José Javier Pérez Barea, EMBA participant at IE Business School and winner of the CoBS 2020 CSR article competition, explores the charted and uncharted waters of social entrepreneurship
How to improve the unknown? One important point about social entrepreneurship (SE) becoming more sustainable is to delve into the knowledge and research about the term. Moreover, the issue of SE definition is a problem affecting research and sustainability in this field. The main aims of this article are i) further knowledge by means of a review of scientific literature to determine the conceptual development of SE and ii) identify the most interesting research trends.
Systematic literature review: Micro, meso and macro levels of socent
Social entrepreneurship is an emerging field that urgently needs reviewing to establish the key aspects of its definition. This article represents an attempt at doing so, but it does not solely focus on the conceptualization of this phenomenon. The conclusions of this article should contribute to the central debate surrounding the role of businesses today as creators of common good and the increasing closeness between these two worlds.
Most authors agree that the concept of social entrepreneurship has attracted a lot of attention in recent years, not only from academics but also from people working in this field and government agencies. To date, there have been three main approaches to the study of social entrepreneurship: social entrepreneurs as individuals, the micro approach; social enterprises as organizations, the meso approach; and the macro approach, which looks at the economic and social context and, more specifically, the implications of social innovation.
The micro level studies the perspective of social entrepreneurs as individuals. For Dees (1998), this type of entrepreneur must: (i) have a mission of creating social value; (ii) identify business opportunities to complete said mission; (iii) pursue a process of on-going innovation; (iv) act boldly; and (v) have a heightened sense of responsibility for socially excluded groups and for the results obtained. A social entrepreneur is someone who looks for innovative solutions to traditional problems and who has a strong social commitment to the community in which he or she operates.
Furthermore, a social entrepreneur is someone who not only aims to solve a problem in a specific place, but who has a more global perspective and looks to create a scalable model; that is, a model that can be replicated in other contexts to maximize its transforming impact. Social entrepreneurs do not focus on just providing aid – they work to generate sustainable change and authentic social transformation.
Social entrepreneurship is also understood on a meso level, where the focus is on the enterprise as an organization. The largely shared definition of a social enterprise is one whose central mission is to have a transforming impact or to create positive social change by means of a business model or activity that enables its said mission to be achieved in a financially sustainable way, using innovative and replicable business models (Murray, Caulier-Grice & Mulgan, 2010).
Under the classic economic model, the mission of a company is to maximize financial gain and utility for shareholders, while the mission of a not-for-profit organization is to maximize social gain and utility. Besides the difference in mission, these types of organizations are also sustained in a different way. Traditionally, for-profit companies are sustained by the income generated from their economic activity, while not-for-profit organizations are sustained through charity and philanthropy. The unique feature about a social enterprise is that its mission will be to maximize social gain and utility, but its business model will ensure the organization is financially viable (Bagnoli & Megali, 2011).
This new model of organization, which combines the for- and the not-for-profit tradition, is still not properly understood and is more often associated with not-for-profit organizations. Some authors have called social enterprises ‘hybrid organizations – that is, companies that make most of their profit from economic activity, but that also combine it with non-commercial sources of income, such as donations or grants.
The last of these three levels is the macro level, which explains the relationship between social enterprises and their economic, social and organizational context. All new enterprises, regardless of their business model, need to identify an opportunity based on an existing market and overcome any obstacles in setting up their business. In the case of social enterprises, their chosen social mission will largely define the context in which they operate and their specific difficulties and needs. To overcome these difficulties, experts advocate innovation, traditionally defined as the introduction of new production models or expansion into new markets (Schumpeter, 2013).
Many researchers suggest, although the limits of the concept are not clearly defined, that social entrepreneurship is an area of study with its own identity that can be approached scientifically. In fact, the novelty lies in the term ‘social entrepreneurship’ not in the concept itself, which has appeared in various guises over time. For Choiu and Majumdar (2014), social entrepreneurship is a domain made up of multiple sub-concepts: (i) the creation of social value; (ii) the social entrepreneur; (iii) the organization focus; (iv) market orientation and; (v) social innovation.
Research trends: Venture philanthropy, measuring social impact and hybrid organizations
The other aim of this article is to find trends in new themes linked to social entrepreneurship. SE emerged from two different trends: from the field of business ethics and corporate social responsibility on the one hand, and from the field of NGOs and the third sector on the other. Over the years, trends such as those outlined below have arisen on which researchers have focused their work.
Venture philanthropy is a new concept that appears in the context of philanthropic foundations (corporate or otherwise) and individual investors seeking to measuring the social impact of their investments in charitable projects. For Scarlata and Alemany (2010), venture philanthropy is the process of investing in social enterprises that have a big social impact. For other authors, it is a way of operating in the social sector in a more efficient manner. People who donate to not-for-profit organizations are seen as social investors – something that changes the concept of investor.
The difference is that while a traditional investor seeks only financial return, a social investor’s main aim is social return, measured in terms of the social impact or change generated by the organization. In turn, other authors see venture philanthropy as the application of entrepreneurial management processes and efficiency levels to not-for-profit organizations, in order to maximize both social and financial return (Buckland, Hehenberger & Hay, 2013).
