The Future of Social Enterprise

  • Conversation Summary

Faculty Response (25 July 2008)

For social mission organizations, performance means different things to different people. The current measure of how well an organization performs is "impact" — that is, did the group solve the social problem described in its mission? Realistically, however, most individual organizations merely contribute to a solution, which may take years and multiple approaches and actors to address. How appropriate is impact as a measure of success? In what situations is it sufficient to measure outputs (providing a needed service or advocacy) and efficiency, and when are more sophisticated measures needed?

Following on Professor Rangan's question, solving social problems may take multiple organizations working together over time. When is it appropriate to take a system-wide approach to a problem and how would the impact of networked organizations be measured?

Original Questions

In our working paper, The Future of Social Enterprise, we consider the confluence of forces that is shaping the field of social enterprise, changing the way that funders, practitioners, scholars, and organizations measure performance. Our paper traces a growing pool of potential funding sources to solve social problems, much of it stemming from an intergenerational transfer of wealth and new wealth from financial and high-tech entrepreneurs. We examine how these organizations can best access the untapped resources by demonstrating mission performance and then propose three potential scenarios for how the sector might evolve:

Consolidation: Funding will keep growing in a gradual, linear fashion and organizations will compete for resources by demonstrating performance. The sector will consolidate, with some efficient organizations gaining scale, some merging and then growing, and some failing to achieve either scale or efficiency and eventually shutting down.

Entrepreneurial: Existing and new enterprises will apply strategies to achieve and demonstrate performance, improving efficiency and effectiveness and attracting new funding sources. More organizations will enter a reformed, competitive field of social change with new entrepreneurial models, established traditional organizations, and innovative funding strategies fueling widespread success.

Expressive: Rather than focusing exclusively on performance, funders and organizations may view their investment as an expressive civic activity. As much value is placed on participating in a cause as on employing concrete measures of impact or efficiency. Funding will flow as social entrepreneurs experiment with new models based on a range of individual priorities and relationships.

While our research favors the entrepreneurial scenario, there was a stimulating diversity of opinion at the March 27-28 "The Future of Social Enterprise" Centennial Colloquium. Now we would like to get your thoughts.

In terms of solving social problems, which of these three scenarios is most attractive from your vantage point, and what can be done to accelerate the movement in that direction? For instance, what are the potential drivers from one scenario to another — and what steps by funders, business leaders, government, funding intermediaries, or others would expedite the change?

As more funders with entrepreneurial backgrounds enter the philanthropic market, there is an increasing view of philanthropy as social "investment," with success measured by impact, or social return-on-investment. Yet defining ROI is more elusive for the social sector than for businesses. To what degree can social mission activity be mediated by measures of ROI, and how is the return defined?

Your Comments

  • Pablo Jenkins
    MBA Student, Leadership Fellow
    Aspen Leadership Network

    What are good examples of metrics used to measure the impact of a social investment?

  • Kim Lew
    Alumnus/a MBA 1992
    Director of Investments
    Carnegie Corporation of New York

    There is definitely growth in the newer more entrepreneurial funding sources. Many of the benefactors of those foundations gained their riches through entrepreneurship and specifically the use of technology. All have grown up in the era of pay for performance so they are results oriented. The more established foundations were founded more on the ideals of improving the public good without a clear definition of how to measure progress. I think that there are certain societal ails that lend themselves to measurement - (ie vaccinating kids). There are others where the problem is so massive and the solutions require a fundamental shift in the way people behave and think and so the solutions are long term and therefore more challenging to measure using the traditional measurement tools (ie eradicating poverty).

    I think that the community will have to come up with viable ways to measure interim progress which encourages long term solutions as opposed to short term fixes. Until that is done the older foundations will continue to focus on more broad social issues and the newer foundations will look to more prescient near term problems. One might argue that it is strategic versus tactile but in fact I think it is just a matter of different strategies.

  • Pierre Ferrari
    Alumnus MBA76
    Chair
    Ben and Jerry's Board

    Thank you for pursuing this work and surfacing the material dynamics associated with these massive changes in funding flows and beliefs systems. I suggest that it might be worth separating to some degree the issues raised when one addresses social problems versus environmental degradation. It appears so far that while both sub sectors are driven by deep systemic forces, the environmental seems to be less burdened with moral hazard issues. To state the obvious there will be much faster and stronger responses to creative/entrepreneurial solutions in the green sector than the ,say, red sector. There is of course often a link between the green and the red but not always. in the US the metrics for the gren are often more easily accepted than the metrics for the red at least in Quadrant C. In Quadrant D, there seems (in my direct experience) more social and ego values to discuss and represent green initiatives than red initiatives ...How easy it is to broadcast one's concern for the green by driving a Prius...How does one emblematic demonstrate our commitment to end the deepest poverty?

  • Monisha Kapila
    Alumnus/a MBA 2005
    Vice Chair for Board of Directors
    The I Do Foundation

    From my perspective, the Entrepreneurial scenario provides the most opportunity to be a catalyst for change. Entrepreneurship has been a critical force for great changes in the business world - from the Industrial Revolution to development of the Knowledge Economy.

    One of the key drivers for entrepreneurship is the reward - personal fulfillment for building a business and financial reward that comes with success. I wonder how we can create appropriate "rewards" so the best entrepreneurs view solving social problems to be as compelling as the financial rewards of having a successful start-up.

  • Henry Maigurira
    Other
    Project Coordinator
    www.sunshinedunes.co.za

    Future of social enterprise is in the internal capacity of the governance systems of organisations.

    Continued focus on Strengths, Weakness, Opportuiities, and Threats increases efficiency and better outcomes with higher performance standards.

    Management has a role to foster sustainability, more accountable systems, and transparency on projects done for the community to attract more plausible funding.

    In Africa, philanthropic organisations have taken positive sway in advising about the possibilities of whether another green revolution in Africa will mitigate food shortages and rising prices. Bill and Melinda Gates foundation, Clinton Foundation, Mo Ibrahim Foundation and the Nelson Mandela Children 's Foundation are perfect examples of why social enterprises have developed to be factor of sustainability in the future of global society in all spheres of economic, social and political activity.

