Why definitions of social enterprise are important

Social enterprise, social innovation, and social entrepreneurship

Why are definitions and conceptualisations of social enterprise important? Why are we still talking about them ten years on from when I first entered the sector? These are the questions that I have asked myself this week as I have pondered the importance of keeping a tight definition of social enterprise.

As a practitioner of more than ten years’ experience in community, social and private enterprise; and as someone who has helped shape the sector, and frame the debate in Queensland by being a founding member (and inaugural Chair, returned three times by members) of the peak body, the Queensland Social Enterprise Council I have enough skin in the game to commentate on definitions. I may not have academic rigour, but I have a valid and I hope nuanced contribution to make in the debate.

For me the importance of a tighter definition and a deeper conceptualisation lies in legitimacy; for customers of social enterprise, for practitioners, and for future social entrepreneurs. There will always be grey areas, and in truth social entrepreneurs operate across the continuum of social enterprise and social innovation, across a spectrum if you like, of social entrepreneurship.

The necessity of a continued debate is a ‘time thing’, mainly because the sector is still immature and without a developed or coherent narrative. As we progress our economies into what is projected to be a more sharing space, where Millennials (Gen Y) will drive companies that have deeply held, valid, and acted upon Corporate Social Responsibility policies, and business will use social missions to drive their work, the urgency to keep a tight definition will dissolve and fade. But, in the meantime a continued discussion is required.

Two definitions

There are numerous definitions of social enterprise worldwide but I list here two that are user friendly, suitable to the Australian context, and in my opinion work-able. We start with a definition I argued for (after many years of round table discussions and dialogue in the Brisbane sector); it is the definition used by the Queensland Social Enterprise Council:

A Social Enterprise is ‘a business operating for a social purpose’* and will commonly have the following attributes:

  • Social Objectives are core to the purposes and focus of the enterprise
  • Limited distribution of profits and/or distribution of profits with the purpose of maximising social impact – the majority of profits are reinvested in the enterprise and/or an associated social entity and are used to maximise social impact.
  • Mixture of capital inputs – the enterprise is often supported through blending of earned income, grant income and philanthropic income.
  • Blended Value Creation: Generation of social/ecological/ cultural returns (or a combination of these) in addition to a financial return

*(Adapted from Ingrid Burket’s Typology – definition from the UK Social Enterprise Coalition)”

Almost twenty years ago (1996), the  European Commission funded a research program undertaken by researchers from (at that time) all fifteen member states of the European Union to discover social enterprise in each member state:

The “EMES European Research Network….. devoted itself to the definition of a set of criteria to identify organizations likely to be called ‘social enterprises’ in each of the 15 countries forming the EU by that time. Such a set of criteria was to be considered as a ‘working hypothesis’, not necessarily encompassing the whole reality of social enterprises; but, as it turned out, this initial set of indicators proved to be a fairly robust and reliable conceptual framework.” (3)

Most importantly, such indicators were never intended to represent the set of conditions that an organization should meet to qualify as a social enterprise. Rather than constituting prescriptive criteria, they describe an ‘ideal-type’ in Weber’s terms, i.e. an abstract construction that enables researchers to position themselves within the ‘galaxy’ of social enterprises. In other words, they constitute a tool, somewhat analogous to a compass, which helps the researchers locate the position of the observed entities relative to one another and eventually identify subsets of social enterprises they want to study more deeply. Here, we just list those indicators, without providing the comments that were carefully phrased for each of them…..

Four criteria reflect the economic and entrepreneurial dimensions of social enterprises:

  • a continuous activity producing goods and/or selling services;
  • a high degree of autonomy;
  • a significant level of economic risk;
  • a minimum amount of paid work.

Five other indicators encapsulate the social dimensions of such enterprises:

  • an explicit aim to benefit the community;

  • an initiative launched by a group of citizens;

  • a decision-making power not based on capital ownership;

  • a participatory nature, which involves various parties affected by the activity;

  • a limited profit distribution.” (3)

To further define the concept I have listed in the notes section Social Traders extensive typology of social enterprise.