In recent decades, the question of how to measure the impact of social enterprises has become increasingly pressing. As such, there is a growing demand for tools that verify the performance of inputs or capital – whether from donors or investors – in relation to the fulfillment of a social mission (Alvord, Brown & Letts, 2004). There is also a growing demand for tools to support decision-making and the evaluation of activities in order to identify areas for improvement within social enterprises.
From the world of business, Performance Measurement Systems (Neely, Adams & Kennerley, 2002) have been defined as a set of metrics used to quantify the efficiency and effectiveness of the actions of a company. This method of measuring economic performance is now being used to measure social performance or the social and environmental impact of enterprises and organizations, entailing measuring the impact that a company’s activity has on its stakeholders. By definition, a hybrid is something formed from two different species.
In the context of organizations, it is used to describe organizations with structures and practices that coexist in different categories. Researchers often define social enterprises as hybrid organizations that aim to marry the fulfillment of a social mission with the creation of financial profit – that is, organizations that are financially sustainable (Lumpkin et al., 2013). Within these organizations, there is a delicate, often conflicting, balance between the business proposal and the social objectives, and this issue is by no means resolved in academic literature. This concept is also used to describe, from an institutional perspective, organizations that fall between the binary categories of for-profit vs. not-for-profit, and private vs. public (Defourny & Nyessens, 2006).
The debate across the literature about how to define social entrepreneurship reveals that the line which separates for-profit and not-for-profit organizations is becoming increasingly blurred. Processes of innovation and, more specifically, social innovation are essential when addressing the context of social transformation and the mission of a social enterprise. Sustainability is another key concept in terms of explaining the nature of social enterprises as organizations that seek to combine, in the long term, financial profit and a social mission. In addition, countries with higher rates of traditional entrepreneurial activity also tend to have higher rates of social entrepreneurial activity (Lepoutre et al., 2013).
A new phenomenon
It would be worth considering whether this is the product of social and cultural change in the business and economic world at large. Whether the way of approaching social problems is changing and whether organizations with a social mission are changing into more efficient entities using more traditional business management models. However, this change has not come from organizations as entities, but rather from social entrepreneurs as individuals, acting as the driving force behind this type of incentive. Perhaps this is because we now have a new generation, the millennials, who understand the world in much more global terms thanks, among other things, to technological advances and new means of social communication.
To conclude, social entrepreneurship is an emerging phenomenon that would benefit from more empirical research to advance in the process of bringing the definition debate to a closure. For example, we need more success stories through which to understand the entire process, from the hatching of an idea to the creation of the corresponding social change. The main challenges concern the limits of social entrepreneurship as regards other more traditional types of entrepreneurship. The matter of individual social entrepreneurs is simpler as it seems clear what motivates them, where their main skills lie, and what sets them apart from other entrepreneurs.
However, what is not so clear cut is the type of organization that defines a social enterprise – legally speaking – and the question of profits, especially for companies that make a profit and have various external investors. These trends point to future lines of research that we still know very little about. The big question of how to measure social impact is one of the main concerns of researchers today. The problem of funding is another important topic as it is not fully clear how social enterprises are being funded, and it would be interesting to know who is financing this type of organization and why. Another interesting line of research would be to compare and explore the development of social entrepreneurship according to geographical location – e.g. Anglo-Saxon influence vs continental Europe.
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REFERENCES used in the article
- Alvord, S. H., Brown, L. D., & Letts, C. W. (2004). Social entrepreneurship and societal transformation an exploratory study. The journal of applied behavioral science, 40(3), 260-282.
- Andy, n., Mike K. (2002). Performance measurement frameworks: a review. Business Performance Measurement: Unifying theories and integrating practice, Second edition.
- Bagnoli, L., & Megali, C. (2011). Performance measuring in social enterprises. Nonprofit Volunt. Sect. Q, 40(1), 149-165.
- Buckland, L., Hehenberger, L., & Hay, M. (2013). The growth of European venture philanthropy. Stanford Social Innovation Review Summer, 33-39.
- Choi, N., & Majumdar, S. (2014). Social entrepreneurship as an essentially contested concept: Opening a new avenue for systematic future research. Journal of Business Venturing, 29(3), 363-376.
- Dees, J. G. (1998). The Meaning of “Social Entrepreneurship” [online] Entrepreneurship.duke.edu.
- Defourny, J., Nyssens, M. (2006). “Defining social enterprise” in Nyessens, M. (ed.) Social Enterprise: At the crossroads of market, public policies and civil society. London: Routledge. (3-26).
- Lepoutre, J., Justo, R., Terjesen, S. et al. (2013). Designing a global standardized methodology for measuring social entrepreneurship activity: The Global Entrepreneurship Monitor social entrepreneurship study. Small Business Economics, 40, 693–714.
- Lumpkin, G. T., Moss, T. W., Gras, D. M., Kato, S., & Amezcua, A. S. (2013). Entrepreneurial processes in social contexts: how are they different, if at all?. Small Business Economics, 40(3), 761-783.
- Murray, R., Caulier-Grice, J., & Mulgan, G. (2010). The open book of social innovation. National Endowment for Science, Technology and the Arts. [online]
- Scarlata, M., & Alemany, L. (2010). Deal structuring in philanthropic venture capital investments: Financing instrument, valuation and covenants. Journal of Business Ethics, 95(2), 121-145.
- Schumpeter, J. A. (2013). Capitalism, socialism and democracy. Routledge.
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