  • Shannon A. Stackhouse
    Alumnus/a AB 2000
    Sr. Strategic Sourcing Analyst - Ph.D. Candidate
    State of Georgia/University of Texas

    The entrepreneurial vision is attractive, and should be embraced to some extent. However, as a person working in a public organization that is attempting to incorporate business practices into its operation, I can say from experience that the standards, ideals and constraints differ between the two sectors maybe more than private proponents would like to believe.

    There is definitely space for improvement in efficiency and measurement of impact in the public sector, but as suggested by Susan McDonald, the definitions of "efficiency" and "return on investment" must be discussed carefully BEFORE imposition on the public sector.

  • Barbara Schmidt-Rahmer
    Alumna MBA 1993
    Founder and Director
    Vencer Juntos (Winning Together)

    Measuring impact is one of the biggest challenges I've been facing in the last five years as a social entrepreneur engaged in a venture of identifying, funding, training and developing entrepreneurs in some of the poorest regions of the interior of Brazil where market-driven investments and jobs are non-existent. Applying my know-how acquired at HBS and in the consulting industry, we built a computerized performance measurement system that tracks the financial performance of the new mini ventures funded.

    Based on those quantitative measurements, we would have to conclude that the project is so far a failure and needs to close down. However, field visits and interviews with the clients tell a different story and indicate a success that deserved to be continued and expanded. One finding is that the clients themselves are very satisfied and have much more modest ambitions and goals than we, the social entrepreneurs. What looks like an insignifant improvement in income and quality of life to us is a big success to our clients.

    The other finding is that qualitative changes, such as the building of social capital: leadership development at the grassroots level, the emergence of functioning client organizations that are able to attract other investments and influence local public policy are more pronounced than the improvement in financial indicators. The third finding is that working with the poorest requires a long-term commitment and patience: the process of change takes much longer than expected and results don't appear in a typical funding cycle.

    Conclusion: the definition of a return on social investment is an extremely important but very difficult and complex exercise. Narrowly defined performance indicators from business alone will not provide the answer. The task must be a true interdisciplinary effort, drawing on know-how from business, the social sciences, funders, practitioners and clients. I'd love to continue to participate in and contribute to the dialogue.

  • Jim Winkelmann
    Executive Education Participant OPM 38
    Manager
    Blue Ocean Portfolios

    As Susan points out, objective measurement for ROI is quite difficult - for example what is the best way to measure results for a hospice or a day care program? Very difficult indeed! There must be way to accurately quantify the impact for a successful social program to the community it serves. Unfortunately it is difficult to ignore the economic realities that every agency faces. Adequate funding is the life blood and economic sustainability being the objective of every social enterprise that I have reviewed.

    John Keynes had the idea that the government should take discarded bottles and fill them up with old currency and bury them in abandon caves and mines. Thus creating an industry for the unemployed to spend their time and energy figuring out the best way to recover the bottles and the cash reward inside. This is not as ridiculous as it sounds. Creating the proper incentives can make a big difference is any organization.

    What about a program that gives new cars to parents of children who get straight As with perfect attendance? What could the economic impact to a community of something like that be? We all have to be more creative and think of ways to incent people to modify their behavior rather than rewarding people for bad behavior.

  • Arthur Fullerton
    Alumnus MBA 1989
    Strengths Based Consultant

    As someone who studied under Kash twenty years ago before entering the for profit sector and has subsequently spent the last decade in the non profit field, I can see both the opportunities and the pitfalls in social entrepreneurship. However, I believe the real future for this as a problem solving tool can best be explained by behavioral economics. In other words, it is rational to expect the field to consolidate and be more entrepreneurial, but the non profit field is filled (almost by definition) with people making economic decisions for non-economic reasons and to expect that to change is unrealistic and possibly even counterproductive. I believe the biggest impact of social entrepreneurship will be to pressure non profits to become more efficient service providers. This is primarily a function of good stewardship, rather than good business practice, though clearly the two are not mutually exclusive. Arthur Fullerton MBA, MAPP

  • Lim Handoko, MBA
    Lecturer
    Universitas Pelita Harapan, Indonesia

    In my opinion you people have also look at the other side of the coin i.e. those simple people who got the funding. What and how do they think the funding they received can improve them quality of life? What are the parameters and how these parameters can be formulated and measured. Will the same parameters work for other country with different social and cultural context and setting?

  • James Egbe
    CEO
    JP Consulting

    The Future of Social Enterprise in my opinion will be better pursued through the Entrepreneurial scenario. Given that all fingers are not equal, wars may not stop in the world and more donors will continue to emerge to join the existing ones. In future some operators may just have to settle for a single unit of social enterprise need like Education, Health, running Homes and forget about providing solution to all areas of Social Enterprise need. The measurement will certainly be different from the way businesses use ratios to assess performance. I think the clear objective of each enterprise which may be quantitative or qualitative will be a good yardstick for measuring performance. The whole impact on the society and the ability to have people believe more in the social enterprise scheme will also count as part of performance measurement.

  • John Goekler
    Change Factors

    I see these less as discreet scenarios and more as broad categories of possible adaptive responses to emergent realities.

    In general, I would suggest that successful 'orgs' of the future will be those that can co-evolve a compelling strategic vision and manifest goal seeking behavior that is maximally inclusive and adaptive. They will essentially become 'constructive networks' capable of reconfiguring themselves as the mission requires - sometimes consolidating, sometimes entrepreneurial, sometimes expressive, sometimes all the above.

    Their success will come less from outcome-based programs, and more from a capacity to convene and facilitate all stakeholders - from individuals through companies, orgs, agencies and jurisdictions - and collectively focus and leverage their combined assets for systemic interventions.

