Understanding Social Enterprise Approach and Its Potential

An Emerging Strategy for Creating and Scaling Social Impact

Seungchul Seo

September 5, 2011

Presentation at SK 경영경제연구소

Key Questions

• What is the definition of Social Enterprise?• How is SE different from NPO/NGO and

business?• How do SEs create social impact?• What should be done to nurture SEs and

amplify their social impact?• What are the implications for SK Group?

SE bridges and fills the gaps of Govt, Business and Civil Society

Government

BusinessCivil

Society

Social enterprise

•Market failure•Short-sighted

• Government failure• Slow and inflexible• Limited by national

boundaries

• Limited reliable resources

• Under-developed system

How is “Social Enterprise” defined?

A Social Enterprise is…

• “a business with primarily social objectives

whose surpluses are principally reinvested for that purpose

in the business or in the community,

rather than being driven by the need to maximise profit for shareholders and owners”

Department of Trade and Industry (UK)

• “an organization or venture that achieves

its primary social or environmental mission

using business methods…

Social enterprises build a more just, sustainable world

by applying market-based strategies to today's social problems”

Social Enterprise Alliance (US)

SE’s defining characteristics & key success criteria

Defining Characteristics

Key Success Criteria (4Ss)

Social impact

1st Broaderaccountability

Market-based

strategy

ScalabilitySpeed

Sustain-ability

Systemic change

SE represents alternative approach to advance social values

Social Impact 1st ◎ △ ◎ ○

Market Based Strategy ◎ ◎ △ △

Broader Accountability ◎ △ ○ ◎

Systemic Change ○ ○ △ ◎

Speed ◎ ◎ ○ △Scalability ○ ○ △ ◎

Sustainability ○ ○ △ ◎

GovernmentBusiness Civil SocietySocial

Enterprise

SE addresses market failure where externalities exist

Price

Quantity

Supply

Social Demand

Producer Surplus

Consumer Surplus

Private Demand

External Benefit

Welfare loss

3 sources of SE’s social impact

Price

Quantity

Supply w/o SE

Social Demand

Producer Surplus

Consumer Surplus

Private Demand

External Benefit

Supply w/ SE

e.g. Advocacy & Sensitization; Subsidization

e.g. Process innovation; Subsidization

2. Distribute & reinvest PS fairly

and equitably

3. Expand market & internalize

externalities through social innovation

1. Offer goods/services to

the marginalized to meet their needs

Model Description Examples Key Success Factors

Entrepreneur support

Sells business support to its target population

Microfinance organizations, consulting, or tech support

Appropriate training for the entrepreneur

Market intermediary

Provide services to clients to help them access markets

Supply cooperatives like fair trade, agriculture, and handicraft organizations

Low start-up costs, allows clients to stay and work in their community

Employment Provide employment opportunity and job training to clients and then sells its products or services on the open market

Disabilities or youth organizations providing work opportunities in landscape, cafes, printing, or other business

Job training appropriateness and commercial viability

Fee-for-service Selling social services directly to clients or a third-party payer

Membership organizations, museums, and clinics

Establishing the appropriate fee structure vis a vis the benefits

Low-income client

Similar to fee-for-service in terms of offering services to clients but focuses on providing access to those who couldn’t otherwise afford it

Healthcare (prescriptions, eyeglasses), utility programs

Creative distribution systems, lower production and marketing costs, high operating efficiencies

A multitude of business models are available to SE

Source: Virtue Ventures (Retrieved Sept 1, 2011, from http://www.marsdd.com/entrepreneurs-toolkit/articles/social-enterprise-business-models)

Model Description Examples Key Success Factors

Cooperative Provides members with benefits through collective services

Bulk purchasing, collective bargaining (union), agricultural coops, credit unions

Members have common interests/needs, are key stakeholders, and investors

Market linkage Facilitates trade relationships between clients and the external market

Import-export, market research, and broker services

Does not sell clients’ products but connects clients to markets

Service subsidization

Sells products or services to an external market to help fund other social programs. This model is integrated with the non-profit organization; the business activities and social programs overlap.

Consulting, counseling, employment training, leasing, printing services, etc.

