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Chapter 7 Evaluating enterprise

and innovation solutions


Michael Ngoasong
Chapter 7 Evaluating enterprise and innovation solutions

Chapter 7 Evaluating enterprise


and innovation solutions
7.1 Introduction
This chapter deals with three topics: accountability, sustainable business
models and resilience. All three topics are highly specialised and a full
review is beyond the scope of this single chapter. The goal is to provide the
reader with an overview of the main importance of accountability and
resilience for new and existing small- and medium-sized enterprises (SMEs)
where the managers or owners aspire to be innovative and sustainable.
Taken together, the previous chapters have explored the view that
‘sustainability’ is about being innovative and cost-effective in creating,
managing and sustaining an enterprise over different stages of its evolution.
This includes the way the organisation is structured and operated to uncover
and address opportunities, challenges and risks for the enterprise, the setting
of strategic objectives and priorities and how these are implemented and
evaluated across functional areas of production, marketing and finance over
time to produce desired outcomes. To survive and achieve sustainability in a
fast growing and changing environment, organisations need well thought out
strategies (Christensen et al., 1998), including identifying and building of
new business models or upgrading existing ones (Christensen and Raynor,
2003; Christensen et al., 2002). This chapter explains the role of
accountability and resilience in this process.

7.2 Accountability
The topic of governance was explored in Chapter 2 in terms of ownership
and management of sustainable enterprises. In this and other chapters, it has
been noted that innovative firms strive to eliminate numbers from evaluation
systems by creating a working environment were employees can have fun
and be creative rather than trying to achieve ambitious performance targets
and outcomes. However, numbers, statistics and other indicators are
important measures of performance outcomes and every organisation
attaches a lot of significance to performance measurement. This section
explores why performance indicators and the reporting of outcomes are
significant by focusing on the concept of accountability as applied to
sustainable enterprises. Accountability is a term that is used in all walks of
life – at national and local government level, non-governmental
organisations (not-for-profit) and private commercial (or for-profit)
organisations. The focus here is on small and medium-sized enterprises
(SMEs), which are at the core of the cases discussed in this Reader. The
following quote from the Association of Chartered Certified Accountants
(ACCA) summarises vividly why accountability is important to the
governance of SMEs:

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“The challenge for SMEs is that established corporate governance


frameworks have been developed with large, listed companies
primarily in mind. Such frameworks and codes may not reflect the
characteristics of the SME, where owners may often be its managers as
well, or where company ownership may be shared across family
members.” (ACCA, 2015).

What is accountability?
Accountability means different things to different people: auditors see it as
a financial or numerical matter, political scientists view it as a political
imperative; legal professionals as a constitutional arrangement; and
philosophers as an ethical issue. There is neither a universally agreed
definition nor standards for accountable behaviour. Consider the three
definitions below:

. ‘the means by which individuals and organisations report to a recognised


authority (or authorities) and are held responsible for their actions’
(Edwards and Hulme, 1996, p. 967).
. ‘the process of holding actors responsible for actions’ (Fox and Brown,
1998, p. 12).
. the process of being ‘held responsible’ by others and ‘taking
responsibility’ for oneself (Cornwall et al., 2000, p. 3).
The above definitions suggest that accountability is concerned with both
external obligations (e.g. corporate social responsibility) and internal
obligations (e.g. personal ethics), both of which have been discussed in
many of the chapters in this Reader. As such, accountability can be found
by examining the prescribed standards of behaviour that are expressed by
individual employees, managers and/or owners of a sustainable enterprise.
However, making judgements about whether such prescribed standards of
behaviour are acceptable is subjective and open to interpretation. This is
what makes accountability an important concept to sustainable enterprises.

