Social Entrepreneurship And Social Enterprise Research Paper

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Social entrepreneurship and social enterprise are topics that have sparked considerable growing interest among leaders in the business, nonprofit, and government sectors as well as among academics in management, nonprofit, and public administration or policy programs. Interest in the academic community can be traced to the late 1970s, which saw the beginning of an agenda among those studying nonprofits and voluntary action to begin examining the relations between the nonprofit, for-profit, and government sectors. This has grown into a major academic focus and now includes theory and research on the limits of each organizational form; their interactions in industries where they coexist; and the blending, blurring, and combining of market and nonmarket structures and organizational forms. Social entrepreneurship touches upon a number of the issues currently being discussed in departments of economics, sociology, and public affairs. More recently, there has been a significant growth in the number of university centers established for the study and teaching of social entrepreneurship, typically in business or public affairs schools in centers for nonprofit study. Among nonprofit practitioners, the interest in social entrepreneurship has focused on the generation of earned income. Nonprofits have a long history of earning income. Nonprofit commercial activities in the past, however, were primarily designed to provide services to constituencies the organization was dedicated to serving (i.e., establishing a used clothing store for the poor). In the United States, this picture changed in the early 1980s. The economic slowdown and social service budget cuts during the Reagan administration led a number of nonprofits to either consider or initiate earned income ventures to make up for lost government funding. In 2000, the nonprofit sector became concerned about the possibility of further budget cuts from the George Bush administration. In addition, conservative outlooks in and out of government brought a rise in calls for both the nonprofit and public sectors to invest in market-based solutions to social problems, including paying more attention to earned income as a source of financial sustainability. Accompanying this has been a proliferation of consultants and support organizations as well as a variety of funding sources for these market-based solutions. For example, 2007 marked the eighth meeting of the Social Enterprise Alliance. The meeting is a major gathering of those devoted to promoting nonprofit commercialization. The interest in social entrepreneurship has recently taken on global dimensions as well. In addition to those in the United States and Western Europe, active social entrepreneurship agendas can be found in Eastern Europe, Latin America, and Asia. A number of global-level supply-and-demand side factors have led to the increasing interest. On the supply side, Nicholls (2006) cites increased global per capita wealth, improved social mobility, an in-crease in the number of democratic governments, increased power of multinational corporations, better education levels, and improved communications. Demand-side factors include environmental and health crises, rising economic inequality, spread of a market ideology, and a more developed role for nonprofit organizations. Because the growth

of interest in social enterprise and social entrepreneurship is relatively recent and there are a variety of actors and arenas involved in discussion and practice, it is not surprising that there are a variety of outlooks, opinions, and conceptual formulations. Terminology is an issue. For example, the terms social entrepreneurship and social enterprise are sometimes used interchangeably but other times are not. This has been and continues to be a source of confusion and contention. The term social entrepreneurship is problematic in that at this point, there is no agreement on major aspects of a definition. Essentially, however, when the term is used in a manner consistent with the term entrepreneurship, it refers to a process of the development of a new product or an organization to serve a social need. In contrast, the term social enterprise is a narrower concept and there is general agreement on its definition. It refers to methods of commercial or earned income generation. Some commentators and practitioners hold social enterprise as a key component, if not the essence, of social entrepreneurship, but others do not. In addition, most of the discussion to date has been about social enterprise and not about social entrepreneur-ship, although this is changing rapidly. As well, a variety of social-enterprise practices and techniques have been developed, which are being used by managers, promoted by consultants and professional schools, and funded by foundations and others. This research-paper will proceed as follows. We will first review some basics of entrepreneurship. We will then define social entrepreneurship, examine how it is related to previous thought on entrepreneurship, and consider some of the special considerations entailed in the management of social entrepreneurship. We will conclude by discussing social enterprise and its management.

