What is a social enterprise?

The term social enterprise (SE) has quickly picked up momentum as these organizations have taken on a critical role to address current pressing societal challenges. Nevertheless, there are varying perspectives on what a SE finally is.

SEs are driven by a social mission and provide innovative means to tackle issues such as high unemployment rates and social exclusion, climate change and dwelling natural resources, or economic inequalities (Griego, 2015). SEs promote sustainable development and induce systemic change towards a more inclusive society. Due to the relative newness of the concept and variety of contexts SEs arise from, there is yet little consensus regarding a proper definition (Griego, 2015). The present article therefore presents the most commonly discussed criteria of SE and the difficulties of achieving a uniform definition. Further, the importance of assessing their social impact is discussed.

New societal needs

To access the concept of SEs it is beneficial to understand the context these organizations have emerged from. Demographic developments over the past decades have created a demand for new societal services. Longer life expectancies, women entering the workforce, or an increasingly migratory workforce demands for appropriate social responses to healthcare, education, or economic and social integration of immigrants (Griego, 2015). Further, globalization, an increasingly knowledge-based economy, and competitive labor market have changed social relationships and created a more complex society (Griego, 2015). Individuals who do not adhere to these developments are at risk to suffer from social exclusion. Indeed, empirical studies suggest under the term of ‘new poverty’ that an increasing share of the European population is subject to conditions of uncertainty, instability, and discrimination (Eurostat, 2013). These tendencies have made advanced economies into breeding grounds for the emergence of new kinds of enterprises that address these emerging needs.

Social orientation

The inability of public agencies and private business to address emerging social and environmental issues challenges the logics underlying the traditional business models. Increasing profits at the cost of individual welfare call for a paradigm shift of the societal responsibility of businesses (Porter & Kramer, 2006). A common definition of SE therefore suggests that these organizations follow the imperative to create social value rather than focusing on personal and shareholder wealth (Griego, 2015). This definition, however, entails the discussion on whether SEs fall into the forprofit or nonprofit sector. Those who adopt a narrower approach define SE as nonprofit initiatives aimed at searching for alternative funding strategies based on the application of business expertise and market-based skills traditionally not related to the nonprofit sector (eg Thompson, 2002). Others see SEs as forprofits with innovative activities aiming at a social objective. SEs may therefore rely on commercial capital and be concerned with financial returns (Perrini, 2007). The disagreement therewith primarily is about the level of importance social entrepreneurs should place on social mission. In this context, one of the most prominent examples for SEs are micro-finance institutes lending loans to those who are not served by commercial banks (Yunus, 2003).

Innovative character

The innovative approach social entrepreneurs follow in their undertakings is a crucial characteristic of SEs (Griego, 2015). Innovation thereby takes place on different levels: The innovation may appear in how the organization structures its core programs or in how they assemble their resources and fund their works. SEs may offer innovative products, services, or processes to address existing issues. An often discussed example in this regard is labor integration programs that aim to reintegrate those individuals into workforce that otherwise do not have the possibility to participate in the labor market. From a nonprofit perspective, SEs that engage in the acquisition of profit-making skills, strategies and ultimately allowing for growth indeed have an innovative approach in this sector (Griego, 2015). On a wider perspective, SEs not only innovate through the means they pursue in their social mission, but they also challenge and redefine the traditional business environment they operate in.

Governance and ownership structure

The objective to promote a more inclusive society is reflected in the SEs’ governance and ownership structure. Internal democratic decision-making processes are an important characteristic of this organizational type. SEs tend to preserve employment and quality of services to their members and customers even at the cost of reducing their profit margin giving them a considerable importance in governance decisions (Griego, 2015). Contrarily to the traditional business model, SEs therewith assign ownership rights to stakeholders other than investors (eg workers, customers, volunteers), who’s involvement and participation are highly valued. Defined by these principles of democracy and solidarity Griego (2005) defines four groups of SEs:

  • Social cooperatives; member-owned organizations focused on social value creation,
  • Mutual societies; autonomous association of persons united voluntarily for the primary purpose of satisfying their common needs (eg in the insurance, providence, health and banking sectors),
  • Associations; lasting organization for a particular purpose that can be cultural or recreational and serves a wider societal group, and
  • Foundations; organizations that involve the use of endowments, managed by legal entities, and created to accomplish goals of the benefit of a specific group.

However, these organizational characteristics vary considerably from one country to another, which again impedes a uniform definition for SEs.

The path for future development

For the future development of SEs it is essential to access their performance and quantify their actual societal impact. As their primary mission is to solve social problems, they must be sure about the actual achievement of this mission. However, there is much debate on this issue, as instruments to assess the performance of forprofit organizations are not able to capture the whole picture of SEs, which leverage economic activities for the pursuit of a social mission and thus cannot be evaluated regardless of their ability to create social mission (Griego, 2015). Further, the difficulty to access the SEs’ performance lies in the ability to translate social impact into quantifiable measures. The need to adequately measure the effectiveness innovative programs and compare organizational forms across countries, a uniform definition for SEs is much needed.


References

Eurostat (2013). People at Risk of Poverty or Social Exclusion. Retrieved from http://epp.eurostat.ec.europa.eu.

Griego, C. (2015). Assessing Social Impact of Social Enterprises - Does One Size Really Fit All? (1st ed.). Heidelberg: Springer.

Perrini, F. (2007). Social Entrepreneurship. Milano: Egea.

Porter, M. E., & Kramer, M. R. (2006). The Link Between Competitive Advantage and Corporate Social Responsibility. In Harvard Business Review, 78-92.

Thompson, J. (2002). The World of the Social Entrepreneur. In International Journal of Public Sector Management, 15(5), 412-431.

Yunus, M. (2003). Banker to the Poor: The Story of the Grameen Bank. Aurum Press Limited.

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Entrepreneurship in Nonprofits

University of Basel