Meaning and dimensions of accountability


How can an enterprise that aspires to be sustainable and innovative design,
implement and evaluate its level of accountability? What criteria might
external stakeholders use to judge this level of accountability? Without
answering these questions, not only is the financial performance of the
enterprise at stake, but also its reputation in society. To help answer these
questions, Table 7.1 provides an overview of dimensions of accountability
that is found in the academic literature. Knowledge of these dimensions can
enable organisations to identify the most appropriate person to render
accountability to, by whom and in what format (Bovens, 2007). The list is
not exhaustive and some of the dimensions might be labelled differently by
some stakeholders. For example, supervisory accountability can be used to
describe the fiscal oversight that the board of directors and investors (as
principal) have on managers and entrepreneurs (as agents).

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Table 7.1 can also be used as an indicative check-list to ensure that the
concerns of all relevant stakeholders, to whom an enterprise is accountable ,
can be incorporated into any account that is being prepared.

Table 7.1. Dimensions or layers of accountability in an organisation


Dimensions To whom should Who should About what is
account be render account? account to be
rendered? rendered?
Public The public, Senior managers Response to
accountability community groups and business public concerns
and affected owners through the
individuals media, press
releases and
public hearings
Managerial, Business owners, Middle managers, Monitoring,
administrative, boards of functional evaluating and
bureaucratic or directors and managers or providing updates
hierarchical employees (about subsidiary/branch about the
accountability the performance managers performance,
of delegated employees,
duties) inputs, outputs or
outcomes
Professional Professional Members Membership
accountability bodies obligations
(e.g. industry (e.g. fees paid,
associations, attendance at
trade unions, meetings/
labour unions or activities)
expert panel)
Personal Yourself as an Yourself Adherence to
accountability individual and (individual) internalised moral
wider society and ethical values
Peer Team-members, Individuals Informal and
accountability work colleagues mutual evaluative
and partners feedback from
colleagues, line
managers or
partners
Market Market actors Managers Financial
accountability (investors, statements and
consumers, annual report
traders, sections that can
regulators) be publicly
accessible
Legal Courts, business Lawyers in Compliance with
accountability registration office, consultation of formal rules that
or other quasi- managers and/or can be justifiable
judicial authority owners in court
(e.g. contracts)
Fiscal Investors, donor Investees Financial
accountability agencies, board of (e.g. managers, performance
directors, tax finance directors, reports
authorities accountants)

Source: Compiled based on Bovens (2007), Mulgan (2000), ACCA (2015)

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Accountability implies that one set of actors have the right to hold other
actors to a set of standards and, if these standards are not achieved or
maintained, to impose sanctions. This assumes a relationship between
‘power-wielders’ and those holding them accountable, requiring the
acceptance of the legitimacy of the standards for accountability and the
authority of the parties to exercise power through, for example, sanctions
(Bovens, 2007). There are a range of tools by which one set of actors can
demonstrate that they are acting responsibly and transparently (ACCA,
2015; Ebrahim, 2003):

. disclosure statements and financial reports required by the law


. performance assessment and evaluation
. participation and involvement of stakeholders in the ongoing routines in
an organisation
. self-regulation: standards or codes of behaviour and performance
developed by organisations in the absence of an existing standard that is
acceptable by key stakeholders
. social auditing: a process through which an organisation assesses, reports
and improves upon its social performance and ethical behaviour,
especially through stakeholder dialogue.

‘Stop and think’


Select one of the four case studies in this Reader that you have already
studied. Using the eight dimensions of accountability found in Table 7.1,
identify who is accountable, to whom and what account should be
rendered in the case study organisation.

7.3 Resilience
This section covers how small businesses can use resilience to respond to a
crisis and deal with barriers to business recovery following a crisis.
Specifically, it explores resilience and vulnerability prior to, during and in
the aftermath of crises as they relate to the individual, the organisation and
the sustainability of the organisation. The societal impacts of entrepreneurial
and innovative activities are felt both during and following a crisis and
entrepreneurs and managers need to be prepared to identify and deal with
the consequences in ways that do not affect the sustainability of their
enterprises.

