Toward a practical, impact-focused classification of social enterprises (the prequel)

Below is the first half of an essay that I put together for Alex Nicholls’ Social Entrepreneurship course at Oxford’s Saïd Business School. It is verbose, thanks to an academic word count target. The nut graf, as my friend Ben has taught me to call it, is that I believe that social enterprises (businesses that hope to have a positive social impact with their work) are best sorted and supported according to the impact they would like to have. Go here for the important stuff; below is the boring literature review.

Abstract

In the decades since Bill Drayton first coined the term social entrepreneurship in the 1980s, much ink has been spilled attempted to define—or argue against the definition of—a field that has attracted the attention of governments, philanthropists, and businesspeople. Most of these definitional attempts focus on the edges, using the contrast between social and “mainstream” businesses as a way to clarify what should be considered a social enterprise. This paper moves from such contrast-based efforts to define social entrepreneurship and more academically-focused frameworks, and toward a practical categorization of social enterprises starting from their relationship to their primary beneficiaries, which I call an enterprise’s impact focus. Such a categorization, rooted in the practical needs of social enterprises themselves, can help practitioners and academics of social enterprise move past questions of definition to considerations of how best to support enterprises themselves.

Defining and categorizing social entrepreneurship: A literature review

Though the phrase social entrepreneur was used as early as 1972, Ashoka founder Bill Drayton is widely attributed with coining the phrase to describe the type of organization to which his Ashoka began donating in the early 1980s.[1][2] Since then, a number of authors have offered their own definitions of social entrepreneurship, in an attempt to define and often promote the field. In the first half of this paper, we will trace the evolution of those attempts to define and categorize the field, with extra attention paid to Kim Alter’s work on social enterprise operational models.[3]

In his 1997 essay The Rise of the Social Entrepreneur, British author evangelist Charles Leadbeater describes social entrepreneurship as a reaction by private citizens to the failure of the British welfare state to keep pace with changes in social and family structures in the UK.[4] He points to examples such as private HIV/AIDS clinics and a church-run drug treatment program. For Leadbeater, the absence of a profit motive is the primary differentiator of the : “[They] are not owned by shareholders and do not pursue profit as their main objective. Certainly [social entrepreneurs] run not-for-profit organizations.”

Writing at roughly the same time, American professor Greg Dees roots his analysis of social entrepreneurship in modern entrepreneurship literature: if an entrepreneur is an individual who reorganizes available resources in truly innovative way, then a social entrepreneur does so with an explicitly social mission, impact-driven metrics of success, and concern for all stakeholders.[5]

In large part, this is the definition David Bornstein employs in How to Change the World, first published in 2004. Though not an academic text, the book profiles a number of the social entrepreneurs supported by the Ashoka Foundation. For Bornstein—as for Dees—the true social entrepreneur is a Schumpeterian innovator but with an underlying social motive, rather than a commercial one. Bornstein’s book marks the beginning of a wave of literature on social entrepreneurship in the late 2000s. In their 2006 article, Peredo and McLean identify two increasingly distinct camps of social entrepreneurs: first, those where social mission is the singular motive; and second, where social mission is the primary motive but profit is permitted as a secondary concern.[6] Writing in 2008, Janelle Kerlin breaks this down by region. In the US, she notes, self-labelled social entrepreneurs are much more likely to be focused on for-profit activities that support a social mission than academics who consider non-profits to be the locus of social enterprise activity.[7] In Western Europe, the conversation is more nuanced, in part because of the previous strength of social purpose organizations such as cooperatives.

At the same time that authors such as Bornstein, Peredo and McLean were offering various definitions of the social entrepreneur, others like Alex Nicholls pushed back against strict definitions, pointing out that in different regions of the world, social enterprises sit at different points of contact of the state, markets, and civil society and therefore differ in each region.[8] As a result, Nicholls puts forth a simple two-sided definition of social entrepreneurship that rests on a “prime” social focus and an “innovative approach.”

The broadness and vagueness of such a definition has led other scholars to attempt to categorize social enterprises. Neck, Brush and Allen offer a four-part categorization of social enterprises based on their primary mission (social v economic) and their primary market impact (social v economic).[9] Such a categorization highlights the weakness of the definitions of Bornstein and Dees, as pointed out by Certo and Miller and by Paul White: a focus on the entrepreneur’s motivations, which are self-reported and therefore difficult to verify.[10][11] As recently as 2012, scholars such as Giovany Cajaiba-Santana have tried, and largely failed, to categorize social entrepreneurship in a useful manner.[12]

Alter’s social enterprise models

The most complete effort to date at categorizing social enterprises has been Kim Alter’s 2006 efforts, included in Nicholls’ book Social Entrepreneurship: New Models of Sustainable Social Change.[13] Alter lays out three ways of classifying social enterprises:

Relationship to Mission Mission Centric(Embedded)  Mission Related(Integrated) Unrelated to Mission(External)
Example A productive Haitian cooperative An American non-profit that offers high-end care to some customers to subsidize its elderly care to the poor A British organization licenses its logo externally to unrelated companies as a revenue stream for its activities.

