Demonstrating Impact of Social Enterprises - Literature review Example

Literature Review: Demonstrating Impact of Social Enterprises

To determine the effectiveness of social enterprises in the addressing of the public needs, several studies have been conducted . One such study was carried out by Millar and Hall (2013). In their study, Millar and Hall (2013) sought to demonstrate how the impact of social enterprises can be measured using the social return on investment (SROI) as a performance measurement tool. According to the Sakarya et al.(2012), social enterprises are touted as the best approach to achieving the ‘triple bottom line’ that is a combination of social, economic and environmental profitability to the investors and other stakeholders. Consequently, Sakarya et al.(2012), has also acknowledged the challenge that is faced when trying to take stock of the social enterprise and their envisaged social benefits that they are expected to bring. However, despite the availability of various performance measurement tools that are available for measuring the effectiveness of social enterprises, Millar and Hall (2013) states that the SROI is the best technique available for this purpose. This is because SROI offers a platform that is best suited to understand, manage and give reports on the economic, social and environmental value created by a social enterprise.

In their study, Millar and Hall (2013) first sought to understand how the Social Enterprise Investment Fund (SEIF) in England utilizes the SROI to evaluate and determine the effectiveness of SEIF activities. SEIF funds organizations that aim at empowering and encouraging the start up of social innovations and growth of social enterprises in the endeavors of English health and social care provision. The research conducted by Millar and Hall (2013) employed mixed methods of data collection, including the use of a survey and the utilization of in-depth case studies. The social enterprises that were examined were sampled from companies which had applied for funding from the SEIF. The social enterprises had different social innovations, but all sought to address the gaps and needs present in the health and social care system. The organizations targeted vulnerable and excluded groups and their innovations aimed at providing responsive services that address individual and community social needs. From their study, Millar and Hall (2013) realized that the applicants who sought to get funds from SEIF had been categorized into four major areas namely; social exclusion (16%), social care (19%), health and well-being (62%), healthcare (20%) and (Hall and Millar, 2013). Essentially, this study is fundamental because it addresses the needs of the proposal in understanding how HCT Group manages effectively to address the transportation requirements of the physically challenged and excluded in the society.

The survey part of the data collection was aimed at a sample of 285 successful SEIF applicants who received investment from SEIF between 2007 and 2010 (Hall and Millar 2013). However, 60% of the sample population managed to respond. The 40% (113) non-respondents were primarily those enterprises that had already closed down or those that had changed their contact addresses. The survey was a mixture of both open and closed questions. The issues that were asked remotely via telephone calls and using online tools asked the participants to describe the importance and value of measuring impact and how they how they measured the social implications of their programs. The case studies component of the research by Hall and Millar (2013) was carried out to get an in-depth qualitative response from 16 social enterprises. The researchers conducted a total of 30 qualitative interviews with representatives selected from the various social businesses that were sampled. Hall and Millar (2013) also made another 12 qualitative interviews with health and social care support agencies. The questions that featured in the qualitative interviews sought to understand the agencies’ take on various impact measurement tools, including SROI, and how the extent to which these tools were being considered when allocating contracts and funding to these organizations.

The finding of the study by Hall and Millar (2013) was such that whereas the notion of performance measurement was acknowledged and widely accepted, various organizations had different interpretations and uses of the various measurement tools. Essentially, there was no standards approach to determining the value of a social enterprise and measuring its impact and performance. This finding corroborates that of a study by Bagnoli, Luca, and Megali (2011) which stated that the performance measurement tools and techniques that are available in the market are usually tweaked to address the specific contextual characteristics and underlying dynamics of a particular social enterprise. Hall and Millar (2013) also found that different Social enterprises usually come up with customized tools to address their performance measurement needs. From the survey, Hall and Millar (2013) found that about two-fifths of the respondents carried out performance measurement using their own internally determined mechanisms and techniques. Some of these internal tools and techniques include providing avenues for bottom-up feedback, using case studies and providing platforms and forums for user interaction with the organization. A consensus among the organizations that used internal tools to determine performance measurement was that the use of qualitative user-based techniques is the best approach to capture the impact of the social enterprise to the indeed targets. The study concluded that customized tools were favored by the respondents despite SROI being advocated for by the SEIF.

