Considering the question of non-profits' reputation when they start cooperating with companies, I have a local example that I found quite interesting. It's nothing new, or mind-boggling, but of personal concern to me, so I figured I'd still post it here. Youth for Understanding, the organisation I spent my exchange year with, started to have a cooperation with Starbucks about 2 or 3 years ago. There were flyers laid out in the Bremen city Starbucks that had the YFU logo, the Starbucks logo, and lots of info about how Starbucks was now financially supporting YFU, because it also supported the great intercultural goals, etc on them. I was pretty shocked- members were never asked (at least not via the normal member channels that I could receive), and as much as I like my coffee from Starbucks, to me there were some clear discrepancies. Apparently, more members thought so. YFU must have gotten a terribly negative feedback, because after half a year the flyers were gone, and the cooperation was never heard of again.
My question: Wouldn't it save the non-profit money, if it checked with members/ ideological supporters first, before it took such steps? I believe that in this case, the negative light on the organisation weighs more than the additional profit. Some really anti- American-Corporation families might even not have sent their children on an exchange year with YFU, because of this whole issue, so there might even have been a money loss. This is what has already been conveyed in some of last week's texts, I just find practical examples really helpful. 'Hope this isn't too redundant.
Tuesday, February 23, 2010
Wednesday, February 17, 2010
Social Mission and Profitability
This week, we took another, slightly different look at what it means to be an social entrepreneur. Our discussions revolved around a central, possibly the central problem of social entrepreneurship: how to reconcile the social mission -- the raison d’etre of the enterprise -- with profitability -- the thing that nourishes enterprise?
Before looking at how profits and the social mission relate (or not, as the case may be), let us for a moment focus on each individually.
How are we to understand profits? Does profitability mean the same for social entrepreneurs as it does for other entrepreneurs? We all seemed to agree that profits are those funds you are left with after you cover the costs of your operation out of the revenues. Now, there are many different sources of revenues for people pursuing a social mission. Public funds or philanthropic donations have traditionally financed Third Sector social activities. As these funds are becoming scarcer (for a variety of reasons) ‘social-mission-pursuers’ have looked to ways of earning an income through the sale of their goods or services. As we saw last week, thinkers like Boshee and McClurg consider earned income to be the only true source of entrepreneurial profits?
And what about the social mission? Pursuing a social mission, we all seemed to agree about this one too, is about “doing good”. But unpacking the rather dense and opaque term “good” left us with all sorts bits that didn’t neatly fit together. On the one hand, doing good is about benefitting society through helping the needy. But, on the other hand, doing good often also means disrupting society by challenging morals and established social practice (as Muhamad Yunus had done). So, innovation is al about bending the rules and breaking laws (Schumpeter’s ideal of creative destruction), but, as the fictitious example of “PeopleCoke” demonstrated, there are limits here, although where these limits are is open to some debate. Doing “good”, then, is a very vague, ambiguous and contestable idea.
Another way of looking at social mission is in terms of its function vis-a-vis other social systems. Here, social mission is about providing goods and services undersupplied by the market. Another word for this is “market failure”: although there is demonstrable need or demand, markets are incapable of fulfiling this demand. This, of course, is classical justification for public intervention or the provision of public goods (http://en.wikipedia.org/wiki/Public_goods). Insurance markets, for example, suffer from market failures such as adverse selection (http://en.wikipedia.org/wiki/Adverse_selection) and moral hazard (http://en.wikipedia.org/wiki/Moral_hazard). Another example is the vaccine for malaria: while the need for a vaccine is undisputed, pharmaceutical firms have little incentive to develop such a vaccine since they are unlikely to recover the sizeable costs of R&D. So, a social mission is about fuliling the needs of people that are not served by markets (or the state). Alternatively, it was mentioned that a social mission could aim to enable individuals to take part in markets and social life.
This raises an interesting point. On this view, social missions seem to be about providing goods and services that the market is incapable of providing. Why? Because fulfiling these needs does not generate the minimum level of profit to, as Peter Drucker puts it, sustain operations.
This, then, is the problem that social entrepreneurs must solve (or at least) face. They need to find ways to fit the square peg of profitability into the round hole of social mission. They need to find ways of dealing with the inherent tension between the social mission and profitability. This does not necessarily mean making the peg completely round or the hole completely square. (That is, subordinating the social mission entirely to market process or completely ignoring commercial opportunities). It’s more about adapting changing the peg a bit (perhaps by sanding the edges a bit) or making the hole more accommodating. (Not sure I like where this metaphor is going....).
