Social Enterprise in Not for Profit Organisations - Literature review Example

Social Enterprise in Not for Profit Organisations Name: Course: Tutor: Institution: Date: Introduction Non-profit organisations have in the last decades expanded their influence and popularity across the globe. In this regard, the organisations target and main focus in on helping the less advantaged and poor in the society. As such, the ventures initiate projects and programs aimed at supporting the target societies to improve their living standards as well as economic and social potentials (Ruppel, 2013, p.14). Therefore, such organizational missions are hedged on supporting the society rather than making and earning profits from their respective projects. Therefore, this implies that the ventures lack their own revenue streams and as such rely on donations, grants and sponsorship to finance their projects as well as cater for their operational activities. However, as Soobaroyen and Raja (2007, p.272) argued, the recent global changes especially after the global financial crisis has seen an increased competition for the grant leading to often financial shortages and deficiencies among the nonprofit oriented organisations. Therefore, in a bid to overcome this challenge, nonprofit organizations through the hybrid management approach, have in the recent past resulted to social enterprise systems through which, they set up social projects and programs with which their earn income to cater for their operational needs as well as further project propagations. This essay offers an evaluation on the merits of social enterprise in non profit organisations as well as the potential encounter challenges. Advantages of Social Enterprise Incorporation Sustainability The engagement of not for profit organisations into social enterprises has a range of merits and advantages to their operations. One among them is sustainability enhancement. Business sustainability is the capability and business nature through which an organization can propel and execute its mandate and projects with the initial invested capital. Through a sustainability program, organisations recycle the initial invested capital through a revenue generation model to raise enough funds to support their eventual operational expenses. Therefore, through a sustainability programs, organisations require no additional capital to fund their daily operations. In this regard, not for profit organizations have in the opportunity to gain their own revenues through social enterprises. In this case, the social enterprises play a significant role through their service and contribution to the community well being and success. Through the establishment of and starting up of social enterprises, Arevalo, Castello, Colle, Lenssen, Neumann and Zollo (2011, p.943) argued that non-profit oriented organisations attain their increased organizational influence and overcome the funds shortage challenge they are currently facing. In addition, besides their established financial independence non-profit organisations make their operations sustainable in that once they acquire the original investment capital they recycle the funds to fund subsequent operational costs in the long run, a virtue imperative for their sustainability. In turn, through increased projects sustainability, the society stands to gain. As such, instead of withdrawing their projects and programs from the society due to financial constraints and challenges, the society benefit from the social enterprises through the meeting of their overall human needs at affordable prices. Regular Cash flows Non profit venture today, despite their non-profit orientation operate like profit organisations in a range of spheres. For instance, despite the existence of a large pool of volunteers as part of their human resource workforce, they also have paid and salaried staff members. As such, just like other profit organisations in the market, they require regular funds supply to meet the recurrent salaries expenditure. In addition, the rolling out and execution of the projects lead to the emergence of recurrent expenditures that ought to be met in order to facilitate and stimulate their success. In order to meet these needs, organisations require regular cash flows. Smullen (2001, p.47) argued on the role and implications of cash flows in an organizational business model and operations. In this regard, the study argued that through positive cash flows that imply high inward cash inflows organisations meet their operational expenses. However, if organisations experience irregular cash inflows that at times lead to negative flows where the out flows exceed the inflows, such ventures face the risk of insolvency, a situation n which they cannot meet their short run operational expenses. Consequently, such situations stall organizational projects and programs operations. This as Hoag and McKinley (2012, p.30) stated, has been the trend with not for profit organisations. In this regard, the organisations rely on donor funding to execute and meet their operational costs. However, donor funding and grants are irregular and often delay exposing such organizations to insolvency, whose repeated nature often lead to projects and programs failure. As such, the organisations can stabilize their cash flows through social enterprise in order to curb against eventual organizational insolvency cases. Therefore, the adoption and incorporation o social enterprises in not for profit organisations operations increase their overall cash flows frequency allowing for appropriate business planning and timely execution of their projects and programs through meeting of the daily and operational expenses of such projects. In this regard, the incorporation of social enterprise programs have benefitted the involved communities through ensuring