Tarja Niemelä, Ph.D., School of Business and Economics, University of Jyväskylä, PO Box 35, FIN-40014, Jyväskylä, Finland, tarja.niemela@jyu.f.
Sofa Kauko-Valli, Ph.D., School of Business and Economics, University of Jyväskylä, PO Box 35, FIN–40014, Jyväskylä, Finland, sofa.kauko-valli@jyu.f.


We investgate the complex dynamics between social service entrepreneurs and social sector managers through the lens of network metaphor, utlizing our data on social service entrepreneurs’ experiences of cooperaton with municipalites. We examine what kinds of dependencies exist in the entrepreneur–municipality relatonships and what kind of consequences these dependencies have on social service businesses run by entrepreneurs. Basing on the social service entrepreneurs experience, our fndings suggest that while the cooperaton with the municipality represents a prerequisite for success, their business represent only one alternatve for the renewal of social service structures from the point of view of municipalites. In additon, the existence of legally enforced supervisory dutes incorporates a considerable amount of power that influences areas of the entrepreneur–municipality relatonships and interacton other than just those defned by the supervisory and regulatory rights.

Keywords: social  service  enterprise,  public-private-partnerships,  social  service entrepreneurship, cooperation, network metaphors.


This artcle highlights social service entrepreneurship as a partcular form of entrepreneurial actvity, one that emphasizes the role of public–private partnership as a context for cooperaton and effectve networking with municipalites. It seems that litle atenton has been paid previously to dependencies in cooperaton between social service entrepreneurs and social sector managers. By applying metaphoric thinking (Kostera, 2008; Morgan, 1980; Sulkowski, 2011) and a range of network metaphors (Easton, 1992) we want to explore the cooperaton relatonship between social service entrepreneurs and social sector managers from the social service entrepreneurs’ point of view.

Most Western countries are, to varying degrees, batling with a situaton where some kind of reform is needed to contnue producing high-quality social services that are affordable as well as atainable in the future (Blank, 2000; Blomqvist, 2004; Lin, 2009; Van Slyke, 2003). Both outsourcing and privatzaton of traditonally publicly provided services (Jensen and Stonecash, 2004) have been seen as a soluton to the growing gap between available resources and pressing needs (Rissanen, Hujala, and Helisten, 2010). New forms of enterprises as well as public-private-partnerships are looked upon with heightened interest, and a beter and more creatve interplay between public and private actors is hoped for (Forrer et al., 2010; Neck, Brush, and Allen, 2009; McGahan, Zelner, and Barney, 2013) to solve challenges related to, among others, the environment, global economic turmoil and instability, heavily aging populatons and other rapid changes. Previous discussion can be anchored to the New Public Management trend (Pollit, 1995) which has had also an increasing impact on care service provision as a part of a global management trend.

Entrepreneurship research has had multple foci (Gartner 1990; Gartner et al., 2004; Krueger 2005), but a special call to focus on entrepreneurship in the public interest has already been issued (Klein et al., 2010; McGahan et al. 2013). Increasingly, entrepreneurship is considered as a driving force behind the expansion of the social service sector (Austn, Stevenson, and Wei-Skillern, 2006) as means to meet the growing welfare needs of natons. Welter (2011) speaks for many (Audretsch, 2012; Johannisson, 2011) by stressing that in entrepreneurship research economic behavior can be beter understood if it is looked at within its historical, temporal, insttutonal, spatal, and social contexts. These contexts provide individuals with opportunites and set boundaries for their actons, but it is worth remembering that entrepreneurship itself can also impact these contexts (Mason and Harvey, 2013).

Today, there is an increasing discussion on the privatzaton of social services and in the internatonal context the private agents (such as social service entrepreneurs) are ofen seen as the key actors in leading a move from welfare state towards welfare society (Rissanen, et al., 2010). We wanted to study the Finnish context as it is similar to the overall situaton in Scandinavia in that the insttutonal power of private agents is stll relatvely weak and the whole feld is rapidly developing. The producton of social services in Finland has been largely monopolized by municipalites and other publicly funded organizatons. Over the past decade, the demand for the pluralizaton of the producton of services and more efcient utlizaton of the private sector have surfaced in the discussion on social policy in Finland. The increasing costs of maintaining a welfare state have led to compettve bidding for services and distributon of public responsibility. This has given rise to opportunites for social service entrepreneurship. However, the growth of private social service entrepreneurship has been rather modest. From the entrepreneurs point of view this is due to atypical market conditons created by the controlling power of state and municipalites and overall heavy regulaton concerning public services (Lyytnen, 2005), i.e., markets are in many ways controlled by buyers (municipalites) and it is a buyer who defnes the fnal price level. Central Finland was further chosen as a research area due to its geographic and structural variaton as it gives good insight into other provinces in Finland as well.

