The Future of Social Enterprise
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?
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?
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.
V. Kasturi Rangan
Malcolm P. McNair Professor of Marketing
Director of Research
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.