Strategic Management Of A Social Enterprise Business Essay

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The model answers that follow are indicative of the work required of learners. They are intended to illustrate the nature of evidence that a Level 7 learner should produce. In some cases, answers would need further work and extension by learners in order to fully address each assessment criteria.

LO 1: Understand the strategic management of a social enterprise

Task 1

Objectives are detailed and specific statements that describe what aspect of quality a Social Enterprise is going to measure to show that their aims have been met.

The answers should include recommendations on the following actions

A review the social enterprise's purpose, vision and values.

Research into whether stakeholders think the current social objectives are still a priority.

Identification of possible areas where the social enterprise could develop new social objectives.

Involvement of stakeholders in deciding on new social objectives.

The answers will include advice on gaining the following knowledge.

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The social enterprise's original purpose and social objectives.

How the social objectives relate to the social enterprise's purpose, vision and values.

What external factors may affect the purpose and social objectives? These might be political, economic, social, technological, legal or environmental.

What internal factors may affect the purpose and social objectives? These might be operational, financial, marketing, personnel and so on.

How the social objectives may affect external factors such as social policy, the environment, employment opportunities and so on.

How commercial needs and objectives can affect social objectives.

What opportunities and threats might affect social objectives?

How to help stakeholders identify new social objectives. Stakeholders could be board members, sponsors, funders, customers, members, staff members or volunteers.

How to get information and feedback from stakeholders about social objectives.

How to deal with any conflict of interest between stakeholders about the social enterprise's social objectives.

The normal model for identifying or reviewing social enterprise objectives generally includes:

What practical things are you going to do to make the above happen?

When will these be done?

What services, activities or products are you going to offer?

Who will you offer them to?

How are you going to create change?

How will you know that this has been achieved?

Can you use targets to quantify or measure progress towards your aim(s)?

How will you promote your achievements?

Objectives will be based around:

Social Change;

Community development;

The environment;

Sustainability;

Local development;

Skills development;

Tackling inequality;

Developing enterprises;

Developing networks;

Employment creation.

The Plan for the next 3 years should set down the activities arising from

SMART Objectives

Specific - it should be possible to determine when an objective has been achieved by making it as definite as possible

Measureable - it should be possible to measure whether an objective has been reached

Attainable - it must be possible to achieve the objective

Relevant - the objectives should form part of the overall aim of the enterprise

Timely - the objective should be achieved within a specific period of time

Business Development will be guided by the following:

How the organisation plans its activities and resources to achieve operational efficiency;

Monitoring project and contract delivery to ensure resources are correctly allocated and spent and deliverables are achieved;

Collecting and collating appropriate data managing it according to appropriate requirements and the Data Protection Act;

Collecting data and analysing and sharing it with the management team and the Board, for strategic decision-making, reporting and marketing;

Undertaking an analysis of risks and developing strategies to deal with those which could have a significant negative effect on the organisation;

Having quality assurance procedures in place that help the organisation to improve its operational effectiveness.

Managing stakeholders involves

Identifying the differences between different types of stakeholders, including stakeholders who may have more than one role within your social enterprise.

Identifying what your social enterprise can offer to each type of stakeholder.

Identifying people and organisations that may be interested in becoming stakeholders.

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Informing potential stakeholders about your social enterprise.

Encouraging stakeholders to be involved with your social enterprise.

Agreeing with stakeholders what their involvement will be.

Informing stakeholders what their rights and responsibilities are.

You need to know and understand the following.

The types of stakeholder your social enterprise needs. These could be board members, sponsors, funders, customers, members, staff members or volunteers.

What roles can be successfully carried out by the same stakeholder, and what roles should be carried out by different stakeholders.

Why it is important to involve staff as stakeholders.

What rights and responsibilities potential stakeholders may want, or expect to have, in a social enterprise.

The types of formal relationships that you can offer to different types of stakeholder, including those based on contracts, trade and membership.

The membership rules that social enterprises can use, and the links between membership, ownership and control.

How the rights and responsibilities of ownership and control can be decided and changed.

