Social Enterprise Issues - Literature review Example

Assessment of Social Enterprise

Introduction

A social enterprise is a business operation that has social or environmental goals critically modifying its financial operation. It can be said that they are organisations that trade to benefit society or the community in reinvesting a firm proportion of their income in the fulfilment of their mission. Secular enterprises vary from the large-scale charitable business breakthrough to basic or grassroots community owned business, large and small businesses that are mutual, and mission led ventures developed by individual social entrepreneurs. According to Smith and Besharov (2013), social enterprises provide products and services that are needed to a specific community or social group in a particular geographical area, invest in charitable activities in community development, and create job opportunities for groups and individuals. Social enterprises in most cases seek for innovation in response to unmet social and environmental requirements.

Most regions in the world are developing strong social enterprise projects with particular focus on local requirements that seek to operate on a non-profit or limited profit basis. The enterprises' social environment comprises of various opportunities and threats, some generic to all businesses and some particular to social enterprise. There are rising issues from a mix of literature sources with recommendations to aspiring social entrepreneurs as to how they can maximise the opportunities and minimise the threats.

Literature review

Arguably, social enterprise is not an eccentric subject since various researches have been carried out on the topic, both in the United Kingdom and globally. However, there has been little research conducted in the social enterprise based on the United Kingdom context that particularly addresses strategic management challenges and opportunities. Within a broader literature, there are several identified issues that are affiliated with the strategic and operational management of social enterprises and issues affiliated to small business breakthroughs that resonate with social enterprise in several ways. These are inclusive of approaches to social business planning, social business governance and structuring, balancing of business objectives and missions, funding start-ups and expansion, and gauging social enterprise performance.

The Social Enterprise Tradition

Social enterprise has gained popularity recently though the concept is not new. To understand it in an in-depth perspective, it would be imperative to focus on some of the antecedents attributed to the ideology. It has been a social norm or a belief that enterprises operating in a free market in a real sense are beneficial. Businesses create job opportunities, earn revenue, and generate wealth withinsociety. In a situation where the market operates under strong regulations, rules, and a good framework, a high level of competition is evidenced (Watson, 2013). Thus, the strongest enterprise grows and develops. There has been a belief that individuals with self-interest motives tend to promote the good of the whole society.

However, there have been other long-standing counter beliefs that some aspects of conventional business operations are not beneficial in any social way. It is, therefore, believed that they need to be modified in a certain way to increase their effects in the society. These beliefs have given life to the long history of what may currently be referred to as social enterprises (Smith & Besharov, 2013). The orientation of commercial enterprise is modified with an objective of attaining greater social benefit.

Several social enterprise ideas have a religious origin. For instance, in Islam, there is riba or usury, considered as one of the most serious sins committed by human beings; this, for instance, led to an establishment of a modified form of Islamic banking that is seen to be benefiting the society more than the conventional banking. There have been several modifications to standardise the practice, like the modaraba, the profit sharing aspect where borrowers and the lender are in an agreement of sharing the risk of profit and loss from an investment in place (McRobbie, 2013). In this respect, there exists an interest rate payable regardless of whether the investment succeeds or fails. Conversely, there have been debates touching on the importance of such modifications adopted in Islamic finance specifically with products that reclassify interest payments as lease payments.

Similarly, Christian ethics offer a strong underpinning of the cooperative movements in Europe in the 19th century through principles known as the Rochdale that govern the cooperative movements, inclusive of various business modifications that target at improving social impact. These include compensation limitations on the members and the right use of surpluses, democratic control, training and education, and community concerns (Coraggio et al., 2015). The co-operatives are most enduring and broadly spread manifestation of social enterprise developed internationally.

There are other social enterprises that have been inspired by motives that are secular. There are movements of trade fair that developed specifically in the United States and Europe post second world war. They were inspired by the belief that free trade between third world and developed countries could have greater social effects if modified through several mechanisms (Kerlin, 2012). It was inclusive of minimum prices that were guaranteed to develop countries that acted as suppliers, and a premium above the market prices to finance projects aimed at benefiting producer communities. The concept of fair trade was partially inspired by intermediaries' beliefs that spotlighted on the intermediary market functions; this was carried out by non-majority ethnic groups as honest producers (Ridley-Duff & Bull, 2015). Fair trade mainly focused on replacing the intermediaries with fair trading schemes that are socially certified to increase benefits to producers.

The microfinance movements have in the same way been inspired. In other words, microfinance movements emulate many aspects of private money lending that modify the business model with the objective of increasing social benefit. The introduced modifications are inclusive of the cap on interest rate dispersed and earned by the lending institutions, and cross-financing of a range of social, non-profit structures, educational, and empowerment programs from interest income. Concisely, the current social enterprise movement is heir to a long tradition of norms that business is socially beneficial but that, to optimise its social impact, its commercial orientation should be tampered or modified to assist and defend those who are seen as weaker or vulnerable members of the society.

