What is social entrepreneurship and how can it benefit business?

  • Can social entrepreneurship benefit business?

Commercial organisations are increasingly establishing social enterprises to help cement their license to operate in the community.

It's not the right path for every organisation. But it can add value to those that are committed to making a difference in their communities.

Organisations can only achieve an indirect impact on social issues if their approach is just to give money to a not-for-profit. The move to social entrepreneurship is where a corporation seeks to develop its own social enterprise to have a direct impact on a social issue it feels is significant.

"That can change the organisation's social responsibility identity and their investments to make them more valued by their core customers because they see the organisation is redefining its role as a business. It's not just making money from the products and services it offers, it is using that money to build social enterprises that have a direct impact on community issues," says Dr Lance Newey, senior lecturer in entrepreneurship and innovation at UQ Business School.

How do you form a social enterprise?

Dr Newey says the lean start-up method for launching a business, which is popular with commercial enterprises, also works with emerging social enterprises. In the social enterprise context, this involves testing your interpretation of the social problem as well as your solution to see if it can have scalable impact.

Before this can happen the organisation must figure out whether starting a social enterprise is the right way forward. There must be commitment from senior leadership. Then it's important to develop a social impact model and a business model around the social issue the enterprise is going to target. If there is enough data to support the social impact model and the business case, this will help to justify setting up the social enterprise as an independent business unit within the corporation.

What model does it use?

Once a business has decided to start a social enterprise, the next step is to work out projects on which to focus. Social enterprises are by their nature financially constrained, which means they must be disciplined about selecting projects.

The innovation diamond helps to prioritise which opportunities to pursue when resources are limited but there is an ambition for growth. It's a great model for social enterprises – as well as for-profit businesses – to decide the areas on which they should be concentrating.

"The innovation diamond model was developed because in a commercial business that is seeking growth, often there are too many projects that have no explicit connection to a new product development strategy or compelling overarching logic," says Dr Newey.

"Typically organisations say yes to projects far more than they say no. You also see too many short-term projects because the organisation lacks a portfolio approach for managing short and long-term horizons. Too few projects finish on time and on budget because resources are stretched across too many initiatives. Innovation also becomes a cyclical phenomenon, where organisations fall in and out of love with it," he adds.

Why use 'the innovation diamond'?

The innovation diamond was developed to address these limitations. It does this through four key processes: new product development strategy, portfolio management, stage gate processes for managing individual projects and building the right culture.

The model helps organisations identify the strategic arenas in which to invest, as well as how to spread investments across different time horizons. A scorecard makes the project selection criteria explicit and transparent. The stage gate process helps to manage risks in development of each new project, enabling continue, stop or pivot decisions along the way. It also helps organisations to build the culture necessary for innovation to work.

"To avoid the cyclical nature of innovation, senior leadership needs to appreciate that managing for the long term is different to managing for the short term, and requires a different culture. Managing for the short term is about efficiency, and routine. Managing for the long term and more radical innovation is where you structurally separate creative types who don't like efficiency and routine and instead give them a structure where they can fail and fail often, where that's seen as a plus not a negative," Dr Newey adds.

What's the upside?

Commercial enterprises that start social enterprises have the potential to produce substantial community benefits. One of the most important ones is a more sustainable solution to social issues because the enterprise is financially self-sustainable through generating its own income.

"Society will gain because we will start to populate the social sector with more self-sustaining organisations, so social causes can have a more stable service," Dr Newey says.

"Some social issues are really persistent, and the organisational response can become bureaucratic. A social enterprise can become a context where it can be entrepreneurial and innovative and break new ground on how we're trying to deal with these things," he adds.

Social enterprises are not a panacea for resolving community problems, but they are an important and emerging part of the solution to many social issues we face today.

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