Social Enterprise Potential for Sustainability in the UK

Social enterprise is an active and sustainable business form of choice which is able to bring economic, communal and environmental benefits to the UK. It operates across all sectors of the economy, serving individuals in the private, public and third sectors. Through out this research will identify the increase levels of understanding of the role and value of Social Enterprise, given that a lack of understanding of the role and value of social enterprises was cited as a major barrier to the acceleration of the use of the business model. The purpose of this research will identify the key barriers faced by Social Enterprise and explore how these barriers could potentially be overcome to achieve sustainability.

Chapter 1: Introduction

A brief overview of social enterprise is introduced in the first chapter. Then, the purpose of the study will be next discussed which will end with a specific research question. In the end of this chapter the contribution of this research is also presented.

• A Brief Overview of Social Enterprise

Social enterprise is a business structure that aims to distribute across a range of economic, social and environmental outputs which refer as‘ Triple bottom line’. Within this business structure, anyone can develop a business and considers social and environmental impact as central part objectives. It can bring wealth as well as empowerment to disadvantaged communities which may be otherwise suffering exclusion. Social enterprises are organisations that supply goods and services to communal economy sector. These comprise a collection of organisations that subsist between the traditionally private and public sectors and have a stronger association with the community and non-profit sector. This sector has a key function to take part in achieving many of its goals, including overcoming social injustice and exclusion. Fundamental ethos are most often used by social enterprise organisations themselves, emphasises following three general features:

• Enterprise oriented – like any other business, social enterprise is capable of generating income from production of goods and services to a market. As far as viable trading concerns, they are also able to make surplus from their trading.

• Social aims – they are driven forward by unambiguous social aims. They are capable of creating new employment opportunity, training & skills development and provision of local public services. They are responsible to their members and the larger society to increase its effectiveness and financial sustainability with the ultimate goal of creating social, environmental and economic impact or change.

• Social ownership – they are self-governing organisations with an authority and the ownership structures are based on participation by stakeholder groups for example users or clients and local community groups and by trustees. Profits or surplus are disseminated as profit sharing to stakeholders or are used for the benefit of the community.

In the United Kingdom, social enterprises are gradually becoming a well-known sector of the local and national economy. The organisation which is operating in this sector is conscious about the most important factor that becoming sustainable businesses is the path to independence both financially and in mission. However, this emerging sector is struggling for further growth and eventually it leads to have impact negatively on their sustainability. Social Enterprise should be supported and encouraged to grow both as a sector and as individual organisations so that these will become more sustainable organisations.

• Purpose of the Study

My paper has been developed to explore how the term social enterprise has acquired meaning in the United Kingdom and to demonstrate how practitioners, policymakers and academics influence each other in the development of new sustainable ideas, given that a lack of understanding of the role and significance of social enterprises was cited as a major barrier to the acceleration of the use of this business model.

These challenges come in many forms. Some are the same as those affecting any other business including access to business support and finance, a lack of affordable premises and finding skilled staff. However, social enterprises also face one huge barrier that seriously affects their ability to assume a position within the market. That barrier is a lack of understanding of how social enterprises work and of their potential value. This lack of understanding exists across the public, private and voluntary and community sectors.

Often it’s been very difficult to secure contract and mainstream funding support as there are plenty of confusion surrounding the social enterprise business model.

So my dissertation will identify the key barriers faced by Social Enterprise and explore how these barriers could potentially be overcome in order to achieve sustainability. It examines critical incidents that have shaped the meaning of social enterprise in England and reflects on these incidents to draw conclusions about the future sustainable development of social enterprise practice. Through out this paper, I will also study the possible circumstances for the sustainable development of social enterprise. The purpose is to notify both policy-making and the wider argument about social enterprise: what its potential might be and how that potential can be realised in different settings.

• Structure of the Report:

This research is divided into six chapters; the first chapter is an introduction with purpose of the study. In the second chapter, literature based review of definitions of social enterprise, roots of social enterprise, discussion relevant to the sustainability of social enterprise, the nature of their contribution and their sponsors and sources of funding. The third summarises the background information of social enterprise in the UK and the fourth and fifth chapter contain the methodology and the summary of the main findings of the study with implications for policy. Finally, the sixth chapter is giving the idea about possible areas that further research could be conducted with the limitations of the study of this research paper.

Chapter 2: Literature Review

This chapter will give an overview of literature and models that are related to the research problem presented in the previous chapter. This chapter will introduce the roots and concepts of social enterprise in order to give a clear idea about the research area.