The problem with current definitions

 According to Duniam and Eversole from the University of Tasmania (2013)

“Social enterprises in Australia take a range of organisational forms, including incorporated associations, companies limited by guarantee, sole proprietorships, cooperatives, and others (Barraket et al. 2010, pp. 26, 37; Eversole & Eastley 2011, p. 25). The legal structures used by social enterprises overlap with those of private companies and not-for-profit organisations; ‘thus, it is difficult to identify social enterprises or distinguish them from other kinds of organisations based on legal structures alone’ (Barraket et al. 2010, pp. 26, 37). For this reason, there are significant empirical challenges here as elsewhere to identifying social enterprises” (1)

 There is also the summing up below by Duniam and Eversole:

“Social enterprises can be defined broadly as organisations that conduct economic trading activities to resource their social or community mission. The nature of the ‘trading activities’, the extent of the ‘resource’ generated and invested, and the range of potential ‘missions’ are all deeply debatable (see for example Barraket & Collyer 2010). While there is a generally shared understanding of social enterprises as organisations that combine (some form of) economic enterprise with (some form of) social mission, a universally agreed definition is elusive. For the purposes of this report, we will define social enterprises as organisations that use trading activity to achieve a social mission; recognising that while the particularities of this definition may be easily disputed, the broad nexus between social mission and economic trading sits at the heart of what defines ‘social enterprise’.” (1)

As Duniam and Eversole point out, “Social enterprise is therefore a longstanding practice, but (with) a relatively new language to describe it.” Of course, each country around the globe will have it’s own nuanced language to describe social enterprise and it’s own social economy which will have developed as a result of its political and social history.

Social enterprise and social innovation

My friend and colleague Amelia Salmon often asks the following question of the curious, new social entrepreneur seeking her advice or guidance; “you may be a social entrepreneur, but are you running a social enterprise?” By this she means that too often people are claiming the mantle of social enterprise when in fact they are running a socially innovative program, or a for profit business with some social outcomes (but not a social mission), and not a social enterprise. This is where the definitional debate becomes heated, and perhaps binary.

According to work by Dees and Anderson (2) there were a plethora of definitions and descriptions of entrepreneurial behaviours with social aims in America from the 1980’s onwards; and so:

“To classify the different conceptions, Dees and Anderson (2006) have proposed to distinguish two major schools of thought. The first, and still dominant, school of thought on social entrepreneurship refers to the use of commercial activities by non-profit organizations in support of their mission. Organizations such as Ashoka fed a second major school, named by Dees and Anderson, the ‘social innovation’ school of thought.” (in Defourny and Nyssens 3)

The history of social enterprise across Europe and America (and I would argue Australia) according to Defourny and Nyssens (3) has come from the Not for Profit (NFP) sector and the cooperative movement, with many NFP’s having operated businesses to finance their social missions for decades. The newer iteration, to emerge in the 1990’s out of the traditional NFP sector in Europe and followed here in Australia were “‘work integration social enterprises’ (WISEs). The main objective of work integration social enterprises is to help low qualified unemployed people who are at risk of permanent exclusion from the labour market. WISEs integrate these people into work and society through a productive activity (Nyssens 2006).”  (in 3).

Social enterprise has historically grown from community development frameworks; from collectivist forms of addressing social problems, encompassing collaboration and developmentalism; as Duniam and Eversole point out:

“In Australia, the emergence of social enterprises often signifies that local people have mobilised local resources to solve local problems in response to social or market disequilibrium within the community or place (Pritchard & McManus 2000). Social enterprises can also be considered agents of place, as they emerge from place and undertake activities to benefit that place” (1).

Whereas social innovation has grown from the Bill Drayton / Ashoka model which focuses on (often) sole entrepreneurs acting in socially innovative and commercial ways.

Social innovation, as I am describing it, seems to me to be embedded in the individual, hero entrepreneur mode. These are very different approaches to identifying, and addressing social problems; one is a democratising way of working with the people, the other is a top down, working for the people model. This is not to cast judgements on either way, but it is a way to start to differentiate between the two models.

So, I feel we can use these important descriptors in contemporary Australia; Social Enterprise (SE) and Social Innovation (SI).