Hieu and Martin kindly gave us a competent overview of different approaches to dealing with this inherent tension. Without going into too much detail, allow me to suggest a way of classifying these approaches. Essentially, approaches to dealing with the tension between social mission and profitability make up a continuum. At either extremes of the spectrum, thinkers advocate dissolving one of the aspects in terms of the other. At one end, advocates tell us the NPO sector would profit immensely if it were to be organised along the business lines. This, they contend, would free up billions of dollars now wasted by inefficient management practices and the vagaries of NPO funding. At the other end of the spectrum, we find thinkers such as Dart or Eikenberry and Kluver. They point, gravely, to the dangers of social entrepreneurship. For the pursuit of profit in social projects, in itself sign of how far market ideology has encroached upon civil society, has a highly corrosive effect on civil society organisations.
In the middle-ground we find thinkers such as Jed Emerson and Gregory Dees who take a far more equivocal , not to mention pragmatic, view. What is important to these thinkers is the social mission itself. They are less interested in underlying questions of legitimacy if it does not contribute to the social mission: a legitimate but ineffective social enterprise is of no real use to anyone. For example, the UN General Assembly is a highly legitimate organisation that is completely toothless. Neither do they much care for billion-dollar savings if this means that the needs of some people go unfulfilled. Unlike the market thinkers, more money does not automatically or necessarily translate into more welfare. For these thinkers, finance and funding needs to fit the particular social mission. And ways of fitting funding to mission, they seem to imply, are never obvious. It requires thought, effort and ingenuity -- innovation, in short -- to make it work. And each new social mission may need its own innovation to square profits with ‘doing good“.
The case studies presented by Martin and Hieu seem to bear this out. In two of the cases, part of the social innovation was the way the entrepreneurs dealt with tensions between profits and social mission.
But what about the ChildLine case? Jeroo Bilmoria’s project does not earn any income. It relies on public money or donations. And, by the looks of things, there are no plans for making it profitable, at least in the sense of earned income, in the future. Is it still social entrepreneurship? If we consider making profit to be the only thing that defines a business, then clearly no. But what if we take a wider view of what businesses are and do? What if we looked at the way Bilmoria formulated clear goals and developed a functioning business model based on training street-children themselves to provide and develop services? What if we took into account the way she developed the innovation as a functioning proto-type and then ”sold“ it to, first, the India government and then child protection systems world-wide? What if we assessed the way she has set up a franchising system with a functioning quality control system to accompany the expansion of the social enterprise? What, in other words, if we found ChildLine to be behaving like a business without actually aiming to make profits?
May I suggest the following tentative conclusions from our discussion:
1) There is an inherent tension between social mission and profit.
2) Allowing one to completely subordinate the other squeezes out either the social or the entrepreneurial dimension of social entrepreneurship. Another way of putting it is that social entrepreneurship feeds off the tension between profit and social mission.
3) Resolving or dealing with the tension between profits and social mission requires innovation: it is never obvious nor is it easily transferrable from one social mission to another.
4) A defining characteristic of social entrepreneurship, then, may be the fact that they find innovative ways to resolve the tension between profits and social mission.
5) There may be more to businesses than making profit or earning an income. Thus, profitability be far too restrictive a criterion to describe business practices. Social entrepreneurs may adopt business practices without pursuing profits.
Before looking at how profits and the social mission relate (or not, as the case may be), let us for a moment focus on each individually.
How are we to understand profits? Does profitability mean the same for social entrepreneurs as it does for other entrepreneurs? We all seemed to agree that profits are those funds you are left with after you cover the costs of your operation out of the revenues. Now, there are many different sources of revenues for people pursuing a social mission. Public funds or philanthropic donations have traditionally financed Third Sector social activities. As these funds are becoming scarcer (for a variety of reasons) ‘social-mission-pursuers’ have looked to ways of earning an income through the sale of their goods or services. As we saw last week, thinkers like Boshee and McClurg consider earned income to be the only true source of entrepreneurial profits?
And what about the social mission? Pursuing a social mission, we all seemed to agree about this one too, is about “doing good”. But unpacking the rather dense and opaque term “good” left us with all sorts bits that didn’t neatly fit together. On the one hand, doing good is about benefitting society through helping the needy. But, on the other hand, doing good often also means disrupting society by challenging morals and established social practice (as Muhamad Yunus had done). So, innovation is al about bending the rules and breaking laws (Schumpeter’s ideal of creative destruction), but, as the fictitious example of “PeopleCoke” demonstrated, there are limits here, although where these limits are is open to some debate. Doing “good”, then, is a very vague, ambiguous and contestable idea.
