Managing social enterprises in the Philippines: challenges and strategies.

Author:Habaradas, Raymund B.
 
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INTRODUCTION

Managers of for-profit social enterprises, just like their counterparts in traditional profitoriented firms, must adopt and implement appropriate business strategies to keep their operations viable. In addition, they must deal with the complexity of creating both financial and social value. According to Dees and Anderson (2002), for-profit social enterprises must face market pressures that could lead to compromising social value. They must likewise face social and political pressures that could lead to compromising financial performance.

For this study, we attempted to answer the following questions: (1) What are the challenges faced by select Philippine social enterprises in their attempt to generate both financial and social value? (2) What strategies do these social enterprises utilize to achieve both their financial and social bottom lines? How do they implement them? Taking our cue from Dees and Anderson (2002), we attempted to validate the following propositions:

Proposition 1: Philippine social enterprises experience tension in their attempts to jointly achieve financial and social objectives, and are likely to comprise one bottom line over another

Proposition 2: Social enterprises that utilize Dees and Anderson's proposed strategies better manage challenges associated with having dual objectives.

BRIEF REVIEW OF RELATED LITERATURE

Heeding the Call for Social Responsibility

Our idea about what purpose business serves in society has evolved substantially over the years. While there are still those who subscribe to Friedman's (1970) contention that "the business of business is business", there has been increasing support for the notion that business must fulfil an increasingly active role in addressing social problems. This idea is built along the lines of Carroll's (1991) articulation of the different responsibilities of business (economic, legal, ethical, and philanthropic), which has since been labelled variously by scholars and practitioners as corporate social responsibility, corporate citizenship, corporate governance, and corporate sustainability. More recent conceptualizations of social responsibility that have gained prominence in the business literature are 'creating shared value' (Porter & Kramer, 2006, 2011), which encouraged big businesses to rethink how they can simultaneously create financial and social value; and CSR 2.0 or transformative CSR (Visser, 2010, 2011), which calls for businesses to embed CSR in their business models by adopting a systems perspective.

Businesses are driven to be more socially responsible for a variety of reasons. Some engage in corporate social initiatives to promote advocacies or to address issues important to their company's target stakeholders (Taran & Betts, 2015). Others engage in corporate social initiatives as a way to enhance their competitive contexts (Habaradas, 2013; Porter & Kramer, 2002). Others still see the need to embed ethics and governance in their company's management systems to meet global expectations (Obay, 2009).

For some businesses, though, addressing social problems is their primary goal, and keeping themselves profitable is essential to sustain their operations. These are what we now know as social enterprises (Dees & Anderson, 2006; Martin & Osberg, 2007; Yunus, 2007; 2010; Yunus, Moingeon, & Lehmann-Ortega, 2010).

Conceptualizations of Social Enterprise

Social enterprises refer "to the rapidly growing number of organizations that have created models for efficiently catering to basic human needs that existing markets and institutions have failed to satisfy" (Seelos & Mair, 2005, p.1). In other words, their primary business goal is to create social value. For a social enterprise to be sustained, it must combine the four elements of innovation, entrepreneurship, social value, and financial stability (Seelos & Mair, 2005).

A social enterprise is a tangible result of social entrepreneurship, which Mair and Marti (2005) defined as a management process that produces both economic and social value through improved use of resources to address a social need; and which Alvord, Brown, and Letts (2004) defined as a business process that produces "innovative solutions" to address a social issue and that subsequently mobilizes resources "for social transformation".

Ridley-Duff and Bull (2011) identified two types of social enterprises: non-profit and for profit.

Non-profit social enterprises give more importance to fulfilling their missions over making money (Dees, Emerson, & Economy, 2001; Nicholls, 2006; Ridley-Duff & Bull, 2011). Though they may use commercial methods and adopt business practices in generating resources, their ultimate bottom line is the social value they create through their services. Under the eyes of the law, these enterprises often take the legal form of the traditional non-profit and civil society organizations (Yunus, 2010).