2.1 Roots of social enterprise

Scott specified (2006, p.50) mentioned “The roots of social enterprises and community enterprise overall can be found in the mutual, self help and co-operative sector which goes back, in the UK, at least to the Fenwick Weavers in Ayrshire 1769 and Dr William King of Brighton in the 1820s with earlier antecedents.”

Local community based organisation played vital role within the development of this movement and empowering disadvantaged poor community to move forward labour market. Grass root social worker Harry Cowley campaigned between first and second world war for housing needs and employment opportunity for returning service people and capacity building support for small business. He also advocated “job creation” programme from the local public service authority for unemployed people and eventually had some success.

2.2 General Discussion on Social Enterprise

Social Enterprises combine the requirement of successful businesses with communal aims. They seek to qualify as businesses by setting up a market share and making a profit and draw attention to the long-term benefits for employees, consumers and the community. Today’s competitive business world stated that defining the social enterprise is a challenging task. According to OECD (1999, p.9) “there is no universal, commonly accepted definition of social enterprise.” On the other hand, the OECD (1999, p.10) has described social enterprise as:

“any private activity conducted in the public interest, organised

with an entrepreneurial strategy but whose main purpose is not the

maximisation of profit but the accomplishment of certain economic

and social goals, and which has a capacity of bringing innovative

solutions to the problems of social exclusion and unemployment”.

Doherty and Thompson (2006, p.362) mentioned in their article that social enterprises are organizations which are seeking business solutions to social crisis. These are needed to be distinguished from other socially-oriented organizations. These also need to take initiatives that can promote to communities but which are not seeking to be “businesses”. In this esteem, these latter organizations remain dependent on endowments and donations rather than build up true paying customers.

According to DTI report ‘A Progress Report on Social Enterprise: A Strategy for Success’ (2003, p.6), social enterprise is such kind of business which reinvests its surpluses in the business or in the community rather than increases profit for shareholders or owners.

Drucker (Gendron, 1996, p.37) argued that social entrepreneurs are those who altered the performance capacity of society but Henton et al. (1997, p.1) mentioned that ‘civic entrepreneurs’ are a new generation of leaders who built new, powerfully productive connections at the intersection of education, business, community and government.

Somers (2005, p.46) stated “Social enterprise emphasise creating social and environmental value at all stages of their production process, as an intrinsic part of their identity”. Following Figure: 1 describes the production process of social enterprise.

Laville and Nyssens (2001, p.325) argue that when the roots of social enterprises are based in reciprocity and in this way these are part of the third system, their force is based in their ability to valve into all three economic principles and systems. They are different from private and public enterprise. In terms of private enterprise they do not only maximize profit to benefit owners, they also develop market activities and generate profits. With the comparison to public enterprise, they are independent from direct control by public authorities but they benefit to a greater or lesser extent from public subsidy. In this way, they mobilize market relations to sell services or goods and use redistributive relations by utilizing government funding to finance their services. Their long-term sustainability depends on their ability to ‘continuously hybridise the three poles of the economy so as to serve the project’.

2.3 Discussion Relevant to the Sustainability of Social Enterprise

According to Asefa (2005, p.1), “Sustainable development is the concept of a relationship between economic growth and the environment. The term was first used in 1987 by the world Commission on Environment and Development ….Although the term has been around for almost two decades, different interpretation have kept it from being a useful guide for development policy”.

Bornstein (2004, p.3) mentioned that over the last decade there has been unprecedented growth of social enterprise world wide. This business model has been getting attention from both government and corporate sector though sustainability remains the major concern.

According to 2004 Global Entrepreneurship Monitor (GEM) report, a survey was conducted of social entrepreneurship activity in the UK. These data suggested that latest ‘social’ activates are emerging at a faster rate than more conventional, commercial endeavours. Within local and global level there are three areas to focus on sustainability in business activity and they are environment, economy and community. (Harding and Cowling, 2004, p.5)

Environment – It ensures that business is engaged in the appropriate and careful use of limited supplies and the management of waste so that it will be able to minimize the negative and maximize the positive impact of human activity.

Economy – It ensures that business is financially viable and it engages in good employment practice. Finally it is beneficial to the whole economy.

Social – It ensures that business is overall of advantage to communities, their customs and does not cause danger to them.

Schulyer (1998, p.3) described that social entrepreneurs are those who have a powerful visualization for social change and who have the strong financial resources to support their ideas. That means they should reveal all the abilities of conquering business people and a compelling aspiration for social change. On the other hand, Catford (1998, p.96) argued that “…social entrepreneurs…will only flourish if they are supported by the right environment, which will be created largely by governments together with the private sector”.