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Chapter 7 Evaluating enterprise and innovation solutions

What is resilience?
The concept of resilience refers to the key features or characteristics of an
individual or organisation that enables successful adaptation to changing,
vulnerable and risky working conditions and environments (Ngoasong and
Groves, 2016). According to Coutu (2002, p. 52) ‘resilience is neither
ethically good nor bad; it is merely the skill or the capacity to be robust
under conditions of enormous stress and change’. In the case of individuals,
it is called personal resilience (Ngoasong and Groves, 2016), while for
organisations, such as small businesses and community associations, it is
referred to as organisational resilience (Sullivan-Taylor and Wilson, 2009;
Ngoasong and Kimbu, 2016).
Personal resilience: This is very much about an individual and their
working environment. In their study examining the personal resilience of
nurses and nurse managers in public, private and religious hospitals,
Ngoasong and Groves (2016) found that personal resilience is a way of
being and acting in the workplace that makes a person strongly connected to
life through relationships. A resilient individual has the ability to be
creative by taking advantage of any beneficial opportunities within their
work environment to deal with risky and complex situations and thereby
enabling the achievement of organisational goals. Here, resilience takes the
form of adjustments made by an individual employee in the face of job
stress and pressure. Knowledge of employee’s resilience can enable
managers to better support them (Ngoasong and Groves, 2016).
Organisational resilience: Just like individuals, organisations also have to
adapt to risks and threats in the internal and external environments, if they
are to achieve their goals in a sustainable manner. The internal environment
includes the organisation structure and operations, the guidelines available
to help individuals and work teams complete designated tasks. The
managers of the organisations have control of this environment
(Doern, 2016). However, the external environmental factors, such as
political, economic and legal changes in society, are neither easily
predictable nor can they be controlled by SMEs. However, as organisations,
resilient small businesses can ‘meticulously prepare for the worst and
establish routines enabling them to improvise rapid responses to crisis’
(Sullivan-Taylor and Wilson, 2009, p. 253). Before going into a discussion
of how they do this, it is important to first outline the kinds of crises that
impact small businesses for which resilience is essential.

What types of crises impact on SMEs and what are the


effects?
There is a relationship between crisis and entrepreneurial or innovative
activity, which makes crises of relevance to all types of SMEs. Crisis can
range from the personal to the social or natural and the consequences can be
severe, not only to the SMEs but also to employees and managers as
individuals. In addition, crisis can impose pressure on the decision-making
and ultimate survival of the business. Below are some of the main types of

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crisis that have become integral parts of SME activity, for which business
interruptions and/or failures are likely without adequate preparedness and
response:

. External shocks: this is mostly used to describe economic crisis such as


recession and financial crises. Since 2009, the global financial crisis
has created huge uncertainty and affected the operational activities of all
types of businesses, both small and large, public and private (Lai
et al., 2016).
. Natural disasters: the Boxing Day tsunami (2004), the Haiti Earthquake
(2010) and Hurricane Katrina in the USA (2005) were natural disasters
that led to flooding and destruction of premises and loss of lives.
. Accidents or human-induced crises: such as those reported in
manufacturing plants and during riots in rural and urban communities.
For example, civil disorder (or rioting) swept through London in 2011,
leading to looting, vandalism and arson, which affected more than 2000
commercial premises and left unprepared enterprises vulnerable and
unable to respond (Doern, 2016).
. Personal crises, adversity and trauma: this includes physical and mental
health issues, relationship issues and work-life balance issues. A typical
example is nurses and health support staff working long hours in under-
resourced hospitals in developing countries (Ngoasong and
Groves, 2016).
. Conflict situations such as war-torn countries: the aftermath of the
Rwandan genocide, the ongoing violent conflict in Syria and terrorist
bombings around the world are just a few cases. For example, small
businesses in the travel and leisure sector are highly exposed to terrorist
threats and actions which can destroy their business premises and/or
cause customers to avoid leisure attractions (Sullivan-Taylor and
Wilson, 2009).
The crises above are sources of risk and uncertainty because they are
difficult to predict and their impacts are hard to forecast. However, planning
for and responding to their occurrence is crucial for the survival of
businesses. This is what makes resilience an important concept for
entrepreneurs and managers of SMEs. At the organisational level, strategies
are needed to ensure that the business is not prone to crisis, and once crisis
occurs the effects can be minimised. At the individual level, human
resources strategies are needed to ensure that individual staff are well
catered for during crisis situations.

