Characteristics of Investment in Social Enterprise: A German Perspective Dr. Volker Then 1
Social Investments as Cross-sector Phenomena Social (community) function Family/ Community Cultural (expressive) function Informal networks CIVIL SOCIETY NPO s NGO s Market Economic (service providing) function State Political (advocacy) function 2
A new set of defining features Necessary conditions: Voluntary nature Public benefit orientation Quality parameters (to specify the public benefit orientation): Legitimacy (individual vs. collective) Motive/ input legitimacy Social return/ output legitimacy Process legitimacy (civility) Multiple functions (individual/organizational vs. societal functions) Commitment (actor-centred and structural determinants) 3
Multiple functions of social investments Four societal functions of social investments can be derived from the research literature: The economic (service providing) function The political (advocacy) function The social (community) function The cultural (expressive) function Which is the dominant function depends on the form of the investment. The differences proposed here are heuristic, and social investments combine contributions to the four different functions simultaneously. 4
Organisational Hybridity Hybrid Ideal Type (?) Organisational Hybridity For-Profit-Items Non-Profit-Items 5
Dimensions of Hybridity Dimensions of Hybridity Hybrid Ideal Type (?) Ressources Sales/Marketing Communications Culture Product Quality Controlling Purchase Forprofit-Items Nonprofit-Items 6
Integrating Aspects of Hybridity Narration Relations Networks Transparency Impact Assessment Innovation Advice/ Inspiration Hybridität Integration Model/Incentive Autonomy New Markets (Market-) Flexibility Sustainability 7
Hybridity Market Non-Profit-Sector Boundaries of market failure change of risk profiles or price relationships or market transparency Social mission tied to public benefit purpose Transfer of legitimacy public acceptance Entrepreneurial approach Innovative recombination (Schumpeter) Social-Entrepreneurship-Model Businessplan as basis 8
Hybridity State Non-Profit-Sector Boundaries of state failure public benefit with private resources Welfare mix Social mission ties to the public benefit purpose Entrepreneurial approach Innovative recombination (Schumpeter) Policy-Entrepreneurship-Model (Steven Ney) Resolving dilemmata oder blockades of advocacy coalitions (Sabbatier) Theory of social change 9
Social Entrepreneurs and the Economy - Hypotheses Public Goods Regulation/ Policy Success Factors SE do not compete in existing markets, they create new ones. State-/Market failures primarily in the identification phase Club goods SEs dependent of fields Dependence on regulation Dependence on financial model (legally regulated quasi-markets or single subsidies Transition SE to market or state = success? Sustainability of the business model can be both success and failure! 10
Policy Entrepreneurs, Economy and Political Public - Hypotheses Emergence Motivation: personally affected Finance: Self-initiation Market with competitors due to either regional imitation or funding Legitimacy Governance Boards, References, Testimonials, etc. Charisma and personal networks of the entrepreneur Generalization by moralization Solving of social problem = Dissolution Good Governance = Control of temporality Principal-Agent-Problem and information asymmetries presumably smaller because of moralization 11
Organisational Strategy and Leverage Market Policy Civil Society Know How Market failure Closing of financial/risk gap Risk reduction Policy advice Innovation impulse for public sector Effective use of public resources Model testing - implementation Mobilisation of volunteers Mobilisation of additional philanthropic resources Strengthening of NGO-Sector Individual competencies Research Qualification processes Implementation 12
SEs and Business Admin Hypotheses I Scaling Growth patterns slower than in normal businesses Immanent limits to growth and size Undercritical sizes / need for regional monopolies Internationalisation Rather organical than by M&A? Characteristics of fields and busienss models which can be internationalized Relation ships Idealistic founders: less interested in cooperation and M&A than classic entrepreneurs Specific ways of refinance: no short term market for mergers/ M&A 13