Entrepreneurship

Before discussing social entrepreneurship in any detail, it is useful to consider entrepreneurship as it has been conceptualized and practiced. This is important because the evolving discussion of social entrepreneurship takes the previous conceptualization of entrepreneurship as its starting point. Therefore, at the very least, all of the factors associated with entrepreneurship are potentially relevant to social entrepreneurship as well. A further question would be the degree to which social entrepreneurship should be conceptualized and practiced differently. This leads to the possibility of a useful distinction between “social” entrepreneurship and, as it is now sometimes termed, “conventional” or “commercial” entrepreneurship. Entrepreneurship was first defined in the 1700s. Over the years, a number of different viewpoints toward and definitions of entrepreneurship have developed. Currently, no single definition is accepted by all. Definitions have emphasized a broad range of activities, including the bearing of uncertainty, the creation of new organizations, the exploration of new opportunities, the bringing together of the factors of production, and the production of new combinations. However, two general orientations toward entrepreneurship have been identified. One is focused on the actions of individuals in the market economy. The economist Richard Cantillon (circa 1730) defined entrepreneurship as self-employment. Entrepreneurs buy at current prices to sell at (hopefully higher) prices in the future. They are, consequently, the bearers of risk. Following this orientation, in 1816 Jean Baptiste Say defined the entrepreneur as one who utilizes all means of production to create profit through the value of the products that are thereby created. These early proponents of entrepreneur-ship laid the foundation to what has become known as the Austrian School approach to entrepreneurship. The current form of this approach is expressed by Israel Kirzner, who holds that an entrepreneur is motivated by profit and seeks to recognize and act upon market opportunities. This is consistent with Peter Drucker’s definition of an entrepreneur as someone always searching for change, responding to it, and exploiting it as an opportunity. An alternative orientation to entrepreneurship was put forth by Joseph Schumpeter in the 1930s. Schumpeter’s focus was on the entrepreneur as an innovator, on the creative drive itself, and on the impacts of entrepreneurship on industry and the economy. The entrepreneur develops new combinations of goods, services, and organizational forms in the service of a relentless drive to create (to found a “private kingdom” in Schumpeter’s terms). This orientation has been dubbed “high-level entrepreneurship” and linked historically to the birth of new industries and the concomitant death of existing ones through a process of creative destruction. Entrepreneurship, therefore, can be conceptualized on what could be termed a macro (industrial or Schumpeterian) level and a micro (individual, organizational, or Kirznerian) level. It can also be viewed as involving a wide range of complex phenomena including innovation, the management of change, new product development, small business management, and industry evolution. In addition to various parts of the management field, entrepreneurship is relevant to the fields of economics, sociology, history, and psychology.

This discussion highlights one of the problems that has been noted in the field of entrepreneurship. The definition and range of topics covered is so broad that some question whether there can ever be a theory of entrepreneurship. Despite this lack of specificity, the concept is widely used. The Academy of Management Entrepreneurship Division’s (2007) domain statement specifies, “The Entrepreneurship Division’s domain is the creation and management of new businesses, small businesses and family firms, as well as the characteristics and special problems of entrepreneurs.” The division’s major topic areas include

  • new venture ideas and strategies;
  • ecological influences on venture creation and demise;
  • the acquisition and management of venture capital and venture teams;
  • self-employment;
  • the owner-manager;
  • management succession;
  • corporate venturing;
  • the relationship between entrepreneurship and economic development.

In addition, the number of colleges and universities offering courses related to entrepreneurship is extensive (it was put at over 1,600 in 2005) and textbooks abound. Most of this academic activity is oriented toward present and future managers in MBA programs and specifically covers aspects involved in creating, starting, financing, and growing new ventures. The entrepreneur (on this micro level) is thought of as someone who perceives an opportunity and creates an organization to pursue it. The process is generally conceived of as involving several stages, including

  • a creative or innovative idea that is recognized as an opportunity;
  • the decision to start a new organization or venture to exploit the opportunity;
  • the development of business, marketing, organizational, and financial plans;
  • the acquisition of initial capital;
  • strategies for market entry;
  • strategies and resources for growth; and possibly
  • the process of ending the venture.

As can be seen from this listing, in the entrepreneurial process the focus is not primarily on the innovative idea itself, but upon its recognition and development as part of an opportunity. Three components have been held to be critical (Timmons & Spinelli, 2003): the opportunity, the entrepreneur, and the resources needed to start the organization and foster its growth. The business plan integrates these elements into a strategic direction for the organization. Within this process, factors at the individual, social, organizational, and environmental levels are relevant. Personal attributes such as locus of control or experience may interact with environmental opportunities or role models to influence the innovation stage. These and other personal factors such as job dissatisfaction or commitment, social factors such as networks and family, and environmental factors such as resources and competition may influence the decision to launch the venture. Market, resource, and other environmental factors, personal managerial talent, and organizational capabilities will influence the planning, initial implementation, growth, and end stages. All of these factors will be relevant to social entrepreneurship as well.

Social Entrepreneurship

Definitions of the term social entrepreneurship and social entrepreneur vary in terms of the details they include. A scan of current definitions of social entrepreneurship reveals definitions such as the following:

  • Creation of viable socioeconomic structures, relations, institutions, organizations, and practices that yield and sustain social benefits
  • Use of entrepreneurial behavior for social ends
  • Art of simultaneously obtaining both social and financial return on investment

Definitions of social entrepreneurs include

  • change agents in the social sector;
  • people who take risks on behalf of the people their organization serves;
  • path breaker with a powerful new idea who combines visionary and real-world problem-solving creativity, has strong ethical fiber, and is totally possessed by his or her vision for change; and
  • an individual who uses earned-income strategies to pursue social objectives.