    They will apply the principles of open space / open source and 'swarming' models to attempt to eliminate - not just mitigate - specific problems on local scales. Their ultimate goal will be to put themselves out of business - to solve the problem and move on. In such a fluid scenario, 'organizational sustainability' will be a handicap, not an advantage.

    The shift to this 'applied complexity' model will likely be as difficult for traditional non-profits as the transition to distributed and emergent leadership models is for traditional hierarchical corporations. While most non-profits have grudgingly shifted toward metrics-driven outcomes (at least in mission statements and funding appeals) that 'vision' is likely to prove too small and ineffective to inspire donors and volunteers in the long term.

    I would suggest that the work of social change, whether private, public or third sector, is increasingly about paradigm and process - not product or program. Because structures emerge from relationships, building networks, clarifying identity and strengthening relationships will ultimately determine the forms - and the resilience and effectiveness - of our organizations.

  • Houghton Wan
    Coach for Social Entrepreneur in Asia
    Bright China Group

    I would like to hear more sharing or cases from Asia or China. May I know who has experience in this?

    Thanks.

    Best Regards, Houghton

  • Mike Everett-Lane
    Alumnus MBA 1999
    Executive Director, Northeast Region
    DonorsChoose.org

    While I agree that the Entrepreneurial scenario will continue to bring innovation and energy to the field, the biggest change will be in the capital market for social enterprises. The industry is still adjusting to outcomes-based funding, but there is more change to come.

    On the horizon are corporations creating deeper partnerships with social enterprises, and viewing those partnerships as a marketing investment rather than a philanthropic gesture. (Here at DonorsChoose.org, we have engaged with corporate partners such as Crate & Barrel, which is spending marketing dollars on our giving cards as they have seen a 15% rise in sales from those customers who received one from the company and allocated it to a classroom project of their choice.) Companies will not only involve their employees, but also their customers in their philanthropic activities.

    Another trend is what you've called "Expressive," particularly at the individual level (still the biggest philanthropic segment in the US). We recently gave our donors the ability to tell a teacher why they supported their projects, and half of our donors now write messages. Successful social enterprises will realize that communications with their donors cannot be one-way -- that people do want to express themselves through their giving of themselves. Micro-philanthropies and micro-lending programs will take the lead in this area, but established social enterprises will follow. Can micro-volunteering be far behind? (IBM's World Community Grid is an interesting case.) The intersection of this Expressive tendency with social networking will lead to -- well I don't know, but it's sure to be interesting.

  • Yagnesh Shah
    Senior Technology Engineer
    H. W. Wilson

    In my perception to a certain extent corporate social responsibilities should be legislated by government. To be a socially responsible should come from company's culture but most of the public traded companies fail to do so. They have to generate constant growth to their shareholders. There is one fear for America that if they start legislating there companies they will migrate to other countries. I will vote for Senator Jeff Bingaman proposal of R Corporation that "Corporate will be taxed at rate of 11 percent compared to 18 percent. To qualify firm would require to contribute 8 percent of payroll to a pension plan, earmark 2 percent of its payroll to employee training program, pay at least half of employee medical insurance, and have a profit sharing or employee stock ownership plan. The CEO could earn no more than 50 times the rate of the lowest-paid employee. There responsibility should be to provide their employee, safe working environment, good health benefits, good training and adequate retirement plan." This will not put a huge dent on Government fund. There will not be a big burden on companies operation because his suggestion will charge 7 percent less tax than other corporation while asking them to invest 10 percent in their employee benefits. In my long term vision most of such R - corporation will generate tremendous profit because their employee will be happy, healthy, knowledgeable and highly skill, which will result to be highly productive.

    I will not compare Senator Jeff Bingaman proposal with other type of government subsidies. Government is not subsidizing extra fund but it charges less compare to socially irresponsible companies. As a matter of fact government is losing lot in order to support its citizen without health benefits and employments. I have heard and read about socially responsible companies such as Microsoft, Goggle, Hewlett Packard, and GE. They do this because of their corporate culture and high ethical norms. They are not doing this to give a marketing boost because they are already Major Corporation. Ironically they are all publicly traded also. Source: Business & Society Review (00453609); Winter96 Issue 96, p4, 7p, 1

  • Tom Dorris
    Alumnus MBA 1967
    Dir. of Fin. and Admin.
    Congaree River Limited Partnership

    I am also a trustee of the Francis Beidler Foundation, a relatively small foundation established by the family for which the Congaree partnership is the family office.

  • Shawn Schwaner, Ph.D.
    Director of the National Center for Corporate Learning
    Sullivan University

    This is perfect. I have argued for two decades that the answer to many issues of poverty and inequality rest within the notion of social enterprise. We are currently working on a program to partner with a huge multinational corporation to address social class inequality around the world. Your forum provides a perfect opportunity to inform our implementation process.

    Thank you.

  • Ruth Goodwin-Groen
    Alumna MBA
    Senior Microfinance Consultant

    I lectured last month at the 'other' Cambridge Business School's Social Enterprise course (across the Atlantic). It reminded me again of the massive cultural differences there are in the expectations and thus measurement of social enterprise.

    In my field of microfinance there is a very lively debate about the nature of social performance measurement with perspectives running the gamut from quarterly financial return indicators to studies of changes in client behaviors. I agree with Barbara Schmidt-Rahmer's assessment that measuring social performance depends on who determines the measurement of the value created - the funder or the client.

    What is very difficult to tackle, however, is how time is a factor. Whatever our perspective on measurement we need to match it with reasonable timeframes. As Williamson (2000) in his landmark article in the Journal of Economic Literature pointed out - some of the underlying institutions which determine the nature of an economy will take hundreds of years to change. So we need to adopt measurements with a timeframe appropriate to the problem being solved.

  • John Read
    Alumnus 1971
    President & CEO
    Outward Bound USA

    There is an advantage to standing in the future with a clean sheet and looking backwards, however there are no simple answers to Prof. Rangan's question. My organization has spent 15 of the last 20 years in the A quadrant and 4 moving through B; the grass seems greener on the other side of the quadrant and the change process is a necessary but painful one for existing non-profits who expect to be a part of that future.

