A NEW CHINESE PUBLIC WELFARE OPERATION MODE

BASED ON VALUE NETWORK MODEL

Dongpo Xiao, Zhenji Zhang

China Agriculture Film and Television Center, Beijing, China

Beijing Jiaotong University, Beijing, China

Zhihong Tian, Jingyuan Zeng, Feng Cao

Beijing Jiaotong University, Beijing, China

Sinotrans Guangdong CO.LTD., Guangdong, China

General Office of CPC Qingdao Committee, Beijing, China

Keywords: Value network theory, Operation mode, Public welfare organization, Fund raising ability, Increment of

value.

Abstract: Chinese public welfare organizations have some main defects which are backward operation mode and low

fund-raising capacity and others. In order to solve these problems, we propose an innovation model based

on the value network theory. The model draws on the evolution context which is from the value chain

theory to the value network theory, breaks through the traditional public welfare models which are "donate”

and "give". We propose a value network model of the Chinese public welfare operation mode and point out

two features of public welfare value network —" customer-focused " and " increment of value ". Customers

"consume" public welfare goods to get economic and psychological benefits, and pay the costs of the public

welfare system which is the input of the public welfare value network. Based on the increment of value, it

provides resources to the recipients system as the system output. Public welfare organizations achieve the

increment of value of system with the means of public welfare operation, as the material basis for the

system output. Our research provides a new way to renovate the operation mode of the Chinese public

welfare organizations and to improve the ability of fund raising.

1 INTRODUCTION

Chinese public welfare organizations were born in

the planned economy era, and they have not been

given the environment and duties for

market-oriented operation. Even today—the second

decade of the 21st century, many new public welfare

organizations also have the idea of the planned

economy. As the government-affiliated agencies,

one of their hands obtains materials from the state

and enterprises directly, and the other hand directly

sends these materials to people who need help.

Now, the simple public welfare operation mode

of "donate" and "give "are facing the enormous

impacts of the market and customers, and the

impacts are shown as follows. Firstly, the

organizations alone can not meet the more and more

diverse interest and demands of customers. Secondly,

with more and more public welfare organizations

entering the market, the market is more competitive,

and the trend of industry division began to appear.

Thirdly, the pressure of increasing the value of

donated material is increasing. Under the complex

market environmental conditions, the maintenance

and development of customers and meeting the

competition have become common problems faced

by public organizations.

2 FROM THE VALUE CHAIN TO

THE VALUE NETWORK

In western countries where the market economy is

highly developed, public welfare organizations and

510

Xiao D., Zhang Z., Tian Z., Zeng J. and Cao F..

A NEW CHINESE PUBLIC WELFARE OPERATION MODE BASED ON VALUE NETWORK MODEL .

DOI: 10.5220/0003585705100514

In Proceedings of the 13th International Conference on Enterprise Information Systems (SSE-2011), pages 510-514

ISBN: 978-989-8425-53-9

 2011 SCITEPRESS (Science and Technology Publications, Lda.)

enterprises are treated equally, and the

director/chairman/president himself of many

charitable foundations is also a successful

entrepreneur. The operational concepts,

organizational structure and management system of

the foundation and these of business are exactly the

same. This is because that they keenly aware that the

operation purposes of public welfare organizations

and business are different—the operation purpose of

public welfare organizations is to achieve maximum

social benefit and that of enterprises is to achieve

maximum economic efficiency, but the processes

pursued are not different — the competition and

integration of social resources. Therefore, public

welfare projects and enterprise products are both the

manifestations of resources integration. The business

operations can also be applied to public welfare

organizations. Can we find the answer to solve the

problems of public welfare organizations from the

company?

2.1 The Value Chain Theory

Value Chain theory was proposed by Michael E.

Potter in 1985. He considers that the company's

value creation process consists of a number of

linked corporate activities which make the raw

material into final products, and continuously

transfer the value in use to meet customer needs and

realize increment of value.

Within 20 years after the value chain theory was

brought forward, the theory has been considered as a

powerful weapon. The coordination among the

internal organization of enterprises, the value chain

alliances among enterprises and the evaluation of

competitive advantage derived from the value chain

theory have become new competitiveness strategy of

enterprises

However, because the information technology

and other technological rapidly are developing,

economic globalization speed up, and market

demands change quickly, the survival of enterprises

may more and more rely on the innovative

capabilities and the external response and

coordination.

In the new situation, the value chain theory can

not provide the basic framework for modern

e-business innovation strategy, and the thought of

profit pursuit is more and more difficult to meet the

diverse needs of customers. And because of too

much attention to their own commercial enterprise,

product and market, they easily overlook the role

and status in the market collaboration network and

they will be marginalized by the market.

