Social Enterprise Workshop Report

Creating an Economically Sustainable Highlands and Islands: could social enterprise be the link between the private and public sectors?

October 2007

Prepared by Sarah-Anne Muñoz (MA, MSc, PhD, FRGS)

• INTRODUCTION

On 3rd October 2007 the Sustainable Development Research Centre (SDRC) hosted a half-day workshop in the Greenhouse, Inverness that considered the theme:

Creating an Economically Sustainable Highlands and Islands: could social enterprise be the link between the private and the public sectors?

Social enterprises have often been seen as the key to promoting regeneration and alleviating disadvantage in declining or deprived inner-city areas. However, this workshop explored the potential of social enterprise to also rejuvenate and sustain more rural or remote communities, with a focus on the Highlands and Islands and neighbouring areas.

Social enterprises are particularly successful at delivering goods or services to those social groups or geographical areas that are underserved by the public and private sectors. Therefore, there may be potential for social enterprises to further contribute to the economy of the Highlands and Islands. However, there is also the potential for the private sector and social enterprise to work together, particularly in the delivery of services contracted out by the public sector. Collaborations between private sector organisations, with their business acumen, and social enterprise, with their clearly defined social goals, may be an effective way to deliver a more sustainable Highlands and Islands and leads to the question: could social enterprise be the link between the private and public sectors that helps build an economically sustainable Highlands & Islands?

During the workshop delegates listened to presentations from the research and social enterprise communities. This led on to a structured discussion in which delegates discussed strategies for realising the potential of rural social enterprises. Delegates also discussed their experiences of successes, failures and needs and thought about what can be done in terms of research and support in order to foster a vibrant social enterprise sector within rural Scotland that communicates more with both the private and public sectors.

The remainder of this document summarises the main themes to emerge from both the presentations that were delivered and the subsequent discussion involving all delegates.

• Rural social enterprises – working with the public sector

One of the main issues to emerge at the workshop, through both the presentations and discussion, centred on the potential for social enterprises operating in remote and rural areas to work with the public sector. In particular, it was debated whether public sector procurement is an option for rural social enterprises. The main themes to emerge concerning this topic are summarised in the following three sub-sections and concern: the social enterprise perspective; the public sector perspective and cross-cutting issues relating to rurality.

2.1 Social enterprise and public sector collaboration – the social enterprise perspective

Delegates discussed one social enterprise’s experiences of successfully contracting with the Highland Council. The organisation in question felt that their contract had been successful and beneficial to both sides but pointed out that they had initially negotiated with the Council in order to secure a contract with conditions that they were happy with. The organisation also maintained regular communication with the Council throughout the life of the contract and partly attributed the success of the contract to an openness on both sides that led to a successful working relationship. It was felt that good communication is essential on both sides so that all problems can be discussed.

Overall, the advice stemming from this organisation’s experience is for social enterprises to negotiate carefully before signing a contract and also to build in a surplus to the price they charge for their services. Delegates agreed that the public sector should be prepared to pay for social enterprises’ surpluses in the same way that they would pay the private sector. Some delegates intimated that they had previously held contracts with the public sector that did not cover their costs. It was felt that for social enterprises to maintain a successful procurement relationship with the public sector they need to have realistic pricing and mark-ups similar to commercial businesses.

It was also discussed that it is important for social enterprises not to change their organisation and strategies to fit in with public sector procurement because this could affect their social aims.

2.2 Social enterprise and public sector collaboration – the public sector perspective

Delegates from the public sector side of the relationship pointed out that it is paramount for social enterprises to be professional and business-like in their conduct with the local authority.  It was stressed that a social enterprise should not assume that they will be awarded contracts from the public sector simply because of their status as a third sector organisation. It was felt that social enterprises need to behave like a business and they will then be respected as a business. It was discussed that the public sector needs to be aware of social enterprises’ required profit margin and that it is not possible for them to do things cheaply. However, it was also pointed out that social enterprises should not be afraid of charging for services requested by the public sector that are over and above those negotiated in their contract or service level agreement.