Because we are interested in the view of social service entrepreneurs on their cooperatve relatonship with social sector managers we take a theoretcal look at the relatonship through the lens of Easton’s four network metaphors: networks as relatonships, structures, positons and processes. Empirically we provide insight into the complex dynamics between social service entrepreneurs and social sector managers by utlizing exploratve data on social service entrepreneurs’ experiences of cooperaton with municipalites conducted in Finland. Our empirical research questons are: 1) What kinds of dependencies exist between social service entrepreneurs and social sector managers? 2) How and why are these dependencies formed? and 3) What kind of consequences do public-private-partnerships have for the proftability of social service enterprises?

The results of our study revealed that social service entrepreneurs feel that there is a need for deeper cooperaton and dialogue between social service entrepreneurs and social sector managers. This cooperaton calls for new ways to enhance the innovaton capacity and demand-based development of social service entrepreneurship. Our fndings further suggest that whereas for entrepreneurs the municipality represents a prerequisite for business success, for municipalites’ entrepreneurs represent only one alternatve among others for the renewal of social service structures. In additon, the existence of a legally enforced supervisory duty incorporates a considerable amount of power that influences areas of the entrepreneur– municipality relatonships and interacton other than just those defned by the supervisory and regulatory rights. Because our results revealed the effects of the imbalance of power between the municipality and the entrepreneurs, we saw how the cooperatve relatonships had many negatve impacts on a practcal level.

We propose that the network metaphors provide a rich and multdimensional framework to analyze the cooperatve relatonships of social service enterprises and municipalites. Policy objectves and the cooperaton governance can strengthen, weaken or restructure the cooperatve relatonships in the social service sector. Due to this dynamics, we argue that social service entrepreneurship requires a new reality with new venture models as a soluton for markets and hierarchies. We explain and address these results in three sectons. First we discuss theoretcal ground for the study by introducing the network metaphors we have applied. Second, we introduce our methodology. Third, we consider how our fndings apply to current theory as well as how applicable they are for social service entrepreneurs and municipality decision-makers. We also discuss limitatons and suggest future research directons.

Defnitonal foundaton of this artcle follows. We use the term social service entrepreneurship to refer to businesses that operate in the social service sector, usually in close cooperaton and collaboraton with municipalites that are responsible for the service producton as a whole. The term commissioner-supplier model refers to a process of service acquisiton in which the organizing responsibility and the actual producton of the service in queston have been separated from each other. The commissioned services are supplied by an organizaton either within or outside the municipality, according to the contract between the municipality and the social service entrepreneur. Social service entrepreneur refers to an entrepreneur who supplies services according the commissioner’s specifc instructons. The service commissioner can be e.g. municipality government, the municipal manager and council, or commissioners that have received their authorizaton (e.g. boards). By social sector manager we refer to municipal ofcial, namely social welfare directors in municipal. By cooperaton we mean that the social service entrepreneurs and social sector managers both seek to achieve their own different ends as suppliers of services and as commissioners of services to their customers. The concepts of power and dependence are discussed more in-depth in a network metaphor analysis of this study. Power is the central concept in network analysis and one important model to realize the cooperaton relatonships between social service entrepreneurs and social sector managers (municipalites). Power is an ability to influence the decisions and actons or other and power is linked to dependence and interdependence in the cooperaton relatonship between social service entrepreneurs and social sector managers in their exchange formulatons and processes. We have used the defniton of dependency, as explained in the resource dependence theory, and the principal – agent theory in studying entrepreneurs’ viewpoint on the cooperaton relatonships between social service entrepreneurs and social sector managers with the noton of equality with those of hierarchy and unequal distributon of power. We were interested in the ways in which the elements of co-operaton reflect the positons suggested by the above-mentoned theories, that is, to what extent the supposed positon as ‘Principal’ and the possible positon of entrepreneurs as ‘agents’ corresponds with reality, and how the features of these positons become apparent in the experiences of social service entrepreneurs.


The widespread nature of networking has atracted considerable atenton in management literature and has become a useful concept because of its ability to consttute a specifc, generic model of economic exchange, spreading in a broad range of industrial setngs (Jenssen and Nybakk, 2013; Kogut, 2000; Niemelä, 2004; Nohria and Eccles, 1992; Tsai, 2001) The relatonships between social service entrepreneurs and the municipality can be looked at through the lens of agency theory. Agency theory is applicable in several setngs, ranging from macro-level issues, such as regulatory policy, to microlevel dyad phenomena, such as impression management. The domain of agency theory is the relatonships that mirror the basic agency structure of a principal and an agent who are engaged in cooperatve behavior, but have differing goals and differing attudes towards risk (Eisenhard, 1989).