As mentioned, there is generally a structural difference between SE’s and SI, with SE’s coming historically from a Not for Profit (NFP) Organisation sector, and SI from the sole / individual entrepreneur framework (driven by and supported by University Business Schools – Harvard being one of the early adopters). Note – the type of social innovation espoused by Dees and Anderson can be melded with the type of social innovation described by Joanne McNeil – see notes for a full explanation of McNeil’s type.

This is where I must admit my own personal bias. I come from the NFP sector, having worked in community development and service delivery for many years, and with a degree in Social Policy; I have a bias towards WISE type social enterprises as I have discovered over many years of working with people from disadvantaged backgrounds that the quickest way to lift someone out of poverty is to give them a job. However, for people experiencing multi layered disadvantage such as mental ill health, disabilities, drug and alcohol misuse, multi-generational poverty etc, the concept of working in a mainstream job is not only difficult to comprehend, but difficult to achieve. This is where WISE’s come into their own; they are better and more efficient than the job placement assistance offered by Federally funded JSA’s (Job Services Australia) and DES’s (Disability Employment Services), they create real, impactful employment and social outcomes using business principles (by running a social enterprise) to address social problems (unemployment etc).

The Social Innovation explosion amongst Millennials (Gen Y); evidenced in Australia by the graduates of the Foundation for Young Australians, School for Social Entrepreneurs, and Impact Academy in Brisbane, are creating social impact across a wide range of issues, with many focusing on IT related projects such as websites connecting people ‘doing good’ to people looking to assist those doing good. Or, for the ‘One for One’ model where in the example of Toms Shoes –

“The premise is simple: customers buy a pair of shoes and a pair of shoes are then given to a child in need…. the company has ventured into eyewear. For each pair of glasses purchased, someone else receives a pair of prescription glasses or medical care that improves his or her sight.” (4)

These people are clearly social entrepreneurs, but are they really running social enterprises? I have some concerns that some people are using the language of social enterprise when they are running effectively (even if impactful) social programs or even traditional charities. For example, a traditional NFP organisation which is funded by Disability Services Queensland to provide social supports (outings) to people with disabilities living in Disability Services Queensland ‘group’ homes is, as you would expect, a program of a community organisation. When that organisation then offers a similar service on a fee-for-service basis to people with disabilities living with their parents (or other careers), are they suddenly a social enterprise? No, they are still a program of a NFP organisation, but are they are innovating? Yes.

Another example would be a community centre renting out its hall to yoga teachers, dance classes etc.  Are they a social enterprise? No, they are a NFP organisation, but they are diversifying their income. They are not a social enterprise because they are not a business operating for a social purpose’.

Lastly an innovative person who develops a sexual health program targeted at high school aged children, who then sells the program to schools is running a socially innovative program, not a social enterprise.

Ashoka’s website focuses on social entrepreneurs and does not mention social enterprise, proving that you can be a social entrepreneur, create incredible impact, but not run a social enterprise:

“Ashoka Fellows are leading social entrepreneurs who we recognize to have innovative solutions to social problems and the potential to change patterns across society. They demonstrate unrivaled commitment to bold new ideas and prove that compassion, creativity, and collaboration are tremendous forces for change. Ashoka Fellows work in over 70 countries around the globe in every area of human need.” (5)

Social innovation - social enterprise (2)

Why does it matter?

As Duniam and Eversole point out; “While public policy interest in social enterprise in Australia is relatively recent, there is a growing awareness of social enterprises as organisations, and growing interest in the idea of the social enterprise sector.” And “McNeill (2009) has also claimed that a recognisable social enterprise ‘movement’ still remains underdeveloped in Australia, possibly because of the strong ‘risk-averse’ culture within the public sector” (1)

This goes to the heart of my concern about stretching definitions and legitimacy; risk aversion amongst our biggest potential customer – Government Procurement Officers; a ‘risk-averse’ profession that oversees (in Queensland at least) a spend of “$17 billion on goods and services each year, on anything from building and maintaining hospitals, to delivering services for our most vulnerable Queenslanders, to buying paper and school supplies” (6).

In fact in meetings with several local government officials, and state government bureaucrats including procurement officers (with billions of tax payer dollars to spend), and with politicians of all persuasions, I have been asked time after time how to define social enterprise, with the majority of their concern being placed on legitimacy of the Not for Profit structure, on ownership, and on employee type. This is undoubtedly due to contestability issues in procurement.