2.3.1Financial Sustainability

Social Enterprise looks for surplus generation in order to achieve financial sustainability. This is a fundamental need to social enterprises. Emphasizing financial sustainability in addition to profit distribution becomes a way to account for all activities the organization engages in, including advocacy and in support of bono work. Sacrificing one cause and effect chain for another can have significant implications for both the quality of work and social enterprise’s financial sustainability. Whilst many may rely on combination of grant and trading income, ultimately, if an organisation is not financially sustainable, it cannot deliver its social and environmental impact. Fig3. Shows how the profit of social organisation is distributed to the organization itself and community.

2.4 Policy Reform and Good Governance

DTI report ‘ A Progress Report on Social Enterprise: A Strategy for Success‘ (2003, p.6) describes the three key goals for government: creating an enabling environment, making social enterprises better businesses and establishing the value of social enterprise.

Thompson et al. (2000, p.328) describe “…people who realize where there is an opportunity to satisfy some unmet need that the state welfare system will not or cannot meet, and who gather together the necessary resources (generally people, often volunteers, money and premises) and use these to ‘make a difference’”.

Brown and Murphy (2003, p.57) mentioned on Bank of England report that “Social enterprises, like all businesses, need access to a range of financial products appropriate to their activity and stage of development”. A HM Treasury report on Enterpriseand Social Exclusion (1999, p.108) came to the conclusion, arguing that social enterprise was “less understood and rarely promoted in a consistent way by the existing infrastructure for business support”.

It is more constructive to judge and expand social enterprise capabilities rather than expertises and capacity building. The fact that social enterprises need to combine commercial objectives with social mission as well as internal governance means that a “capabilities approach” is more comprehensive. This is a useful way of recognising factors additional to individual skills that inter-play to determine the effectiveness and impact of a specific enterprise. It also moves away from limited considerations of a key person or group within the organisation, and their specific skills, towards a more holistic view of what the organisation is capable of doing, irrespective of the location of particular skills.

Catford (1998, p.97) articulated the problems and gave one probable way out: “Traditional welfare-state approaches are in decline globally, and in response new ways of creating healthy and sustainable communities are required. This challenges our social, economic and political systems to respond with new, creative and effective environments that support and reward change. From the evidence available, current examples of social entrepreneurship offer exciting new ways of realizing the potential of individuals and communities…into the 21^st century”.

Academic writing about modern social entrepreneurship skills is relatively limited, compared to mainstream business or charities. The concept of ‘social enterprise’ has been quickly appearing in the public, private and non-profit sectors over the last few years. Today’s increased competitive not for profit sector there is extensive needs for the improvement of organisation effectiveness and sustainability even though securing funding is harder to meet the criteria of funding body. There is a good opportunity to tap in to corporate social responsibility programme by utilising better communication and marketing strategy in order to tackle complex social problems.

Chapter 3: Background Information of Social Enterprise

This chapter will give the idea about the social enterprise in the UK along with the impact, barriers and access to finance.

• Social Enterprise in the UK

The UK government has been at the front position of enabling and encouraging the increase of social enterprises as part of both welfare services delivery and community regeneration at the policy level. The impacts and influence of public, private, and citizen are empirically proven and exhibit that these conventional sectors of society are playing a part in re-evaluating the value creation opportunities offered by market (or quasi-market) mechanisms.

• DTI research suggested that there are at least 55,000 social enterprises in the UK, and combined turnover of £27billion per year. These social enterprises account for 5% of all businesses with employees and the contribution to GDP is approximately £8.4 billion, around 0.7% of the total economy.

• Cabinet Office mentioned on their website that in the year 2004-2005, the charity sector in the UK had a overall income of about £27.6 billion which was raised over £800 million from the previous year. It stand for about 2% of the UK’s GDP.

• The data obtained from the Cabinet Office website in social sector showed that, 67% of them expected activity to grow in the next three years compare to 56% in the year 2003-2004 of third sector organisations reported an increase in activity in the previous year.

• Positive aspects of Social Enterprise:

Social enterprise is a diverse activity and can contain a range of organisations working on different extents and at different stages of trading. They can work in commercial markets or in public services. Some work nationally, while others work at community level. They often work in the most deprived areas and work with the most underprivileged groups. Some organisations work only as a social enterprise while in other organisations social enterprise is often a part of their activity. It works in a number of key priority areas for the UK economy- these include:

• employment and training

• adult care services

• childcare and health

• transport

• financial enclosure

• recycling

• rural enhancement

• renewable energy and

• community regeneration

According to Doherty and Thompson (2006, p.362) the common characteristics for a Social Enterprise are:

• They have a social rationale and yields and surpluses are not shared out to shareholders. Reinvested income can be utilized to provide training and improvement opportunities for workers.