In our study, agency theory serves as an interestng mirror to analyze the operatng conditons and entrepreneurial acton in which principal and agent are likely to have not only shared goals, but also conflictng goals and in which there are some special governance mechanisms that limit the agent’s selfserving behavior. Accordingly, the principal-agent theory provides us with one theoretcal model with which we can try to fnd solutons for cooperatve resource dependencies and interdependencies created in economic relatonships, such as commissioner-supplier is in our case study. Principalagency theory is concerned with fnding out how a municipality (principal) can design a compensaton system (a contract) which motvates social service entrepreneurs (agent) to act in the principal’s interest. A principal–agent relatonship arises when principal contracts with an agent to perform some tasks on behalf of the principal and these actons affect the welfare of both the principal and the agent (Petersen, 1993).

To sum up, the principal-agent relatonships is interestng in varied ways, i.e., a) there is some uncertainty in the way the agent’s acton gets transformed into output and b) there is asymmetrical informaton – for example – the agent observes his/her own acton but the principal is not sure whether the agent acts in the principal’s interest. (e.g. Petersen, 1993) When the network relatons are seen as serving the critcal resources, the basis of power between actors is typically based on resource dependence. Organizatons become interdependent with other organizatons, in other words organizatonal behavior becomes externally influenced because the focal organizaton must atend to the demands of those in its environment that provide resources necessary and important for contnuous survival (Pfeffer, 1982). Managers and entrepreneurs alike are trying to strike a balance between seeking to achieve autonomy from those holding power and controlling their acton and seeking to reduce uncertainty by developing inter-organizatonal structures of coordinated behavior, based on interdependencies. (Pfeffer and Salancik, 1987) In this artcle, it is argued from the social service enterprises point of view to fnd a sufcient balance between (external) dependence and interdependence (or strategic autonomy), and autonomy which is equally necessary to create and maintain a stock of strategic resources for sustaining compettveness not only for market nor for commissioner.

Networks as relatonships

To begin with, we view relatonships from different perspectves, such as mutual orientaton, dependence, bonds and investments. Mutual orientaton can be seen as cooperaton required in order to gain joint and different ends from the same means or service producton processes. Also mutually accepted and mutually held objectves and regulatons of cooperaton interactons, norms as operatonal conditons for interactons between suppliers and commissioners can advance to achieve both the economic and non-economic goals of the cooperaton. As Easton (1992: 9) has put it, “by knowing a partner frm beter and appreciatng what they can do and have to offer it is possible to both reduce costs and increase sales”. The absence of mutuality can also occur if either one of the cooperatve partners suddenly changes the objectves of the cooperaton or if the process of interactons is not satsfactorily managed by one or both of them.

The concepts of dependency and power are intertwined and are used here interchangeably in describing cooperatve relatonships and networking. The relatonship in the commissioner-supplier model seems to be based on both compettve and cooperatve interdependencies (Baraldi, Gressetvold, and Harrison, 2012) and imperatves. Power can be measured in terms of the larger frms influence on decision-making within the smaller frm in areas such as pricing or investment. In consequence, dominaton or control characterizes the form of network consttuton (Szarka, 1990). Following this, due to the power of the network, a frm may be legally independent, but not necessarily de facto independent: its actons may be influenced or controlled from outside its legal boundaries. From the resource dependence theory points of view (Pfeffer and Salancik, 2003) the development of interorganizatonal power affects the actvites of organizatons. Processes of reciprocity or cooperaton do not insulate practtoners from consideratons of power (Brizzi and Langley, 2012; Grabhner, 1994). In contrast to the market model, in which power is seen as some kind of imperfecton, the network model views power as a necessary ingredient in exploitng interdependencies, and this exploitaton of interdependencies may be asymmetrical because the more powerful economic actors are able to frame decision by which the constraints and opportunites of their exchange partners are shaped (Grabhner, 1994).

Bonds between cooperatve partners can vary and have economic, social, technical, logistcal and for example tme based dimensions (Easton, 1992). In Easton’s (1992: 10) words: “strong bonds provide a more stable and predictable structure and one which is more likely to be able to withstand change”. The partners are bonded by their own will with various rules, laws and physical contracts that are not always easy to dissolve. As it comes to relatonships there certainly exists strong and weak relatonships, but also potental and residual relatonships that refer e.g. to non-economic or indirect relatonships (Easton and Araujo, 1986) and network management (e.g. division of work).

