How does social enterprise differ from the traditional business model - Essay Example

How social enterprise model differ from the traditional business model Ridley-Duff et al (2011) defined social enterprise as any organization that directs its efforts towards the application of commercial strategies in improving environmental and humans’ well-being rather than maximizing shareholder profits. Unlike the traditional business model, social enterprises are flexible and capable of adopting either profit or non-profit structures, as their central agenda concerns advancing social, human justice and environmental agendas. The traditional business model advocated for concise distinctions with regard to a business’ primary intentions; for example, organizations defined themselves as either private profit-driven entities, governmental parastatals, or non-profit entities. Social enterprises organizations bypass this bureaucracy and are further differentiated from traditional business models by the following characteristics. Firstly, these organizations directly address social needs and direct their efforts towards ensuring the common good of the society via product output. Secondly, the business activities of these organizations are revenue driven whereby, generated revenue caters for the costs incurred in their social outreach programs. Finally, these organizations do not have to align their business strategies to encompass Corporate Social Responsibility (CSR) strategies, as their core mission and vision entails helping the society. Examined in the paper includes an example of services provided by social enterprises, implications of social enterprises and an analysis of two theoretical social enterprise frameworks and their implications (Bacharach, 1986 p.496). Social enterprise organizations exhibit diversity in the fields they specialize in; for example, retail, contracted providers of human and social services, fee-based consultation and research services, community development and financing services, and sponsoring art and literal exhibitions. Unlike governments and non-profit organizations, social enterprise organizations address social concerns more efficiently, sustainably and fund their beneficiaries more generously. Efficiency results from these organizations ability to mitigate social problems suffocating the limited resources possessed by various governments. The health care sector features an increased prevalence of lifestyle diseases that are costly to manage and treat such as cancer and HIV/AIDS. Individuals belonging to the low socio-economic status lack the financial means to seek treatment from health care providers. More often than not, health insurance providers refrain from designing care packages that are affordable for those in the lower social class. Therefore, many social enterprises target the health care system around the globe whereby, they provide funding to individuals in need of medical attention and lack the financial means to access these services. They do this by providing health insurance or offering health services free of charge. In addition, they also fund research programs, which direct their efforts towards discovering permanent treatments for incurable diseases. Finally, social enterprises roll out inoculation campaigns aimed at vaccinating people against terminal diseases. For example, cancer screening and vaccination against cervical and prostrate cancer prove useful in protecting people against cancer, which is a terminal, chronic disease (Goodpaster, 2003 p. 239). Implications of Social Enterprise As social needs continue to increase due to the shrinking government budgets, social safety nets, and employment rolls social enterprise is emerging as a self-sustaining, business-like, market-based, and highly effective method of fulfilling social needs. Social enterprises generate higher social returns on investment compared to other business models, as they produce measureable and direct public benefits. For example, classic employment-focused enterprises operating within the social domain achieve the following goals. Firstly, it fulfils the company’s fiscal responsibility by reducing the expenses generated by people afflicted by financial problems. Social enterprises create economic self-sufficiency for their employees and the underprivileged within the society. Secondly, organizations using this business approach create public safety by ensuring the security standards of the neighborhoods they operate within are very high. Research findings reveal that these organization engage in activities tailored to alleviate poverty in the society. Poverty contributes to an increase in criminal activities heightening insecurity in a given region. Therefore, increasing employment opportunities and provision of funding by social enterprises functions to economically empower citizens and reduce the predisposition to engage in criminal activities. Thirdly, social enterprises create a platform for ensuring social justice. Social inequality undermines the effective execution of justice. Privileged individuals infringe on the rights of the under-privileged by curtailing their financial progress. These organizations avoid discriminating against individuals in the society by ensuring the provision of equitable resources to all individuals in spite of socially constructed categories (Braungart, 2002). Theoretical social enterprise models A re-known model of CSR is Carroll’s four levelled pyramid. The CSR pyramid was formulated to take in society’s expectations of business responsibility and structure them into categories. As per the model responsibilities are broken down into four main categories: ethical, legal, economic and philanthropic. The groups are arranged in ascending order with the most important at the top most level. Economic responsibility is the most fundamental and all other responsibilities are pegged on it. Legal responsibility follows as all organizations are expected to conduct their business within a legal framework. Thereafter follows ethical responsibility that is defined by practices allowed by society but not prohibited by the law. Lastly, philanthropic responsibility that is discrete in its nature. The CSR pyramid describes key and sufficient obligations that socially abiding business ought to meet taking into account their importance (Hartnett, 2003). The CSR pyramid is defined by social expectations that an organization ought to meet and current social norms provide a bench mark against which businesses are measured. Hence responsibility in the model is ruled by normative restraints of responsibility. Coming to understand the CSR model the separate domains may have their definitions of responsibility narrowed down. Hence the economic role is only thought as making profit for the business while legal responsibility is torn down to following the law to the letter. Ethical responsibility is narrowed down to societal norms and expectations that are not encoded