    The social enterprise "space" has a plethora of organizations attacking our most serious problems and a durth of talent with which to do it. Performance and efficiency are an essential part of entrepreneurship if new initiatives are to be sustainable and these are best accomplished by experienced non-profit managers. Consolidation among existing non-profits can create real career opportunities and competitive compensation to develop the next generation of social enterprise leaders and, in turn, help these (now) more financially stable organizations and networks to become more agile.

    For-profit social mission activity can be a source of financial support and of talent, but there is no substitute for skilled and dedicated non-profit managers. Real solutions to social problems require 24/7 career-length focus and cannot be accomplished by government or for profits for whom such missions are ancillary or "cause-marketing" related at best.

  • Shann Turnbull
    Alumnus MBA 1963
    Principal
    International Institute for Self-governance

    I wish to build on the perspective of Lim Handoko, from the universitas Pelita Harapan, Indonesia,who suggested the focus on measuring performance should be from the recipients of financial support.

    As pointed out by Barbara Schmidt-Rahmer, her clients had different metrics of performance than those she had developed using her HBS frameworks.

    The performance indicaters required should then be at a meta level on whether the clients of support have the information, will and power to report on the efficaciousy of the benefits being made available to them. In other words a basic key perforamnce indicator is the degree to which beneficiaries and/or their agents and/or proxies can report on the outcome of any support provided. In this way top down evaluations can be compared and tested with bottom up reports.

    "The confluence of forces that is shaping the field of social enterprise" raised by the Working Paper should also recognise that Government Agencies are moving toward features found in for-profit forms and non-profits organisations to create what some of my colleagues describe as the "Fourth Sector".

    The Fourth Sector would develop in a way as outlined by John Goekler to create what my colleagues describe as a "For Benefit" organisation that transcends the current legal forms and models of organisations. It is very much "work in progress" as indicated by their web site at http://www.fourthsector.org/ My contribution is to suggest that is should co-governed by its stakeholders to achieve the perspective articulated by Lim Handoko and Barbara Schmidt-Rahmer. How this could be organised on a self-governing basis is suggested in my Stakeholder Governance articles posted in the Social Science Research Network.

  • Kevin Walsh Crean
    Senior Advisor
    TomKat Foundation, San Francisco, U.S.A.

    In response to Houghton Wan of the Bright China Group: Please look into Meechai Viravaidya of Thailand's P.D.A. (Population and Community Development Association), who won the million dollar Gates prize in health. For China specifically, please see the current M.I.T. journal Innovation, which has an article about attorney and social entrepreneur Karen Tse, who is scaling up a public defender program in China, Cambodia and elsewhere to prevent torture as a routine method of interrogation.

    Many examples of social entrepreneurship exist in India. If you need contacts in India, look to the Appropriate Rural Technology Institute in Pune or to Paul Basil's group, Rural Innovations Network, in Chennai. If you need further contacts, let me know: kevinwcrean@hotmail.com

    With regard to the future of social entrepreneurship, my guess is that the best and most realistic approaches to the innovation function, as well as the leadership style that's most conducive to innovation, will migrate from the for-profit business world to the world of social entrepreneurship. Consequently (and in the best of all possible worlds), we would see many more interdisciplinary teams pursuing largely user-centric design mash-ups, and possibly doing so collaboratively between firms to spread costs, such as in a technology-exchange consortia. Think Apple meets Sematech.

    Because of the importance and urgency of this work--including for security concerns around the world--it would make sense for large foundations, governments, and universities to play leading roles in fostering the space within which to pursue such innovative activities for a period of time commensurate with the design challenges that are faced, i.e., for seven to ten years at least. This reality begs for a structure similar to the Advance Market Commitments (one of which is now in the US$1.5 billion range) that are now being applied to vaccines. With such support, social entrepreneurs would play a role in technological growth and social impact that business entrepreneurs currently play in the most productive capitalist system the world has ever seen, and we could begin to truly solve social problems (water, sanitation, food, education, health) and bring those solutions to scale.

    In this vision, metrics take on an important, but subordinate role. In other words, if we're talking about creating the social entrepreneurial analog to the economic engine that drives advanced, Western post-industrial economies (and some non-Western ones as well), the issue of fine-tuning investment decisions based on quantifiable social returns on investment is, for many projects, many years down the line. The first-order problem is how to embed routine innovative practices, including appropriate and facilitating management practices, into social enterprises, and to do so on a large scale. While accountability for social impact is essential, it's not possible--at this point--to use it operationally at the investment stage without the uncertainties overwhelming the projections. Consequently, so far as they are useful, given a practical investment time horizon, social metrics such as SROI will mostly discipline the analysis so that strategies must be qualitatively linked to impact through tasks. While a social enterprise will ultimately have to prove itself through hard evidence, that will mostly happen only after the sunk costs are well and truly sunk. You can't, and for some years, simply wont be able to granulate SROI down finely enough so that they'll truly function in a way to discipline an enterprise quantitatively at the planning stage--at least not in any meaningful way.

    That's not to say that promoters won't have pretty spreadsheets--they will, most certainly. It's just that they won't mean much at the stage when one's trying to create a new innovation. They'll mostly be useful at the replicative, scaling stage.

    As I've indicated, the dominant driving factor in social entrepreneurship will be the prosaic integration of innovation systems into social start-ups--things akin to the Toyota system of production, for example. And if you look at the real heavyweights in the field--people like Paul Polak of I.D.E.--you'll find that the integrity, the excellence in craft, the relentless honesty about what's happening and why, the immersion in customer experience--all of these-- could have come right out of the notebook of Taiichi Ohno or Kiichiro or Akio Toyoda. In other words, it would appear that there's one basic method of innovation (as varied as its outputs appear) and the fact that social entrepreneurs have decided not to charge the end-user high prices is not going to change the required method at all. Social entrepreneurs will have to adopt the most productive methods of the best of the for-profit innovation machines, whether that's copying P&G's approach to breaking down firm barriers and cooperating more; copying Innocentive's collaborative model, or just accepting the different kind of management style that innovation teams require, as 3M has tried to do.