Investments refer to returns including for example tme spent in building good and trustul social relatonships between cooperatve partners. Cooperatve relatonships are vulnerable to tension of conflicts in terms of the expected outcomes of the cooperatve relatonships, when it comes to equality of shares of the benefts. The quality and amount of investments made by cooperatve partners plays a crucial role. To conclude: economic relatonships are also social in terms of social exchange (Aldrich and Wheten, 1981; Thorelli, 1986) and should call for mutual investments to build trustul bonds that provide a more predictable structure and relaton to withstand the uncertainty and constant change in the markets (Easton and Araujo, 1992; Ring and Van de Ven, 1994).

Networks as structures

The structure in any industrial system implies specifc behavior of individual frms and their various interdependencies. Each frm has its own role in creatng new possibilites for new forms of relatonships which also reduce uncertainty within the network. (Easton, 1992). Furthermore, agency theory depicts agency structure where a principal and an agent are engaged in cooperatve behavior, but have differing goals and attudes toward risk (Eisenhardt, 1989). Agency theory is applicable to a variety of setngs, ranging from macro-level issues, such as regulatory policy, to micro-level dyad phenomena, such as impression management. According to Jensen (1983) agency theory can be seen as the foundaton put into place to create a powerful theory of organizatons, while Perrow (1986) claims that the theory is trivial and dehumanizing at best. Despite the differences and disagreements (Barney and Ouchi, 1986; Demski and Feltham, 1978; Eccles, 1985; Eisenhardt, 1989) agency theory gives us a valuable mirror to analyze the situatons in which the principal and agent are likely to have not only shared but also conflictng goals and missions, and in which there are some special governance mechanisms at play limitng the agent’s self-serving behavior. The agency structure (Petersen, 1993) has many effects from the point of view of cooperaton that account for outcomes and performance of the enterprises. Both external and internal changes can further reframe the structure of the network relatonships.

Networks as positons

The focus of positon perspectve lies on single frms not on the whole network as such. Easton (1992, p. 19) refers to Matsson (1984) who defnes a positon as a “role that the organizaton has for other organizatons that it is related to, directly or indirectly” and this implies a defniton of social role which in turn suggests, according to Matsson (1984) that “the frm is expected by other frms to behave according to the norms associated with the positon”. When it comes to relatonships as positons, history tends to determine the prevailing positons in cooperaton whereas the future may offer opportunites for change. It can be argued that positons provide a language to negotate changes in network positons and cooperaton paterns although positons are not easy to achieve or to defend.

Networks as process

Networking and cooperaton processes are dominated by the power relatonships and interest structures of cooperatve partners (Easton, 1992). Cooperaton relatonships are asymmetrical in terms of power and interest structures. In a network or cooperaton relatonship strong bonds call for cooperaton and weak bonds call for competton. Network processes are dominated by the distributon of power and interest structures that constantly change. From the management point of view some enterprises have beter access and opportunites to acquire additonal resources than others. In networks, cooperaton and competton are typical for the existence of strong bonding of cooperaton relatonships. Competton can be replaced by rivalry for the control of resources. Changes in network relatonships are a result of evolutonary developmental processes in interacton of enterprises. As Easton (1992, p. 23) puts it, “networks are stable but not statc”, which provides opportunites for innovaton and renewal of both the structures and positons of cooperaton interests between frms.


This artcle is based on data about the operatng conditons, cooperatve relatonships and the inherent dependencies between entrepreneurs and social sector managers in a new context where the roles and relatonships of the public and private partnerships in social service sector were just beginning to emerge in Finland. The data for this study was collected in 2005 as part of a larger research project, studying social service entrepreneurmunicipality cooperaton relatonships. Although the situaton has changed somewhat during the last decade, the same issues of fragmentaton, high levels of competton, scarce resources and need for innovatveness in creatng sustainable services have remained.

The survey was designed to gather informaton about the operatng conditons, needs and attudes affectng the future development of social service entrepreneurship in Central Finland partcularly from the social service entrepreneurs’ point of view. The following open-ended questons were asked: What qualites describe a good and functonal cooperaton relatonship with the local municipality? How would you like the relatonship between your company and the municipality to develop in the future? Are there any other notons about social service entrepreneurship you would like to menton?

