Teaching Notes for the Case Study “Impact Sourcing in India:
Managing People, Clients and Growth at ServImpact”
in: Sydow, Schüßler, Müller-Seitz (2016): Managing Inter-Organizational Relations. Debates
and Cases. Palgrave Macmillan.
A. Synopsis
This case deals with the implementation of an impact sourcing (IS) business model in India. IS is
a form of global outsourcing service delivery that involves the hiring, training and use of
personnel from disadvantaged economic and social backgrounds. The case is situated at the
interface between the increasing trend of global outsourcing of business services and social
entrepreneurship. It showcases the practice of ‘creating shared value’ in a local context. More
specifically, it discusses, based on the case of an Indian IS service provider, the challenges
associated with combining business objectives (providing low-cost, high-quality services to
global clients) with a social mission (making an impact on the local community). It deals with
the related challenge of managing local employee and community relations, and global client
relations at the same time. Take-aways from the case include a better understanding of global
services outsourcing, hybrid business models, and stakeholder management. In addition, we
learn new ways in which local firms can benefit regional economic development. The case is
based on field research of a real India-based company. Names of individual participants,
however, are kept anonymous.
B. Goals
1. Better understand of IS as a means of promoting corporate social responsibility and
shared value creation in both regional economic contexts and global production networks.
2. Understand the organizational tensions between managing global client expectations and
benefiting the local community.
3. Understand practices and challenges of identity management as a hybrid organization
within complex stakeholder constellations.
C. Case Study Questions and Possible Answers
1. What are the main similarities and differences between IS and regular outsourcing in general,
and in terms of their impact on regional development in particular?
In many ways, IS and regular outsourcing business models are very similar, in particular in terms
of the services provided to clients. They may include call center and tech support, payroll and
other HR services, IT infrastructure, data entry, finance and accounting as well as legal services,
software development, engineering services and other knowledge work (Manning et al., 2008).
Some providers, no matter if IS or not, specialize in providing particular services, whereas others,
typically larger ones, are full service providers. Also, service providers either serve global clients
directly, or they serve as subcontractors of larger mainstream service providers. Finally, IS and
regular outsourcing firms can both be found in emerging and advanced economies. It is
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important to realize that in particular client-facing features of both Impact Sourcing Service
Providers or ISSPs for short and regular providers are very similar, which is one of the major
reasons for the managerial challenges facing ISSPs.
In terms of differences, ISSPs and regular providers differ mainly in their recruitment and
training practices, as well as their funding sources. Whereas regular providers focus on recruiting
young people from urban areas with higher university degrees (e.g. in engineering or computer
science), ISSPs focus on hiring and training people from disadvantaged groups, e.g. physically
handicapped, people from slums or rural areas. In doing so, IS seeks to make a social impact on
the local community. In this regard, unlike regular outsourcing firms, ISSPs often get some kind
of funding from foundations and similar institutions.
Therefore, IS and regular outsourcing also have a slightly different impact on regional economic
and social development. Both forms may help generate employment and build capabilities in the
services outsourcing sector. However, whereas regular outsourcing primarily benefits highly
qualified young professionals with university degrees in urban areas, IS attempts to generate a
much broader economic and social impact. It aims for so-called ‘inclusive development’ beyond
the young professional elite, by giving training, employment and career opportunities to people
from slums, rural areas and other disadvantaged communities. Whereas regular outsourcing may
increase income disparities within a region, IS helps provide basic and higher income to
members of poor communities and helps increase upward social mobility.
2. Why did Sidhartha start ServImpact as an ISSP rather than a regular outsourcing company?
The case describes in detail the background story of Sidhartha Basu before starting ServImpact.
Like many fellow Indians of his generation, he gained entrepreneurial and professional
experience in the U.S., which helped him craft business models that would appeal to global
clients after returning back to India – a phenomenon Saxenian (2005) calls “brain circulation”.