Impact of Social Enterprises

By an empirical research in the United Kingdom, Epstein and Buhovac (2014) suggested that approaches to social business planning are affected by the fact that social enterprises are commonly identified as a business. According to the researcher’s argument, it is more pertinent in a situation where the enterprise is being established, and much focus is on the initial start-up and maintenance, instead of the growth and sustainability of the future. Social enterprises that are organised around their social goal are prone to adopting more informal business strategies that may neglect commercial attitudes. Millar and Hall (2013) conducted a research of four social enterprises in Ireland that none of the participating organisations showed up a strategic plan. Instead, they adopted an ad-hoc business planning approach. Among the social enterprises, two of them articulated the requirement of being formal and strategic as a result of business growth, though they were unsure of what to do to achieve that. It was discovered that three to four small and medium social enterprises featured in the study become more focused on strategy and planning over time to achieve their objectives and grow.

From the blended nature of social enterprises streams, considerable inconsistencies have been found arising in a portion regarding utility of financial accounting and reporting. A study suggests that there is a framework necessary to differentiate between costs of support in kind contributions, unrestricted and restricted income. By research evidence available from the entrepreneur literature mainstream and the available research that was limited,it all depends on how and which end that social enterprises utilise business planning strategies (Barraket & Yousefpour, 2013). It triggered the interest of knowing how and why the social enterprises engage themselves in social business planning merits and challenges that they perceive from utilising the tool. Social business planning is one of the tools that can cause an impact on social enterprises whether negative or positive. It triggered the interest of knowing other impacts and the effects that they make.

Challenges Faced by Social Enterprises.

There are various challenges, lessons, and recommendations for social enterprises that emerge from several studies that were identified earlier. The studies included areas where further research is necessary to understand the sector's capacity to respond to the challenges of sustainability and the enabling role of policy. One of the major challenges that social finances face is a distinct inadequacy of awareness about the sector regarding the activities that are already happening and the present opportunities. In social enterprises, there is a high level of challenges for leaders as in the other sectors for the pursuit of sustainable organisational success. According to Bowen (2013), the qualities of a better social enterprise are as good as for any good enterprise. However, four areas outlined specific challenges in the leadership of social enterprises. First, there is the finance challenge in securing investment and managing finances. Secondly, there is the procurement challenge in adapting to the emerging trends in policies of procurement. Third, there is the customer challenge that involves delivering a consumer experience and finally the advocacy challenge that involves influencing the society with impact.

Financial Challenge

The social enterprise leaders have been saying that the single largest barrier to sustainability of social enterprises remains to be access to finance. According to a recent build Africa commissioned report stated that they are still hampered by the availability and affordability of finance (Renko, 2013). The study also indicated that inadequate or poor access to funding or finances is the first barrier to sustainability and growth. As a result of the language used in the sector and the investor’s accessibility challenges, there is confusion in the trade off circle between financial return and social return. Challenges are mostly caused by the melding of the two different areas of investment and social effects (Doherty, et al., 2014). There are also barriers in the financial language that can be confusing for individuals without a background in financial services. Thoselocated at the city can seek a difficult social challenge to comprehend and might not see the benefit investing if there is no existence of demonstrable returns.

There is a crucial requirement for leaders to show commercial investment or investment readiness. It was also discovered that anti-capitalist sentiments in the sector sometimes hinder this commerciality, and the abilities outlined includes the capability to articulate clearly their enterprises as a proposition for potential investors (Smith, et al., 2012). It is together with the requirement to engage authentically and knowledgeably with different stakeholder groups in securing finance.

Customer Challenge

Social enterprises require a good leadership that is very much equipped with the ability to sell. To meet this commitment to the customer and the improvement of service is flagged as critical. Senior policy makers in social enterprise have a comprehension that is often limited. Inadequate understanding from the public also affects upon the demand for social products that means main stream banks have been slow to offer these services (Ebrahim, 2014). Inadequate understanding by the public requires a shift in attitude among consumers to guarantee that they understand the value of their deposits and contributions to generate the social enterprise product offering.

Innovation and entrepreneurship were highlighted as a major attribute of many of the effective institutions in the sector. It is inclusive of opportunities of the market identification through robust insight and assessment together with exploitation capability to the effective opportunities. Social enterprises show strong consumer awareness while keeping the focus on the social effects (Durkin, et al., 2013). In most of time, customer dialogue with the beneficiaries is inclusive of the feedback of the on-going improvement services. The sector recognises leaders in customer experience. Most social enterprise organisations find difficulties in seeking their customer-centric attitude, analysing what assist and what acts as a barrier to the user experience.

Advocacy Challenge

It is crucial for social enterprise leaders to have credibility and accountability in the sector within the broader public. Most of the research conducted demonstrates that this credibility is forged through the brand, professionalism, and also social outcomes. It proves that whatever is delivered registers an up-to-date shortage of advocacy skills since it minimizes the potential effects of what the sector could have (Houé, et al., 2015). According to the current interviews conducted differently, it was established that social enterprises, social media and online expression are the most effective and powerful tools for enhancing the capability of smaller social enterprises to deliver their messages efficiently.

