexpected success and personal fulfillment: “we just did our job”; “we are glad we had the chance to contribute to answer to local community’s needs” Unexpected fifteen minutes of celebrity: “we didn’t expect so much attention by the media and the community/society” Corporate volunteerism is perceived as a personal choice of the employees, not as a voluntary contribution to improve the company’s overall reputation. Employees think that volunteerism is not corporate marketing. Dr. Perugini, underlined the positive impacts of the volunteering experience as follows: o Pfizer employees are enthusiast of and satisfied by the experience o Corporate volunteerism meant teamwork and triggered teambuilding activities (e.g. “this is better than a teambuilding!”) o Corporate volunteerism was a chance to meet new people, be in touch with different areas of the company and better understand Pfizer culture o In his words: “ Now people knows who Pfizer is…and they know it in a positive way” Spontaneous recognition by the community of students and local community involved; official recognition by the municipality of Roma: o In the end of the courses (November 2004), at Pfizer premises, students spontaneously awarded each one of the teachers with a certificate in recognition of the good job done o In December 2004 - in the presence of W. Veltroni Mayor of the City of Roma, Dr. T. Milano, Assessore alle Politiche Sociali Comune di Roma, Dr. Ruffilli, Executive Director Pfizer Italia, Dr. Santacroce, Public Affairs and Advocacy Associate Director, Pfizer Italia - an official award ceremony was held at the Campidoglio, seat of Rome municipality, where the teachers i.e. Pfizer employees, were awarded with a special recognition: The Commemorative Medals Medaglie del Natale di Roma Chance to get a complete vision of the whole process – not just the perception of a single stage of a big project, (e.g. “which I won’t see in its entirety, like in my ordinary job at BTPfizer”) Personal efforts of the teachers to “tune” the course and its contents to practical day-to-day needs of “students” Attention to avoid a “splitting effect” of the class into small groups, due to the different degrees of knowledge/attitudes of the students Personal efforts and pro-active attitude: courses are continuously adjusted “on the run”, according to students needs and requirements – carried out during class-time Inside the courses, from the very beginning, teachers were committed to set-up trust-based relationship with the students. At the end of the courses, the degree of trust teachers/students dramatically increased.
In this regard, consider the follow-up of the MdA initiative: PC have been donated to local elders’ centres, where Pfizer, through the pro-active and voluntary contribution of its employees, will provide training workshops on specific issues of IT. Once again, not mere sponsorships, but rather partnerships. As a matter of fact, MdA has been a “train the trainers” program: the former “students”, trained by Pfizer employees, now have the chance to help their colleagues and friend at their local elders’ centres. Therefore MdA is a successful matrix to be replicated and implemented in different contexts and with new and different players.
A robust personal connection teachers/students was established: it was one of the main drivers of success of the whole initiative At the beginning of the courses: o According to the majority of students: Pfizer was an unknown firm o Some students: know that Pfizer was a pharmaceutical company (but just because they google it out, before classes started) In the end of the courses: o Pfizer reputation increased. Students clearly showed it, (e.g. “You know, I thought you just poison people with your drugs. Instead, you are doing good things, too!”)