The legal rights of employees, customers and suppliers when negotiating contracts.

Which local, regional and national government organisations have strategic or operational duties that are relevant to your social enterprise's aims and objectives.

Which local, community, voluntary or charity organisations are involved in the same, or similar, products or services as your social enterprise.

Advice on future income will need to explore the diversity of revenue sources the organisation has and is pursuing to ensure a sustainable income base for future sustainability. Possible stakeholders will be:

Employees

Customers/service users and their families

The local community

Local voluntary organisations

The local authority

Grant makers/donors

The following questions may be appropriate.

Does the organisation have diverse sources of income and there is no single customer which constitutes more than 20% of its turnover?

Does the organisation have business development plans in place to minimise dependency on grants and move towards self-sustainability?

Does the organisation is aware of how to identify funding and tender opportunities using a wide variety of sources (including networks, internet portals and publications), and how to prioritise them/

Does the organisation have in-house capacity to prepare or outsource funding bids and tenders?

Does the organisation focus on achievable opportunities and have a high success rate for contracts or business won?

In preparing bids, does the organisation secure as a minimum full cost recovery in all product and contract pricing?

The financial options to be explored are:

Trading income;

Grant income;

Loan finance;

Local government support;

Business (or community) Angels;

Equity finance.

LO 2: Be able to develop a strategic plan for a social enterprise

Task 2

The decision making process for legal status and structure will include

Social Enterprises come in a variety of forms, which includes:

Employee Owned Businesses creating jobs and rescuing jobs as part of economic development strategies.

Credit Unions providing access to finance.

Co-operatives associations of persons united to meet common economic and social needs through jointly owned enterprises.

Development Trusts key actors in community-based regeneration.

Social Firms providing employment and training to people with disabilities and other disadvantaged groups.

Intermediate Labour Market Companies providing training and work experience for the long-term unemployed.

Community Businesses Social Enterprises, which have a strong geographical definition and focus on local markets and local services.

Charities' Trading Arms enabling charities to meet their objectives in innovative ways, such as Fair Trade companies.

This is essentially a voluntary organisation which has been funded by donations and grants decide to turn to trading. This is driven by a desire to ensure its long-term viability, or from a belief that its beneficiaries are better served by the transformation, or perhaps both.

Ownership options will need to consider

The service model - where control rests with a small management committee or board without beneficiary-members.

The single stakeholder model - where there is a large group of members drawn from the beneficiaries, who usually constitute the 'community'.

The multi-stakeholder model - where there is joint-ownership by two or more stakeholder groups.

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Legal forms available include:

A partnership is 'The relationship which subsists between persons carrying on a business in common with a view to profit";

Unincorporated associations tend to be larger groups of people that come together for a particular purpose.

Also there are four corporate vehicles commonly used by social enterprises:

Company limited by guarantee (CLG);

Company limited by shares (CLS);

Industrial and Provident Society - Society for the Benefit of the Community (also known as Community Benefit Society);

Co-Operative (Co-operative).

The decision should incorporate the following

Needs

Areas for Consideration

Written Constitution/ Legal Identity

What company form should you take?

Do you have operational documentation?

Management Committee/ Trustees

Do you have a board of directors/trustees/stakeholders who will help your business to develop?

Accounting

Do you have a system in place? Do you need an accountant?

Have you considered measuring your social impact?

Management Training

Do you have a business plan? Is it up to date/useful? Do you feel able to run a business right now?

Human Resources

Are you up on employment legislation? Do you need to provide staff training?

Are your staff aware of their company's social mission?

Funding

Do you need extra funding? Are you eligible? Is your existing funding adequate?

Short term or Long Term Funding? Grants versu. loans?

Finance

Do you have the right type of bank account? Is it the best kind for a social enterprise?

Do you have any contingency financial reserves?

Marketing

Have you researched your markets?

Are you aware of all the tools and techniques?

Selling

How are you following up on your marketing to actually make sales? What are the benefits of your product to your customers and stakeholders

Premises

Is your workspace appropriate for your business? Are you leasing or would it be better to own property instead?