Paul Light (2006) has noted a number of limitations in the definitions that have been given. For most, the focus is almost always on individuals as change agents, not on groups or organizations. Social entrepreneurs usually work in the nonprofit sector and are invariably only interested in new programs or solutions, which they generally want to start from scratch. This is opposed to creating innovations through adapting existing programs. Throughout, there are only occasional references to management practices. In addition, social entrepreneurs are viewed as entrepreneurial at all time. Finally, the use of social enterprise (commercial income) as a key factor is stressed. Light offers a broader definition. In his definition, a social entrepreneur is an individual, group, network, organization, or alliance of organizations that seeks large-scale change through pattern-breaking ideas in how governments, nonprofits, and businesses can address significant social processes. In this definition, social entrepreneurs

  • do not have to be individuals;
  • seek sustainable, large-scale change;
  • can develop pattern-breaking ideas as to how or what gets done;
  • exist in all sectors (nonprofit, for-profit, and government); and
  • need not engage in social enterprise to be successful.

In addition, the quantity of social entrepreneurship can vary greatly across individuals or entities and the intensity of social entrepreneurship can and does ebb and flow over time as circumstances change. This discussion raises a number of central questions, three of which will be discussed in the remainder of the research-paper. The discussion will bring to the forefront major management considerations. We will consider these questions:

  • How is social entrepreneurship related to its predecessor (commercial or conventional entrepreneurship)?
  • What are the implications for social entrepreneurship of a macro (industry-level) perspective on entrepreneurship?
  • What are the implications for social entrepreneurship of a micro (individual- or organizational-level) perspective on entrepreneurship?

Social And Conventional/Commercial Entrepreneurship

The question as to the degree to which there are similarities and differences between the new conceptualization of social entrepreneurship and entrepreneurship as it has been previously conceived has implications for theory as well as practice. In addressing this question, a first step would be to examine the connotations of the term “social,” as this is what is proported to separate the two types of entrepreneurship. This implies that we need to, and can, clearly separate the social from the nonsocial. In reality, most activity is probably best seen as located somewhere along a continuum that ranges from completely social to completely nonsocial (Nicholls & Cho, 2006). Nevertheless, social entrepreneurship is held to entail activity seeking to advance social objectives. This is accomplished by providing benefits for some group or collective—in any case, benefits that jointly go to more than one individual. Its opposite, private objectives, implies the intention of providing benefits that are restricted to an individual separately from other individuals. An open question, of course, is the degree to which providing private benefits results in beneficial outcomes for the collective. While conceptually clear, this brings up a number of issues in practice that managers may have to confront. As many have noted, social interests are heterogeneous, which means that there are potentially incompatible values and goals that can result in fundamentally different and conflicting social objectives. This raises a number of complex questions, including who gets to define what any given social interest is (the entrepreneur or some other group of citizens) and whose social interests are ultimately pursued and at whose expense. This is especially problematic at the macro level of social entrepreneurship, where there may clearly be some who benefit more from large-scale changes than others. This may be especially likely in projects involving developed and developing countries, where goals and values are most likely to be widely divergent. These issues seldom enter into current conversations about social entrepreneurship. The “social” is usually treated as an obvious and unproblematic matter requiring no further examination or explanation (Cho, 2006). Most discussions about social entrepreneurship have had a procedural focus, concentrating on the nature of the particular behaviors that make the pursuit of social ends entrepreneurial. Given that we can identify a set of goals that can be considered social, the next question is how an entrepreneur would approach them as opposed to strictly commercial objectives. If someone wanted to be a social entrepreneur, it would not be very clear from the literature how he or she should go about it. One major question is to what degree the person would, or should, do the same things that a for profit, or commercial, entrepreneur would do. What can social entrepreneurs learn from the study and practice of commercial entrepreneurship? Austin, Stevenson, and WeiSkillern (2006) provide a detailed and useful examination of this question. They define social entrepreneurship as innovative social value creation. They hold that differences between social and commercial entrepreneurship will be the result of four major variables:

  • Market failure—will create different entrepreneurial opportunities for social entrepreneurship and commercial entrepreneurship
  • Mission—results in fundamental differences between social entrepreneurship and commercial entrepreneurship
  • Resource mobilization—will require different management approaches in social entrepreneurship and commercial entrepreneurship
  • Performance measurement—social entrepreneurship will necessitate the measurement of social value in addition to commercial value