    As Silicon Valley technology forecaster Paul Saffo puts it, if you want to see the overnight sensation that the future holds, just look around. Most of these ideas take about twenty years to percolate before they take off. And these particular, and particularly effective and important ideas, are lying all around us. Resource controllers (i.e. funders) simply need to see that this is the method already at work in successful social enterprises (like Kickstart); then require their adoption in future investments, without requiring hard SROI number crunching in the early stages. That is, David Green had much tinkering to do before he and the Aravind Eye Hospital hit upon the right formula. Now that they're scaling up, it's time to impose an SROI, which the Eye Fund (and Deutsche Bank) is most assuredly doing.

    But that change--i.e., viewing social entrepreneurs as being as much in need of money and freedom and supporting management systems as any innovator inside Merck-- is a deeply cultural one and will take time. Probably 15 to 20 years from now or more.

    So best to plan on 15 years of slogging through a bunch of ad hoc experiments, similar to the hundreds of automobile manufacturers at the beginning of the 20th century, until a group of financiers decides to get rigorous, and serious, about making the underlying business processes more routine, and funding projects commensurate to task. Then, you'll see more social enterprises copying truly innovative business models. Then huge numbers of breakthroughs will occur in the social enterprise world--just as they did in the formal business economy in the latter half of the 20th century when the financial community and the culture at large figured out and decided to seriously support entrepreneurial capitalism.

    Until then, expect much dead reckoning, with too much emphasis on individual heroism, not enough on superior systems, superior funding.

  • Moderator

    Note: Comments below are in response to new questions posed by faculty on July 25, 2008.

  • Alberton Nardelli
    Chief Strategist
    UnLtdWorld

    This is a great debate!

    I think a mixed approach is needed as traditional ROI is limited when it comes to measuring the outcomes and impact of a social enteprise.

    A mixed approach that blends ROI with SROI (good examples are found in the work of HIP: http://www.hipinvestor.com/ ; at LBS: http://sroi.london.edu/ ; NEF: http://www.neweconomics.org/gen/newways_socialreturn.aspx) and others that aim to make information and data sharing amongst stakeholders more effective.

    For example at UnLtdWorld.com we run a Research Lab that maps social entrepreneurship directly from data in a social network and social graph, and makes that data publicy accessible and usable. This for example allows research, policy makers and investors to compare their outcomes/work/aims with actual needs, context and insights of social entrepreneurs around the world.

  • Subbiah
    Civil Servant
    GOVT OF KERALA, INDIA

    Social enterprise is being used heavily by NGO's as a development tool mostly focusing on one of the local need based societal demands with active support of funding agencies of various hues. Popular areas are education and health.

    Elsewhere Ms. Barbara (Brazil) sums up the mind set of rural folk. These are universal characteristics of rural mass, who still live in their own world of self satisfaction.

    I understand, of late corporate houses are also trying to participate in social enterprising.

    In India, corporate houses have ventured in to activities that are akin to social enterprising. For example services of Gopal Mitra (livestock health care attendant)is a case in point, being implemented by ITC in Andhra Predesh. But they are to be evolved as agents of livelihood security. But,it is possible.

    Social enterprising should be focused on farm production, with the objective of livelihood security, that would ultimately lead to surplus production.This along with literacy, on a hand holding mode would take the $ a day family a long way.

  • Andy Kaplan
    Alumnus MBA 1978
    Chief Financial Officer
    DonorsChoose.org

    In the business world, the decision making process involved when considering an investment requires the analysis of financial measures as well as qualitative issues. Importantly, decisions on whether or not to move forward with the investment generally are based upon an analysis that contains both the quantitative and qualitative components.

    The financial measurement frameworks are generally standardized in the realm of net present value, internal rate of return, return on investment, as well as other frameworks. However, there is tremendous latitude in the selection of variables and assumptions that drive these models. The goal of the financial analysis is to help the decision maker understand the financial results under a range of outcomes. However, most experienced investors would agree that there is much variability in how two people with similar assumptions on a potential investment can come up with vastly different financial model results.

    Funders with entrepreneurial backgrounds are used to struggling with the shortcomings of their own investment measurement tools. This is why investors generally analyze their investments using several tools.

    Organizations have an opportunity, through discussions with the funder, to "tune" the financial tools to be used in evaluating the investment. I believe that as long as the entrepreneur understands and buys into whatever social return on investment tools are used for a particular project, the entrepreneur can safely use quantitative social return on investment tools along with other qualitative analysis to judge social return on investment.

  • ajit jhangiani
    Alumnus mba1970

    EXTERNAL AND INTERNAL MOTIVATORS

    BE PROUD. YOU HAVE ALL DONE GREAT WORK.

    As the best and the brightest in the field of Social Enterprise (SE), the work you do is awesome. The world undoubtedly feels an enormous gratitude for your work. I know I do.

    HBS, and its graduates, and other hardworking folks in the field of leadership and management will no doubt continuously develop and apply new and improved measurement and performance yardsticks to the field of SE, thereby assuring its continual funding and management generating capacity.

    MEANING AND GOAL OF LIFE.

    From what I understand, spirituality tells us that the primary goal of life is to recognize the oneness of us all. The interpretation I have understood from the Bhagavad Gita is that one does this through action, which action has two conditions. First is that the action lead to some benefit of another, and that the action is done without expectation of any end result.

    So why measure? Why not just 'do it' and do all that we can? Build this into our value system and establish it into our culture, fields of endeavor that have already been well developed by our esteemed schools and profit making organizations.

    IS THERE ANY CORRELATION BETWEEN EXTERNAL AND INTERNAL FACTORS?