Using resilience to respond to crisis


There is no universally agreed strategy to achieving resilience. However,
managers need to be aware of the different types of crisis events, how they
unfold and what resilience strategies are most appropriate for reacting to
and recovering from the crisis in a way that ensures survival and
sustainability of the business and its employees. The need for entrepreneurs
to develop an anticipation mindset in order to identify different kinds of
crises that may occur and in taking preventative steps; it also encourages

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Chapter 7 Evaluating enterprise and innovation solutions

entrepreneurs to find ways of being more flexible and adaptive during a


crisis situation by adopting a containment mindset and thus making
themselves and their organisations more resilient (Doern, 2016). This is
what crisis preparedness and management is about for SMEs. Sustainable
enterprises can respond in two ways, at the level of the organisation
(Doern, 2016) and at the level of the individual employees (and HRM)
(Ngoasong and Groves, 2016; Lai et al., 2016). Below are some simple
steps to follow:
1 Identify the determinants of resilience: these are the risk and
vulnerability factors that may arise as a result of any of the types of
crisis described above. In their study of personal resilience in hospitals,
Ngoasong and Groves (2016) identify three determinants, namely a)
personal perception (e.g. the individual circumstances of each employee
or manager and their way of interpreting events and situation), b)
personal work context (e.g. job description, work procedures, staff
training, team-work) and c) organisational plans and procedures
(e.g. employee-manager relationships, job terms and conditions, premises
and insurance).
2 Develop a resilient strategy by building the determinants into a
framework that can be implemented throughout the organisation. Some
of the key points to consider include what the adverse effects or
vulnerability of various crises might be, effects on workforce (size,
working hours, working conditions and pay), the likelihood of reducing/
increasing workforce (or using agency worker, expenditures on training)
in times of crisis, protecting the organisation (e.g. insurance) and
community relationship (especially communities around where the
business is based) (Doern, 2016; Lai et al., 2016).

‘Stop and think’: Answer-4u


In February 2004, Mark Menhennet started Integrated Communication
Services Ltd with his and his wife’s savings, as well as investments
from family and friends. They trade under the name Answer-4u. It is a
third party call centre with the mission, ‘to innovate through technology
and empower our staff to perform to the best of their ability for the
benefit of our clients’. Over the years they have carried out these aims
through a number of initiatives such as the homeworker solution,
‘Chatterbox’ (a proprietary communication software that manages call
outs), an automated and digitised billing system and reception service
(a fixed cost telephone answering service, with no management fees),
which was later expanded to include the ‘Reseller Program’. The
Reseller Program allows other companies to offer their own branded
telephone answering service. Answer-4u moved into their own 150-seat
call centre office in 2010, which is operational 24 hours per day, seven
days a week, and 365 days a year and has around 130 employees. The
head office is situated in Nottingham but takes a variety of calls on
behalf of clients from all over the UK including emergency breakdowns
for national companies, sales and website enquiries.

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We spoke with Mark recently and asked him about how he has
prepared for and dealt with external shocks and crises to his business.
He explained that the entire business runs on electricity and disruptions
to this service are one of his biggest problems, ‘No electricity, no
business and we have had electricity supply breakdown several times,
which has caused huge problems.’ During 2012 and 2013 they had to
deal with a number of power disruptions, but their longest outage lasted
for 6 hours in their old premises during 2007. With thousands of calls
coming in each hour, this caused them some problems with their
clients, ‘In the past we have had to kind of grin and bear it until the
supply company have managed to fix the problem and resupply us’.
The main source of their power disruption occurred when resurfacing
work was being done in the market square and a major supply cable
was dug through. Answer-4u was not the only company to be affected,
‘but for us we were literally dead in the water without power’.

