Compensatory Capitals in the Nonprofit Sector: Interaction of Human, Social and Organizational Capital and the Influence of Statutory Funders

Introduction and Research AimIntellectual Capital (IC) denotes the unique and complementary combination of human, social and organizational capital where the value embedded in one component can leverage the value of the... [ view full abstract ]

Introduction and Research Aim

Intellectual Capital (IC) denotes the unique and complementary combination of human, social and organizational capital where the value embedded in one component can leverage the value of the others, so that the combination of components results in a distinctive resource that enhances organizational performance (Albertini, 2016; Reed et al., 2006). When each capital works optimally in combination, a virtuous circle or optimal ‘knowledge trajectory’ is created resulting in positive organizational performance (Gurud and Naygar, 1994; Youndt et al., 2004). However the manner in which these capitals interrelate is poorly understood. In particular, there is some debate about the centrality of each capital in the interrelations. Whereas Youndt et al. (2004) found that organizations primarily focus on one or two types of capital, Albertini (2016, p. 895) found that top managers focus on all three IC dimensions and combine them as necessary to maintain or improve their competitive advantage. The author interestingly found that human capital has a weaker interaction with other IC components and that organizational and social capitals are more deeply interrelated. These findings are explained somewhat by the changing economic environment under which Albertini’s research was conducted, and also reflect the overall conclusions from Youndt et al. (2004) that intellectual capital profiles and how components interact evolve across organizations and are different according to the organizational context. This paper examines how, in the context of the voluntary sector, various challenges may arise that may disturb the complementarity of the sub-components and thus limit any advances in intellectual capital. In recent years, the voluntary sector has significantly invested in developing its human capital by upskilling managers, adopting a more professionalized approach, and broadening its knowledge and skills base to design and deliver new services.  Yet, as we argue in this paper, the sector’s interactions with other stakeholders can influence social and organizational capital and skew the intended gains from human capital investment. Drawing from a qualitative analysis of three case studies, this paper examines human capital development in VSOs and how it interacts with social and organizational capitals under the unique conditions of voluntary sector organizations.

Voluntary Sector Context

The importance of understanding how to harvest intellectual capital has never been so prevalent in the Voluntary Sector. Traditionally voluntary sector organizations (VSOs) relied upon grants from statutory funders, however in the wake of New Public Management principles, the delivery of many public services has been outsourced, creating a contract culture where many VSOs now compete against other potential providers for funding, and where performance is managed using precise measurable and binding criteria and output (Cunningham, 2001; Cunningham et al. 2014). VSOs are required to demonstrate more convincingly that they provide value for money when delivering public services (Barragato, 2002; Herman and Renz, 2004). Under these more challenging conditions, it is argued that VSOs can no longer rely solely upon their mission and values to guide the direction of the organization. Rather VSOs must embrace the realities of marketization, adopt professionalized management practices and develop new strategies that enhance intellectual capital and provide continuing competitive advantage. Understanding, assessing and prioritizing the needs, expectations and interests of organization stakeholders is fundamental to strategy development. VSOs have a range of diverse stakeholder groups often with conflicting expectations and varying power and influence which can create challenges for how strategies are developed and deployed and may create unintended outcomes. Drawing from the voluntary sector literature, the paper discusses how human, social and organizational capital is manifested in VSOs when responding to various stakeholder influences. Overall our discussion highlights how the challenging funding environment of the voluntary sector can have a significant bearing on how human, social and organizational capitals are manifested, but little is understood about how each interrelate with each other under these conditions.

Research Methods

This research is based on a multiple case study approach. Comparing and contrasting multiple case studies allowed a close and in-depth analysis of the contextual factors that influence decision making within VSOs, particularly focusing on the role played by public sector requirements and value-orientation in shaping how human capital is leveraged. Three cases were purposively sampled, OrgA, OrgB and OrgC given their recent investment in human capital developments. Each case study involved interviewing individuals at different levels within the organisation. Firstly, interviews were held with senior managers to glean information on the organisation’s contextual background, its involvement in delivering public services under contract, and the related human capital issues. Secondly, interviews were held with HR Professionals and other management personnel (where appropriate) to human capital strategies across the services offered by the VSO. Thirdly, focus groups with operational level employees and volunteers (as appropriate) were held to explore motivations and values and to gain an insight into the skills needed to undertake their job effectively and how these were developed. Finally, documentary analysis of organizational, governmental and third party reports was undertaken to add richness to the analysis and to validate interview findings.

In total, eighteen interviews with senior and middle managers and seven focus groups with 41 employees and volunteers were conducted. Interviews and focus groups were recorded and transcribed verbatim resulting in 350 pages of text. Data was coded and analysed thematically using the Framework Approach (Ritchie et al., 2003) to explore patterns and within the data and to identify quotations illustrative of emerging themes.

Findings, Analysis, Conclusions, Implications

All case studies provided evidence of interrelations between human, social and organizational capital but we found that the nature of the capital interrelations and the related outcomes depends on the power and influence of funding stakeholders and the associated independence of the VSO. We found OrgA to demonstrate the most complementary interrelation between HCR, OC and SC, had more independence, and was subject to less influence from stakeholders in the funding environment when making strategic decisions. On the other hand, OrgC had the least complementary interrelation between HCR, OC and SC, had the least independence, and was subject to the greatest influence from stakeholders in the funding environment. The case of OrgB demonstrates the middle ground between the two extreme case exemplars. Overall we found that the interaction between all IC components, the VSO’s independence and the power and influence of its funding environment could be multi-directional, but that either a virtuous or vicious circle of outcomes prevailed.

A detailed analysis of how each capital influences the other capitals in a multi-directional manner is presented in the paper, however our overall analysis illustrates that when the three capitals are most complementary, VSOs are best able to contend the challenges of the funding environment and retain a level of independence. But on the other hand, we find that where one capital is lacking, it is likely another capital will compensate, and that the manner in which this happens is explained by the level of influence from funders and the related independence of the VSO. Given the nature of these ‘compensatory capitals’ in the voluntary sector, the research raises concerns about how the reserves of social capital within the VSO workforce may become overburdened when compensating for poor or constrained investment in human or organizational capital – i.e. the ‘good will’ of the VSO workforce can only compensate so much for certain weaknesses in the VSO.  Ultimately this paper highlights the importance of VSOs investment in all three capitals, but also how the funder’s influence can sometimes limit the VSO’s independence in how they choose to invest in these capitals. 

References

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