Next, Alter identifies seven types of operational models. The following four are embedded models:

  • Entrepreneur support, in which an organization supports entrepreneurship in a marginalized population (microfinance)
  • Market intermediary, which works with small producers to connect them to markets (fair trade)
  • Employment, which aims to employ marginalized groups (such as jobs that enable disabled person)
  • Fee-for-service, where an organization charges fees to end users or third party payers

The next two of Alter’s seven operational models are integrated models:

  • Service subsidization, where a for-profit service targeting wealthy customers subsidizes a similar service for poor customers
  • Market linkage, similar to a market intermediary and which can be embedded or integrated depending on its organization

Lastly, Alter points to one external model:

  • Organizational support, where unrelated business activities fund core socially beneficial activities

After laying out seven these seven core models, Alter identifies other more complex models, including complex models, mixed models, and enhancing models, (including franchise and private-not-for-profit partnership models).

Alter’s paradigm is helpful in at least three ways. First, it moves discussion away from what qualifies as a social enterprise and towards how we might categorize such enterprises. Second, Alter focuses attention on one the key tensions within the field of social entrepreneurship: namely, different structural ways to balance the dual motives of profit and social benefit. Third, it brings forward the structure of social enterprises as key identifiers, rather than depending upon the motive of individual entrepreneurs as a categorical determinant.

Alter’s categorization falls short, however, in two primary ways. Most importantly, it fails to provide insight into how we might drive appropriate resources to social enterprises, including capital, talent, technical assistance, strategic guidance, appropriate regulation, and media exposure. Second, it leaves out—or forces us to shoehorn in—some social enterprises, including: job placement agencies, cash transfer programmes, data analytics companies, companies whose products might have a trickle-down positive effect, and environmentally-focused organizations.

Part I

Defining and categorizing social entrepreneurship: A literature review

Though the phrase social entrepreneur was used as early as 1972, Ashoka founder Bill Drayton is widely attributed with coining the phrase to describe the type of organization to which his Ashoka began donating in the early 1980s.[1][2] Since then, a number of authors have offered their own definitions of social entrepreneurship, in an attempt to define and often promote the field. In the first half of this paper, we will trace the evolution of those attempts to define and categorize the field, with extra attention paid to Kim Alter’s work on social enterprise operational models.[3]

In his 1997 essay The Rise of the Social Entrepreneur, British author evangelist Charles Leadbeater describes social entrepreneurship as a reaction by private citizens to the failure of the British welfare state to keep pace with changes in social and family structures in the UK.[4] He points to examples such as private HIV/AIDS clinics and a church-run drug treatment program. For Leadbeater, the absence of a profit motive is the primary differentiator of the : “[They] are not owned by shareholders and do not pursue profit as their main objective. Certainly [social entrepreneurs] run not-for-profit organizations.”

Writing at roughly the same time, American professor Greg Dees roots his analysis of social entrepreneurship in modern entrepreneurship literature: if an entrepreneur is an individual who reorganizes available resources in truly innovative way, then a social entrepreneur does so with an explicitly social mission, impact-driven metrics of success, and concern for all stakeholders.[5]

In large part, this is the definition David Bornstein employs in How to Change the World, first published in 2004. Though not an academic text, the book profiles a number of the social entrepreneurs supported by the Ashoka Foundation. For Bornstein—as for Dees—the true social entrepreneur is a Schumpeterian innovator but with an underlying social motive, rather than a commercial one. Bornstein’s book marks the beginning of a wave of literature on social entrepreneurship in the late 2000s. In their 2006 article, Peredo and McLean identify two increasingly distinct camps of social entrepreneurs: first, those where social mission is the singular motive; and second, where social mission is the primary motive but profit is permitted as a secondary concern.[6] Writing in 2008, Janelle Kerlin breaks this down by region. In the US, she notes, self-labelled social entrepreneurs are much more likely to be focused on for-profit activities that support a social mission than academics who consider non-profits to be the locus of social enterprise activity.[7] In Western Europe, the conversation is more nuanced, in part because of the previous strength of social purpose organizations such as cooperatives.

At the same time that authors such as Bornstein, Peredo and McLean were offering various definitions of the social entrepreneur, others like Alex Nicholls pushed back against strict definitions, pointing out that in different regions of the world, social enterprises sit at different points of contact of the state, markets, and civil society and therefore differ in each region.[8] As a result, Nicholls puts forth a simple two-sided definition of social entrepreneurship that rests on a “prime” social focus and an “innovative approach.”

