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Is social enterprise a contradictory concept? Are the combination of profit making and social good compatible qualities? This essay discusses the roles of profit making and social good in relation to social enterprise within both non-profit and profit-seeking organisations. Social enterprise aims to make a positive impact upon society, and usually focuses on particular interest groups. It combines the production of both social and economic added value. Social enterprise was born out of the necessity for non-for-profit organisations to diversify their funding mechanisms. The concept of social enterprise has debatably become confused as organisations are increasingly using marketing tools such as 'cause branding' to attract the customers attention, rather than the social objective remaining the primary motivation behind an enterprising activity.
The Northland Institute (2001) defines social enterprise as the "use of earned income strategies by non-profit organisations". Social enterprises are comparable to traditional charities in some respects, however they tend to conduct their activities with a more commercial approach. Social enterprises are a fusion of conventional business and non-profit organisations. Social enterprise differs from conventional business as it is not concerned with maximising profit margins for either the owners or shareholders. Instead it aims to increase the profits made in order to benefit local communities. Social enterprises are essentially commercial projects which attempt to achieve social benefits. Does profitability disqualify enterprises from social entrepreneurship despite their commitment to social enhancement? In order to assess whether the concept of social enterprise is inherently contradictory, I will consider it in reference to case studies, from within non-profit organisations and profit-seeking organisations.
Social innovation is pinnacle to resolving social tribulation. Social entrepreneurs tend to focus on an interest group, for example the long-term unemployed, those who are disabled or single parents, or geographically defined communities such as a deprived neighbourhood. It is often found that geographical communities and interest groups overlap; Mair and Marti (2004) define social enterprise as an innovative use of resources to explore and exploit opportunities that meet a social need in a sustainable manner. MacMillan (2003) considers social enterprise to benefit society as well as the entrepreneur by creating jobs, increasing productivity, enhancing national competitiveness, and helping to provide a better quality of life.
Social entrepreneurs are the people most capable of delivering innovation within social policy, with a concern for the improvement of social disadvantage. Young (1999) succinctly describes a social entrepreneur as "someone with the heart of a do-gooder but the mind of a businessman." These individuals are capable of bringing motivation, innovation, and creativity to a field in need of reform, providing new services together with increased efficiency. A social entrepreneur brings investors from the welfare field together, in order to finance change and reform within welfare systems.
Perrini (2006) asserts that social enterprise is far more than just an extension of the non-profit sector. The term social entrepreneurship suggests roots within the business sector; social enterprise shares characteristics of conventional business, such as a drive towards innovation and change, and the ability to identify and take advantage of entrepreneurial opportunities. Social entrepreneurship aims to create both social and economic value through the combining of social interest and market mechanisms (Alter, 2006). Macmillan (2003, p1) claims that "There is no reason why imaginative entrepreneurs cannot enhance social wealth and also generate fortunes for themselves". However, for many academics there lies a key difference between conventional business and social entrepreneurship. The most important aspect of social enterprise is the identification of superior methods to create and sustain social value (Peredo and McLean, 2006). The dividend to a social entrepreneur is rarely financial, but rather a social achievement, for example, to create a stronger community. This result is only achievable if the community gain the knowledge and capability to support themselves in a sustainable manner through increased social capital. Unlike conventional business, the purpose of creating economic value for social enterprise is purely to 'stay in business' in order to continue their social mission. The primary aim of social enterprise is the development and improvement of social conditions where a social gap is perceived to exist at either a local or global level. Dees (1998, pg.3) advocates that "Wealth is just a means to an end for social entrepreneurs". In fact, Anderson and Dees (2002) highlight a resounding agreement that income as a result of an exchange of a product or service is not fundamental to social entrepreneurship.
Social entrepreneurs are responsible for the creation of assets within a community that wouldn't otherwise exist, such as, new buildings, new services, or a revived reputation for an area (Leadbeater, 1997). However, it is important to recognise that, one of the most important forms of enhancement that a social entrepreneur is able to create and invest in a community, is social capital. Social capital refers to a network of relationships within a community. It is often considered that the presence of high social capital within a community results in vastly improved economic and educational achievement, better health, and lower crime rates. Long-term relationships and co-operation are supported by trust and shared values amongst communities; a strong ethic of co-operation between people is paramount to shared efforts at innovation, and thus success.