At the same time, however, Sidhartha has always shared an interest in giving back and in
promoting economic development within the community he was raised in, again not untypical of
entrepreneurs from developing countries. This would often also help create buy-in from the local
community and raise the local status of entrepreneurs. Beside Sidhartha’s (and his wife’s) strong
sense of a social mission, Sidhartha was aware of social funding opportunities as a way to enter
the outsourcing business. As we describe in the case, Sidhartha’s venture transitioned from an
entirely non-profit training operation towards a for-profit business operation. Another facilitating
condition (although we do not elaborate too much in the case) was certainly the fact that hiring
young people from deprived, rural areas has quite significant potential cost advantages beside the
aspired social impact. Other ISSPs, such as the global player Samasource, have benefited from
the structural alignment of favorable conditions for profit and the opportunity to demonstrate
social responsibility. In this sense, IS is an example of what Porter and Kramer (2011) call
‘creation of shared value’.
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3. Why does ServImpact partly rely on local NGOs and institutes for training its employees? Yet
why does ServImpact also provide some training in-house? What are the advantages of external
training, in-house training and mixed solutions as part of IS?
Hiring and training staff from disadvantaged backgrounds often requires specific capabilities and
social capital that are difficult to build up and/or maintain within regular provider firms. By
contrast, such capabilities often reside in NGOs and non-profit training institutions with strong
links in the local community. In the case of ServImpact, the founder Sidhartha started out with
his non-profit training institute Better Life Foundation which would turn into an excellent
community-based partner organization for ServImpact. The Foundation was also able to forge
working relations with local NGOs who had even better access to potential employees
(beneficiaries of the social impact). In general, partnering with local NGOs to implement social
impact initiatives is a typical practice in the context of CSR and ‘shared value creation’ (Porter
and Kramer, 2011), especially in developing countries in which many ‘public community
services’ are undertaken by NGOs and civil society organizations (Teegen et al., 2004; Leonard,
2002).
From a governance perspective, this case also demonstrates the utility of two basic – external and
internal – options and mixed models of organizing hiring and training. An external solution
exploits uneven distribution of capabilities and efficiencies across organizations and helps
provider firms focus on their ‘core competencies’ (Prahalad and Hamel, 1990). In the case of
ServImpact, such capabilities include the utilization of IS staff for global outsourcing projects,
whereas the main competence of their partner organization (e.g. foundations and NGOs) is
reaching out to local communities and providing basic training at a large scale. Because of this
constellation, ServImpact chooses to outsource pre-screening and basic training of potential staff
to Better Life Foundation. However, ServImpact also provides some of the more advanced
training internally. This is partly because ServImpact needs their staff to acquire idiosyncratic
task and client-specific skills that are either too difficult or too costly for their partner NGO to
provide. Also, sub-contracting highly idiosyncratic training would imply high transaction costs
which can be better managed internally (Williamson, 1981). In addition, ServImpact has
managed to couple their advanced training with an elaborate multi-tier career system. Whereas
the lowest level is designed for new recruits most of whom have gone through basic training
provided by the local NGO, the upper levels provide internal career opportunities to employees
that match their growing skills and client experiences. This allows ServImpact to appropriate
training costs and keep employee turnover down, which also promotes continuity in client
relationships and helps differentiate from rival firms, most of whom continue to suffer from high
employee turnover in this business.
4. Why is Sidhartha so concerned about ‘professionalism’ vis-à-vis global clients? How does
Sidhartha manage to promote ‘professionalism’? To what extent does ‘professionalism’ conflict
with the social mission and why?
Sidhartha’s concern with “professionalism” is mainly a response to prevailing (global) client
expectations. Clients expect providers to deliver high-quality services at relatively low costs. Part
of this expectation is ‘professional’ (i.e. timely, reliable, skillful) handling of client requests,
including change requests. Another, albeit implicit, expectation is that staff is highly trained and
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qualified. Also, over time, the outsourcing business has matured, including the establishment of
process standards and growing client experience with managing supplier relations. As a
newcomer, ServImpact faces rather intense competition from established providers. On top of
that, ServImpact’s characteristics as a social enterprise constrain rather than facilitate their
aspirations of acquiring global clients, since the latter are perceived to be suspicious of potential
trade-offs between service quality and socially responsible sourcing.
