2.0 WHAT IS A SOCIAL ENTERPRISE?
2.1 Defining the term “Entrepreneurship”
To better understand what social enterprises do, and what social entrepreneurship is, it helps to start with defining the broad term “Entrepreneurship.” Entrepreneurship can be defined as “the process of creating value by bringing together a unique package of resources to exploit an opportunity.” (Forbat, 2007)
2.2 Various definitions of Social Enterprises
This section briefly analyzes the origins of various Social Enterprise-based terminologies like:
i. Social Entrepreneurship
ii. Social Economy
iii. Social and Solidarity Economy
iv. Social Business
A social enterprise has generally been defined as an organization that applies commercial strategies to pursue social and/or environmental ends. This may include maximizing improvesments in human and environmental well-being alongside profits for external shareholders.
“Social entrepreneurship” primarily focuses on the role of ‘social entrepreneurs’, who are often presented as change makers, the role of change agents in their sectors. This term leads to an emphasis on success stories and draws from several existing narratives around commercial entrepreneurs and their achievements – for instance, those from Silicon Valley in the United States of America. Although the term originated in the United States, it has now spread worldwide, and is supported by multiple influential foundations and fellowship organizations.
In contrast, the term “social economy”, which is rooted within a European discourse, focuses on collective enterprises such as co-operatives and group-based initiatives that are established primarily for the attainment of social and economic objectives, emphasizing democratic values and ensuring inclusion and equality principles.
The term “social and solidarity economy” originated in Latin America in the 1980s and refers to a model of political and socio-economic development based on principles of solidarity, participation, cooperation and reciprocity, as opposed to neoliberal development approaches and economic models centered on self-interest, profit maximization and consumerism. (Razeto, 2000; Coraggio, 2011, as cited in Calvo & Pachon, 2014) These terms have since taken diverse forms, embracing both older and newer types of organizations and enterprises, including indigenous collective practices and other associations of the popular economy.
The term “social enterprise” that has been promoted by practitioners and policy makers in the United Kingdom and refers to the use of commercial logic and strategies to achieve social and/or environmental aims by building social partnerships between the public social and business sectors and applying business models and thinking to achieve both financial returns and social impact.
The term “social business”, a term introduced by Muhammad Yunus, the founder of Grameen Bank, refers to a business in which the entrepreneur does not want to make money for themselves, but instead to solve a problem with the business model. According to Yunus, this term is different from social entrepreneurship because a social entrepreneur may not be involved in a business at all- he or she could just be developing a new way to help a neighborhood or improve healthcare and sanitation, for example.
All of these terms are often used synonymously around the world, despite the fact that they portray different discourses and traditions.
2.3. Types of Social Enterprise Models
The category of social enterprise models is one that includes several different types of businesses and organizations, providing for different, relevant financing needs and support. This section briefly outlines the various types and provides examples of each.
2.3.1 Credit union
A finance co-operative that helps people save and borrow money, and also provide access to community finance initiatives.
An example of a credit union would be CO-OP Financial Services, which is an interbank network that connects the ATMs in the United States, with additional locations in Canada and certain US Navy bases overseas. CO-OP Financial Services is the largest owned interbank network in the United States.
2.3.2 Community-based organization
This is an organization with a strong geographical definition and focus on local markets and services. Community-based organizations are organizations with earned-income activities which are set up, owned and controlled by the local community and which aim to be a focus for local development. Their ultimate goal is to create self-supporting jobs for local people.
An example of a community based organization in Latin America is “The Recycled Orchestra”. It is a project developed in one of the poorest slums in Cautera (Asuncion, Paraguay). The aim of this organization is to develop the area and provide opportunities for the local community. Since the commencement of the project, they have set up a music school and a youth orchestra that performs internationally.
2.3.3 Non-Governmental Organizations with commercial arms
This non-profit organization does not rely on grants and donations, but instead earns income through selling goods and services.
The BRAC, an international organization in Bangladesh, works with isolated people in poverty by finding practical ways to increase their access to resources, support their entrepreneurship ventures and empower them to become agents of change.
2.3.4 Social firms
Social firms are businesses set up to create employment for those most severely disadvantaged in the labor market.
“Fifteen” is the name of a chain of restaurants founded in 2004 by Jamie Oliver, a popular British chef. These restaurants employ disadvantaged youth, including those with drug or alcohol problems, the unemployed and the homeless, and ultimately train them to become chefs.
