A Research Agenda For Social Entrepreneurship

Social Enterprise
Journal
Volume Number 1, Issue 1. March 2005
A research agenda for social entrepreneurship 01

Dr. Helen Haugh
Viable social enterprise - an evaluation of business support 13

to social enterprises
Frances Hines
Raising the profile of social enterprises: the use of social 29

return on investment (SROI) and investment ready tools (IRT)
to bridge the financial credibility gap
Andrew Flockhart
Shaping the Balanced Scorecard for use in UK social 43

enterprises
Ali B. Somers
Social enterprise: through the eyes of the consumer 57

(prepared for the National Consumer Council)
Bob Allan
Exploring the meaning(s) of sustainability for community- 78

based social entrepreneurs
Barbra Wallace
Case study: developing Southwark’s social economy 90

Social Enterprise London (SEL) is the heart and voice of London’s
social enterprise sector. Promoting community, best practice, and skills
development we work with decision makers, support organisations, local
government and social entrepreneurs to help them realise their vision. At
SEL we are passionate about facilitating the growth of social enterprise as
a means to achieve meaningful and lasting social and economic change.
SEL provides a range of services to the social enterprise sector including
business planning, research and mapping, strategy implementation and
cross-community coalition building, training and event management. SEL
runs London Social Enterprise Network the largest community of social
enterprises, business support providers, academics and entrepreneurs in
the country and also the first social enterprise shopping site.
Disclaimer: Support for this publication was provided by the London Development
Agency. Any opinions, findings, conclusions, or recommendations expressed in this
Journal are those of the authors and do not necessarily reflect the views of the London
Development Agency or Social Enterprise London.
All photographs included in the front and back covers were taken by Anna Leader.
Copyright © 2005 Social Enterprise London

Published by Social Enterprise London
March 2005
Social Enterprise London Tel: 020 7704 7490

1A Aberdeen Studios Fax: 020 7704 7499
22-24 Highbury Grove Website: www.sel.org.uk
London N5 2EA Email: info@sel.org.uk
Introducing the first edition of the
Social Enterprise Journal
Dear Reader,
It is with great enthusiasm that Social Enterprise London (SEL) is publishing

the first edition of the Social Enterprise Journal. The journal has been
generously funded by the London Development Agency for a three-year
period to test the market for an annual and research driven social enterprise
publication.
Social enterprise is increasingly recognized for its economic, social and

environmental contribution to society and a wealth of social enterprise
research is now emerging from practitioners and academics alike. Our goal
in publishing the journal is to present the findings from both these sources so
that knowledge and understanding can be shared by those with an interest
in social enterprise. The journal aims to be accessible to policy makers,
practitioners and academic audiences.
The papers in this journal report research that has investigated a range of
topics relevant to social enterprise, including social return on investment,
the Balanced Scorecard, branding for social enterprise, business support
and enterprise sustainability. As you read these papers, we hope that
you will consider the Social Enterprise Journal as a new forum for the
presentation of research and a platform for promoting innovation, reflection
and understanding. Being the first journal of its kind, and something of a
departure for SEL, we are keen to see its effect on the sector and welcome
your comments and feedback.
With the exception of the opening piece, the papers in this first edition have
been specifically selected to allow new authors to present their research.
The papers are innovative and present findings from a broad range of topics.
The first piece by Haugh reviews the domain of social entrepreneurship and
identifies eight broad research themes, each of which has the potential to
contribute to a valuable evidence base for practitioners and policy makers.
The paper by Hines presents the findings from a study of business support
services to social enterprises. In her research, Hines interviewed informants
from twenty-seven social enterprises and her results identify the important role
that informal networks play in the creation and growth of social enterprises.
Her study concludes that most current provision does not meet the needs of
social enterprises as it does not address the strategic tension between social
and business purpose. This theme is also found in the paper by Flockhart
which addresses the difficult task of how to assess social enterprise outcomes
and impact. In his paper, Flockhart draws on the principles of Social Return
on Investment (SROI) developed by the Roberts Enterprise Development
Funds and the New Economics Foundation. His study presents the findings
from in-depth interviews with key stakeholders involved with social enterprise
development and social investment in the UK. He concludes that, if social
enterprises can overcome the resource implications of implementing SROI,
this would enable them to become the preferred investment vehicle for new
sources of social finance.
The Balanced Scorecard is a performance evaluation tool that is well

established in the private sector. The paper by Somers presents the results
of an action research project that modified the original Balanced Scorecard
for use by social enterprises. The Social Enterprise Balance Scorecard
was piloted with twelve social enterprises and was found to be instrumental
in demonstrating that financial profit is an enabler of social profit, and
when applied by practitioners to their organisation, was a useful tool for
improving internal management processes and communicating performance
achievements to a broad range of stakeholders. The paper by Allan proposes
that a national social value label, or brand, would also be useful for informing
opinion about the purpose and outcomes of social enterprises, and might
facilitate consumer purchase decision making.
In the final research paper in this edition, Wallace examines the rhetoric of
social enterprise policy discourse in the UK and contrasts this with the reality
of the many small, financially unsustainable social and community enterprises
typically found on inner-city housing estates. Information from a series of
in-depth discussions with community-based social entrepreneurs is used to
illustrate that much of the policy literature, and the small number of frequently
publicised case studies, are untypical of the sector. Her paper concludes
by proposing that a more realistic perspective of sustainability would be
welcomed by some practitioners. The final piece in this publication is a case
study of the development of a social enterprise framework for the London
Borough of Southwark.
I hope that you find the papers in this first edition interesting and that you will
contribute to future editions of the Social Enterprise Journal.
A call for papers for the second edition will be circulated in June 2005. For
additional information please contact Sabina Khan at Sabina@sel.org.uk,
telephone 020 7704 7492.
Sabina Khan
Director of Policy and Research
Social Enterprise London
1A Aberdeen Studios
22-24 Highbury Grove
London N5 2EA
Tel: 020 7704 7492
A research agenda for
social entrepreneurship
Dr. Helen Haugh is Course Director at the Judge Institute of Management

(University of Cambridge)
The dynamism and vitality of entrepreneurship research is reflected in the

flow of new ideas and themes in the entrepreneurship literature. For many,
mainstream entrepreneurship is inextricably bound with the creation of new
technology firms, however, this is only part of a wide and varied terrain. The
focus of this paper is social entrepreneurship - those activities associated with
the perception of opportunities to create social value and the creation of social
purpose organisations to pursue them. Social enterprises adopt financially
sustainable strategies to pursue social aims, and address a wide a range of
social problems, such as unemployment, inequalities in access to health and
social care services, low quality housing, high incidences of crime, deprivation
and social exclusion. Although organisations with a social purpose have
existed for many years, they have recently received increasing attention at
policy level, mainly due to their assumed potential to contribute to social,
economic and environmental regeneration. This renewed interest has been
policy-driven, rather than research-led, and many claims have been made
concerning their potential contribution to building social capacity, responding
to unmet needs, creating new forms of work (Amin et al 2002), promoting local
development, defining new goods and services, fostering integration, creating
jobs, improving attractiveness of an industry and locality, empowerment, and
consolidating local assets (ECOTEC 2001). However, robust evidence of
their value and contribution remains illusive, and theories concerning their
creation, management and performance have yet to be crafted.
This paper categorises the social entrepreneurship research agenda into

eight themes each of which would strengthen and deepen our knowledge
of social entrepreneurship: defining the scope of social entrepreneurship;
the environmental context; opportunity recognition and innovation;
modes of organisation; resource acquisition; opportunity exploitation;
performance measurement and training education and learning about
social entrepreneurship. To begin, the paper draws on existing research to
present a summary of the size of the non-profit sector, and where specifically
available, the social enterprise sector in the UK, Europe and US. The eight
research themes are then proposed. In conclusion, the paper endorses the
need for researchers to build on current knowledge and to work together to
generate theory and produce valid, reliable and comparable data that can
be shared by researchers, policy makers and those with an interest in social
entrepreneurship.
Social Enterprise Journal 1

THE SOCIAL ECONOMY
The social economy is a collective term for the part of the economy that is
neither privately nor publicly controlled. It includes non-profit organisations
as well as associations, co-operatives, mutual organisations and foundations.
Social enterprises are included in the social economy, however they are
distinctive from many non-profit organisations in their entrepreneurial
approach to strategy, their innovation in pursuit of social goals and their
engagement in trading.
Although global data on the non-profit sector is becoming more readily available
(Salamon and Anheier 1996), the size and scale of the social enterprise sector
in the UK, Europe and US have yet to be mapped conclusively. In the UK,
various databases have gathered information from social enterprises, however
some are listed by region, others by legal constitution, and a comprehensive
database of social enterprises has yet to be produced. Insight into the size
of the social enterprise sector is provided by the GEM survey (GEMUK 2004)
that included social enterprises for the first time in 2003, however the survey
does not provide reliable estimates of the size of the sector for the whole of
the UK. Overall, the survey revealed that 6.6 percent of the UK population
was engaged in some form of activity that has a social or community purpose,
compared to 6.4 percent for mainstream entrepreneurial activity.
In Europe, the EMES network (see endnote 1) was established in 1996 to

investigate social enterprise activity in Member countries and reported in 2000
(EMES 2000). Estimates for the size of the non-profit sector in the EU found
7.9 percent of salaried civil employees in full time employment in non-profit
enterprises, including co-operatives (CIRIEC 2000). In the US, there were
170 000 non-profit organisations with at least one employee in 1999, with
a total revenue generation of $685 billion (Williams 2003). Internationally,
the extent of non-profit activity has been mapped by the Johns Hopkins
Comparative Non-profit Sector Project (see endnote 2) which found that 3.6
percent of the working age population were in full time employment in the
sector, excluding co-operatives, in the 35 countries included in the study. The
variation between definitions and methodologies adopted in different studies
means that it is not possible to reliably comment on the size and scale of the
social economy, however, there appears to be a consensus that the number
and importance of social enterprises has increased in recent years.
DEFINING THE SCOPE OF SOCIAL ENTREPRENEURSHIP
The social entrepreneurship research arena is hindered by the many

terms and definitions adopted by researchers and policy-makers. Social
enterprises have been varyingly described as ‘a private enterprise conducted
in the public interest’ (OECD 1999:10), a for-profit social venture (Dees and
Anderson 2003), and a social purpose enterprise (Wallace 1999). Further,
social enterprises adopt differing legal formats and abide by different legal
frameworks and fiscal responsibilities and duties in different countries. These
factors make national and international comparisons of social enterprise
activity unreliable at present. Although universally acceptable definitions of
social entrepreneurship, social enterprise and social entrepreneur do not exist
(OECD 1999), there appears to be a converging consensus on the meaning
of social enterprise, and from this it is possible to draw out a definition of a
social entrepreneur and social entrepreneurship.
2 Social Enterprise Journal

There seems to be general agreement that a social enterprise is an
independent organisation with social and economic objectives that aims to
fulfil a social purpose as well as achieving financial sustainability through
trading (DTI 2001). Definitions of social enterprise differ in terms of the
amount of income that must be generated through trading (sales, contracts
and service level agreements), however a clear and useful benchmark is
50 percent (DTI 2002). Their distinctive features are that they combine
entrepreneurial strategy with social purpose (OECD 1999). In the terminology,
‘social’ relates to their aim of generating non-economic outcomes, and
‘enterprise’ is manifest in their financial structure (they aim to be self-financing
and independent and not reliant on donations and philanthropy), and their
innovation in trading goods and services to bring new responses to unmet
needs, and/or contracting to supply services on behalf of the state. In
bringing together social purpose and entrepreneurial spirit, social enterprises
might be described as hybrid organisations: they are autonomous (EMES
1999) and trade, they might generate profit, they employ people and engage
volunteers and adopt innovative strategies in pursuit of their social purpose.
In common with non-profit enterprises (Hansmann 1980), and unlike private
sector organisations, social enterprises are prevented from distributing their
profits to those who exercise control over them. Any surplus generated must
be retained in the organisation and/or community, either as direct services or
as grants to the service-targeted population (Wallace 1999). The benefits of
combining social purpose with enterprise have been found to include greater
market responsiveness, efficiency, innovation and leveraging of resources
(Dees and Anderson 2003). Social enterprises blur the boundaries between
for-profit enterprises and non-profit enterprises and research that investigated
how the tensions that arise from managing potentially conflicting aims would
be useful for practitioners and policy makers.
A shared understanding of the meaning of social enterprise is useful as

it can be used as the foundation for defining a social entrepreneur as an
individual who has created a social enterprise. However, an integral part
of exploring entrepreneurial behaviour is understanding what motivates an
entrepreneur to start their own venture (Kuratko et al 1997) and this definition
reveals little about the personal characteristics, attitudes and motivations of
the social entrepreneur. Case study evidence appears to show that social
entrepreneurs act decisively to fill market gaps left by the private and public
sectors (Leadbeater 1997), and it might be assumed that they employ
the same enterprise and imagination to social problems that mainstream
entrepreneurs bring to wealth creation. Research that explores the motivation
to be a social entrepreneur tends to be case study based (Thompson et al
2000) and/or anecdotal. An exception is the GEM survey (GEMUK 2004)
that found that social entrepreneurs possessed a mixture of positive and
negative attitudes. On the whole, social entrepreneurs are more positive
than the whole population and less likely to let lack of finance prevent them
from starting a business, however they are also less likely than mainstream
entrepreneurs to see good opportunities and to consider that they have the
skills to start a business. In terms of personal characteristics, the GEM
survey (GEMUK 2004) found that social entrepreneurs tended to be older,
employed, and on higher incomes than mainstream entrepreneurs, but they
were also to be found in high levels in disadvantaged groups such as those
on low incomes and/or unemployed. In addition, female and ethnic minority
entrepreneurs were more likely to be social entrepreneurs than mainstream
entrepreneurs. The GEM survey provides useful base line data and further

research might explore the gender, educational qualifications, skills, and
motivations (intrinsic and extrinsic) of social entrepreneurs from a range of
social purpose organisations.
Building on a shared understanding of social enterprise, it is submitted that

social entrepreneurship is the process of creating a social enterprise. Drawing
on a mainstream entrepreneurship definition by Bygrave and Hofer (1991), the
process involves all activities associated with the perception of opportunities to
create social value and the creation of social enterprises to pursue them. This
definition therefore stipulates that the social entrepreneur actually creates an
enterprise to exploit an opportunity. Research that examined the process of
identifying and exploiting social enterprise opportunities, the barriers faced by
social entrepreneurs and how they have been overcome would be useful and
beneficial for the sector.
THE ENVIRONMENTAL CONTEXT
The environmental context refers to the political, economic, social, cultural

and technological trends that influence social entrepreneurship. Social
entrepreneurship has been recognised as a potentially beneficial strategy
for revitalising disadvantaged communities by improving the skills of the
unemployed and facilitating their return to work, generating additional jobs,
and countering welfare dependency and these targets have been included in
the specific policy remit for the UK (OECD 2003b). In places where there are
low levels of economic activity poor market conditions, ‘gaps’ have arisen from
market failure and the inability of the state to fulfil its social responsibilities
(OECD 1999). Market failure may be due to inadequate financial returns,
information asymmetries and other externalities (OECD 1999). Gaps in state
provision of services may be explained by financial limitations, bureaucracy,
inflexibility, inability to define societal and individual needs and heterogeneous
client needs. As a result, potential market opportunities are unattractive
to mainstream entrepreneurs and consumer demand remains unfulfilled.
Research in the UK has found the broad, but not universal, tendency for
disadvantaged areas to have comparatively low levels of enterprise creation
(Westall et al 2000). In these conditions, social enterprises perform a residual
function and are instrumental in garnering resources and capitalising sub-
market opportunities.
Nationally, Government preference for privatisation, decentralisation and

separation of funding from provision of services, is manifest most clearly in
the provision of welfare services in which the state has moderated its role
as the monopoly provider to act, where possible, as a facilitator of devolved
delivery of services. The financial and organisational difficulties of state
welfare provision (Borzaga and Santuari 2003), alongside structural changes
of rising unemployment and declining economic growth in the 1980’s, led
to privatisation policies and decentralisation of welfare services. These
factors created an environmental context favourable to the establishment
of enterprises that would prioritise social benefit above financial profit.
Social enterprises have been encouraged to move beyond philanthropy
and adopt entrepreneurial strategies to achieve financial independence and
sustainability.
An alternative explanation for the increased interest in social enterprises

proposes that the social economy has the potential to capitalise on its

differential capabilities (novel opportunity recognition, resource acquisition
and opportunity exploitation; shared values of caring, mutual help, community
and solidarity; legitimacy and client trust) and perform an integral role in
the economy. Their role in creating and benefiting from the relationship
between the organisation and the client generates ‘relational assets’ which
are stronger in the non-profit sector than the private or public sector (OECD
2003). The growing number of relationships between social enterprises and
the private sector is reflected in the potential of competition between them as
they compete for market share in the future. In the past, social enterprises
have tended to enter markets that the private sector had abandoned or never
been interested in, however the market development capacities of social
enterprises potentially might stimulate the creation of a market in which the
returns are attractive to the private sector.
Although many publications have provided an insight into the origins of social
enterprises in the UK, Europe and the US, a systematic analysis of social
entrepreneurship in relation to national and international macro-economic
trends has yet to be produced. This would be useful for comparing current,
and forecasting future, rates of social enterprise creation and establishing
the necessary support network and infrastructure requirements to encourage
them.
OPPORTUNITY RECOGNITION AND INNOVATION
According to the OECD (2003), the non-profit sector has become more
entrepreneurial, and social enterprises are more entrepreneurial than other
non-profit organisations (EMES 1999). For Schumpeter (1936) and Drucker
(1985) innovation is a fundamental part of entrepreneurship. Innovation is
the process through which something new and/or different (Drucker 1985),
and of value is created and made available to society that had previously not
been available. New combinations might involve the introduction of a new
economic good and a new method of production, the opening up of a new
market, the conquest of a new source of raw materials, and/or the creation of
the new organisation of an industry (Schumpeter 1936).
For social enterprises, there are many opportunities to address disadvantage,

poverty and social exclusion and many have been created to deliver health care,
arts, cultural, employment, housing, social care, education, environmental,
and recycling services. Innovation might exploit opportunities to generate
value in terms of delivering new services to the disadvantaged and excluded,
identifying new ways of delivering existing services, implementing new
strategies to generate income, delivering existing services to new individuals,
or exploiting novel resources. Pearce (2003) identifies the following
market opportunities in disadvantaged communities: local development
and regeneration (managed workspace, business incubation, enterprise
training programmes, business advice and support, local development and
infrastructure regeneration; working for the state by providing services which
were formally provided by the state (leisure and recreation, housing, child
care and domiciliary care); providing services to the community in response
to market demand; and market-driven businesses that provide goods and
services in direct competition with the public and private sectors. Dees and
Anderson (2003) approach opportunity recognition from the perspective of
the value chain (Porter 1985), and identify activities where the social business
might achieve their social purpose and create economic value from procuring

supplies to after sales care.
Innovation might also be pursued internally in their management, structure and

strategies, particularly in terms of multi-stakeholder engagement in strategy
development and implementation. Further research that examined the nature
and value of opportunities that have been exploited by social enterprises,
internal and external innovation, barriers to successful opportunity exploitation
and strategies for overcoming barriers would be useful for the sector and
policy makers.
MODES OF ORGANISATION
Social enterprises operate in many areas of the economy and assume a

legal format appropriate for their purpose and host country (Borzaga and
Defourny 2001). In the UK alone, the range of institutional format includes
mutual organisations, friendly societies, associations, co-operatives, social
co-operatives, social firms, social franchise, charities, foundations, trusts,
companies limited by guarantee, and in due course, the community interest
company. Unfortunately, consistent and comparable statistical data for
each type of organisation have yet to be produced, rendering national and
international comparisons unreliable. The Johns Hopkins Comparative Non-
profit Sector research project has generated important international statistical
information on non-profit organisations; however, it does not produce specific
data on social enterprises. The lack of national data on the size and scale of
the social enterprise sector is a major research opportunity for researchers
and would provide valuable information for academics, practitioners and
policy makers.
RESOURCE ACQUISITION
To successfully exploit an opportunity, an entrepreneur will need to garner and

deploy resources. Social enterprises aim to achieve financial sustainability by
combining financial, physical and human resources. These might be derived
from market sources (revenue from sale of goods and services), non-market
sources (Government grants and programme funding, and independent
grants, donations and philanthropy), and non-monetary resources (volunteer
labour, social capital) (OECD 1999).
Social enterprises require finance to fund complex, low-profit activities and

many are financed by a combination of different types of finance, usually
referred to as the funding mix. The trading requirement of social enterprises
necessarily means that their funding mix consists of earned revenue and
non-revenue sources. Earned revenue generates the most flexible finance
(Williams 2003) and is derived from the sale of goods and services of the
social enterprise, for example, tuition fees for education and training, ticket
sales for arts and cultural venues, fees for social services, income from
property rental and leasing. Non-revenue sources include venture capital,
commercial debt, and non-commercial debt (community-based funds, grants
from foundations, Community Development Financial Institutions, programme-
related investment (Williams 2003)), venture philanthropy (Letts et al 1999)
and Community Development Venture Capital. For funding organisations,
the transaction costs of large numbers of small grants are high, as is the cost
of meeting the requirements of a diverse target group with heterogeneous
demands, and these factors conspire to generate lower than commercial

rate returns. As a result, social enterprises might be considered unattractive
propositions to investors.
Although there are many publications that deal with funding social enterprise,
much of this work consists of practical manuals on how to fund raise and how
to write a funding proposal. A useful overview of financial tools for the non-
profit sector has been published by INAISE (see endnote 3). Research that
explores the financial structure of social enterprises, the impact of different
sources of finance on the strategy and management of the social enterprise,
and the relationship between the funding mix and success or failure of the
social enterprise would provide valuable information for the sector, funding
organisations and policy makers. Research that investigated the motivations
and investment choice process of social investors, either institutionally or as
social business angels, would also be valuable for the sector.
There are many research opportunities connected with the acquisition of non-
financial resources. In the UK, the strategy of physical asset acquisition has
been promoted as a means of generating an independent revenue stream
for the social enterprise. Research that investigated the impact of asset
transfer and asset development on success, or failure, of the social enterprise
would provide valuable information for the asset source and the sector. In
addition, problems and barriers to asset transfer, and their solution, would
also yield important information that could guide the long-term survival of
social enterprises. Further, many social enterprises rely on a combination of
employee and volunteer labour, however little is currently known about the
challenges of recruiting, managing and controlling employees and volunteers
together, and research in this area could generate new theories about
employee and volunteer motivation and rewards.
OPPORTUNITY EXPLOITATION
The process of creating an enterprise to exploit an opportunity will involve

managing the combination of resources that have been brought together,
creating an organisation, establishing shared values, crafting stakeholder-
led strategies, partnerships and collaboration, networking, marketing,
and organisational learning, growth and development. These managerial
aspects of the social enterprise generate many research opportunities for
entrepreneurship and management scholars, four of which are outlined
below.
For example, the social purpose of the organisation may appeal to specific
types of individuals and lead to innovation in management practice in terms
of policy, procedures and organisational culture. This has the potential to
establish new management models that capitalise on enterprise, reciprocity
and relational assets. New models of governance that accommodate the
plurality of stakeholders typically associated with social enterprises might also
be identified.
The decentralisation and privatisation of social services has created

opportunities for social enterprises to establish same-sector and cross-
sector partnerships to deliver social services locally, and to offer training and
employment opportunities to the disadvantaged and excluded. Partnerships
and collaborations bring benefits and challenges to all those involved (Austin
2000). The social enterprise may gain from access to resources, may improve