• They use assets and capital to generate community benefit. It gives assurance that resources provide value for money where a public-sector agreement is essential for the activity.

• Members or employees can also take part in decision making.

• The SE model could make new structures of entrepreneurship and employment within a society. The enterprise is responsible to both its members and a wider community.

• Social enterprise can propose goods and services to its consumers in an elastic and inventive way. Often the market has failed or the private sector does not want to go in this area.

• The potential of earnings and returns stream could unleash organisations from the oppression of fundraising and grant applications.

• There is either a double or triple-bottom line concept. The assumption is that the most effective social enterprises show signs of healthy financial and social returns rather than high profits in one and lower profits in the other.

Social Enterprise adopted enterprising solutions to deal with social and environmental issues following evidence of the beneficiaries of social enterprise activity is shown in Figure.3 (IFF, 2005). According to IFF (2005, p.28), a survey of social enterprises was conducted in 2004 for the Small Business Service (SBS), the UK Government, is showed on the following figure.4. It shows 19% beneficiaries were people with disabilities; 17% were children and young people; 15% were elderly; 12 % were people on low incomes and the unemployed. Social enterprise has been playing vital role to tackle these targeted disadvantaged group and moving forward them in the labour market, predominantly in poor areas with soaring levels of poverty and joblessness.

• Barriers of social enterprise

According to UK Government, there are mainly four significant barriers to accessing appropriate business support and finance for social enterprises throughout the region.

1. Cultural barriers between those setting up social enterprises and mainstream business advisors. 2. Lack of transparency about where to access business support at the local level, largely due to the huge diversity of routes into starting up social enterprises.

3. Limited numbers of qualified technical specialists in key business advice areas where social enterprises require specialist support, for example on legal structure, potential investors or taxation.

4. Limited sources of affordable equity and loan finance of all sizes.

Bank of England (2003, p.25), took the survey of Social enterprise and it stated that 32% of social enterprises mentioned the problems in obtaining external finance and 25% problems in getting grants as major barriers to expanding their trading activities. However, other problems are lack of qualified staff (14%); lack of appropriate premises (16%); and lack of cash flow (10%)

Low (2006, p.381) cited in his journal according to the source of DTI “…often have boards of directors or trustees who come from a voluntary sector rather than a business background. This can lead to a lack of business focus and prevent social enterprise from truly reaching their potential”

The Progress Report on Social Enterprise: A Strategy for Success(2003, p.68) concluded that there is little hard substantiation to show the impact and added value of social enterprise. According to the report, the main reason is that social enterprises generate a variety of social and environmental impacts, beyond their financial return that are difficult to measure. Policy makers, business support providers and finance providers find it difficult to assess the value of targeting social enterprises or of including them in their activities due to lack of information on their social and environmental, as well as financial impact.

• Access to Finance

The key factor in an enterprise’s development is access to appropriate sources of finance. Social enterprises have been rejected more for finance compared to the SMEs. In addition, a large minority of social enterprises perceive access to external finance as a major barrier to expansion, including some of those that have successfully accessed finance in the past. There is no clear reason to account for the higher rejection rates among social enterprises but possible contributory factors are: lack of obtainable security and private financial stake; use of organisational structures and grant funding streams with which lenders may be unfamiliar, and which may result in lengthy arrangement times; low levels of investment readiness among some social enterprises depends on some elements of credit and behavioural scoring and reputational risk to the lender. For example creating “venture philanthropy” organisation will ensure long term financing of charities’ infrastructure, proactive management support and capacity building support.

Dees (2004, p.18) mentioned that “Businesses fail all the time and many donor-dependent nonprofits have been around for many decades, even centuries. Social entrepreneurs look for the strategy, structure, and funding mechanisms that are most likely to ensure effective and efficient social performance given specific mission objectives and a particular operating environment”.

Chapter 4: Methodology

This chapter will present detailed idea about the research were conducted. This includes the research design, sample selection methods and data collection methods. At the end of this methodology part validity and reliability issues will be discussed to follow the quality standards of the research.