The finding of the study by Hall and Millar (2013) was such that whereas the notion of performance measurement was acknowledged and widely accepted, various organizations had different interpretations and uses of the various measurement tools. Essentially, there was no standards approach to determining the value of a social enterprise and measuring its impact and performance. This finding corroborates that of a study by Bagnoli, Luca, and Megali (2011) which stated that the performance measurement tools and techniques that are available in the market are usually tweaked to address the specific contextual characteristics and underlying dynamics of a particular social enterprise. Hall and Millar (2013) also found that different Social enterprises often come up with customized tools to address their performance measurement needs. From the survey, Hall and Millar (2013) found that about two-fifths of the respondents carried out performance measurement using their own internally determined mechanisms and techniques. Some of these internal tools and techniques include providing avenues for bottom-up feedback, using case studies and providing platforms and forums for user interaction with the organization. A consensus among the groups that used internal tools to determine performance measurement was that the use of qualitative user-based techniques is the best approach to capture the impact of the social enterprise to the indeed targets. The study concluded that customized tools were favored by the respondents despite SROI being advocated for by the SEIF.

Arvidson et al. (2013) acknowledges that the SROI has the potential of enabling organizations to reflect on their performance, and hence identify the available opportunities to improve services offered to both the staff and end users. This provides the organization with the capability of integrating SROI as a continuous improvement approach that is built into the learning and development that seeks to help the organization realize its goals amid implementation challenges. However, other criticisms of SROI have also been discussed by Cooney and Lynch-Cerullo (2014). According to Cooney and Lynch-Cerullo (2014), SROI is premised on the financial foundation of measuring the profitability and cost-benefit analysis of a venture. This is conflicting with the fundamental definition of social enterprises which are idealistically considered to be non-profitability courses. The primary objectives and intended impacts of actions by social enterprises are usually designed to address what are regarded as soft outcomes (Sunley and Pinch 2012). These include effects such as improving a community’s wellbeing or a person's confidence. These impacts are intangible and user-centered hence difficult or impossible to be measured using financial tools. For example, using financial metrics to measure the importance of providing accessibility to a physically challenged person could be considered to be inappropriate especially when the transportation mainly serves to enable the person to access social facilities. Therefore, by using financial terms such as ‘Cost benefits analyses and ‘Return on Investment’ to measure the impact of social enterprise actions is too conflicting and inappropriate to some (Trivedi and Stokols 2011).

Consequently, Lumpkin et al. (2013) argue that the financial component of SROI makes it untenable for organizations that are still in their infancy because of the robustness of the financial analysis. This makes SROI time and resource constrained as it requires developing comparative financial data because historical data does not exist. These practical constraints are also the implementation barriers associated with the SROI technique as the capacity constraint, and the cost constraint makes SROI not favorable. As a result, some organizations opt for developing customized cheaper and more relevant internal measurement tools coupled with the organizations internally worked out Key Performance Indicators (KPIs) (Arena 2015). Besides from the cost and capacity concerns, Harlock (2014) cites capability issues as other barriers to undertaking SROI. These include the complexity of the methodological processes that inform the implementation of SROI.

Another approach to measuring social impact as described by Pearce et al. (2008) is the social accounting and auditing (SAA) approach. According to Pearce et al. (2008), the SAA approach to measuring the impact of social enterprises is especially suited for small, organizations that are values-driven and that work within the social economy. In essence, Pierce et al. (2008) defined that SAA approach as the framework that allows organizations to work on the existing documentation to develop a process whereby it can account for its social performance. This enables the organization to report on the performance and also come up with action plans that aim at improving the performance, which translates to the betterment of the community. According to Dacin, Dacin and Tracey (2011), the terms ‘social auditing’ and ‘social accounting’ refer to the components of measuring impact. Therefore, implementing the innovation calls for a thorough structural analysis (social accounting) to ensure that they adhere to the envisaged procedures. This will be followed by an audit of the outcomes (social auditing) before documenting this into disseminating the information about the result more widely (reporting). Dacin, Dacin, and Tracey (2011) states that the accountability and obligation of most social enterprises are strongly linked to the various stakeholders that they serve. Therefore, the primary purpose of Social enterprises is to realize a particular benefit as envisaged. However, the secondary objective is to achieve the main goal while operating in a manner that is constructive to the community, the environment and the local economy (Marshall 2011). These are underpinned by principles such as good governance, appreciating human resources, and reinvesting any financial profits back into the community. By focusing on the stakeholders needs, organizations can use effectively the information they collect progressively to improve or maximize the prevailing conditions. This enables the social enterprises to be more accountable and responsible for their actions because the interaction with stakeholders opens communication and democracy that leads to understanding any underlying issues and the progress of the project regarding impact to the various stakeholders.