Steyaert and Hjorth (2006) assert that entrepreneurship is connected to change and transformation within society. Social entrepreneurs are so committed to this concept of change, improvement and enhancement, that they may carry out endeavours in relation to education, shelter, health, to name but a few, without necessarily charging fees or looking for financial returns (Peredo and Mclean, 2006). There is increasing levels of pressure for non-for-profits to 'professionalise' their services (Alter, 2006) by increasing societal impacts and accountability for the outcomes. However, non-for-profit organisations require funding in order to operate efficiently and effectively, and support from traditional government sources is declining, whilst competition for the limited funds available is increasing. Funders have begun to treat grants much like a social investment for which they expect a quantifiable return, and subsequently, non-for-profits need to provide quality services as well as deliver significant social returns. Social enterprise according to Alter (2006) is a structure for establishing a means of finance for non-for-profits. Thus, social enterprise was born out of the necessity to diversify their methods of finding funding (Reis, 1999).
Andrew Mawson became the minister of the United Reformed Church in the Bromley-by-Bow area of East London in 1984 (Leadbeater, 1997). Mawson was not in a position where he was overburdened with resources. It was finding himself, as minister of the church in Bromley-by-Bow (which according to the Department of the Environment's statistics, was the second most deprived ward in the most deprived Borough in the country), that inspired him to tackle the social problems of the neighbourhood (Leadbeater, 1997). Large private sector employers had left the area, and despite its dire state, little public money had been infused into it. Mawson recognised that the only way he could make successful changes would be to approach the issues with an open-mind and to make radical decisions.
Social enterprises are also beneficial to society in terms of expanding labour market opportunities. They are able to provide employment, training, and skill enhancement for socially excluded people. Labour market opportunities were all made possible at the Bromley-by-Bow centre, as the church was redesigned with the support of the small elderly congregation, to create a lighter, more open space with the intention to open the use of the buildings up to the local community (Bromley-by-Bow centre, 2010). The use of the space changed and developed to benefit the local community, which was found to be rich in culture and creativity. Local artists set up workshops to provide classes for the community, followed by a dance school, a nursery, a café, and a disability group, which started a project working on the garden outside the church (Amin, 2002 and Leadbeater, 1997). Eventually, each of these business ventures became successful, self-sustaining enterprises because they had each responded to a need within the community.
Mawson's long-term objective to improve the social state of Bromley-by-Bow paid off, and after just a decade; the centre was flourishing. The centre moved away from the church to become a secular organisation, and became a registered charity in 1994 (Bromley-by-Bow centre, 2010). One of the greatest successes, causing the charity to expand rapidly, was the opening of a £1.4 million health centre in 1997.
The Bromley-by-Bow centre is proof that social entrepreneurs such as Mawson are able to seek out and inspire individuals and organisations to invest in the enhancement of society. Non-for-profit organisations aim to run as independently as possible, however many rely heavily upon government grants, and thus have to work under contracts to governments. Very few non-for-profit organisations can claim financial independence. Leadbeater (1997) highlights the some of the support Bromley-by-Bow secured, the insurance group Royal SunAlliance funded a £300,000 project over a period of three years to aid the innovation of methods used to reduce youth crime in the area, and NatWest Bank provided a grant of £220,000 in order to support local young entrepreneurs. Such support from external organisations is drawn in by innovative entrepreneurs, who successfully inspire others to support self-sufficiency within communities, therefore helping to prevent future deprivation of the area. These schemes intend to help young people attain the skills and ambition which will lead them on a path away from drugs and crime (Leadbeater, 1997). The centre embodies the greatly needed social capital within the community.
It is clear that for social enterprise to be possible, revenue must be generated in some way. It is accepted that the vast majority of social enterprises are non-profit organisations (Taylor et al. 2000). Social enterprise activities may be undertaken in joint partnership with profit-seeking organisations that are willing to devote a percentage of their profits to the cause. For the profit-seeking organisation however, the term used is generally 'social mission'. It is sometimes difficult to distinguish between a profit-seeking enterprise which has a social purpose or commitment, and social enterprise. It is difficult to determine whether the greater commitment is to money or social need. For example, the franchise "Ben and Jerry's" has had a strong record of acting responsibly towards both society and the environment; the ice cream franchise donated more than $1.1 million to charitable organisations in 2004 (Peredo and McLean, 2006). Stephens (2003) linked Ben and Jerry's with an organisation tackling inner-city poverty through several business ventures, questioning "Is this just ice cream with a fashionable dollop of corporate social responsibility or, as it progenitors claim, a market solution to social problems?" (Peredo and McLean, 2006, pg 62). Can such a business which claims on its website an equal commitment to making profit with a social and environmental sense be considered social enterprise? Leadbeater (1997, pg11) claims otherwise, postulating that social enterprise "must be social in the sense that they are not owned by shareholders and do not pursue profit as their main objective." In essence, Leadbeater asserts that it is contradictory for profit making and social good to be combined within a social enterprise.
