Part 1: Introducing Social Enterprise Performance

Part 1: Introducing Social Enterprise Performance

Overview and Rationale

Overview and Rationale

Ask any self-respecting social entrepreneur why they do what they do, and they will tell you passionately about a social problem and how they are working to solve it. Most achieved a moment of clarity when they recognized an injustice and were compelled to take action. In tackling the social problems, their approaches are as wildly different as the problems themselves, yet our research and experience tells us that social entrepreneurs’ motivation is ubiquitous—to make sustainable social impact.

To this end, social entrepreneurs are obsessed with how well they achieve social impact. Regrettably, little attention has been given to examining performance in social enterprise methodology; instead numerous pages have been written on capturing how much social impact social entrepreneurs achieve. At first glance these perspectives appear identical, and they are indeed interdependent: the first stresses organizational performance, which then produces the second, external impact (measuring social impact metrics).1 Our assertion is that by enabling social entrepreneurs to assess and improve how well they achieve social impact they can in turn improve their performance, and increase how much impact they achieve.

We begin with a bold thesis: social enterprise is a paradigm for social organizations to achieve high performance.

In this paper we define social enterprise as: “socially-oriented venture (nonprofit/for-profit or hybrid)2 created to solve a social problem or market failure through entrepreneurial private sector approaches that increase organizational effectiveness and sustainability while ultimately creating social benefit or change.”3

We define high performance organizations as “efficient, adaptive, strategically-minded organizations capable of simultaneously creating economic wealth and social value and addressing root causes of social problems in order to achieve deep, lasting social impact.”

However, at the time of this writing there is a dearth of tangible materials and tools devoted to helping social enterprise practitioners understand and improve their performance—do what they do better. Instead, social enterprise literature is rife with definitions and chronicles of social sector leaders and their endeavors. The power of inspirational stories to motivate aspiring social entrepreneurs to implement their ideas should not be underestimated; however, analyzing and chronicling best practices is required to understand social enterprise performance, ergo develop social enterprise methodology.

Social enterprise methodology gains to date underscore three narrowly-focused schools of thought:4

  1. the Social Entrepreneur Approach, which supports leadership development of the practitioner;
  2. the Funding Approach, which advocates earned income as a means to fund social projects and organizations; and
  3. the Program Approach, which uses commercial activities to execute social programs (i.e. micro-credit).

All three approaches have merit, yet neither alone nor together do they go far enough for the practitioner who is interested in mitigating a social problem. Money is motivating only in that it is a necessary means to finance costs related to solving a social problem. Strong leadership is essential to the success of any social enterprise, yet does nothing to address pragmatic questions related to institutionalization or capacity building. Finally, employing business activities is attractive only if doing so generates greater social value.

Social enterprise lies at the nexus of management science and social science, and therefore its practices should be drawn from and inspired by multiple disciplines such as business administration, social work, geography, policy studies, anthropology and economics. Social problems, too, are complex and often require multifaceted tactics to untangle their causes and effects. Thus, any comprehensive social enterprise methodology must take a holistic view of the social enterprise and integrate and build on current schools of thought—leadership, funding and program.

An integrated methodology requires that a complex network of internal systems function individually as well as interdependently to achieve a healthy whole. Diagnosing “symptoms” of poor social enterprise performance such as the inability to draft a strategic plan, high staff turnover, improper financial management, mission discord, dissatisfied clients, a poorly functioning board, etc. may indicate weaknesses in one functional area, whole systems, or institution-wide. Correcting problems may be isolated events or require comprehensive change management; either way changes in one area or many has an inherent impact on the performance of the social enterprise, for better, for worse or both concurrently. Social enterprise performance is dependent on the interrelationship between money, people, community, resources, capacity, leaders, values, knowledge, culture, acumen, and vision, etc. and how these aspects work together, or in opposition, toward achieving the end goal of sustainable social impact. Thus, achieving a high performing social enterprise is like a steady fitness regime that requires enduring vigilance, not only to remedy problems, but to strengthen capacity and maintain general health.

  • 1. The relationship is illustrated with a logic framework: organizational outcomes are the result of activities that lead to measurable outputs and subsequently organizational change, the cumulative effect is impact.
  • 2. Social enterprise is agnostic about legal form, which is usually dictated by governing laws in the countries where they operate.
  • 3. Alter, Kim, Social Enterprise Definition, Virtue Ventures, 2006.
  • 4. Alter, Kim and Vincent Dawans, “The Integrated Approach to Social Entrepreneurship: Building High Performance Organizations,” Social Enterprise Reporter, April 2006.