From Social Enterprise London

In setting the goals the process should ask the following questions

What practical things can you do to make the aim happen?

When will these happen?

What are you going to offer - services/products etc?

Who will buy your offering?

How are you going to make change happen?

How will you know when you have achieved it?

Can you measure your progress?

How will you tell people about your achievements?

The range of stakeholders may be briefed as follows with explicit comment in relation to JAY Right

Also the Multiple Impact and Stakeholder model by Lyon (2002) maybe employed to assess potential contributions that social enterprises can make to social inclusion and economic development.

Options for fulfilling the needs of the stakeholders can be guided by the following

Encouraging stakeholders to be actively involved.

Negotiating contracts and agreements with stakeholders.

Developing processes that encourage stakeholders to be involved in the social enterprise.

Managing the differences in the rights and responsibilities of directors and other stakeholders in the enterprise.

Dealing with any possible conflicts of interest with and between stakeholders.

Representing the interests of the social enterprise in:

the local community;

networks;

partnerships; and

joint projects.

The student would need to demonstrate undeertsanding of the following.

The types of activity that encourage stakeholders to become more involved in the social enterprise.

How to focus marketing and sales to encourage customers to become stakeholders.

How to use employee supervision and development to encourage and support employees and volunteers as stakeholders.

How to design democratic processes so that they improve the way stakeholders take part in your social enterprise.

How to design democratic processes so that they settle conflicts of interest between stakeholders.

The buying methods and policies of your stakeholder customers.

The existing networks and partnerships that are relevant to your social enterprise.

(From the SFEDI national occupational standards for social enterprise development 2010)

The Social Enterprise Coalition states that "a social enterprise is a business that trades for a social and/or environmental purpose. It will have a clear sense of its 'social mission':  which means it will know what difference it is trying to make, who it aims to help, and how it plans to do it.  It will bring in most or all of its income through selling goods or services.  And it will also have clear rules about what it does with its profits, reinvesting these to further the 'social mission'

Vision should be:

be inspirational;

be memorable;

be defined from the start;

be clear;

be used as a framework for monitoring and evaluation.

Mission should:

be a practical statement;

inform how and what a Social Enterprise must do to deliver its mission.

Social enterprises are businesses driven by social or environmental purposes. As with all businesses they compete to deliver goods and services, but the difference is that their social purpose is at the heart of everything that they do and all profits that they make are reinvested towards achieving that social purpose. Therefore this social purpose must be found and the business should be set up to support this.

LO 3: Be able to be operationally manage a social enterprise

The guides should be close to the following tables

Project Management

The organisation plans its activities and resources to achieve operational efficiency.

Project and contract delivery are monitored to ensure resources are correctly allocated and spent and deliverables are achieved.

Useful data is collected by the organisation and managed according to appropriate requirements and the Data Protection Act.

Data collected is analysed and shared with the Management Team and the Board, for strategic decision-making, reporting and marketing.

The organisation has undertaken an analysis of risks and has put in place strategies to deal with those which could have a significant negative effect on the organisation.

The organisation has quality assurance procedures in place that help the organisation to improve its operational effectiveness.

Budgeting

The organisation has diverse sources of income and there is no single customer which constitutes more than 20% of its turnover.

The organisation has business development plans in place to minimise dependency on grants and move towards self-sustainability.

The organisation is aware of how to identify funding and tender opportunities using a wide variety of sources (including networks, internet portals and publications), and how to prioritise them.

The organisation has in-house capacity to prepare or outsource funding bids and tenders.

The organisation focuses on winable opportunities and has a high success rate for contracts or business won.

In preparing bids, the organisation secures as a minimum full cost recovery in all product and contract pricing.

Income generation

The organisation has a designated person responsible for strategic and operational financial matters. This person is supported by the Chief Executive and the Board (or committee of the Board) to effectively manage the finances of the organisation.