financial performance from market engagement and generate intangible
benefits from enhanced legitimacy. A partnering private organisation may
gain reputational benefits from consumer perceptions of enhanced corporate
social responsibility, improved access to special expertise and future talent,
and increased employee motivation derived from links with social purpose
organisations (Young 2003). There are however risks associated with
partnerships between social enterprises and for-profit organisations, including
reputational damage when the partnership is not successful, and loss of
independence and control that may arise from power imbalances between the
partners. Research that investigated the benefits, challenges, barriers and
facilitating factors associated with same-sector and cross-sector partnerships
would be very useful for practitioners and policy makers and might develop
theory useful to managing successful partnerships and collaborations.
The drive to be more entrepreneurial presents a managerial challenge in that

the social enterprise needs to carefully synchronise competing values of being
entrepreneurial and pursuing a social purpose that may not be profitable. The
combination of for-profit and social purpose skills in one person is difficult to
find (Dees and Anderson 2003), and successful social enterprises may have
to rely on building teams with the requisite shared values and skills profile.
Research that explored the managerial structure, skills and competencies
of managers of social enterprises in relation to organisational performance
would be useful and provide evidence of skills and competencies needed by
the sector.
Networks play a supporting role for organisations and as social enterprises

tend to be small and locally-situated, and they have the potential to draw
on non-market and non-monetary resources in their creation and operation.
Drawing on local knowledge of volunteers can reduce start-up costs, while
operating costs might be reduced by employing people interested in working
in the sector for less than market rate wages. At present, little is known
about the role of networks in identifying opportunities, providing resources
and business advice to social entrepreneurs and research that identified
their support needs and that evaluated the usefulness of current sources of
business advice would be valuable for the sector and could be used to shape
support infrastructure developments.
PERFORMANCE MEASUREMENT
Social enterprises mainly operate at the local level, providing goods and
services that have an impact individually, but which also have an impact
collectively for communities and society. By helping individuals to acquire
the skills needed to return to work, local disparities in service provision,
access to services and skills levels can contribute to building social capital
and cohesion. There are many research opportunities associated with social
enterprise performance measurement and some of these are outlined below.
Social enterprises are established to address complex problems and, for

many, their outcomes are likely to be uncertain (Paton 2003). This implies
that a range of measures and indicators might be required to assess
their performance. Standard quantitative performance measures already
operate for mainstream entrepreneurship and some of these might be
adapted for social enterprises. Typical criteria against which to measure
performance include inputs (e.g. income), direct outputs (e.g. jobs created)

and indirect outputs (e.g. number of unemployed that have returned to work).
However, such measures relate a narrow view of social entrepreneurship,
and underplay the significance of social and qualitative outputs. Bielefield
(2003) also suggests measuring opportunity costs, distributional effects and
multiplier effects. The collection of evidence to prove their performance needs
to acknowledge direct and indirect, short and longer-term outcomes, and
accommodate the resource constraints of the social enterprise. To maximise
usefulness, performance measures need to be cost-effective, universal,
comprehensive and comparable.
At the level of the firm, a standard performance measure of for-profit

organisations is shareholder return, however for social enterprises there
is debate surrounding both the nature of their returns and impact, and the
evaluation of returns and impact. In summary, social benefits are often
“intangible, hard to quantify, difficult to attribute to a single organisation, best
evaluated in the future and open to dispute” (Dees and Anderson, 2003:7).
However, to be accountable, social enterprises need to be able to demonstrate
their impacts on society and their cost effectiveness (Young 2003). Indicators
of performance are also important for providers of finance, and are essential
if social enterprises are to raise investment capital from venture capitalists
and commercial sources. As yet, evaluation tools to measure outputs and
enumerate intangible outcomes (social capital, citizenship, community
cohesion, relational assets, social well-being, quality of life, social and
economic regeneration of communities) are in the early stages of development
although social auditing and social return on investment have made important
contributions to the field.
The societal preference for monetary measures means that although some
social benefits may be converted to financial metrics (Dees and Anderson
2003), other social impacts and intangible returns are more difficult to quantify
and may in some cases be impossible to measure. Just as Putnam (2000)
used proxy measures for assessing social capital, proxy measures for social
benefits might be used, such as: changes in demand for specific services,
for example, for drug, alcohol, and medical services; raised educational
attainment; increased self-esteem and individual and community well-being;
reductions in neighbourhood disturbances.
The outputs of social enterprises are not restricted to firm level and extend
to the local and macro economy. Drawing on findings from mainstream
entrepreneurship, social enterprises might positively affect local development
in terms of employment, income growth, increases in tax revenue, enhanced
provision of services, increases in local income retention, and demonstration
and motivation effects (OECD 2003b). At macro-economic level, the outputs
of social enterprises contribute to welfare reform, perform a re-distributive
function for resources between different societal groups, stimulate social
innovations and generate employment opportunities (Borzaga and Santuari
2003).
In addition, it is also important to acknowledge that some social enterprises

might generate negative outcomes, such as increases in transaction and
contract costs and decline in the quality of jobs and services (Young 1999),
also that some may fail and cease to operate. Research that investigated
causes and consequences of social enterprise failure, and identified
strategies to avoid failure, would be extremely valuable for the practitioners

and communities served by social enterprises.
TRAINING, EDUCATION AND LEARNING ABOUT SOCIAL ENTREPRENEURSHIP
In the UK, a wide range of for-profit and non-profit organisations offer practical
training for employees and volunteers in social economy organisations. Many
of the courses teach the basics of creating and running a social enterprise
such as raising finance, marketing, and how to write a business plan. This
information is essential for practitioners and the profusion of training courses
is a reflection of the high level of demand. However, these courses tend not
to be concerned with theory development or policy implications, and their
material does not lend itself to academic courses.
In the last thirty years, mainstream entrepreneurship education has become

firmly established on the business school curriculum. Social entrepreneurship
is a relative newcomer, and only a small number of specialised courses for
potential social entrepreneurs and those considering working in the social
economy is available for under-graduate and post-graduate students. In
the US, Harvard and Stanford Universities have well established social and
community enterprise programmes and in the UK, Cambridge, Oxford and
Southampton Universities offer postgraduate courses in social and community
enterprise. In addition, a small number of social entrepreneurship special
interest groups have been created by academics in the UK and US. The
increase in interest in social enterprises at policy level is likely to stimulate the
development of more courses in this area, and further increase the demand
for robust and rigorous social entrepreneurship research. Research that
mapped the emerging social and community enterprise academic curricula,
patterns in student recruitment and performance, and internal and external
course evaluation and validation would provide essential benchmarking
criteria for academics and practitioners.
CONCLUSION
This paper has outlined eight social entrepreneurship research themes each
of which would provide valuable information for academics, practitioners and
policy makers. At present, research in social entrepreneurship in the UK is
hindered by the lack of standard and universally acceptable definitions of
social enterprise, social entrepreneur and social entrepreneurship as well as
the absence of a national register of social enterprises. It is likely that, in the
UK at least, these deficiencies will be overcome in the near future, enabling
future research that uses standard definitions and gathers survey data from
the national population to be more valid and reliable. To maximise value from
limited resources, the many research opportunities identified in this paper
need researchers from different institutions to work together to produce valid,
reliable and comparable data that can be shared by researchers, policy makers
and those with an interest in social entrepreneurship. To advance knowledge
and understanding, research should be grounded in existing management
and entrepreneurship theories. Although most social enterprises are small
organisations that serve a local constituency, international research is also
essential for generating and testing theory and sharing best practice between
countries. Rigorous and robust conceptual and empirical research will benefit
practitioners, academics and policy makers, but most of all, the individuals
and communities for whom social enterprises are created.

ENDNOTES
1. EMES (L’émergence des enterprises sociales, réponse novatrice à l’exclusion

social en Europe) established in 1996.
2. Johns Hopkins Comparative Non-profit Sector Project, Baltimore.
3. INAISE (International Association of Investors in the Social Economy)
www.inaise.org
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please contact the author at 44 (0) 1223 766592 or e-mail h.haugh@jims.cam.ac.uk

Viable social enterprise -
an evaluation of business
support to social enterprise
Frances Hines is currently a Research Manager at the ESRC Centre for

Business Relationships, Accountability, Sustainability and Society (BRASS)
at Cardiff University. The BRASS Centre is a multidisciplinary research centre
combining expertise from Cardiff Business School, Cardiff Law School and the
School of City and Regional Planning. It exists to understand and promote
the key issues of sustainability, accountability and social responsiveness,
through research into key business relationships.
This paper is based on research commissioned by Triodos Bank, an ethical

and social bank that lends to social enterprises across the UK. The research
was undertaken in 2004 and aimed to identify the challenges faced by social
enterprises in the UK in their attempts to set up, develop and to access support
needed to achieve their social, economic and environmental objectives. The
paper provides a summary of the research in the report titled, Turning Big
Ideas into Viable Social Enterprise: Investigating the Ways in Which the
Right Technical Business Support Can Turn Real Social Needs into Viable
Social Enterprises. The paper starts by introducing the historical perspective
of social enterprise, focusing on some of the key problems of definition and
complexity within the social enterprise sector. It then looks at some of the
current problems facing the sector in terms of the provision of business
support. Two case studies are considered: the electrical and electronic waste
refurbishment and recycling sector, and the care sector. The paper concludes
with recommendations for the social enterprise sector.
THE HISTORICAL PERSPECTIVE
There have long been social enterprises in the UK - charities, worker co-
operatives, and non-profit organisations have been part of the organisational
landscape from the late 18th century, and became a well-developed part
of the Victorian social landscape. In addition, a number of high profile
commercial companies developed social principles that embraced the working
conditions of their employees, the training of the socially disadvantaged and
the inclusion of the community into the daily life of the company. From that
period and throughout the 20th century, many of these organisations, often
those with charitable and non-profit functions, have had clearly defined social
aims and objectives and have achieved much in the support of activities
generally overseen by public bodies. The feature that often characterized
these organisations was their strong adherence to a social purpose. There
was often less interest in ensuring the organisation was being run on business
principles. The existence of social businesses or social enterprises appears
to grow and decline in cycles, sometimes thought attributable to economic

supported in the late 1970s and 1980s, lost support from government agencies
and economic agencies throughout the years of economic growth in the early
1990s and then have seen increased support through EU funding and the
Single Regeneration Budget in more recent times (Tym and Partners 1999).
It is only very recently that the phenomenon of the social enterprise has
taken on a somewhat new meaning, one that appears to blur the boundaries
between business and social principles. In the late 1990s there was a
substantial amount of work done at national, regional and local government
level, within economic development agencies and within the sector itself
to develop a range of strategies, programmes and initiatives to track the
progress of social enterprises. This work also aimed to find out what makes
such organisations succeed or fail, and to identify what needs to be provided
in terms of business support to ensure that the social enterprise sector grows
and contributes increasingly to the social and economic welfare of Britain.
Social enterprises are essentially businesses with social and environmental

objectives. They are “self sustaining businesses that trade in the market
place, (and) their core purpose is social and/or environmental” (SEC 2003).
There are a number of other features that can be used to help define what a
social business actually is. They are “directly involved in producing goods or
providing services to a market” have “explicit social aims such as job creation,
training or the provision of local services” their profits are “principally reinvested
to achieve their social objectives” (SEC 2003) and they are also characterised
by their social ownership i.e. they are “autonomous organisations whose
governance and ownership structures are normally based on participation by
stakeholder groups…or by trustees or directors who control the enterprise on
behalf of a wider group of stakeholders” (SEC 2003). Definitions are important
because they sometimes determine the access that a social enterprise has to
support services, grant funding, loans, contracts and a variety of other things
that may determine how successful and sustainable the business is.
CURRENT PERCEIVED PROBLEMS FOR SOCIAL ENTERPRISES IN THE UK
It would appear that the British public has a general lack of awareness of
the social economy and the businesses, enterprises and other organisations
that are part of it (Smallbone et al 2001). The plethora of types of social
enterprises, the terminology that surrounds them, and the ways in which their
legal structures allow them to interact with the public in different ways may be
some of the sectors biggest problems. While the lay person may feel they are
fully conversant with the idea of charities, of co-operatives and to some extent
the notion of community based organisations, they are much less likely, even
if using their products or services, to be aware of the concept of the social
business or social enterprise. The lack of knowledge may itself be a barrier
to the rate of progress in providing support for the sector. Policy development
and implementation are often stimulated by public interest or concern about
specific social issues or wants. A higher profile for the social enterprise sector
might unlock more central and local government commitment, and a more
user friendly and transparent terminology might help the development of such
a profile.
In 1999, there appeared to be relatively little business support for social

enterprises. The HM Treasury Report on Enterprise and Social Exclusion
argued that social enterprises were “less understood and rarely promoted

in a consistent way by the existing infrastructure for business support” (HM
Treasury 1999:108). While there was some support from a range of voluntary
organisations and local authorities, these were seen as operating separately
from mainstream business support agencies. The agenda of central
government in recent years, however, has meant that there is now a greater
incentive for business support organisations to provide assistance to social
enterprises. The establishment of the Phoenix Fund and other community
and local based finance initiatives, the existence of organisations already
providing support for social businesses, including those based around co-
operative movement principles, and the promotion by the Treasury for the
development of an integrated network of business support and training to
social enterprises, have all meant that there are many initiatives designed to
develop better cohesion and efficiency in the provision of business services
through Business Links/Connect/Gateway, the Small Business Service (DTI
2003) and others (SEC 2003).
There appears therefore to have been more actual, or potential, technical

support for social enterprises in the very recent past. The Business Link
Network has, since April 2003, for example, been required to provide its
services to those seeking assistance from the social enterprise sector (DTI
2003:38). The DTI in their Progress Review appear to identify the Business
Link service as one of the main ways in which the government will support the
development and growth of social enterprise. The government’s aspirations
for the social enterprise sector are to have:
“innovative and sustainable companies that will help to grow the local
economy…the emphasis is on timely and relevant business support and
training, e.g. through Business Link organisations and other intermediaries,
and improved access to appropriate and affordable sources of finance” (DTI
website cited in SEC 2003:12).
However, they recognise that this service is yet to provide a satisfactory

service, when they state that:
“While there is still much to be done to deliver the consistent level of excellence
required, the first steps have been taken” (DTI 2003:38).
Despite the increased awareness in government of the need to support

social enterprises, the fragility of the sector and the plethora of enterprises
and business models it contains mean that business failure or short-term
existence is sometimes a feature of the sector. Brown (2002) identifies
some extremely important reasons why social enterprises fail. He looks to
the past, specifically the 1970s and 1980s, and sees, in particular, the issue
of size being a key factor in causing the demise of large numbers of social
enterprises during that period. Enterprises that are too small are simply not
sustainable in the majority of cases.
A further issue has been the under-resourcing or under-capitalisation of social

enterprises. Lack of strategic financial planning skills within the sector has
meant that there have been many social enterprises set up without sufficient
expansion capital, or even sufficient initial resource capital for items as
essential as equipment, marketing support, or other basic business needs.
There has been a significant problem in recent years in targeting funding from
financial institutions, especially from equity investors, meaning enterprises

start without sufficient real capital for them to grow even in the relatively
short-term. Indeed, finance often emerges as the greatest barrier for social
enterprises to overcome (Leslie 2002). The complexity of the funding situation
also provides barriers to success. Many smaller social enterprises expend
a lot of effort in trying to obtain grant funding, and can become entangled
in highly competitive conflict situations with other social businesses and
sometimes with business support agencies themselves.
The Social Enterprise Unit (SEU) identified some major barriers to the
growth of the social business sector (DTI 2002). These included a poor
understanding of the value of social enterprise by many stakeholders and a
lack of coherence within the sector. A further barrier was identified by Leslie
(2002) who suggested that bureaucracy frustrated growth and caused many
administrative problems for business managers. In addition to this, they
are also likely to have problems accessing premises and equipment. The
research that forms the basis of this paper aimed to find out to what extent the
causes of failure identified above were currently true, and to what extent the
business support sector is acting to ameliorate these causes.
METHODOLOGY OF THE RESEARCH
The research reported in this paper aimed to build on existing research

by conducting interviews with informants from social businesses. Twenty
organisations were drawn from Triodos Bank’s client list and a further 10
were selected using a parallel representative sample, but which were not
Triodos clients. Finally, five organisations from two specific industry sectors
were identified for more detailed research: the electrical and electronic waste
refurbishment sector and the care sector.
Data was gathered by telephone and/or face-to-face semi-structured with

key informants. The interviews collected information about the
following issues:
• Business profile - age of firm, number of employees, business function,

business growth, premises.
• Technical profile - skills and resources needed to set up and run the
business, in-house resources and external resources.
• Business support - types of technical support and source (Business

Link/Connect/Gateway, and pro-bono support).
• Evaluation of business support - Relationships with support providers

(including Triodos Bank) and funders.
• The role of social businesses in the UK and the quality and level of
support available to the sector.
28 informants agreed to participate in the research. Due to the large number

of organic farming enterprises that comprise part of the client list, the sample
was skewed towards organic related businesses (farming, wholesale and
retailing of organic products). Fewer care-related businesses than anticipated
from national statistics were included, however this is in line with Triodos
client base.

The age of the social enterprises in the sample varied widely from those that
had been established for a long time (more than 30 years) to those that were
just a few years old, and some that were in the process of establishment.
The average age of the enterprises sampled was just over 11 years. The
majority of enterprises were small to micro-sized, with only one that was of
a medium size with 25 full time employees and two that were much larger
(more than 100 full time or equivalent employees) and both of these had
been in existence for more than 10 years. 21 enterprises were reported to
have experienced growth since their establishment. Of the 7 enterprises that
did not report growth, most were very newly established, or only a few years
old. The two sectors that did not report growth in older businesses were
organic products and religious organisations; these enterprises had reached
a sustainable capacity for the type of work they were doing and were unlikely
to seek growth in the future.
The reasons provided for the establishment of the social enterprises included:
those that had started as a result of the demise of some other organisation or
body; those that had spotted a gap in the market and started a small social
enterprise to fill it; those that had arisen out of social concern; some that had
arisen out of links with a local authority or Regional Development Authority
(RDA) or other public sector body; and those that arose from a common
desire or feeling by a group of people who had set out to achieve a common
goal or aim.
CRITICAL ISSUES WITH BUSINESS SUPPORT FOR SOCIAL ENTERPRISES
Sources of business support

Many informants stated that technical knowledge and support came from
internal sources, or from closely associated bodies such as Boards of
Trustees or committees attached to the business. They said that “committee
members are used for skills”, “the Director is a business man”, “Trustees have
skills”, “(we) make use of retired executives”, and the “bulk of experience is
in-house or through network(s)”. A small number reported that they did not
need any business support as they were capable of dealing with all the issues
themselves (these tended to be the educational or sustainability related
projects, and were not directly engaged in providing products or services).
The research investigated the different types of external support used by

each sector. Government support agencies were the most popular source
(15 informants) followed by informal networks and consultants (7 informants).
Consultants were reported to have been used for a small range of specific,
highly skilled tasks (planning and building issues, financial matters and
energy related issues). While formal networks have been identified by
various strategies, reports and other documents as being a possible means
of providing social enterprises with support, it appears from this research that
informal networks are likely to be more useful. The most frequently mentioned
external source was from government sources, thus providing evidence of
a growing provision of social enterprise targeted services. However, the
evaluation of this type of support was not positive (see below).
In relation to the national business support network infrastructure (Business

Link/Connect/Gateway), only 4 respondents considered that they were the
target for this type of support (3 were from the organic sector and 1 from
education). Of these, 1 respondent reported that they received a very good

response to their requests, whilst the other 3 felt the response was only
average. Of the 21 businesses that felt they were not a target, many could
not comment on the quality of response they had received from Business
Link/Connect/Gateway (only 10 organisations expressed a view).
The overall impression of the national support service was that it provided a
poor quality of support which was not perceived well by recipients. Of the 11
recorded responses, only 3 organisations felt that support was appropriate.
Comments included: “Business Link is not specific enough for co-ops”,
“Business Link was not helpful as it didn’t understand the business”, “Business
Link is not promoted to people like us - we are not normal and they can’t deal
with people out of the norm”. In Scotland, the comments about Business
Gateway were similar, “there are no real business people out there to help,
and the Business Gateway type don’t understand. We need a regional social
enterprise person who can actually help social businesses with real business
knowledge.” Only two comments appeared to be positive, one might be
explained by the fact that the informant acted as a mentor for Business Link,
and the second stated that “as an independent trader it is hard to find time but
Business Link came to you”.
Other, mainly government sponsored, bodies or organisations were cited

as having been used as a source of business support. These included
local authorities, and of the two respondents that used them, the evaluation
seemed to be quite positive; “Support from local councils was sufficient -
no need to look elsewhere” and “Business adviser from the local authority
was very good”. Only one respondent reported any contact with their RDA,
and here the view was positive with a comment that the “RDA gave all help
needed”. However, as the RDA had been instrumental in the setting up of
this particular social enterprise, the opinion may not be impartial. Of the 7
respondents that used commercial consultants, 4 felt that these delivered the
type of support they needed.
Overall, the evaluation of external support agencies and support organisations

were not positive. While the sample used is small, it nevertheless appears
to provide some level of indication that the progress expected of Business
Link and its Welsh and Scottish counterparts has not yet been achieved, and
further development is needed to meet the needs of the social enterprise
sector.
Informants were also asked about their relationships with the different support
providers. It was hoped that responses to this question might provide some
insight into why support appeared to be more easily accessible by some
businesses than others. In terms of relationships with grant funders or similar
bodies, informants reported that unreasonable demands were being made
on them, arguing that “sources of public funding are getting increasingly over
designed and put often impossible demands on grant recipients – there is
always tension involved” and went on to say that it seemed to be a “case of
the blind leading the half blind”. An atmosphere of frustration and tension
appeared to surround relationships with funding bodies.
Use of pro bono support had only been secured by 1 informant, and as the
informant was from one of the oldest social enterprises interviewed, this might be
explained by the length of time needed to develop contacts to secure this type of
support. Most interviewees were unaware of the potential of pro bono support.

