A new dawn?
Tania Ellis presents the latest social business models that are creating value for the benefit of society and the bottom line.
In the 20th century the ‘tri-sector model’ of the classic welfare state roles and tasks was crystal clear: the private sector made money, the civil society/third sector ensured social cohesion and solidarity and the public sector provided order, legal rights and welfare. But this is all changing.
Today social and economic obligations go hand in hand, and a hybrid blend of market and non-market mechanisms is finding expression in all sectors of society: public organisations must be economically efficient while providing effective welfare solutions; NGOs and charities must be effective and economically sustainable while doing good; and companies must be socially responsible while making a profit.
In short, the mindsets and models of society’s three main sectors today are in sharp contrast to those of only a couple of decades ago. Reinvention, innovation and new alliances are new and important key words.
And blended value creation for the benefit of society and the bottom line are foundations for sustainable wealth and welfare creation.
Market-based social solutions
Governments, mainly in the OECD countries, aim at improving procurement. They commission services and look for innovative approaches to effective and efficient welfare solutions through privatisation, deregulation and liberalisation by, among other things, collaborating with or outsourcing to actors from the civil sector.
The UK government’s launch of the Partnership for Public Services (PPS) programme that aims to involve charities, social enterprises and voluntary groups in delivering innovative and improved services, and its Right to Request programme which helps National Health Service staff start their own social enterprises to improve quality of care for patients in innovative ways are just two examples.
In the third sector, on the other hand, NGOs and social organisations are being put under pressure to change their ways because of cutbacks in public funding and corporate philanthropy, increasing competition from private (online) fundraising initiatives, and demands for transparency, efficiency and measurable results from private donors and sponsors.
More than ever, social organisations must look for alternative sources of revenue as well as original branding strategies to make them visible, attract volunteers and to ensure funding. Reducing dependence on grants and donations by setting up a social enterprise is another strategy that social organisations are applying. Some of their routes to financial independence are, for example, through fee-generating services, working for the government as professional welfare providers or engaging in commercial activities to finance the social mission. Some organisations in fact believe that applying business methods helps them achieve their social goals more effectively, and some engage the corporate sector through formalised social partnerships.
Other development experts and NGOs go even further. They believe that the aid industry should be reformed by applying fundamental business principles to enhance its performance and accountability in support of local job creation and entrepreneurship, rather than relying on ineffective conventional development aid programmes.
This is the reason why, for example, the Shell Foundation – which was established as an independent registered UK charity by Shell Group in 2000 – takes an explicit ‘enterprise-based’ approach to developing, upscaling and promoting solutions to the current energy, environmental and poverty challenges.
This involves applying market principles and injecting ‘business-DNA’ in terms of business thinking, models and disciplines into the organisation, engaging in strategic partnerships with businesses, committing funds as ‘social investments’ in solutions that deliver financial and social returns rather than grants, and, where appropriate, leveraging the value-creating resources – the knowledge, brand and infrastructure – of the Shell Group.
The call for taking a more business-centred approach is not a call for privatisation of the aid industry. Rather, it speaks in favour of combining the best from two worlds – although this provokes conventional ideologies about altruism and business.
So when former aid workers Martin Fisher and Nick Moon founded the non profit organisation Kickstart to develop and sell technologies like their MoneyMaker irrigation pumps to poor African farmers, who use them to establish and run profitable small-scale enterprises, they were both branded as heretics. But experience had shown Fisher and Moon that business dynamics work: people are more invested in the success of a tool they buy rather than in one they are given.
Kickstart’s impact figures speak for themselves. Since the company started in 1991 it has kickstarted the launch of more than 89,000 new businesses that have created more than 60,000 new jobs, moving almost half a million people out of poverty in Kenya, Tanzania and Mali. And with the sale of every product, Kickstart reinvests its profit to develop more new technologies.
Social venture capitalists
The ‘philanthrocapitalists’ – also known as venture philanthropists, new donors, high-engagement philanthropists or social venture capitalists – are also proponents of the business-oriented view to addressing social objectives. In their search for efficiency and visible concrete social returns this new breed of philanthropists are adopting a high-impact, entrepreneurial approach to their giving.