in the law while philanthropic responsibility is thought to be voluntary social involvement not demanded of corporate companies due to their business responsibilities (Hemphill, 2004 p.345). The CSR model argues that businesses should make profit but at the same time they ought to fulfil their other responsibilities. However the clear separation between the groups of responsibilities brings out the problem of integration. The pyramid calls for separateness of the responsibilities but at the same time they are to be simultaneously applied but do not specify how they should be integrated. The CSR pyramid model’s most attractive feature is its definition of CSR in four components. This breakdown of CSR make this model more conducive to construct research instruments making it easy for assessment of corporate orientations towards social responsibilities by corporate heads as well as whether the four components of the model do exist and whether they exist in their ranked importance (Lodgson et al, 2002 p. 177). A key implication the pyramid model has is its relationship to the CSR and CFP. Firstly, CSR emphasizes the economic aspect as the foundation upon which all others are built upon. This links social responsibility to whether a company is profitable or not. Through this relationship it can be expected that companies with a reputation favouring CSR can be said to have good financial results. Research has proven that CSR has a positively impacts CFP through its impact on reputation and vice versa. The good management theory states that attention to CSR domains increases a company’s adaptability to internal and external demands. As a result of this efficiency comes better financial performance. Lastly, the pyramid based structure suggests that companies high in CSR categorisation are high in financial performance since only successful businesses can afford above average performance (Lodgson et al, 2002 p. 177). In management implications, CSR model works hand in hand with the current trend of “ethics pays”. While trying to accommodate societal expectations into the economic paradigm the model still highlights the fundamental responsibility of business as economic. It states that it is in a business’s financial interests to comply with the law, to conduct business ethically and to be philanthropic. The underlying expectation of the CSR model is that company’s pursuance of humane policies is not for altruistic reasons alone but due to society’s nature of not expecting any less and the slim survival of companies that do not comply. However this strategy leads to dual standards in the global market when it comes to multinational companies in varying social contexts (Lodgson et al, 2002 p. 177). IC CSR Model The IC model of CSR varies from the pyramidal model in two ways. Firstly it leaves room for the possibility of intertwining of the CSR domains and secondly rejects the hierarchal importance. The pyramidal framework does not fully take into consideration the nature of the CSR domains. Neither does it highlight all tension points of the domains. Schwartz and Caroll taking into consideration these key points developed an alternative approach to CSR that encompasses major domains and their interrelationships. This model rejects the assumption that CSR is all but a collection of contingents. It holds that the different responsibilities are dynamic and are in constant interplay. Additionally corporate bodies take the responsibility of harmonizing and resolving conflicts between the domains. Schwartz and Caroll hold that the underlying idea of the IC model is that no domain dominates or is relative to the other: particularly the economic domain is not fundamental and social responsibility does not shadow all other domains. The IC model is a descriptive version of the pyramidal CSR model with a major feature of the main responsibility domains in a Venn diagram that highlights their overlapping nature. As a descriptive version it allows for the CSR to be used in conjunction with external values of appropriate business and societal relationships. The categories ought not to be used as standards but as analytical tools made up of external value preferences that are held in a given societal and corporate context.The IC model has eight sections: seven inner and one outer where the three major domains stand alone but with their intersecting parts (Miller, 2004). With the creation of mixed domains of responsibilities concerns were raised about defining the boundaries of the CSR. Schwartz and Caroll suggested that all seven sections represent instances of CSR. For instance the purely economical domain devoid of both social and legal concerns is part of CSR. Schwartz and Caroll explained this by saying that there are activities that economic in nature that result in direct or indirect benefit that may be illegal or may not directly comply with the law. This description gives a radical representation of the economic domain that is not socially responsible and that is not acceptable. With management, the IC model is useful in identifying and assessing present and future tensions in the domains. Management’s role is to resolve conflict or foresee and prevent their development and enhance harmony. IC models flexibility allows for all sorts of interrelationships among the different domains with no order of priority and none being more important than the other (Wartrick et al, 1985 p. 759). The research implications of the IC model is that with varied domains it therefore becomes difficult to assess the mix of economic, legal, ethical and philanthropic domains that are present in the organizations. However Schwartz and carol suggest the model would be specifically helpful for formulation for CRS models for skewed to specific entities (Wright, 2003). References Bacharach, S. B., “Organizational theories: some criteria for evaluation.” Academy of Management Review 14, 4(1989): 496. Braungart, M; McDonough, W. Cradle to Cradle. New York: North Point Press, 2002. Goodpaster, K. E., “Some challenges of social screening,” Journal of Business Ethics 43, 3(2003): 239. Carroll, “Corporate social responsibility.” Hartnett. K. Senior Manager, Business for Social Responsibility. Personal Interview. June 2003. Hemphill, T. A., “Corporate citizenship: the case for a new corporate governance model,” Business and Society Review 109, 3(2004): 339–361. Logsdon, J., and Wood, D., “Business citizenship: from domestic to global level of analysis,” Business Ethics Quarterly 12, 2(2002): 177. Miller, H. “Businesses don’t have social responsibilities; people do.” The Miami Herald 21 July 2004. Ridley-Duff, R. J. and Bull, M. (2011) Understanding Social Enterprise: Theory and Practice, London: Sage Publications. Wartick, S. & Cochran P., “The evolution of the corporate social performance model,” Academy of Management Review 10, 4(1985): 758–769. Wright, L. Vice President, Community Relations. US Bank. Personal Interview. 25 June 2003. Read More