In relation to the ease of gaining access to, or knowledge of, technical
support, informants said that it was “Not clear where to go for support…. No
real network so difficult to find out how other organisations cope” and that
there “Should be more opportunities for similar businesses, not aware of what
support is out there”. “There is a mismatch of business support agencies with
different agendas and getting them to join up is quite difficult. There is an
awful lot of info out there but it’s not necessarily hooked together as well as it
could be.”
However, there was some evidence that support had improved:
“Help has improved over the past few years, the organisation is well structured
and trustees are business minded, the problem is when you are smaller and
the workload is greater. Time is limited and you need to find information,
larger organisations have people approaching them. It is difficult to know who
to contact, we need a directory.”
In terms of the range of services provided by the support sector, it was

reported that:
“If the social enterprise sector is to grow what it needs is a far wider range
of inputs to support activity, not just business advice e.g. how to build social
capital, legal inputs, architects, quantity surveyors, management skills.
Communities and community enterprises are pushed to do it all themselves
– this is very misleading. What they need to do like any other business is hire
in resources.”
However, the buying in of skills was felt to be a big problem as it was

“Impossible to get funding for core activities and business consultancy funding
for business skills”.
It is evident that, on the whole, the informants considered that the sector
was not the target for business support, and that their needs were not really
understood. Although high quality support was available, this would have to
be purchased, and they lacked the financial resources to pursue this option.
In terms of spatial differences in the provision of support available, most
respondents felt that there was no particular difference from one area to
another. The only exception was in the access to funding, and one business
felt strongly about this issue, arguing that:
“Financially there is a distinct level of finance in some areas. It is a big issue

and a serious consideration. If we moved we would only go where the money
was. Some areas that are categorised as suffering from social degeneration
seem bizarre. They are not always logical. There seems to be a mismatch
between what is stated by the local authority departments who say that there
is no need for some of these activities, and an actual huge demand that exists
in the day-to-day social service department personnel.”
Such inconsistencies would especially make smaller social businesses quite

nervous, and would potentially prevent them from seeking to expand the
products or services they provided, if they felt that they would be placing
themselves in an insecure position financially and contractually.
The acquisition of buildings and/or premises by social enterprises has been

identified as a major challenge to social entrepreneurs. Of the sample, 19
were in their original premises, 8 were not (and 1 declined to say), and of
those that had moved into new premises, 50 percent of these premises were
rented. There was no significance to the pattern of age of companies that
have moved, as they ranged in age from 3 years old to over 30 years old. It
had been anticipated that most premises would be rented (due to the cost
of buying premises). However, several social enterprises had been set up
specifically to purchase premises for a variety of functions, whilst others were
shops, the original entrepreneur’s house and even portacabins. The need for
premises was just one example of the kind of problems facing individual social
enterprises, other problems included lack of resources, lack of management
skills, or specific skills such as accountancy, developing publicity and
marketing.
ISSUES FOR SPECIFIC SOCIAL ENTERPRISE SECTORS
Electrical and electronic waste refurbishment and recycling sector

This industry sub-sector was identified for further research for a number
of reasons. Electrical and electronic waste management in the UK has
recently come to the forefront because of new legislation from the European
Union. The Waste Electrical and Electronic Equipment (WEEE) Directive
is currently under transposition into British law, and the UK Government,
industry, local government, retailers and the waste management industry are
engaged in discussions about the best means of providing waste take back
and reprocessing infrastructure. The social enterprise sector has become an
increasingly important part of this infrastructure in the last fifteen to twenty
years and over 300 social enterprises of varying sizes now exist to collect,
refurbish, recycle and reprocess different sorts of electrical and electronic
equipment.
This sector combines environmental aims focused on waste diversion

and the reclamation of resources from the waste stream, with social aims
focused on the creation of jobs and training for people previously excluded
from mainstream employment (Nelmes 2004). There are a variety of social
enterprise models that exist in the sector including salaried training (Nelmes
2004), which may also include the provision of qualifications such as NVQs
to City and Guilds in such subjects as electrical servicing, basic office skills
and administration (Nelmes, 2004). To obtain some idea of the size of the
sector, the example of the Furniture Reuse Network (FRN) is useful. This
is an umbrella organisation that coordinates some 300 organisations that
refurbish furniture and electrical appliances. In 2002, the organisations
covered by the FRN employed 1500 full time and 700 part time staff, 10000
volunteer placements annually, 5000 community service placements, 3000
trainee placements and 1000 special needs placements. These figures are
growing exponentially (Nelmes 2004) mainly due to the WEEE Directive, and
to contracts for bulky waste with local authorities.
Four electronic and electrical equipment refurbishment social enterprises

were included in the research: two large organisations and two small ones
located in London, East Anglia, Somerset and South Wales. The ages of the
enterprises varied from 3 years, 8 years and 21 years old. They employed
between 3 - 100 full time staff, with large numbers of trainees, volunteers or
other people benefiting directly from their activities. A similar operating model
was used by all four businesses: people were trained and employed on a

variety of sorting, disassembly, repair and rebuild tasks for which they could
receive different kinds of training qualifications, they often had the opportunity
to construct their own equipment (e.g. computer) as well as adding value to
the process of the business. Most of these enterprises had a combination of
environmental and social principles as their central focus. One said that “(We)
repair, recycle and upgrade the computers and related equipment received
and then send it out to charities, people on benefits, pensioners and others.
(We) never really charge unless for internet ready or need to deliver a long way
out of our normal runs.” Whilst another identified the product benefits from
their work as a central function “We recycle computers and related equipment
given to us by businesses and Local Authorities. It enables disadvantaged
people to obtain IT. It helps to break down the digital divide and the whole
process is completely equality driven; experience, knowledge, support.” All
four enterprises said that they expected their work to grow significantly in the
next 12 months.
The issue of increasing pressure from commercial organisations, waste

management companies and a variety of other stakeholders was identified
by the enterprises questioned. They stated that they have had to change
the way they work over the last few years, and they have had to become
“more professionalised”. It was also argued that the enterprises had to work
at 120 percent whereas commercial businesses worked at 100 percent, and
this was because being classed as a voluntary organisation or charity meant
that commercial businesses “did not take them seriously”. While finding this
increasing pressure to be professional a challenge, it was also recognised that
it was the way things were going to be from now on. They argued that while
it was not possible to be “flashy in terms of facilities and furniture as private
businesses” because they were essentially about people, it was accepted that
certain things were needed in order to succeed in today’s markets. It was not
a case of waiting for things to happen, as these businesses “have had to be
reactive to the market rather than just sit there.”
It was reported that resource constraints and financial management made

the general management of the enterprise difficult, especially accessing
suitable buildings and premises. Enterprises often occupied run-down
and/or old buildings because of the low cost and lack of competition from
commercial companies. The quality of these buildings does, however, reach
a point where they are no longer suitable in terms of working conditions, or
the enterprise grows to such an extent that they need to find somewhere
else. One enterprise said it was very successful but the building by today’s
standards was classed as below the line for employees. It was seen to be
very comfortable and family-orientated but they knew they would have to
make fundamental changes to improve the standard and to raise the profile
of the business. One of the problems with buildings or premises was actually
being able to find them and take possession of them, and this often related to
the financial resources required to achieve this. One of the enterprises said
that all their properties were rented or leased and they were looking to buy
premises but found that funders were not interested in helping. They argued
that it was particularly difficult with grant funding because funders wouldn’t
give money for buying buildings as it was seen as giving organisations an
advantage over their competitors. At the end of the funding period they would
also have to pay back the residual value of the buildings, which would have
gone up. The same enterprise had considered getting a mortgage or loan
to purchase a building but the organisation’s Board had concerns, and the

whole process was becoming very difficult. The actual process of obtaining
premises was seen to be particularly difficult without support;
“It was a nightmare to get a lease. It is a scary process as the leases were
frightening and what we were given was a horrendous document, totally in
gobbledegook. It is still terrifying with the (business) unit, as it is not clear
what we are responsible for and we don’t know if certain things happen, who
is responsible, although we feel we can negotiate with the leasing company
as they are quite supportive.”
“We asked for help with surveyors, architects, lawyers, planning. We twisted
somebody’s arm otherwise there would have been no free help. We had to
do all of the work looking for new premises by ourselves, only once was the
Chairman of the Board asked for help.”
In addition, the problems did not necessarily stop once the business obtained
its new premises “There have been problems with the telephone connections,
with the electricity supply, with alarms and with fire extinguishers.” The
enormity of these many small tasks caused concern within the organisation,
especially as with the disassembly and refurbishment of large quantities of
items and recovery of materials, the need for larger premises is often more
pressing than with social enterprises engaged in other sectors, although
premises and their acquisition and management was a problem that engaged
the minds of managers across the whole of the social enterprise sector.
In relation to accessing useful business support, the comments made by

informants from this sector reflected those of the other respondents in the
study. The Business Link service was felt to be “appropriate when (it) has
the answer”, and it was argued that they had tried hard to “target social
businesses, especially in London.” In general, the comments were negative:
“Not very good. (There is a) Strong need for (i) more generic advice on basic
aspects such as handling maternity leave and, (ii) one-to-one mentoring
activity. The establishment of good personal relationships is essential, which
Business Links don’t seem to provide, perhaps due to limited time. It’s more
about people than numbers. Many people in social businesses are not
business minded. Although they are passionate about their work they have
limited business skills. Business Links are talking in the wrong language.”
Even when there was an appreciation of the work done by one of these
organisations, there was nearly always a qualifying statement “Business Link
have too much information, it is harder for Business Link to advise everybody
as they don’t know these different directions”.
Comments about pro bono support were also not very positive. Pro-help, the
pro bono scheme set up by Business in the Community (BitC), for example,
was described as “a frustrating experience” that was too “slow and under
resourced”. Where pro bono support was felt to be of a better quality, it
appeared to have been arranged by the social enterprise itself and their
contacts gained through informal networking. The type of support appeared
to have an impact on the quality of the support gained. Free legal advice
that had been gained through direct contact with solicitors had resulted in a
very good experience. An informant from one of the larger social enterprises
said that, in general, their experience of pro bono support fell into one of

two ‘camps’: (1) Legal advice provided by lawyers; which was very good,
with nothing short-term or unprofessional about it and (2) marketing/financial
advice/support, which tended to be more informal, less structured, less
professional and almost certainly short-term.
In common with responses in the main survey, other sources of support had
been consulted and the role of networking appeared to be very important. One
of the largest enterprises interviewed said that they networked with external
bodies in their own sector and beyond. They believed that the community
sector was probably more informed than commercial sectors because they
were used to sharing information. With social enterprises, they argued,
people wanted to help and were willing to share best practice and advice, but,
due to competition in the market place, this was not necessarily the case for
commercial organisations.
Several interviewees had obtained support from voluntary sector representative

organisations either at the national or local level. The Association of Chief
Executives of Voluntary Organisations (ACEVO) was identified as being
extremely useful, and “great for management training and mentoring.” They
were said to operate almost like a trade union, as a set fee is paid annually.
At the local level, a voluntary service was described as “a lot of help and only
£25 a year”.
There were other places that these enterprises had tried for support,
including going to its RDA, and seeking help from an entrepreneurship in
action programme. However, they felt that these support agencies lacked
understanding. Another one had used its local Chamber of Commerce who
helped to publicise what they do, and had also used the Learning Skills
Council to help them with their training and other activities. There was
use of the Community Action Network, who had organised a franchising
workshop funded by the Phoenix Fund (DTI), which was attended by one of
the business managers. One enterprise had gained information and support
from the Charities Commission, from Companies House, ACAS, and from
their local Investors In People office. Finally, one of the enterprises was a
Christian based charity and had found it useful to be part of a network of other
religious communities.
The question was asked as to whether the interviewees were aware of

any specific sector support, especially as informal networking and contacts
seemed to be one of the key ways in which these four enterprises accessed
help and advice. There did not appear to be any such support, however, and
although the interviewees were aware of general waste management and
recycling networks which are quite active in the UK, there did not appear to be
sector networks for support, although the more general Furniture Recycling
Network (FRN) was said to be a good source of information and support.
The enterprises reported that they did have ad hoc contact with some other
enterprises, but the smaller ones interviewed felt that they were not regarded
with much interest by some of the larger organisations in the sector.
There was overall a fairly negative feeling about business support for the
social enterprises in this sector. Comments abounded and revealed the level
of frustration amongst business managers in what is a tiny fraction of the
social enterprises in this sector; one saying that “There is very little support,
technical support.” another that “Sometimes we feel ‘flooded’ by support

organisations. However, there is little continuity and no substantial help. Much
support is therefore of limited use.” When support was available it was felt to
be poorly focused as it was mostly “‘business’ not ‘social’.” It was argued
that generic advice was ‘ok’ but more in depth advice on management skills
was lacking and this was a concern for those enterprises that were growing.
It was felt that there was “a clear need for improved provision of longer-term
mentoring services and support focusing on aspects of business/management
psychology”. One of the business managers expressed frustration that more
support was not offered by commercial business. Given that this sector saved
commercial businesses a lot of money by removing waste from landfill that
these businesses would have had to pay for otherwise, it was felt unfair that
these same businesses were unwilling to support the social enterprise sector
financially or otherwise.
There were a number of comments made that generally expressed the anxiety
and frustration felt by this small sample of social enterprises. One stated, “We
didn’t know what questions to ask of support providers” and as a result had
not made the best use of support available. The problems of finding time to
access support were also highlighted, as it was argued that the enterprise was
crisis managed and hadn’t the resources to seek help. The sustainability of
support was also identified as an issue, as one business argued that “Lifelines
can go, just like that. People don’t consider the long term.”
It appears that even with a sector that provides a substantial amount of

employment and training, and which provides benefits in terms of low cost
goods to local communities, having clear economic, social and environmental
benefits, the ability to access consistent, and well focused targeted support
is quite difficult. The national business support services do not seem to be
providing the kind of quality of support that is needed, and currently these
social enterprises appear to rely more on local networks, contacts, and help
provided by organisations that are not wholly set up as support providers.
The care sector

The care sector is diverse and includes social enterprises that provide services
in caring for the terminally ill, the elderly, people in sheltered accommodation,
people with specific disabilities and many others. These organisations are
often linked to Local Authorities and provide non-profit making facilities that
support the public sector without being too expensive for use by individuals.
There are a number of success stories in the care sector. One of these has
been highlighted in the SEC’s 2003 publication, There’s More to Business
Than You Think. Sunderland Care Home Associates is a major service
provider for Sunderland City Council’s social services department. It provides
domestic services and personal care to hundreds of people in the city providing
some 3500 hours per week, offers training and employment opportunities to
many women and unemployed men from former mining communities, and
is employee owned, with a turnover of more than £1 million annually (SEC,
2003).
In the care sector, the focus is on training, skills and the management of
materials and products for environmental and social benefit. Operationally,
the sector is occupied with the provision of services, and while it may provide
training for its employees in care related skills, its main function is to provide
services that make the quality of life better for individuals and/or communities.
This means that the social enterprise may have less of a focus on the business

aspect of what it does, and that this type of support provided may be even
more difficult to target and tailor to organisational requirements.
Informants from five care related social enterprises were interviewed. They
varied in size, the largest employed 15 full time employees and the smallest
was staffed entirely by 4 volunteers. One organisation with 10 full time
employees included 40 volunteers. Three of the enterprises were over 10
years old, and the other two were between 2 and 3 years old. The enterprises
were all located in the South West and Wales. The five enterprises either
followed a residential model or were set up as office based businesses with
drop-in facilities. Two had been set up in conjunction with local public sector
bodies, one with the Youth Service and the other with the Local Health Trust.
The remaining three had been established because there had been a gap in
the market for the provision of specific services for disabled people, and the
social entrepreneurs who started them felt strongly that there was a need for
the services that they provided.
All of the social enterprises interviewed in this sector thought that obtaining
funding was a major problem, and one identified funding above all other
kinds of support as the most important, stating that “It is the financial support
that the (business) is lacking, not the business support, as I already had
business experience.” and there was a similar comment from one of the other
businesses who argued that “Although there is plenty of advice available, it is
the financial support that is missing, I probably won’t even apply for financial
support as it is so problematic.” In fact the issue of funding was perceived to be
such a problem with yet another of these enterprises, that they were looking
for funding so they could appoint a specific fundraiser to help them access
more funding. Another felt that funding was very restrictive as it meant that
they had to answer to funders rather than concentrating on the main social
purpose of the enterprise itself. A third was rather frustrated by their search
for funding and felt that there was competition of the wrong type, arguing that
“There is not enough support, we thought the lottery would help but that is not
the case – (it is) a source of good financial support that has been abused.”
The very nature of the care services delivered by the sample of enterprises
meant that they were not in such a strong position to obtain any value from
their activities that could be reinvested back into the organisation. This was
unlike those in the refurbishment sector who could, in theory, obtain revenue
from the materials and equipment they processed. Although it was possible
for one or two of the care enterprises to obtain income, for example through
the provision of residential holidays for disabled children, the amount they
could charge for these services was relatively low compared to the capital
outlay, and ongoing level of care they needed to supply their clients.
None of the enterprises interviewed in this sector had any real knowledge
of Business Link or Business Connect. Two of them had received some
business advice from what they termed government sources, this was found
to be a county level ‘Business Initiative’, that was funded through local
economic development funding from Local Authority. One of the interviewees
received support from the Local Authority’s Social Services Department with
whom they worked closely to assist deprived families in their area. The Social
Services Department supported the project and kept in close contact with the
enterprise through quarterly meetings. The same organisation also received
a measure of informal support from an academic at a local university, and

engaged a specialist consultant to help them. With these different sources of
support the enterprise was able to keep going and gain further funding. None
of the other enterprises identified other external organisations as sources of
support.
None of the five enterprises had any kind of pro bono support, and were
unaware that this kind of support could be available to them. This was
probably partly due to the lack of time they had to search for sources of
support, but was also due to the type of services they offered which were
not commercially focused. The most commonly cited source of support was
informal networks and contacts, or from family and other acquaintances of
the manager of the business. One informant stated that “The informal support
networks are the most useful” and another, who said that they felt it was
necessary to “build up political networks. The informal networks that are
most useful have been built up over time via experience with local authorities,
by attending conferences, and at a local inter-agency meeting that was set up
by the church.” A third said that he had found that informal networks were the
most helpful. Two of the interviewees specifically identified those who were
closely associated with the enterprise either formally or informally, directly or
indirectly through personal knowledge, as being important in providing help.
One interviewee stated that “the Trustees and Members of the Board provide
very important links and offer support, encouragement and commitment.”
whilst the other said that the manager of the enterprise had relied in the past
on “help from friends and relatives, especially when the project was first set
up, as there was no time to look for outside support as the project took up all
the co-ordinator’s time.”
In comparison with the refurbishment sector enterprises, informants from the

care sector reported to have very little contact with external business support
agencies, and to rely almost entirely on their own internal resources, skills
and experience or those provided through informal networks and ongoing
contacts with family and friends, or those connected with the enterprise
through the management structure. This might partly be due to the nature
of these enterprises, which may have less obviously recognisable business
models being more closely aligned with the charitable sector and voluntary
sector. However, it may also be due to a basic lack of awareness on the
part of mainstream business support providers that social enterprises exist
within the care sector. The conclusion was that the level of business support
available to them was inadequate and that it was difficult to know where to
start looking for support and how to access the support anyway.
SOME CONCLUSIONS AND RECOMMENDATIONS
While central government strategies and reports seem to indicate that there
has been rapid and substantial progress in supporting the social economy,
this research has identified gaps in provision. Although there has undoubtedly
been progress in the understanding of the concept of social enterprise within
the support agencies and networks, on the ground the delivery of this support
appears to be problematical. Most informants reported that the support
available lacks understanding of the principles on which they are based,
and they were frustrated about the difficulties they had in obtaining even
basic advice to help them manage and improve their business. Despite the
focus and task being given to the national business support service, there
appears to be little progress in developing skilled focused support for the

social enterprise sector, and social enterprises remain rather cynical and
disillusioned about the quality of the support provided. Many rely much more
on their own knowledge and skills, the information and advice they can obtain
informally from networks or from friends and acquaintances, and occasionally
the help from local government, trustees or committees attached to their
organisation. They value the assistance given by networking with other social
enterprises in their sector, and considered that more interactions of this sort
would prove valuable.
Generally, those interviewed reported that they had good relationships with
the different organisations that provided them with support, even thought the
quality of the support they received was low. It would appear, therefore, that
the national business support service has yet to provide the kind of help that
social enterprises require.
The waste electronics and electrical equipment refurbishment, reuse and

recycling social enterprise sector is growing and can be expected to continue
to do so in future. It is a sector that is perhaps more commercially orientated
than some other social enterprise sectors in that it focuses on the recovery
and value of materials, and the resale or provision of equipment back into
communities. While it has strong links with the many other actors, the small
size of many of these social enterprises means they are highly dependent
on good quality business support and information. They need support that is
highly focused, and rapidly delivered if they are to operate in a world in which
material values and diversity of products is constantly changing. They need
to spot market niches, have highly skilled employees and still have a core of
social principles designed to provide those with limited employment prospects
with the help and confidence to progress into the full time job market. On the
whole, it seems as though the support they require is not yet forthcoming, and
as one of the interviewees pointed out, the sector is not sufficiently robust
to ensure that all of the many smaller enterprises remain viable. While in
business terms the demise of an inefficient business makes economic sense,
in social and environmental terms it can be extremely damaging for its local
community.
In the care sector, informal networks and the support provided by personal
contacts were again most important sources of support and advice. In
general, those interviewed rated mainstream support available to them as
inadequate. Funding was viewed as a critical issue by all the enterprises, and
lack of information about this acted as a barrier to growth. The care sector
seemed to suffer from its own success in some ways, as the job that it was
doing meant that they became integrated into service provision so effectively
that they were no longer clearly regarded as social enterprises, but became, in
the eyes of some stakeholders, inextricably linked with the services provided
by the public sector.
In conclusion, three main recommendations for social enterprises arise from

the research.
• Although time is precious for managers of social enterprises, it is

worth spending some time investing in becoming acquainted with
national and regional policy publications, and learning about funding
options and regular checking of relevant websites.
• Social enterprises gain most support from informal networks and

benefit from learning from other social enterprises. They should build
on the networks they have and try and promote this approach through
dialogue with sector representative bodies, contacts with government
funded business support providers, RDAs and others.
• Social enterprises should not continue to regard the national business

support services such as Business Link in a negative light. Although
these services do not yet provide the quality of service most social
enterprises want, they are becoming more focused and trained, and
constant pressure and enquiry from the sector will ensure that this
progress happens more quickly.
For providers of advice and support to social enterprise, it is recommended

that:
• Providers of business support and advice to the sector need to exhibit

greater knowledge of the sector and empathy with its aims.
• The advice given should be tailored to the specific organisation that is

seeking advice.
• The availability of improved and tailored support and advice should be

more actively promoted to the sector.
REFERENCES
Brown, J. (August 2002) Social Enterprise – So what’s new? Regeneration and
Renewal.
DTI. (2003) A Progress Report on Social Enterprise: a strategy for success.

Department of Trade and Industry: London.
Hines, F. & Thomas, C. (2004) Turing big ideas into viable social enterprise:
investigating the ways in which the right technical business support can turn real
social needs into viable social enterprises: a report prepared for Tridos Bank.
Cardiff: BRASS Centre.
HM Treasury. (1999) Enterprise and Social Exclusion. HM Treasury: London.
Leslie, Dani. (2002) Rural Social Enterprises in Cumbria – who makes them?
Voluntary Action Cumbria: Penrith.
Nelmes, A. (March-April 2004) A Community Groups target social agenda.

Resource.
Social Enterprise Coalition. (2003) There’s more to business than you think: A
Guide to Social Enterprise. Social Enterprise Coalition: London.
Smallbone, D., Evans, M., Ekanem, I. and Butters, S. (2001) Researching Social
Enterprise Final Report to the Small Business Service Centre for Enterprise and
Economic Development. Research Middlesex University: London.
Tym and Partners. (1999) Good Practice Guide to Community Enterprise.

University of the West of England: Bristol.

Raising the profile of social
enterprises:
The use of social return on

investment (SROI) &
investment ready tools (IRT)
to bridge the finanacial
credibility gap
Andrew Flockhart was working as a consultant to Community Enterprise in
Strathclyde (CEiS) in Scotland, when he conducted this research work.
“The social economy needs to be properly recognised as a way of attracting

new money, providing jobs and training, and delivering community services”
(Scottish Executive 2003)
In 2006 it is anticipated that much of the European Union (EU) funding

(European Social Fund, European Regional Development Fund) currently
available to help economic growth within Scotland will be re-allocated to the
development of emerging states in Eastern Europe. This is a major issue for
many organisations in Scotland who rely heavily on match funding from the
EU to finance their activities. Whilst the Scottish Executive and its partner
organisations have helped social enterprises to work towards a structure that
is less reliant on funding, it has not offered a solution on how this is to be
achieved.
There are a number of barriers that prevent social enterprises from building
capacity and planning for sustainability beyond current funding arrangements.
The constitutional framework that many operate under is prohibitive towards
the accumulation of reserves (as this would undermine the requirements of
public accounting). Equally constraining is the inability of some organisations
to build a sufficient asset base that would enable greater access to alternative
funding sources, such as commercial debt funding. This makes it extremely
difficult, if not impossible, for many social enterprises to structure their
finances in a manner that would help raise the level of inward investment from
venture funding, social investment or philanthropic sources and which could
ultimately enable them to achieve sustainability.