After two recent power outages that occurred six weeks apart, their
power suppliers assessed the situation and informed them that it was
highly probable that their main supply feed cable would need replacing
in a few months. This would require about 48 hours. Mark and his team
decided that they needed to acquire a generation system. They
purchased a fully automated stand-by generator powered by natural
gas, which kicks in about 20 seconds after the power is disrupted.
Fortunately, the building was already being supplied with natural gas, so
this was a ‘very convenient way of solving potential power shortages
through a gas supplier that’s already on the premises’. In addition, they
upgraded all the IT and phone equipment so that they are powered by
an uninterrupted power supply (UPS) that is capable of running for
around an hour, ‘We had to do that because we were seriously
concerned it would cause major damage to our business’. There has
been a power outage since these have been installed and Mark shared
that his employees barely noticed it had occurred. He also added that
with the recent news about businesses switching off their electricity
during peak winter times under the endorsed plans of Ofgem (the
statutory regulator for the energy sector), he believes that he got his
electricity backup system at just the right time. With more companies
having to go this route, the prices would likely increase.

We asked Mark how they were able to finance all of this spend. He
explained that it had mostly been paid for out of cash flow and profits
but also that they had ‘used crowdfunding to raise £100,000 to help
towards the cost’. They used the crowdfunding company Funding
Circle, which provides an online market place for investors and
businesses with at least two years’ filed accounts and a minimum
annual turnover of £100,000. Funding Circle’s credit assessment team
review each business plan before placing them in the marketplace
where the loan is then auctioned to investors for the lowest rate. Mark
was very enthusiastic about this approach to financing and saw it as
having a significant role to play in the future, ‘My experience with
crowdfunding is, it is the way forward for the Western world. It is a
fantastic tool for the business and it is a fantastic investment tool for the
ordinary man in the street or for the sophisticated investor. It is a very

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Chapter 7 Evaluating enterprise and innovation solutions

simple system to use.’ Mark is quite passionate about crowdfunding and


is concerned that the Financial Control Authority ‘are talking about
regulating it and they are going to burden them with over complicated
regulation, which will strangle the idea at birth’. He believes
crowdfunding will mount a serious challenge to the banks, which may
be pushing the government to have it regulated ‘and strangle it, and I
hope they do not because it is a perfect way for small and medium-
sized businesses to raise money. It really is.’

Company website: www.answer-4u.com pp. 27–8

Source: Edited by Blundel (2013)

Make notes on the two tasks below:

1 List the crisis that required Answer-4u to be resilient.


2 List the actions taken in order to be resilient.

7.4 Evaluating sustainable business


models
This section attempts to summarise the sustainable enterprise and innovation
concepts and practices that have been covered so far in this Reader and
proposes a way forward. To ensure that their business operations create
positive impacts on society, both for-profit and not-for-profit enterprises
undertake different types of entrepreneurial innovations and adopt specific
social responsibility practices to satisfy existing sustainability requirements.
For example, Chapter 3 shows how social enterprises develop governance
models that enable the inclusion of marginalised communities in decision-
making to ensure that business activities create positive benefits to society.
Chapter 3 also shows how companies target sustainability rankings, seek
certifications from regulators and show-case evidence of their sustainability
practices. However, developing and commercialising entrepreneurial
innovations and dealing with existing negative impacts on society may not
deliver the holistic changes necessary to achieve long-term social and
environmental sustainability (Bocken et al., 2014).
To achieve long-term sustainability, organisations have to develop and
operate sustainable business models. So what is the relationship between
business models, sustainability and financial/economic performance? The
research of Boons, Montalvo, Quist and Wagner (2013) argues that
sustainable development requires radical and systematic efforts. This means
that sustainability issues should be incorporated into any new model at an
early stage and sometimes before launching the new business. This ensures
that the sustainable enterprise can achieve a win-win where the
entrepreneurial innovation developed as part of the business model helps
owners (or managers) to achieve the desired economic performance, while
at the same time improving environmental performance. Bocken et al.,
(2014) provide a framework that can be used to determine whether or not