They do not talk about ‘funding applications’ or about ‘giving back to society’ but about ‘business plans’ and ‘social investments’ because that is how they view their contribution. Sometimes they even start their own foundation or an organisation to make sure that social issues and development challenges are resolved in what they believe is the best possible way.
Like eBay founder Pierre Omidyar, who shook the traditional philanthropic world by converting a foundation established by his wife and himself in 1998 into The Omidyar Network – a hybrid of philanthropy and venture capitalism, where the money is not merely invested in traditional, non commercial organisations but also in commercial businesses. Or former eBay director, Jeff Skoll, who established the Skoll Foundation in 1999 with the mission to ‘drive large-scale change by investing in, connecting and celebrating social entrepreneurs and other innovators dedicated to solving the world’s most pressing problems’.
Microsoft billionaire, Bill Gates – who has called for ‘creative capitalism’ by using the power of the marketplace to help the poor – is another example. Together with his wife he co-chairs the Bill & Melinda Gates Foundation, which manages the world’s largest fortune earmarked for charity, around $34bn, an amount that was practically doubled in 2006, when American billionaire Warren Buffett donated approximately $30bn. The foundation has ruffled many NGO feathers by imposing the same standards of accountability and transparency used by business on the projects it funds – and cutting off those who don’t comply.
Corporate social responsibility
Classic business logics about how and why to run a business are also changing. Today companies are expected to share responsibility with governments for tackling issues which they only decades ago would have ignored in their pursuit of profit.
As a result, companies now see their role being expanded to also include the role of problem solving contributors to society, and many voluntary guidelines, principles and standards have been designed to help companies operate responsibly.
These include the Global Reporting Initiative (GRI), the OECD Guidelines for Multinational Enterprises, AccountAbility’s AA1000 guidelines, Goldman Sachs’s ESG framework and the International Organisation for Standardisation’s ISO26000 Guidance Standard on Social Responsibility. In addition, the United Nations Global Compact network, which is to date the world’s largest voluntary network for more than 5,000 companies from more than 130 countries. They are committed to sustainability and responsible business practices in alignment with ten universally accepted principles that also support the anti-poverty Millennium Development Goals.
As a result, companies are, among other things, entering formalised partnerships with social actors like NGOs, UN agencies and bilateral agencies. For instance, over half of the Global Compact’s corporate members are already engaged in partnerships with NGOs and the UN around areas such as microfinance, employment opportunities, food, healthcare, women’s rights, education volunteering/ secondment, environmental protection, logistics, agriculture and fisheries.
The main reasons for these various corporate acts of kindness are still to ensure successful implementation of CSR (corporate social responsibility) programmes, to build trust with stakeholders, engage in corporate citizenship, improve employee morale and enhance the company’s reputation. But some companies are starting to realise that they can create more value from their philanthropic contributions if they relate them to their core business.
One of these companies is the multinational technology and services conglomerate, General Electric (GE) which donates more than $200m through contributions from the GE Foundation, GE businesses and GE volunteer hours. GE has had huge success in applying its special knowledge and other internal resources to building hospitals in Ghana in partnership with local stakeholders. Its ‘citizenship strategy’ is, in fact, integral to its business strategy, which means that it now invests $6bn each year in research and development, of which $4bn is allocated to solving the problems of clean energy and affordable healthcare.
The benefits of employee-engaging CSR programmes like corporate volunteering, which are usually associated with a philanthropic add-on approach, are also proving beneficial to business tactics: studies already show that volunteering can be used by companies to develop business skills including decision-making, problem-solving, negotiation and leadership skills. And if linked to business strategy, corporate volunteering can be leveraged to be used as field research to develop new socially-based products, services or business models, because it puts the company in closer touch with potential customer needs or new potential marketplaces (see Figure 1).
Thereby corporate social responsibility (CSR) can be transformed into corporate social innovation (CSI) – a term that was first introduced in 1999 by Harvard Business School professor Rosabeth Moss Kanter, who argued that companies should use social issues as a learning laboratory for identifying unmet needs and for developing solutions that create new markets, while also addressing societal concerns.