This paper presents the findings from an MBA dissertation entitled “Is
Measuring Social Return on Investment (SROI) a tool that can be used to
raise the profile of social enterprises and help attract investment?” (Flockhart
2004). In addition, preliminary findings from a pilot programme conducted
by CEiS Ltd on the introduction of an Investment Ready Tool (IRT) for social
enterprise are presented.
CONTEXT
In 2003, the social economy in Scotland generated income of approximately

£2.2 billion (4 percent of Scotland’s GDP), employed between 70,000–90,000
people (compared with 42,000 in 1997) and involved a further 700,000
volunteers (Revaluing the Social Economy 2003). This was spread across
some 44,000 organisations, including 22,000 charities (Scottish Executive
2003).
The sector is made up of a diverse

range of enterprises including
private organisations, Intermediate
Labour Markets (ILM’s), charities,
social firms, mutual companies,
industrial and provident societies
and credit unions, churches and
religious groups. The sectors
targets several key goals, see
Exhibit 1. However, as the sector moves towards a more commercial service
provider model, there is a greying of the boundaries between social, private
and public sector involvement in achieving these aims.
For the purpose of this paper social enterprises are organisations that are
involved in some form of income generation and which aim to be self sufficient
within the market place. Voluntary organisations can be categorised into those
that are almost entirely dependent on grants, donations and volunteers and
those that have some income generation (Social Enterprise London 2001).
In this paper, the social economy refers only to those social enterprises
and voluntary organisations that generate some income. Some examples
include organisations that: aim to create paid employment opportunities;
raise employability through volunteering; facilitate access to employment;
raise purchasing power through eased access to credit (e.g. credit unions);
contribute to sustainable development through recycling, energy efficiencies;
and those that prevent potential social exclusion (e.g. work with disaffected
young people).
However, it is appreciated that barriers that hinder the sector from fulfilling
its potential, include (a) funding arrangements and lack of assets b) market
access (the tendering process for social enterprises for service delivery is
not seen as an even playing field when compared to conventional tendering
processes), and (c) a lack of clarity as to the type of support mechanisms that
should be offered to social enterprises.
This paper considers whether SROI and IRT tools might enable social
enterprises to address the credibility gap, whether perceived or real, that
surrounds their ability to build capacity and to adopt a more commercial/
entrepreneurial approach to their activities.

VALUE MAXIMISATION
The relationship between social and financial capital is encapsulated in the

question; how is social value traditionally understood relative to financial
returns? To begin, it is first necessary to examine the relationships that exist
between investors in social enterprises compared to investors in commercial
enterprises. It is submitted that some investors seek a social return in the
form of social capital on their investment. The term social capital has been
used to describe the various elements that interact to create social or civic
value. This has been described by Emerson (2000a) as follows:
“markets that exist to guide and direct the exchange of social items – that
is to say, social markets exist to facilitate the exchange and development of
society’s members and the institutions of which we are all a part” (Emerson
and Hewlet 2002).
The way in which enterprises are valued and/or the rate of return an enterprise
will yield has traditionally played a major part in financial decision making, as
well as the concept of value maximisation. Whether an enterprise is private,
public or social, all investments can be seen to fall along a continuum as
illustrated in Exhibit 2 which shows that a fluid environment exists in which
organisations can move. The boundaries between the poles should not be
seen as defined and rigid, rather a blending occurs along the continuum. At
any one time it is possible for an organisation to be operating across the
spectrum of the continuum and this might move depending on the stage of
development and circumstances of the organisation.
Value maximisation aims to identify desirable returns, regardless of what

these might be, from an investment. When considering truly commercial,
for profit enterprises it is relatively easy to define return on investments in
terms of financial reward. This does not preclude a social return, however
this is often ad hoc and/or not measured and/or viewed as a by-product of

the organisation. In contrast, when considering social capital investment it is
extremely difficult to define or capture the total return on investment, and/or

to measure the performance of the investment in financial terms. Whilst it is
possible to measure the amount of money that social enterprises generate
and return to the economy (e.g. salaries, credit, contract for services or
goods), it is far more difficult to measure the wider civic or social impact that
social enterprises have and the benefit gained (financial or otherwise) by a
community. Further, social enterprises often provide public services that are
not commercially attractive, yet these services might be the lifeblood that
makes a community and defines the richness of the culture and sustainability of
a region. It is within such socially enriched regions that for profit organisations
often thrive, benefiting directly from an enhanced workforce and social and
civic environment.
It could be argued that non-profit markets have served their original purpose
in enabling the accumulation and transfer of millions of pounds each year
within Scotland. This has been accompanied with the general acceptance
that social enterprises are best placed to impact on a number of key areas
more effectively than their private sector counterparts, namely:
• Providing jobs that the conventional labour market can’t or won’t

supply especially in those sectors that can be described as ‘hardest-
to-employ’ e.g. long-term unemployed, those with criminal records,
low skilled and educated;
• Providing support to non-profit organisations with a social mission that
will be long-term or costly such as providing services to those with
special needs within society;
• By generating additional money for non-profit social programmes
through foundations and charities;
• By engaging with other agencies social enterprises can act as a
conduit for best practice to the wider philanthropic and charitable
community.
(Venture Fund Initiative 1999)
However, it has also been contended that these same mechanisms and
cultures have failed to provide the structures needed to release the full
potential of social value creation that many non-profit organisations aim to
achieve. A review of some of the characteristics typical of this market may
help to explain why this is, including: the absence of market standards; lack of
proven return on investment; market fragmentation; grant making in isolation;
insufficient resources and capital market imbalance; too many investors and
instruments; the development of an emerging knowledge base; and the need
for further research into the non profit capital markets (Emerson 2000b).
The base for social investment has also been found to have been swayed by
the political agenda. Shaw (2003) highlights that many non profit organisations
display very little aspiration to grow beyond their present capacity, yet many
are increasingly under pressure to move towards capacity building in order
to deliver more public services under the Best Value initiative. Thus there is
a genuine need to examine how social enterprises can measure their social
impact and returns to investors.
MEASURING SOCIAL AND FINANCIAL RETURNS
The previous section focused on the differences that exist between social
and financial returns and implied that to work towards one might be at the

expense of the other. This trade off is often referred to as a ‘zero sum game’.
However, in reality the two values are interconnected. If social enterprises are
to raise their profile and close the financial credibility gap they must be able to
demonstrate a social value is attractive to investors.
Exhibit 3 shows how a

traditional organisation
will typically produce
value in Quadrant A. This
quadrant shows a higher
economic value and a
lower social value for a
standard investment. This
is in contrast to social
value, shown in Quadrant
D. The traditional approach
to measuring returns in
these quadrants are often
by using tried and tested
financial measurement
tools, whilst a social audit
or cost benefit analysis is
often the only means of
demonstrating the social
aspect of the organisation’s
value proposition. In
contrast to Quadrant A, a
traditional social investment
opportunity will have a higher social value return but carry a lower financial
return. In such instances, social enterprises often go to great lengths to
demonstrate that they do not generate a profit or surplus in order to keep
within the boundaries of being a charitable or non profit organisation. These
opposing returns have been described as a ‘profit penalty’ that can be
measured along the investment plane that links the two quadrants. It is worth
noting that it can also be argued that a fundamental flaw in this analysis is
its failure to recognise the dynamic interplays that often exist between the
economic and social returns from the investments of the organisation and
therefore does not help inform the process. The Blended Value Proposition
(BVP) however, challenges the assumptions of sinking economic returns by
recognising that both the economic and social functions are integrated, and
if they are to be fully valued that they would be placed in Quadrant B, shown
in Exhibit 4. The BVP advocates that to maximise shareholder value, both
economic and social returns should be maximised. This therefore straddles
both for profit and non profit enterprises.
Following on from the BVP is the concept of a Blended Return on Investment

(BROI) or Social Return on Investment (SROI). Whilst Financial ROI has
been subject to measurement in various forms for centuries SROI is only
now beginning to receive attention, partly as a result of BROI gaining favour
and understanding. The underpinning axiom that any investments may have
financial returns but not social is to suggest that organisations are able to
operate void of the communities and stakeholders that they serve – and this
clearly is not realistic. However, as yet only one aspect of this formula can be
measured to any degree of accuracy that allows the investment community to

understand the level of investment return. For BROI to be taken forward there
must be a mechanism for measuring SROI in order to feed into the equation
of: Blended ROI = Financial ROI + Social ROI
THE REDF APPROACH TO SROI
The Roberts Enterprise

Development Fund (REDF)
(the philanthropic arm of
the Roberts Foundation,
San Francisco) was one
of the earliest pioneers
to develop a process for
measuring SROI. The
REDF was established as
a charitable organisation
whose mission was to help
people move out of poverty.
In 1997, REDF established
a project to track 7 non
profit organisations and 23
social purpose enterprises
to examine whether they
could measure the impact
of these enterprises against
the cost of funding them. All
the enterprises employed
people from a wide
range of disadvantaged
backgrounds: each employee received training and support to help them
provide a range of services and goods for sale through their respective
ventures. The social enterprises therefore generate two distinct outputs:
firstly they provided training and employment to improve the quality of life of
this disadvantaged group; and secondly they provided services and goods
that had a wider social and economic impact on the community.
Unlike previous studies that had attempted to measure SROI, the REDF
approach attempted to identify all the stakeholders who benefited, and the
nature of the social returns to them. The REDF approach to SROI considered
the whole community and all stakeholders connected to the enterprise, rather,
than adopting a more traditional view focusing on the group of investors. The
return therefore was deemed to be the wider range of changes that resulted
from the social enterprises activities. This therefore included measuring
monetary benefits, such as revenue generated, taxes saved or levied,
reductions in social services costs, increase in an individuals economic
standing, reductions in crime (and prisoners held in custody) as well as
placing a dollar value on those areas that are harder to put a monitory value
on such as increased housing stability and self esteem. This was the key
departure from how social investments had been measured up to this point
- REDF would translate the social outputs into dollar impacts.
The concepts of value have already been discussed and REDF adopted
the same guiding principle that value creation existed along a continuum as
illustrated in Exhibit 2. The economic value is easily translated into a dollar

figure and is referred to as the Enterprise Value. The calculation of socio-
economic value involves a more complicated process in order to arrive at a
monitory value. This they called the Social Purpose Value. Exhibit 5 shows
that when these two elements are combined, a Blended Value is produced.
By analysing the other aspects of the organisation, such as the benefits to
stakeholder groups, impact on demographic and geographical profiles and
the other civic aims of the organisation, a more complete picture is painted
that helps give an indication of the scale of the activities that are traditionally
not monitised.
The REDF approach to measuring SROI is broken down into 6 stages. See
Exhibit 6. The first three stages measure the value that a social purpose or
enterprise creates and returns to its community and the remainder measure
the investment return.
It is worth emphasising at this point that the REDF model was constructed as
a template for one sector of social enterprises, specifically those that provided
market driven goods and services to customers and provide supportive
training and work environment for individuals who wish to improve their lives.
There are a number of issues that arise when attempting to measure the three
returns as detailed above. As with most ratio analysis, an industry comparison
is required to make any informed judgement on whether a return is above
or below the average. Social enterprises face barriers when attempting to
benchmark their performance as geographic location and population profile
may limit comparability. Until a database of performance of the social economy
has been developed, it will be difficult for investors to make truly informed
investment decisions based on the SROI results. However, SROI does allow
investors to compare against their own internal portfolio rates and thus help
build confidence in their social investment policy. In addition, some accepted
ratios, such as Return on Capital Investment (RoCI) may need to be adjusted

in order to reflect
the social element
of the SROI index.
For this reason, the
long-term debt from
the Blended Value
is omitted from the
final calculation.
The process is
extremely subjective
(apportioning debt to either social purpose value or to enterprise value) and
in light of this, the REDF approach was created to remove it from the final
calculation.
It is important to note that the REDF approach to SROI did not end with the
calculation of the Blended Value index. Rather, this value formed part of a
wider report that included a broader analysis of the organisation that detailed
employee profiles, demographic and geographical location, risk as well as
historical data and any other social benefits that were difficult to monetise.
Finally, there are some complexities in the process that are difficult to
overcome. For example, the employee profile of social enterprises can
appear to work against the parameters used for measuring social return in
that by working with homeless people and engaging them in training and
improving their standard of living, this may result in them demanding more
social services or accessing other civic programmes. (This would not have
happened if they had remained homeless). This might in turn reduce the
levels of public savings within the SROI methodology and hence result in a
‘lower’ Blended Value. Thus the SROI calculation should be read in close
association with the accompanying report.
SROI in the UK: the new economics foundation (nef) pilot study
The REDF study set out to raise the standards of social accounting systems
and enable participating organisations to communicate a blended value to
potential investors and funders. The REDF research was based on American
organisations and in November 2003, nef published a paper ‘Social Return
on Investment, Miracle or Manacle?’ The publication outlined a pilot study
of 4 social enterprises undertaken by nef in the UK that set out to test the
REDF SROI technique and develop a measure of SROI in a UK context (New
Economics Foundation 2003).
The approach adopted by nef to SROI differed from the REDF method by
focusing its analysis on a range of social values for different stakeholder
groups linked to the enterprise. This meant that there would be a number of
social values created by the enterprise, and these would not be included in
the overall SROI calculation as they were not deemed to be directly linked to
the desired social impacts of the stakeholder. Exhibit 7 illustrates the values
adopted for each organisation and those that were left out in the study.
In addition, the enterprises in the nef pilot study (Exhibit 8) showed few signs
of generating substantial profits, and any profit or surplus had to be re-invested
in sustaining the next years’ finances. Hence the nef pilot had no Enterprise
Value and only the Social Value was used in the overall SROI calculations.

A key part of the SROI
process is the ability to
identify the Social Purpose
Value of the enterprise and
to monitise these values.
Nef approached this by
considering the chain
of Internal Inputs and
Outputs that are under the
control of the organisation,
and Outcomes and
Impacts that are more
out of the control of the
organisation. In the nef
pilot they identified that for
Green Apprentices, the Eldonians and Blackburne House, the main Internal
Output was to deliver training with the Outcome of training people to gain
access to more sustainable employment. In the Blackburne Houses case,
this meant that the Output was women trained, and the Outcome was that
more women progressed into this underserved labour market. The Output for
Hartsholme was that people were working and the Outcome was that those
employed became more mentally stable as a result of employment. The
Impacts for each enterprise could only be calculated once an adjustment was
made to take account of the Outputs, such as employment, that would have
occurred naturally without the enterprises help.
This process produces two additional useful measurements namely (1)

Measurements of the social value chain for output, outcome and impact and
(2) Social returns for each stakeholder. This firstly raises the issue of how
accurately the ‘deadweight’ of non-attributable benefits could be calculated
in the impacts calculation, and secondly, how each individual stakeholder
social return is also weighted in the overall SROI calculation complicate the
calculation. Additionally, there is the issue of displacement/trade off between
the values of one stakeholder to the values of other stakeholders. The nef
SROI calculation produced a more conventional financial ratio analysis in the
shape of an Internal Rate of Return (IRR) and Pay Back period for each of the
enterprises. In the absence of historical SROI data, these ratios provided a
useful measure to benchmark the pilot.

A major problem that nef encountered, and a possible stumbling block for the
whole SROI process, was the absence of organisational quality management
information systems to inform the valuation process. Gaps were found in
monitoring the progress of those taking part in the enterprises after they had
left the enterprise, as well as the low level of financial sophistication of the
enterprises. This meant that the principles of SROI and investment appraisal
were not always understood.
Nef calculated SROI using a 5-year time frame in contrast to perpetuity used by
REDF. The reason for this was that it was felt that the accuracy of forecasting
in the pilot study reduced greatly beyond the 5-year horizon. The IRR was
based on the level of grant funding introduced into the organisation, and
again this differs from the REDF approach that strips out grant funding from
the calculation, focusing on the actual commercial investments introduced
into the enterprise and how this investment impacts the enterprise and social
values of the organisation to arrive at a SROI figure. It is worth noting that all
of the enterprises in the nef study showed a positive return and that this might
have increased further if the full range of stakeholders and total work output
of each enterprise had been calculated.
The nef pilot recognised that cultural differences between the US and UK would
mean that the REDF model of SROI would have to be adapted if it was to fit
into a UK context, and concluded that SROI can provide organisations with
a tool for measuring social value without compromising their social mission.
However, it would not necessarily provide the answer to the funding issues
facing the organisations in the pilot. SROI could be useful for: intermediate
labour market organisations (ILM) and employment-related initiatives; as
a tool for investors to measure their social and financial investments; for
organisations that have environmental missions to leverage investment.
METHODOLOGY
The empirical research conducted in this study used depth interviews with
key informants from the social investment industry in Scotland and England.
The aim of the interviews was to uncover deep understanding (Strauss and
Corbin 1990) of issues connected with valuing social returns. Interviews were
conducted with:
• The Chief Executive, CEiS

• The Director of the Social Enterprise Unit (DTI)
• A Senior Fund Manager, Developing Strathclyde Limited
• The Head of Community Development Finance, The Royal Bank
of Scotland, (with input from the Head of Community Development
Banking, Nat. West & The Royal Bank of Scotland)
The interviews followed the guidelines laid down by Pope et al (1999) and
were structured around key themes of:
• What was their personal understanding or experience of SROI?

• What did they use at present to assess social enterprise sustainability
and capacity for growth and potential for investment?
• What were their likes and dislikes of SROI?
• How did they see SROI moving forward in a Scottish and/or UK
context?

All interviews were recorded and transcribed later. The interviews were
analysed using the principles of the constant comparison of grounded theory
(Strauss and Corbin 1990) and phenomenology / heuristic analysis.
Summary of the key findings from the interview stage

The concept of social value: A key theme mentioned by those interviewed
was the difficulty of interpreting and understanding what constitutes social
value and how this is then measured in practice. The literature review has
already showed that the concept is ill defined. To become widely adopted,
it is vital that SROI demonstrates that it can be applied in a consistent and
transparent manner. Only then will it be possible to create the scale necessary
to allow meaningful comparisons of social enterprises across sectors. A study
conducted by Olsen and Lingane (2003) into 88 business plans submitted for
the National Social Venture Competition in America highlighted the problem
of measuring social and environmental values. They found that there were
serious discrepancies in the business plans with regard measuring social
values and that this undermined the validity of the claims on social value. They
recommended that standards be adopted to regulate the future development
of social accounting values (Olsen and Lingane 2003).
The resource implications of SROI: The practicality of SROI was a recurring

theme raised and in particular the considerable financial and human resource
implications associated with its adoption. The original REDF study took a
team of three people, as well as external consultants, two years to develop
before a working model could be piloted. However, it was also recognised
that this cost could be met by assessing public and EU funds (under the Equal
Theme D programme) and possibly from private corporations and foundations
keen to promote social accountability.
The potential demand for SROI: Two informants observed that there might
be as few as 20 social enterprises within central Scotland that were in a
position, or had the desire, to adopt a financial model that would use equity
or debt funding. The issue of organisational desire to take on debt was also
mentioned by a third informant who stated that, in his opinion, the problem
was not that there is a lack of funds to invest or lend, but that there were few
social enterprises willing to take on this type of debt. It was acknowledged
that whilst financial institutions, corporations and public bodies appeared
to want to become more socially aware with their lending or philanthropic
policies, it was still in many cases the financial bottom line that tended to
determine who would receive debt or equity funding and ongoing grant
support. Nonetheless, the underlying political pressure to recognise and
adopt social accounting practices should not be underestimated and this may
be the determining factor in driving forward future developments and research
into SROI and other social accounting tools.
The future for SROI: The development of SROI within a Scottish context
was a concern raised during the interviews. One informant suggested that
it was the responsibility of individual enterprises to take the lead and drive
on any new initiative, including SROI. The financial credibility gab might be
closed when social enterprises could ‘speak’ in he language that financial
institutions understood and related to. It was suggested that SROI could be
one way of improving the profile and professional image of social enterprises
and may help to educate the financial sector in the wider benefits of the social

economy. At present, the demand for social accounting tools as a means of
demonstrating value for money is small and there is a lack of direction on how
this should develop. All interviewees supported the premise that SROI could
be one way to address this concern.
LINKING SROI WITH IRT
It therefore seems unlikely that a ‘one solution fits all’ approach to SROI is
achievable in the UK context. The possibility of breaking down the various
elements of SROI into several stand-alone components may be a more
flexible and useable approach that might encourage organisations to adopt
this tool. Alternatively, incorporating the use of SROI into other processes
may help stimulate its adoption.
At the time of conducting the original piece of research on SROI, the author
was also working on a separate pilot study into the development of an IRT
for social enterprise. Six organisations that were each considering a large
capital acquisition to their existing asset base were included in the study.
The organisations were primarily considering traditional debt as a means of
generating capital, although the idea of equity had not been rejected.
Analysis of the IRT process identified 4 stages of engagement to help prepare

social enterprises for investment (Exhibit 9). It is clear from Exhibit 9 that
SROI would only be applied to an organisation if it successfully demonstrated
its potential for investment by first undertaking stages 1 and 2. This is due
to the high resource and cost implications of undertaking the SROI process.
Hence stages 1 and 2 act as an assessment/filter process to ensure that
those organisations that reach stage 3 are those most able, and likely to gain
investment, and develop a long-term sustainable strategy. Exhibit 9 also
highlights that at each of the four stages there is an option for an exit strategy
for the organisation.

The first organisation will have completed the IRT process by summer 2004.
Key to the pilot will be the ability to manage the organisation through to a
desirable outcome whilst tailoring the level of intervention to meet their specific
needs. This work in progress will be reported in full at a later date, however,
it is hoped that by engaging with social enterprises, those participating will be
enabled to move towards bridging the financial credibility gap.
CONCLUSION
This paper is set against a policy context that has promoted organisations in
the social economy as the ‘best way’ to deliver many social or civic services.
Key to this assumption is the view that many social enterprises have the
capacity to grow and become less reliant on grant funding, possibly by
accessing other financial instruments or by generating new income streams,
or a combination of both. However, many social enterprises have reported that
they feel under pressure to grow and become more ‘commercially’ focused.
Thus, it would appear that for many social enterprises there is a reluctance to
marry their social mission with a more commercially centred business model
that is reliant on debt and/or equity funding.
The study examined whether tools to measure social capital or social value
might help to raise the profile of social enterprises by calculating their social
contribution. Traditional financial analysis has been used by organisations to
justify their decision-making processes and has implied that social values can
only be pursued at the expense of the enterprise value of an investment. For
SROI to be a viable framework this cannot be the case. The BVP has been
shown to incorporate both financial and social values that work together, rather
than in conflict. The benefits of SROI lie in its ability to help organisations to
become better at measuring their own financial and social values and in doing
so help them identify areas for organisational improvement and become
attractive investment propositions for investors.
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Shaping the Balanced
Scorecard for use in UK
social enterprise
Ali B. Somers is currently working as a social enterprise researcher while

completing her doctoral studies at Goldsmiths College.
EXECUTIVE SUMMARY
This paper describes an amended Balanced Scorecard for use in UK social

enterprises, as tested in a pilot study with the senior management of 12
organisations.
Key conclusions:
• Kaplan and Norton’s Balanced Scorecard can be adapted to tell the
social enterprise story.
• Positive outcomes include creating a common language through
which social entrepreneurs can share and compare experience, even
if they operate in different industries.
• By using the Social Enterprise Balanced Scorecard (SEBS),
organisations become better businesses and can demonstrate social
value added to stakeholders.
INTRODUCTION
As public and consumer interest in the benefits of social enterprise increases,

the UK social economy has responded by developing tools to measure both
financial outputs and social value added. To demonstrate their accountability
and credibility, social entrepreneurs have worked with partner agencies to
create new models for performance measurement. This has enabled them to
learn from other disciplines and find new ways to capture and articulate the
meaningful changes taking place as a result of social enterprise innovation.
Introducing the project

This paper shares the lessons learned by Social Enterprise London (SEL),
as part of the Social Enterprise Partnership’s national Quality and Impact
Project (see endnote 1). The national project piloted several performance
measurement tools (key performance indicators, social accounting, social
return on investment, and organisational health checks) in different UK regions
in a range of social enterprises. The aim of the national programme was to
encourage the use of such tools in the field and evaluate the strengths and
weaknesses of different measurement frameworks. The project reported in
this paper was led by SEL in association with the new economics foundation
(nef) and the Oxford, Swindon and Gloucester Co-operative (OS&G).