In the case of social enterprises directly or indirectly engaged in the public sector, there is the desire to affect or impact on the level of policy, the challenge for smaller and local enterprises. The capability of the social enterprise leaders in engaging with the representative bodies and in conjunction with other social enterprises, charities or other private sectors’ partners which are major (Kiron, et al., 2013)

Procurement Challenge

Procurement challenge is taking into consideration of the numbers of the social enterprises engaging into the public sector that is maximising. The government therefore, has a wider and more instant impact on the sector than many others. In the past studies, procurement policies have been cited as a major opportunity for growth and significant risk of their sustainability. It has been noted in the previous studies that future opportunities in the service offering are a behaviour that is changing (Uyarra, et al., 2013). Different studies have identified some major challenges from the information collected whether secondary or primary.

In the public procurement there have been noticed a relentless focus on delivering and evidencing outcome. The government policy has been an experiencing rapid shift that focuses on evidencing evidence on key contracts that are presenting critical challenges for social enterprises and their leaders (Mason, & Doherty2015). Throughout the studies, there were noted that social enterprises have no structures put in place to carry out the level of auditing required. Many social enterprises do not monitor results that were just set up to run their key business.

There is also a challenge of a shift towards large scale payment by results model. The government has initiated programs like the work programs for moulding the language and tone of the sector. In the previous studies, scale and the balance sheet were outlined as specific and critical for those competing with the private sector institutions for the public sector contracts. It is a specific challenge given that the sector carries on characterised by the small and medium-sized enterprises that are predominantly locally focused (Harlock, 2014). Most of the social enterprises are forced to grow to compete. However, there are risks that are inclusive owing to their sizes and having a right standard of capital to achieve the demands of the regulatory and the procurement procedures or mechanisms. As per the study carried out, the issue of the risk capital is already leading to outcome related pay in public sector contracts.

To encourage effectiveness, effective organisations venture into private sector partnerships for expansion of their reach and power utility of business to work towards their laid down mission (Loader, 2013). The institutions view their engagement with the private sector as a mutual relationship and in common share resources and skills while they attempt to alter business practices. Social enterprises need to have the ability to decide whether to engage into things such as the work programs and the skills of how to engage, how to bid and how to negotiate. It is also vital to be acquitted with how to walk away from the deal.

Opportunities

Creation of social enterprise mutual with cooperatives is also a major opportunity. It opens up across the sector. However, the greatest challenge arises when enterprises bring up greater competition that are in some cases recognised as greater opportunities for social enterprise to be part of the solution in the provision care services (Wry & York, 2015). The development of the social clauses as a result of the social enterprises into the public sector contracts was identified as a vital opportunity for the sector. However, it is recognised that the institutions will require to position themselves to capitalise on the opportunities with the private sector contractors. Currently, social enterprises are famous, trendy and maximally governed by the public sector delivery (Wang, et al., 2015). Marrying to the challenge of the relationship with big business in an attempt to harness and develop mutually beneficial arrangements rather than simply utilising social enterprise as a vehicle.

To minimise the finances access barriers, there were social funds that were established in the United Kingdom in 2006 acts as a whole lender for the microenterprise and the community (Loader, 2015). There have been establishments of the financial intermediaries that lend the social enterprise sector through the funds from the social finance funds. Credit unions are currently well placed as a result of the ethos and social nature and are placed to offer loan finance to social enterprises. According to Haugh (2012), the Irish League of Credit Union is much focused on being involved in the provision of social finance and has an excess amount of funds in the most credit union and need to see them utilised. Social enterprises are therefore accessible to the credit unions source of additional finance for social enterprises provided its ideal structures and they are likely to have a more immediate understanding of objectives and activities than most of the commercial banks. As a result of emerging issues and trends, there are growing types of social investment like the effects of investing, venture philanthropy and the social impact bonds.

Recommendations

To overcome the challenges identified it is crucial for social enterprises to put emphasis on the approaches of the social business planning. It is essential for businesses to lay down strategic planning to develop the sustainable social enterprise. Social enterprises should consider social business structuring and governance; several researchers have indicated that organisational structure lays an impact on the functioning of any business. It is also seen that lack of understanding between of the social enterprise concept amongst the financial and non-financial stakeholders should be taken rid of to achieve social business growth.

Resourcing the start-up and expansion of social enterprise indicates that they are multi-resource organisations that commonly dwell on several ranges of inputs. It is crucial for social enterprises to note their under-resourcing and their undercapitalisation in their efforts to develop and expand their enterprises. Balancing of mission and business targets is identified by research literature that the alignment of the business objectives and mission as a particular strategic management challenge for social enterprise. The utility of approaches of measuring social impact is very crucial and looks for the impacts instead of the outputs of their funding.