Understanding Value Creation in Public‐Private Partnerships: A Comparative Case Study

• Date: 01 September 2017
• Published date: 01 September 2017
• DOI: http://doi.org/10.1111/joms.12270
• Author: Luciano Greco,Elisa Villani,Nelson Phillips

Understanding Value Creation in Public-Private

Partnerships: A Comparative Case Study

Elisa Villani, Luciano Greco and Nelson Phillips

Free University of Bozen – Bolzano; University of Padua; Imperial College Business School

ABSTRACT Public-Private Partnerships (PPPs) are an important form of hybrid organization

that may, if properly designed and managed, generate innovative solutions to complex

problems by combining different institutional logics. Using data from a comparative case

study of the creation of two PPPs in the Italian healthcare sector, we draw on ideas from

business model design and organizational hybridity to explore how complexity can be

managed inside PPPs and how this drives the creation of value for stakeholders. We link the

literature on hybrid organizations with the one on business models by looking at the

organizational mechanisms and processes that are implemented in PPP project governance,

assets and processes. We go on to develop a theoretical model showing how effective business

model design can help to bridge different logics and create value for stakeholders in the

creation and operation of PPPs.

Keywords: business model design, healthcare, hybrid organizations, institutional logics, PPPs

INTRODUCTION

Following the recent financial crisis, many countries are struggling with significant

budget deficits and growing government debt. This new reality has accelerated the

development of new organizational forms aimed at providing a framework for inter-

organizational collaboration between governments and other types of organizations for

the provision of social goods (Cravens et al., 1996). In particular, governments have

been pushed to rely more and more on various forms of Public-Private Partnerships

(PPPs) aimed at accessing resources and capabilities from the private sector and, in turn,

introducing innovation and improving the value received from government spending.

PPPs are project-based organizations involving collaborators from the public and pri-

vate sectors. More formally, they are ‘long-term collaborative relationships between one

or more firms and public bodies that combine public sector management or oversight

Address for reprints: Elisa Villani, School of Economics and Management, Free University of Bozen –

Bolzano, Piazza Universita, 1 – 39100 Bolzano-Bozen, Italy (elisa.villani@unibz.it).

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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 54:6 September 2017

doi: 10.1111/joms.12270

with private partners’ resources and competencies for the direct provision of a public

good or service’ (Kivleniece and Quelin, 2012, p. 273). This definition clearly delineates

key features of PPPs including voluntarily shared resources and competences, and public

goods as the output of the collaboration (Mahoney et al., 2009).

A growing literature has begun to investigate PPPs. While this literature is spread

across several research streams including organizational economics, public administra-

tion, and project management (Hodge and Greve, 2007), the focus has been surprisingly

narrow and has concentrated mostly on a set of related economic issues such as under-

standing how asymmetric information and contract incompleteness affect the perform-

ance of public investments in PPPs, and investigating the way political institutions and

political incentives balance collective and specific interests in PPP implementation

(Engel et al., 2014). But as PPPs are a fundamentally new organizational form

(Rao et al., 2000), we still have much to learn about their management and about what

underpins their ability to create value for stakeholders.

Institutional complexity – derived from the interaction of organizations that are car-

riers of diverse institutional logics, such as public administration, financial institutions,

construction companies, facility managers, consultancies, etc. – represents a key charac-

teristic of PPPs. In fact, this complexity is the source of the potential collaborative

advantage of these forms. Indeed, the diverse resources and capabilities brought into

these collaborations are a function of the institutional and organizational differences

among the collaborators and allow these hybrid organizations to create value in a way

that each of the partners alone could not (Borys and Jamison, 1989).

At the same time, such differences also generate tensions and confusion in the hybrid

organization (Rao et al., 2000). From this perspective, solving the organizational and

strategic challenges around partnerships that span different sectors is both inherently dif-

ficult and fundamental for a successful outcome (Saz-Carranza and Longo, 2012). Fur-

thermore, these challenges are particularly acute at the point when the PPP is being

created and the organizational form is first negotiated and put in place.

At the same time, we have a limited understanding of the mechanisms that support

effective functioning, avoid inefficiencies, and ensure survival during and after the estab-

lishment of a PPP. More specifically, we know little about the internal processes that

allow them to create value – defined as ‘the sum or entirety of benefits obtainable from

the exchange’ (Kivleniece and Quelin, 2012, p. 274) – for stakeholders and society as a

whole. Thus, in these new hybrid organizational forms, business model design becomes

extremely important if we are to understand the key elements underlying cooperation,

partnership, and joint value creation (Magretta, 2002; M€akinen and Sepp€anen, 2007;

Zott et al., 2011). As Kivleniece and Quelin (2012) argue, PPPs are value-creating

organizational forms when they allow for the resolution of externalities, resource com-

plementarity and recombination, or governance efficiency gains (see also Rangan et al.,

2006). But how exactly do PPPs do this?

In order to better understand value creation in PPPs, we conducted an in-depth com-

parative case study of the establishment of two PPPs, one more successful in creating

value and one less successful, in the healthcare sector in Italy. Our goal was to answer

the following research question: How can key business model characteristics moderate

the challenges of institutional complexity and support value creation in PPPs? By

877Understanding Value Creation in PPPs

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C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies