Social Enterprise Workshop Report
Can social enterprise achieve sustainability through added value?
March 2008
Prepared by Sarah-Anne Muñoz (MA, MSc, PhD, FRGS) and Heather George (BSc)
INTRODUCTION
On 21st February 2008, the Sustainable Development Research Centre (SDRC) hosted a workshop in the John Player Building, Stirling Enterprise Park on the theme:
Can social enterprise achieve sustainability through added value?
Social enterprises are organisations that trade in order to meet a social or environmental aim. Thus, they have been increasingly recognised as key contributors to economic, social and environmental sustainability. However, in order to play a significant role in the generation of a sustainable economy, social enterprises must themselves be run as sustainable businesses.
This workshop explored the different ways in which the social enterprise model can be used to create successful businesses that contribute to sustainable development. In particular, it explored the role of added value in the success of the social enterprise business model and the different ways in which such organisations generate, measure and market their added value.
The workshop brought together academics, policy-makers and social enterprise practitioners interested in added value and sustainability. Delegates listened to presentations from the research and social enterprise communities. This led on to a structured discussion in which delegates debated strategies for social enterprise business success and the potential for social enterprise to contribute to meeting public sector objectives relating to sustainability; as well as discussing which future directions of research are needed in order to understand more fully social enterprises’ contribution to sustainability.
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.
ADDED VALUE – A CONTESTED CONCEPT
The workshop presentations and discussion proved that there is by no means a uniform definition of added value. Notions of added value differ between the social enterprise and the public sectors and even between social enterprise practitioners. Delegates did not take added value as a given concept and felt it was necessary to interrogate its utility – posing questions such as what is added value?; should we be talking about added value?; and who is interested in added value (and why)?
Some delegates felt that added value is only interesting to those in the public sector and is not of great relevance to the general public. Therefore, it is only worthwhile for social enterprises to discuss added value with the public sector. However, not all delegates were convinced that all sections of the public sector are willing to consider added value.
Delegates discussed whether an alternative phrase should be found to describe ‘added value’. Some delegates felt that it is a dangerous term because it can imply that social enterprises’ customers are getting something “for free” and result in their being less inclined to pay a price that covers social enterprises’ costs. It was suggested that “real worth” may be an alternative to using “added value”. Other delegates felt that a focus on added value is quite narrow and that debates should be opened up in order to discuss in general the ways in which social enterprises are valued internally and externally. It was felt that this may help move away from concepts such as added value that may be rhetoric and towards a simplification of the language that is used by academics and social enterprise practitioners to describe the benefits associated with social enterprise activity. Some delegates felt that the debate should be couched simply in terms of finding ways to measure success.
Yet delegates agreed that there is something ‘special’ about social enterprises that emerges out of their activities and that the work of social enterprises has a ‘ripple effect’ into the wider community. Delegates commented for example on the effect that working in a social enterprise can give to disadvantaged people who then go on to find employment in the wider economy. It was pointed out that working in a social enterprise can give people confidence; skills; ownership; self-esteem; training and transferable skills. The delegates went on to discuss how that something ‘special’ can be measured and marketed and the merits of doing so. For the purposes of the debate in the workshop and, therefore, the rest of this document, this is referred to as ‘added value’, despite the limitations of the concept outlined above.
ADDED VALUE AND SUSTAINABILITY
There was a breadth of opinions expressed at the workshop relating to whether the added value generated by social enterprises brings sustainability. Delegates discussed the wider social and environmental benefits generated by social enterprises and debated whether this contributes to sustainable development but they also discussed the role of added value in creating businesses with financial sustainability.
Added Value and the Financial Sustainability of Social Enterprises
Delegates pondered whether the generation of added value is one of the key things that can generate financial sustainability for a social enterprise. They wondered whether social enterprises with clearly defined added value that was well-understood by staff and customers were more financially sustainable than those who were unclear about their added value.
However, delegates were undecided on whether social enterprises can ever be completely financially self-sustaining. Some felt that only certain activities can be financially sustainable – those that involve selling a product or service for which there is a good market – and that social enterprises may engage in other activities that bring social or environmental benefit but for which there is little market; it was felt that such activities will never be financially sustainable and need external support such as public sector grants. Practitioners discussed particular projects that they are involved with and highlighted that there are certain projects that will generate enough income once start-up finance has come to an end but that there are other aspects of their work that will never generate enough traded income to completely fund themselves but are very successful in other ways, e.g. engendering empowerment or life-long skills. It was suggested that this means only certain activities can bring financial sustainability to a social enterprise – depending on the market these can either be at the core or at the periphery of a social enterprises’ generation of added value.
Delegates discussed other barriers that they felt stood in the way of complete financial sustainability for social enterprises. Many felt, for example, that social enterprises can lack the capacity to adapt to the market. Practitioners felt that they often do not have the time or the means to keep up-to-date with wider changes to the market whilst they are involved in the day-to-day running of the enterprise. Social enterprise practitioners stressed the need to try and find a balance between spending time on the day-to-day running of the business and attending workshops and other events tailored to give social enterprise staff various forms of support.
In addition, practitioners felt that the current culture of investment and funding is turning away from giving any support to social enterprises’ existing activities – choosing instead to only fund new activities or organisations. Practitioners felt that this puts them in a difficult position because it is hard to find enough time to develop new projects for funding or investment. Many were also unhappy that this culture change appears to be biased against established social enterprises and often leaves practitioners with a difficult decision to make at the end of periods of initial funding– to continue the project because it has the potential to be financially sustainable or to wind the activities down. It was felt that the correct choice depends on whether it is possible to sell the produce or service associated with the project. Practitioners urged social enterprise staff to start thinking about this decision as early as possible within their period of funding. Delegates suggested that, in their experience, social enterprise staff often do not consider the overall financial sustainability of the organisation and will go into survival mode when initial funding runs out; whereas earlier consideration of an exit strategy would pave the way for a smoother transition out of funding. It was postulated that an alternative is to secure, dependable, long-term funding – although this was suggested as somewhat of an oxymoron as funding priorities tend to change fairly quickly along with changes in political thinking.
It was considered that obtaining realistic costs from the public sector when engaged in service level agreements or contracts is central to social enterprises achieving financial sustainability. Social enterprise practitioners spoke from experience when they said that under-pricing and becoming trapped in a contract with unrealistic costs is ultimately very detrimental to the business. A number of delegates stated that they ensure there is a management fee included in their costs so that they do not end up losing money when supplying to the public sector.
Measuring Added Value and Securing Funding
Following the discussion of general barriers to the financial sustainability of social enterprises, delegates discussed whether measuring added value may be one way of attracting dependable funding and investment in order to secure financial sustainability. Some delegates felt that the measurement of added value could do this because it provides a way of reporting the benefits associated with social enterprises’ activities. Delegates felt that a sound awareness of added value and attempts to measure it can result in social enterprises demonstrating their multiple value propositions in an affective manner that may encourage the public sector to buy from them.
However, some delegates from social enterprises intimated that they felt their existing contracts with the public sector were not awarded because of their added value. Therefore, there was a general feeling that social enterprises are not currently winning contracts because of their added value but if this was measured and taken into consideration in tendering processes then it may offer greater opportunities to secure contracts.
Successful Social Enterprises – More than Added Value
There was a consensus that added value alone will not bring success or sustain an organisation – it needs to be combined with sound business and management skills within the staff of the social enterprise. Delegates also stressed that, in their experience, the success of a social enterprise partly lies in having an experienced and pro-active board. Several delegates also suggested that success can stem from a social enterprise being able to adapt their activities to be in-line with government policy and the needs of their stakeholders.
MEASURING ADDED VALUE
Discussions at the workshop moved on to consider ways of measuring added value. Delegates discussed various ways in which social enterprises currently attempt to measure their added value and pondered ways in which this could be standardised and improved. The plethora of ways of measuring added value that were mentioned by the delegates stressed the fact that added value itself is a contested concept with different meanings for different people.
Many social enterprise practitioners felt, for example, that their organisations’ added value lay in meeting their client’s needs (which produces added value such as empowerment, self-esteem and cost savings for the public purse) and focused, therefore, on monitoring whether they were succeeding at meeting their clients’ needs. This was often done through the use of questionnaires and other methods to record beneficiaries’ perceptions of whether they are satisfied with the social enterprises’ services. This can provide outputs such as statistics on the level of personal satisfaction derived from a social enterprise’s activities (such as self-esteem); the numbers of beneficiaries going on to further training and the numbers going on to further employment.