A Cooperative is association of people who work together to meet common economic and social needs through jointly owned enterprises. Cooperatives are organized by and for their members, who are united to provide a shared service from which they all benefit.
The Seikatsu Consumers’ Club Co-op (SC) is a Japanese organization formed in 1965 with headquarters in Tokyo, which is owned by the members (around 307,000), most of them women, and is concerned with food safety. They buy organic food and shun genetically modified organisms (GMOs) and produce their own milk and biodegradable soap.
A fair-trade is an organized social movement that helps producers in developing nations achieve better trading conditions and promote sustainability. A fair-trade organization advocates for higher prices for exporters as well as higher social and environmental standards.
“Divine Chocolate” is an organization established in the UK in 1998 as a company limited by shares owned by the Kuapa kokoo cocoa farmers’ co-operative, the Fairtrade NGO Twin Trading and the Body Shop. Their main aim is to continue delivering chocolate and promote a social business model that supports local cocoa farmers.
Micro-financing is a form of financial service for entrepreneurs and small businesses that lack access to banking and related services. Two main ways of delivering these financial services to such clients are relationship-based banking for individual entrepreneurs and small businesses, and group-based models, where several entrepreneurs come together to apply for loans and other services as a group.
An example of a micro financing service is Mibanco- a Peruvian bank that provides finance to SMEs. It was founded in 1998 in Lima on behalf of an NGO, Acción Comunitaria del Peru.
2.4 The Ecosystem of a Social Enterprise
A social enterprise often has a complex network of several interdependent systems, institutions, and networks that enables it to flourish. Some components of this ecosystem that can be outlined are:
i. The Beneficiaries and Customers
iii. Funding Sources
iv. Academic Institutions
v. Peer Organizations
Beneficiaries and customers form an extremely crucial group within the social enterprise ecosystem, as they use the services that social businesses and nonprofits provide. Customers pay for a good or service, while beneficiaries seek help from an organization. In some social enterprises these two groups may be the same, whereas, in other models, they may be different. Both customers and beneficiaries provide indispensable feedback that helps shape the ways in which social enterprises devise and refine their models and aims to suit the needs of their target society better.
Governments play a key role in outlining collective priorities for addressing social needs. They also provide funding and other support for innovations and initiatives that meet those needs. Government policies may either allow expansion of, or limit the available options for social enterprises – for example, by determining how certain types of these organizations are taxed and regulated.
Funding sources are another extremely crucial element of the ecosystem because they enable social enterprises to start up, and scale up their innovations. These sources of funding include angel investors- wealthy individuals interested in making investments, seed funding firms – companies that invest small amounts of early-stage capital in startups, venture capital firms- companies that pool and invest large amounts of money in emerging businesses, impact investors- who seek both, financial and social returns, as well as foundations and other philanthropic organizations that provide grants to nonprofit social enterprises. The flexibility, availability, and funding conditions may determine which organizations grow and survive, and which fail to get past the initial idea phase due to lack of funding.
Academic Institutions like universities, independent research organizations, and other institutions help support social enterprises by evaluating the impact of different models and analyzing relevant research findings. These institutions work as enabling organizations, opening new channels of communication and collaboration. They also help provide a platform for these social enterprises to spread word about their ideas.
Peer organizations are also an indispensable part of the social enterprise ecosystem. While several enterprises do compete for funding or customers with one another or with other nonprofits or businesses, some share their information and best practices and collaborate to support complementary initiatives, thus establishing a supportive peer environment.
1.0 WHAT MAKES THE SOCIAL ENTERPRISE CONCEPT DIFFERENT?
While commercial entrepreneurs tend to primarily focus on value appropriation, social entrepreneurs pursue different objectives. They focus on value creation from a broader perspective, and believe in the idea that profits are a facilitator but not the sole purpose of the organization. Social entrepreneurs often discover and create new opportunities that are characterized by the idiosyncratic personal relationships that the social sector has to offer. They often take on different approaches to enact these opportunities. For instance, social entrepreneurs often spend less time on aims typically pursued by traditional for-profit businesses like focusing on capturing competitive advantage and increasing market share for their organization, and more time focusing on providing relevant sustainable solutions, much to the benefit of larger groups of stakeholders, and society in general. This means that these social enterprises often worry less about protecting their ideas, as they want their idea to be spread to other geographical regions or target groups, to create as huge an impact as possible.