SEs and Business Admin Hypotheses II Succession Parallel to family firms Involvement of founder shorter than in family firms Specific phasing of education and work biographies of SE Governance Less professional, more focused on multiplication Communications Other forms and media of communication in SE (Volunteers, Networks) PR after the hype more difficult/regional Competitions and Fellowships required More active branding than in SMEs Political communication successful due to policy-networks (advocacy coalitions!) 14
SEs in Germany Preliminary Results - I Finance Hybrid Finance: social welfare revenues, client revenues,public subsidies, donations, philanthropy, corporate sponsoring, membership fees Three phases of development! Growth Internal rather than external No M&A or franchising Political Regime SE s as the R&D laboratory of the German welfare state For SE s older than 20 years: social welfare and client revenues plus public subsidies = 75 % or more! Young SE s dependent on crowd funding and philanthropy 15
SEs in Germany Preliminary ResultsI Phase I: Years 1-4 Phase II: Years 5-19 Phase III: Years 20-30+ Finance: I: Philanthropy+Sponsoring = 35 % II: Reduction of phil + sponsoring; more social welfare revenues and peaking client revenues (24%!) ; share of phil + sponsoring down to less than 30%. III: social welfare revenues + client revenues + public subsidies above 50% from age cohort 15-19, above 70 % for age 20+. Private client revenues never more than 24% on average! 16
SEs in Germany Preliminary Results II Scaling and large scale growth as a result of access to welfare state quasi-markets. SE s as R&D laboratory of the welfare state with philanthropy and crowd funding responsible for initial seed stage. Growth preferably internal/organical rather than external (Franchising; M&A). Challenges for SE s with services complementary to existing suppliers reduced/lowest in regard to: - lack of public admin. Support - lack of public attention - lack of other resources CONCLUSION: the closer to existing quasi-markets/ public sector, the less challenges! 17
SROI-relevant Impact Linkages and Modes of Operationalisation Four basic (societal) Impact Linkages Macro (Society) Meso (Organization) Economic Function (Services/ Welfare) Political Function (Participation/ Policy making) Social Function (Integration/ Stabilisation) Cultural Function (Value/Knowledge Development) Medium Money Participation (Power) Trust Values/ Norms Index Return Index/ SROI Coefficient Participation Index Integration Index Identity/ Value Index Monetised X X* X* X* Quantitative X X X X Qualitative X X X X Monetised X (x) (x) (x) Quantitative (x) (x) (x) (x) Qualitative (x) (x) (x) (x) Current SROI Dimensions: Economic Value X SROI Standard Dimensions Socio-economic Value * Monetisable Portions Social Value (x) Additional Organizational Dimensions 18
Sample Variables for Measuring the Impact of Social Investments Examples of monetary variables Examples of other quantitativ e variables Examples of qualitative variables Economic Function Political Function Social Function Cultural Function Monetisation of public welfare contributions with significant service-provision character (on the basis of diverse monetisation processes). Time budgets of public welfare contributions with service-providing character, Helper/ Participation Shares Analysis of specific welfaremix structures: Description of structures of successful cooperation between actors during service provision Influence on state-civil society relations: Transfer of the weight of public & private financing (e.g., with social services) Network moderation: Effects on public benefit contributions with service-providing character vs. nonmoderated interaction Training and Education: Replacement costs of corresponding services in the education system; Elite responsibility: Governance costs for elite failure, e.g., through corruption Political Frequency of social Assertion/ adaptation of participation: interactions: Density value systems: Participation rates of and scope of social Relation of value forms of political capital networks in orientation in engagement; political quantitative terms; programme & control entrepreneurs and Satisfaction with groups/society, policy coalitions: opportunities for democracy education: Presence of key actors association and Rate of political in actor coalitions assembly involvement Political entrepreneurs/policy coalitions: Strategies, action orientation and modes of interaction in actor coalitions Frequency of social interaction: Social capital networks/ Types of interaction in terms of qualitative description Cultural identities: Description of the conveyed value and norm identities 19