Can leverage tangible assets (buildings, land, employees) or intangible (expertise, methodologies, or relationships)

Organizational support

Similar to service subsidization, but applying the external model; business activities are separate from social programs

Similar to service subsidization– implement any type of business that leverages its assets

Similar to service subsidization.

A multitude of business models are available to SE

Source: Virtue Ventures (Retrieved Sept 1, 2011, from http://www.marsdd.com/entrepreneurs-toolkit/articles/social-enterprise-business-models)

SE’s social impact creation is not limited to employment

Beneficiary as actor

Beneficiary as client

HighLow

Entrepreneur Support

Employment

Fee-for- service

Low-income client

Cooperative

Market linkage

Service subsidization

Organizational support

Degree of innovation required

Be

ne

ficia

ry’s

ro

le

Market intermediary

SE has great potential, but is still at a fledgling state

What can be done to nurture SEs and amplify their social impact?

Business sector’s evolution has been enabled by nurturing ecosystem

Supplier Retailer

VC

Stock market

Investment bank

Rating agency

Recruitingagency

Management consultant

Regulator

Advertising agency

Research services

Business lawyer

Distributor

Auditor

Company A

News media

Low-profit company

Creation of SE ecosystem encourages social innovation

+

Social return

Fin

an

cia

l re

turn

-

-

+

Rogue companyGood company

NPO/NGO

SE

Immediately to be ejected

A

B

• Designate low-profit high-social impact business as SE

• Build nurturing ecosystem

• Attract migration to SE category

• Leave donation pool to those NPOs in the filed with no revenue generation potential

• Support high-potential SE’s “graduation” to ordinary good company

B

A

C

But it is unrealistic to try to develop entire ecosystem for SE all at once

Efforts should be focused at first on the most critical piece of ecosystem

Designing money flow is the key

• Money flow = Blood flow• Right financial mechanisms can catalyze

the evolution of ecosystem– Allow merit-based resource allocation – Ensure accountability– Accommodate diverse values and promote

diverse approaches

Impact investment cycle

Mobilize resources to provide growth capital for SE

Info

rm in

vest

ors

of th

e so

cial

impa

ct

thei

r mon

ey h

as c

reat

ed

Rew

ard investors in proportion to

their contribution to social impact

Impact investment seeks for both financial and social return

Financial return

Social return

Ord

inary

in

vest

ment

Charity donation /

grants

Impact investm

ent

Impact investing filed is evolving fast globally

For-profit

Non-profit

Investment fund

Market platform

MicrofinanceImpact

measurement

SE’s process of social impact creation must be evaluated

ValueOutcomeOutputInput

Efficiency Effectiveness Relevance

Sustainability & Scalability

Critical question

How can SK Group’s CSR activity maximize

its social impact?

Doing everything is the worst strategy

Strategy is about making a razor-sharp focus on the most important

by giving up the less important

Don’t try

to boil the ocean!

Clarifying intended impact and theory of change is a starting point

Source: Bridgespan Group (Retrieved Sept 1, 2011, from http://www.civicpartnerships.org/docs/home/07OLEPresentations/Jeff%20Bradach/070523-KSP-Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

Resources should be allocated according to expected contribution

Source: Bridgespan Group (Retrieved Sept 1, 2011, from http://www.civicpartnerships.org/docs/home/07OLEPresentations/Jeff%20Bradach/070523-KSP-Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

Float shares on a social capital

market

Reorganize as mutual funds

Open the fund to accredited

investors

Strategy idea to contribute to the devt of SE ecosystem

Create a closed fund to invest in SE

• Start with narrower focus

- Industry & Issue area- Geographic area

• Develop a framework for internal evaluation & resource allocation

• Start building networks of:

- Potential investees- Institutional & individual

investors- Regulators- Other impact

investment practitioners (e.g. IIX Asia)

• Invite institutional investors to invest as LP

• Increase the number of investees

• Refine monitoring/auditing & impact assessment system

• Open the impact assessment data to the public & invite feedback

• Obtain required license from financial regulators

• Open the fund to individual investors

• Link the payout not only to individual investee’s financial return but also to social impact

• IPO on Impact Investment Exchange Asia in Singapore

• Alternatively, create a social capital market in Korea

Thank you for your attention

URL: http://www.convisage.com

Twitter: @sc_seo