2.2 The Value Network Theory

In Adrian Slywotzky’s book "profit zone", he

proposed the value network theory to accommodate

the development and change. In the value network

theory, the value of products or services is provided

by each network member, and the value created by

each member of the network is an integral part of

the overall value. The interaction of the value

improves the collaboration efficiency and ultimately

benefits of the value network. The most important

feature in the value network theory is the increment

of value in the cooperative system. In addition, one

feature of the value network is customer-focused.

When the value network theory was put forth, it

quickly replaced the value chain theory, and became

the strategic thinking for enterprises in many

industries. Under the guidance of the value network

theory, companies began to organize other nodes in

the industry net with the “customer focused”.

According to their advantages of labor division, they

reconstructed the industrial cooperation system to

achieve the increment of value.

3 THE TRADITIONAL PUBLIC

WELFARE OPERATION MODE

Known from the above, Chinese public welfare

organizations and businesses face the same

challenges, which are diverse needs of customers,

changes of environment, industry competition,

increasing pressure of increment of value.

Enterprises began to transfer the thinking from the

value chain to the value network. Can public welfare

organizations also draw lessons from the value

network theory, and get rid of the original simple

model of "donate" and "give" to find a new

development model?

Figure 1 is the process of enterprises’ increment

of value. In the figure, A represents the customer's

investment which is also the input of the system. Z

is the use value which the enterprise alienates to the

customer, which is also the repay on the customer’s

investment. X is the remaining resources after the

system operation, and here it is the company's

profits—the output of the whole system. The rate of

the increment of value is expressed by a leverage

ratio B. In addition, the cost of business operation is

expressed by Y.

According to figure 1, there is a balance

equation:

A·B-Z-Y=X (1)

A NEW CHINESE PUBLIC WELFARE OPERATION MODE BASED ON VALUE NETWORK MODEL

511

Figure 1: The process of enterprises’ increment of value.

In the equation, there are:

1) A>0

2) Y>0

Assumptions:

1) The operation of the enterprise system can

increase value, and that is B> 1;

2) Enterprise achieves the use value alienation of

customers, and that is Z> 0.

Obviously, figure 1 and equation 1 and its

subsidiary assumptions are also applied to public

welfare organizations.

Figure 2 is a traditional public welfare operation

mode. The only difference with figure 1 is that the

output of system becomes a donation from profits,

which is due to the different ultimate goal of public

welfare organizations and companies. The purpose

of enterprises is to achieve the highest income with

minimum cost and the output is corporate profits.

However, the purpose of public welfare

organizations is to achieve the highest social value

with minimum cost, and the output will be donated

to the recipients.

Figure 2: The traditional public welfare operation mode.

There is also a balance equation in figure2:

ORCLI =

−

−⋅

(2)

In the equation, I indicates the customers’

donations, as well as the input of the system. R is a

return that the system provides to customers. O is

the resources which can be used to service the

recipients of public welfare system after the system

operation, and it is the output. Resources can

increase value in the system, as a transistor in a

circuit system, and it is represented by leverage—L.

In addition, the cost of the system operation is

represented by C, the same as the resistance of

circuit system.

In the equation, there are:

1) I.>0；

2) L>1；

3) R>0；

4) There is the scale effect in the operation of

public welfare organizations. With the expansion of

the scale, the marginal cost reduces. In order to

facilitate the discussion here, we assume that C (cost)

is a constant and C> 0.

In addition, we introduce the economic system

hypothesis of "economic man" into the paper. In the

hypothesis, we treat people as "economic animals ",

and we think all actions of human are designed to

meet their own interest and people want to pay as

little as possible to obtain maximize harvest. In the

public welfare system, people pursue economic

value and social value at the same time. This means

that only if what the customer obtains is not less

than what he donates, the donation could take place.

In here, the return is not only financial rewards, but

also honor and psychological rewards. The equation

is as follows.

≥ (3)

The more economic value and social value

customers get, the more donation willing the donors

have. The economic value and social value given to

the customers from the public welfare organization

and the donation are positively correlated. The

equation is as follows.

（

is a constant） (4)

From the equation 2, 3, 4, we can get:

CLRO −

−

)1(

(5)

In the equation, C，

are constants, and C>0.

Because the goal of public welfare organizations

is maximize social value which is max O. From the

equation 5, there is:

max (max , max )Of R L

(6)

R represents the return of donors from public

welfare organizations. L represents the leverage of

public welfare which is the maximize value of

system input resources. In new economic situation,

traditional public welfare industrial chain can not

last long, because it can not meet the requirements

of the formula 6. The value network theory is the

best way to implement the formula 6.