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Creating Futures: Sustainable Enterprise and Innovation

an existing enterprise has a sustainable business model and, if so, the


characteristics of the sustainable business model. The framework encourages
innovations that can significantly change the way organisations operate to
ensure greater sustainability.
As depicted in Figure 7.1, a sustainable business model considers societal
problems (such as those discussed in Chapter 1, a wide range of
stakeholders and community interests, as well as organisational
requirements. In their research, Bocken et al. (2014), describe sustainable
business model archetypes as ‘groupings of mechanisms and solutions that
may contribute to building up the business model for sustainability’. The
groupings are:

. technological: maximise material and energy efficiency; create value


from ‘waste’; and substitute with renewables and natural processes
. social: deliver functionality rather than ownership (provide services that
satisfy users’ needs without having to own the physical product); adopt a
stewardship role (proactively engage with all stakeholders to ensure their
long-term health and well-being); and encourage sufficiency
. organisational: re-purpose the business for society/the environment; and
develop scale-up solutions.

Groupings

Technological Social Organisational


Substitute
Archetypes

Maximise Deliver
Create with Adopt a Repurpose Develop
material functionality Encourage
value from renewables stewardship sufficiency for society/ scale up
and energy rather than
waste and natural role environment solutions
efficiency ownership
processes
Low carbon Circular Move from Product- Biodiversity Consumer Not for profit Collaborative
manufacturing economy, non-renew- orientated protection Education approaches
/solutions closed loop able to PSS – (models); Hybrid (sourcing,
renewable maintenance, Consumer communica- businesses, production,
Lean Cradle- energy extended care – tion and Social lobbying)
manufacturing 2-Cradle sources warrantee promote, awareness enterprise
consumer (for profit) Incubators
Industrial
Examples

Additive Solar and Use health and Demand and Entrepre-


symbiosis wind-power orientated management Alternative
manufacturing well-being neur support
based PSS – (including ownership:
Reuse, models
De-materiali- recycle, energy Rental, Ethical cap and cooperative,
sation (of innovation lease, trade (fair mutual Licensing
re-manu- trade)
product/ shared trade) (farmers) Franchising
facture Zero
packaging) Slow fashion collectives
Take back emissions Result- Choice Open
Increased initiative orientated editing by Product Social and innovation
management
functionality PSS – Pay retailers longevity biodiversity (platform)
(to reduce Use excess Blue per use regeneration
Economy Radical Premium intiatives (‘net Crowd
total number capacity branding/
Private transparency positive’) sourcing/
of products Sharing Biomimicry limited
Finance about envir- funding
required) assets availability Base of
The Natural Initiative onmental/
(shared (PFI) societal pyramid ‘Patient/slow
Step Frugal solutions
ownership impacts capital’
and Slow manu- Design, business collaborations
Build, Resource Localisation
collaborative facturing Responsible
consumption) Finance stewardship product Home based
Green Operate distribution/ flexible
Extended chemistry (DBFO) promotion working
producer
responsibility Chemical
Manage-
ment
Services
(CMS)

Figure 7.1 The sustainable business model archetypes


Adapted from Bocken et al. (2014, p. 48)

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Chapter 7 Evaluating enterprise and innovation solutions

‘Stop and think’


1 Select one of the four case studies in this Reader that you have
already studied.
2 Select the sustainable business model archetype that most
reflects the Case Study (use Figure 7.1)
3 Outline the evidence from the case study that can be used to
support the archetype that you have identified. You may find that
the case study organisation reflects more than one archetype.

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