    So why do people, including organizations, commit resources to the field of SE? Many good and credible reasons have been offered, including that it 'feels' good to give. Indeed even some research has pointed toward the 'amount' of happiness being proportional to the percentage of net worth given. The implication then is that the more one gives the happier one will be. Give till it hurts, selfless compassion at every step.

    Does it then not follow that measuring external success factors, as taught to us by enterprise management, will also lead to helping us measure our internal success at being more happy and satisfied with life, at having accomplished the mission of our existence? Can we then at least feel less guilty when we sink a bit more in the luxurious sofa in the library or in the Jacuzzi, or justify a more expensive bottle of wine when others are starving?

    Or by assuming such a correlation are we trying to go around trying to measure subjective factors such as feeling fulfilled and being happy? For sure we are still struggling with the successful transfer of select success measures from profit making business management.

    WHAT IS THE MOTIVE?

    This is what one religion tells me. Why you do it is what gives your action the blessing, the 'good housekeeping' seal of approval. The same religion also says that you alone know your motive, that you alone are the responsible party for your action, and the one you ultimately have to answer to. This then is the sharp cutting edge, the relentless and unforgiving differentiator of what makes one feel good or bad, fulfilled or not.

    THE POSSIBLE IMPLICATIONS:

    Sometimes our power leads us to install 'good' democratic governments as the right solution. To assuage our guilt by writing a large check to a charity. But what is our motive? I volunteer at SCORE. Most clients come in once looking for SBA money and then never come back again. Any yardstick of success would consider my work there a failure. But do I continue? Yes. It is a duty I have chosen. Maybe I can help one person.

    More and more non profits have special expensive fund raising parties restricted to the wealthy and the powerful. Yet we despise such actions by those who look for our political votes. If I feel better suffering the hardships of traveling to an orphanage in a very poor country to assist, rather than sending a check which I happen to know would be more productive, then which alternative do I choose? If I do travel with the non profit and live in a five star rather than give that money to the unfortunate who I claim to serve, then how exactly do I measure this giving to the hotel?

    DEVELOPING A COMPASSION METER:

    So how does one measure this selfless compassion, an internal quality? Gandhi gave us a user friendly clue. Whatever the person(s) that you have chosen to serve, before committing to your next action, ask yourself how this next action is going to help this person(s). If the signal is green, go. The only imperative is that you must act. You cant be stuck on orange all the time while you diagnose and analyze the situation.

    IMPLICATIONS FOR RESOURCE ENHANCEMENT:

    Giving of ones resources, including time, money, emotion, involvement, is a personal issue. People do want to give. Rather than market ourselves as someone with a 'better mousetrap' product/service to help the unfortunate or with a better analyses of a complex problem, let us ask our potential supporters 'how can we serve you'? What would make you happy? What would reduce your suffering?

    Then listen and empathize. You have wonderful and valuable tools to assist them through their life experience. It is imperative that you offer these to them. Let them into this exclusive club. Provide them with multiple avenues to see their being through. Sometimes this will involve passing them on to another SE, not of your own making.

  • Leonardo Letelier
    Alumnus MBA 2002
    CEO
    sitawi

    The social sector has created a problem for itself when borrowing terminology from the private sector indiscriminately. Maybe to make 'donations' more appealing, people started calling them 'investments' and as a consequence started looking for 'returns' - forgetting that those words already carry significant meaning, specially in the finance sector.

    In the finance world, not only there is a massive wealth of data, but also the single-dimension of the desired outcome (risk adjusted returns) makes everything 'comparable'.

    On the social sector, I am not sure we will ever be able to say that a program that distributes HIV/AIDS medicine for low income seniors will be better (or worse) than a program that teaches math skills to girls aged 7-10 ...

    When we look into the business world, decisions are also mare looking at investments, risks, scenarios and returns. But the moment you approve that 13.23% ROI project you know it can be anywhere between 11 and 15%, so to speak. You really approved a 'very good project' rather than a 13.23% project and you know what are the key drivers and levers that you have to pull and/or monitor.

    The social sector would be better served making sure that the analogies are carried from the business world - pragmatic distinctions between poor / bad/ good / very good projects - rather than from the finance world - i.e. a 13.23% ROI portfolio yields a significantly higher bonus than a 12.74% ROI one.

  • Vanessa Wilkins (formerly Yocom)
    Alumna MBA 1997
    Director
    Friends of the Children

    As someone who moved from for profit to nonprofit organizations, I have always found it strange the way foundations and some major donors fund specific projects and their related costs, rather than investing in an organization as a whole. In some ways, this undermines overall organizational efficiency. While it's true that the organization comes up with the project expenditures, the projects must be tailored to fit both the nonprofits strategic goals and business plan and also fulfill the foundations strategic goals or initiatives.

    There is also the tendency for foundations and donors to prefer entrepreneurial initiatives. Most won't invest in program operating costs for existing programs, even if they are "proven," believing they should be funded by a diversified funding base of mostly individual donors. This is why it is much harder for nonprofit organizations to grow to scale than for profit organizations. In the for profit world, capital markets exist to provide growth funding for successful business models and expect companies to focus their efforts on their core business. In the nonprofit world, everyone wants to buy the ornaments, but no one wants to pay for the Christmas tree, as one mentor put it.

    One other issue I'd like to surface is government funding, since it still plays a big part in this sector even under the current administration. This funding wreaks havoc on the sector in a different way - by being too short-term and politically driven. The funding streams come on like a firehouse and can be shut off at the drop of a state or federal vote. This capriciousness has a devastating effect on the programs that are sustained by government funding, including some of our most important institutions, like public schools. We need to get rid of the earmarks and special interest projects and make sure the grants out of the various public agencies are structured on similar time horizons with the solutions they are trying to fund, i.e. they have to be more long-term.

  • Rowland Freeman
    Alumnus MBAhih distinction,1953
    Counselor
    SCORE, Counselors to America's Small Business

    For some years I have thought of not for profit social enterprise as those programs providing services to the less fortunate( poor, disabled , homeless hungry and other of similar nature) I did not consider other types of not for profits, within that "box." In my work for the not for profit SCORE, Counselors to America's Small business (formally Service Corps of Retired Executives), I have modified my definition to include not for profit organizations who provide assistance to a variety of cause, and not necessarily philanthropic.