126.96.36.199. A Learning Experience: The Students of MdA I interviewed Ernesto Gordini, one of the participants in computer literacy class organized by Pfizer’s employees. The drivers and goals of his participation to the computer literacy courses, provided by Pfizer employees: • Curiosity, thirst for knowledge • Acquire skills and know-how in the field to be used in real situation of ordinary life • Improve relationships within the family (e.g. son, daughter, nephews etc) • Independency, self-sufficiency, integration. The “computer literacy class” experience, in his views: • Trust and collaboration in the class • Teachers are skilled and qualified • Personal connection student/teacher • Basically, courses were aligned with students’ needs and interests. He complained about the content of the course. On the other hand, the content of the course was computer literacy, focusing on basic software packages (MS Office, etc.) and not a course focusing on specific software packages (music softwares) Despite this complaining about the content of the course, he communicated – within his family, to his friends- his experience as a positive one. The feedback he received from his friends was positive (e.g. “Where did you learn that? A computer literacy course? Provided free by Pfizer? If only I’d known!”) • Before the course: even if he lives in Pfizer’s neighborhood, he did not know much about it. The perception was: Pfizer is a multinational pharmaceutical company, powerful and “aseptic”. • After the course: thanks to a positive interaction/feedback with teachers i.e. Pfizer employees, he changed his mind: o This company is made up of “human beings” o Equality-based relationships among colleagues and with “outsiders” o Friendly people and warm environment. • We may say that the corporate reputation of Pfizer Italia seems to be improved My personal comments: • As a matter of fact, the relationships [elders/youths], contextualized in the specific framework of computer literacy, is a relationship between [someone who doesn’t know about computers/someone who knows about computers]. There is a consistent bias, i.e. relationships [elders/youths] are dominated by a tangible information asymmetry. • From the data collected, I suggest a “theory of change” for the MdA project: o Elder knows about computer elder may interact with young on an equal basis elder can share with young a common interest (IT) Empowerment: elder acquires self-esteem, self-sufficiency, autonomy s/he is not a burden to society but 76
a resource his/her morale improves and elder is more integrated in family/community/society generation gap is reduced quality of life and general health improved. o In other words, we may say: IT as an effective tool to connect human beings across generations, improving elders’ quality of life and integrating them in the local community/society at large
In order to reconstruct the evolution of the MdA project across time and identify its milestones a project description table is provided. The MdA table is part of a report, describing the project at different level, and was developed by Grossi with my personal contribution. In my humble opinion, this CSR cards are a crucial milestone along Pfizer Italia path towards CSR, for several different reasons. First, they represent an effort to map-out, evaluate and efficiently manage the company’s CSR activities. In this regard, I think that a corporate, managerial attitude towards the planning, organizing and implementation of CSR activities, may contribute to achieve better and more measurable results. Second, since the same cards are developed for each one of firm’s traditional core business activities (projects and/or products), we may say that: Company is starting to integrate, to internalize CSR practices into core business practices These CSR cards represent a common language inside the firm, facilitating informations exchange and dialogue over the issues related. In other words, the CSR cards certainly contribute to the achievement of a better understanding of CSR activities, across the several departments of a huge, multi-national firm like Pfizer Italia and its worldwide divisions. Third, these cards have been presented to the internal cross-division workgroup on CSR, to be further discussed. In other words, the CSR cards are supporting the “cross-silos alignment” I was talking about in the previous report98, increasingly clarifying the meaning of CSR and its identity
See Spada, M. (2005) Internship at Pfizer Italia June 2005 Report. Roma June 2005.
inside the company. A CSR identity, that needs to be deeply rooted into Pfizer Italia corporate culture and values. Fourth, CSR cards are triggering an on-going process of internal communication among all the company’s departments. In my opinion, such a process means: to better understand what is the current position of the company along the CSR path to get a clear picture of the menu of choices available to the firm to choose the CSR strategy of the company and align it to the overall strategy of the firm, its mission, vision and values.
Matricole d’Argento: Milestones and Timing
Status Milestone Signed the agreement protocol with the Assessorato alle Politiche Sociali e della Salute del Comune di Roma Project presented inside the company and then shared by the different department involved Planning, organizing, management of Courses Courses provision Official recognition by the Municipality of Roma: Award Ceremony at the Campidoglio Project’s follow-up: PC donations to elder centers Project’s follow-up: provide training courses and train the trainers workshops at local elder centers Date April 2004 May 2004 June-July 2004 September November 2004 December 2004 March April 2005 September October 2005
Source: “Matricole d’Argento” CSR card, presented at Pfizer Italia CSR Working Group Meeting. Roma, July 14 2005. Courtesy of Dott. Grossi, Public Affairs & Advocacy, Pfizer Italia.
The findings of the CSR workgroup were presented and discussed at the CSR Working Group Meeting in July 2005. Pfizer Italia strategic planning for the years to come, is likely to take into the due consideration CSR activities and concerns. In other words, the CSR cards may represent a tangible chance to support a strategic CSR, within a down-to-earth framework, combining
shareholders’ value and stakeholders’ concerns. Finally, we are on the way to move beyond the traditional trade-off between business and corporate responsibility, in a blended value framework. According to the project description provided by Grossi, the results achieved by the initiative were classified into different categories:
Key Performance Results: the goals formalized in the partnership agreement with the
Assessorato were achieved. The socialization of elders through an education experience was a mission accomplished – as suggested by performance indicators (e.g. the scholarship applications received were far beyond the expected one, therefore, the number of scholarships were increased up to 1000; positive feedbacks received by the scholars confirmed the achievement of the goal planned).