The organisation has written financial policies and procedures, approved by the Board, which relevant staff is aware of and action as necessary. The organisation has policies including a reserves policy, an accounting policy and a risk register, in order to ensure the effective financial management of the organisation.

Financial information is produced regularly and includes: income and expenditure accounts with actual compared to budget; balance sheet; cash-flow forecasts; and reports on significant financial risks.

Financial management information is presented in a consistent format, is accessible and easy to understand; it is also based on robust data management systems and data quality is assured.

Break even points for the organisation's products and services are understood.

The organisation is managed pro-actively to ensure its financial sustainability (profitability, liquidity and solvency).

The organisation understands and meets all its legal and statutory financial requirements, including those of Companies House, Charity Commission, Inland Revenue, funders and regulatory authorities.

The organisation knows who its key customers are and has undertaken research to understand what customers want and how much they are willing to pay for products or services.

There is sufficient demand for the goods and services to make an economic case to stay in the market.

The organisation understands the needs of its service users / beneficiaries and has developed its activities to meet those needs.

Feedback from customers and service users is collected on a systematic basis, and taken into consideration to improve the services and products supplied.

Customer and user satisfaction levels are good and the organisation has a high success rate of repeat customer use.

The organisation has Information Communication Technology (ICT) systems in place that meet their needs, are reliable and fit for purpose.

There is suitable and easily accessible ICT support in place (in-house or externally) to manage the system.

All users of ICT in the organisation are trained and able to use the equipment and software in line with their role and responsibilities.

An IT back-up procedure is undertaken on a regular basis and contingency plans are in place, should the system fail.

The organisation has administrative procedures and filing systems (paper or on-line) in place, and proportionate staff time is designated to undertake this work.

All staff understand what is required of them in terms of systems, processes and data management.

From the Social Enterprise Diagnostic.

LO 4: Be able to measure and manage social enterprise performance

Task 4

Social enterprise managers are challenged to constantly adapt to ever-changing environments - a balancing act requiring strategic reflection and analysis to achieve ongoing sustainability. Performance measurement through business analysis tools may offer organisations help in managing this process.

Mike Bull of Manchester Metropolitan University (Social Enterprise Journal Volume 3, Issue 1 2007) states that one of the inherent difficulties in the transferability of performance tools is how to include the measurement of social value, what it is, and indeed how to score or articulate social objectives in measurable and accountable ways. For many Small and Medium Social Enterprises, performance measurement and quantification are either economic indicators or unexpressed social values that are quite often intangible and difficult to quantify (Dees & Anderson 2003). He also mentions the lack of resources and skills within the social enterprise as an issue in performance measurement.

You should point out that Pestoff (1998) suggests, 'performance is a multifaceted, fluid, problematic, ambiguous and contested concept,' all further complicated by different sector and stakeholder perspectives and that Paton (2003) claims that the relevance of 'mainstream' management ideas and their adaptation to social enterprises demonstrates that performance measures are not the universal solution promised.

Social Enterprise London's developed a version of the balanced scorecard expressly to help social enterprises to clarify and articulate their strategic objectives, and decide how they will deliver their multiple bottom lines. It was also designed to give organisations a mechanism to track performance holistically through both quantitative and qualitative information. This is primarily an internal management tool, drawing upon business concepts. Some of the measures the organisation adopts may also be used for external reporting as appropriate.

The organisation essentially creates a visual representation of the critical elements of its strategy for the social side (encompassing social, environmental, and economic objectives) as well as the financial side - or business sustainability. The process then helps the organisation to identify the key drivers or ways of achieving success from these social and financial perspectives by identifying what key stakeholders want from the organisation, and what processes the organisation needs to put in place internally for it to deliver these things.

The first step involves creating a strategy map. This is done by identifying the organisation's goals, and choosing between two and four key goals to focus on as follows. Sample strategy map

Key: White circles reflect objectives

Dotted arrows reflect cause and effect linkages

Note: this is meant as an example; organisations customise their strategy maps to reflect their goals.