ServImpact promotes ‘professionalism’ towards clients in mainly two ways: First, ServImpact
has chosen not to inform their clients about their social mission at all (or only after contracts are
successfully executed). In other words, ServImpact presents itself towards clients as a regular,
for-profit outsourcing service provider. This way Sidhartha lowers the risk of being perceived by
new clients as an ‘inferior’, i.e. less client-focused, competitor due to its commitment to a social
mission. Second, similar to other ISSPs, ServImpact seeks to combine responsible sourcing with
efficient and low-cost staff utilization, in particular through the provision of highly modular and
standardized ‘microwork’, such as data entry, digital publishing, content management, digital
transcription etc., which allows task allocation to staff with little training (Gino and Staats, 2012).
This way ServImpact is potentially able to separate client-facing tasks (requiring client trust)
from back-office tasks without the need for direct client contact and involvement.
Sidhartha’s concern with professionalism partly contradicts his social mission for two reasons.
First, his focus on professionalism involves a commitment to building advanced and competitive
skills in attracting and serving clients that may contradict the initial social mission of hiring
disadvantaged staff with more limited entry-level skills. Second, ServImpact’s social mission
does not correspond with provider selection criteria of client firms. In global services sourcing,
socially responsible sourcing practices have not penetrated the client population nor is there any
pressure coming from NGOs which may prompt client firms to source more responsibly (see also
below). Selecting an ISSP does not provide ‘added value’ in the eyes of most clients. This is
especially true for ISSPs serving clients from locations offshore, whereas co-located providers
may enjoy greater buy-in from clients of the same country.
5. Why is Sidhartha leaning towards abandoning its social mission in the future? What could be
an alternative solution? Please discuss the pros and cons of each strategy.
Sidhartha has rather aggressive growth plans. This includes increasing the number of staff and
expanding its global client base in particular in the U.S. Part of this plan is to establish facilities
(business development and marketing offices) in the U.S. to better coordinate with clients and to
compete with other India-based providers with similar near shore capabilities. Sidhartha cannot
imagine his initial social mission playing an important role in his growth strategy.
There are multiple reasons for that. First, like many ISSPs, ServImpact faces the problem that the
hiring and training of staff from disadvantaged backgrounds cannot be easily scaled up. In
ServImpact's case, IS staff mainly comes from rural communities around the Ganges Delta
region of West Bengal in India. The potential labor pool that can be utilized by ServImpact is
limited in numbers. In turn, applying principles of IS to other potential disadvantaged groups, e.g.
youth from slums, would be a difficult undertaking, as ServImpact would need to establish new
alliances with training institutes with expertise in training staff with particular conditions from
particular geographic backgrounds. Second, the idea to grow the client base in the U.S. amplifies
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the perceived need for ‘professionalism’ (service quality and cost) in order to attract clients, at
the expense of pursuing the social mission back in India which could potentially undermine this
goal. Notably, the situation is different for U.S.-based ISSPs who have implemented IS in the
U.S. which may generate buy-in from socially conscious U.S. clients.
An alternative solution for ServImpact – towards maintaining a social mission while growing –
could be to professionalize alliances with potentially several non-profit hiring agencies and
training institutions in different locations. Samasource, the U.S. based ISSP, has developed such
a model. One advantage of this strategy, besides the intrinsic goal of serving local communities,
would be to also satisfy expectations of social funding organizations which could partly
subsidize low-cost value propositions towards global clients. One disadvantage or challenge
would be the need to invest resources into further developing these alliances in the first place
which could divert from ServImpact’s aggressive market growth plans. Another alternative
option of course would be to slow down growth or maintain its smaller scale. This however
contradicts with Sidhartha’s personal growth aspirations as well as the enormous competitive
pressure coming from larger providers. In this regard, finally, positioning ServImpact as a
subcontractor of a larger provider could be an interesting compromise (see discussion below).
