Background of Social Enterprises - Term Paper Example

Social enterprise Social enterprises report Executive summary Social enterprises aim at attaining triple bottom line measurements that include economic, social and environmental objectives. Social enterprises are the organisations that attain their environmental and social mission through use of business methods. The enterprises focus on innovation and creativity and profits are reinvested towards social and environmental activities that enhance the welfare of the society. Social enterprises are supposed to implement innovative ways to solving their challenges such as initiating revenue-generating activities that will overcome their resources and attracting business related talent that will improve their long-term planning strategies. The enterprises must ensure collaboration and implement competitive strategies that will ensure sustainability in providing high quality products and services to their stakeholders. The enterprises must remain committed to their strategies bottom lines of improving social and environmental welfare of the society. In addition, national government agencies must support their activities through favorable regulatory framework. Introduction Social enterprises aim at attaining both commercial and social goals. In this case, a social enterprise whether for-profit or non-profit organization will strive to attain social, cultural, economic and environmental outcomes through redirecting the surplus towards the pursuit of environmental and social goals (Paton 2003). The businesses range from credit unions, community centers, and companies that engage in solving societal problems such as producing renewable energy (Doherty 2008). Social enterprises can take the form of community interest company (CIC) whereby the social mission of the organisation is regulated or industrial and provident society (IPS) which is co-operative that is democratically controlled by the members for the benefit of the society (Ridley-Duff and Bull 2011). Another form is the companies limited by shares or guarantee whereby the memorandum of association outlines how the profits will be channeled towards social causes. The fourth is the group structures that have charitable status whereby companies engage in charitable activities in order to enjoy tax benefits (Doherty 2008). Background of social enterprises Unlike commercial enterprises that focus on profit maximisation, the social enterprises have limited access for debt financing and attain most of their financing from grants such as trusts and foundations (Doherty 2008). Other sources of financing include community finance from credit unions, equity finance from the founders, fundraising drives and separate revenue-generating activities that aim at gaining surplus for undertaking social and environmental initiatives (Gunn and Durkin 2010). The history of social enterprises in the UK can be traced back to Rochdale in 1840s during industrialisation era when several factory workers decided to form co-operatives in order to provide affordable and high quality housing (Ridley-Duff and Bull 2011). The aim of the ventures was to alleviate the housing shortage due to influx of people in the cities and deal with the deplorable factory conditions that negatively affected the welfare of employees in the society (Doherty 2008). In the 1990s, social enterprises such as co-operatives, community enterprises and charities started using a business model in creating social change in the society. This period witnessed the emergence of new organisations such as School for social entrepreneurs and community Action network that strengthened the idea of mixing social and economic goals (Ridley-Duff and Bull 2011). According to UK government data, about 70,000 social enterprises contribute almost 18.5 billion pounds to the economy in form of social initiatives that aim at enhancing the social and environmental welfare of the society. The sector boasts of strong enterprises that range from Greenwich leisure and Divine chocolate to NHS that claims to have initiated more than 30,000 social enterprises and charities (Doherty 2008). According to social enterprise surveys in the UK, more than 50 percent of the entrepreneurs in the UK are committing to making a social change while about 21 percent assert that commitment to making environmental and societal change is their main reason for starting their business (Gunn and Durkin 2010). The annual contribution of businesses to social activities is estimated to about 100 billion pounds and 10 percent of the enterprises have complied with Office for Civil Society. According to survey on the state of social enterprise that was commissioned in 2009, social enterprises are the recession-busters since about 56 percent of the enterprises managed to increase their turnover despite the economic slowdown (Ridley-Duff and Bull 2011). Accordingly, the survey highlighted that social enterprises are more optimistic on growth than small and medium enterprises and those that are more profitable are not dependent on grants. In addition, it is worthy to note that a majority of the enterprises manage to break even (Doherty 2008). The UK government actively supports social enterprise sector as a means of attaining social policy goals and ensuring a fairer society that addresses the increasing environmental challenges (Doherty 2008). The Blair government established social investment networks and capacity building opportunities that maximise social inclusion in the society as outlined by social enterprise action plan of 2006. Some policy measures adopted by the UK government include Community