Framework Purpose

Framework Purpose

Social enterprise has been touted as the answer to achieving performance gains in the third sector, yet as a field it has been slow to develop its core methodological components. The purpose of this framework is to support the social enterprise community by developing an integrated methodology, one that goes beyond splintered factions and works to unite social enterprise around common challenges and performance criteria, thereby furthering the development of social enterprise as an established field and a means for achieving sustainable social impact.

Social enterprise achieves social impact by creating social, economic, and environmental value. Using a market-based approach, social enterprise incorporates commercial forms of revenue generation (and thus creates economic value) as a means to accomplish its social mission (and thus creates social value and/or environmental value);1 the combination of these results is a “blended value” outcome. Simply put, it is difficult to dissect value produced by the social enterprise and assign it to discrete activities because value production is a function of the interdependent nature of all social enterprise activities. For example, the social value of wealth generated by a successful microfinance institution (MFI) can be directly correlated to the economic value created to keep it afloat: the greater the number of productive loans disbursed, the greater the benefit to poor entrepreneurs, and the greater the amount of interest collected to sustain the MFI.

In the social enterprise, the means by which value can be created are as diverse as the social enterprises themselves. For instance, social value can be achieved through any or all of the following modalities: a direct result of executing the business; ancillary social programs; social services embedded in the social enterprise model; management and/or governance philosophy or processes; procurement of supplies and raw materials; strategic partnerships; and socially and/or environmentally responsible policies. To complicate, trade-offs occur whereby one type of value is compromised, curtailed, or forsaken to achieve another type of value. Most often this relates to economic value at the cost of social or environmental value to ensure the social enterprise’s survival. For instance, microfinance institutions went upmarket, making larger and higher margin loans to the “less poor” as a means to commercialize. The concession was reduced group loans to the “poorest of the poor,” while the benefit was being a going concern that could lend to many more poor people over time. The goal is to be strategically intentional about where and how to create maximum value and to view value creation as a holistic outcome of social enterprise performance.

Questions we seek to answer:

  • How is performance defined and measured in social enterprise?
  • What do we mean by ‘integrated methodology’?
  • How can integration lead to higher performance?
  • 1. Social enterprise may add environmental value by employing environmental sustainable practices in its activities, or in the case of an environmental social enterprise—e.g., Nature Conservancy—environmental benefits are baked into the organization’s mission and integrated with its social programs.

Structure

Structure

First, we start by framing performance in the context of sustainable social impact, this being the ultimate goal of any social enterprise. In doing so, we avoid attempting to arrive at a common definition of ‘sustainability,’1 but instead focus on key characteristics exhibited by successful social sector organizations, namely their commitment to achieving (1) deeper social impact, (2) blended socio-economic value, (3) increased efficiency and (4) greater adaptability. We further demonstrate that the lack of these characteristics would negate any pretense of sustainability (although we certainly do not imply that their existence is all there is to sustainability).

We then apply these performance criteria to the social enterprise methodology, describing how social enterprise practitioners have addressed the challenges common to all social sector organizations along the four performance criteria.

Second, we make the case for an integrated social enterprise methodology. We start by demonstrating that social sector organizations, regardless of their performance, face common challenges in four strategic areas—we call them strategic lenses: how they engage their stakeholders, mobilize their resources, develop their knowledge, and manage their culture. We then conclude that each strategic lens has a role to play in each of the four performance criteria, potentially creating a complex series of synergies and tensions calling for an integrated approach across all four strategic areas to achieve the organization’s performance objectives.

Next, we conduct an analysis of how social enterprise practices seen through these four strategic lenses can potentially impact organizational performance. More importantly, we seek to show the integrative relationship between key performance criteria and social enterprise practices seen through the four lenses—a shift in organizational practice seen through any of the strategic lenses will impact (positively or negatively) the organization’s performance across the key criteria. Thus, we combine key performance criteria with the four strategic lenses to arrive at an integrated framework that we hope will further the development of social enterprise methodology as a means for achieving optimal performance in social sector organizations.

  • 1. This is an important ongoing debate but not the purpose of this framework.