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Creating Sustainable and Profitable Social Enterprises

 

Social Entrepreneurs are redefining current business models by emphasising the value a business creates for the society it operates in (P1)

 

What is “Social Entrepreneurship”?

Social entrepreneurship, defined simply by Eranda Ginige in his book “How to become a successful Social Entrepreneur”, is the “providing of entrepreneurial solutions to specific social or environmental issue(s)”. (1) Accordingly, the key objective of a social enterprise is to resolve social or environmental issues in a profitable manner. This is important; social enterprises are not charities or not-profit organizations. Their objective is to also make a profit! And since such enterprises are based on a for-profit business model they are both sustainable and competitive.

Just recall a particular social issue affecting the people and the environment in your area. For example; a very prevalent one is our plastic pollution. A business that is able to recycle this waste or even provide alternative products to reduce the waste being created in the first place will be considered as a social enterprise. The business that is also able to provide employment to small households by outsourcing the production or design of such products is also a social enterprise. Infact many social enterprises look to provide solutions to social challenges through both the products they create and the processes they use to create them, creating a new, more sustainable business model for the future.

 
 
exploiting the world

Traditional businesses focus on maximizing value for themselves without consideration of the greater consequences of their operations (P2)

Traditional Businesses vs. Social Enterprises

Unlike Social Enterprises, traditional businesses focus on the economic value generated as a direct result of their operations and do not consider secondary impacts they have both on society and the environment. This imbalance unfortunately incentivises businesses to turn a blind eye or even in cases deliberately harm our society and environment. In many cases while the fact that this harm cannot be quantified, ie. given a precise number, it does not mean that it’s small.

This indifference towards difficult to measure, but very real, negative impacts is highlighted clearly by valuation matrices and the standard assessment criteria businesses commonly use to appraise projects, both of which primarily focus on cash flows.

Even some of the giants in the global business arena have been repeatedly accused of prioritizing profit over taking adequate measures to avoid social and environmental harms. This is one of the reasons for a backlash against large ‘businesses’, and regardless of which side of the fence you sit there is a clear need to reappraise current practices.

The Social Entrepreneur approach to doing business is entirely different from the traditional business model with regards to this issue. The secondary impacts of the products and solutions provided along with the operational process of providing them are assessed and selected to reduce any negative impacts, identifying a more viable, profitable operation in the long run. This is one of the main reasons why social enterprises are more sustainable than NGOs and other similar organizations which are dependent on donor received funds received to sustain their operations.

 
 
sustainable investments

Businesses need to consider the sustainability of their processes (P3)

The ‘Triple Bottom Line’ Concept

The concept of ‘triple bottom line’ (TBL), introduced by the famous social entrepreneur and business writer John Elkington is of vital importance to better understand social entrepreneurship. As he points out, there are three important criteria on which the success of any business entity needs to be measured. Those are: 01) Profit or loss (business account), 02) Impact on the society (people account), and 03) Impact on the environment (planet account). “Only when companies measure their social and environmental impact will we have socially and environmentally responsible organisations”.(2) When such a culture is nurtured, the contribution made by businesses towards the betterment of the society and the environment indirectly becomes a crucial factor in assessing their success and sustainability.

Increasing awareness of both the failings of current business strategy and the opportunities it provides to more sustainable business models is essential to create an environment where public pressure will push businesses to adopt more prudent practices. Another positive outcome of the increasing awareness is the formation of movements such as the ‘Fairtrade Movement’ that urges companies to include only socially and environmentally ‘fair’ products in their portfolios. However there is a long way to go to be able to have the necessary checks and balances in place to ensure that adequate measures are taken by not just businesses but whole industries in this regard.

One of the biggest challenges for widespread of adoption of the triple bottom line is the incorporation of all these three factors into one business model. The question that needs to be answered is ‘how to prioritize the honest contribution towards the betterment of people and society while at the same time achieving a desired profit level?’.

Unfortunately there is no ‘cookie cutter’ mold that can be applied to create a business model that answers this question. But much can be learnt from pioneering entrepreneurs able to find innovative solutions to this given their unique business context and the challenges they address. One silver lining is that there seems to be no shortage to the number of problems faced by both society and the environment.

 
 
calculating the cost of sustainability

Business need to work closely with the communities they are trying to help in order to maximise the value they create through such projects (P4)

The Evolution of CSR

Over the last few years Corporate Social Responsibility programmes have become quite popular amongst local businesses to improve their brand image and increase awareness. Sri Lankan companies in-fact spend over Rs. 4 Billion annually on CSR projects. (3) Many of these donations go towards providing assistance in times of crisis. While this is important, it is essential that the sustainability of such projects be looked at much more closely. By working hand in hand with those they wish to assist corporates can identify ways to create more long lived value through their spending, increasing the effectiveness of their efforts and alleviating the problems of those they help on a more permanent basis. Find out more about how corporations can take steps towards this in out article; “A more conscious corporate.

 
 
evaluating success

Businesses need to redefine how they evaluate success (P5)

Conclusion

While social entrepreneurship seems to be the logical evolution of current business practices, the challenge lies in improving the quantifiability of secondary impacts different business models and processes have on society and the environment. It is also of vital importance to initiate a dialogue on the need to cultivate a responsible business environment/culture that ensures the well-being of both society and the environment. Look forward to more articles on the topic here on Inside Access.

   
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