The next step involves creating a performance measurement schedule for each perspective, and a line for each objective. After stating each objective from the strategy map, this should describe how success is to be measured, by setting performance targets on a relevant time frame (e.g., quarterly, twice a year), and assigning someone to be responsible for delivering on, and measuring that objective.

This measurement should be undertaken regularly using quantitative and qualitative data, in order to track performance, communicate success to internal or external stakeholders, and check that the strategy is working and that the assumptions that have been made are accurate.

Mike Bull suggests a model that rearranges the original Balanced scorecard to iterate the performance measures as follows.

Bull develops the indicative process steps such as beginning with a qualitative investigation of the business practices of social enterprises (Bull and Crompton 2006), time should be used to build knowledge of the sector, meeting with managers of social businesses, social enterprise stakeholders and sector support agencies at local, regional and national levels.

This leads to a reflective process that leads to the gap between actual business practice and management theory being bridged by this three-step approach:

1. Critical reflection: business analysis self-assessment by the managers, based on their own perceptions of where the organisation is.

2. Organisations are provided with an instant 'snapshot' of their particular strengths and weaknesses across the BSC performance concepts (finance, customer, learning, internal activities and visioning), generated by the software of the tool.

3. An action plan offering stage-specific knowledge and suggestions for business development, growth and sustainability is provided.

LO 5: Be able to manage key stakeholder relationships

The response to this Task should be focused on JAY Right.

JAY Right is essentially a Community Businesses Social Enterprise, which has a strong geographical definition and focus on local markets and local services.

If you are hoping to grow your social enterprise into a competitive business and plan to use all available resources it is a good idea to incorporate. The following requirements will mean that the social enterprise should consider incorporating.

Taking on a lease

Buying a property

Employing staff

Taking out a loan/applying for a grant

Entering into large contracts

Legal Structure

Once it has been decided to incorporate the Board need to decide on which legal form or structure to adopt. There are a few different ways of doing this in the UK, each with their own benefits and drawbacks, so it is important to be familiar with them all. There are two major routes you can travel, both of which will mean that your social enterprise becomes a legal entity. On top of that, there is also an add-on feature, called the Community Interest Company, which helps to signify more clearly that you are a social enterprise.

Social enterprise London offer the following appraisal.

1. Limited Company

Most people have heard businesses referred to as so-and-so Ltd. The Ltd part of the name stands for limited liability and shows that the company holds liability and not the owner. If you choose to be a limited company you need to register at Companies House and fulfil a number of requirements under the heading 'public disclosure'. This means having a properly drafted constitution and submitting an annual return to Companies House, telling them what you have been doing in the year.

There are two kinds of limited company - Companies Limited by Shares (CLS) and

Companies Limited by Guarantee (CLG). The difference is the way in which liability

is held. With a CLS it is the shareholders that are held liable because they profit from the businesses activity. In a CLG, liability is held by a board of appointed directors but the fact that these directors are unpaid means that they are usually only held liable for the sum of £1 should anything go wrong.

A CLG is good for organisations that want to use a mixture of grant funding and trade income to keep them financially sustainable. Most public money giving bodies and grant funders recognise a CLG as a structure they can give money to because the division between those that govern the organisation (ie unpaid board directors) and those that manage the work (i.e. the paid staff) signifies that the company is not entirely motivated by profit. A CLG can also be aligned to a charity in order that the organisation can have charitable status and benefit from areas such as corporation tax exemption and being able to apply for certain charitable funds. A CLG can be quick and easy to register with Companies House and it's relatively inexpensive to do so. The organisation will need a minimum of two board directors, however.