4 PUBLIC WELFARE VALUE

NETWORK

David Bouvet describes the value network

management model as a co-ring structure consisting

of customers, businesses, suppliers and

manufacturers. Wu Haiping introduces the value

network theory into the upgrading of the enterprise

value chain, and proposes a dynamic competitive

ICEIS 2011 - 13th International Conference on Enterprise Information Systems

512

enterprise value network model. Jiang Zhenjian

introduces the value network theory into

construction industry, and proposes a supply chain

collaboration model based on value network of

construction enterprises. Zhao Xuefeng, Dong

Shuang and Li Dianwei introduce environment

structure of value network into telecommunication

service industry. Zhao Xuefeng proposes the

collaborative innovation partner selection theory of

telecommunication products based on value network

theory. Dong Shuang and Li Dianwei propose the

innovation mode of operation theory of the

telecommunication industry. We introduce the ring

model into public welfare industry, and change it to

build the value network model of public welfare

operation mode. The model is shown as figure 3.

Figure 3: The value network model of public welfare

operation mode.

There are two important points in the mode.

1) Customer-focused. Customers "consume"

public welfare goods to get economic and

psychological benefits, and pay the costs of the

public welfare system which is the input of the

public welfare value network.

2) Based on the increment of value, it provides

resources to the recipients system as the system

output. Public welfare organizations achieve the

increment of value of system with the means of

public welfare operation, as the material basis for

the system output.

According to the formula 7 and figure 3, in order

to achieve the maximization of R, public welfare

organizations should establish a thinking of

customer-focused, and provide both moral and

material reward, which must be greater than or equal

to the customers' donation amount. The more return

customers get, the more donation willing they have.

In the actual operation of public welfare projects,

public welfare organizations must provide two

aspects of both material and spirit rewards. On the

one hand, they should strive to improve public

confidence and information transparency of public

welfare organizations, and mine moving and typical

stories to increase the power of spirit. On the other

hand, by the name of public welfare, they should

integrate social resources with low or even zero-idle

costs, and then package and classify these resources

to give to the customers as feedback.

In order to achieve the maximization of L, public

welfare organizations should strive to achieve the

increment of value of goods donated by customers.

This increment of value is different from the capital

operation and financial operation in financial sense.

The goal of the increment of value in public welfare

is to achieve a higher integration level of social

resources by the operation of public welfare way

than commercial operations. Specific operation is to

change commercial products into public welfare

products, and to make customers participate in the

commerce and public welfare process at the same

time, during which there is no additional burden or

economic costs for these customers and no changes

in the existing deal flow. Public welfare industrial

and commercial products are seamlessly combined.

Take the project — "Love orchard action for

helping handicapped" launched by Beijing

Foundation for Disabled Persons as an example. The

project is a public welfare projects based on public

welfare operation value network model. The project

called on people to adopt fruit trees and participate

in actions for helping handicapped.

In the aspect of customers’ return, the fruits from

trees adopted by one are also owned to him. The

Foundation will also provide exquisite packaging of

fruits, in which there are practical art works made by

handicapped and theatrical performance tickets, etc.

Customers have received material rewards which are

higher than the donation. At the same time, the

orchard also has arranged for the employment of

handicapped. The caring people and handicapped

could interact when picking fruits, and help them

integrating into society. The project enhanced the

actions' transparency and credibility, return

customers spiritual reward. In the aspect of

increment of value, using leverage of customers’

donation, the Foundation brought the media,

cooperative enterprises, caring people, caring

agencies and government along. Through the

interaction of resources, a stable, open and huge

cooperation system formed, and the increment of

value is large.

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5 CONCLUSIONS

The traditional public welfare operation mode—

"donate " and "give " can not resolve the problem of

the return for customers and increment of value, and

the mode faces huge impact from the market and

customers. However, the public welfare operation

value network model can solve the both problems,

and provide a new way of operation mode and

resource development mode for public welfare

organizations.

REFERENCES

Chi Xiaoying, System research on value net and its node

value chain, PhD thesis, Shanghai Jiao Tong

University, 2003.

Wu Haiping, Studies on value nets based on dynamic

competitive advantage - rebuilding value chain after

China's entry into WTO, PhD thesis, Shanghai Jiao

Tong University 2003.

Jiang Zhenjian, Study on the Supply Chain Collaboration

of Construction Enterprises Based on Value Net

Theory, PhD thesis, Tongji University, 2003.

Adrian Slywotzky, The Profit Zone : How Strategic

Business Design Will Lead You to Tomorrow's Profits

[M], Boston, Three Rivers Press, 2002.

Michael E. Porter, Competitive Advantage, Freepress

1990-09-01.

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