Employees-related Results: The voluntary participation of Pfizer Italia’s employees in the
MdA project, was a chance for company’s human resources to practically plan and manage a “socially responsible” project, in the community in which the firm operates. In addition, the project’s implementation strengthened teambuilding dynamics, generating a solid, motivated team.
Society-related Results: The impact over the local communities was positive. In this regard,
two main points arise:
o the class provided represented an answer to the “thirst for knowledge” of the silver
students, expanding their competences and know-how. This learning experience catalyzed their awakening as valuable resources within their families and in their communities
o the “graduation” of the 1000 silver students may potentially trigger similar processes
to be replicated in elders’ centres in the local communities99 The partnership experience between Pfizer Italia and the Assessorato, unleashed a pattern of research, planning and development of other projects and initiatives. In other words, we may
e.g. consider the follow-up of the MdA initiative.
say that a self-sustaining, value-generating process was started by the MdA project. The latter was just the first step of a longer path of co-operation, for the mutual benefit of the partners and the stakeholders involved in the process
5.3. REPUTATION AS A SOCIO-COGNITIVE PROCESS
As we have seen until now, the game theoretic paradigm demonstrates its limits as a sound theory of co-operation. From the considerations made by Conte and Paolucci, intangible factors such as trust and reputation are crucial to co-operation. Exactly at this point, the alliance management practices, suggested by Eli Lilly, came into the scene, in order to effectively manage such intangibles. From the analysis conducted both in the [Pfizer Inc- Clark Foundation partnership] and in the [Pfizer Italia – Assessorato partnership], personal connection arises as a crucial issue for the success of the relation. Personal connection, means direct and often face-to-face communication. As we know (See Chapter 2), “communication[..] is a means to persuade others to cooperate”100. From the reflections on the Pfizer Italia – Assessorato partnership, Pfizer’s corporate reputation was essential to start and develop the co-operation. According to the interviews done both with Pfizer Italia’s employees (the teachers) and the elders participating in the program (the students), the corporate reputation of the company improved, thanks to personal connection, communication and direct interactions among the agents101. Thus, the mechanisms of social interactions seemed to play an essential role in the process of reputation attribution. But at this point, the question is: what is the connection among communication, social mechanisms, reputation and the cognitive/psychological components? Before proceeding any further, we need to formalize the key concepts, for the dynamics are complex and we don’t want slide on a slippery path. Therefore, we ask for the help of Conte and Paolucci, bridging the concept of trust with reputation in order to formalize, later, the latter.
See the already quoted Conte et al., p. 44. Where the term refers to a ‘social intelligent agent’, formalized as a self-interested agent, “endowed with internal criteria to select among inputs”. These ‘filters’ are: beliefs and goals. See Conte and Paolucci, p.68.
The trust value a player has in his or her opponent is equivalent to the reputation value of the latter. The reverse is also true: the player’s reputation is equal to the degree of the opponent’s trust in him or her. This relationship is a direct consequence of the fundamentally dyadic structure of the games explored in the study of social and collective dilemmas. In a sense it is obviously true that trust is based upon reputation and vice versa. Trust could be seen as the subjective side of reputation. In this sense, the latter appears as the property that agents build according to the extent to which others trust them. Reputation in this view means trustworthiness.102 But how do we attribute reputation to other agents? Instead of considering the agent that is trusted, we start to consider how agents are attributing trust, i.e. how agents are building the reputation of a given target agent. In other words, we do not focus on the “object” of the reputation attribution process, but the “subject(s)” who develop such a process. An example may clarify the assertion. In the b2b partnerships considered, we considered the trust game between two players (e.g. the pharma and the biotech firms). Instead, we start to focus on how the biotech firm is attributing reputation to the pharma company. In the context of Lilly’s Voice of Alliance tool, we would have considered how the (potential) partners of Lilly are attributing reputation to the company. Hence, we are not considering Lilly, which is the object of the reputation attribution process. Instead we are considering the “process” by which its partner are developing and communicating its reputation. In other words, we are not focusing on the fact that Lilly has become a “reliable and effective partner”. On the contrary, we want to focus on the process, carried out by Lilly’s (potential) partners, that led to such a result. In sum, when dealing with reputation, our focus is shifting from the “reputed agent” to the “reputing agent”. In this regard, Flaminio Squazzoni, Department of Social Sciences, Faculty of Economics, University of Brescia, commenting on Conte and Paolucci’s work, wrote: Reputation attribution is a socio-cognitive mechanism that takes root in communication process. In this respect, what the authors rightly emphasise is that one of the main limitations of the game theoretic approach is that it focuses on the “reputed agent” rather than on the “reputing agent”. This therefore means that mechanisms of social transmission for “cognitive evaluations” are completely ignored, the complexity of interaction structures is reduced to simple dyadic relation and reputation is viewed in terms of “effects” rather than being considered in term of “processes.103 On the contrary, we want to know about the cognitive components. What are the decision-making dynamics behind the process of reputation attribution? We want to know about the social process related to the transmission of reputation.