Another way of looking at social mission is in terms of its function vis-a-vis other social systems. Here, social mission is about providing goods and services undersupplied by the market. Another word for this is “market failure”: although there is demonstrable need or demand, markets are incapable of fulfiling this demand. This, of course, is classical justification for public intervention or the provision of public goods (http://en.wikipedia.org/wiki/Public_goods). Insurance markets, for example, suffer from market failures such as adverse selection (http://en.wikipedia.org/wiki/Adverse_selection) and moral hazard (http://en.wikipedia.org/wiki/Moral_hazard). Another example is the vaccine for malaria: while the need for a vaccine is undisputed, pharmaceutical firms have little incentive to develop such a vaccine since they are unlikely to recover the sizeable costs of R&D. So, a social mission is about fuliling the needs of people that are not served by markets (or the state). Alternatively, it was mentioned that a social mission could aim to enable individuals to take part in markets and social life.
This raises an interesting point. On this view, social missions seem to be about providing goods and services that the market is incapable of providing. Why? Because fulfiling these needs does not generate the minimum level of profit to, as Peter Drucker puts it, sustain operations.
This, then, is the problem that social entrepreneurs must solve (or at least) face. They need to find ways to fit the square peg of profitability into the round hole of social mission. They need to find ways of dealing with the inherent tension between the social mission and profitability. This does not necessarily mean making the peg completely round or the hole completely square. (That is, subordinating the social mission entirely to market process or completely ignoring commercial opportunities). It’s more about adapting changing the peg a bit (perhaps by sanding the edges a bit) or making the hole more accommodating. (Not sure I like where this metaphor is going....).
Hieu and Martin kindly gave us a competent overview of different approaches to dealing with this inherent tension. Without going into too much detail, allow me to suggest a way of classifying these approaches. Essentially, approaches to dealing with the tension between social mission and profitability make up a continuum. At either extremes of the spectrum, thinkers advocate dissolving one of the aspects in terms of the other. At one end, advocates tell us the NPO sector would profit immensely if it were to be organised along the business lines. This, they contend, would free up billions of dollars now wasted by inefficient management practices and the vagaries of NPO funding. At the other end of the spectrum, we find thinkers such as Dart or Eikenberry and Kluver. They point, gravely, to the dangers of social entrepreneurship. For the pursuit of profit in social projects, in itself sign of how far market ideology has encroached upon civil society, has a highly corrosive effect on civil society organisations.
In the middle-ground we find thinkers such as Jed Emerson and Gregory Dees who take a far more equivocal , not to mention pragmatic, view. What is important to these thinkers is the social mission itself. They are less interested in underlying questions of legitimacy if it does not contribute to the social mission: a legitimate but ineffective social enterprise is of no real use to anyone. For example, the UN General Assembly is a highly legitimate organisation that is completely toothless. Neither do they much care for billion-dollar savings if this means that the needs of some people go unfulfilled. Unlike the market thinkers, more money does not automatically or necessarily translate into more welfare. For these thinkers, finance and funding needs to fit the particular social mission. And ways of fitting funding to mission, they seem to imply, are never obvious. It requires thought, effort and ingenuity -- innovation, in short -- to make it work. And each new social mission may need its own innovation to square profits with ‘doing good“.
The case studies presented by Martin and Hieu seem to bear this out. In two of the cases, part of the social innovation was the way the entrepreneurs dealt with tensions between profits and social mission.
But what about the ChildLine case? Jeroo Bilmoria’s project does not earn any income. It relies on public money or donations. And, by the looks of things, there are no plans for making it profitable, at least in the sense of earned income, in the future. Is it still social entrepreneurship? If we consider making profit to be the only thing that defines a business, then clearly no. But what if we take a wider view of what businesses are and do? What if we looked at the way Bilmoria formulated clear goals and developed a functioning business model based on training street-children themselves to provide and develop services? What if we took into account the way she developed the innovation as a functioning proto-type and then ”sold“ it to, first, the India government and then child protection systems world-wide? What if we assessed the way she has set up a franchising system with a functioning quality control system to accompany the expansion of the social enterprise? What, in other words, if we found ChildLine to be behaving like a business without actually aiming to make profits?
May I suggest the following tentative conclusions from our discussion:
1) There is an inherent tension between social mission and profit.
2) Allowing one to completely subordinate the other squeezes out either the social or the entrepreneurial dimension of social entrepreneurship. Another way of putting it is that social entrepreneurship feeds off the tension between profit and social mission.
3) Resolving or dealing with the tension between profits and social mission requires innovation: it is never obvious nor is it easily transferrable from one social mission to another.
4) A defining characteristic of social entrepreneurship, then, may be the fact that they find innovative ways to resolve the tension between profits and social mission.
5) There may be more to businesses than making profit or earning an income. Thus, profitability be far too restrictive a criterion to describe business practices. Social entrepreneurs may adopt business practices without pursuing profits.
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