    SCORE provides assistance to startup and ongoing small business, and its services are free. Its Chapters (there are over 389 chapters nationwide) funding comes from donations, and a limited amount from the federal government through the Small Business Administration (SBA)

    We consider creating and maintaining small business in this country as a major social problem as it is a bulwark of the US economy and without its success the economy would fail.

    In our work as counselors, ROI is not a consideration, and most measurements are not quite tangible. They run all the way from quietly providing advice which will lead a client to decide not to start a business( normally as a result of calculation of startup costs and evaluation of local competition, which comes from the completion of a business plan), to helping create a new business, to keeping an existing one on track.

    As far as businesses which do startup we look to the business at the end of three years and if profitable and stable, we consider the effort a success. "in business" clients are tougher to measure, particularly those involved in community philanthropic services such as prison ministries, meals on wheels, disabled transportation. Trying to convince an "in business" not for profit client that he/she needs a business plan or a revised one is difficult. However without a 3 year vision/mission and the strategies to get there, coupled with progress measurement, most not for profits will gradually fail.

    For those clients in the for profit field a new or revised plan tends not to be a problem as the owners are normally more practical (It's their living)

    I would suggest that a meaningful measurement for us in SCORE is increasing our client base, and return clients ( we strive for 35% returns). For philanthropic community social enterprise, the future demands consolidation, as the many individual organizations in a community provide similar services, thus wasting fiscal resources, volunteer personnel, and space. The duplicative lobbying efforts turn off many sources of funding. In one county I have worked with there are about 10 not for profit social enterprises, not counting those sponsored by religious organizations. Of these, 6 of the ten provide the same services, meals on wheels, home care and medical type transportation services.

    Thus in response to the three scenarios, consolidation comes first followed by entrepreneurial effort, recognizing there is no single success measurement, but many depending on the community structure and demographics. Lastly I believe most social enterprises, unfortunately will resist , as they tend to believe they do it best, not as a business, but "doing good". Cynical but true.

  • Sundar Ramanathan
    Senior Manager
    Capgemini

    Considering People on the Assests side would go a long way towards building a vastly potential Global Social Enterprise. The co-operative societies building Agricultural products or participating in Manufacturing / Services industries are going to drive a lot of Supply-side changes.

    Again in the triumverite of People, Process & Technology - future social enterprise would have people in the middle who get several Process models from NGO's, Progressive Governments or Enterprises that would work towards enriched Global processes with approriate and right technologies to collaborate and innovate, protect IP and enhanced revenue stream etc.

    In terms of key drivers, Globalization and appropriate localization would play major roles in shaping the future of Social Enterprise.

  • Ken Irvine
    Alumnus MBA 1966
    Director
    Alpha-1 Foundation

    My view is that non-profits tend to focus on inputs whereas for-profits emphasize outputs. In some ways, non-profits can have a better understanding of their mission and their place in the world, than for-profits which may focus on short term ROI measures. In the case of the Alpha-1 Foundation the mission is discovering a cure for an often fatal genetic disease - a daunting task. Maybe the answer is the effort and giving hope to our patient community.

  • Herbert Meyers
    Alumnus MBA 1954

    I am surprised that there has been no mention of arts in the dialogue. Clearly with at least two of the major thinkers on the subject, Bschool Professor Zaltman and the University Professor Howard Gardner---and with the University committed to an enlarged arts presence,thechallenge to measures of performance should be of great interest to those social entrepreneurs who recognize the unique contributions the arts are making to the general community and specifically to the business sector.

  • Brian Scott
    Alumnus/a MBA1977.DBA1979
    recently retired ceo Oxfam Ireland

    The social enterprise concept under consideration seems limited only to not-for-profits. But as Mohammad Yunus has pointed out in his latest book (Creating a World Without Poverty) and Andrew Mawson (The Social Entrepreneur) more vividly, it is possible to combine profits and social goals.

    In this circumstance, the key criterion is that profits are not distributed to shareholders, but instead retained within the operation for expansion, diversification, etc. Another option is the profit-making business allied to socially beneficial activities. Oxfam's charity shops, have exaemplified this approach for more than 50 years.

    In Ireland our network of almost 50 shops has a 30% return on sales, and other conventional business metrics measure performance.

  • Niti Vidyarthi
    None
    Editor
    Asmi Publication, Patna, Bihar, India

    In developing countries like India there is a need to encourage the entrepreneurial aspect of the social enterprise. The youth from the great Indian middle class must be roped in to venture in this field with their zestful vigor. Profit motive is not a sin as is the common perception among the masses. India has to develop more and that can happen more with grass root participation of the hoi polloi. India has missed the bus of the full fledged industrial revolution which is beyond the scope of this discussion. But there is scope for initiatives on the rural front which promises great growth potential. Women and unskilled labor can be employed in lean season to make handicrafts, toys and other small scale labor intensive fields.

    The key is the need for innovation in this sector. There are a few examples from India that have changed the landscape of areas where they operated. The AMUL cooperative movement of Anand, Gujarat is one such example. Then there is Sulabh International which is progressing by leaps and bounds. The field of microfinance has shown growth.

    I agree with Barbara Schmidt that working with the poorest requires a long-term commitment and patience. Performance must be measured with different standards and funding is the lifeline of the system. There is a need for public private partnership. The Government can do a lot and meet its social objectives by easing out the process and reduce its fiscal deficit by bringing in social entrepreneurs with profit as one of their motive. That will lead to all round development and greater employability of the common man and benefit both the partners of the venture.

  • Stevan Trooboff
    Alumnus/a MBA 68 DBA 72
    CEO and President
    CIEE

    Defining return on investment in mission-drive, not-for-profits is in many ways no more complex than doing so in the for profit enterprise although doing so in either kind of enterprise is not simple.