102 102 103
Conte et al, p.49. See Squazzoni, F. (2004). “Review of Reputation in Artificial Societies: Social Beliefs for Social Order”, in Journal of Artificial Societies and Social Simulation, Volume 7, Issue 3. Visit http://jasss.soc.surrey.ac.uk/7/3/reviews/squazzoni.html to download the full document.
These reflections, gave birth to a “socio-cognitive” theory of reputation. Where the term “cognitive” refers to the reasoning of an agent, his beliefs about another agent. In this sense, since reputation is an agent’s belief about other agents, reputation is a “social” process and outcome. Therefore, reputation is a “socio-cognitive” process. Avoiding the blurring on the meaning of the term “reputation”, the Italian dynamic duo of brilliant researchers formalized it as follows104:
REPUTATION: the process and effect of transmission of image i.e. of specific social evaluation.
Where the term “image” is formalized as follows:
IMAGE: a set of evaluative beliefs about a given target.
More in details, the concept of image is different from the concept of reputation. Indeed:
IMAGE IS A BELIEF
Image is a belief, i.e. an evaluation Reputation is a meta-belief, i.e. a belief about others’ evaluations of the target with regard to a socially desirable behaviour Image is an evaluative belief Image tells whether the target is “good” or “bad” with respect to a given behaviour An agent has an evaluation when s/he believes that a given entity is good for, or can achieve, a given goal An agent has a social evaluation when his/her belief concerns another agent as a means for achieving this goal
Conte et al. p.69.
REPUTATION IS A META-BELIEF
Reputation ≠ Image Reputation is a belief about other’s mind Reputation is a belief about other’s evaluation of the target Reputation is a belief of belief, i.e. a meta-belief: • To accept a meta-belief does not imply the acceptance of the nested belief: To assume that a target t is assigned a given reputation • implies assuming that is believed to be “good” or “bad” • but it does not imply sharing either evaluation
According to Squazzoni: reputation is understood in terms of the output of a social process of information transmission that works on an input that is called the “image of the agent”. In this way, the authors emphasise an analytical difference between “image”, conceived as a set of evacuative beliefs about a given target, and reputation as the process and effect of transmission of image. Both are “social mechanisms”, because they concern properties of another agent (a “presumed attitude towards social desirable behaviour”) and they may be shared by a multitude of agents105. Hence, to sum up, I sketched out this process in the table below:
Input: Image of the agent about a given target
Socio-cognitive Process: A social process of information transmission
Output: Reputation of the agent i.e. a belief about other’s evaluation of the target
Once formalized the key concepts, it is time we formalize the main role played by the agents in the social interaction. Thus, the concepts of Target, Evaluator and Beneficiary come into the scene. Reputation is the outcome of a social process among these agents.
See the previously mentioned Squazzoni.
Target: “is the evaluated entity” Evaluator: “agents who share the evaluation” about a given target Beneficiary: “is the entity that benefits from the execution of the behaviour
to which targets are evaluated”
Source: Conte et al. p.75.
At this point, we are ready to apply the given concepts to the reality of the case-study.
5.3.1. MdA: Evaluators and Beneficiaries
I start by identifying the Target, Evaluators and Beneficiaries in the process of reputation attribution, within the context of the MdA project. Pfizer Italia, being the entity evaluated, represents the Target. We assume that: Pfizer Italia employees, i.e. the MdA teachers, and the elders participating in the MdA project, i.e. the MdA students, are both the Evaluators. Furthermore, we assume that Pfizer Italia is the Beneficiary. MdA students’ evaluations on the given target Pfizer Italia were the following:
Before the course: even if he lives in Pfizer’s neighborhood, he did not know much about it. The “image” was: Pfizer is a multinational pharmaceutical company, powerful and “aseptic”.