It was discussed that the public sector has growing demands but diminishing resources with which to meet these demands.  They also have a process of competitive tendering that means they must award contracts to those organisations with the highest quality tender for the lowest price. It was intimated that the public sector may seem risk averse when trying to look for cost savings but that this is necessary because they are dealing with public money. It was felt that for social enterprises and the public sector to work together successfully, they need to establish shared objectives and need to achieve mutual trust.

Delegates also discussed that social enterprises need to find a way to demonstrate their added value and provide evidence of this so that it can be assessed by the public sector. However, the public sector is not clear on a standardised format for social enterprises to use. There were mixed thoughts on whether the public sector should help social enterprises in their attempts to win public sector contracts. It was suggested that the public sector should provide some monetary assistance to build the capacity of the social enterprise sector. It was felt by other delegates, however, that this would provide social enterprises with an unfair advantage over other organisations; in particular, the private sector.

It was raised that contract size can often dissuade social enterprises from applying for contracts. It was suggested that contracts could be broken up by the public sector into smaller lots in order to encourage more bids from social enterprises. However, the public sector felt that this may involve extra administration costs. Therefore, the public sector in general would need to be aware of the added benefits that could be gained by enabling social enterprises to compete for contracts (i.e. their added value) before these extra administration costs would be justified.

It was also discussed that the public sector needs to have communication across its departments so that they can have joined-up thinking in their commissioning.  This would aid them in achieving their targets as they would recognise the added value social enterprises can provide in different areas. 

2.3 Social enterprise and public sector collaboration – cross-cutting rural issues

Delegates discussed that social enterprises in rural areas often find it difficult to operate on the scale that is necessary in order to supply to the public sector. Delegates felt that there is also a lack of training provided to social entrepreneurs within rural communities in terms of understanding procurement processes. However, other delegates felt that within rural areas the issue that needs to be addressed first is that of the public sector offering financial support to social enterprises in order to build their capacity, before tackling the issue of whether they understand procurement.

• Rural social enterprises – working with the private sector

The workshop also addressed the potential of social enterprises to work with the private sector – particularly within the context of the economic benefits to the Highlands and Islands of such collaboration. Delegates discussed whether social enterprise and the private sector can work together (in theory and practice) or whether they are too dissimilar. It was debated whether it would help both sides to secure public sector contracts if they worked together. Also discussed was whether the private sector was willing to work with the social enterprise sector and, if so, how the two sectors will find each other. Delegates pondered whether these partnerships could create a more economically sustainable Highlands and Islands in terms of the employment of people who would otherwise remain outside the labour market, the maintenance of local jobs and local income generation.

It was pointed out that social enterprises need people with good business skills on their boards and that it is particularly difficult to find such people with the time to spare in rural areas. It was raised that having the right Board of Directors is very important for a social enterprise and they need a good mix of skills and understanding of the social enterprise model. Delegates felt that board members should be involved as much as possible in the running of the enterprises as long as they have the expertise that is right for the business. Some delegates felt that there is a lack of such people in rural areas and those with the appropriate skills are in high demand.

It was highlighted that businesses within the private sector operate in order to make a profit, and to please stakeholders, whereas social enterprises are there to please beneficiaries.  It was felt that there were some areas of symbiosis between the two sectors with corporate social responsibility, ethical trading, green products and unique selling points and that this may provide a starting point for the two sides to work together.

However, delegates also felt that in rural areas social enterprises have a much higher profile as there are fewer businesses. Therefore in such areas it is more obvious to private sector businesses when they are competing for the same contracts and this could lead to conflict between the sectors. It was suggested that perhaps social enterprises can help the private sector to link more closely to the communities in areas that they are currently not working in. It was discussed that by working together they will be able to provide a better understanding for both sectors.  For the private sector they can begin to realise the issues that face social enterprises and for social enterprises they can begin to understand more about the business model.