Social innovation and the ‘fourth sector’
Social innovation is about new solutions that solve societal problems or meet people’s unfulfilled needs in new ways that improve their lives. It creates social value or change and thereby drives social develoment and renewal in society.
The co-operative movement, legislation, tax, therapy, insurance, stenography, labour unions, social welfare centres, kindergartens, management concepts and pedagogical methods are all examples of social innovations that have emerged in the context of a particular period in history to meet the needs of their time. And although social innovation creates social value, it can be used both commercially and non-commercially.
In fact, concepts like venture philanthropy, microcredit, CSR (corporate social responsibility), the triple bottom line, SRI (socially responsible investing), the market-based Fair Trade system or the BOP (bottom of the pyramid) business models are all examples of recent social innovations that have derived from the permeation of traditional borders between economic and social value creation.
Social innovation is not reserved for one particular sector in society. It is found in the public sector, in the civil sector, in the private sector – and in the cross-section between the three, because societal problems and needs do not fall neatly into designated sector boxes.
Addressing social issues and development challenges efficiently and effectively is therefore no longer a question of who does the work, but rather of who can deliver the best solutions.
But referring to the ‘blurring’ of sector borders encourages people to continue looking at the world through the old tri-sector lens rather than rising above the present framework to understand the deeper shift in the nature of how all organisations operate and need to operate.
Maybe this is the reason why the concept of social entrepreneurship has been off the radar for many years. For it is in this cross-section between the public, private and civil sector that social entrepreneurs are often found. They encompass all three sectors: like the public sector they provide welfare solutions, like the private sector they run their ventures as businesses and like the third sector they are values-based and work with a clear social mission.
Their ‘mixing of genes’ is drawing the contours of a metaphorical fourth sector with companies and organisations of all shapes and sizes that work for the wellbeing of society in new ways (see Figure 2).
You could go as far as to call social entrepreneurship an expression of a mindset with the same overall objective that many other institutions, companies, organisations and citizens are increasingly committing themselves to the contribution to sustainable development.
It is in this cross-pollinated ‘fourth sector’ that social entrepreneurs are responding to needs, developing solutions and creating value in ways that mainstream companies, social organisations or governments have either failed to do or have never thought of.
The three dimensions of social entrepreneurship
Social entrepreneurs come from all walks of life and span all educational levels. They may be idealists or activists motivated by social indignation or love for their fellow men. They may be wealthy individuals interested in giving back to society, or they may be business people looking for a sustainable business model to help them ‘do good by doing well’. Some social entrepreneurs have spent most of their careers in one sector. Others have moved between positions in the business community, non profit organisations and the public sector. What they do have in common, however, is their ethical fibre and engagement in social issues. Because they come along different routes, entering the field of social entrepreneurship is entering a jungle of definitions and concepts that criss-cross industries, sectors and legal units, ranging from non profit to for profit forms and hybrids of the two.
Sustainable companies, fourth sector companies, high purpose companies, for benefit businesses, double bottom line businesses, affirmative businesses, values-driven enterprises, social purpose ventures and social enterprises are just some of the terms that are used in attempts to cover the field.
In short, neither practitioners nor academics have found common ground on a definition. There are, however, three dimensions of social entrepreneurship that are commonly referred to:
1) Social change is the main purpose.
2) Innovative problem solving is the solution.
3) Business methods are the means.
The previously mentioned former aid workers Martin Fisher and Nick Moon and their Kickstart business is a case in point. Bangladeshi economist and micro-credit pioneer Muhammad Yunus is another. “This is not charity. This is business: business with a social objective, which is to help people get out of poverty” is how Yunus explains what his Grameen Bank business concept is all about.
Like many other of the world’s social innovators Yunus has challenged the status quo and broken with established structures, logics and mindsets on his way to accomplish his social goal. In his case he just looked at how the conventional banks worked – and did the opposite. They went to the rich – he went to the poor. They went to the men – he went to the women. They went to the urban centre – he went to the rural village.
The world’s first non profit pharmaceutical company, Institute for OneWorld Health, is another example of a company that provides access to products and services to markets where business does not operate, because the risks are too great and financial rewards too few.
