Lec 09 Flashcards
Social Enterprises
social and environmental aspects
Generally, social and environmental aspects are of increasing importance in the corporate world. A reason for this can be seen in the adoption of the stakeholder view as the dominant form of assessing a business’ performance and societal impact. Considering this, it is deemed necessary by many investors, customers and other stakeholders nowadays that companies act socially and environmentally responsible in the way they operate.
social hybrids
While firms with the main goal of achieving profits increasingly engage in some social activity, organizations centered on a social mission who run a commercial operation to finance it, exist as well. These are so-called social hybrids. Their strategy is based on the idea that there does not necessarily have to be a trade-off between business performance and social impact, the idea is that positive value spillovers can imply a win-win situation between commercial and social activities, as will be discussed later. Having said that, potential conflicts can still arise. There is the risk of mission drift, mainly that a social hybrid becomes less focused on the social mission over time and puts more emphasis on business operations. At the same time, in some cases it can be very challenging to achieve financial sustainability while being dedicated to social impact. The further contents of the reading summarized here discuss how these issues can be addressed.
social welfare
In many cases, social welfare is naturally aligned with the economic prosperity resulting from the operation of a commercial firm, but often it is not fair as mainly the wealthier segments of the population benefit and disadvantaged parts of society do not. The communities left behind would traditionally, i.e. without social hybrids, only be addressed by charitable organizations or the government, if at all. Social hybrids can have an important economic and social role, if they are able to operate sustainably and their model is scalable.
value spillovers
A key concept when talking about social impact of firms is that of positive and negative value spillovers: the consumption or use of a good or service may have additional benefits or negative consequences as a side effect, in some cases these result automatically, in other cases further intervention is needed for these spillovers to come into place. Often the problem is that the target group that could benefit from positive spillovers cannot pay for the product or service, has difficulties accessing it or is unwilling to pay for it. In those cases, novel approaches such as redesign, involvement of customers in production or the bundling of multiple goods may help. Some social businesses also generate profits from other groups than the actual beneficiaries, e.g. using the margin of selling a medical product to affluent customers to make it cheaper to buy in lesser developed regions.
examples of social enterprises
Grameen Bank, a microfinance institution giving small business owners in lesser developed countries, who would not qualify for loans by commercial banks, access to small loans. Another example is Blinde Kuh, a restaurant where food is served in dark rooms by blind waiters, raising awareness about blindness and benefiting people with impaired visions from their profits. Also mentioned was M-Pesa, a microfinancing service specifically aimed at the developing world that allows users to make deposits, withdrawals and transactions via a mobile phone. Auticon, a software consulting company that exclusively hires autistic people as their consultants, was also shown in the lecture.
Social hybrids can be classified using a 2x2 matrix where one axis is the level of contingent value spillover and the other is the degree of overlap between clients and beneficiaries.
Market hybrids
Market hybrids serve their paying customers and directly achieve automatic spillover effects benefiting them. Management is relatively easy, risk of mission drift is rather low. Focus should lie on operational performance, as the social benefits are directly aligned with business activity.
Examples for market hybrids: provision of basic needs such as water and electricity to poor customers, achieving strong spillover effects in terms of health, education and so forth. From the examples mentioned before, M-Pesa can be classified as a market hybrid.
Blending hybrids
Blending hybrids, like market hybrids, also serve a paying customer base, however further engagement with the customers such as training and mentoring is required to achieve positive spillovers. Blending hybrids have a higher risk of mission drift since a blending hybrid might tend to focus on more affluent customers and neglect the less wealthy ones. It can either adopt an integrated organizational structure, where individual members are both involved in the commercial and social mission or choose to have separate teams for the respective activities.
Bridging hybrids
Bridging hybrids serve beneficiaries who are not their paying customers. The risk of mission drift is considerable, since organizations falling into this category might tend to focus more on their customers than on the beneficiaries. Achieving financial sustainability is of intermediate difficulty, since the social mission incurs additional costs on top of the commercial operation. A bridging hybrid should be staffed with people who are proficient in the commercial aspects. Also, performance management should be primarily focused on it, since the profitable business is the source used for financing the social mission. At the same time, the social activity should also be assessed, to ensure its effectiveness and to monitor the risk of mission drift.
Coupling hybrids
Coupling hybrids, like bridging hybrids, serve beneficiaries who are not their paying customers and who require further support to benefit from the organization’s social efforts. Thus, coupling hybrid model is the most complicated of the four. The risk of mission drift is comparatively high and achieving financial sustainability is difficult. The management of coupling hybrids is ideally separated between the commercial and social operations, with staff focused either on the business or social impact part. The latter should never be outsourced, in order to have control over the relationship with their beneficiaries and to reduce the mission drift risk. For this reason, performance management should also assess both the business and social side. It is important to have coordination mechanisms in place to make sure that both operations work together smoothly.
the dilemma that social hybrids typically face is achieving financial sustainability while maintaining their societal engagement
The more an organization can align profit with social impact, the easier dealing with this conflict gets. In some cases, bridging hybrids are able to become market hybrids if they manage to make their beneficiaries finance their engagement, for example through a low-cost model. Some organizations, however, also tend to move in the other direction as a means of expanding their social activities.
Funding of social hybrids
The funding that an organization should ideally use also depends on the type of social hybrid they are: market hybrids can be financed similarly to purely commercial enterprises, blending hybrids preferably finance their social activities by reinvesting profits and, like bridging and coupling hybrids, ideally are financed by capital dedicated to social enterprises, where investors specifically aim at social impact and do not expect the returns that purely commercial investors would.
Addiopizzo Travel case
See summary 9.3