The questonnaire was planned by the experts of the research group and some questons had been adapted from the earlier natonal surveys on social and health service enterprises. The questonnaire was piloted on social service entrepreneurs (n=3) for feedback before fnalizing the survey. A total of 133 questonnaires were sent to social service entrepreneurs, who had registered themselves in the company register of the county of Central Finland or who had acquired a Business ID (Business Identty Code). Afer the inital round one additonal reminder was sent. The questonnaire comprised mainly multple choice questons and some open-ended questons. The data was analyzed both statstcally and by qualitatve content analysis. The applied statstcal methods were, in connecton with linear distributons, mutual correlaton and chi-square testng. The sofware used in this study was SPSS. Accordingly, we also used qualitatve methods, because we thought that by asking open-ended questons we could obtain real-life experiences of interacton and cooperaton between social service entrepreneurs and social sector managers by using the lens of network metaphors. (Denzin, and Lincoln, 2000). The qualitatve aspect of the analysis was important in terms of the interest in attudes and power relatons in general. Open-ended questons asked in this study allowed entrepreneurs to elaborate on their experiences of cooperaton. The qualitatve content analysis was done with InVivo sofware. To analyze and code cooperatve relatonships and their inherent dependencies basing on our case material we used four metaphors to approach the complex dynamics between social service entrepreneurs and social sector managers: relatonships, structures, positons and processes as introduced by Easton (1992). Assessing the four metaphors as a research technic and approach accounts for the fact that cooperaton between social service entrepreneurs and social sector managers deals with issues of mutual orientaton, bonds, dependence and investments but also the structures, positons and processes as relatonships which are to be important in our case setng.

Our fnal sample consists of 72 (54%) social service entrepreneurs, covering a broad range of service branches (Table 1).

Table 1. The background data of social service entrepreneurs
the background data of social service entrepreneurs (n=72)
Gender Female 53 (78%) and male 14 (21%)
Average age 46 years
Respondent’s employment in the frm (in years) χ=7 years (0-17 years)
Respondent has educaton related to the sector 90 % (yes)
Former employer of respondent by sector Public (56%), private (27%), other (17%)
Prior work experience Public (84%), private (50%)
Firm established (year) χ=1998 (1988-2005)
Turnover (last season) χ=158,000 € (984-800,000€)
Main service area of the frm  
Foster care 26.5%
Home service, household management 23.5%
Cleaning, meals, errand assistance 20.6%
Child day care 16.2%
Rehabilitaton of mental illness patents 10.3%

26 per cent of entrepreneurs offered services for relocatng children at risk, 23 per cent offered home care services for the elderly and a total of 16% concentrated on children’s day-care services. Of the frms, 10 per cent offered rehabilitaton services for mental health patents, and 10 per cent offered different mental stmulaton and day-tme actvity services. These percentages represent the general distributon of the various branches of the social service sector in the county of Central Finland. To a large extent, the local actors who responded to the questonnaires were women (78%) with a relatvely short working history as entrepreneurs in the social service sector. The surveyed entrepreneurs employed three persons on average, with the overall range being between 0 and 27 employees. There was also variaton in the turnover of businesses: 47 of the frms that responded (out of a total of 72) provided us with informaton of their latest accountng period. The turnovers varied between 9 846 euros and 800 000 euros, the average being 158 000 euros. Qualitatve descriptons of proftability of business showed that 28 per cent of respondents described it as “excellent” or “good”, 63 per cent as “average” or “satsfactory”, and 6 per cent as “barely adequate” or “weak”. 90 per cent of the respondents had educaton related to social services.


Entrepreneurs experience of cooperaton as relatonships

Our data revealed that the two-way cooperatve relatonship between the social service entrepreneurs and social sector managers can be seen very distnctly. Unlike cooperaton and networking between equal, privately held frms, in our case the relatonship between social service entrepreneurs and social sector managers is dominated by both the context of social services and the multple roles municipalites play in the equaton of service producton. Entrepreneurs operate in a context where there is stll a lot of attudinal resistance and confusion when it comes to the role that private businesses should have in the public-private-partnerships.

From the point of view of the mutual orientaton, entrepreneurs see the cooperaton predominantly as a necessity in order to maintain a proftable business, whereas for the social sector managers, it appears as an opportunity to fulfll the municipal social service dutes in a more cost-efcient way. The entrepreneurs in the social services sector largely see themselves as highly dependent on the operatonal prerequisites that they receive from the social sector managers. It is not only a queston of resource dependence (i.e., cooperaton in the form of bought services); it is as much a queston of the conditons of entrepreneurship as dictated by the prejudiced views towards development in the sector (i.e., whether social services should be offered in entrepreneurial form at all).

Four out of fve (80%) social service entrepreneurs agreed with the statement that the relatonship between their frm and the municipality is a crucial factor in their business operatons. The stronger the entrepreneur’s belief was in the growing importance of entrepreneurship-based social services, the more important the functoning of the municipal relatonship

was seen to be for the business to be successful. (χ2 (2, N=67)=45.1, df=20, p=0.001). Those entrepreneurs who gave most optmistc estmates about the possibilites of growth in the importance of entrepreneurship-based social services as regards the municipal service producton as a whole, stated also their own municipal relatonship was based on a positve attude of the municipality towards cooperaton. (χ2 (2, N=67)=37.4, df=20, p=0.010).