They base their discussion of the management implications of social entrepreneurship on Sahlman’s PCDO model (1996), which holds that the management of entrepreneur-ship necessitates the creation of a dynamic fit between People (P), Context (C), the Deal (D), and the Opportunity (O). They maintain that social entrepreneurship differs from commercial entrepreneurship in each of these elements. Opportunity differences are most distinct due to differences in organizational missions and responses to market failure. The impact of the Context varies because of the way that the interaction of mission and performance measurement influences management. The role of People (and other resources) varies due to differences in the difficulties in resource mobilization. Finally, the terms of the Deal are fundamentally different because of the way resources must be mobilized and the ambiguities of performance measurement. Austin, Stevenson, and Wei-Skillern (2006) conclude that the PCDO framework needs to be adapted for social entrepreneurship in several important respects. Most importantly, the social purpose of the activity needs to be stressed. They recommend replacing the (commercial) Deal with what they term the “Social Value Proposition”— a conceptualization of the social value or benefits to be produced. In addition, People should be replaced with economic and human resources in order to highlight the distinction between these two types of resources and their disparate requirements for the management of social entrepreneurship. The considerations of the differences between social entrepreneurship and commercial entrepreneurship involve a number of implications for practice. Management will need to pay attention to the following:

  • The centrality of social value—this must be the first and foremost consideration
  • Organizational alignment—alignment with external actors may be needed to deliver social value
  • Organizational boundaries—boundaries may need to be more flexible
  • Cooperation—social value may be enhanced by cooperation instead of competition

Social Entrepreneurship And The Macro Perspective

With its focus on industry- or economy-wide changes, a macro perspective leads to a view of social entrepreneurship as a process aimed at making large-scale system changes. This would be accomplished through entrepreneurial innovations that have the potential to address significant and widespread social problems. This definition of social entrepreneurship is held and promoted by funding and support organizations, for example,

  • Skoll Foundation (2007): Social entrepreneurs are society’s change agents, pioneers of innovations that benefit humanity. Motivated by altruism and a profound desire to promote the growth of equitable civil societies, social entrepreneurs pioneer innovative, effective, sustainable approaches to meet the needs of the marginalized, the disadvantaged, and the disenfranchised. Social entrepreneurs are the wellspring of a better future.
  • Ashoka (2007): Social entrepreneurs are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change.

What sets social entrepreneurs in this tradition apart from conventional social service providers is that social entrepreneurs will use creativity, innovation, and resourcefulness in nontraditional, pioneering, and disruptive ways that aim at large-scale, systemic change. In order to have the significant, large-scale, systemic impacts sought, however, innovations must be developed and implemented on an appropriate scale. In the social entrepreneurship literature, this process is referred to as scaling for impact (or scaling up). A number of alternatives have been proposed for scaling up, or increasing, the impact of a social venture once it has been developed. According to the Center for the Advancement of Social Entrepreneurship (2007), in the most general sense, “Scaling social impact is the process of closing the gap between the real and the ideal condition as it pertains to particular social needs or problems. Scaling social impact can occur by increasing the positive social impact created, decreasing the negative social impact of others, or decreasing the social need or demand.” Increasing social impact is the technique most often discussed. Scaling up has been viewed as a process that can be used for programs or services, organizational models, or principles. In this process, a social entrepreneur will first develop a concept (the beneficial program, model, or principle) and demonstrate its utility and effectiveness on a small scale and at a local level. Modest expansion can then be used to develop experience and techniques that will enhance efficiency. Finally, full-blown scaling up through wide-scale expansion will provide the large-scale impacts sought. This can be accomplished through providing significantly more services (with the goal of increasing the quantity or quality of impact), diversifying the communities served or services offered, or expanding geographically. Geographic expansion, or branching, involves establishing new service sites in other geographical locations operating under a common name and using a common approach. Branching can prove beneficial in a number of ways. It may result in much wider social impact through providing access to whole new communities. Also, it may enhance the chances of organizational or program survival by providing access to new resource providers or partners. Finally, it may improve efficiency through economies of scale and enhance effectiveness through innovations resulting from local experimentation. In addition, scaling up can be accomplished in more indirect ways, including information dissemination or affiliation with others in networks. For example, a program model might be promoted through licensing agreements or partnerships. Even more indirect channels are available, including influencing public policy, influencing social movements, or changing or creating markets through research, public influence, or advocacy or lobbying.