D. Advanced Case Study Questions and Possible Answers
6. To what extent could ISSPs, such as ServImpact, benefit from becoming a subcontractor to
larger domestic mainstream service providers as an alternative to trying to serve global clients
directly? In turn, to what extent could mainstream service providers, such as Infosys or
Accenture, benefit from subcontracting with an ISSP?
Some ISSPs choose to become subcontractors of larger mainstream providers rather than trying
to serve global clients directly. There are a number of reasons for that. First, as mentioned above,
attracting global clients as an ISSP, especially based in a developing country, is a rather difficult
undertaking, as global clients typically do not see added value in contracting with an ISSP rather
than a regular mainstream provider. On the contrary, the latter might be trusted more for their
focus on meeting client cost and quality objectives, rather than pursuing a social mission
benefiting communities in developing countries. Second, and relatedly, partnering with larger
providers creates an organizational interface between global client-facing operations (undertaken
by the main provider) and back-office operations (undertaken by the subcontractor without direct
global client contact). This may actually help ISSPs further focus on their social mission
provided that main providers buy into that. For example, Accenture runs such a model with
Cayuse Technologies in the U.S., whereby Accenture provides a large part of the training and
enjoys a combination of cost benefits and political buy-in by regional stakeholders. Third, with
limited resources at their disposal, ISSPs may not always be able to scale up when the client
projects require more resources or specific skills. Through becoming a subcontractor ISSPs may
be able to better manage resources and expertise by coordinating with the mainstream partner.
From the perspective of mainstream providers, utilizing ISSPs as subcontractors might also be
beneficial. First, ISSPs welcome highly standardized, low-skilled tasks, which they can even
provide at lower costs when using staff from underutilized, e.g. rural, labor markets. Mainstream
service providers may in turn benefit from outsourcing some of those less complex and critical
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tasks that they do not want to perform in-house to the ISSPs. Second, teaming up with ISSPs
provides the opportunity of showcasing care for the community, which seems in particular
relevant for subcontracting with ISSPs from the same country. Third, since ISSPs face additional
challenges attracting global clients, mainstream service providers can take advantage of their
relatively high bargaining power in negotiating with clients. An example is that of the
partnership between Cayuse Technologies and Accenture (mainstream service provider) where
80% of the workload comes from contracts with Accenture. Thus, the mainstream partner can
exert greater control (on the ISSP) over service delivery benefitting the particular client demand.
7. Who are the main stakeholders of ServImpact? What can we learn from this case in terms of
how hybrid organizations manage organizational identities over time within complex stakeholder
constellations?
The main stakeholders of ServImpact, as illustrated by Exhibit 1, include global clients, donors
and foundations, local partner NGOs, employees and the local community. Also, mainstream
outsourcers play a role either as competitors or as potential intermediary clients in case ISSPs
choose to be subcontractors rather than serving global end clients directly. ISSPs like ServImpact
run a hybrid business model which is characterized by a combination of strategies, structures and
capabilities that serve the joint objective of generating business and social value (Battilana et. al.,
2012). Because of the duality of business and social goals, ISSPs operate in a more complex
stakeholder environment than many regular outsourcing firms, as their stakeholders operate
according to different – either business or social – logics and thus embody partly conflicting
expectations which are amplified by the global scale of this particular business.
Managing multiple stakeholders often requires managing multiple demands and expectations
(Freeman 2010). This task can also be framed as managing stakeholder networks (Rowley 1997).