2.0 TRANSNATIONAL SCALING IN SOCIAL ENTERPRISES IN EUROPE
The scaling of social impact is crucial when it comes to helping reduce social and societal problems. In a study conducted by Bertelsmann Stiftung (2015), where the scaling strategies of 358 European social enterprises were analyzed, more than half of all the social enterprises surveyed explained that within the past three fiscal years, they made significant progress in alleviating the social, ecological and/or societal problem they addressed, as an outcome of their scaling strategies.
It is importance to understand the usage of the term scaling in this context, with respect to social enterprises. In a 2013 publication, Bertelsmann Stiftung defined scaling as “the most effective and efficient possible increase in social impact created by a social enterprise based on its operational model, with the goal of satisfying the demand for the relevant product or service.” This definition stresses the scaling up of social impact, and not just the relative growth of the organization.
It was also observed that social enterprises in Europe operating transnationally tend to scale “step by step”, addressing only one transnationally significant obstacle – especially cultural and geographic barriers – at a time. The enterprises that venture across borders for the most part tend to do so cautiously and reduce their risk by scaling into countries with cultural similarity and/or geographical proximity. That is, they choose a country where they speak the language or a country that is also in Europe. The study also found that transnational scaling is more often done in cooperation with a partner than as a solo venture. European social enterprises usually prefer operating transnationally shoulder-to-shoulder with their partners due to the complexity of the market and their relative unfamiliarity. This affinity for cooperation is an indication of the complementary competencies that should be applied at the time of transnational scaling. (Bertelsmann Stiftung, 2015)
3.0 SUCCESS FACTORS FOR SCALING SOCIAL IMPACT
Building social impact involves having a strategy, and being clear about the activities that the organization wants to deliver. This section briefly analyzes the prerequisites and strategies that social enterprises in Europe deploy for the successful national and transnational scaling of their social impact, as observed in the Bertelsmann Stiftung study (2015).
Prerequisite 1: A viable operational model
A viable operational model is considered a fundamental prerequisite for every attempt at scaling the social enterprise makes. It model corresponds to what in a commercial enterprise would be the business model. This model describes everything from how social programs in practice might look like, to the actual solution used to address the relevant social problem, to the funding of these social programs. “Viable” means in this context that the solution has proven effective in terms of achieving social impact and that it is based on a funding model that is sustainable. A sustainable business model comprises a funding model that ensures it can meet its financial obligations over the short and medium term.
Prerequisite 2: Commitment and readiness
Irrespective of the choice of strategy, the timing of the scaling attempt often plays an important role. Social enterprises should clarify when, and how quickly they prefer their scaling activities to be carried out, as different opportunities arise depending on when the scaling takes place in the organization’s lifecycle.
By scaling up, that is, through the replication and increase of the existing social activities the organization pursues, often the founder’s role in the organization will change, and the social enterprise will begin operating with considerably more employees and collaborative partners. Thus, it is important that the founder start delegating responsibility and taking on a management style suited to the growth the enterprise will tend more toward management and leadership.
Success Factor 1: Management competences
The success of a social enterprise’s scaling activities is heavily dependent on the managers’ management competences. Management competences comprise the ability to apply business-oriented processes and structures in the social enterprise’s daily operations. This includes setting clear strategies and goals, establishing criteria that can be used to measure the success of the enterprise’s social projects, assessing the organization’s current situation and where it wants to go, regular evaluation and documentation of how successful it has been in achieving its goals, solid budget planning and cost controlling, written documentation of key organizational processes, and ongoing improvement efforts. (Bertelsmann Stiftung, 2015). Setting the right priorities, maintaining an overview and avoiding unnecessary effort – and thus ensuring the enterprise scales successfully often requires a high level of robust and competent management expertise.
Success Factor 2: Replicability
The second success factor stresses the replicability of the social enterprise’s operational model and thus, is a core aspect in every attempt to scale. Replicability is as an organization’s ability to reproduce not only its products and services, but also, where appropriate, its structures and processes – nationally and internationally (Alter 2007; Dees et al. 2004; Winter and Szulanski 2001, as cited in Bertelsmann Stiftung, 2015)).
