Social business was a term first coined by Muhammad Yunus to describe cause-driven businesses whose success is measured by their social rather than financial impact. As a concept, it has been increasingly embraced by a range of socially driven organisations looking to establish their purpose.
Social businesses differ from social enterprises in that they are genuinely self-sufficient and do not rely on grants and philanthropy to deliver social impact. Despite the rise of social business however, many still question whether an organisation can successfully deliver both financial and social returns.
The social business of today has evolved from being solely based on the cause, to being profit driven as well. Such businesses are recognising that to be sustainable in today's world, they need to deliver effectively and efficiently. Having a social mission matters little to service users and customers if the end product does not meet their exacting standards.
This philosophy is evident in many leading social sector organisations, including Catch22, a 200-year-old national charity that supports young people and vulnerable adults in transforming their lives, and the London Early Years Foundation (LEYF), a London wide social enterprise that works to ensure that children have the best start in life.
These businesses, though successful and leaders in their own field, continue to undergo transformation to ensure that quality services are underlined by sustainable and effective business structures. For LEYF, this has meant developing a sustainable business model that is no longer reliant upon grants and local authority subsidies.
Catch22 has made clear their business credentials with the recent launch of a new corporate strategy and the realignment of services along business delivery lines.
Motivations for adopting a social business model
It is clear that these changes within both organisations have been motivated by several factors. Both acknowledge that it is no longer viable to rely on grants and government funding going forward.
June O'Sullivan, chief executive of LEYF, states that "charity is too finite a model for business with no sense of sustainability … due in part to limiting opportunities for new business and growth."
O'Sullivan sees the transformation of LEYF into a social business as necessary if the nursery is to have a wider social impact and create a new way of providing childcare to society.
O'Sullivan and Chris Wright, Catch22's chief executive, make clear that their organisations have always operated as businesses in their own right, regardless of legal structures, with an emphasis on both financial and social gains.
Wright emphasises that managing a charity with a £50m annual turnover and 1,200 employees requires, like any other business, requires sound investment, financial management and many tough decisions. By making clear to stakeholders its business credibility, Chris Wright hopes to attract new partnerships and investment to enable Catch22 to demonstrate that they can deliver services more effectively than current providers.
Catch22 recently partnered with Serco in HMS Doncaster to deliver a payment by results contract aimed at reducing reoffending by 5%, which is just one example of the way in which they are seizing new opportunities to compete for business.
LEYF has similarly been able to take advantage of opportunities available to them through their partnership and subsequent investment from The Social Business Trust, as they look to maximise the social impact they are having across London.
Challenges of transformation
Transforming a long established charity into a social business doesn't come without its complexities however. One of these is the extra hurdles that social businesses sometimes face. For example, O'Sullivan suggests that it can be harder for social businesses to gain the support and finance they need to grow and develop, especially in the current economic environment. Wright also notes that there is some uncertainty about the reception that social businesses will receive from competitors and potential customers.
Both Wright and O'Sullivan highlight mindset obstacles within the organisation and acknowledge the need for cultural change. Wright points out that many people choose to work in organisations like Catch22 because they want to "do good" and believe that doing good is incompatible with doing well financially. This mindset means that organisations undergoing business transformation need to invest significant resources to bring staff along the transformational journey.
Another challenge facing social businesses as they look to grow is how to provide clear measurement and a narrative of their impact. This is an area that both LEYF and Catch22 have invested in.
O'Sullivan feels that LEYF is now able to effectively demonstrate their social and economic impact. However, Wright notes that overall social businesses continue to find it difficult to measure and attribute impact due in part to the lack of a widely accepted way of doing it.
Despite the challenges it is clear that, for many organisations, correctly managing the balance between financial and social returns, and shifting towards a social business, is paramount if these organisations are going to successfully operate in today's world. In the words of O'Sullivan: becoming a social business is not only essential but a duty if we are to have greater impact.
David Bartram and Melanie Yap are 2012 On Purpose Associates. David's background is in consultancy and financial services, while Melanie's is in international technical legal assistance. On Purpose is a one-year leadership programme for professionals who want to transition into a social enterprise career. It involves two six-month work placements in socially-driven organisations, intensive one-on-one support, and a world-class business training programme. On Purpose is currently recruiting for places to start in April 2013.
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