Defourny and Nyssens discuss this issue in relation to the European perspective, but it equally applies to Australia:

“In Europe, specific governance structures of the social enterprise are put forward with a twofold objective. First, a democratic control and/or a participatory involvement of stakeholders reflect the quest for more economic democracy, in the tradition of cooperatives. They therefore add to constraints on the distribution of profits with a view to protecting and strengthening the primacy of the social mission, which is at the very heart of the organization. Secondly, those two combined guarantees (often involving a strict nondistribution constraint) often act as a ‘signal’ allowing public authorities to support social enterprises in various ways (legal frameworks, public subsidies, fiscal exemptions, etc)“ (2).

So, again my point is, if we water down the definition we risk alienating our biggest potential customers who will lose faith in the legitimacy of the sector.

Isn’t the fact that both Social enterprise and social innovation are changing the economy for the better enough? Why differentiate?  

In many ways, yes it is more than enough. I have dedicated the last decade at least to this sector and I live my principles and ethics through my work and business practices. I truly believe that the social entrepreneur movement, and in particular millennials, have the ability to completely change the individualistic, private profit driven capitalist economy that has seen, as Arundhati Roy calls it ‘Gush Up’; where money is concentrated in the hands of the few (see also Piketty) and where trickle down has proven not to work to the extent it could or should have done.

However, in the current paradigm, in order to change major procurement practices, opening the market to multi-million dollars’ worth of new business for the sector, enabling customers to choose social enterprise with confidence we need to keep faith with current definitions.

A sort of Bibliography

1 Social Enterprises and Local Government A Scoping Study February 2013 Mary Duniam and Associate Professor Robyn Eversole, Institute for Regional Development, University of Tasmania, in partnership with the Australian Centre of Excellence in Local Government.

2 Dees, J.G. and Anderson, B.B., 2006. Framing a theory of social entrepreneurship: building on two schools of practice and thought. Research on social entrepreneurship, ARNOVA occasional paper series, 1 (3), 39–66 in Defourny, Jacques andNyssens, Marthe(2010) ‘Conceptions of Social Enterprise and Social Entrepreneurship in Europe and the United States: Convergences and Divergences’, Journal of Social Entrepreneurship, 1: 1, 32 — 53

3 Defourny, Jacques and Nyssens, Marthe (2010) ‘Conceptions of Social Enterprise and Social Entrepreneurship in Europe and the United States: Convergences and Divergences’, Journal of Social Entrepreneurship, 1: 1, 32 — 53

4 http://www.theguardian.com/sustainable-business/one-for-one-social-enterprise-model-poverty accessed 12.7.15

5 www.ashoka.org accessed 12.7.15

6 accessed www.hpw.qld.gov.au/aboutus/BusinessAreas/ProcurementTransformation  13.7.15

Notes

1  McNeill, J. (2013b). Enabling social innovation – opportunities for sustainable local and regional development. Paper presented at Social Frontiers: The Next Edge of Social Innovation Research Conference, Glasgow Caledonian University, London, 14-15 November 2013

“Social innovation is a complex concept that combines all the vagaries of innovation processes with the messy nature of social issues and outcomes. Increasingly however, definitional debates accept that social innovation works at two levels: addressing issues in social relations – also called process changes; and addressing social needs – also called outcomes changes. In this, both the ‘ends’ and the ‘means’ are implicated – social innovations being ‘good for society’, whilst also improving the capacity of citizens to act (see Nicholls & Murdock 2012, and Mulgan 2012). In practice, social innovation refers to a kind of innovation driven by social and environmental needs and built on an underlying ethic of collaboration (‘co’ or with, rather than to and for) – distinguishing it from the longer tradition of research into innovation driven by market and/or technological interests.