The dependence between the entrepreneur and the municipality that characterizes the social services sector is not only a prerequisite for proftable business; it is also an obstacle to the formaton of genuine compettve setngs and to the development of normal supply and demand mechanisms. There is a considerable imbalance of power inherent in the relatonship between the social service entrepreneurs and social sector managers, which was reflected in the entrepreneurs’ experiences of cooperaton.

Entrepreneurs experience of cooperaton as structures

For the municipalites, the entrepreneurs represent one possible alternatve for the renewal of their service structure, whereas for the entrepreneurs, the social sector managers represent a prerequisite for business success. This setng unavoidably creates a hierarchy within the cooperaton. Because of the insufciently developed market demand, when trying to get involved with the market the social service entrepreneurs are bound to be the underdogs, and face a situaton where they primarily compete not for the acceptance of their customers, but for that of their market compettor, the public sector. In its role as the fnancier, the municipality can set the conditons and take advantage of its power positon in ways that leave only litle choice to the entrepreneur. To atract a positve response from the decision-makers, entrepreneurs need to be ready to modify their service concept to ft the needs expressed by the decision-maker; a promise of quality that can win the trust of the commissioner must also be made.

The will of the social service entrepreneurs to provide services according to the conditons set by the municipality is not motvated only by fnancial needs but also by the fact that they are bound to do so by law. There were considerable differences in the ways in which the municipal supervisory and regulatory rights were exercised in different municipalites. The answers of the entrepreneurs showed a full spectrum of variaton. However, in the answers of the social sector managers, uniformity is the dominant feature. According to them, the most common means to ensure that the supervisory dutes are fulflled include meetngs, annual control visits and regular customer feedback procedures. Also the diversity of the existng supervisory policies was mentoned according to entrepreneurs as follows:

“The quality of frm is supervised through visits by the social authorites and the health inspector, as well as through fre inspectons.” (Entrepreneur 59)

“Quality is supervised by checking that we have enough personnel considering the amount of children we take care of, and that our personnel is competent. On top of that there are also the visits and the inspectons of the premises”. (Entrepreneur 71)

“There are plans for a quality manual for the private sector. The county council also supervises the operaton and the quality of the unit”. (Entrepreneur 92)

“The municipality employees do not have any quality of their own!” (Entrepreneur 17)

Most of the respondents directed their critcism at the one-way nature of cooperaton, the practces which, instead of fostering a dialog, tend to resemble a hierarchical ‘take it or leave it’ ultmatum. The entrepreneurs’ will to become equal partners in the interacton is very much highlighted in the answers.

“The relatonship should be developed more towards cooperaton. The municipality should at least ask the entrepreneur about possible care placements, and also, the customers should be presented with the whole spectrum of available services, not forgetng the private service providers”. (Entrepreneur 119)

“There is certainly a lot of work to be done in openness and communicatons”. (Entrepreneur 28)

“The people in charge at the municipality should be interested in the private service provider. I have offered to come and present my services but not once have they found tme in their schedules for that! Sharing and receiving informaton are the cornerstones of a functoning cooperaton”. (Entrepreneur 75)

They wish to become actors who, instead of the one-way right to be heard, have the right to be actve partners and to make long-term service strategy plans within the cooperatve relatonship. When we asked the entrepreneurs about the turnover covered by the services bought by the municipality, it became apparent that only 9 out of 68 (13%) respondents could get by on the customer demand created by the market. An analysis of the total amount of social services bought within the region revealed that 88% of the purchases were fnanced by the municipality and 12% by independent consumers.

Entrepreneurs experience of cooperaton as positons

The municipality has the ultmate right to decide who is ft to operate in the feld of social services and what kind of conditons a frm needs to meet in its operatons in order to make its business proftable. The need for tailoring that is apparent within the branch is based both on the right of the buyer to defne what is desired, and on the law-based supervisory dutes of the municipality regarding the services they purchase. In this sense, the entrepreneurs’ interest towards the development of the cooperaton is fascinatng: they have a distnct will to intensify cooperaton and interacton, even though the relatonship entails the regulatory right and supervisory role of the municipality.