Established in 2000 by American scientist Victoria Hale as a response to the combat of epidemic diseases in developing countries, Hale challenged the prevailing logic of the pharma-ceutical industry that research and development of medicines for developing countries is too expensive because of economic and logistic barriers by redesigning the entire value chain with the use of different types of partnerships.
For example, OneWorld Health’s own scientists work closely together with research centres, institutions, universities and individual scientists who offer voluntary work hours, knowledge and resources as a contribution to the research work itself or to the operation of the company. And alliances have been formed with drug companies who give the institute access to their proprietary research or donate patent-free licences from which the companies are unable to achieve any commercial gain. Result: cheap, effective and relevant new medicines to those places where the need for them is greatest.
Danish Thorkil Sonne who started his own IT company Specialisterne (The Specialists) with a business concept centred on utilising the special skills of people with Autistic Spectrum Disorder (ASD) is an example of a company that works with people that governments have been unable to reach effectively with basic public welfare services.
When Sonne started his business, which tests software and conducts quality controls for companies like Siemens, Microsoft, Cisco and Oracle, he had no idea that his social business model would receive numerous prizes and international media attention. Nor would he have believed that his company – only four years after its foundation – would become a Harvard Business School case study.
Nevertheless, all this has already come true, and today Sonne is upscaling with a franchise licence concept in Glasgow, Scotland and he has a short-term goal to start licences in three major European cities by the end of 2010 and a long term goal to create one million jobs worldwide for people with ASD and similar challenges like ADHD (Attention-Deficit Hyperactivity Disorder).
Sonne’s business model may be unique, but his motivation for starting a commercial company is not. He is just one example of the growing number of social entrepreneurs who engage in commercial activities to create sustained social value. For them, generating their own revenue streams is a high priority because it can lead to economic sustainability, independence and the opportunity to accomplish more of their social mission.
So, contrary to commercial businesses that use social responsibility as a means to boost their financial bottom line, social entrepreneurs use market methods and make money as a means to meet social goals in benefit of society.
Partners for good
Social entrepreneurs are a part of the movement of New Pioneers who are challenging 20th century business logics. By doing so, they have discovered new solutions in the shape of new partnerships, new ways to use resources, new products and services, and indeed new business models that bridge economy and humanism. They show old-world companies and organisations how to tackle new-world challenges for the benefit of both humanity and the bottom line.
Addressing 21st century challenges and needs, however, requires the efforts of many. For no one group can address current economic, social and environmental imbalances and needs alone. In short, new and sustainable results require a collaborative cross-sector effort in terms of co-ordinated actions, new coalitions and partnerships. For the social entrepreneurs, strong social networks and a wide range of strategic alliances is key to creating better and more viable solutions, because it gains access to, for example, capital, more competences, increased capacity and infrastructure.
One of these strategic alliance partners could be mainstream companies, which can provide the necessary resources and skills to develop, test, refine and scale the socially entrepreneurial solutions. In turn, the companies may gain access to new markets or new product and service innovations or even new business models that build on corporate social innovation more easily and at greater speed, because the smaller social ventures may have spent years or even decades designing, testing and implementing their social innovations.
Also NGOs can (just like governments) benefit in similar ways from the innovative solutions that social entrepreneurs have developed. In turn, they can contribute with volunteers, (volunteering) management skills, specialised knowledge on particular social issues, network contacts to government officials and other people and organisations that can help leverage the innovative approaches with necessary skills or resources or to help build legitimacy.In short, co-operation and partnerships will infuse all parties involved with new perspectives and new knowledge that may lead to better results than they would be able to create individually. It may lead to a strong (business) force for good.
Author: Tania Ellis
Tania Ellis is a Danish-British prize-winning writer, speaker and business innovator, who specialises in social business trends.
She advises a wide range of national and international private, public and civil organisations including large corporate brands, NGOs, educational institutions, ministries, think tanks and social entrepreneurs.
She is the author of the recently published international book The New Pioneers – Sustainable business success through social innovation and social entrepreneurship, published by Wiley & Sons.
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