The SAA approach to measuring the impact of social enterprises has been touted to be resource exhaustive n terms of both finances and time. This is however justified by the quality of the information gained from this endeavor. SAA has also been the subject of some criticism from not only practitioners but scholars too. The criticism range from contradictions of the SAA to the complexity and immersive nature of SAA processes (Pathak and Dattani 2014). According to Pathak and Dattani (2014), SAA approaches are designed to achieve organizational efficiency as opposed to stakeholder interests. Dey (2014) carried out a study to ascertain the process of social accounting at Traidcraft, a UK-Based charity organization, found that the organizations practice of social bookkeeping was considered useful to the organization. This is because the organization was trying to change its image from being viewed as a charity organization into being considered as a social enterprise. Consequently, Gibbon (2010) carried out a longitudinal study in which he made an SAA that found out SAA in practice to be more complicated than explained in theory. Gibbon (2010) says that this is so because, in practice, accountability occurs on multiple levels and to different stakeholders. The demand for accountability is therefore marred by resistance, uncertainty, confusion and fear by the participants. Therefore, Gibbon (2010) also concluded that the reality of determining the impact of a social enterprise using SAA, in practice, is not a neutral concept. Further, Gibbon (2010) stated that social accounting was applied mostly as a means of justifying formal models of accountability as opposed to other informal types of determining accountability. This is despite the formal models lacking the legitimacy to be used within values-based social enterprises that have core objectives aligned to eliminating inequities.

In a policy paper developed by the European Union (EU) in conjunction with the Organization for Economic Co-operation and Development (OECD), one of the methods highlighted for determining the impact of social enterprises is the use of ‘A Rating Approach’ (Noya 2015). The paper presents the rating approach as a tool that enables the organizations to obtain data and compare the data about their respective social impacts and rate against other organizations or other goals. One such tool is the Le Comptoir de l’Innovation (CDI).

The CDI is a French private limited company that was founded as a social enterprise in 2010 with an aim of supporting other social entrepreneurship missions in France and abroad. Their objective is to provide evaluation tools and capabilities for the public and private investors and the organizations to self-evaluate.

The CDI rating approach was developed to provide private and public Investors with an opportunity scale up their programs after acquiring supporting information from the rating. The CDI score provides the investors with insight into a more socially efficient enterprise that would yield maximum social impact. It selects both the financial and extra-financial components of measurable data that include both qualitative and quantitative metrics. This is then graded from AAA up to D, with D being the poorest rating (Noya 2015). This rating, therefore, makes the investors be able to compare different companies according to how they have been rated subsequently. The CDI component of financial analysis covers the economic and financial issues using 300 weighted sectoral criteria that include macroeconomic analysis, a detailed analysis of the organizations operations, and a proper analysis of the financial structure and revenues of the social enterprise being reviewed. On the other hand, the extra-financial analysis also uses 300 weighted criteria and their ratios, but this component analyses the social impact, including environmental, efficiency, relevance of innovation and governance in the social enterprise.

The various techniques of determining the impact of social entrepreneurs utilize a blend of financial and extra-financial approaches. Some of these techniques include SROI, SAA, and CDI. However, some organizations prefer to use internally developed tools that assist with the measurement of social impact. These tools are utilized by both the social enterprises and also the investors who analyze where best to introduce funding. They have their advantages and shortcomings depending on the dynamics of the organization or situation being handled.