Social Entrepreneurship: The New “Hybrid” Organization

Image from Flickr User: Kikemb CC Licensed.

Social Entrepreneurship and Social Innovation are the new “buzz words” when it comes to both the business and non-profit sectors.  Many people believe social enterprises to be a mix of both worlds, incorporating the social impact focus of non-profits, with the financial stability, or financial returns, of a business. Some are even calling these emerging social enterprises the beginning of a new fourth sector.

Fourth Sector?

Historically, we have seen three types of organizations in society: business, government, and non-profits.  These organizations have provided society with the products and services that make up the quality of life that that many people know today.

Yet, with all of the benefits that we have received from these three organizations, they have come with many costs. Our natural environment has suffered greatly for our economic benefit; its natural resources are now being consumed at the rate of 1.5 times the natural re-growth of the planet.  We face the threat of climate change.  Social capital has also suffered as economic globalization has brought wealth to few, yet has kept the majority of the world’s population in poverty.  The economic crisis we are living today has given us a glimpse into how “short-termism, corruption and greed threaten the security of our economic systems and the viability of our civic institutions”.

According to a paper, written by the Fourth Sector Network:

There is a growing recognition that these and other complex systemic problems are rooted in structural failures at the organizational level. Solving these problems requires new ways of thinking and acting on the part of individuals, along with new organizational designs that encourage stakeholder actions consistent with the long term welfare of our ecological, economic, and social systems.

In other words, the organizational models we have today are not properly serving the long term needs of the people and the planet. While the corporation may provide short term wealth to some (in terms of increased stock prices, quarterly gains, etc.) these benefits are coming at the long terms costs of society and the environment. Non-profits have been working to help “fill the gaps” left behind by corporations; yet their work, in many cases, often only fulfills the immediate needs of society. The non-profit sector and government are having a hard time efficiently tackling the systemic problems inherent in this three-sector organizational system.

There is a need for new types of organizations that better fit both the short and long term needs of the economy, society, and environment.  These organizations will give a larger priority to providing positive social and environmental impact, while still maintaining an income generating structure:

Image from the Fourth Sector Network. CC Licensed.
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Social Entrepreneurship falls into this new category of organizations. According to Ashoka, “social entrepreneurs are individuals with innovative solutions to society’s most pressing social problems.” They understand a social problem, and find an innovative solution to solve that problem.  For social entrepreneurs, financial income is just the means to the end.  The end itself is creating a sustainable solution to the social problem. Therefore, social enterprises do not measure their success in terms of profits or economic growth.  They measure their success in terms of the positive social impact that they have made on society.

While a business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale.

Sounds great, right?  So how do these social enterprises function in the real world, if they are not using the same indicators that society and financial markets use to measure success?

Part of the territory that comes with a systems change is that it often takes time for the current system to recognize and understand the new paradigms being developed.

In many countries, these “hybrid” organizations do not yet have a complete supportive ecosystem – including regulatory frameworks, accounting systems, capital markets etc. – that promote their operation. Given that these enterprises are a mix between a fully for-profit and non-profit organization, current legal frameworks in may countries do not have the capacity to allow these organizations to act like both types of organizations. As the Skoll Foundation writes, “on the one hand a part of their activities often sit squarely in the public domain, while on the other, their commercial activities (by definition) would best be served by a more commercial format”. As an example, it may be hard for a social enterprise to be able to sell their innovative products or services to certain communities (like a for-profit enterprise), and receive donations or grants in order to provide these products and services to others who cannot afford them.

There is, however, some variance within the three historic organizations, and we have seen many companies move within this “wiggle room”. Many non-profits have started for-profit ventures in order to carry out their missions. Take for example, Story Pirates which has set up both a non-profit and for-profit under the same name in order to provide after-school writing and drama programs to under served schools and produce stage shows – for financial income – for the public. Additionally, many businesses have also created partnerships in order to promote positive social impact. For example, Danone and the Grameen Group have partnered together in order to work to provide nutrition to the largest amount of people as possible in Bangladesh. 

However, as these enterprises evolve, they are seeing a need for a more supportive ecosystem of frameworks and systems that are better tailored to their lines of work.

The UK government has been the leader in pioneering a framework tailored to for-benefit-businesses. The Community Interest Company (CIC) was introduced by the UK government in 2005 as a special type of legal company whose financial “profits” are principally re-invested in the business or in the community, rather that given to shareholders or owners. In the legislation, these companies must “create an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders”.  With this framework, the “success” of these companies is measured by the social impact that they create, rather than the economic returns that they give to their shareholders.

In the arena of Social Entrepreneurship, we are seeing remarkable growth and significant interest by people from all sectors. Some of the biggest business schools have even begun to incorporate social entrepreneurship into their coursework. It will be interesting to see where, in the next decade, these new types of “hybrid” enterprises go, and how they will change the existing systems that we understand today.

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