For-profit social enterprises, on the other hand, are "legally incorporated as for-profit entities" and "explicitly designed to serve a social purpose" (Dees and Anderson, 2002, p.2). Dees and Anderson distinguish for-profit social enterprises from the following: (1) socially responsible businesses or entities that seek financial gain while respecting ethics, communities, and the planet; and (2) purely profit-motivated firms operating in the social sector. Sebastian (2010), Yunus (2010), and Meloto (2013) refer to for-profit social enterprises as social business enterprises or social businesses. Typically, these enterprises take the legal form of business organizations.

Some scholars adopt a rather restrictive definition of a social enterprise, which excludes non-profit organizations. Thompson and Doherty (2006), for example, defined social enterprises as organizations "seeking business solutions to social problems" (p. 362). According to them, social enterprises must be distinguished from other socially-oriented organizations "that bring (sometimes significant) benefits to communities" but that do not seek to be 'businesses' (p.362).

However, most scholars (Dees, Emerson, and Economy, 2001; Dees and Anderson, 2002; Mair and Noboa, 2003; Abu-Saifan, 2012) favor a more inclusive definition of social enterprises. For example, Borzaga and Solari (2001, as cited by Mair and Noboa, 2003) said that a social enterprise incorporates "traditional resources of non-profit organizations (donations and voluntary participation), commercial revenue (originating from public and private customers and founders), and business activity" (p.333), all towards achieving a social objective. Thus, social enterprises can generally be characterized as organizational forms that have the following characteristics: (a) they have a social purpose, i.e. they seek to solve pressing social problems; and (b) they utilize commercial methods in their operations. These could include for-profit enterprises with 'mission-driven strategies' or non-profit organizations with 'earned income strategies' (Abu-Saifan, 2012).

Of particular interest to us are for-profit social enterprises, which Dees and Anderson (2003) say "have virtues that are not easily mimicked" (p.5) by their non-profit or public sector counterparts. For-profit social enterprises, they add, have the following potential benefits: (a) promoting efficiency and innovation, (b) leveraging scarce public and philanthropic resources, (c) being more responsive to fluctuating market demand, and (d) improving access to skilled personnel.

Social Enterprise Organization Models

In implementing activities that create both financial and social value, social enterprises must adopt the appropriate organizational design. Alter (2006) conceptualized alternative organizational models of how social enterprises can pursue both mission and money while managing the potential conflicts between the two bottom-lines.

The embedded social enterprise model shows how the social programs and the enterprise activities are synonymous, meaning the implementation of activities simultaneously pursue the money-mission relationship. Alter (2006) considers this organizational model sustainable and viable due to the comprehensive relationship between the financial and social bottom lines.

The integrated social enterprise model shows how social programs only overlap with business activities. Instead of synchronicity between enterprise activities and social programs, there is only a sharing of costs, assets, and attributes. The relationship between money-making activities and social programs is synergistic, i.e., both add value to one another (Alter, 2006).

The external social enterprise model shows social programs and business activities as distinct from one another. This is seen typically in businesses being completely separate from their non-profits (e.g., corporate foundations or partner NPOs). Businesses single-mindedly focus on making money, often funding the efforts of non-profits. The latter solely focuses on pursuing the social mission.

Alter (2006) states that social enterprises can combine models to capture more opportunities in both commercial markets and social sectors.

Core Challenges and Strategies

Brown and Knudsen (2012) argue that for businesses that have both financial and social objectives, it might be necessary to change the entire business culture to avoid ambiguous visions and strategies. This argument builds on the points of Dees and Anderson (2002), who articulated the core challenges in pursuing financial profit and social value generation. Other authors (Abu-Saifan, 2012; Bull, 2007; Bull 2008; Cukier et al., 2011; Emerson, 2003; Nicholls, 2006; Yunus, 2010) echo the idea that social enterprises are engaged in a constant tug-of-war on which to prioritize. Void of innovative and strategic thinking, the pursuit of one bottom line seems to be at the expense of another bottom line.

To address these tensions, Dees and Anderson (2002) proposed the following strategies:...

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