The study examined the potential mainstream adoption of the Balanced
Scorecard by UK social enterprises. The goal was to explore the potential
mainstream application of the balanced scorecard in UK social enterprises
and learn how this process can support the ways in which social enterprises
develop, implement and track the performance of their socially driven
strategies. A Social Enterprise Balanced Scorecard (SEBC) was created
and tested by 12 social enterprises in a pilot training programme, which ran
between August and December 2004. To begin, the paper discusses the
Balanced Scorecard as a performance measurement tool and assesses
whether an amended Scorecard is needed by social enterprises (see endnote
2). Next, the SEBC model is introduced followed by the results of the pilot
test. The results of an independent evaluation are then presented. The paper
concludes with recommendations for future development of the SEBC.
The UK context
Social enterprise is a global phenomenon that has champions from many
disciplines. Depending on location, social enterprise is an agenda owned
by the private or not for profit sectors (see endnote 3). In the UK, it has
evolved from several historical alternative business movements, such as
worker co-operatives, development trusts and community enterprise. As
a result, the policy framework for social enterprise in the UK prioritises the
organisation as the enterprising entity rather than the individual entrepreneur,
as one might find in the US. This is evidenced by the use of the organisation
as the unit of analysis for the Department of Trade and Industry’s mapping
guidance for social enterprise activity. As a consequence of the emphasis
on the organisation versus the individual entrepreneur, earlier performance
measurement systems have potentially overemphasized the role of the
stakeholder (see endnote 4), versus creating a robust and holistic mechanism
for looking at financial and social performance side by side (see endnote 5).
It is within this context, and as part of the national project in quality and impact
measurement that the work described in the following sections took place.
THE CASE FOR A SOCIAL ENTERPRISE BALANCED SCORECARD
Overview of the original Balanced Scorecard

The Balanced Scorecard (Kaplan and Norton 1996) is a performance
measurement tool that uses a strategy map to connect an organisation’s
day-to-day processes to its organisational goals. Rather than capture how
an organisation currently operates, the Balanced Scorecard is concerned
with creating a strategy to drive future direction, building in cause and effect
linkages while simultaneously taking into account both financial and intangible
resources that can determine success or failure.
Kaplan and Norton introduced the balanced scorecard (BSC) in the early
1990s as a means to provide a more holistic diagnosis of a business’s
performance. They argue lagging financial indicators are not sufficient
enough to tell senior management whether work taking place on the ground
accurately corresponds to the business’s corporate strategy: overemphasis
on reducing costs in the short run to boost financial indicators underestimates
the value of large investments in research and development to the detriment
of the company’s long-term survival strategy.

This model assumes that senior management uses the profit motive as
the main driver of the business’s strategy. The BSC framework explains
corporate goals through cause-and-effect relationships, and is filtered through
four perspectives: financial, customer, internal processes, and learning and
growth (also called intangibles). “If we increase employee training about
products (learning and growth), then they will be more knowledgeable about
the full range of products they can sell (internal processes); if employees
are more knowledgeable about products, then their sales effectiveness will
improve (customer); If their sales effectiveness improves, then the average
margins of the products they sell will increase (financial)”(see endnote 6).
By connecting financial to non-financial objectives, external to internal

processes, and current to future performance, corporate strategy will be
mapped more cohesively, and employees at all levels of the organisation
work towards the same goal.
Performance measures, with both lagging and leading indicators, are

then linked to objectives identified in each of the four perspectives. These
measures are intended not only to modify behaviour, but also inform upper
management if their stated objectives are ultimately in line with their corporate
strategy. In order to ensure strategic focus, Kaplan and Norton recommend
that ‘eventually, all objectives and measures in the other scorecard
perspectives should be linked to achieving one or more objectives in the
financial perspective” – ultimately, a business’s strategy should be oriented
towards its financial bottom line (see endnote 7).
Through this top-down process, upper management connects desired

outcomes to specific objectives. Below, Exhibit 1 demonstrates what the for-
profit strategy map looks like.
Social enterprises and private enterprises

At the outset of the project it was argued that a social enterprise specific
form of the balanced scorecard was not necessary, as the existing tool was

successfully implemented in socially driven organisations over the past ten
years. However, while one could apply the existing framework to a social
enterprise and see some improvement in fiscal performance, it would not
lead to optimum results because social enterprises fundamentally answer to
different masters.
In traditional for-private-profit businesses, any assessment of social and/or

environmental value-added typically comes at the end of the production
process and social and environmental goals are given subordinate status to
the overriding profit motive (See Exhibit 2). For social enterprises, profits are
created for stakeholders, and in this case the success story is told through
a combination of social and financial impact indicators. Social enterprises
occupy a unique space within the economy where, as businesses, they
are driven by the need to be financially sustainable, but as ‘more than
private profit’ organisations they use economic surpluses to drive social and
environmental growth. Social goals and motivations must be identifiable
inside the organisation, as an integral part of their culture. Further, social
enterprises are distinguishable from other non-profits or charities because
they trade in the competitive marketplace.
Social enterprises emphasise creating social and/or environmental value at

all stages of their production process, as an intrinsic part of their identity. See
Exhibit 3. For example, the target client population may also be the primary
labour source, for instance where a social enterprise hires people with learning
difficulties to run their community café. Not only could an outsider see these
social enterprise characteristics in labour practices, but additional support for
the employees in the form of increased on-site training or management would
also be identifiable.
In the case of a co-operative organisation, internal analysis should indicate

a structure that facilitates democratic governance. The important point to
note is that because social enterprises use alternative inputs, or a modified
production process, once a good or service is produced and sold to the
marketplace, it ought to be possible to identify social and environmental profit
in addition to economic profit. In practice, many social enterprise managers

continuously make trade-offs between increasing productivity for financial
gain versus increasing productivity for social gain (see endnote 8). The
Balanced Scorecard might add value by making transparent this decision-
making framework, capturing both the benefits and consequences when
such trade-offs occur, and ensuring that social enterprise managers make
decisions that are strategy-led rather than reactions to short-term conditions
in the marketplace.
Non-profit BSC models

While there are alternative versions of the BSC methodology for the US based
non-profit sector, in terms of the UK social enterprise market, the non-profit
model actually holds less relevance than the traditional private sector BSC
model (see endnote 9). Non--profits in most of these methodologies do not
have the sale of goods and services as their main activity. Further, the ability
to win and keep donors is a prominent issue for US based non-profits because
of the tax exemption that is tied to personal giving. The UK social economy
does not have the same regulatory incentives, and thus it does not impact on
the organisation as significantly.
Limitations of the existing Balanced Scorecard for social enterprises

The Balanced Scorecard began the discussion about the importance of
examining non-financial information when aiming to improve business
performance and elevated the status of non-financial information. However,
in its current state, it is limited in responding to the needs of social enterprises
because it does not reconcile the tension that exists between generating
additional social versus financial profit. The implications of this are that the
Balanced Scorecard does not accurately reflect the aims and achievements of
social enterprises. If only the profit motive is used to set the social enterprise
story, social motives are overlooked and part of the organisation’s story
remains untold. The measurement of performance with respect to social and
environmental outcomes would go unreported and the resource implications
of these goals would remain hidden. By amending the Balanced Scorecard to
address the needs of social enterprises, the study demonstrates that financial

profit is an enabler for social profit; reduces the threat of mission drift; and
also provides a communications and performance management tool that
holds decision-makers at all levels inside the organisation accountable for
delivering the strategy to deliver financial, social and/or environmental goals.
AMENDED BALANCED SCORECARD FOR SOCIAL ENTERPRISES
To amend the original Kaplan and Norton Balanced Scorecard three changes
were introduced: an additional layer was added in which social goals are
articulated above the financial perspective; the financial perspective was
broadened to focus on sustainability; and the customer perspective was
widened to capture a larger number of stakeholder groups.
In the model above (Exhibit 3), social enterprises begin by stating their social
goals as desired outcomes, and then move into the perspectives. In the
financial sustainability perspective, each ‘bubble’ represents an objective.
The SEBC appears more complex, and this reflects the hybrid nature of social
enterprises that demands more complex management systems. This is best
demonstrated through the stakeholder perspective, which has been widened
from customers in the original model to distinguishing between those who pay
for a service and those who consume it (donors, grant funders, employees,
and the wider community).
In Exhibit 3, the arrows illustrate one cause and effect chain from the strategy

map. For example, assume ABC Institute is a childcare training organisation.
ABC’s goal is to empower single mothers (social goal) through providing
access to training (financial perspective - trading activity). The government (as
paying customer in stakeholder perspective) requires that ABC demonstrate
‘value for money’. The organisation makes the assumption that the best
way to demonstrate this is by reporting impact delivered to the client group
(single mother’s - client in stakeholder perspective) across the organisation’s
activities (internal process perspective). The best way to resource this is
through the purchasing new data management software that relevant staff
members can access across the Institute (resources perspective).
Social motives drive strategy development

An organisation can have a mission that is ongoing over a significant period of
time, however a strategy is time sensitive and reflects what the organisation
is trying to achieve within a fixed period of time. The strategy should be the
means through which the mission is achieved.
The SEBC creates a space for social enterprises to articulate social goals. For
example, a co-operative community-based nursery might have the following
social goals at the top of their map the social goals as stated in Exhibit 5.
These social goals become the priorities for the social enterprise and
employees determine how best to achieve the outcomes through trading
activities. The main trading activity is represented through the goal of
increasing the availability and quality of childcare. Advocacy is included as
well as the social purpose rationale for choosing the co-operative structure and
the facility to distribute dividends to the target population (single mothers as
owners of the co-operative). In the pilot study, participants were encouraged
to capture what was most important to them, while also choosing language
that anchored their desired outcomes in either a specific geographic location
or a particular client base.
Prioritising financial sustainability

Social enterprises seek surplus generation in order to achieve financial
sustainability. Learning from the work of the OS&G, the component of profit
distribution was added so that social enterprise managers could track the
objectives that added resources versus those that used them, in order to
balance the competing drivers (See Exhibit 6).

Emphasizing financial sustainability in addition to profit distribution becomes
a way to account for all activities the organisation engages in, including
advocacy and pro bono work. Sacrificing one cause and effect chain for
another can have significant implications for both the quality of work and the
social enterprise’s financial sustainability.
The need to achieve financial sustainability is fundamental to social

enterprises. Whilst many may rely on a combination of grant and trading
income, ultimately, if an organisation is not financially sustainable, it cannot
deliver its social and environmental impact. In existing performance
evaluation tools, financial systems record trading activities that earn income,
and qualitative systems are used to collect user feedback and measure social
impact. The SEBC model provides a method for integrating both outcomes.
Widening the stakeholder perspective

In the SEBC, the customer perspective was widened to create a way for
social enterprise managers to consider more stakeholders as well as the
organisation’s wider impact. Since social enterprises are a response
for greater community and employee involvement in, and ownership of,
interventions to social problems, omitting them from the strategy map would
not represent what actually takes place within the organisation. It is important
for managers to be able to distinguish between groups who pay for services,
those who use them, and those who benefit from the intervention in the long-
term, as these are not always the same. In completing this bigger picture,
social enterprises create a mechanism to record their wider impact.
In Exhibit 7 overleaf (endnote 10), the multiple beneficiaries of social enterprise

are illustrated. The supply links between social enterprises promote greater
economic development; money invested locally promotes local job creation;
programs that encourage local participation create social capital.

PERFORMANCE MANAGEMENT
Measures, targets and initiatives

In the SEBC, every well-crafted strategy map should be supported by a
performance measurement schedule. This is an internally facing performance
management tool in which each objective from the strategy map is linked to
a success indicator(s). Every objective requires a measure and an employee
with responsibility to ensure the goal is achieved. In this way, the schedule
also becomes a communication tool to report performance internally, across
teams or business units. Ultimately, once an organisation has mapped out
its strategy through determining objectives and outcomes, performance
measures must be tied into the SEBC framework in order to ensure the
strategy is being implemented throughout the organisation (See Exhibit 8).
EXTERNAL COMMUNICATIONS
The SEBC can be used to communicate strategy throughout the organisation,

whilst also serving as an external reporting device to provide qualitative and
quantitative measures for social and environmental outputs to external
stakeholders. The Balanced Report Card (Exhibit 9) is part of the SEBC and
comprises the external marketing tool to demonstrate that the social enterprise
has achieved, and is implementing, the goals of the strategy map. It could
play an important role in enabling social enterprises in different industries to
communicate in a shared language.

It is recommended that as an industry standard social enterprises publish the
Balanced Report Card in their annual review as a way to build credibility among
investors, funders, customers, and stakeholders. It is also an opportunity for
the UK social enterprise movement to collectively begin to share its social,
economic, and environmental impact with others.
As a performance management tool, the Social Enterprise Balanced

Scorecard can be one of a number of ways in which a social enterprise can
tell its story, measure its performance, and communicate with internal and
external stakeholders. It can also be thought of as a platform through which
other impact measurement tools can be introduced into the organisation.
LESSONS LEARNED FROM THE PILOT STUDY
Teaching the new material to practitioners

The author of this paper (Director of Policy and Research at SEL), and
the Head of Corporate Development at OS&G ran the workshops. OS&G

previously worked with the Balanced Scorecard in implementing the system
in their business. Being able to learn from OS&G’s experience was critical to
our success as we took into consideration the strengths and weaknesses of
their two years of Balanced Scorecard work.
The SEBC was taught in a series of five modules delivered in workshops

between August- December 2004. Each module lasted approximately four
hours. The first workshop introduced the SEBC. Subsequent workshops
consisted of a one-hour seminar to review progress and introduce new
knowledge, followed by individual sessions with trainers in small group
activities. Each training workshop closed with a summary of learning and
recommended activities to complete between sessions.
The participants consisted of two representatives from 12 small to medium

sized enterprises and three social enterprise support agencies (that were
also trading in the competitive marketplace). The participating organisations
were Café Direct, Big Issue South West, Day Chocolate Company, Liberty
Credit Union, Via3.net, The Guild, Social Firms UK, Bootstrap Enterprises, the
School for Social Entrepreneurs, Women’s Design Service, Community Music
East and Core Design. Two participants from the senior management team of
each organisation participated in the training workshops.
Criteria for success

At the start of the pilot study, targets for 60% of organisations to complete the
pilot at the five-month mark and three organisations to produce strategy maps
were set. These were exceeded and 100% of the organisations completed
the pilot, a third drafted a strategy map. In the final session of the pilot, an
independent observer from the nef facilitated an evaluation of the study. The
evaluation aimed to was to gather responses to both the tool itself and the
means through which it was taught (see endnote 11).
General observations and findings

The evaluation concluded that the SEBC had changed participant views
about their organisations in terms of:
• increased employee understanding about their organisation as a

business.
• the usefulness as a business planning tool for social enterprises
• that the ABSC had a natural fit alongside the existing UK quality
accreditation scheme of Investors In People
• the ABSC was an effective means to engage staff and team members
and could be used as an early-warning system for potential problems
• helping to redress the balance between purely financial gains and
social purpose.
• the ABSC gave participants: focus, clarity, a big picture on one page,
and the ability to remove non-essential detail from strategic planning
In addition, those participating would recommend the SEBC to the following:
• organisations needing to demonstrate value to potential investors or

funders
• all non-profit organisations – charities, social enterprises, voluntary
sector
• any social enterprise or mission-lead business

Feedback on the pilot study process
Several themes emerged in participant comments, in particular that:
• the most appropriate target group for learning about and then
championing the SEBC is senior management
• the adoption of SEBC by social enterprises needs cross-organisational
support
• embedding new knowledge requires time and space in the
organisation.
• to maximise learning, senior managers should conduct their own
“cause and effect” analysis
• The learning is cumulative and the pace increased as the process
progressed
• Mutual support from group members was essential
• Learners are individual and have unique requirements
CONCLUSION
The initial assessment of performance measurement tools revealed that those

currently being piloted for quality and impact measurement focus on external
results rather than internal analysis of the organisation. However, as much
of the value created by social enterprises occurs inside, many existing tools
overlook this contribution. The study presented in this paper found that the
original Balanced Scorecard could be adapted successfully for use with UK
social enterprises. The SEBC places social goals at the top of the strategy
map, aligns social and economic priorities, and organises activity around
the most important driver(s) whilst also ensuring financial sustainability. In
the SEBC, social goals are prioritised over financial goals; the financial
perspective is amended to refer to financial sustainability, thus creating an
indicator for revenue growth, cost reduction, and the costs of advocacy and
stakeholder engagement; and the stakeholder perspective is widened. It
was found that the SEBC has the potential to communicate performance
to internal and external stakeholders and presents an opportunity to build
credibility among investors, funders, customers, and stakeholders.
NEXT STEPS
There are questions around how this kind of work should develop. There is
a recent trend in higher education institutions globally to offer an academic
response to social enterprise. Business schools are stepping forward
to take the academic lead rather than public administration or non-profit
management schools and that little collaboration is taking place between the
different disciplines. Further, in the UK, many universities are entering the
social enterprise market, but there is no coordination around standards or a
general research agenda for this work domestically. At the moment social
enterprise development agencies are filling an intermediary role between
social enterprises and universities.
Ideally, now that there is a Social Enterprise Balanced Scorecard model has
been piloted, a suitable academic partner can carry on refining the model and
teaching the methodology long-term to social enterprise managers. Ultimately
there needs to be a way to bridge existing gaps so that once best practice is
developed in the field and refined by experts, there are institutions ready to
deliver this new learning to future social enterprise managers and thinkers.

ACKNOWLEDGEMENTS
The following partners contributed to this work; Lisa Sanfilippo and Richard
Murray (nef); Neil Homer (OS&G), and Mari Candelore (Social Enterprise
London).
The project received financial support from the London Development Agency
and the Social Enterprise Partnership (funded through the EU Social Fund
Equal Initiative)
ENDNOTES
1. See www.neweconomics.org or www.sepgb.co.uk for more information on

the national programme.
2. This paper assumes at least a superficial understanding of Kaplan and
Norton’s original balanced scorecard model.
3. Several different forms of the term non-profit are used in academic text and
in the field. The decision to use the term ‘not-for-private-profit’ as a more
accurate description of the UK field was made based on discussions with
member social enterprises in 2004. When the term ‘non-profit’ is used it in
this text it refers only to the US field.
4. A ‘stakeholder’ is defined as “those people or groups who are either affected
by or who can affect the activities of an organisation.” Pearce, John. “Social
Enterprise in Anytown.” London: Calouste Gulbenkian Foundation (2003)
5. The differences between geographic context and later between private,
charity and third sector are generalised and oversimplified for discussion
purposes.
6. Kaplan, Robert S and David P. Norton. “Translating Strategy into Action: The
Balanced scorecard”. Boston: Harvard Business School Press, 1996. p. 149
7. Kaplan and Norton p. 61
8. In some social enterprise models, for example those in consumer goods,
increase in financial profit translates into an increase in public benefit.
However, if looking at the social firm example, where the goal is to create full
time employment for those with learning difficulties, managers may choose a
4% financial profit over an 8% financial profit if it meant being able to employ
more people. While all social enterprises need to be sustainable, the extent
to which they maximise financial profit is not always the same- it is dependent
upon their social goal.
9. Kaplan, Robert S. “Strategic Performance Measurement and Management
in Nonprofit Organizations”. Nonprofit Management and Leadership. (March
2001)
10. Note that the term ‘social firm’ used in Exhibit 9 describes the segment of the
social enterprise field that creates employment opportunities for people with
physical or learning challenges.
11. Feedback is summarised in this section but reflects both the positive and
negative information received.
REFERENCES:
Bourne, Mike and Pippa Bourne. (2003) Balanced Scorecard: In a week. Hodder &
Stoughton; 2nd edition.
Kaplan, Robert S. and David P. Norton. (1996) Translating Strategy into Action: The

Balanced Scorecard. Boston: Harvard University Press.
Kaplan, Robert S. “Strategic Performance Measurement and Management in

Nonprofit Organizations”. (March 2001) Nonprofit Management and Leadership.
Lipe, Marlys Gascho and Steven E. Salterio. (2000) “The Balanced Scorecard:
Judgmental Effects of Common and Unique Performance Measures” The Accounting
Review. 75(3) pp. 283-298.
Meyer, Marshall W. (2002) Rethinking performance measurement: beyond the

balanced scorecard. Cambridge: Cambridge University Press.
Mooraj, Stella, Daniel Oyon and Didier Hostettler. (1999) “The Balanced Scorecard:
a Necessary Good or an Unnecessary Evil?” European Management Journal 17(5)
pp. 481-491.
Niven, Paul R. (2003) Balanced Scorecard: Step-by-Step for Government and

Nonprofit Agencies. Wiley.
Pearce, John. (2003) “Social Enterprise in Anytown.” London: Calouste Gulbenkian

Foundation.
Roberts, Michael L., Thomas L. Albright and Aleecia R. Hibbets. (2004) “Debiasing
Balanced Scorecard Evaluation.” Behavioural Research in Accounting. 16 pp.75-88.

