What is a Social Enterprise?

what is a social enterprise?

 

In an increasingly globalised and connected world, people are becoming more aware of issues that affect our society and planet. This has given rise to the concept of social enterprises, where today 94% of young graduates want to use their professional skills towards a beneficial cause. Social enterprises stand at this crossroads of the philanthropy and private sectors.

Social enterprises are businesses that achieve social, cultural and environmental goals that benefit the community rather than focussing on profit for shareholders. They can be ‘nonprofit’ with all earnings being returned to the enterprise and it’s operations, or ‘for profit’ where earnings are returned to either the owners or community.

‘For-profit’ enterprises separate themselves from businesses with a strong ‘triple-bottom line’ by prioritising social responsibility over profit maximisation. ‘Non-profit’ enterprises are also different from charities with the latter relying on donations and grants to derive funds. In contrast, social enterprises are self sufficient and source a majority of their funds from operations or financial markets.

This self-sufficiency is what has made social enterprises so attractive in recent history as it works to resolve a problem in society but without much of the uncertainty that plagues traditional charities. On a business level, social enterprises face disruption to traditional operations based on issues they are looking to target.

For example, the ‘Grameen Bank’ sponsors risky microfinance companies that provide loans to disadvantaged individuals in society who would be considered ‘too risky’ by traditional banks.

Social enterprises are also seen as innovation drivers as they are more likely to innovate and experiment to address gaps or weaknesses they identify in existing services. These innovations can be grouped into 4 categories:

  • Product/Service innovation refers to the introduction of new products or significantly altered existing products.
  • Process innovation involves changes in the method that products and services are created or delivered.
  • Positioning innovation changes the perception of products and services in terms of what markets it encompass and how they may be used.
  • Paradigm innovation encompasses changes to the standard practice models that shape organisational activity.

The Grameen Bank is an excellent example of all 4 innovations where it was the first business to introduce microfinance loans to disadvantaged and ‘risky’ populations in a society. This was a shift from the standard process and paradigm of loans which required collateral or an adequate credit rating. In doing so, the Grameen Bank changed the positioning of loans in society so that they were inclusive of almost all members in a society.


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