Instrumental approaches towards multi-stakeholder management would emphasize that various
stakeholders differ in their ‘importance’ in terms of their criticality for maintaining a particular
business model. The case of ServImpact is a very interesting one as it shows how the importance
of various stakeholders changes over time. At the beginning, ServImpact mainly served the local
community, while also satisfying expectations of social funding organizations. As ServImpact
grew into a global client serving company, the importance of global clients in sustaining the
viability of ServImpact’s business model would increase as well. In response to this shift,
ServImpact would struggle with its identity as a formerly social enterprise. Over time, Sidhartha
had to learn to build and maintain multiple identities facing partly conflicting stakeholder
demands. This implies shifting weights between (professional) business identity and social
enterprise identity depending on who ServImpact interacts with. One difficulty of maintaining
multiple identities relates to the management of interfaces which are visible to multiple
stakeholders at the same time, for example websites or mission statements. Sidhartha made the
deliberate choice to promote ServImpact’s ‘business identity’ through public media, while
maintaining its ‘community identity’ in local communication.
However, such identity conflicts can never be fully ‘resolved’. Rather, entrepreneurs like
Sidhartha need to manage a continuous tension between different spheres. Alliances with
different partners (e.g. mainstream providers to satisfy the business side, and NGOs to satisfy the
community side) may help disentangle and partly protect these identities. However, with
organizational fragmentation come other challenges, such as lack of operational control, limited
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discretion over strategic decisions and limited growth opportunities. Having said this, it is telling
that Sidhartha has decided to aim for global clients directly, while managing community ties
through local alliances. This may be an indicator for Sidhartha’s preferred future identity as a
professional (mainstream) business service provider. At the same time, Sidhartha follows the
common strategy of creating two separate legal entities – ServImpact (for profit) and Better Life
Foundation (non-profit owning the equity of for profit) (Battilana et. al., 2012; Gottesman, 2012).
This can help the entrepreneur access a wider pool of capital and scale up operations while
maintaining, through external partners, the initial social mission of the organization.
8. To what extent is ServImpact’s community engagement an example of “creating shared value”
(CSV) vs. conventional corporate social responsibility (CSR) (Porter & Kramer, 2011)? How
might ServImpact’s CSV vs. CSR orientation change over time?
In an attempt to redefine the purpose of businesses and its relationship to the society, Porter and
Kramer (2011) define shared value as the policies and practices adopted by business
organizations that enhances their business competitiveness while also advancing the social and
economic conditions of the communities in which they operate in. This conception of value
creation thus incorporates both economic progress and social impact at the core of the business
endeavors and comes from the understanding that the competitiveness of a company is closely
intertwined with the health of the communities around it. Traditional CSR initiatives, according
to the authors, have been driven mainly by corporate reputation with limited connection to the
core business, which makes them unsustainable over the long run. By contrast, CSV models have
been conceived as integral to the competitiveness and profitability of the businesses.
The founder Sidhartha started out with his non-profit training institute Better Life Foundation to
help the youth in the community receive employable IT and business process outsourcing skills.
Later on he founded ServImpact where these trained youth could be absorbed and gainfully
employed. Sidhartha relies on his industry network to approach prospective clients and ensure
sustainable business opportunities for ServImpact. In this respect, ServImpact exemplifies the
concept of CSV proposed by Porter & Kramer because it redefines the services outsourcing
model by employing previously excluded groups and communities. At the same time, it
potentially offers better-cost advantage for its clients as compared to the mainstream service
providers located in urban centers. Also, IS staff tend to be more loyal to employers, which
benefits clients who expect reliable and consistent service. The main advantage for the local
communities is that its youth gain living wages, work experience and sustainable career
prospects for a better future.
However, as the pressure to grow and compete with mainstream service providers increases,
there is a likelihood that ServImpact may move away from its shared value orientation.
Specifically, if they opt for more lateral hires from the outsourcing market while pursuing an
aggressive growth strategy and at the same time maintain a small pool of employees from
disadvantaged groups, it may be seen as a shift towards a more conventional CSR strategy.
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9. How could ServImpact be the starting point for developing a knowledge services cluster in
West Bengal? What would be important next steps for cluster development?