A CLS issues shares that can be owned privately or offered to the general public. In this case it is the shareholders that are liable should anything bad happen. You, the entrepreneur, may decide to own shares in your company in which case you would be responsible for a proportion of the liability. But then this liability is made up for by the fact that you own part of the company (and therefore profits). Many people think that this goes against the idea of social enterprise because of what happens to the profits. However, several bigger social enterprises have issued shares as a way of raising money for investment and the dividends they distribute are purposefully limited to protect the profits

2. Industrial and Provident Society

The Industrial Provident Society (IPS) model is suited to organisations who believe that the stakeholders (which can include staff) should be formally involved in the decision making process. As such, it's often seen as a more democratic structure and is taken on by co-operatives or collectives. The benefit of being an IPS is that it allows a mix of staff and other stakeholders to be on the board of directors, which is useful if the founding members (the social entrepreneurs) want to work for the organisation and be paid, whilst at the same time having a say in the way the organisation is run.

Industrial and Provident Societies are registered with the Financial Services Authority, rather than Companies House. As with a CLG, there's a minimum requirement of two board directors, and the accounts must be filed at the end of each year. Unlike a CLG though, the IPS cannot be registered as a charity or have charitable status. It may be able to benefit from certain tax exemptions but that's up to the organisation to negotiate with the Inland Revenue.

There are two forms of the IPS model: IPS for the benefit of the community and IPS for the benefit of workers. The first is used by social enterprises that are keen to involve their community in the running of the business by having them sit on the board (for example local mothers on the board of a crèche). The second relates to a worker's co-operative where each employee has an equal say in the way the business is run as well as an equal share of the profits. Co-operatives count as social enterprises because the profits are used solely to benefit the employees. Also, in general, if a co-operative wraps up, all assets are gifted to another co-operative with a similar mission.

3. Community Interest Company (CIC)

The Community Interest Company was created in July 2005 in the UK as a way to help social enterprises clearly state their intentions as being different to those of a private business. This means that the CIC can benefit from ways of doing business that not- for-profit businesses, charities and voluntary organisations typically do not. This includes accessing forms of finance usually reserved for private business and the ability to pay its board of directors, making it easier to attract and keep valuable board members that will help you develop your social enterprise.

In addition, as with co-operatives, there is a clause which ensures that assets will have to be passed on to another CIC should the CIC have to be wrapped up. This goes further towards proving that the intentions of the social enterprise go beyond simply making money.

The downside of the CIC is that it involves more administration (it involves a set-up cost, an annual fee and another set of annual returns describing your ethical mission) and also that it brings extra considerations in terms of how much to pay the board of directors.

The Communications Plan should

Develop a clear understanding of the objectives of the social marketing programme and how communications are expected to complement other activities in contributing to these objectives

Ensure effective engagement with the target groups, partners and other key stakeholders about delivery of communications throughout all phases of the programme

Evaluate the findings from research into motivators, inhibitors and interventions relevant to the target groups, current trends and developments and the potential impact of other contemporaneous programmes, interventions and other relevant activities

Establish and agree the following communications elements with key stakeholders:

the core values that underpin the programme

how these core values are to be expressed through coherent branding

the key messages to be understood by different target groups

the language to be used with different target groups

the mix of methods of communication to be used with different target groups

the design elements to be used

expected communication flows

the media or channels of communication to be used

how these communications elements complement and reinforce each other and other elements of the social marketing mix

Developing a stakeholder plan will include the following suggestions from the Marketing and Sales standards setting body

Plan how you will identify and manage stakeholders from the beginning of the research phase of your social marketing programme

Identify the full stakeholder universe: those individuals (including those within your own organisation or partnership), communities, groups and organisations who may be involved in, or affected by, your social marketing activities

Segment stakeholders into potential roles:

target audiences (primary and secondary)

internal

partners

intermediaries

competitors

Analyse different stakeholders to identify

how they might potentially benefit from, or be adversely affected by, your social marketing activities

how they might be able to support or hinder the achievement of your social marketing objectives

Prioritise stakeholders according to their potential to affect, or be affected by, your social marketing activities

Engage with prioritised stakeholders as early as possible to determine their intention to collaborate and their potential role

Involve partners and key stakeholders in the process of clearly defining your social marketing goals and strategy

Develop and agree communications strategies and actions for building and managing good relationships with stakeholder groups and managing their expectations

Develop and agree suitable competitor management strategies which minimise competitors' negative impact on your social marketing activities