Networks have been widely viewed as a particularly useful tool for social entrepreneurs and especially those seeking to extend impact and scale up (Dees, Emerson, & Economy, 2001, 2002). Networks could allow social entrepreneurs to collectively do things they couldn’t do individually, such as expand total capabilities and reach, provide economies of scale, and enhance access to resources. They may be a way to link organizations in the nonprofit, for-profit, and public sectors and in this way significantly advance the solutions to social problems, since the dimensions of significant problems typically span sector boundaries. It is useful, therefore, to consider some of the basics of network structures. A variety of interorganizational relationships are available for network formation. They vary in terms of a variety of factors, including the level of engagement, importance to the mission, magnitude of resources involved, scope of activities, interaction level, managerial complexity, and strategic value. One useful way of conceptualizing interorganizational relations is in terms of the amount or level of control network partners have over each other. For example, networks of information exchange are not likely to involve any control by partners over each other. The coordination of activities, on the other hand, is likely to involve some mutual accountability for action. More intense cooperation could involve mutual agreements regarding the sharing of resources, and complete collaboration could involve mutual agreements about the sharing of resources, power, and authority. In addition, the establishment and maintenance of any interorganizational relationship is difficult due to a number of well-documented factors including internal differences between organizations and the process of relationship establishment and maintenance (making connections, ensuring strategic fit, managing the relationship, etc.). For social entrepreneurship, particular issues might be the social objectives and expectations of the partners, the value of the exchange for each partner, and the extent and measurement of the social value produced. Divergent social objectives were discussed previously and the assessment of social value will be considered next. In any case, these issues are especially likely to the extent that network partners have different missions, cultures, management styles, service philosophies, and so on. This may be especially problematic if partnerships are cross-sector, where internal differences may be especially pronounced. Regardless of the techniques available to them, managers must assess the wisdom of attempting to scale up. According to Taylor, Dees, and Emerson (2002), there are costs and risks. These include pulling the organizations from its mission (to be discussed next), financial and human resource strains, and the risk of overestimating needs or demands. In addition, growth may hurt effectiveness and poor performance at a site may hurt the organization’s reputation. Finally, control may require more bureaucracy, which may lead to less innovation, when, of course, more innovation should be the goal. Consequently, organizations should take care to balance the costs and risks with the potential for increasing impact. This may be more difficult when there is pressure to scale up from funders who want to demonstrate the efficacy of their funding of your program.

Social Entrepreneurship And The Micro Perspective

In commercial or conventional entrepreneurship, the individual or organizational (micro) approach focuses on the entrepreneur’s exploitation of market opportunities for arbitrage. The entrepreneur is motivated by profit and seeks to generate efficiencies that will generate more arbitrage opportunities. For social entrepreneurship, the micro approach can, likewise, involve market orientation as a key element (Nicholls & Cho, 2006). This will lead to a definition of social entrepreneurship as involving (or consisting entirely of) social enterprise, an approach that combines social impact with commercial income. This is exemplified by what has been called a double bottom line or blended-value orientation, in which both financial and social returns are sought. In this approach, managerial considerations involve incorporating both social objectives and organizational operations within commercial markets. In general, the notion of social enterprise can be applied to nonprofit, for-profit, and government activity. A social enterprise can be generally defined to be an organization that has net positive externalities in its operations, products, and services, and indeed consciously attempts to increase its positive externalities and lower its negative ones (Jamison, 2006). In terms of nonprofits and for-profits, social enterprise is conceptualized as occurring along a continuum in what are being termed hybrid organizations. Kim Alter (2006) has provided one of the most extensive discussions of various models adopted by these organizations. Her typology considers corporate structure, mission, programs, and finances. At one end of the spectrum of organizational types are organizations relying on philanthropic capital and concerned exclusively with social returns. Purely philanthropy organizations appeal to goodwill, are mission driven, and seek to create social value, and income and profit are directed toward mission accomplishment. Organizations with these characteristics have been labeled traditional nonprofits. At the other end of the spectrum are organizations relying on commercial capital and concerned with financial returns. Purely commercial organizations are market driven, appeal to self-interest, seek to create economic value, and distribute profit to shareholders and owners. Organizations with these characteristics have been labeled traditional for profits. Between these poles is a range of organizational forms concerned with both social and economic returns. These are referred to as hybrid organizations. Hybrid organizations have some mix of elements from the poles of the spectrum. Hybrid organizations themselves fall along a continuum and include

  • nonprofits with some earned income;
  • nonprofits or for-profits with a roughly equal concern for social and financial ends (often conceptualized as “true” social enterprises); and
  • for-profits with some emphasis on social responsibility.

In this framework, social enterprise is defined as any revenue-generating venture created to contribute to a social cause while operating with the discipline, innovation, and determination of a for-profit business. Social enterprises can be classified based on the degree to which they are mission oriented, ranging from completely central to the mission to unrelated to it. Consistent with this, the activities of an enterprise can vary in terms of their social program content and the support they provide to social goals. On the one hand, enterprise activities could be synonymous with social programs, thereby completely supporting social goals. On the other hand, enterprise activities could only be partially overlapping with social programs, thereby supporting some social goals as well as some nonsocial goals. Finally, enterprise activities could be completely separate from social programs, thereby merely providing financing for social programs.