Other delegates highlighted that they commissioned, or undertook internally, research such as action research, as a way of understanding and recording their added value. It was raised that more research is needed to help social enterprise practitioners measure, rather than describe, the outcomes from the work that they do. Delegates felt that having a method of calculating added value may provide a successful way of reporting their impacts to funders and investors. Some delegates felt that social enterprises cannot compete on the same level as private businesses and therefore they need to be able to measure their added value in order for potential customers to know why they are more expensive.
Delegates discussed that, at the moment, they did not feel there is a clear method for communicating to funders and investors – some relating stories of submitting monitoring returns and other information demonstrating success to investors or the public sector only to be questioned as to why they were submitting such documentations and, therefore, they are left feeling that the public sector does not want to know about added value. Social enterprise practitioners felt that they need to be able to collect information that is meaningful to their funders and the public sector. In particular, delegates stressed the need for information that will be compatible with the government’s shift towards measuring outcomes rather than outputs.
Delegates again reached the conclusion that it is generally the public sector that is interested in added value but it was suggested that venture philanthropy may be an avenue for funding for social enterprises that would not force them down the route of having to measure their added value. Some delegates felt this was a good idea because it may avoid the difficulty of trying to measure all their activities in quantifiable terms. Others felt it was a good idea because it may release practitioners that are tied-up with the daily running of their organisations from the time that needs to be spent on measuring added value. It was suggested, therefore, that there is a certain incompatibility between the making of added value and the measuring of added value and that steps need to be taken to make the two more compatible, i.e. simplify the measurement process in order to minimise the financial and human resources required.
Social Return on Investment (SROI)
One particular method for measuring added value – Social Return on Investment (SROI) was discussed at length – following a presentation on this subject from one of the speakers. Delegates learnt that SROI is a fairly recent development stemming from the USA and its use within the UK has been led by the New Economics Foundation (NEF). Although it was stressed that, at the moment, there is not widespread use of the technique in the UK – the European SROI Network has members from six countries with around 20 case studies carried out in the UK and around 15 in the rest of Europe – therefore, the majority of the discussion at the workshop focused on the benefits, drawbacks and practicalities of more wide-spread use of this technique.
Delegates were interested that SROI provides a way of representing soft outcomes as these are generally difficult to quantify – it does so by translating social benefits into financial terms. This could lead to social enterprises being able to produce a business plan with financial and social forecasts. However, delegates discussed that there are some aspects of social enterprises’ added value that are more easily financialised than others. They felt it was relatively easy, for example, to quantify cost savings to the public sector, e.g. savings in benefits when a beneficiary moves into employment, but more difficult to capture things such as internal benefits to individuals such as raised self-esteem. It was felt that SROI may never be able to capture these types of internal benefits because of the types of beneficiaries that social enterprises routinely work with – vulnerable youths, for example, could not be expected to complete repeated interviews or questionnaires for SROI purposes because it may hinder the development of trust between them and the social enterprise staff. Delegates were also concerned that some important outcomes from social enterprises’ work occur over fairly long time periods and that these may be lost in the SROI calculations. It was suggested that longitudinal studies could combat this problem to a certain degree but that there is not a great deal of such work available or currently underway. It was felt that we need more of this type of research evidence if projected future social value is to be incorporated into SROI. Therefore, the challenge for those doing SROI analyses lie in collecting information on social enterprises’ beneficiaries perceptions and personal goals over time.
An example was provided of a social enterprise that employs people recovering from mental health difficulties attempting to collect such information – they did so by providing new employees with a questionnaire when they first joined to provide a baseline and then another questionnaire around every 9 months later. The questionnaires showed an identifiable reduction in the amount public sector services, e.g. mental health support, accessed by the beneficiaries over time. This enabled the cost savings to the public sector stemming from the social enterprise’s activities to be quantified, including mental health service savings, welfare benefit savings and new income to the state. The questionnaires also provided evidence of increases in personal income to participants and employees – contributing to the overall added value generated by the social enterprise.
However, delegates felt that SROI was not a complete solution to the representation or quantification of soft outcomes. It was raised, for example, that the completeness of the data is dependent on the quality of stakeholders’ responses; the ability to gather evidence of the organisation’s outcomes and the ability to financialise the less quantifiable impacts. SROI was likened to creating a map, with missing parts of the image being filled in as more data is obtained over a period of years.