Social enterprise: through
the eyes of the consumer
(prepared for the National Consumer Council)
Bob Allan is a management consultant working with social enterprises.
INTRODUCTION
After a decade of growth, social enterprise is increasingly recognised as an

innovative business model. The government’s social enterprise strategy
endorsed social enterprise as having “…a distinct and valuable role to
play in helping create a strong, sustainable and socially inclusive economy
(through) helping to drive up productivity and competitiveness; contributing
to socially inclusive wealth creation; enabling individuals and communities to
work towards regenerating their local neighbourhoods; showing new ways to
deliver public services; and helping to develop an inclusive society and active
citizenship.” (DTI 2001)
In policy circles while the term social enterprise is subject to many debates
the term is basically used as an umbrella to include development trusts,
co-operatives, social firms, credit unions, housing associations, social
businesses and employee-owned firms. The common definition most often
used by social enterprise organisations themselves, emphasises three
common characteristics: (1) Enterprise oriented – they are directly involved in
the production of goods and the provision of services to a market. They seek
to be viable trading concerns, making a surplus from trading; (2) Social aims
– they have explicit social aims such as job creation, training and provision
of local services. They are accountable to their members and the wider
community for their social, environmental and economic impact; and (3)
Social ownership – they are autonomous organisations with governance and
ownership structures based on participation by stakeholder groups (users or
clients, and local community groups etc.) or by trustees. Profits are distributed
as profit sharing to stakeholders or used for the benefit of the community.
The Department of Trade and Industry (DTI) guidance (March 2004) on

mapping social enterprise recommends using three tests related to these
common characteristics.
“Trading… The social enterprise is actively trading, through sales, contracts

and service level agreements. It is recommended that social enterprises with
trading income of 50 per cent and above should be included as part of the
core group
Pursuit of Social Objectives… A defining feature of a social enterprise is that

it has primarily social (including environmental) objectives and that in pursuit

of those objectives, it principally reinvests its surpluses in the business or in
the community. A test that simply identifies that the business does primarily
pursue social objectives in this way is recommended, rather than an approach,
which attempts to categorise these objectives.
Registration… should be organisations registered with Companies House as

Companies Limited by Guarantee, and Industrial and Provident Societies.
Provision is made later within the recommended process to add qualifying
social enterprises that adopt alternative legal forms back into this ‘core
group’.”
It is a complex and diverse movement operating in many industries. At

its heart, social enterprise is about meeting social objectives and social
enterprises are pragmatic organisations seeking to go beyond noble goals to
provide concrete benefits. Indeed the case for supporting social enterprises
rests on their ability to provide community benefits.
Community may be defined geographically as in regeneration projects, or

a community of interest. In some cases, such as environmental projects,
the community may be wider society. At this point in the paper, community
benefit is shorthand for the many and diverse public interest benefits of
social enterprise. A key question for this paper is whether marketing social
enterprise requires a more focused definition of the benefits.
Social enterprises are also businesses and are directly involved in producing
goods or providing services to a market. Their sustainability depends on the
ability to establish a market share. For social enterprises, consumers are one
of the key stakeholders. In some cases a person’s only relationship with the
social enterprise will be as a consumer, in others they may also be a co-owner
or a member, as in mutual organisations.
Social enterprise has much in common with the fair trade movement. Both
seek to use enterprise for a social purpose. Indeed many of the fair trade
producer groups are social enterprises, as are some of the major northern
companies that sell fair trade products. A key difference is their promotional
strategies. Fairtrade’s marketing strategy includes an important collaborate
element which is aimed at creating consumer awareness and support. Its
label also provides consumers with an assurance that the product they
buy meets fair trade standards. Increasingly, it is suggested that the social
enterprise movement should follow the example of fair trade and development
a brand or social label. It is argued that this would help to mainstream social
enterprise, increase its market share and thus its social impact.
Recent discussion on developing a social enterprise brand is found in debates

surrounding government consultations on the Social Exclusions Unit’s PAT3
report, on Community Interest Companies (CIC), and on the Social Enterprise
Strategy. The Cabinet Office Strategy Unit report Private Action, Public Benefit
recommended the introduction of the CIC and a separate look at the feasibility
and value of a branding scheme for social enterprise. In the responses to this
consultation 69 percent of respondents supported this recommendation.
This report seeks to look at social enterprise through the eyes of the consumer
and seeks to address the question - How can social enterprise make its case
for consumer support? On one hand, social enterprise presents the consumer

with a business offer, which is assessed on quality and price. On the other
hand each social enterprise presents the consumer with a social offer - an
opportunity to benefit the community. The questions then are how is the
consumer to assess this social offer? What type of social offers do consumers
want? And how does this differ among consumers? (In some cases the offer
includes the invitation to become a member of the social enterprise and be
active in decision-making).
Social enterprise’s twin offer may have more in common with mainstream
marketing than it first appears. Branding is all about getting the consumer
to look beyond the basic offer of quality and price. Brands appeal to the
consumer’s emotions, values or sense of identity. With the current trends of
cause-related marketing and ethical trading, some mainstream businesses
now also make social offers, which in turn need to be assessed. Branding
is a complex and much-debated topic. It is beyond the scope of this paper
to review all the issues related to branding. However, becoming a trusted
brand is clearly a route to business success. As a result, businesses are
increasingly seeking methods to build consumer trust. A social offer is one of
the methods used to build reputation.
The problem for the consumer is in deciding who to trust and, in the area of
ethical claims, the consumer is becoming increasingly cynical. Corporations
are accused of ‘greenwashing’, where they are charged with adopting a
few positive measures as window dressing to deflect public criticism. The
experience of the fair trade and organic movements however, shows that
consumers do value genuine social offers.
Flooded with information and apparent choices, consumer decision-making

is becoming more complex. Social offers add to this complexity. In this
environment, research suggests that the consumer is increasingly seeking
“consumer agents”. These agents sort through the deluge of information
and recommend products that fit the consumer’s needs, values or lifestyles.
Agents include trusted brands, information sources and personal shoppers
(human and virtual).
These trends have important implications. The consumer will increasingly

question social enterprises’ claims that they are benefiting the community.
Are social enterprises’ ethical claims any different from other ethical PR?
Do consumers see the differences? These questions could slow social
enterprise’s growth and potential good work. As a result, there is a need for
simple tools to sort out the claims and serve as the consumer agents.
Building this consumer agent(s) requires an understanding of what consumers

want from social enterprises. The paper will look at what consumers’ desire
from two angles. First, it looks at the general characteristics of social
enterprises, and how these may appeal to the consumer. Secondly, the paper
looks at the markets within which social enterprises operate. The focus then
returns to the issue of how a consumer agent might be built and suggests a
scenario for a social enterprise brand.
SOCIAL ENTERPRISE AND THE CONSUMER
This paper suggests that there are three schools of thought on how social
enterprises should be promoted. Each of these schools emphasises one

of the common characteristics of social enterprise, i.e. enterprise-oriented,
social aims and social ownership.
The first school of thought focuses on social enterprises as ‘ethical

businesses’. Ethical business is an umbrella term for a wide range of firms
practising corporate social responsibility (CSR). The enterprise orientation of
social enterprise creates a link with the CSR movement. Both see themselves
as businesses, which are concerned about their social impact. Research
published by Business in the Community (BitC) shows that 44 percent of the
British public believes it is very important that a company shows a high degree
of social responsibility when they buy the company’s product. The BitC’s
publication acknowledges that “unfortunately, distrust among stakeholders,
particularly consumers of the adequacy with which companies are addressing
their corporate responsibilities is rising.”
There are similarities and differences in these two movements. CSR is a

wide-ranging agenda that involves businesses looking at how to improve their
social, environmental and local economic impact, their influence on society,
social cohesion and human rights, and fair trade. CSR is an issue both for large
multinationals and for small, locally based businesses. For social enterprises,
improving “their social, environmental and local economic impact” is not their
aim, even if they may wish to succeed in achieving this. Social enterprises
see social impact as their reason for being. Each enterprise at start-up sets
out to meet a social objective and in doing that they see themselves as having
an underlying motivation that is different from other businesses. The question
is whether intention or impact is most important to the consumer.
The ethical school of thought suggests that social enterprises should be

marketed as ‘ethical businesses’ so that they could then be assessed in a
similar manner to businesses within the CSR movement. The aim would be
to assist consumers in finding companies with positive social or environment
impact regardless of their business structure. Several initiatives take this
approach by for instance publishing ethical or good shopping guides. More
recently web sites seek to guide consumers to ethical products. The ethical
school suggests that social enterprises should seek listings in the ethical
guides in which they would be listed next to other businesses and compared
on the same criteria. This approach requires a pro-active consumer, who
researches purchases. (Note that some of the ethical web sites and ethical
guides are social enterprises themselves.)
The second approach emphasises the role of social enterprise in trading for
a social purpose. Within this approach, social enterprises seek to have a
particular social impact, and consumers have the option of supporting these
particular social aims. Consumers may buy from an organisation because
of its work on for instance the environment, and not because of its social
enterprise structure or is generic ethical business approach.
The question then becomes: to what extent does the consumer wish to support
a particular cause or social purpose? And additionally, what are the causes
they wish to support? Consumer support is demonstrated by research which
shows that “90 percent of the British public want companies to communicate
any community or social activities, but only one in three are aware of any
company that they have heard of that is active in this area.” (Annual CSR
Study, MORI, 2000)

In mainstream businesses, cause-related marketing (CRM) has proved
effective. Business in the community defines CRM as ‘a commercial activity
by which businesses and charities or causes form a partnership with each
other to market an image, product or service for mutual benefit’ (BitC 2002).
CRM campaigns have increased brand affinity, improving company sales and
profits. For charity partners, these campaigns have raised significant funds
and increased the charity’s own brand awareness.
Again social enterprises see themselves as being different from CRM

schemes. Social enterprises seek to integrate the social aim within their core
business. For example, a social enterprise may assist to train the long-term
unemployed by directly employing them, while a CRM scheme would seek to
raise funds for a training charity. Some private business owners, part of the
social venture movement, would argue that they also seek to integrate social
aims within their core business.
Given that social aims are at their heart, the ‘benefit school’ suggests that
social enterprises should emphasise their causes. This may be done at the
individual firm level, or by connecting the business with a wider campaign.
At the centre of these wider collaborative campaigns, ‘social labels’ are often
found. The organic and fair trade labels are the best known, and perhaps the
most effective, however dozens of label schemes exist. They include many
green or environmental schemes, and those related to animal cruelty issues.
Others address workplace issues such as the new ‘homemade scheme’ or
community involvement, such as BitC’s community mark. The label’s aim is
to assist consumers to make decisions at the point of sale.
The third approach focuses on social ownership. While the government’s

Social Enterprise Unit defines social enterprises as “… businesses 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.” (DTI 2001), other
definitions place more stress on mutual or community ownership.
Whether they emphasise the non-profit status or mutual aspects, all definitions
see social enterprises having structures that are distinct to private businesses.
The question is: does ownership matter to consumers and affect their buying
preferences, or in the case of a mutual organisation what would motivate a
consumer to become a member? (Note many larger mutuals do business with
both members and non-members.)
Within the debate about privatising government services, evidence exists that
sections of the public are opposed to private ownership of some services,
such as health. Some support exists for transfer of services to the voluntary
sector or social enterprises. A fair conclusion is that as citizens, people are
interested in the ownership issues related to some services and the degree of
interest differs depending on which service is being debated.
The question for this paper is: as consumers, do people choose based on
ownership? If a parent has a choice between a private day nursery, one
run by the local authority and one run by social enterprise, how much would
ownership influence their decision? And what proportion of the consumers
would be influenced by ownership and the possibility of being a member in a
social enterprise?

The de-mutualisation of many building societies and other mutuals also
provides some evidence on the ownership question. While in most cases
members have voted to privatise the mutual, in several instances they
have voted to remain a mutual. The important factor was how effective the
organisation was at its business and whether the mutual experience was
different. So effectively, this raises the question that if going to a building
society was no different from going to a bank, why not sell the shares?
Within co-operative development literature, the rule of thumb is to focus on

need. People will come together and co-operate where the organisation
addresses a real need or market gap. For example, in rural Britain,
communities are taking over village stores, pubs and post offices to prevent
closure. While the philosophy of co-operation may be important to the
movement’s activists, most consumers support the community enterprises
based on need. However, almost no published research deals with the
consumers’ understanding of social enterprise. There is only some limited
research in this field, such as the GEM Social Enterprise Monitor, which
suggests that consumers have difficulty distinguishing between social
ventures, voluntary organisations and social enterprises.
The ownership dimension is important as an internal brand. Employees value

working for an organisation that has social aims and emphasises stakeholder
involvement. This creates employee satisfaction and in turn a better customer
experience. The resulting customer loyalty is based on the better services
and not necessarily on an understanding of the organisational structure.
The ‘ownership school’ suggests that social enterprise marketing should

emphasise their unique nature and ownership structures through promotional
initiatives such as social enterprise directories and trade fairs. Promotions
generally include all eligible social enterprises with little assessment of quality
issues.
The following thesis, based on literature review and interviews conducted for
this report, attempts to relate the three schools of thought on social enterprise
promotion as outlined above. Firstly, consumers expect a minimum
ethical standard from companies. Failure to meet these standards creates
dissatisfaction with the firm. Corporate social responsibility addresses this
issue and social enterprises need to meet these minimum standards and be
increasingly transparent in doing so. Secondly, social or community benefits
provide positive reasons for a consumer to support a business. Focusing
on tangible benefits means consumers can understand the impact of their
decisions. What is most appealing to consumers is the opportunity to
contribute to a particular social or community benefit. Providing the business
offer – that is, the product quality and price, is also right. Thirdly, ownership
is a niche market. Any marketing initiative that focuses on ownership may
limit its appeal to the movement’s core activist group. A social marketing
campaign to sell the concept of social enterprise is different from engaging the
consumers as buyers. Most consumers are interested in what actual benefits
the individual social enterprise is delivering. Their decision to purchase from or
join as members is based on the benefits. The message for social enterprise
is to focus on mission and the community benefits generated.

MARKET SEGMENTATION
Market segmentation is rarely used to analyse the social enterprise

movement. There is a need to look at the market’s segments within which
social enterprises operate. While some individual social enterprises are
sophisticated marketers, the wider movement’s communication strategies
have largely been focused on policy issues. The analysis below is an initial
schema, which will bring out some key consumer perceptions. Five main
market segments are used for this analysis: ethical marketplace; underserved
markets; companies as clients; public sector contracting and the voluntary
sector as clients.
Ethical marketplace
The ethical marketplace is a very specific market segment with a clear
consumer profile. The ethical marketplace is about products with ethical
attributes. Examples include fair trade coffee, social investment funds,
organic produce and environmentally friendly products. The Co-operative
Bank’s research estimated that the total value of ethical consumption in the
UK was £19.9bn in 2002. This includes sales of ethically marketed goods and
services of £6.9bn, representing a 13 percent increase on 2001. A significant
proportion of the public has bought some ethical goods or services, or avoided
the unethical. However, the total market-share for ethical goods and services
is still less than two percent. Some product categories have higher market
share such as free-range eggs (40 percent), energy efficient appliances (40
percent), and Fairtrade ground coffee (14 percent).
The majority of ethical consumers are in the ABC1 groups. This commonly
used demographical classification includes middle class and higher income
consumers. In addition, people over 35 are more likely to apply ethical
criteria to purchases. There is also a link between educational levels and the
awareness of ethical and green issues. Young people are less engaged with
green and ethical issues than were previous generations. Those least likely
to apply ethical criteria when buying are male, single and from less affluent
social groups.
The distinction does not mean low-income consumers are less ethical or
less concerned by ethical issues. The difference is in the buying patterns.
Unfortunately the language of ‘ethical consumption’ tends to be applied to
products purchased by middle and higher income consumers. ABC1 groups
are also better able to pay the premium price charged on many ethical
products or have the resources for ethical investment funds.
Social enterprises are important actors in the ethical marketplace and

play a major role in creating the market. The typical history of ethical
product categories follows a three-stage process. Initially, non-government
organisations (NGOs) campaign on an issue such as trade; new social
enterprises and social ventures then begin developing niche markets as
for example, Traidcraft or Oxfam selling the first alternative coffees; finally,
the product category goes mainstream and larger firms enter the market.
Cafédirect played this role for Fairtrade coffee and was the first fair trade
product sold in the grocery multiples. Its success attracted many companies
who now sell a range of products in the multiples.

A similar pattern can be seen in organics, which came out of the environmental
movement. In the early days of organics, social enterprises had a large
market share. Today 85 percent of organic products are sold in the grocery
multiples. Social enterprises remain part of the industry today and are active
in wholesaling, production, marketing, box schemes, restaurants and some
retailing.
Social labels play an important role within the ethical marketplace. The
organic and Fairtrade label are the best known. Social labels seek to provide
information that is useful. This means that information must be delivered in a
credible, digestible and attractive form that captures people’s attention. In fact,
for consumers with little time, the credibility and authority of the information
source may be of most importance.
Some of social enterprise’s best marketing operations are to be found in

the ethical marketplace. This can be attributed to three factors (1) A clear
distinction between the beneficiary and the consumer. For example fair trade
seeks to benefit producers in the south while the clients are consumers in
the north. (2) Many of these ethical social enterprises are marketing to wider
market and not just one local community and (3) the social enterprises see
themselves as part of a wider movement seeking to mainstream social ideas;
such as the environment, fair trade, or social investment.
Observers suggest there is considerable room to build on social enterprises’

success in the ethical marketplace. Given the important leadership role social
enterprises have played, it is perhaps surprising that no development initiative
exists to support the growth of social enterprises in this area. The social
enterprises that operate successfully in the ethical market place emphasis
on the benefits they provide in addition to a good business offer. Indeed most
do not emphasise that they are social enterprises. The conclusion may be
that any social enterprise mark, which seeks to target this market, should
emphasise benefits.
Under-served markets
In understanding and considering the needs of the under-served markets
Business in Community notes that “under-served markets are communities
that have inadequate access to products and services. An extension of that,
focusing on the low-income element of such a community is the low number of
jobs in the area, in retail or any other commercial sector. The characteristics
of under-served markets, such as low employment and skills, low income and
higher than average crime rates, mean that many companies are both unable
and unwilling to use existing site development strategies.” (BitC 2002)
Social enterprises have a large presence in regeneration areas. One view

of social enterprise emphasises their potential to address market failure and
community enterprises are seen as a tool for local economic development.
To address this failure, many social enterprises provide services such as
childcare, access to finance through credit unions, or property for business
start-ups.
Government start-up funds have played a major role in the growth of social
enterprises in regeneration areas. Neighbourhood renewal programmes,
including Single Regeneration Budget (SRB), New Deal for Communities

(NDC) and the Small Business Services phoenix fund have all targeted
the most deprived wards. These programmes hope social enterprises will
become sustainable businesses that outlive the regeneration grants. Social
enterprises also serve under-served markets outside government defined
regeneration areas such as rural communities.
In considering under-served markets, care needs to be taken to distinguish

between consumers and beneficiaries. In regeneration areas some social
enterprises seek to benefit local people by job creation or training. The
market for these social enterprises may be outside the regeneration area.
Other social enterprises seek to provide services or products to the local
community. When speaking of under-served markets, we are referring to
social enterprises that serve consumers in low-income communities. Low-
income consumers make up about 28 percent of the UK population.
Over the years, debates about social exclusion and poverty have recognised
the importance of service deprivation - that is, the insufficient access to
essential goods and services that creates consumer disadvantage. The
National Consumer Council (NCC) found that “There has been little research
that has directly asked disadvantaged consumers what they need, and even
less that has paid attention to the diversity of their needs.” The NCC research
into essential needs found:
• The lack of affordable or appropriate services - especially in private

sector services such as the utilities - is a major cause of consumer
disadvantage.
• Disadvantaged consumers’ lives are taken up with relentless daily
struggles to avoid debt yet access essential goods and services.
• The battle to survive keeps consumers locked into short-term thinking.
For many this prevents aspiring to improve their lives.
• For some consumers, face-to-face communications are the preferred,
or only, way of communicating with providers.
• Many disadvantaged consumers lack the skills and confidence to act
as empowered consumers.
• They rely on community centres, friends or family for such taken for
granted consumer activities as understanding bills. (NCC 2003)
Social enterprises located in disadvantaged areas potentially have a strong

competitive advantage. By being rooted in their local community, they may
know the local consumers well, although some social enterprises fail to
distinguish between their general knowledge of the community, and particular
knowledge about consumers’ need and preferences for individual services or
products. In turn, because the social enterprise is local, its reputation may
be well known by consumers. Research evidence suggests that local social
enterprise should focus on building its local reputation and emphasising its
local connections. Participation in national marketing schemes and labels
may have limited impact. They should instead focus on helping to empower
and educate local consumers with social enterprises models that provide a
means for empowerment through active participation.
For outsiders, BitC’s research suggests that, “investment in an under-

served market, coupling business and community needs, will deliver not
only competitive advantages but also a strong brand image.” (BitC 2002)
To put it another way ‘ethical consumers’ value businesses that invest in

regeneration areas. Thus investment in an under-served market not only
creates consumers in that market, but also creates a wider positive image of
the company.
The tentative conclusion is twofold. Local social enterprises serving their

local market would not benefit from a new social enterprise mark. This is
particularly true if its costs were similar to the Fairtrade or Organic marks.
Secondly, social enterprises selling to wider markets benefit from serving
under-served markets as this is appealing to consumers.
Companies
Social enterprises also serve as suppliers to companies. They sell mobile
phones and provide direct mail and distributions services. Many development
trusts provide office or commercial space, whilst others sell cleaning services,
or printing and design including web design. Other social enterprises also
sell wholesale food, flowers or other products to major retailers. The aims of
these social enterprises range from local economic development, job creation
and training initiatives or promoting the environment.
Most companies like individual consumers look firstly at the business offer,
product quality and price while some companies look no further. A growing
number of firms are looking at the ethical issues within their supply chains.
Companies are developing ethical sourcing initiatives, often in response to
public campaigns or to anticipate questions. Ethical sourcing refers to the
assumption of responsibility by a company for the labour and human rights
practices within its supply chain. Within the UK, The Ethical Trading Initiative
(ETI) is leading on this issue. The ETI is an alliance of companies, NGOs and
trade union organisations. It exists to promote and improve the implementation
of corporate codes of practice, which cover supply chain working conditions.
Its stated goal is to ensure that the working conditions of workers producing
for the UK market meet or exceed international labour standards.
The best-known ethical sourcing work focuses on imported goods. Yet

ethical sourcing initiatives are also looking at the UK supply chain. There are
particular issues related to how home workers, smallholders, prison labour
and the self-employed fit into the UK supply chain. Social enterprise has the
potential to work with all these groups. Marketing co-operatives, for example,
could help some of these groups get a better deal.
Ethical sourcing is a marketing opportunity for many social enterprises,

however, they would need to look at and certify their labour practises. The
question than is - should ‘meeting or exceeding international standards’ be the
domestic target for social enterprises’? Consumers already expect companies
in the UK to comply with labour regulations. This is more of a minimum
condition. Within the UK, to impress the consumer, a firm would need to
improve on the industry standard or provide above average conditions.
At the moment, few social enterprise link into ethical sourcing chains. For
this to happen, two things are required. First, a better understanding of
social enterprise’s position within the labour market is needed. How do social
enterprises’ terms and conditions compare within their industries? Second,
social enterprises need help in understanding the industry codes of conduct
and assessment tools.