When the focus of atenton was extended to cover areas outside of the urban areas, the share of private market demand disappears completely from the total turnover percentages. Nearly one half (43%) of the social service entrepreneurs who answered our survey were completely dependent on the municipalites’ desire and ability to buy their services. On the practcal level, this dependence may surface as a kind of a spontaneously actvated control mechanism: the need of the service providers to maintain a working relatonship with the municipality adds to the entrepreneurs’ motvaton to ensure both the quality of their services and the fulflment of the service criteria as set by the municipality. The relatonships with the municipality were characterized as “riddled with suspicion” and “distrustul”: it looked like the municipal actors easily took on a domineering and patronizing role, which –in additon to their general attude- was experienced as defcient, one-way communicaton. Entrepreneurs’ felt that their opinions were only rarely listened to, and then only if it was proftable to the municipality. On the practcal level, this silent discord became most apparent in conflicts in agreement policies and bidding competton processes – usually involving questons concerning the balance between quality and cost. The entrepreneurs’ demand for strengthening their profle is not only based on the need to become valued partners in a dialogue, but also (and predominantly) in their desire to develop their role as entrepreneurs creatng proftable business.

“Cooperaton should be uncomplicated and genuine. The entrepreneur should be aware of the needs of the municipality well in advance, so that the frm could tailor suitable services for the municipality. The cooperaton should be open and happen in real-tme”. (Entrepreneur 114)

When estmates were made concerning the current proftability of the frm, those respondents that on the one hand considered the fnancial proftability of their frm to be very good felt that their current municipal relatonship was based on a positve attude of the municipality towards cooperaton (χ2 (2, N=67)=17.51, df=8, p=0.025). Those entrepreneurs who considered their proftability to be very good also thought that their own municipal relatonship was based on the advantages of mutual cooperaton (χ2 (2, N=67)=17.1, df=8, p=0.029) and that, over the next few years, the relatonship would develop further in a positve manner (χ2 (2, N=67)=17.7, df=8, p=0.024).

Entrepreneurs experience of cooperaton as processes

Entrepreneurs are fully aware of the fact that the demand for private-sector services on the social services market is not yet extensive enough to maintain proftable business. This is because the will to actually pay for such services is virtually non-existent. Citzens stll hold a strong belief in the availability of free public welfare services and society including the decision-makers and the media generally supports the public sector as the primary source of social service producton. In the social services sector, the criteria for buying services are not defned by the experience customers have from their earlier purchases. Instead, they are defned by the social sector managers who, when making the agreements on the buying of services, also set the optons for choices available for the customers. It can also be statstcally proven that a functoning municipal relatonship bears considerable signifcance on the growth of the frm’s familiarity within the municipality (χ2 (2, N=67)=34.6, df=20, p=0.022). It can also be statstcally proven that those entrepreneurs that evaluate the relatonship between the development of the operatng conditons of one’s own frm place considerable signifcance on the necessity of developing the municipal cooperaton (χ2 (2, N=67)=44.2, df=20, p=0.001).

None of the customers of the said frms paid for their services themselves. Instead, they all held agreements to buy service from the entrepreneurs in queston, paid fully by the municipality. The relatonship between the municipality and the entrepreneur is quite vulnerable. In the light of our data it indeed seems obvious that the existence of a law-enforced supervisory duty incorporates a considerable amount of power, which will spread its influence also over other areas of the entrepreneur-municipality interacton than just that defned by the supervisory and regulatory rights.


This study contributes to the understanding of public–private partnerships as a context for cooperaton with municipalites. To further our understanding of the experiences of social entrepreneurs’ cooperaton relatonships with municipalites, we used network metaphors, mixed-methods analysis and our exploratve data. We examined what kind of dependencies exist in the relatonships between social service entrepreneurs and municipal decisionmakers from the social service entrepreneurs point of view, how and why these dependencies are formed and what kind of consequences they may have on the proftability of social service business. Our study focused on operatonal restrictons as dependencies and their effects on the conditons for entrepreneurial opportunites created by the demand-based market mechanism. This focus revealed, as it comes to social service entrepreneurs’ experiences, that in the feld of social service entrepreneurship, there is a need for deeper cooperaton and dialogue between social service entrepreneurs and the social sector managers.

Our fndings suggest, basing on the social service entrepreneurs experience, that although the municipality represents a prerequisite for social service entrepreneurs own business success, their business represent only one alternatve for the renewal of social service structures from the point of view of municipalites. In additon, the existence of a legally enforced supervisory duty incorporates a considerable amount of power in the hands of the municipality. This concentraton influences in turn other areas of the entrepreneur-municipality relatonships and interacton, more than just those areas defned by the supervisory and regulatory rights. Because our results revealed the effects of the imbalance of power between the municipality and the entrepreneurs, we saw how the cooperatve relatonships had many negatve impacts on a practcal level.