Unlike Leadbeater (1997), it appears that the Columbia Business School considers profitability and social concern to be compatible characteristics of a social enterprise. The Social Enterprise Program at the Columbia Business School highlights the activities of Gary Hirshberg who is considered to be a successful social entrepreneur. Hirshberg attributes the success of his highly profitable yoghurt company to its mission. Whilst there is no suggestion that the company's social commitments are purely marketing tools, the goal of profitability seems to be of equal importance to the social and environmental objectives (Peredo and McLean, 2006).
Whilst some argue that it is possible to combine profit making and social good with social enterprise, it is important to note that some businesses also use 'cause branding' as a marketing tool. Peredo and McLean (2006) remark upon Avon Cosmetics affiliation with the cause of raising breast cancer awareness. 'Cause branding' is successful at providing support to worthwhile social projects, however there are also considerable profitability benefits, because businesses demonstrating social responsibility stand out to the customer within a wide range of similar services. With such marketing tools in place within many of today's corporations, it can be difficult to distinguish between business enterprise and social enterprise. Despite this, social projects benefit greatly from such affiliations with such business enterprise (Peredo and McLean, 2006), thus begging the question, can this to be classified as social entrepreneurship?
Reis et al (1999) purports that there are two driving forces behind social enterprise. Firstly, the nature of the objective social change often benefits from an innovative, entrepreneurial approach to finding a solution. Secondly, diversification of the funding stream is paramount to the sustainability of an organisation. Within such methods of diversification, the opportunity for earned income often arises, in order to fund the services they provide. All social enterprises create both economic and social value, but they are not always equal drives.
Alter (2006) suggests that social enterprise can arise out of the desire to pursue either monetary gain or to aid a particular cause. According to Alter, the social aim does not have to be the primary concern; the motivation behind social enterprise can be financial, where the social impact is purely an additional benefit. It is feasible that social enterprise is merely a complimentary activity that enhances the company's mission, in combination with generating an income. Social enterprise may arise out of a desire for financial return, but nevertheless the enterprise often enhances and expands the organisation's social mission. Therefore, the social enterprise activities may merely be a means of funding the social program. Dees (1998) argues that social enterprise does not need to be profitable to be worthwhile; the financial objective of a social enterprise is not profit, but instead to generate revenue to fund the social program. It is a means of reducing program deficits and utilising resources more efficiently.
On the other hand, social enterprises can be central to the organisation's mission, where the enterprising activities function as a self-funding strategy (Alter, 2006), thus, mission goals and financial self-sufficiency are simultaneously achieved. Alter (2006) suggests examples such as the Fair Trade industry, where profit is made from selling the product whilst providing social benefit in the form of employment development.
Peredo and McLean (2006) question whether a better definition of social entrepreneurship would include only ventures willing to sacrifice a reduction in profits in order to satisfy their social goals. Should the firms that would abandon their social aims, if they considered they would not create added profit, should be disqualified. On the other hand, Peredo and McLean (2006) identify that what should be recognised is the pursuit of socially valuable outcomes, rather than searching for the motivations behind the actions of an organisation. The primary concern of social entrepreneurship is the presence of social goals. It appears to guarantee an altruistic form of capitalism, essentially evaluating human activity in a form other than business terms, aiming to benefit society over maximising financial profit (Tan et al, 2005).
It is largely a shared belief that social enterprise is motivated by a desire to enhance and improve society in some respect, however it is accepted in some cases that financial profits are created as a surplus benefit. Macmillan (2003, pg.1) voices a viewpoint shared by several academics that "There is no reason why imaginative entrepreneurs cannot enhance social wealth and also generate fortunes for themselves." Social enterprise naturally creates both social and economic added value. For the most part, revenue gained is purely a means to an end, allowing a social mission to be completed. The difficulty in assessing whether profit making and social good are compatible within social enterprise is within profit focused businesses which use 'cause branding' or have a combined social aim to the business which they use as a marketing tool. Thus, the question to be asked is whether these organisations can be classified as social enterprises. Does a concern for profit disqualify any social responsibility that they demonstrate? My understanding of a social enterprise is an organisation whose primary concern is for social development. As noted by Reis (1999), the financial returns are often used for further development of the social project rather than individual profit. However, MacMillan's (2003) reference to individual profit as a result of social enterprise is also valid. Social enterprise continues to promote social enhancement, whether the social project is in deficit, breaks even, or has a surplus profit. Therefore, if the enterprising activities conducted were successful enough to produce a profit, it merely demonstrates the efficiency of the entrepreneur.