The role of profits in an organization could be a factor that distinguishes nonprofit and for-profit social enterprises. There may not be any difference between the two organizational types in the degree to which a social venture is explicitly designed to serve social purposes. In for-profits, however, while the venture’s primary goal may be social impact, the for-profit structure of the organization necessitates strict attention to the financial bottom line. In addition, the for-profit setting may require more explicit and extensive use of financial objectives to guide managerial decision making and determine success. In the nonprofit context, social enterprise has been defined by the Social Enterprise Alliance (2007) as an earned-income business or strategy undertaken by a nonprofit to generate revenue in support of its charitable mission. Earned income can consist of payments received in direct exchange for a product, service, or privilege. The focus is squarely on the mission, which is consistent with the outlook expected of nonprofit organizations. The role of commercial activity in nonprofits is controversial, however. As mentioned earlier, nonprofits earning income is not a new phenomenon. The contemporary impetus and pressures for nonprofit earned income strategies can be traced to funding difficulties for nonprofits in the late 1970s. These were the result of inflation and recession, escalating costs, and tighter budgets for nonprofits. They were exacerbated by declining public support for programs of interest to nonprofits by the Reagan administration in the early 1980s. In addition, the 1990s saw more competition for grants and contributions due to the increased number of nonprofits. Also in the 1990s, a series of scandals in the nonprofit sector led to an erosion of public confidence in the sector. Finally, the 1990s and onward saw the rise of a conservative ideological emphasis on market-based solutions in both the public and nonprofit sectors. Currently, a host of drivers and benefits are cited for nonprofit social enterprise including the following:

  • Freedom from the constraints imposed by government or philanthropic dollars
  • Diversify funding sources
  • Fund overhead, innovation, or unpopular causes
  • Sustainability for the long term
  • Take advantage of new opportunities
  • New expectations from funders: asking nonprofits to become self-sustaining
  • Desire to meet double bottom lines (social value and income) or triple bottom lines (social value, income, and environmental neutrality)
  • Create entrepreneurial spirit in the organization
  • Enhanced understanding of clients (needed for commercial success)
  • Tests social value (since value can be measured by the willingness to pay)
  • Add skills and competencies to organization
  • Enhances profile of the organization among funders and community

On the for-profit side, several factors have been held as drivers for social enterprise, primarily an increasing concern about corporate social responsibility and the spread of for-profits into areas where nonprofits have typically been the exclusive or dominate service providers. There are numerous conceptualizations and definitions of corporate social responsibility. The basic idea, however, is that business has some obligation or responsibility to society. The fulfillment of this responsibility can be seen in a firm’s efforts to do more to address a social problem than the firm would have done in the course of its normal pursuit of profits (Vogel, 2005). While the idea has a history going back to the beginnings of the corporate form, the establishment of the legality of corporate philanthropy in 1945 gave the topic new relevance in the United States. Moreover, since the 1990s, there has been increasing pressure for corporations to conceive of their social responsibility on a global scale. This is primarily because in many cases national governments alone seem unable to deal successfully with global social problems. In addition, for-profits have expanded their activities into new social service areas. In some cases, these service areas have been opened to for-profits by government privatizations or change in provider policy. For example, the government may decide to let for-profits bid for contracts that previously had been reserved for nonprofits. In addition, for-profits have moved into some social service areas to exploit opportunities to earn profits while providing social benefits. A high-profile example is the current interest among some for-profits in the “base of the pyramid.” The base of the economic pyramid is defined as the four-plus billion people in the world who earn less than four dollars a day and live in poverty. Conventional business has not considered the base of the pyramid a viable market because these individuals received services provided by governments and/or nonprofit organizations. Some corporations, however, are seeking new, creative strategies to profitably improve the social conditions in such target markets.

Issues In Social Enterprise

In this section, we will consider in more detail some of the issues currently being discussed regarding social enterprise. While the discussion of these issues has mostly been in terms of social enterprise in nonprofit organizations, the issues are also relevant to for-profit social enterprise. There is a vigorous debate about the near-term future of earned income activities by nonprofits. One camp is of the opinion that we are on the verge of a big increase in nonprofit commercial activity based on its promotion by key actors and practice by increasing numbers of organizations. For example, Massarsky (2006) argues that social enterprise in the nonprofit sector has reached a tipping point, as indicated by a number of markers including collective action, specific language and a common terminology, presence of debate or differences of opinion, increases in publishing and media attention, increases in resources available to support the issue or idea, a set of projected or actual changes in behavior, new policies or legislation, increases in activity among university faculty and administrators, and tools and metrics. Most research on social enterprise to date, however, has