With the advent of global outsourcing, more and more developing countries have attempted to
participate in this industry by promoting so-called ‘knowledge services clusters’, i.e. “geographic
concentrations of lower-cost technical and analytical skills and expertise serving global demand
for increasingly commoditized knowledge services” (Manning, 2013, p. 381). Knowledge
services clusters (KSCs) such as Bangalore in India attract global outsourcing projects due to the
concentration of skilled, but lower-cost talent and related capabilities, agglomeration effects,
knowledge spillover and entrepreneurship. This, in turn, creates training, employment and career
opportunities for both the local and migrant population. Unlike single outsourcing firms, KSCs
benefit from the co-location of multiple firms, training institutions and professional communities,
which, in conjunction, attract both talent and client projects.
ServImpact could be an important factor for developing, or at least extending, a KSC in the
region of West Bengal. This however is not a straightforward process. To begin with, ISSPs are
at a disadvantage compared to many regular outsourcing firms, as the former typically do not
benefit as much from co-location effects as the latter. Being located in rural or disadvantaged
areas, ISSPs typically operate outside established clusters. This means that – like in the case of
ServImpact – they often need to develop a whole recruitment and training infrastructure before
even starting a feasible business. Yet, these efforts may pay off in the long term – not just for
them, but for other potential ISSPs in the area. ServImpact’s partner NGO Better Life
Foundation, for example, ‘produces’ way more IS talent than ServImpact can handle. Other firms
in the region already benefit from this supply. In a way, ServImpact has made a regional impact
quite similar to some global client firms who have transformed local training institutions in
different regions to serve global sourcing demand (see e.g. Manning et al., 2012). However,
because of their rural location and the limited size of the local labor market, this spill-over effect
will most likely be limited to supplying a few other outsourcing and local firms. Thus, unlike
large-scale urban clusters, this potential rural cluster may become an outsourcing hub of limited
size, yet with a dedication to serving the local community in a more inclusive way.
Next steps in this direction could include funding policies that facilitate the start-up of other
firms benefiting from the talent supply. Alternatively, Better Life Foundation could encourage
the spin-off of new local enterprises serving untapped client markets. As the number of firms
grows, however, some coordination may be needed to prevent poaching or competitive bidding
for client projects (see also Manning et al., 2012). With all that, however, it may be questionable
how much ServImpact will be interested in the future in engaging in such regional development
efforts, given their own aggressive growth plans. A strong commitment of regional policymakers to growing IS and regular outsourcing in the region may be needed to push these efforts
forward.
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E. Teaching Plan
Time
0’-10’
11’-15’
16’-30’
(-45’or -60’)
Content
Based upon reading of the case we recommend
clarifying critical concepts, such as
outsourcing, impact sourcing, and hybrid
organization. In this regard it will be beneficial
to elaborate with students who the main actors
in the field are (and in the case of ServImpact
more specifically) and how these actors
interrelate. As an additional exercise, one
could specify resource dependencies with
respect to particular stakeholder relationships.
Here the business model of ServImpact could
be discussed in more detail. This includes an
overview of how ServImpact manages hiring
and training, what kinds of clients ServImpact
is serving, and what the growth aspirations of
Sidhartha are. In addition, it will be important
to understand what key strategic and
operational
challenges
Sidhartha
and
ServImpact have been facing.
The major share of the time should be spent
with the five basic case study questions. These
could be (1) either prepared by the students
before meeting in class and collected and then
discussed by the instructor in front of the class
(min. 15’). Alternatively, (2) the questions
could be discussed in small groups within
class. Depending upon the size of the whole
group, several groups could discuss and
answer either all the case study questions or a
selection of them (e.g. two for each group).
The period of group work should lead to
presentation and discussion of the results. With
regard to this second alternative, groups may
either specialize in one or two (2a) or deal with
all four questions (2b). We recommend
choosing the optimal alternative in face of time
available. The alternatives (2a) and (2b)
require a minimum of 25’ and 45’ respectively.