The broadness and vagueness of such a definition has led other scholars to attempt to categorize social enterprises. Neck, Brush and Allen offer a four-part categorization of social enterprises based on their primary mission (social v economic) and their primary market impact (social v economic).[9] Such a categorization highlights the weakness of the definitions of Bornstein and Dees, as pointed out by Certo and Miller and by Paul White: a focus on the entrepreneur’s motivations, which are self-reported and therefore difficult to verify.[10][11] As recently as 2012, scholars such as Giovany Cajaiba-Santana have tried, and largely failed, to categorize social entrepreneurship in a useful manner.[12]

Alter’s social enterprise models

The most complete effort to date at categorizing social enterprises has been Kim Alter’s 2006 efforts, included in Nicholls’ book Social Entrepreneurship: New Models of Sustainable Social Change.[13] Alter lays out three ways of classifying social enterprises:

Relationship to Mission Mission Centric(Embedded)  Mission Related(Integrated) Unrelated to Mission(External)
Example A productive Haitian cooperative An American non-profit that offers high-end care to some customers to subsidize its elderly care to the poor A British organization licenses its logo externally to unrelated companies as a revenue stream for its activities.

Next, Alter identifies seven types of operational models. The following four are embedded models:

  • Entrepreneur support, in which an organization supports entrepreneurship in a marginalized population (microfinance)
  • Market intermediary, which works with small producers to connect them to markets (fair trade)
  • Employment, which aims to employ marginalized groups (such as jobs that enable disabled person)
  • Fee-for-service, where an organization charges fees to end users or third party payers

The next two of Alter’s seven operational models are integrated models:

  • Service subsidization, where a for-profit service targeting wealthy customers subsidizes a similar service for poor customers
  • Market linkage, similar to a market intermediary and which can be embedded or integrated depending on its organization

Lastly, Alter points to one external model:

  • Organizational support, where unrelated business activities fund core socially beneficial activities

After laying out seven these seven core models, Alter identifies other more complex models, including complex models, mixed models, and enhancing models, (including franchise and private-not-for-profit partnership models).

Alter’s paradigm is helpful in at least three ways. First, it moves discussion away from what qualifies as a social enterprise and towards how we might categorize such enterprises. Second, Alter focuses attention on one the key tensions within the field of social entrepreneurship: namely, different structural ways to balance the dual motives of profit and social benefit. Third, it brings forward the structure of social enterprises as key identifiers, rather than depending upon the motive of individual entrepreneurs as a categorical determinant.

Alter’s categorization falls short, however, in two primary ways. Most importantly, it fails to provide insight into how we might drive appropriate resources to social enterprises, including capital, talent, technical assistance, strategic guidance, appropriate regulation, and media exposure. Second, it leaves out—or forces us to shoehorn in—some social enterprises, including: job placement agencies, cash transfer programmes, data analytics companies, companies whose products might have a trickle-down positive effect, and environmentally-focused organizations.

Ready for Part II? Click here

[1] Banks, Joseph. The Sociology of Social Movements, MacMillan, 1972

[2] Bornstein, David. How to Change the World, Oxford University Press, 2007

[3] In keeping with this paper’s effort to focus attention on function rather than definition, I will not adhere strictly to existing definitions of phrases such as social innovation, social entrepreneurship, or social business. I take social innovation to include any innovative approach to pressing social or environmental issues, and social entrepreneurship to mean innovations launched within new types of organizations. I use social business interchangeably with social enterprise, ignoring Muhammad Yunus’s efforts to co-opt the phrase.

[4] Leadbeater, Charles. The Rise of the Social Entrepreneur, DEMOS, 1997

[5] Dees, J. Gregory. The Meaning of “Social Entrepreneurship.” The Kauffman Center for Entrepreneurial Leadership, 1998.

[6] Peredo, A.M. and McLean, M. Social Entrepreneurship: A Critical Review of the Concept, Journal of World Business, 2006

[7] Kerlin, Janelle. Social Enterprise in the United States and Abroad: Learning from our differences, The Urban Institute, 2008

[8] Nicholls, Alex et al. Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, 2008

[9] Neck, Heidi; Brush. Candida; and Allen, Elaine. The landscape of social entrepreneurship, Business Horizons, 2009

[10] Certo, S. Trevis; and Miller, Toyah. Social Entrepreneurship: Key issues and concepts, Business Horizons, 2008

[11] White, Paul. Reshaping Social Entrepreneurship, Stanford Social Innovation Review, 2006

[12] Cajaiba-Santana, Giovany. Social innovation: Moving the field forward. A conceptual framework, Technological Forecasting & Social Change, 2012

[13] Alter, Kim. Social Enterprise Models. In Nicholls, Alex et al. Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, 2006

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