In parts of Europe, ethical sourcing initiatives are leading to new social
labels based on labour standards. To tap into the ethical trade market, social
enterprise would need to address labour issues. For some companies,
environment issues will also be a priority. Any social label that targets
companies would need to target companies’ priorities. Companies through
projects like the Ethical Trade Initiative are developing their own assessment
procedure. Social enterprises targeting the corporate sector might be better
off fitting into these schemes.
Public sector
There is an overlap between the public sector market and the ‘underserved
market’ segment. The public sector is much larger and wider than regeneration
activities. Social enterprise also seeks to supply to this wider market. A
significant proportion of social enterprises can be found in the health, care
and education sectors. The success of Greenwich Leisure has led to over
thirty councils contracting their leisure services to social enterprises whilst
three of England’s top ten councils’ recycling services are run by a social
enterprise.
The distinction between the users and the buyer is an important element in
the public sector market. The council or other public agencies are the buyer,
a buyer with its own purchasing criteria and priorities. The service user pays
little or no direct fee for the service. A gap between the buyers’ and users’
agenda may exist and to be successful, a social enterprise must bridge this
gap.
NCC research on consumer involvement and representation found that “Their

(consumer) main interests focused on issues which have an immediate and
localised impact on their lives, and there was a considerable degree of cynicism
and lack of trust about consultation and involvement processes.” To this end,
social enterprises may provide a means for improved user involvement and
representation. Some social enterprise models emphasis user involvement
with members holding full or partial control of the organisations. Other
stakeholder models include local authorities or community groups as
members.
Ultimately, the public sector buyer is looking for new service delivery models.
Faced with pressures to deliver, their need is for more effective delivery
organisations. The buyer is looking for means to assess the suppliers’
effectiveness and in doing so they are seeking measures of organisation
effectiveness, such as Investors in People, Picasso, inspection reports
or industry standards codes of conduct. These measures of individual
organisation’s performance are not specifically designed to assess social
enterprises. The added value of a social enterprise mark would be if
it assessed social enterprises’ claims on user involvement and added
community benefits. Some individual Ofsted and best value inspection
reports show one cannot assume that an individual social enterprise is better
at user involvement.
The government’s Social Enterprise Strategy recognised that: “Individual

organisations need to be measured, not only against the targets that they
may set themselves, or their performance year-on-year, but also to show
how they are performing compared with their peers in both the social and
the mainstream economy. The ability to ‘prove’ that a social enterprise is

meeting both its financial and its social bottom lines - reconciling its mission
and its money - will be increasingly important if social enterprises are to play
an expanding role in the delivery of public services.”
The government’s cross cutting review of the Role of the Voluntary and
Community Sector in Service Delivery has led to funding to increase the
scale and scope of service delivery by the sector including social enterprises.
Provided that there is compliance with EC public procurement regulations and
Best Value, councils can work with suppliers to realise ‘community benefits’
through their procurement activities. This might include employment, training
and enterprise opportunities in the locality and local multiplier effects.
The question is, will public sector procurement processes be satisfied with a
simple social enterprise mark or, as part of tendering, will they require more
detailed reports and industry related certifications.
The Office of Government Commerce (OGC), which works with government

to improve procurement, has issue guidance on fair trade: “There is scope
within the Government’s procurement policy and the EC procurement rules
to encourage, in non-discriminatory advertisements and specifications, the
inclusion of fair trade options in tenders for catering and canteen services
and supplies contracts. However, specifications cannot be framed in terms
of fair trade requirements, as such social labels are not permitted under the
EC rules.”
On eco-labels, the OGC advised: “Contracting authorities may use

specifications drawn from eco-label criteria, where these are appropriate to
define the characteristics of the subject of the contract. Contracting authorities
may accept the holding of the relevant label as evidence of compliance with
the specification. However, as with any other standard, contracting authorities
must also be prepared to accept other means of proof that the product or
service offered meets the underlying specification required.”
Social enterprises provide a wide range of benefits and procurement offices

are likely to ask for industry wide certificates and/or more documentation
rather than a specific social enterprise mark.
Voluntary sector
Some social enterprises are established to provide services to the voluntary
sector. Construction projects provide maintenance to housing association
while property developments provide space. Others sell training and
consulting services; provide catering for events, supply furniture, printing or
ICT services to the voluntary sector. When marketing to the voluntary sector,
social enterprises emphasise that in being a part of the social economy they
are knowledgeable about the sectors’ needs. They also assume that the
voluntary sector will be more attracted by social offers.
The voluntary sector, itself, is looking at social auditing and other methods of
impact assessment. It can be expected to increasingly seek evidence of any
enterprise’s claims to be benefiting the community. In doing this they will be
knowledgeable buyers, aware of the strength and weakness of social audits and
social labels. They are likely to be interested in a social enterprise mark that most
resembles their own quality mark. Indeed a social enterprise selling largely to the
voluntary sector may be best off joining a voluntary sector quality programme.

Conclusion
Each marketplace has its own characteristics and approach to social offers.
More consumer-oriented research is needed to help build appropriate
assessment and communication tools. Within each market, a well-designed
tool can assist the buyer and help create a market for social enterprise.
The tools need to address the consumer’s interest, their questions and
assessment methods. The assessment tools may overlap in many of these
marketplaces. There will be less overlap for communication strategies, with
the key distinction being between local social enterprises marketing in their
own communities and social enterprises seeking regional or national markets.
The basic market principles surrounding market segmentation need to be
applied.
To date social enterprise mapping exercises have not analysed social

enterprises by their target market segments. The DTI mapping exercise
examined 33 existing mapping studies and found no reference to market
segments. This is another area where more research is required. Based on
further research more sophisticated market segmentations will emerge.
Social enterprise can learn from the ethical marketplace. When social
enterprises engage in sophisticated marketing they can create markets and
consumers do respond to social offers where they deliver proven social or
environmental benefits.
CONSUMER AGENTS
The concept of consumer agents derives from studies of information

economics and the growth of the internet. Digital networks are creating large
information flows that are difficult for consumers to evaluate. This gives
rise to intermediaries who format and package information for consumers.
These intermediaries filter and prioritise information. Consumers seek out
intermediaries that they respect and can trust. They are looking for agents
who represent the consumer, and apply the filters they choose. When you
use a search engine to find a late holiday deal, does the site return the best
deal or the holiday package that pays the site the best commission?
The increased access to information also provides opportunities and enables

the consumer to do things that the consumer was not able to do before.
New consumer communities share information and share the task of sorting
information. For consumers to act on their concerns for the social and
environmental impact of businesses, they need customer communities and
intermediaries. Social auditing, environmental reporting, NGO research and
corporate social statements are creating new information flows. The challenge
for the consumer is to sort through the ethical messages and separate the real
action from the public relations.
Social labels are one form of a simple consumer agent. In the case of
organics, a standard set of regulations exists and independent inspectors
visit farms and food processing plants to check that the production meets the
standards. The organic label on food packages assures the consumer that
environmental standards have been met. To create awareness, successful
social labels have relied on branding. The aim is to use complex marketing
techniques to communicate a single focused message to consumers. The
organic label answers only one question and does not tell the consumer

anything about fair trade; a separate label addresses that issue.
For social enterprise, a social label may be a starting point. Social enterprise
might be tempted to stop at a social label. However, given the growth of
information technology more is possible. Much of this technology did not exist
when the Organic and Fairtrade labels were first developed. The implication
then is that a new social label needs to be a stepping-stone to a consumer
community. It needs to be placed in the context of an ecosystem of concerned
consumers. This ecosystem is a network of consumers, producers, and social
labels developing new forms of co-operation and interaction. The consumer
agent’s role is to map and guide individuals through the ecosystem.
As a first step in developing a consumer agent, social enterprises need to

address the problems of assessing quality and impact. In recent years, there
has been considerable discussion of social auditing within the sector. While
there are several examples of good practise, issues remain.
The DTI’s review of existing mapping studies of social enterprises found the
poorest coverage included measures of social and environmental impact
beyond employment contribution. The study suggested that a focus on
beneficiaries is more useful as a measure of social aim than categories, which
are more descriptive of an organisation’s activities (for example, black and
minority ethnic communities, women or long-term unemployed people).
The assessment issues were also looked at by the Quality and Impact Tools
Project, led by the New Economics Foundation on behalf of The Social
Enterprise Partnership. Their needs analysis found:
• quality and impact tools have a low profile, the language of the tools is
off-putting and their benefits are not well known;
• social enterprises fear the cost and time required;
• there is too much choice and not enough guidance;
• the work that is going on in the field is not connected;
• many social enterprises are already engaged in some kind of impact
measurement or quality management - often through using informal,
internally created processes;
• available processes are not designed for smaller organisations;
• there are a lack of indicators to capture soft outcomes and longer-
term impacts;
• there is a lack of knowledge on environmental tools;
• for some social enterprises there is a need for more sophisticated
tools.
Following this research, the Project is working with the social enterprise sector
to develop and pilot new tools.
Another approach to assessment being developed is found in the Community

Interest Company (CIC) structure and community interest reports. CIC is
a new type of company for use by not-for-profit organisations pursuing
community benefit. To register as a CIC, a company will have to satisfy a
community interest test, confirming that it will pursue purposes beneficial to
the community and will not serve an unduly restricted group of beneficiaries.
The test is ‘whether a reasonable person could consider the CICs activities
to benefit the community.’ Each CIC will be required to produce an annual

community interest report, which will be made public. The report will record
what the CIC has done to pursue the community interest and involve its
stakeholders during the year. A new independent regulator will oversee
CICs.
Given the current state of quality and impact assessment, any new consumer
agents would have several options for dealing with quality assessment. First,
the agent might develop his or her own system. Social labels, like the Fairtrade
and Organic, operate their own inspections systems. Their central bodies
have established a set of standards. (In the organic case, these standards
are supported by legislation.) The social label also maintains a network of
inspectors who visit the organisations that use the label. The individual label
users pay these inspection costs.
Second, the consumer agent could review available evidence. Social

enterprises are producing an increasing number of social audits, CIC reports,
and impact tools. The agent could be the consumer’s reader and a panel
could read and review all the evidence submitted by a social enterprise. The
panel would then make and report on their judgement. The review panel
would need to set standards for evidence, and minimum requirements. These
requirements would vary by industry. For example a co-operative might be
required to submit a new key performance indicator for co-operatives.
The problem would be to assure that the equivalent evidence was submitted
in each case. For some industries or sectors, industry-specific tools may not
have been developed. This review method would need to be phased in by
industry or sector. This approach is potentially less costly than developing a
completely new system.
The third option is to use a standard social audit format in all cases.
Organisations such as The Institute of Social and Ethical AccountAbility
have developed standards for social auditing. These standards include
methodology for conducting and certifying social audits. The consumer
agent could require all social enterprises to submit reports using one of these
standards. The report would still need to be reviewed by a panel. A social
audit identifies weaknesses as well as strengths within an organisation. A
consumer or their agent cannot assume that the existence of a social audit
means any given organisation is having a positive impact.
The use of a standard format makes comparisons between organisations

easier. It will, however, require extra work and cost for social enterprises
that use other impact measurement systems. In addition some industry and
sector-specific issues may not be as fully addressed by a standard format.
The fourth option is to develop an interactive forum, a website that features

information on individual social enterprises and invites consumer comments
and discussion. This type of feedback site may not be effective dealing
with small enterprises, as the number of consumers who comment on any
particular enterprise may be small. Perhaps it is best combined with one of
the other approaches.
While considering these options it is important to bear in mind that financing

is also an issue. As one study concluded “Internet consumer education and
feedback sites are struggling to prove themselves as viable businesses.

But this does not diminish their utility as places where consumers can
compare and share information, and places where companies can learn what
consumers are thinking” (Prahald et al 2004).
TOWARDS A SOCIAL LABEL OR BRAND
Based on the discussion above and research for this report, in this final
section we set out a scenario for a new social label.
Objective: to increase the impact of social enterprises - Underlying this is

a common goal to make a contribution to the community. Social enterprises
do this directly through their activities while consumers play a supporting role
by purchasing goods and services.
Target audience: the wider audience of concerned consumers - Social

enterprises seeking a regional or national market, or to sell through mainstream
channels would stand to benefit the most. More work is needed on building
the demographics and psychographics profile of concerned consumers. The
local market is best served by local marketing and while social enterprises
might participate in the scheme, the added value for them would be small.
Trusted agent: a new organisation or alliance with an independent

viewpoint - Given the growing scepticism about ethical claims, the new label
needs a distance from ‘vested interests’. The agent’s assessments need to
be seen as impartial. While social enterprise networks might be an important
part of the alliance, the presence of other credible players will increase the
label’s value. The label could be incubated at the initial stages within an
existing organisation or network, under the guidance of such an alliance.
Brand proposition: you are contributing to society by supporting

social enterprises - The brand will be most effective by reaching beyond
the sector’s activists to the wider market. Therefore, the focus should be
on ‘community benefits’, those benefits that provide positive reasons for a
consumer to support a business.
More work is needed to clarify which benefits appeal most to the consumer
and what range of benefits can or cannot be included in one brand. The
brand would need to build awareness of the need, and examine how social
enterprise is addressing the need. This may exclude some social enterprises
that are doing good work, but who are not addressing the need as defined
by the brand. For effectiveness, the brand needs to be linked to a clear and
easily defined need.
Assessment process: an independent panel to review available

evidence - In the short term, given cost issues, the most realistic approach
is to review available evidence. The second option outlined above. A panel
could read and review all the evidence submitted by a social enterprise and
then make their judgement and report on it. The review panel would need to
set standards for evidence and minimum requirements. These requirements
would vary by industry or product as in the fair trade standards. The review
process would retain the right to send out inspectors. It could also invite
feedback from consumer and observers on its web forum.
Users: membership in the label should be initially limited to social

enterprises – Since the label will only benefit organisations selling in a
market, voluntary organisations would not benefit, except for their social
enterprise subsidiaries. Including the voluntary sector would complicate the
marketing message without much benefit. However, the case for including
social ventures is stronger as these private companies see themselves as
producing social benefits. Additionally strong social ventures provide more
community benefits than some weak social enterprises.
The label needs a strong message about addressing need. The need
message will be stronger and subject to less debate, if initially limited to
social enterprises. This allows the initiative to start with those organisations
most readily trusted by consumers. However, over time, as assessment
becomes more robust, there could be scope for widening the use of the label
to products and services provided by the private sector through partnerships
and initiatives compatible with the core criteria.
Communication strategy: create a marketing buzz - Few of the hundreds

of label schemes have achieved high public awareness. Creating name
recognition requires either high promotional spend or an energised network
of supporting organisations. The new label cannot afford a large promotional
budget, but a marketing buzz can create a high profile.
Media profile of certain issues has a huge importance on consumer opinion

and behaviour. A media strategy could focus on the underlying social need
and those social enterprises that have succeeded in addressing it. This
requires the label to have a clear message about the issues. The label would
need to make use of organisations that are willing to lend their credibility to
the project. These organisations could also use their own communication
vehicles to get the label’s message out. The participation of existing high-
profile social enterprises is also needed. Their credibility will help the new
label build its own reputation.
Symbols: professional assistance would be used to design the label

symbol, promotional materials and copy lines - While the label is based
on a rational argument, and the assessment process provides evidence of
impact, the promotional approach needs also to appeal to people’s emotional
side. The key images may be of people and community. The brand might be
linked in people’s minds, ‘to being ethical’, ‘making a contribution’, ‘changing
the world’, ‘improving society’ or ‘benefiting particular groups’. The main
words may be ‘community benefit’ and not ‘social enterprise’. These branding
issues will need careful consideration, based on more detailed market
analysis.
The internet: an increasingly important tool for the label - As the internet
is increasingly used by consumers as a knowledge tool the label will need
to make increasingly sophisticated use of it. The label information strategy
will need to be multi-layered starting with the simple point-of-sale symbol, to
summary information on websites and search engines, to interactive forums
and resource databases containing detailed information. This will be a
resource not only to consumers, but also to media and other opinion-formers.
The label needs to factor the internet into its early planning.
Finance: the label creates markets, and should be financed by social

enterprises’ marketing budgets - In the New Economics Foundation’s

need assessment, social enterprises expressed a fear about the cost and
time required in doing impact assessment. For the target market, social
enterprises selling to mainstream markets, the label needs to be a revenue
generator. The increased sales would need to more than cover the cost of
impact assessment and using the label. There is evidence that effective
‘ethical campaigns’ do increase sales. The Fairtrade and organic label take
a large share of the credit for creating those markets. The Co-operative
Bank recently stated that a third of its customers joined because of its ethical
stance. The longer-term viability of the social enterprise label is dependent
on demonstrating that it can increase sales. If so, then the social enterprises’
marketing budgets would cover the cost of the label’s operations.
Start-up costs: need for third-party funding until a critical mass of social
enterprises are using the scheme - Mapping studies do not break down
social enterprise numbers by target market. The judgement of observers
would be that the largest group of social enterprises are operating in local
markets. This label would only target those social enterprises seeking a
regional or national market, or looking to sell through mainstream channels.
If ten percent of social enterprises were targeting these mainstream markets,
initial potential users of the scheme could be 500-600.
For those joining the scheme, in most cases, there would be a cost of setting
up an impact measurement system. In additional, the label would charge
a fee to join and an annual membership fee based on sales. Income from
members would grow as the label scheme proved itself. As the scheme
needs a minimum number of users to create market visibility, it may need to
offer discounted memberships initially.
Currently, an increasing amount of funding is going into social enterprise

development. The new label scheme can play an important role creating
markets for start-up social enterprises. There would be a case for development
funds to be put into the labelling scheme either directly or as grants to social
enterprises to join. The joining grants could also cover the cost of establishing
impact measurement systems within individual social enterprises.
TIME OF OPPORTUNITY
This is a time of new business models, where values create competitive

advantage. It would be easy to exaggerate the scale or impact of ethical
business. It is still the early days in the development of these approaches.
Research shows that the consumer wants to see these new business models
developed, no matter how sceptical they are about some of the current
efforts.
Consumers are seeking new opportunities to express their values.

Simultaneously, social enterprises are receiving much enhanced development
support. A new label could serve the twin aims of creating the market for new
social enterprises and enabling consumers to support the best.
Social enterprise would be building on their previous successes in the ethical

marketplace. It would extend their influence on the development of new business
models, and their involvement in the debate about social responsibility. Most
importantly, by increasing their market share, the community benefit label
would increase a social enterprise’s contribution to society.

This paper presents a concept scenario. There would need to be considerable
further work to test the case for an initiative like this. The pre-launch work that
is required includes - further development of the market analysis and testing
of the concept; identifying the core brand and value proposition of a label;
and identifying business plan models for viable growth, including its impact on
social enterprise development and growth.
The label needs to genuinely offer something of value to consumers and

communities, and avoid becoming one more niche label in a crowded market.
A social enterprise or community benefit mark would need to be based on
sound marketing principles and commitment to the underlying values.
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Award Winners by UnLtd, the Foundation for Social Entrepreneurs.

Exploring the meaning(s)
of sustainability for
community based social
entrepreneurs
Barbra Wallace holds a postgraduate degree from the University of East
London and is the Director of Stepney Works a community based social
enterprise.
INTRODUCTION
This study explores meaning(s) of sustainability from the perspective of

community-based social entrepreneurs (CBSE) on an estate in East London.
The area has been caught in a spiral of decline for several decades and has
been targeted for regeneration and renewal by the UK Government. Policy
makers have also tended to regard such neighbourhoods as fertile ground for
social enterprises to foster sustainable communities (PAT 2003).
The concept of sustainability underpins much of current UK social enterprise

policy, however it has not been widely debated by practitioners in the social
enterprise movement. Rather its meaning is implicit in policy and strategy
and is based on three assumptions about social enterprises: (1) they should
be grant-free and financially sustainable, (2) they should aspire to achieve
100% of their income from trading and (3) they should achieve both financial
and social goals (DTI 2002). These assumptions constitute the dominant
perspective of social enterprise sustainability, which is further reinforced
by prominent role models and showcase organisations. As a practitioner, I
considered my experience of building a sustainable social enterprise, and
assisting local residents to do likewise, to be incongruent with the dominant
discourse about sustainability.
The research presented in this paper used collaborative inquiry and storytelling
to gather data from four social enterprise practitioners. These methods are
qualitative and allow the voices of informants to be heard, and their meanings
and interpretations to be articulated. The aim of the study was to enable local
practitioners to express their views, and where appropriate, to challenge the
values, cultural norms and underlying assumptions embodied in the dominant
discourse.
This analysis of informant accounts shows that current social enterprise policy
embodies a discourse about sustainability, in conjunction with a meta-narrative
of the market, which is dominated by the culture and ethos of competition and
profitability that is associated with corporate business. This in contrast to the
culture and ethos of CBSE who prioritise collaboration and cooperation above
competition.

CONTEXT
The context of the research is the London Borough of Tower Hamlets, one of
London’s poorest boroughs and the location of much policy-led regeneration
activity. The UK Government has designated the estate as a New Deal for
Communities (NDC) area, and funding of £56 million has been allocated to
regenerate the area.
Over the last few decades the area has been subject to enormous socio-
economic and demographic change. The rapid decline of many traditional
dock-related industries has left substantial areas of physical degradation and
a high level of unemployment. As the area spiralled downwards into socio-
economic decline, concentrations of vulnerable people were re-housed in the
area. Nearby, large-scale UK Government investment has resulted in the
regeneration of Canary Wharf and Wapping, however this is in stark contrast to
many older residential areas on the estate. As in any area classified as socio-
economically deprived, associated problems of poverty exist. Approximately
60% of households have an income of less than £10,000, housing quality is
poor and there are high levels of crime and drug-related offences. There is
a low level of new enterprise activity, and that which exists is primarily retail
services. However, enterprise development, including social enterprise, has
been identified as an important means of regeneration and fundamental to
neighbourhood renewal (Social Exclusion Unit 2003).
The regeneration activity that has occurred on the estate has been beset
by difficulties. In the last twelve months, several not-for-profit community
organisations on the estate ceased to operate (due to alleged fraud) and
in January 2004, a community centre was closed down. The atmosphere
is highly charged politically, and there is a history of long-standing rivalry
between different groups of community activists.
In my role as Executive Director of Stepney Works (a social enterprise on the

estate), I have been responsible for developing affordable workspace and
delivering enterprise support services to local people and my organisation is
responsible for delivering a significant part of the NDC enterprise strategy.
This has been delivered via a y, a specific project was created to provide
customised support to enable local residents to set up social enterprises on
the estate. This project provided the stimulus for the research presented in
this paper.
The population on the estate is dominated by black and minority ethnic

communities (76%), more than 51% of residents are of Bangladeshi origin,
and there are increasing numbers from Somalia. The estate is predominantly
Muslim and there is a strong gender divide. Many of the women on the
estate do not engage in community life, nor do they use local transport and
consequently do not venture far off the estate. Many women attend English
language classes but have limited opportunities to practice and perfect
their spoken English. The lack of language proficiency constrains their
ability to obtain employment in non-ethnic businesses. Due to their family
responsibilities, many seek flexible work, which might only be available via
self-employment or enterprise creation. These factors have led to the potential
of new social enterprise creation to be promoted as a means of self-employment
and empowerment for Bangladeshi and Somali women on the estate.

FRAMING THE RESEARCH QUESTIONS
The sustainability discourse that currently dominates social enterprise policy

and strategy in the UK is largely financial in nature. There appears to be an
assumption that financial sustainability is achievable by CBSEs: “Community
based social enterprises seek to provide sustainable economic activity in ways
to ensure that the money and benefits from such activity flow directly back into
the locality in which the social enterprise is based. This is of particular value
when the social enterprises are based in disadvantaged communities.” (DTI
2002:23) Further, the DTI comments on the extent of sustainability: “Whilst
fledgling social enterprises may derive less than half their income through
commercial activity, mature social enterprises aim for close to 100%.” (DTI
2002:2). However, this notion of sustainability may not be realistic in the
context of inner city disadvantaged communities. For example, it has been
estimated that break even will not be achieved for at least 10 years at Stepney
Works. The conflict between the policy rhetoric and the reality of CBSE
activity on disadvantaged estates led to the following research questions:
• What do social entrepreneurs mean when they talk about sustainability?