4.1 Research Design

The present study endeavoured to explore the sustainability of social enterprise for the development of the UK. Exploratory research is selected as research design as little information exists about the social enterprise of the UK. The aim of exploratory research is mainly to gain enough information before doing more thorough research. Cooper & Schindler (2003, p.21) mentioned that we basically start by gathering as much information about the object as possible and with a vague impression of what we should study.

Exploratory studies are a valuable means of finding out what is happening, to seek new insight, to ask questions and to assess phenomena in a new light. It is particularly useful if researcher wish to clarify the understanding of a problem. According to Saunders et.al. (2003, p.360), there are three principle ways of conducting exploratory research and these are: a search of the literature, talking to experts in the subject, conducting focus group interviews.

Qualitative interviews would be best in achieving and addressing the questions that I am looking forward to address in this dissertation paper. The research requires data that is both rich and varied as I am keen to extract the opinions and insight about practices, insights and expectations of leaders and beneficiaries in the social sector. Adopting this methodology, I will extract this data without limiting the responses of the respondents; I am mostly interested in their innate insights, opinions and organisational beliefs.

Anastas (1988, p.19) mentioned that when there are the cases of sensitive subject issue and difficult decision-making procedures, individual in-depth interviews give a far more valuable tool and create a situation where participants would be likely to speak more explicitly and freely.

According to Sokolow (1985, p.28) , there are several other advantages of one-to-one in-depth interviewing which include the support of individual thought, respondent thoughtfulness to questions and the offering the capability of the interviewer to sense non-verbal opinion.

4.2 Sampling

Cooper and Schindler, (2003, p.44) stated in their book that selecting some of the elements in a population is the fundamental idea of sampling and researcher may draw conclusions about the entire population. There are a number of convincing reasons for sampling, including: lower cost, greater correctness of result, greater speed of data collection and accessibility of population selection.

The sample would be randomly selected nationally from Social Enterprise and are actively fund raising. It is easier to make some comparison and a fairer analysis of the data because the similar size of organizations most likely to follow related trends and they are also affected by the same factors. Due to the complexity of the sector, the samples would be drawn from the wider UK region; this is to widen the organisation from which to select the qualifying sample.

4.3 Data Collection

The major form of data collection was based on the semi-structured interview process with senior managers, policy officer and research & development officer of the 7 selected Social enterprises operating in the UK. The interviews were designed to gain an understanding of Social Enterprises potential sustainability issues and further research needed to achieve sustainability. Therefore, interview procedures needed semi-structured interview process which is relatively informal; relaxed discussion based around a predetermined topic. Whilst conducting a semi-structured interview first of all I provided the background information regards to the research programme and its objectives to the interviewee. My interview’s questions are based on open question where the interviewees had the opportunity to express opinions through its discussion. To keep momentum of discussion with the interview it is important to prepare easy to understand approach when building question with a logical sequence. Interview questions were tested among prior to interviews. Semi-structured interview was highlighted by Leech (2002, p.665) as “……one that can provide detail, depth and insider’s perspective, while at the same time allowing hypothesis testing and the quantitative analysis of interview responses”.

For collecting secondary data participant social Enterprise’s annual report, various books, websites, newspapers, annual reports, monthly reviews and significant articles were chosen. Also for collection of primary data in-depth interviews with a range of designated professional, related to this field, were taken. I contacted with Business Links and DTI to obtain the list of social enterprise operating in the UK.

4.3.1. Validity

Saunders et. al. (2003, p. 109) emphasised validity is concerned with whether the findings are really about what they appear to be about. Validity defined as the extent to which data collection method or methods accurately measure what they were intended to measure. Cooper & Schindler (2003, p.71) believe that validity refers to the extent to which a test measures what we actually wish to measure. There are two major forms: external and internal validity. The external validity of research findings refers to the data’s ability to be generalized across persons, settings, and times. Internal validity is the ability of a research instrument to measure what is purposed to measure.

To ensure the validity of the study numbers of different steps were taken:

•Data was collected from the reliable sources, from respondents who are more experienced senior management position within Social Enterprise;

•Survey question were made based on literature review and frame of reference to ensure the validity of the result;

•Questionnaire has been pre-tested by the responded before starting the survey. Questionnaire was tested by at least ten persons;

•Data has been collected through four weeks, within this short period of time no major event has been changed with the related topic.

4.3.2 Reliability:

To ensure the reliability of the study numbers of different steps were taken:

• In order that responders could concentrate more on each question questionnaire was divided into three parts;

• The Ground Theory that has been selected for the study was clearly described and research question has been formulated based on the previous theory. Data has been collected based on the frame of reference that was drawn from the discussed theories. The objective is to make sure t
  
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