Is Social Enterprise Sustainable?
Social Enterprise first evolved in
the developing world. Now the business models and social metrics may be going
mainstream.
When Filipe Santos began teaching
Social Enterprise at INSEAD in 2004 very few of his students had any interest
in developing businesses which had a social impact. Now more than 30 percent of
his students want to make a social difference. “The time is ripe for a new
social impact model,” says Santos. “We see a lot of problems in developed and
developing countries that are not being addressed by markets. It’s not just
poverty, it’s about things breaking down around long-term unemployment,
exclusion from society, healthcare. Problems that society and governments are
not able to invest in. For me, social enterprise is the process of developing
sustainable solutions for some of these neglected areas.”
The early social entrepreneurs were
often people who had been educated in Europe or the U.S., gained experience in
mainstream companies in the developed world, and then brought their expertise
back to their home countries in the developing world. Nobel Peace Prize winner,
Muhammad Yunus, was one of the pioneers when he introduced the notion of
microfinance to Bangladesh in the 1970s with the foundation of the Grameen
bank.
The early social enterprise models
were still essentially philanthropic models where charities and not-for-profits
were constantly trying to generate income from donations and grants. Sir Ronald
Cohen, whose involvement in social enterprise features elsewhere in this
edition of INSEAD Knowledge, makes the point that many charities or and
philanthropic social enterprises rely on short-term funding and grants. Yet he
believes that the new generation of social enterprise organisations are
becoming self-sustaining for the long-term rather than having to go cap in hand
to donors every few years.
Social Tipping Point
Professor Filipe Santos believes
that we are at a tipping point for the emergence of long-term sustainable
social enterprises as well as the adoption of social enterprise principles by
mainstream companies who have previously only measured success in terms of
profit rather than social impact. “Global companies, with subsidiaries in many
countries are probably not hurting as much from austerity. Fortune 500
companies’ cash reserves are probably higher than they have ever been, so
increasingly they are engaging in social impact activity.”
He also believes more traditionally
profit-focused companies, such as Lagrange and Novartis, are now beginning to
achieve significant social impact change. “Will that change the nature of the
company? In most cases probably not – at least for the moment. But I’ve also
heard people say once you get into a social impact mindset, it actually changes
the way they think about constant profit and efficiency and optimisation. That
leads to a lot of innovation, which is good for the company and good for
society.”
Ethical By Design
After twenty years in business,
Sofia Minney, from the environmental and fashion label People Tree, is finally
getting the scale to be able to partner with chains like John Lewis and ASOS
who want to trade as ethical retailers. They have recently raised two
significant tranches of debt from customers in Japan and the U.K. to sustain
their long-term growth.
People Tree is a good example of a
hybrid business model that combines the best bits of social enterprise and
commercial companies. Its founder and CEO, Sofia Minney describes herself as an
ethical consumer who turned her convictions into an ethical business almost by
accident rather than design. “We set out as a bunch of professionals who wanted
to do media and business differently and ended up with a brand that has a lot
of integrity; from the farmers producing the organic Fairtrade cotton; through
the manufacture and onto the way that we choose to sell and talk to our
consumers and the products we deliver.”
Their marketing and pricing strategy
aims the fabrics and clothing lines firmly in the mid- market sector along with
global brands like Reiss and Boden. The integrity of the supply chain and their
multi channel approach to distribution (they have 800 distributors, 3,000
stockists and own their own stores in Japan) allow them to compete with these
much bigger competitors. They turn over around £8 million per annum and have
notched up 20 percent annual growth in recent years – despite the economic
downturn.
Treating their organic cotton
farmers fairly comes at a price. Since they pay them ahead of delivery, the
company also acts as a de facto ethical bank. Sofia’s husband James now uses
his experience in the City to run the company’s finances.
Social enterprise is a growing
phenomenon, according to Santos. “What you’re seeing now is a growing awareness
of the role that companies can and should play in society and some of the needs
that societies have in both developing and developed countries and there are
many people in these companies who would like to have more meaning in their
careers. You are seeing a lot of these innovations in these companies being
driven by champions whose ideas resonate with people who volunteer for their
initiative. Sometimes it’s a corporate policy that comes from the top and
sometimes it’s a ground up movement.”