In order to facilitate this replication, the operational model should be tested to understand ways in which its complexity can be reduced through standardization and mechanization, to leave only the core components, thus ensuring easier replicability. Core components are those components of the enterprise’s operational model that generate social impact most effectively.
Success Factor 3: Mobilizing the necessary resources
Understanding how capable the founders/managers are when it comes to generating the diverse resources that the social enterprise will require in the various phases of the scaling process is a critical success factor. If the management can mobilize those resources through third parties and/or through their own social network, i.e. using their own social capital, it is easier for the organization to scale up its social impact. These resources primarily comprise financial capital, human resources, knowledge and other social contacts that could potentially provide access to additional resources or partners. Any scaling attempt means mobilization and acquisition of sufficient amounts of resources in addition to the ongoing day-to-day operations. Social enterprises often use their immediate or indirect social network to generate additional resources. If the founders pitch their solution for a social problem along with their initial successes to potential stakeholders and investors in a ways that are convincing and professional, they can then use that social mission to make a more lasting connection.
As a result, the following questions should be asked at every social enterprise: Which resources do we most urgently need to realize our scaling efforts? Which of these resources do we already have at our disposal? Which partners could provide us with the necessary resources? Which expectations will these partners have if they provide the resources? What will each partner expect from us in return? Can we supply it? Do we want to? (Bertelsmann Stiftung, 2015)
Success Factor 4: Control and dependency: Partners
Partners, allies and investors are often critical for gaining access to resources and, as a result, scaling successfully. The question that arises is, therefore, of how closely the social enterprise will want to work with these partners. The closer the social enterprise and its partner collaborate, the more the partner will be willing to invest in the joint project, thus giving the project more leverage and enabling faster and more successful scaling up of social impact. Often as the partnership deepens, the partner may take control and manage certain activities, thereby reducing the influence of the social enterprise and its ability to take decisions.
According to Bertelsmann Stiftung (2013), greater the founders’ need to take all decisions and exercise control of their organizations’ operations on their own, the less comfortable they will be with others taking the initiative, the less capable they will be of relinquishing responsibility and the less they will allow third parties to influence most strategic decisions. Social entrepreneurs who welcome others taking responsibility of their own accord generally find themselves more likely to favor close partnerships that work out on a case-by-case basis instead. Thus, each social enterprise must find out for itself what is most effective, according to its own specific criteria – without causing strategic drift. If the initial efforts to find a partner are unsuccessful, previous research in the commercial field has shown that it is crucial not to enter into any compromises that do not feel right. In such cases, it is better to firmly pursue one’s goal without a partner, since leaving one’s original path in order to engage in a partnership that is, perhaps, financially attractive, for example, could result in other important trusted and favorably-disposed stakeholders losing interest. Social entrepreneurs must thus, know clearly whether or not they are in favor of, or welcome the increased dependence on these outsiders, the reduced responsibility and influence over employees, and the organization as whole.
Social entrepreneurs who believe that they are an indispensable part of the enterprise, so much that they cannot relinquish control of their responsibilities, must understand that if there is only one founder, his or her need to be in control will automatically result in the employees and the organization as a whole becoming dependent on one individual, a situation that has advantages – and disadvantages. It could significantly reduce the enterprise’s opportunities for growth, since all key decisions are taken by one individual. (Bertelsmann Stiftung, 2015)
Figure 5. shows the dominant strategies social enterprises in Europe employ to scale up their social impact (Bertelsmann Stiftung, 2015) According to the Bertelsmann Stiftung (2015) study, table 2. depicts the relevance of the afore mentioned success factors in the scaling up social impact in these enterprises. The same is depicted graphically in figure 6.
Social impact is a significant, positive change or value addition to society that addresses a pressing social challenge. The development of an impactful social venture begins with understanding the landscape of social challenges that affect people worldwide. Measuring the social impact of a social enterprise is indispensable to understanding the value creation of that social enterprise, and it thus, becomes important for an organization to follow relevant management strategies in order to achieve maximum social impact. This study enlists these relevant management strategies that helped social enterprises in Europe scale up their social impact – an analysis that can be used to deepen our understanding of social impact maximization in social enterprises, and thus make the world a better, more sustainable place to live in. The development of an impactful social venture begins with understanding the landscape of social challenges that affect people worldwide.