Investment Tax relief at 5 percent for five years for social investments that are approved by Community development Finance Institutions (Ridley-Duff and Bull 2011). Social enterprises practices have been implemented widely in many parts of the United Kingdom due to the great potential of ensuring profitability and ensuring social responsiveness in the society (Paton 2003). Social enterprises growth has been driven by the increasing awareness of the need of commercial enterprises to participate in corporate social responsibility initiatives and marketisation of certain public services (Gunn and Durkin 2010). Changing role of social enterprises today Social enterprises address both environmental and social issues through delivering services or products that will enhance social change. The organisations challenge the existing institutions or rules through fostering supply and demand and enhancing the participation of customers in decision-making (Gunn and Durkin 2010). The purpose of challenging existing rules and institutions is to address the challenges posed by public sector or market failure in the economy. The organisation will apply the market-based solutions in innovative methods in order to deal with the emerging societal problems. For instance, Oxfam has initiated innovative methods of revenue-generation such as selling gift cards and other merchandise in order to provide funds that are channeled towards poverty alleviation and responding to emergencies (Ridley-Duff and Bull 2011). Social enterprises in UK have committed billions of resources in tackling the root causes of societal problems such as provision of food, water, sanitation facilities and basic education to disadvantaged families in the society (Martin and Thompson 2010). Oxfam empowers women, intervenes during conflicts and aims at combating climate change. Accordingly, most of the social enterprises have committed resources towards fighting discrimination and creating awareness on fundamental human rights as well as saving lives during crisis such as flooding or inter-ethnic conflicts (Gunn and Durkin 2010). Main challenges facing social enterprises One of the main challenges facing social enterprises is the founder syndrome since many of the organisations over-emphasise on the founder thus limiting opportunities for growth and professionalism in the enterprise (Dee & Joan 2008). Social enterprises have faced challenges in attracting qualified managerial talent due to limited financial resources and opportunities for personal growth. Social enterprises suffer from negative reputation thus qualified executives are unwilling to dedicate their time in building their career in these organisations due to limited prospects of job security and funding sustainability of the organisation (Gunn and Durkin 2010). Social enterprises lack business knowledge and skills since many social entrepreneurs have a non-profit background thus fail in many business-related areas such as financial management practices, marketing strategies and procurement skills. In this regard, future social entrepreneurs must attain business-related training and skills that will enable them manage all business-related aspects of the enterprises (Dee & Joan 2008). Social enterprises are faced with the challenge of ensuring consistent quality of products and services. Highly stable level of quality of the services offered is critical for social enterprises that wish to compete effectively with the existing private sector enterprises that solely aim at maximising their economic returns (Dee & Joan 2008). High quality products and services demand appropriate investments in order to maintain customer loyalty and attract considerable market share. In this case, it is possible for social enterprises to attain a competitive edge in the market through offering differentiate products and services that are aimed at meeting the changing needs of consumers (Doherty 2008). Another striking challenge that has faced nearly all social enterprises across the UK is the challenge of developing cooperatives and networks that encourage cooperation among several social enterprises (Kerlin 2009). Private enterprises are capable of entering in to several cooperation arrangements such as joint ventures, acquisitions or mergers in order to attain economies of scale and gain core capabilities in attaining shared goals. On the contrary, there are limited legal mechanisms that are provided by the regulatory framework that can allow the social enterprises to share resources and capabilities in solving common social and environmental problems (Dee & Joan 2008). Another challenge faced by most of the social enterprises is the issue of sustainability of its activities beyond the founder of the enterprise (Bornstein 2007). In addition, some enterprises are unsustainable in serving the needs of all stakeholders such as balancing the competing interests of customers with those of the local communities or investors in the enterprise (Dee & Joan 2008). Accordingly, another element of sustainability that lacks in most enterprises is the possible loss of revenues after previous customers turn out to be competitors or when integration occurs along the supply chain and the suppliers of raw materials form their own enterprises. In this case, the enterprises must have firm structures and long-term strategy that anticipates sustainability challenges along all business and social activity lines of the enterprise (Doherty 2008). Dee & Joan (2008) asserts that social enterprises struggle with measuring their social impact in the communities due to inappropriate measurement frameworks that are geared at measuring