Yet it was felt that SROI may provide a way of describing the added value that is created by a social enterprise that is understandable to a range of stakeholders. Social enterprise practitioners were thus interested in the possibilities that SROI presents for strengthening bids for funding and providing evidence to support costings in public sector tenders. In particular, it was felt that the quantification of added vale may appeal to funders and customers such as the public sector. Delegates pointed out that some of the key players in the Scottish Government relating to the Third Sector come from economic backgrounds and viewpoints and, therefore, SROI may provide a way for social enterprises to “speak their language” and some agreed that in such circles “money talks”. Social enterprise practitioners related that they are currently struggling to communicate their added value to the public sector and that SROI may provide a way to do this more effectively. However, it was felt that this would be most successful if the social enterprise and voluntary sectors adopt a common language and method for added value measurement. Therefore, for SROI to be most effective it would need to be adopted on a fairly wide scale. It was felt that SROI may provide a way to generate a common language that is simple and clearer to understand than the plethora of attempts to demonstrate added value currently undertaken by social enterprise practitioners. Delegates suggested that SROI provides an opportunity to develop a common set of indicators that could be adopted by the third sector and then presented to the public sector.
Not all social enterprise practitioners were comfortable with the notion of financialising social benefits and felt that this may feed-in to what they see as a public sector that is “costs driven”. They feared that it may lead to the public sector only paying for those things that are easily quantifiable and thus fail to give social enterprises a fair price. It was also expressed that there could be a danger that the public sector only fund or buy from those social enterprises with the highest indexes of SROI. This was raised as a particular concern because it may mean that those social enterprises with impacts that are more difficult to quantify appear to not be doing as well and lose out. In particular, some social enterprise practitioners worried that SROI would not provide a way to capture so-called ‘hidden services’. Some felt that social enterprises should try to move away from such fiscal definitions of added value and work on trying to get the public sector to understand non-fiscal definitions of value. They felt that SROI may simply be a way of showing social enterprises can achieve the outcomes already valued by the public sector, whereas the real need is to change the way the public sector can think about ‘value’. Yet others saw this issue in a more positive light – with the results of SROI allowing investors or the public sector to focus on areas where there is return and value. Some thought this will also help social enterprises to focus on activities that will bring the greatest success and strength to their business.
Therefore, delegates suggested that different approaches to demonstrating added value, which are tailored to different audiences, may be necessary. It was felt that at a financialisation of added value is important at the Government and policy level but that it is also important for social enterprises to demonstrate at the community level the positive impacts that their activities have on people’s lives through qualitative and descriptive methods.
Delegates were concerned, however, that there may be a large amount of work involved in carrying out an SROI study that social enterprise staff would find hard to find the time for. However, it was suggested that bringing in an external researcher or consultant to carry out the SROI study may solve this problem and also add gravitas to the results. Although this would have cost implications, it would relieve the burden of carrying out the SROI from busy social enterprise staff. It was suggested that workloads would also be reduced by a proposed ‘indicator bank’ that would provide a repository of information of key areas of value calculation that could be utilised by those carrying out SROI in order to greatly reduce the amount of time spent searching for information and on desk research. It was also stressed that SROI is carried out in stages and each stage is individually worthwhile – therefore social enterprises can choose to carry out as much or as little as they wish.
COMMUNICATING ADDED VALUE
Following the discussion on methods for measuring added value, delegates discussed whether such tools assist in communicating added value to interested parties such as the public sector and the general public. The presentations and discussions seemed to suggest the need for two kinds of marketing – one where the social enterprise is presented purely as a business and the other where its added value is highlighted. These two types would be directed at different types of customer: those that are interested and those that are disinterested in added value.
It was considered that the public sector may be more interested in added value than the general public and that, therefore, measuring added value may be most valuable for those social enterprises trying to sell to the public sector. Delegates felt that monetising added value may help social enterprises to communicate their social benefit to the public sector but also give social enterprises a stronger bargaining tool when negotiating contracts. It was felt that measuring added value may be a way of proving to the public sector that a social enterprise is capable of delivering the kinds of services and societal benefits that they claim they will be able to provide. It was suggested that it may also be a way of demonstrating to the public sector that social enterprises often have the potential to contribute to several of their strategic objectives.