• Does this meaning(s) differ from the dominant discourse of sustainability
contained in social enterprise policy and strategy publications?
• How is sustainability achieved by CBSE?
• What are the barriers to achieving sustainability?
• Is sustainability constrained by environmental context?
THE MEANING(S) OF SUSTAINABILITY
Social enterprise practitioners in different industry sectors see different parts

of the picture, think in different time scales and frequently use the same words
to mean different things (Holdren et al 1995). However, the common themes
that run through most definitions of sustainability include environment,
economy, society, or all three together.
Environmental sustainability is based on the realisation that the depreciation

of natural capital cannot go on forever (Dyllick and Hockerts 1999). Many
social enterprises have engaged actively with environmental sustainability,
particularly waste management and recycling e.g. Ground Works, Bulky
Bob’s and Nappy Ever After. Economic sustainability focuses on the
achievement of financial goals. Financial sustainability is based upon the
prevailing orthodoxy that espouses the view of Friedman and Hayek, that “the
business of business is business” (Doig 1999) and that a company should do
no other than pursue shareholder value. Whereas much social enterprise
policy in the UK emphasises the financial aspects of sustainability, many
social enterprises reconcile this goal with social outputs and aim to achieve
a double bottom line (Duncan 2002). Finally, social sustainability draws on
the concept of social capital (Putnam 2000), and many social enterprises
actively pursue the generation of social capital in their social goals. Social
capital, as defined by Putnam (2000) is based on networks, norms, values,
trust, rules and relationships, and its close alignment with social cohesion
and civic engagement means that it as an essential ingredient for community
development. To be socially sustainable, Gladwin et al (1995: 2) suggest that
a firm should “internalise social costs”, “foster democracy” and “add value to
the communities it operates in”. According to Dyllick and Hockerts (1999:134)
corporate social sustainability is about “managing social capital in a way that

stakeholders can understand its motivations and can broadly agree with the
company’s value system.” Taken together, the rhetoric of social enterprise
demands that enterprises achieve a triple bottom line of financial, social and
environmental goals.
The integration of environmental, economic and social issues is firmly on the

agenda of many Governments via the sustainable development agenda. In
1999 the UK Government launched its own sustainable development strategy
to ensure a better quality of life for everyone, now and for generations to
come. This would be achieved by meeting four objectives: social process
that recognises everyone’s needs; effective protection of the environment;
maintenance of high and stable levels of economic growth; and development
(Church 2003).
Within regeneration policy there has recently been a shift in orientation towards
community involvement, with a subsequent emphasis on the recognition of
the need to build sustainable communities (Chanan et al 1999). For the
DETR (1998) a sustainable community is one in which there exists, from a
mixture of internal and external sources, a self-renewing basis of economic
viability, quality services and social capital, the quality of the environment and
making wise use of natural resources. This alternative approach draws on
resources that are available within the community and success is dependent
on the development of natural, social, human, financial and physical capital.
It is proposed that these five assets should be transformed by policies and
institutions to produce outcomes, such as jobs, welfare, schools and better
health measures (Pretty and Hine 1999).
Sustainable regeneration aims “to ensure sufficient resources to support

good quality of life for all inhabitants, improve conditions and opportunities,
face problems creatively and pass on to the future inhabitants tangible and
intangible assets”. Since May 2002, the Office of the Deputy Prime Minister
(ODPM), has taken over responsibility for regeneration programmes with
the aim of delivering: “thriving, inclusive and sustainable communities in
all regions and improve the day-to-day life and environment of all people.”
(London Sustainability Exchange 2002)
THE META-NARRATIVE OF SUSTAINABILITY
According to Gaventa and Cornwall (2001:73), the knowledge that affects

peoples’ lives is typically in the hands of a “monopoly of knowledge producers”
– for social entrepreneurs this is interpreted as policymakers, academics and
sector professionals. The knowledge they construct becomes the accepted
dominant view (Marshall 2001) and is regarded as the correct and true view
of the world. This overarching story is referred to as the “grand narrative”
(Oakenshott 1996), or “meta-narrative” (Lyotard 2003).
In the UK, there is a diverse range of policy initiatives that reflect the
expectations of social enterprise from Government, policy-makers and funding
bodies. Expenditure on social enterprise has become integral to regeneration
funds, such as the Single Regeneration Budget, Neighbourhood Nurseries
Initiative, NDC and the Neighbourhood Renewal Fund. For example,
the National Strategy for Neighbourhood Renewal (2000) proposes that
sustainable regeneration will not happen without enterprise development; the
Policy Action Team reports comment that the provision of social enterprise will

play a key role in neighbourhood renewal, social inclusion and regeneration
policies (PAT 2000); and the DTI (2002) states that “Social enterprises can
provide solutions to some of the problems faced by many of the United
Kingdom’s most disadvantaged areas.” (DTI 2002)
The meta-narrative is also found in outputs from the Social Exclusion Unit
(DTI 2002:33), and SEL social enterprise support strategy for London which
stresses the role of social enterprise in disadvantaged communities in
regeneration and, given the demography of such areas, the significant role
for BME groups (London Social Enterprise Business Support Strategy 2002).
The London Social Economy Taskforce (LSET) also noted the role of social
enterprises in developing local economies (LSET 2002:45).
In the UK, responsibility for welfare, pensions, and many care services
has shifted away from the State to emphasise “self-sufficiency” and “being
enterprising” (Smith 1992). Local government reform, manifest in its withdrawal
from service provision, (see endnote 1) (leisure, maintenance, parks and
gardens, care and social services) has created many opportunities for social
and community enterprises. This has also occurred in the voluntary sector,
with its increasing emphasis on loans and self-financing and a reduction in
grants and philanthropy. These developments have also occurred in Europe
(Borzaga and Defourney 2001).
POLICY EXPECTATIONS UNDERPINNING THE META-NARRATIVE
To understand the dominant discourse and meta-narrative that has developed

around social enterprise sustainability, it is important to understand the
diverse range of expectations of policy-makers. According to Pharaoh et al
(2004), the diversity of approaches stems from the fact that social enterprise
is embodied in a diverse range of policy initiatives.
For example, the DTI (2002) lists three assumptions about social enterprises.
Firstly, that social enterprise is not dependent upon grant income: “It
is central to our strategy to encourage social enterprises to move away
from grant dependency and toward self-financing.” (DTI 2002: 66) This
perspective emphasises independence and self-sufficiency and is reinforced
by the Treasury who define social enterprises as: “Organisations that are
independent of the state and provide services, goods and trade for a social
purpose and are non-profit distributing….” (HM Treasury 1999). Secondly,
that social enterprise aspires towards 100% trading: “Social enterprises earn
all or the majority of their income from sales.” (LSET 2002:21). Thirdly, this
approach assumes that social enterprise combines traditional business with
social aims. As noted by the DTI: “Like any business, it (social enterprise)
aims to generate surpluses, but it seeks to reinvest those surpluses principally
in the business or in the community to enable it to deliver on its social
objectives.” (DTI 2002:14)
The meta-narrative of social enterprise and sustainability

The above discourse and its assumptions about trading have rapidly gained
currency within UK social enterprise policy and strategy publications. The
market ideology has been heralded as utopian and is the meta-narrative
of capitalism (Boje et al 1996). Social enterprise policy and strategy has
embraced the meta-narrative of the market. For example, social enterprise:
“(Helps)… drive up productivity and competitiveness…creating wealth…”

(DTI 2002:20) and “(Creates)… new goods and services” (DTI 2002:21).
The market metaphor is concerned with wealth creation (Mangham 1986)
and symbolises money, corporations and competition (McCrickland 2000).
Adherence to the market meta-narrative has also meant that business support
for social enterprises has followed the orthodox business support approach
(LSET 2002:27). It should however be noted that gains, in terms of improving
the professionalism of the not-for-profit sector, have also been associated
with the market narrative.
METHODOLOGY
The research used co-inquiry and discursive engagement with key informants
(Weil 2000). Data was gathered in a series of discussion sessions that were
recorded and later transcribed. The content of the sessions and discussion
themes were guided by the research questions. The results are presented in
two sections: the applicability of the dominant discourse – the meta-narrative
of sustainability - for CBSE followed by a social enterprise and community
development approach to sustainability.
Results
The discussion sessions considered the three dimensions of sustainability
embodied in the meta-narrative.
Sustainability as self-sufficiency
The move away from grant funding in the social economy was considered
by informants to be a political move and part of a general trend of cutting
funding to the sector at national and local levels. As a result, organisations
needed to decrease their dependency on local authority funds. Decreased
grant funding and the provision of contracts were viewed as a progressive
move. The move from grants to contracts was viewed by some as being
less about self-sufficiency and more about increasing professionalism. There
was consensus in describing a contract as involving a strong element of
competition with specified targets, outputs and costs. Informants regarded
contracts as relating to legal transactions to provide goods and services on
behalf of a third party. The group considered claw-back and the inability to
use both grant and contractual funds flexibly as counterproductive to the
development of sustainability. Current tendencies of funders to concentrate
on outputs were deemed unproductive. The group agreed that there was a
need to be specific when using the terms “grant”, “contract” and “trading”.
Sustainability via 100% trading

The group considered the percentage of trading that was achievable for
social enterprise in community settings and agreed that this was often lower
than for other social enterprises. This was due to the need for community
enterprises to address disadvantage in the local community; aiming for
100% trading element was unrealistic and likely to be achievable only at the
expense of not meeting the needs of disadvantaged groups. For example:
“Doing things for the community, you can never be fully self-sufficient from
trading. Always some part of the organisation needs to be grant-maintained.
For instance, with the childcare centre, we could get people to pay the
£200 fee, but we would not be serving the community by providing enough
affordable childcare places.” There was consensus that rather than grants
being perceived as compensating for a shortfall (in trading income) they
should be perceived as investment. Grant investment would always be

required for new enterprise start-up.
The growth of local micro-finance institutions was discussed and raised the
issue of the viability of debt financing for social enterprises on the estate. It
was stated that: “Loans are fine if you have substantial trading income to make
the repayments or assets against which to raise collateral. Stepney Works
will ultimately have rental income….and assets. Not all social enterprises are
in this position, particularly start ups and small community enterprises...and
you are charged a higher rate of interest for these softer loans…”
Sustainability was equated with financial viability and break even: “Break-
even is utopia for most community social enterprises. The goal is to be
able to cover overheads.” However, it was agreed that, for most community
organisations, the achievement of sustainability was unlikely within the ten-
year time span of a UK Government regeneration programmes.
Sustainability from the achievement of business goals

Another key premise underpinning the meta-narrative of sustainability is that
social enterprises are businesses – albeit with social aims. The co-inquiry
group disagreed: “Social enterprises are not just businesses with social
objectives. They’re set up specifically to benefit the community…Community
benefit is the whole raison d’être. Trading is merely a means to an end.” The
group concurred that social enterprises should be judged on their success as
social enterprises, not as businesses, and that they should be judged on their
ability to be financially viable from a mix of income streams, including trading
income. The lengthy timeframe required to achieve sustainability means that
it will be at least another decade before the UK sees a significant increase in
the financially sustainable social enterprises. Yet policy and strategy favours,
and publicises the small minority of social enterprise that have achieved
financial independence via trading.
A community-defined concept of sustainability

The group discussed sustainability from the perspective of human, social
and environmental resources. It had already been noted that social capital
was needed to build CBSES. Investment in human capital, in terms of
developing skills (including the softer skills of confidence-building and
personal development) and knowledge as well as practical and theoretical
understanding of social enterprise and enterprise development opportunities
locally was regarded as an essential part of community capacity-building.
With regards environmental sustainability the group agreed that, in their

experience, this not was a key priority for CBSE, unless they specifically were
delivering services connected to environmental issues, such as recycling.
One of the practitioners was eager to develop a stronger environmental focus,
as this was compatible with the aims of his social enterprise (a city farm). The
group believed that even small, local CBSEs could play a role, albeit in a small
way, in making a positive environmental contribution.
The group considered that the most appropriate unit of analysis to assess
sustainability was the community. This led to the question of how one might
build a sustainable community. There was a consensus that unmet needs on
the estate could be met by new social enterprises (a community café) and that
there would be new market opportunities in the future (with a new demographic
profile for the area, as a result of expensive private housing being built, there

is likely to be a need for domestic help). New social enterprise creation would
need strong local authority support and networks to share knowledge and
experience. However, the barriers to new CBSE included lack of resources,
corruption, violence, a culture of dependence on benefits.
The co-inquiry group agreed that to build sustainability would require: a solid
foundation and an enthusiastic and motivated group of local people: “You set
up a social enterprise because you are passionate about some sort of social
problem and you want to change it. That’s the point. Trading is how you
achieve it.”
However, the group did agree that business tools, methodology and systems
were necessary to a building a solid organisational foundation and could be
used for the advantage of social enterprises. However, they would need to be
adapted to accommodate the characteristics of CBSEs.
CONCLUSIONS
This paper has shown that the social enterprise meta-narrative has followed
orthodox business and embraced the values and ethos of the corporate sector
– competitiveness and profit maximisation. In this discourse, social enterprise
is seen as an organisational hybrid with social and business goals. The small
number of social enterprises that have achieved financial sustainability from
trading are included in the dominant discourse. However, the majority of
social enterprises, especially those engaged in community development
and those located in areas of disadvantage, are not, and are unlikely ever
to be, financially sustainable. Thus it has been shown that they are not
accommodated in the dominant discourse and consequently social enterprise
policy and rhetoric does not fit with the realities of building and growing social
enterprises, particularly on the estate used in this study. The meta-narrative
of sustainability, with its emphasis upon maximisation of trading, market ethos
and discourse is not compatible with local CBSE.
The implications of the study are that:
• Many small, community-led social enterprises are unlikely to become

financially sustainable and the important role that they fulfil might
be lost if policy and funding is targeted at those with the potential to
achieve financial sustainability.
• There is a danger that, since resources tend to follow policy,

disadvantaged communities will be excluded from future social
enterprise funding.
• Financial support for CBSE is particularly important as social

enterprises located in disadvantaged communities are less likely
to access debt financing. In a climate where grant funding from
local authorities is likely to be subject to further reductions, already
marginalized groups or communities are likely to become further
marginalized.
• Some element of financial support will always be required to support

new CBSE activity. This is particularly important when financial break
even is unlikely to be achievable in the short-medium term.

• Current support and training for CBSE follows an orthodox, business-
orientated, skills-based approach, which does not fit with the reality of
a community-development approach to social enterprise.
• Policy makers, funders and supporters of social enterprise might

gain a broader understanding of the realities of social enterprise
development in disadvantaged communities if they were able to listen
to the voices of social entrepreneurs who work in these communities.
ENDNOTES
1. This process emerged from the Local Government Act of 1980, introducing
‘Compulsory Competitive Tendering’ and more recently ‘Best Value.’
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Case Study: developing
Southwark’s social
economy
This case study is a summary of a report published in December 2004 by

Southwark Alliance and Southwark Council. The research was undertaken
by SEL.
BACKGROUND
Social enterprise is a creative and dynamic business philosophy, where

organisations trade to fulfil a social purpose. Social enterprise provides an
alternative way to make and sell goods and services in which production is
driven by values instead of just financial gain. It has been estimated that
London is home to more than 5000 social enterprises (DTI 2003) and has
the highest level of social entrepreneurship start-up activity (compared to any
other UK region). Further, 8.5 percent of London residents aged between
18 and 64 are engaged in some form of social entrepreneurship (Cowling
and Harding 2004) and ethnic minorities are far more likely to be social
entrepreneurs than non-ethnic groups.
In 2002, the government set out its social enterprise strategy and initiated a
range of policy initiatives to encourage and support their growth. The lack
of a comprehensive database also encouraged the DTI to establish that an
evidence base was needed to understand social enterprise development.
The case study presented here examines social enterprise development in
the London Borough of Southwark, one of City’s most vibrant areas.
Southwark Alliance, in partnership with Southwark Council, commissioned

Social Enterprise London (SEL) to conduct baseline research to identify
the growth of social enterprise in the Borough and to use this knowledge to
create a vision and framework for the Borough as part of its Neighbourhood
Renewal Employment Programme. The participants in the research included
social enterprises and support organisations based in the Borough: the
Borough Market, The Day Chocolate Company, Green-Works, Groundwork
Southwark, Cross River Partnership, Elephant Enterprises, Southwark
Action for Voluntary Organisations, Business Extra and the Forum for Social
Enterprise, Coin Street Community Builders, Pladecoop, London South Bank
University, Community Action Network and One London. Data was collected
via in-depth stakeholder interviews with key informants.

THE CONTRIBUTION OF SOCIAL ENTERPRISE TO THE BOROUGH
It is generally acknowledged at policy level that social enterprises have

achieved meaningful change in seven ways:
Improving local public service delivery: Social enterprises have been

able to demonstrate their success as providers of local services, including:
activities contracted by councils; Sure Start; housing associations; primary
care trusts; community transport; recycling; leisure and childcare.
Empowering communities by adding a sustainability goal to existing

area-based regeneration projects and assisting in the transfer of assets to
social enterprises. Development trusts, a model of social enterprise, is one
particularly relevant in these situations.
Addressing market failure by meeting needs in markets where neither the

public nor private sectors are able to deliver services. Examples include:
delivering financial services to a low-income client base through credit unions
and community development finance institutions; and providing affordable
managed workspace to smaller enterprises.
Empowering consumers to be ethical consumers by offering a choice in

products and services produced to fair trade standards- from chocolate,
coffee and tea to clothing and cosmetics. By selling goods and services with
broad market appeal, social enterprises in the Borough contribute to local and
regional economic growth whilst simultaneously maintaining their strong local
connections.
Supporting voluntary and community organisations to become less reliant

on increasingly hard to access grant finance through the implementation of
earned income strategies.
Empowering workers through the promotion of co-operative and

democratically run governance structures, and by creating employment for
hard to reach or disadvantaged workers via an intermediate labour market
(ILM) model that has been developed by the Southwark Council.
Diversifying the mix of the local economy by promoting enterprises that

respond to local needs.
Key findings from interviewees

Interviews with stakeholders about these key themes led to a wealth of
information on how their experiences could be embedded in future policy.
The recommendations included:
Support for social enterprise should be distinguished from support for

other types of enterprise: Support through publicly funded schemes, often
wholly or partially subsidised, is different from those available to consumers
on a fee for service basis. To facilitate the growth of social enterprise,
support should be subsidised and tailored to the needs of the sector.
Publicly funded support: Most of the support available to social enterprises

in the Borough has been subsidised by public funding. However, this

constrains the type of support available which must comply with public funding
requirements. Alternative support structures would overcome this.
Informal brokering: Through informal brokering, support advisors ensure

that the majority of clients access some type of support provision. However,
this might not always be the most relevant or the most appropriate intervention
for what the enterprise actually needs.
Social enterprise business support: There are different ideas in the

community of what social enterprise business support best practice is and
how it should be accessed.
Developing partnerships and building core competencies: support

providers have adopted different philosophies and some of these might
inhibit partnership working, and have led to inconsistencies between delivery
organisations. The core competencies needed by social enterprises include:
financial management, human resource management, information technology
and business planning.
Developing social mission: support should be tailored to enhance the

social purpose of the social enterprise and be based on capacity building and
organisational development.
The need for networking to communicate best practice between support

providers: It was difficult to spread best practice between organisations
based in London and outside the City because there were few incentives to
link into quality control mechanisms.
Lack of support for growing social enterprises: much of the support is

tailored at encouraging new social enterprise creation, and a significant gap
remains in supporting them to grow.
Need to provide variance in support: as the social economy develops, it

is likely that industry-specific support and advice will be demanded by sector
based organisations.
RECOMMENDATIONS
The key recommendations include:
• Create pilot programs to further develop the way the social enterprise
model is used locally, to explore mentoring, and stimulate new social
enterprise ideas.
• Commission research on how Southwark Council can improve

its purchasing power to improve local purchasing from social
enterprises.
• Impact research: encourage local social enterprises to measure their

impact on the local community.
• Outreach: Connect the Council to educational institutions and local

social enterprises in order to improve the skills base of local labour.

REFERENCES
Alcock, D. and Cook, M. (2004) Proactive procurement: Achieving quality services and
implementing policy objectives by procurement from social enterprises. Manchester:
Provide.
Bonjean, C., Clark, T., and Lineberry R. (1971) Community Politics. NY: The Free
Press.
Cabinet Office- Strategy Unit. (2002) Strategy Unit Report- Private Action, Public
Benefit, A Review of Charities and the Wider Not-for-profit Sector. London: Cabinet
Office.
Cowling, M. and Harding, R. (2004) GEM Report (Global Entrepreneurship Monitor)

Social Entrepreneurship Monitor UK. London: London Business School.
Evans, M. (2004) Waltham Forest: Social Enterprises. London: Middlesex University.
London Social Economy Taskforce. (2002) Time to Deliver: A Social Enterprise

Business Support Strategy for London. London: SEL (Social Enterprise London).
OECD (Organisation for Economic Co-operation and Development) (2003) The Non-
profit Sector in a Changing Economy. Paris: OECD.
SAVO (Southwark Association of Voluntary Organisations). (2004) Southwark Social

Enterprise Directory. London: SAVO.
Smerdon, M. and Robinson, D. (2004) Enduring change: The experience of the

Community Links Social Enterprise Zone. Bristol: The Policy Press.
To request a copy of the Southwark report please contact Social Enterprise London at 020
7704 7490

Advertisement information: Advertisements of any size are welcome.
For rates please contact Sabina Khan at sabina@sel.org.uk or telephone
020 7704 7492.
Call for papers: The call for papers will be sent out in June 2005 with
the next journal publication in March 2006. For additional information
please contact Sabina Khan at sabina@sel.org.uk or telephone
020 7704 7492.
Published by: Social Enterprise London Tel: 020 7704 7490
1A Aberdeen Studios Fax: 020 7704 7499
22-24 Highbury Grove Website: www.sel.org.uk
London N5 2EA Email: info@sel.org.uk

A Research Agenda For Social Entrepreneurship

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Social Enterprise

A research agenda for social entrepreneurship 01

Viable social enterprise - an evaluation of business support 13

Raising the profile of social enterprises: the use of social 29

Shaping the Balanced Scorecard for use in UK social 43

Social enterprise: through the eyes of the consumer 57

Exploring the meaning(s) of sustainability for community- 78

Case study: developing Southwark’s social economy 90

Copyright © 2005 Social Enterprise London

Social Enterprise London Tel: 020 7704 7490

It is with great enthusiasm that Social Enterprise London (SEL) is publishing

Social enterprise is increasingly recognized for its economic, social and

The Balanced Scorecard is a performance evaluation tool that is well

Dr. Helen Haugh is Course Director at the Judge Institute of Management

The dynamism and vitality of entrepreneurship research is reflected in the

This paper categorises the social entrepreneurship research agenda into

Social Enterprise Journal 1

In Europe, the EMES network (see endnote 1) was established in 1996 to

DEFINING THE SCOPE OF SOCIAL ENTREPRENEURSHIP

The social entrepreneurship research arena is hindered by the many

2 Social Enterprise Journal

A shared understanding of the meaning of social enterprise is useful as

Social Enterprise Journal 3

Building on a shared understanding of social enterprise, it is submitted that

THE ENVIRONMENTAL CONTEXT

The environmental context refers to the political, economic, social, cultural

Nationally, Government preference for privatisation, decentralisation and

An alternative explanation for the increased interest in social enterprises

4 Social Enterprise Journal

OPPORTUNITY RECOGNITION AND INNOVATION

For social enterprises, there are many opportunities to address disadvantage,

Social Enterprise Journal 5

Innovation might also be pursued internally in their management, structure and

Social enterprises operate in many areas of the economy and assume a

To successfully exploit an opportunity, an entrepreneur will need to garner and

Social enterprises require finance to fund complex, low-profit activities and

6 Social Enterprise Journal

The process of creating an enterprise to exploit an opportunity will involve

The decentralisation and privatisation of social services has created

Social Enterprise Journal 7

The drive to be more entrepreneurial presents a managerial challenge in that

Networks play a supporting role for organisations and as social enterprises

Social enterprises are established to address complex problems and, for

8 Social Enterprise Journal

At the level of the firm, a standard performance measure of for-profit

In addition, it is also important to acknowledge that some social enterprises

Social Enterprise Journal 9

TRAINING, EDUCATION AND LEARNING ABOUT SOCIAL ENTREPRENEURSHIP

In the last thirty years, mainstream entrepreneurship education has become

10 Social Enterprise Journal

1. EMES (L’émergence des enterprises sociales, réponse novatrice à l’exclusion

Austin J. (2000) The Collaboration Challenge. San Francisco: Jossey Bass.

Borzaga C. and Defourny J. (2001) The Emergence of Social Enterprise. London:

Bygrave W. D. and Hofer C., 1991, Theorising about Entrepreneurship,

Dees J. G. and Anderson B. B. (2003) For-Profit Social Ventures. In Social

Kuratko D., Hornsby J. and Naffziger D. (1997) An Examination of Owner’s Goals

Social Enterprise Journal 11

Leadbeater C. (1997) The Rise of the Social Entrepreneur. London: Demos.

OECD. (1999) Social Enterprises. Paris: OECD.

OECD. (2003) The Non-Profit Sector in a Changing Economy. Paris: OECD.

OECD. (2003b) Entrepreneurship and Local Economic Development. Paris: OECD.

Paton R. (2003) Managing and Measuring Social Enterprises. London: Sage.

Pearce J. (2003) Social Enterprise in Anytown. London: Calouste Gulbenkian