Doing Good Business
Despite the fact that the U.K.,
(certainly under the present coalition government) is probably a major
cheerleader for profit-driven Anglo-Saxon market capitalism, the U.K. is
actually producing more social enterprises than the rest of Europe – taking the
lead in adapting this emerging market model of doing good by doing good
business and bringing it to the developed world.
UK-based MyBnk is an example of a
more pure play, less commercial social enterprise. Founder Lily Lapenna spent
her early career in international development in Zimbabwe and Bangladesh.
Impressed by the work that organisations like Grameen Bank were doing to
provide capital for small social entrepreneurs, she saw those models could work
in poorer parts of Britain. “Coming back to the U.K., I realised that there was
a huge gap in education. We were taught about sex but not about money.” She set
up ‘MyBnk’ which helps educate young people and provide finance for small scale
businesses in socially deprived areas of the U.K. “The idea was to use
financial services as a practical learning tool, encouraging young people to
take the responsibility of helping themselves and the wider community.”
Her organisation gets a large amount
of its funding from local education authorities who pay for the educational
packages. In some cases pupils can apply for interest free micro loans to set
up small businesses which invariably deliver a financial return. The success of
their educational programmes is mainly measured in terms of the ‘social
impact’. “We can prove that young people who take part in these programmes will
end up being more employable, more likely to save and be able to manage debt
more effectively. All that can be translated along the line into a benefit for
government.”
Community Conscious Fishing
The livelihoods of small local
fishermen throughout Europe are under threat from dwindling fish stocks and
‘super trawler’ fleets which drive catch prices down. A new social enterprise,
Catchbox – a model of community supported agriculture - has just been launched
in the South of England and puts environmentally conscious consumers (who are
prepared to pay more for an ecologically sound product) in direct contact with
local fishermen.
It’s the brain child of marine
biologist, Jack Clarke. "You're not going to save the world by using
Catchbox but you'll know your money is going to local fishermen rather than a
global supermarket chain. You'll know exactly where your food has come from and
that it's been responsibly, sustainably fished. We've seen communities club
together to save post offices and pubs. Now it's time to work together to save
our fishing industry."
Scaling Up
INSEAD’s Christine Driscoll believes
that some social enterprises have successfully scaled up – Wikipedia for
example. But she admits that many believe getting to the next level is
difficult. “When they get to the point where they’ve proven the model and the
solution is working, they find that they need to partner with government or the
private sector to be able to successfully scale up.” That partnership process
between big traditional business and small social enterprises would seem to be
mutually beneficial. The social enterprises get access to finance and
logistical expertise whilst the big business starts to develop a more ‘social’
mindset.
Before Driscoll became Associate
Director of the INSEAD Social Entrepreneurship Initiative, she worked at the
socially conscious ethical clothing brand, Edun Live. She believes that not all
companies embrace social enterprise for altruistic reasons, but nevertheless by
becoming more ‘social’ they almost inadvertently become more profitable.
“Wal-Mart, for whatever reason, decided to clean up its supply chain and their
environmental footprint and as a result became a lot more profitable and
greener by, for example, slashing energy costs.”
Driscoll also believes that
multinational companies “do well by doing good” and reap the unintended
consequence of opening up new markets and creating new partnerships. “So Danone
are working with dairy farmers in Senegal to improve their operations and are
partnering with Grameen Bank to produce vitamin enriched yoghurt
in Bangladesh. Ashoka have 70 partnerships on file using hybrid business
models where private sector companies are partnering with non-profts and
social entreprenuers; and Unilever are opening up whole new markets in
India and Bangladesh by delivering affordable single use sachet sized shampoos
rather than US$6 bottles.”
By Filipe Santos, Associate
Professor for Entrepreneurship with Nigel Roberts, London
Correspondent http://knowledge.insead.edu/csr/social-entrepreneurship/is-social-enterprise-sustainable-2471?utm_source=INSEAD+Knowledge&utm_campaign=774d64a73c-INSEAD_Knowledge_May_Newsletter_7_5_2013&utm_medium=email&utm_term=0_e079141ebb-774d64a73c-249840429
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