Delegates were keen to stress that communicating added value to the public sector should not imply that they are “getting something for free” if this involves an undervaluing of a social enterprises services. Delegates were happy to demonstrate to the public sector their added value as long as this was accompanied by appropriate costs that did not leave the social enterprise open to exploitation or running at a loss. It was felt, for example, that there is a danger of the demonstration of added value to the public sector resulting in the public sector refusing to ‘pay’ for added value and reducing the price that they offer to social enterprises for their goods or services. However, contrary to this expectation, it was reported that certain social enterprises that have communicated their added value to the public sector, through methods such as SROI, have witnessed a positive change in attitude towards them from the public sector. Some social enterprises feel that they have been able to secure public funding on the production of SROI reports and would eventually like to see a simplified version of SROI integrated into the decision-making processes of government.
It was discussed that the effective communication of added value may be able to act as a bridge between the social enterprise sector and the public sector and overcome some of the current communication difficulties between the two. It was raised that communicating added value may be one way of minimising the ‘risks’ associated with buying from social enterprise in the eyes of the public sector.
CONCLUSIONS: CAN SOCIAL ENTERPRISE ACHIEVE SUSTAINABILITY THROUGH ADDED VALUE?
The debate summarised in this document has gone some way towards interrogating the concept of added value and its utility, particularly to those outside the social enterprise sector. The workshop delegates’ discussions highlighted added value is a concept that is not widely understood outside the Third Sector and that the social enterprise sector and research community may need to look towards finding other ways to talk about and measure ‘success’.
Although delegates gave very clear examples of the added value that different types of social enterprises bring to communities and the environment, delegates did not reach a consensus on whether added value brings financial sustainability to social enterprises. In fact the discussions suggest that there is not a clear relationship between added value and the financial sustainability of a social enterprise. Social enterprises need more than added value in order to be truly self-financing, such as good business and management skills and a pro-active and experienced board. There was a general feeling that the ability to generate income purely from trade depends on the market for the type of activity being carried out and that this is not necessarily connected to added value.
A clear theme to emerge from the discussions relates to the utility of added value as a concept – overall, there was a feeling that added value has more utility when interacting with the public sector than with the private sector or the general public. This suggests that it may only be worthwhile to present measurements of added value to the public sector. It was concluded, therefore, that marketing added value to the public sector may be the way in which added value is connected to financial sustainability. It was felt that if a social enterprise can demonstrate their added value to the public sector it can help the organisation secure funding or a contract. However, for this to work the public sector needs to be prepared to consider added value.
The workshop discussions highlighted that social enterprise practitioners currently use a variety of ad hoc ways to measure their added value – this is often done through collecting descriptive statistics and qualitative evidence of their beneficiaries’ levels of satisfaction and personal development. However, it seemed apparent that social entrepreneurs would like to see more standardised and widely adopted ways of measuring their organisations’ impacts.
Ways of quantifying added value, such as SROI, were discussed as potential solutions to this problem. Delegates saw both a degree of potential and some drawbacks with such methods of quantification. It was generally agreed that SROI has potential as a method of transferring social benefits into financial terms. However, it was clear that within the social enterprise sector there is disagreement on whether it is beneficial to quantify added value. Some saw quantification as a good way of proving benefits through hard evidence whereas others saw a focus on the numerical as a negative step away from capturing the internal benefits to the individual and long-term outcomes of social enterprises’ activities.
Just as it was felt that added value as a concept was mainly of interest to the public sector, delegates felt that measuring added value brought a positive impact on attempts to sell to the public sector. Certain organisations felt that quantifying their added value gives them a financial bargaining tool that is suited to securing funding and sales from the public sector because it “speaks their language” and helps to overcome current communication difficulties. Therefore, the outputs of added value measurement would be most useful to the social enterprise sector if compatible with public sector objectives. However, others felt that the public sector should make more effort to speak the language of the Third Sector and accept non-fiscal measures of added value.
It was also stressed that the making and measuring of added value need to be compatible, i.e. social enterprise practitioners need a method that is time and resource efficient enough not to impinge on the running of the business. It was concluded that SROI is not the ultimate answer to measuring added value but that it is part of a package of change that may bring greater opportunities for social enterprises to collect and present information on their added societal and environmental benefits.