Social service entrepreneurship is a promising feld within entrepreneurship research due to its specifc context, which inherently combines social, economic and historical (as attudes, beliefs, and needs) perspectves. By looking at the phenomenon through the contextual lens as Welter (2011) and Watson (2013) suggest, we were given an opportunity to approach the research phenomenon in a new way. For example, in the stream of networking and cooperaton theories there is a tendency to focus on the positve side of networking outcomes and ofen neglect the idea that there might also be a dark side to it.

Our main conclusions contribute to the research questons of the study as follows:

What kinds of dependencies exist between social service entrepreneurs and municipality decision-makers relatonship?

Entrepreneurs need the municipality to succeed in business. On the other hand, they are forced to shape their business concept according to decisions and wishes arising from the municipal sector. However, the relatonship is not only one-sided. The municipality needs entrepreneurs to renew the business structure in social service sector.

How and why are these dependencies formed?

Citzens are used to enjoying free public welfare services offered by the public sector, a noton that is enforced by society including the decisionmakers and the media. Contemporary development is neither increasing the willingness of individuals to actually pay for welfare services nor is it benefcial to creatng proftable business. The municipality as the fnancier can set the conditons and utlize the power positon in ways that leave litle choice to the entrepreneur. The municipality also ultmately decides who is ft to operate in the feld of social services and how the business should be organized. This imbalance in demand and supply means that instead of customers deciding the services they want to buy, the decisions are made by social sector managers.

What kind of consequences may the decisions of the municipality have on the proftability of social service businesses?

The entrepreneurs in the social services sector largely regard themselves as highly dependent on the suggestons of the social sector managers. When entering a market, social services entrepreneurs are forced to compete for the acceptance of the public sector instead of the acceptance of the customers. Entrepreneurs are asked for adjustability, flexibility and high quality in their service concept to meet the needs expressed by the decisionmakers. In the welfare services sector the keys to prevent or enhance the diversifcaton of the structuring are held by the social sector managers.


When assessing the external validity of our research, it is important to consider some limitatons our data may have. The results of our survey suffer, to an extent, from the fact that the sample was both relatvely small and confned to a geographically limited area. However, in a country like Finland, where the traditons of public responsibility for welfare are strong, the number of social service enterprises is stll relatvely small regardless of geographical locaton. The small number of frms is admitedly accentuated in those areas where the populaton is the sparsest, and some of these areas were also found within the borders of the region of our research. Nevertheless, Central Finland represents the Finnish municipalites well, both in populaton density and the traditons of public services. Central Finland provides a thorough representaton of the reality of the Finnish social service context, where strong traditons of public services and the more reform-oriented new aspiratons are mixed in a fascinatng way


This study offers many new avenues for further research. Building on the theoretcal underpinnings and the conceptual defnitons introduced at the beginning of the artcle, we suggest increasing the focus on both the social and economic aspects of development possibilites of social service entrepreneurship. We would also like to reconsider how the social aspect is emphasized in social service entrepreneurship. How do social aspects affect decision-making and the dependencies in relatonships of various forms of venture typologies and business platorms? What does the social aspect mean in cooperaton relatonships and how is it associated with the demandbased social service entrepreneurship? How does this kind of cooperaton between entrepreneurs and municipalites call for new ways to enhance the innovaton capacity and demand-based development of social service entrepreneurship?

It would also be interestng to study what kind of role and influence the social aspect has on social service entrepreneurship and its development. This should include examinaton of how the social aspect affects opportunites for building innovaton capacity and utlizing effectual strategy in social service entrepreneurship. Theoretcally it would be interestng to conceptualize the social aspects of building on the effectual logic of social service entrepreneurs.

When looked at from the social point of view, a further queston emerges: Does the market failure and dependency between social sector managers and social service entrepreneurs call for a new business model and a whole new way of thinking and doing business versus the traditonal, commercial way of doing business?

New social and wellness innovatons are usually generated in the interface between different industry sectors in response to changing customer needs and market demand. There is a genuine call for diversifying products and services by allowing different venture forms to fnd their role in the feld of social service producton. Municipalites have the opportunity to have a signifcant impact on their own area by buying services from local companies, thereby supportng enterprises and encouraging the creaton of new business and service models.


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Biographical notes

Tarja Niemelä, Ph.D, is a research professor at the School of Business and Economics; University of Jyväskylä. Her main area of research actvity encompasses the issue of networking and cooperaton, growth of the frm, venture creaton and learning in organizatons, while the main research interest is focused on rural entrepreneurship and family entrepreneurship. She is an experienced educator and trainer in a business school and other business organizatons.
Sofa Kauko-valli, Ph.D. is adjunct professor at the School of Business and Economics at the University of Jyväskylä, Finland. Her main area of research deals with subjectve experience and constructon of experience in the entrepreneurial context. Her research interests focus on psychology of entrepreneurship and positve psychological interventons.