The key strand of research that links social innovation activity to the local and regional development context focuses on social exclusion, voice in governance and decision-making, and social organising (for example, see Moulaert et al 2013; Moulaert et al 2005; MacCallum et al 2009) and is therefore characterised as part of the ‘social relations’ conceptual strand of social innovation theory (Nicholls & Murdock 2012:17)”

Types of social enterprises (from SOCIAL PROCUREMENT: A GUIDE FOR VICTORIAN LOCAL GOVERNMENT at http://www.dtpli.vic.gov.au/__data/assets/pdf_file/0005/224798/Social-Procurement-A-Guide-For-Victorian-Local-Government.pdf)

Social Traders Ltd has identified the key types of social enterprises as listed below.

  1. 1. Australian Disability Enterprises (ADE)

ADEs are businesses developed to employ those experiencing difficulties in finding or maintaining employment in mainstream businesses due to disability, or those who choose to work in an ADE. ADEs have a dual focus of providing employment for people with a disability and operating a commercial business. There are 415 ADEs that employ approximately 22,000 people with disability across Australia.

Typical operating environment

Varying substantially in size, ADEs mostly operate from factory outlets, while others provide work and training in the community or at the work sites of mainstream employers.

Examples include:

  • packaging and assembly
  • horticulture
  • furniture manufacture
  • hospitality
  • printing and distribution services
  • recycling and salvaging.
  1. Intermediate Labour Market Companies (ILMC)

ILMCs are businesses that create a bridge to the open labour market for individuals experiencing long-term unemployment and other significant disadvantage in the labour market.

Typical operating environment

ILMCs typically provide participants with fixed-term jobs in real work settings where they receive high quality accredited training and personal support. Due to their focus on both commercial returns and pathways to work, they are best suited to labour intensive industries, and industries with quick skills acquisition, skill shortages, clear pathways to employment and high ratio of trainees to each skilled operator.

  1. Social Firms

Social Firms are not-for-profit businesses with the specific mission of undertaking commercial work to create employment for people excluded in the labour market as a result of mental illness, disability or other disadvantage.

Typical operating environment

It is a supportive work environment that typically maintains an integrated workplace designed to meet the needs of people with a disability and employing between 25-50% of employees with a disability or disadvantage.

  1. Community Enterprises

Community Enterprises are developed by individuals or groups to address local issues or community needs.

Typical operating environment

Most Community Enterprises in Australia are incorporated as cooperatives. There are also a small number registered as unlisted public companies. They operate in a number of sectors from finance and retail to design and manufacturing.

  1. Cooperative Social Enterprises (CSE)

CSEs are democratic, member-benefit businesses which are formed to meet defined social needs of its members. They provide a model for responding to a common need facing a group and strengthening communities through values and structures that foster self-help, self-responsibility and equality. There are over 2,000 CSEs operating in Australia.

Typical operating environment

Most CSEs are owned by and serve a single stakeholder group, such as parents (child care cooperatives), low income tenants (social housing cooperatives), the aged and infirm (meals on wheels cooperatives). Due to legislative support, most CSEs are found in Victoria and New South Wales and are prominent in the child care, social housing and Indigenous services sectors.

  1. Fair Trade Social Enterprises (FTSE)

Businesses that exist to benefit producers and workers in developing countries by paying fair prices for products

and commodities which they on-sell in developed countries.

Typical operating environment

Some FTSEs are established as wholesalers to retail and business outlets while others may operate as retailers themselves. By providing consumers and business with fair trade alternatives, they provide an important example to other traders of what is possible when the interests of people and planet are given prominence.

  1. Community Development Finance Institutions (CDFI)

CDFIs are independent financial institutions that provide community finance products and services to individuals, organisations, enterprises and communities who are underserved by, or have difficulty securing finance from, mainstream financial institutions.

Typical operating environment

CDFIs take a range of forms, including Social Banks, Community Development Credit Unions, Community Investment Funds, Enterprise Loan Funds and Personal Finance Providers.

  1. Charitable Business Ventures (CBV)

CBVs are run by not-for-profit organisations to raise income which is reinvested in their charitable purpose. Some align their product with their mission, while others raise income through business activities unrelated to their mission.

Typical operating environment

Some CBVs operate as divisions within charities, while others are separately incorporated as companies. They include smaller ventures, such as opportunity shops and community book stores, through to large trading companies.

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About stevewilliams1901

Social entrepreneur based in Australia.
This entry was posted in A Social Entrepreneurs Diary and tagged , , , , , , , . Bookmark the permalink.

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