been anecdotal in nature. Until more systematic research accumulates, the claims just made must be seen as speculative. Moreover, data does not show that there has been a large increase in commercial income in the nonprofit sector (Foster & Bradach, 2005). An additional question that needs to be addressed is the degree to which nonprofits that rely heavily on earned income are successful in their ventures, and there are doubts about the extent of nonprofit success to date (Foster & Bradach, 2005). In addition, it has been speculated that problems in the capital market may prevent expansion. Nonprofit sources of capital (donations and grants) are insufficient and the link to performance is weak. For-profit sources of capital (debt and equity), on the other hand, do not recognize social value creation, and high-risk capital is only available in certain sectors. In addition, basic questions remain concerning the positive and negative impacts of nonprofit commercialization on different types of nonprofits, on the nonprofit sector and its various subsectors, and on community or society. As this indicates, multiple levels need to be considered. For example, social enterprise may benefit particular organizations, but might harm the community, the sector, or society. It may diversify nonprofit income, but may reduce the presence or impact of nonmarket activity or values. Of course, debates about the characteristics, extent, and consequences of market and nonmarket aspects on society have been held for a long time. Social enterprise should be brought more explicitly into these discussions. One way to proceed as these discussions develop is to adopt a contingency view of social enterprise. The question then becomes not if, but when, how, and with what effect social enterprise takes place. In addition, more research is needed on the limits as well as the advantages and disadvantages of providing goods and services via social enterprise techniques as opposed to traditional philanthropic or public provision techniques. Of concern are impacts on

  • the nature of the goods and services produced;
  • the distribution of these goods and services;
  • the recipients of these goods and services;
  • the producers of these (the impacts on nonprofits);
  • other stakeholders, including the community or neighborhood;
  • the sector and the consequences of more blurring and blending of organizational forms; and
  • society, including the availability of social benefits.

There are also a host of organizational and managerial questions. What are the organizational impacts of social enterprise on various types of nonprofit organizations? To what degree are ventures viable and what are the consequences of venture failure? How should opportunity costs be conceptualized and taken into account? What are the impacts in terms of mission drift, organizational culture, and accountability to constituencies or the community? Finally, increased commercial activity may threaten the legitimacy as well as the tax exemption on which the sector is based (Weisbrod, 2004). We will examine two of these issues here. A major question for both social entrepreneurship and social enterprise is how to define and measure the social bottom line—variously termed the social value, social returns, or social impact—of social enterprise. While a long-standing question for nonprofits, this question is also of great relevance to for-profit organizations. Because for-profit organizations have explicit concern about profits and experience difficulties in measuring social impact and assigning value to it, they have problems making decisions about investments or resource allocation. In the broadest sense, things are valued because they are judged to be good or worthwhile. More specifically, several types of value have been distinguished. Outcome value results when something improves people’s welfare and quality of life. Activity value, on the other hand, lies in the process by which an outcome is produced. Finally, excellence value is created when an outcome or activity inspires others to strive to learn and excel. Assessing social value, therefore, may involve determining the value of things that can’t be easily, directly, or at all monetized, such as social capital, cohesion, or quality of life. Without such an assessment, however, how does an organization know to what degree it has provided social value and in what ways the financial bottom line relates to this? Several recent discussions of this issue are illustrative. The Aspen Institute (Gentile, 2002) has proposed the term social impact management to mean “. . . the field of inquiry at the intersection of business practice and wider societal concerns that reflects and respects the complex interdependency between these two realities” (p. 2). For this type of management, three aspects of a business activity need to be considered:

  • Purpose—in both societal and business terms
  • Social context—the legitimate rights and responsibilities of multiple stakeholders need to be considered by management, and proposed strategy needs to be evaluated for both financial returns as well as broader social impacts
  • Metrics—there needs to be measurement of both social performance and profitability for both short- and long-term time frames

A recent study sheds light on the current state of affairs in social-impact assessment and points to numerous issues. In March of 2003, the Rockefeller Foundation and the Goldman Sachs Foundation hosted over 50 funders to discuss the issues surrounding assessing social impact and social return on investment. The discussion concluded: “The field has yet to establish a common understanding of ‘social impact’—what it is or how to measure it. Currently, measures of impact vary from funder to funder and organization to organization” (p. 2). Sixteen social impact assessment methods currently in use in the nonprofit and for-profit sectors were presented to the group. Four prominent social-impact assessment tools used by nonprofits were discussed and evaluated in detail, including

  • Roberts Enterprise Development Fund: OASIS;
  • New Profit, Inc.: Balanced Scorecard;
  • Edna McConnell Clark Foundation: 70 indicators; and
  • Coastal Enterprises, Inc.: SROI and longitudinal data.