that community funded based programs and projects do not stall and the community derives their gains and benefits within the shortest execution period possible. Expanded Organisations Scope One major difference between not for profit organisations and the profit based organisations is their ability to expand operations and finance diversified programs. On one hand, the profit oriented organisations managements, through the agency theory are mandated with the responsibility to decide on projects and programs through which the organisations can venture into for increased gains. On the contrary, the not for profit organisations lack this management decision making autonomy and liberty. As such, funds utilization is based on the earlier decided on projects. In this case, grants, donations and sponsorships are offered for specific target projects. Consequently, even if the projects prove expensive or better projects emerge after the funds have been solicited, the organizational management cannot divert such funds to the alternatively better projects. As a result, this as Hankin, Seidner and Zietlow (1998, p.5) argued, has curtailed efficiency and appropriateness of not for profit ventures in the society that are often overtaken by other better need satisfaction alternatives in the course of their roll out stages. In this regard, the incorporation of social enterprise ventures provides the not for profit organisations with the much needed funds allocation flexibility in the highly dynamic socio economic settings on the global platform. Revenues and funds acquired through the social enterprise ventures are property of the organisations. As such, they need no external stakeholders’ approval to divert such funds into alternative society beneficial projects. Therefore, the incorporation and flexibility of social enterprises acquired funds increases the overall organisations investment and projects initiation flexibility. As such, this has allowed for increased community participation as well as multi projects role outs by such not for profit ventures. Moreover, this has allowed for increased projects success rates as program approaches and schedules can be changed on a need basis as per the situational demands with minimal bureaucracy and approval chain. New Employment Opportunities One of the key objectives of not for profit organisations is to improve a community and society social standards. Often, this I achieved through the provision of social amenities and needs that facilitate increased community participation in economically productive activities that in turn develop a sustainable income and earnings through which the society can fund it for eventual development and standards improvement. However, Gartner and Bellamy (2010, p.533) stated that, besides the provision and empowerment programs offered by the not for profit organisations, such ventures can offer direct income sources for the society, thus directly empowering them economically. This is often achieved through offering employment opportunities through social enterprises. The main target of social enterprises is to provide services to the society and is often managed under the hybrid management approach. Under this approach, they offer services while retaining business organizational features such as revenues generation and staff remuneration. Therefore, this implies that such ventures provide employment opportunities for the society in the respective management and staff levels. Through their revenue generation models, such ventures are bound to expand in the long run. As such, it implies that the involved society, besides benefiting from offered products and services, benefit directly from employment in the ventures. Increased social enterprises business and operational model adoption by the not for profit organisations increases their influence in the society through the provision and meeting of societal needs as well as offering them earning opportunities subsequently empowering them economically for independence and improved social status. Despite the application rationality and merits of the social enterprise business model concept on not for profit organisations, such application and execution process faces a number of challenges and shortcomings among them mission relatedness as well as financial capabilities Social Enterprises Application Challenges Mission Statement Relatedness Basically, the not for profit organisations are all based on a related mission to facilitate societal social and economic well being of the target communities and societies. As such, the organisations are based on the mission of rolling out projects and community based initiated programs to empower the society both socially and economically. In this regard, a majority of the organisations are involved on daily basis operations of managing such projects. However, the emergence and application of the social enterprise business model creates challenges and contrast with this strategic not for profit organisations mission. In this case, besides providing societal needs through social and sustainable products, the ventures aim at gaining and making profits. As such, the ventures are oriented to practices and approaches that would increase their profitability. Through the adoption of this model, the ventures encounter market competition from the profit oriented ventures in the industry. Thus, they face the risk of increased competition as well as unethical business practices in a bid to create increased consumer influence and base. Subsequently, this may lead to a diversion of the organisations from their original not for profit society mission into increased profit orientation in a bid to increase their revenues to support other projects and expenses. Lyons (2013, p.15) stated that through increased involvement in profit making