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Options
Further introductory case-related
questions like the following may
be asked: (1) What is interesting
about the case? (2) How did
Sidhartha’s
entrepreneurial
venture change and develop over
time? (3) How did challenges
change over time?
Supplement the five basic case
study
questions
with
the
advanced questions. However, in
this case students should be
somewhat familiar with the
larger debate around hybrid
organizations, global sourcing,
stakeholder management and
regional clusters. Being familiar
with resource dependence theory,
institutional theory, and the
concept of organizational identity
may also aid the group
discussion.
F. Sketch for Board Plan
Board 1: Actors and Background*
Individual and organizational What do we know about the role Typology of local and global
actors mentioned in the case and interests of each actor?
relationships between actors
Board 2: Case Study Questions*
What have we learnt about:
impact
sourcing,
hybrid
organizations,
stakeholder
management?
Why is managing multiple Debates and theories relevant for
stakeholders often a continuous understanding
identity
and
problem (especially for hybrid stakeholder management
organizations)?
* Could be shown/discussed in parallel or subsequently, left to right
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G. Background Information
1. Global Services Outsourcing and Impact Sourcing
Facilitated by increasing digitalization and commoditization of business processes, and driven by
cost, speed, access to talent and other strategic advantages, Western client firms across industries,
from the U.S. and Western Europe in particular, increasingly outsource business process tasks to
specialized service providers operating across the world (Sako 2006; Doh 2005). Providers
include both large full-service providers, e.g. Accenture, IBM Business Services, Infosys,
Genpact, and Wipro, and smaller, more specialized vendors. Many providers are headquartered
in developing regions, e.g. India, China, and Eastern Europe. Their services include IT infrastructure outsourcing (also called ITO), payroll, tech support, call centers and other business
process outsourcing (BPO), but also software testing, engineering support and product design.
Impact sourcing is a very recent trend that was stimulated partly by the Rockefeller Foundation.
Following pilot projects, such as the South African Monyetla Work Readiness Program in 2009,
which aimed at training unemployed high school graduates for outsourcing service jobs, in 2011,
the IS Conference formally positioned IS as a new subfield of global business services. Today,
IS more generally is about providing employment opportunities to disadvantaged groups in
society. According to International Labor Organization (2011) “disadvantaged refers not just to
economic factors, such as income poverty, or lack of experience in and poor understanding of the
formal job market, but also social factors such as gender, racial, ethnic or migrant background,
and geographical isolation with poor access to quality education and job opportunities.”
Although IS is a relatively new phenomenon, it has already generated considerable impact for
local communities. For example, a report by the Monitor Group (2011) suggests that IS
employees have benefitted from income increases between 40 and 200 percent. IS employment
also increases family investment in healthcare and education. It is estimated that IS has a
potential to be a $20 billion market by 2015 of which $10 billion will be the direct income for
780,000 people. By 2020, according to the research group Avasant, the market for IS services
will grow to employ 2.9 million people. The training and employment opportunities provided by
IS adopters helps make a larger workforce more employable with better skills and potential for
higher wages in the future.
IS is practiced both in advanced and emerging economies. Providers in advanced economies
include Samasource, Cayuse Technologies (rural sourcing) etc. Examples in emerging
economies include Digital Divide Data (Kenya), Cloud Share (Nepal), Rural Shores (India), etc.
2. Creating Shared Value and Hybrid Organizations
Creating Shared Value (CSV) is a concept put forward mainly by Porter and Kramer (2011). It is
defined as the policies and operating practices that businesses adopt to enhance their
competitiveness and at the same time improving the economic and social conditions of the
communities they are embedded in. Thus value creation is not just limited to producing profits
for businesses, but also includes social and economic benefits accrued to the society which in
turn strengthens the competitive position of the companies. The authors propose that the purpose
of corporations and businesses must be redefined as creating shared value and not just profits as
an attempt to reshape capitalism and its relationship to society. Traditionally, governments and
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NGOs were seen as primary actors in solving social problems. Corporate Social Responsibility
(CSR) initiatives were seen as a move to maintain corporate reputation and as a way to respond
to external pressures from activists and NGOs. The authors thereby distinguish CSV from
Corporate Social Responsibility (CSR). Whereas the latter has limited connection to the
company’s business and is mainly driven by external pressures, the former is integral to a
company’s profitability and competitiveness and driven by the recognition that the progress of
the communities in which the business is embedded can be essential for maintaining the
competitiveness of businesses.
