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The Social Enterprise: A Model for Shared Value

In competitive business, a “race to the bottom” can appear unavoidable. Oftentimes, businesses do not know how to get around the race to offer products or services at the lowest possible price. But this model can have negative effects. Prioritizing merely low prices as a supplier or purchaser has been known to contradict ethical and sustainable business practices.

So how can businesses be motivated to abandon a lowest cost model?

For some firms, understanding sustainability as integral to financial success has come about organically. Thirty years ago, the Brundtland Report helped trigger a shift in business thinking. It demonstrated that development decisions weren’t sufficiently considering environmental resources and limits. Environmental issues became the foundation of the early sustainability movement across business sectors. An entire set of environmentally aware consumers and businesses came into being.

A variety of influences, or even a push from consumers, will lead some firms to add a social consideration to their sustainability efforts. The now famous consumer boycotts of NIKE, for example, pushed the company to review its social responsibility and transparency. Today, companies and researchers consider NIKE to be a prime case study and a sustainability leader.

Whatever the motivation, the harsh dichotomy between social or financial goals is disappearing. New models of shared value that create financial and social value are emerging. And, an often smaller, more humble type of business is proving to be particularly exemplary in applying this model: the social enterprise.

A Valuable Contribution

Michael Porter and Mark Kramer of Harvard Business School made a major contribution to this effort by introducing shared value about ten years ago. Shared value, as a management principle, “focuses on identifying and expanding the connections between societal and economic progress.”

Opportunities to contribute to social value through a business supply chain can include buying from local businesses, considering living wages of employees and incorporating Fair Trade products.

Sharing is Caring: Social Enterprises and Shared Value

Social enterprises put shared value into their core. These community-based businesses sell goods or services in the marketplace to achieve a social, cultural or environmental purpose; they reinvest their profits to maximize their “social mission.”

Social enterprises strive to achieve a shared value return on investment of both social impact and financial sustainability. The defining aspect of a social enterprise is not its specific corporate form, but rather the practice of prioritizing community benefits and social impact in favour of private profit or shareholder returns. Models of incorporation for social enterprises can include non-profits (with or without charitable status), community service co-operatives, hybrid corporations with caps on dividend and asset distribution and for-profits owned by non-profits.

Specific ways that social enterprises prioritize community contributions can take many forms. For Mosaic, a non-profit that supports the integration and inclusion of new Canadians, that way is operating a translation and interpretation business service. In Vancouver, commercial janitorial services, The Cleaning Solution, provides employment for persons with mental health issues.

Whether the social enterprise is creating employment for youth and persons with barriers or championing cultural diversity, ultimately the business sees the shared value in responding to social needs.

Decisions made by social enterprises are creating positive ripples within the environment and communities. If enough firms begin to adopt the practices of social enterprises or include them in their value chain then it can move us from a marketplace merely about the economics of business transactions and into a marketplace that is pivotal in transforming and building healthy communities.

This blog was originally posted on the Network for Business Sustainability website, and appears here with permission.

Comments

Though Creating Shared Value makes the case for applying capitalism for the benefit of both business and the community, it is from social enterprise that this argumet derives. For example in a 'Marshall Plan' for Ukraine which argued:

“Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.” “This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised. “An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with. “That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.”

 The cross-sector collaboration put foward in this paper will be the subject of an international conference at York St John University in Spetember:   http://blog.yorksj.ac.uk/socialeconomy/2015/04/15/for-profit-and-non-profit-collaboration-proposal-for-ukraine/ 

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David
LePage

David LePage is a Principal with Accelerating Social Impact CCC, Ltd. (ASI), one of Canada’s first incorporated social purpose hybrid corporations. ASI is a partner in launching and building the Buy Social Canada campaign. David is the former Team Manager of Enterprising Non-Profits (ENP BC).

He is a member of the Social Enterprise World Forum Steering Group; the Canadian CED Network Policy Council, Imagine Canada’s Advisory Committee, British Columbia Partners for Social Impact, and the Board of Directors of the Vancouver Farmers Market.

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Social enterprise is the business model used to create a social-value marketplace and provide the economic foundation for healthy and inclusive communities. We often refer to social enterprise as a verb, as a route to a desired end.

I am starting to understand my continual aversion to the on-going efforts to “map social economy” or “map social enterprise.” And it may not be just my irrational, obstinate character.

We have every reason to be excited as the emerging social enterprise sector attains higher and higher levels of recognition and accomplishment.  The collaborative energy increases. The business opportunities keep growing. We’re witnessing new levels of local and collective business success and social impacts.