    Complex organizations, whether they exist for social purposes, to enrich investors and/or any combination of other goals, can not by definition have their performance measured simply. Complex organizations require complex measurement systems to truly assess and track performance. The recent debacle in banking shows that simple measures such as ROI and EPS are hardly adequate to the task. Similar, impact or social return can not be measure by a single metric.

    Financial measures of efficiency and effectiveness; client feedback on performance; impact on the issues addressed by the enterprise; staff stability; lives saved and/or positively impacted are all possible measures in a social and/or mission driven enterprise. The most important duty of a Board of Directors or Trustees of a mission driven or social enterprise organization is making sure that the organization has a frame of reference for managing performance that is adhered to and tracked. Suggesting that such measurement is tough and/or not appropriate in social enterprise is not adequate to the need or challenge.

  • Kiran Soni Gupta
    Alumnus/a 2006
    Divisional Commissioner
    Government of Rajasthan

    Innovation and social enterprise, along with the building of social capital through networking (to combine strengths) seems to be the most effective way ofreducing the magnitude of social problems, if not solving them completely....

    The energy of the government, if unleashed towards this objective, can prove to be an investment with unlimited returns--to all stakeholders in the society.

  • John
    Alumnus/a MBA 61, DBA 64
    Emeritus faculty
    U. of Minnesota, Carlson School of Management
    1. As noted by many, a key problem that needs extensive attention and research is that of evaluating social impact (results, outcomes). Underscoring this need is the possibility that for-profit public companies may be asked in the future to report their social performance in addition to their financial performance.

    This could be in the form of new and innovative ways to measure the "triple bottom line" advocated by the European CSR project and included by some large multi-nationals (including a few US corporations) in their annual reports to shareholders. It is interesting to note how the mounting pressure against the unbridled and often poorly-regulated pursuit of market capitalism seems to be occurring at the same time the authors observe that boundaries are becoming blurred "...among the traditional nonprofit, for-profit and public sector silos...".

    1. A discourse on social entreprise might begin by asking what social needs can privately funded entrepreneurs best serve and for which they might have a comparative advantage over other institutions such as government, publicly traded for-profit businesses, private foundations and other charitable organizations.

    A further breakdown might separate those activities that these social organizations perform into:

    1. Contracting to provide a service normally funded by a branch of government (e.g. education, basic personal security and police protection, health care for the indigent, food and shelter and care for the elderly and disabled and others who cannot afford basic necessities for reasons that are no fault of their own)
    2. Special services not normally afforded by government programs (e.g. battered women's shelters, family planning clinics, hospice care). This might include providing a social service normally provided by charitable organizations, but in a unique, or more humane or more efficient way
    3. Providing or selectively* subsidizing services to the poor normally provided by private companies (child care, early childhood education, career education, college test preparation, short self-help courses in topics such as family budgeting, resume preparation, special legal services)

    *identifying those programs that are most effective in achieving the desired goals

  • david campbell
    executive director
    hands On Disaster Response

    An interesting dialogue. After 4 decades in the for-profit public company arena I am now in my 4th year of the "service sector', leading a volunteer based international disaster response organization.

    Two thoughts come to mind: I agree that performance/impact measures are helpful, but difficult to present in a hard comparative way... but a quality survey of client attitudes, across multiple providers of the broad class of service, should be helpful to funders. ( think of residents assessment of volunteer groups vs Red Cross and FEMA after Katrina). Similarly, I believe funders would get useful data out of satisfaction levels of volunteers and employees of organizations, as an indication of effectiveness and commitment to mission.

    Secondly, I think it is possible that the newer, more flexible "Expressive" organizations may, through innovation and creativity, point out new approaches to old problems, even if those approaches eventually require the scale and platform afforded by the current major incumbents. This will require more open perspective from the next generation of leaders of the majors, but a more activist funder camp could influence their thinking.

  • Hardik Dave
    Executive Education Participant MBA (Finance) 2008
    Senior Executive
    TVS Motor Company

    Its quite pleasing to know the subject being discussed with entrepreneurial parameters in place. As is widely known, anything that doesn't get measured, doesn't get done. This is very much applicable even in the context of social eneterprises. With more and more business enterprises & corporates of all sizes becoming aware of the need of CSR (Corporate Social Responsibility) as an integral part of their business rather than an external factor, the fund flows to social eneterprises are bound to increase, and so shall the need for the SEs to perform better & still better. Entrepreneurs at whatever level, always have profits as their main aim - as stated in the classical definition of 'BUSINESS' and when we link CSR to this aim, it throws up obvious facts of visibility of the social enterprise. This in turn has its root in the performance of these enterprises. So ultimately Darwin's principle has & shall remain to have an upper hand wherever there is competition. In conjunction with the measure of 'impact' the 'Consolidation' scenario expressed in the main paper's discussion shall continue to have an upper hand with 'Entrepreneurial' support driven by 'Expressive' interests - both individual and collective. These factors shall thus be considered in inter-relation rather than separate scenarios for exploring the evolvement of this sector.

What is the Conversation?

The Conversation is question- or topic-based dialogue between two conversation leads and our Centennial- site visitors. Every month or so, our conversation leads will pose a question to you, our visitors, to get your thoughts on specific issues in the world of business. The Conversation invites you to join the dialogue, and selections from these responses are made available online.

Conversation Leads

  • V. Kasturi Rangan
    Malcolm P. McNair Professor of Marketing
    Director of Research
  • Susan McDonald
    Research Associate

Additional Resources

Professor Rangan is also co-chairman of the HBS Social Enterprise Initiative. He talks about a new generation of business leaders and philanthropists experimenting with hybrid forms of social enterprises in the June 2008 Alumni Bulletin. An executive summary of "The Future of Social Enterprise" working paper is now available on the Faculty and Research site. And, if you like The Conversation, you may also enjoy What Do YOU Think?, an ongoing dialogue between Harvard Business School professor Jim Heskett and the readers of HBS Working Knowledge.