The successful promotion of shared value creation is increasingly attributed to so-called “hybrid
organizations”. Hybrid organizations are typically defined as those that primarily pursue a social
mission, but at the same time rely significantly on commercial revenue to sustain operations
(Battilana et al. 2012). Arguably, more than other types of organizations, hybrid organizations
have developed the strategies, policies and internal structures and capabilities needed to promote
shared value creation. Recent studies suggest that hybrid organizations have spread across
industries, including education, health, culture, micro-finance and hospitality. Most research on
this organizational form has focused on core characteristics, different types, sustainability driven
business models and on major challenges of establishing and managing hybrid organizations.
Key distinguishing characteristics include: 1) their business model is configured to address
explicit social/environmental issues; 2) they maintain mutually beneficial and sustainable
relationships with customers, suppliers and employees; 3) they prefer social and environmental
outcomes over costs; and 4) they alter industry standards to serve own interests as well as the
social/environmental context in which they operate (Haigh and Hoffman, 2012).
Hybrid organizations face a number of managerial challenges other types of organizations are
less likely to encounter. They include: mission drift, scalability, competitive edge/competitive
advantage over mainstream organizations, loss of autonomy/acquisition, legal structure,
financing, talent development and from our own research, maintaining a professional identity.
Many of these challenges interrelate with the variety of partially conflicting stakeholder demands.
Stakeholders typically include customers, employees, civil society organizations as well as
governments. Most of them are beneficiaries of the social values created.
3. Stakeholder Management and Geographic Cluster Development
Stakeholder management is an integral aspect of strategic management. Stakeholder theories
focus on conceptions of corporations having multiple stakeholders (Freeman, 2010). Many see
these cooperations as embedded in more or less complex stakeholder networks (Rowley, 1997).
Decision makers are thereby expected to protect the interests of various stakeholders including
investors, employees, the community and the environment (Carroll and Buchholtz, 2011) etc.
According to these theories corporations are a “constellation of cooperative and competitive
interests”. Some proponents of stakeholder theory argue that each set of stakeholders merits
consideration for its own sake and there is no prima facie priority of one set of interests and
benefits over another (Donaldson and Preston, 1995). Others take a more instrumental approach,
by focusing on various degree of resource dependency of the firm from particular stakeholders.
As elaborated above, IS is an interesting case where stakeholder dependencies may change over
time with the growth of IS operations, which has important ethical implications.
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In addition, the case may deepen our understanding of both local and global dimensions of
stakeholder management and their impact on regional economic development in general, and
geographic cluster development in particular. As for the local level, stakeholder alliances, e.g.
between ISSPs and NGO training partners, may become important building blocks in promoting
geographic concentrations of related firms, skills and labor markets. In particular in the context
of so-called ‘knowledge services clusters’ (Manning, 2013), training infrastructures and
recruitment channels with local firms are important ingredients of cluster growth, as they attract
other firms, promote trust among clients and provide employment and career opportunities for
the locals. Such processes, however, need to be seen in conjunction with global client relations.
Global client expectations in part determine the prospect of local cluster development. Increasing
regional and global client awareness of and care for the social aspect of IS may stimulate further
investment into local IS training and recruitment. In addition, client concerns with employee
turnover and cost may further translate into a shift of attention by policy-makers and firms from
growing urban clusters to establishing multiple rural hubs in support of urban outsourcing
operations.
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