• Rural social enterprises – helping to maintain sustainable communities in rural areas

Delegates discussed whether social enterprises help to maintain environmentally, socially and economically sustainable communities in rural areas. They debated the role that social enterprises can have in maintaining and creating such communities, particularly in rural areas of population and economic decline. They also discussed the need for social enterprises to move away from grant funding to themselves become sustainable.

4.1 Added value and empowerment for rural communities

It was felt by the delegates that, in many rural areas, community-initiated social enterprises have emerged because they are one of the only ways in which isolated communities’ needs are met. It was pointed out that there are other, therefore, wide social benefits provided by social enterprises such as community empowerment and the generation of community spirit.

Through social enterprise, it was felt, that the users become those who deliver the services. Delegates discussed, in particular, a Northern Periphery Programme (NPP) project which arose from the partners’ belief that, in the past, the public sector has provided a standard service to ‘passive’ recipients.  The idea behind the NPP project was towards a much more ‘person centred and user led’ approach.  The project aim was to get the user involved in the design and management of the service. It was mentioned that social enterprises are in this context particularly appropriate business models to respond to a community’s particular needs.  

4.2 Difficulties in helping to sustain rural communities

It was thought that in many cases social enterprises only have a short-term focus and are not sustainable in the long-term.  For instance, many rely on volunteers who may move on. Some delegates felt that social enterprises need to be flexible, adaptable and open to diversification. However, it was felt that this needs to be done without losing focus on the original social goal of the organisation. It was felt that the existence of a social entrepreneur within the organisation is vital because this person will be able to generate new business and diversification ideas.

4.3 Social enterprises – becoming sustainable themselves

It was generally accepted that social enterprises need a surplus-driven strategy if they are going to survive and need to move away from grants making up any percentage of their income. However, within the context of contracting it was also pointed out that it is dangerous to be reliant on only one or two key customers.

Social enterprises were encouraged to think about secondary services that could bring in more money for them.  Examples provided were: renting out storage space or offices to other organisations or specialised staff offering consultancy and training.

It was also recommended that social enterprises aim to grow so that they can begin to achieve economies of scale, keep costs down and start to take on bigger contracts.  Some delegates felt that third sector organisations should not be afraid to borrow money in order to facilitate growth. Delegates felt that within many organisations, particularly those that started life as charities, their needs to be a change in mind-set within the staff towards a more business-like approach. Delegates related that they had encountered problems with staff who were uncomfortable with starting to charge for services that were originally free and that board members can be unhappy about taking risks or charging for goods and services. 

Delegates felt that, particularly within rural areas, social enterprises are established with time-limited grant funding which means they are fundamentally unsustainable.  It was recognised that grants can be an effective way of starting a social enterprise, for example it has helped social enterprises in the recycling sector to get started in many parts of the Highlands and Islands.  In many cases however, when these funding schemes run out, the organisation’s income streams can be insufficiently developed and the organisation is not able to run as a businesses.

• Conclusions: is social enterprise the link between the private and public sectors for creating an economically sustainable Highlands and Islands?

Overall, delegates were very positive about the potential contribution that social enterprise could make to developing an economically sustainable Highlands and Islands. It was felt that the major contribution of the social enterprise sector is to generate employment and income in areas where there are few private or public sector opportunities. However, it was felt that there are still issues to be addressed in terms of a successful working relationship between social enterprise, the public and private sectors.

Delegates felt that the area already has a wealth of social enterprises and it was suggested that the Highlands and Islands has around 12,000 voluntary organisations, 8,142 of which are in the social economy.  These 8,142 organisations have a combined annual income of £360 million and employ around 20,000 people; 11,000 of which are full time. This demonstrated that there is the potential for social enterprises to function as successful businesses within more remote and rural areas. It was generally concluded that as social enterprises within rural areas grow they may be able to work more successfully with the public sector. It was felt that there is also the potential for social enterprises in rural areas to work together in order to secure public sector contracts. However, social enterprise practitioners felt that there needs to be further public sector reform in order for their organisations to be able to compete more successfully for public sector contracts.