Mixing social with business

Businesses have an important role to play in alleviating poverty and addressing complex social and environmental problems. But there is no formula for how to mix social good with business savvy.

Researchers at the University of Melbourne are looking for answers in the Philippines.

In the past solutions have focused on social enterprises or inclusive businesses.

But it’s a matter of debate what makes an organisation a social enterprise or an inclusive business.

Researchers have tended to focus on identifying such social enterprises by legal form, profit orientation, financial sustainability and mix of revenue streams.

The University of Melbourne team of Dr Krzysztof Dembek, Professor Prakash Singh, Dr Adam Bumpus, Professor Brad Potter and Dr Jodi York have sidestepped that debate, taking a problem-based approach that looks at the business models of organisations devoted to addressing poverty and other social and environmental problems, regardless of type. For the last nine months the team has visited numerous enterprises and communities with which they work and aim to impact.

Working with the Yap Foundation, they have also contributed to the debate on the Social Enterprise Bill presented to the Parliament in the Philippines by the Senator Bam Aquino. While the project is focused on the Philippines, they hope to expand it globally. This would allow mapping the different ways of addressing poverty and other social and environmental problems with business models and provide detailed knowledge on what works and what does not work.

Dr Dembek, of Management and Marketing and the Melbourne Business School’s Asia Pacific Social Impact Centre says business models are key to finding the value that organisations create for themselves and their stakeholders.

“It is the business model that focuses on what social enterprises and inclusive businesses have in common. Are they addressing a social and environmental problem as their core activity and how do they use business to accomplish this?” Dr Dembek said.

Surprisingly, the research so far revealed no definitive distinctions between how large corporations and small local enterprises add social value.

“Researchers observed that large corporations tend to create social value around their existing activities and products, while many small enterprises do the opposite by creating activities around the social value they want to create,” Dr Dembek said.

According to the World Bank, 25% of families in the Philippines live below the international poverty line of $1.25 per day. But poverty can vary widely, even in two close locations. Looking at business models also enables researchers to map out local enterprises and identify their specific methods for helping people rise out of poverty. These data can help future business adjust their services for the locations where they work.

Social enterprises are on the rise. “Governments are increasingly interested in moving away from the traditional aid model towards a more entrepreneurial approach and provide support and resources to make it happen. It is also becoming trendy for businesses to create social value,” says Dr Dembek.

Not every business is a success story. “Many new enterprises will fail, which is a normal phenomenon in entrepreneurship. However, one trend that we observe in social entrepreneurship is still a low number of ‘investment ready’ entities. Impact investors we engage with say they struggle with finding the appropriate investments.”

The question of how much government involvement in developing and sustaining these initiatives can be a thorny one.

Many governments, including the Philippines Government, recognise the contribution of social enterprises to the greater economy and want to support their growth.

Dr Dembek says: “This can be converted into an advantage, for example by using government procurement to incentivise the growth of organisations that create an important social value and help provide services for which governments are responsible. However, inappropriate government involvement may pose a risk of over formalising the field and providing opportunity for speculation.”

He is optimistic about the impact of his research and where social enterprise is going in the future. “We hope our study will help governments in deciding how to identify a social enterprise and will help those addressing poverty and other complex social and environmental problems make the right decisions. We hope the study will impact the way in which Australia gives to NGOs and foreign aid in general. Australian giving should help NGOs work themselves out of the job.”

Banner image: Syrian refugee in Lebanon via Wikimedia Commons. DFID - UK Department for International Development