the financial return on their investment or economic gain to the communities. It is impractical to measure certain social and environmental impacts of the enterprises due to non-availability of data and unquantifiable aspects such as the welfare to society in terms of the quality of life and happiness enjoyed by the population (Kerlin 2009). In this case, some enterprises fail to recognise the impact of their commitment in solving societal problems thus eventually leading to ignorance on some social commitments by the executives of the organisation (Dee & Joan 2008). The enterprises face regulatory and policy challenges in some areas of their activities since no specific legal framework for the establishment of social enterprises. Accordingly, public authorities, regulatory bodies and oversight institutions interfere with the activities of the enterprises through double taxation of certain expenditure that is committed to social activities in the society. It is essential for elected politicians to champion for favorable regulatory policies that will enhance the operations of the sector (Dee & Joan 2008). Conclusion Social enterprises concentrate aim at attaining economic, social and environmental impact on the society. Some social benefits of social enterprises include alleviation of poverty, reduction of social exclusion, redistribution of wealth through implementing societal initiatives that improve the welfare of the local communities and enhancing labor productivity through creating employment. Social enterprises should act as the agents of the society that invent new approaches, implement new systems and new methods in attaining systematic and sustainable social change. Social enterprises face the founder syndrome and many wide up operations after the death of the founder. In addition, the organisations lack alternative sources of financing since many rely on grants, fundraising and owner contributions. The enterprises hardly compete effectively since they are not capable of producing high quality products and services and ensuring sustainability in their operations. The enterprises face harsh regulatory environment and may not be capable of attracting qualified managerial talent with business-acumen skills. Recommendations on innovative ways in which social enterprises should develop in the future Social enterprises must have clear environmental and societal mission that is set out in the organisational policies and should reinvest majority of the profits towards solving social problems. The organisations must be transparent and accountable to the social stakeholders such as the surrounding communities and must operate without the interference by the public sector. Social enterprises implement innovative solutions to socio-economic problems through implementing projects that enhance self-reliance to the disadvantaged groups in the society and ensuring innovation in entrepreneurship (Dee & Joan 2008). The enterprises promote cooperation among the non-governmental organisations, public sector and private sector in implementing innovations that aim at addressing basic development issues like generating electricity, poverty alleviation and improving sanitation in poor neighborhoods (Spear 2006). Social enterprises must support financially sustainable social enterprises and implement revenue-generating activities that aim at enhancing social change. Majorities of the non-profit organisations spend a lot of time and resources on fundraising activities rather than committing the resources to separate revenue-generating projects that will enable them become financially independent (Harding 2006). Social enterprises must improve awareness in the communities and foster the development of local and national markets in order to solve the poverty problems through increasing access to employment and basic human services like shelter and education (John 2003). The government agencies must provide the necessary financial support through tax benefits or grants to social enterprises that demonstrate commitment to solving social and environmental problems. In this case, the government must champion the use of advanced information and technology such as paperless banking, renewable energy generation and participation in poverty and conflict alleviation in order to improve the overall quality of life and ensure citizen participation in civic matters (John 2003). References: Bornstein, David. 2007. How to change the world: social entrepreneurs and the power of new ideas. Oxford: Oxford University Press. Borzaga, Carlo and Defourny, Jacques. 2004. The emergence of social enterprises. London: Psychology Press. Dee, J.G & Joan, E. (2008). ‘The challenges of combining social and commercial enterprises’, Business ethics quarterly, 8 (1): pp 166-178. Doherty, Bob. 2008. Management for social enterprise. New York: Sage. Gunn, Robert and Durkin, Chris. 2010. Social entrepreneurship: a skills approach. Bristol: Policy Press. Harding, R. 2006. Social entrepreneurship monitor UK. London: London Business School. John, Pearce. 2003. Social enterprise in Anytown. London: Calouste Gulbenkian Foundation. Kerlin, Janelle. 2009. Social enterprise: a global comparison. Hanover: University Press of New England. Martin, Frank and Thompson, Marcus. 2010. Social enterprise. London: Palgrave Macmillan. Paton, Rob. 2003. Managing and measuring social enterprises. London: Sage. Ridley-Duff, Rory and Bull, Mike. 2011. Understanding social enterprise. London: Sage. Spear, R. 2006. ‘social entrepreneurship: a different model’, International journal of social economics, 33 (6): pp 32-49. 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