The future of social enterprise

Attempts to square the circle between business efficiency and social needs have been getting ever greater attention. The conversation over at Creative Capitalism is but one example among many. Harvard Business School has been working on these issues since at least 1993 through its Social Enterprise Initiative. Its most recent working paper, The Future of Social Enterprise, adds a new angle to the dialogue. 

This new working paper lays out possible future scenarios for the development of the social enterprise sector. The paper lays out four possibilities depending on the future flow of funding and the ability of the sector to demonstrate results. In a high octane version of the future, the social sector would demonstrate high performance and receive large inflows of funding from inherited wealth and technology entrepreneurs. The devil is in the details, however. How often is it possible for the social sector to measure and demonstrate results when it doesn't have a financial bottom line?

The working paper acknowledges this issue but doesn't resolve it. But in an online dialogue run by the authors of the paper, some participants outline approaches to this problem. I quote from perhaps the most thoughtful response so far, contributed by Barbara Schmidt-Ramer, director of Vencer Juntos:

Measuring impact is one of the biggest challenges I've been facing in the last five years as a social entrepreneur engaged in a venture of identifying, funding, training and developing entrepreneurs in some of the poorest regions of the interior of Brazil where market-driven investments and jobs are non-existent. Applying my know-how acquired at HBS and in the consulting industry, we built a computerized performance measurement system that tracks the financial performance of the new mini ventures funded.

Based on those quantitative measurements, we would have to conclude that the project is so far a failure and needs to close down. However, field visits and interviews with the clients tell a different story and indicate a success that deserved to be continued and expanded. One finding is that the clients themselves are very satisfied and have much more modest ambitions and goals than we, the social entrepreneurs. What looks like an insignifant improvement in income and quality of life to us is a big success to our clients.

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Conclusion: the definition of a return on social investment is an extremely important but very difficult and complex exercise. Narrowly defined performance indicators from business alone will not provide the answer. The task must be a true interdisciplinary effort, drawing on know-how from business, the social sciences, funders, practitioners and clients.