activities, not for profit organisations lose their previous reputation and societal perceptions. Thus, although they retain their original mission of helping the society, the perceived organizational mission by the society significantly changes. Consequently, this leads to increased societal projects resistance as well as case of decreasing societal support in its projects as the society perceives them with suspicion as additional venture approaches through which the organization indirectly seeks to expand its influence and profit gains. Therefore, the society perceives such projects as corporate social responsibility (CSR) program rather than the actual organizational missions. Financial Challenges As already argued, not for profit organisations just like their profit oriented organization peers, rely on cash flows frequency and rates to offset their operational costs. As such, it is imperative that such organisations cash inflows always exceed the outflows in order to avoid insolvency cases, where they cannot meet their short term need and expenses. However, although the social enterprises serve as a cash flow stabilization tool, their initial investment costs are high. Thus, Colby, Sowers and Dulmus (2008, p,37) stated that the ventures, consume a considerable amount of the organisations invested funds. As always with initial business ventures, profits are not expected in the short run period. Therefore, despite its role in increasing the organisations cash flows, the social enterprises pose a major challenge in the short run periods they drain of the organisations the required resources. Thus, the adoption of this business model expands the organizational risk of funds shortage in the short and medium run periods subsequently exposing it to eventual social programs and projects failure. In addition, the adoption of this approach, may lead to reduced external funding rates by the donors, sponsors and through grants. In this regard, such financiers may perceive the organization as self sustaining thus requiring minimal funding and assistance. Consequently, such developments are likely to reduce on the overall organizational consumer base, of which the social enterprise seeks to expand. This is especially so based on the donors and sponsors perception of profit making ventures. In this case, donors believe in the fact that not for profit organizations should stick to their original missions of supporting the community and societal structures and not in any way engage in profit generating activities. Therefore, any of the organisations perceived to deviate from this expected operational method is regarded as defying its original mission and objectives and utilizing funds channelled for specific societal projects to establish profit making subsidiaries and organs. In summary, venturing into social enterprises reduces the overall organizational financial base, with the potential risk of losing on all their external financiers. Conclusion In summary, this essay offers an evaluation of the social enterprise business concept and its application in the not for profit organisations. As such, the essay evaluates the nature and extent to which the social enterprise concept application is relevant and rational for application among the not for profit organisations. As such, the essay establishes a range of merits and application advantages including sustainability enhancement, cash flows regulation enhancement as well as expanding organizational scope and management’s decision making flexibility. However, the study establishes that the application of social enterprises concept exposes the not for profit ventures to a range of challenges among them negative societal perception and declining donors support. Therefore, based on the above analysis, this research establishes that the adoption of the hybrid management approach and the incorporation of social enterprise is a necessity in present day not for profit organisations. As such, the essay concludes that increased financing and resources challenges in the global market today, necessitate the need for organizations to develop self revenue generating ventures to fund their operations in the long run. However, it asserts that there is need for the development of appropriate regulatory frameworks to regulate such ventures and insulate the organisations form deviating from their original incorporation missions and the subsequent misuse of their not for profit status into earning profits and increased revenues for private use. References Arevalo, J.A., Castelló, I., de Colle, S., Lenssen, G., Neumann, K. & Zollo, M. 2011, "Introduction to the special issue: integrating sustainability in business models", The Journal of Management Development, vol. 30, no. 10, pp. 941-954. Colby, I. C., Sowers, K. M., & Dulmus, C. N., 2008, Comprehensive handbook of social work and social welfare: Volume 4, John Wiley & Sons, Hoboken, N.J. Gartner, W. B., & Bellamy, M. G., 2010, Enterprise, South-Western Cengage Learning Mason, OH Hankin, J. A., Seidner, A. G., & Zietlow, J. T., 1998, Financial management for nonprofit organizations, J. Wiley, New York ; Toronto. Hoag, G. & McKinley, R. 2012, "Managing Utility Cash flow Instability Under Conservation-based Rates", American Water Works Association .Journal, vol. 104, no. 3, pp. 28-35. Lyons, T. S., 2013 Social entrepreneurship: How businesses can transform society, Praeger Santa Barbara, Calif Ruppel, W, 2013, Not-for-profit Accounting Made Easy, Wiley Hoboken, N.J. Smullen, J., 2001, Transfer pricing for financial institutions, Woodhead Publishers Cambridge. Soobaroyen, T. & Raja, V.S. 2007, "An exploratory study of financial priorities, financial planning and control practices in voluntary organisations", Journal of Accounting & Organizational Change, vol. 3, no. 3, pp. 270-301. Read More