After the course: thanks to a positive interaction/feedback with teachers i.e. Pfizer employees, he changed his mind:
o This company is made up of “human beings” o o
Equality-based relationships among colleagues and with “outsiders” Friendly people and warm environment.
The Teachers’ evaluation was the following:
At the beginning of the courses:
o According to the majority of students: Pfizer was an unknown firm o Some students: know that Pfizer was a pharmaceutical company (but just because
they google it out, before classes started)
In the end of the courses:
o Pfizer reputation increased. Students clearly showed it, (e.g. “You know, I thought
you just poison people with your drugs. Instead, you are doing good things, too!”)
Thanks to the MdA initiative, Pfizer reputation positively increased. Indeed, employees talked about their experience with colleagues inside the firm and, outside the firm, with family, friends, relatives. All the above actors were surprised about the initiative: they did not expected Pfizer to behave like that. Their personal “image” of the firm changed because of the transmission of a different image –i.e. the “reputation” - from people they trust (i.e. Pfizer employees, in this case).
Thus, the “image” of Pfizer changed. In this regard, as suggested by Squazzoni, we may say that the “ex-ante reputation” was changed because of direct interactions between students and teachers. Therefore, the MdA project demonstrated of being able to increase the corporate reputation of Pfizer Italia. Nevertheless, we have to take into consideration few additional reflections. Indeed, biases in the process of transmission of the corporate reputation may arise. Assuming that Pfizer Italia is the Target, but it is not the Beneficiary, the situation is different. We have different cases: elders are both Evaluators and Beneficiaries or the teachers are both Evaluators and Beneficiaries. In this case, an equilibrium of “benevolence” arises. Indeed, “the more 85
benevolent the agents feel toward the targets, the more likely they are to transmit good rather than bad reputation” 106. But in the case of Evaluators being Beneficiaries, it is also true that “agents will not feel compelled to transmit only information they are certain about, because they are not likely to respond for the effects of reputation transmission. Consequently, errors and false reputation are expected to spread as easily as truthful information”.107Here, there is a tendency to Optimism and Overestimation. 1. elders are Evaluators while teacher are Beneficiaries or teachers are Evaluators while elders are beneficiaries. when Evaluators are different from Beneficiaries, an equilibrium of “prudence” arises. In this case, “the more benevolent they [i.e. agents] feel toward the beneficiaries, the more likely they are to transmit accurate or bad reputation”108Here, there is the tendency to Cynicism and Underestimation.
Conte and Paolucci, p.113. Ibidem. 108 Ibidem.
Throughout this paper, the awareness that “human action is more cooperative, although to a lower degree than desirable, than theories of rational action allow us to expect”, clearly arose.109 Game theoretical approaches demonstrated their limits just like the three sector partition showed its inability to account for the emerging trends of the global world. Therefore, the Trust Game has being blended with trust and reputation and the Economic Value has being blended with the Social Value within the framework provided by the Blended Value Proposition. The Yin naturally blends into the Yang, within a perennial cycle of harmony. The Cartesian, linear logic of reductionism has been overcome by the Taoist, non-linear logic of holism. All the players in the game, whether governments, businesses or nonprofits, clearly understood that partnerships and alliances are the winning strategy of the 21st century. Alliance management is likely to be an essential feature of such a strategy. It is a way to combine the tangible values of economy with the intangible values of trust and reputation. This is a new land, where [Yin-Economic Values-game theory] blends with [Yang-Social ValueSocio-cognitive process] into the oneness of the [Tao-Blended Value-Agent-based Modeling]. Given these reflections, a new vision of our planet arise. But this new awareness is not enough. Actions must consistently follow. We must work for a sustainable development, a long-term process of harmonious development of economics, society and the environment. Drawing on the millenary Taoist philosophical tradition, we need to act in harmony with the natural order flow: Wu-wei.
Wu-wei does not mean doing nothing and keeping silent. Let everything be allowed to do what it naturally does, so that its nature will be satisfied. LAO TZU110
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