This discussion of the use of social-impact assessment methods identified a number of challenges. Conceptual challenges exist because the best practices are not standardized and theories of change are not aligned among grantors, investors, and nonprofits. Operational challenges exist because values cannot always be measured, quality implementation of assessment is essential but difficult, third parties may be needed to help achieve more technically sound assessment, and time horizons for output and outcome measurement are long. Structural challenges exist because significant diversity exists within each nonprofit field and reporting requirements are not usually aligned among funders, creating difficulties for recipients. Finally, practical challenges are entailed because funders often lack clear goals, funding priorities may be inconsistent and shift, and trust and mutuality between funders and recipients are limited. Given this evaluation of the state of the field as described in the report, it appears that while social impact assessment is important and a number of approaches are being developed, much remains to be done.

We conclude with the consideration of another issue often raised in connection with social enterprise in nonprofit organizations—mission drift. It should be noted, however, that this issue is also relevant to for-profit social enterprises. In general, mission drift can vary in severity and can be characterized by both internal and external factors. Internally, when mission drift occurs, mission will not provide a good guide for daily activity and opportunities will be pursued even if they do not further the mission. Externally, it will be difficult to identify or understand the organization’s mission by observing its actions. Richard Male and Associates (2007) list a number of indicators of mission drift, including the following:

  • Focus on income first and build programs around the dollars
  • Income acquisition is seen as a problem or crisis
  • Key organization members are not clear what the mission is
  • A core of board members/volunteers pushes the organization in certain directions
  • Large turnover of staff or board members
  • Media coverage and publicity are very important
  • Frequent questions about adherence to ethical standards
  • Organization is coasting—not on cutting edge of creativity or effectiveness

Numerous commentators have noted possible tensions between nonprofit missions and market orientation in organizations pursuing double bottom lines. It is held that balance and trade-offs are necessary for social enterprise activities. The goal and process of generating both social and economic value can result in decisions and actions that can be in opposition to each other. For example, increasing earned income by instituting or increasing client fees or charges may result in decreasing social impact. Conversely, extending services to new clients may necessitate increased costs. In these cases, managers must calculate the financial and social trade-offs involved and both market discipline and organizational ethics and integrity must be taken into account. Mission drift under these circumstances would occur where activities to meet financial goals begin to dominate or change social missions or mandates. Mission drift entails a number of possible negative consequences. A nonprofit’s reputation among stakeholders and the public may be damaged. In addition, funding may be jeopardized if funders feel that donations are no longer necessary because commercial income is sufficient. Finally, a nonprofit’s organizational culture could be threatened by the introduction of market-based outlooks or the hiring of business and industry experts or professionals. The assessment of mission drift is made more problematic in that organizational change is a very complex process. Change could take place in any part of the organization, including highly visible and formal factors, such as mission statements, strategy, or objectives, or in much less visible day-to-day staff directives, service delivery details, or service recipient outcomes. Management may have relatively little difficulty assessing changes in the visible and formal factors but much more difficulty observing changes in the less visible activities. The problem is that missions and strategies are often general enough to be met in a variety of ways. Detecting mission drift, therefore, may require management to look at changes in day-to-day work activities. Making things more complex is the possibility that these activities may, in fact, drift without there being any changes in official mission or strategy statements. In addition, even if there are changes, there is the question of whether they are due to an emphasis on financial goals or are the result of other factors (such as a change in the environment). Finally, if the social mission of provision of social benefits has, in fact, changed, to what degree are these changes positive or negative? It could result, for example, in a renewed sense of purpose in the organization. On the other hand, it could damage the organization’s reputation, split the organization’s culture, and decrease services to the community.

Conclusion

The goal of this research-paper has been to shed light on current discussions and debates about social entrepreneurship and social enterprise. These are areas of considerable interest to both practitioners and academics and a wide range of actors have become involved. Developments are being made on both conceptual and practical fronts and significant dollars are being spent by major funders. Both social entrepreneur-ship and social enterprise, however, raise a number of issues. Social entrepreneurship is just starting to explore and find its definition and place in both the nonprofit and for-profit sectors. Given that it is a manifestation of the powerful

process of entrepreneurship, however, it has the potential to make major and positive contributions. If researchers and practitioners together can discover how organizations can promote and harness innovation and creativity and bring these more effectively to bear on social problems, the constituencies of these organizations and society as a whole will benefit greatly. Social enterprise, on the other hand, has been discussed for some time and is being vigorously promoted. Basic questions remain, however, regarding the proper conceptualization and role of market and nonmarket orientations in both the nonprofit and for-profit sectors. These questions and issues have, however, been relatively well identified in the literature and addressing them furthers our understanding of current practices and points to future applications. This will both advance our understanding and improve the management of socially oriented nonprofit and for-profit organizations.

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