Tramitador Jefe/a de Equipo de Tramitación de SCOP

A fundamental issue in researching the sector is the denition of social enterprise. Tyler (2005) suggests that little research has been conducted to quantify the signicance of the social enterprise sector due to the range of denitions and interpretations, compounded by ‘company registration’ under different frameworks. In 2002, the Department of Trade and Industry dened a social enterprise as:

‘A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or the community, rather than being driven by the need to maximise prot for shareholders and owners.’ DTI (2002)

However, ECOTEC (2003) raises the issue that social enterprise cannot be identied solely by legal form or pre-set categories, which means that mapping social enterprises is problematic. Following this, the survey conducted by the Small Business Service (2005) on behalf of the DTI used an extended denition of a social enterprise to include businesses where: their regular, everyday activities involve providing products or services in return for payment; at least 25 per cent of their funding is generated from trading, i.e. in direct exchange of goods and services; they have a primary purpose to pursue a social or environmental goal (as opposed to being purely or mainly prot driven) and they principally re-invest any prot or surplus that is made in the organisation or community to further the social or environmental goal.

The survey estimated that there are over 15,000 social enterprises in the UK with a combined turnover of around £18 billion a year employing over 777,000 people. However, these gures may be an underestimate, as the survey does not describe the total population of social enterprises, and concentrates mainly on rms registered as Companies Limited by Guarantee (CLG) or Industrial & Provident Societies (IPS). The Community Interest Company (CIC) was a legal form that was introduced in July 2005 to enable social enterprises to raise nance from private investors by allowing them to return some of their prots via dividends (Tyler 2005). The CIC can be structured as a private company limited by shares, limited by guarantee or a public limited company. However, as Burrows (2004) points out, some established social enterprises structured under IPS may be reluctant to change to a CIC as they will lose tax relief presently received by social enterprises originally set up as charities.

In recognition of the vagaries of the term ‘social enterprise’ Kendall & Knapp (1995:66) refer to it as ‘A Loose and Baggy Monster’. Alter (2004) also conrms that social enterprise is an emerging eld that is currently ill dened, suggesting that many social enterprises defy neatly labelled boxes. According to Smallbone et al. (2001:18) international evidence suggests that social enterprises are more common than is often realised. They identify 16 different forms of social enterprise (2001:17) accepting that identication is dependent upon which denition is used. Some social enterprises fall within all of the denitions whilst others may adhere to only one. Fundamentally, Dees (1998) suggests that because of the complex structure of third sector organisations, and variance in their denition, any generalisations are problematic, which affects our understanding of the social enterprise sector. According to Communities Scotland and the Non-prot Enterprise and Self-sustainability Team, social enterprises are referred to as comprising ‘the third sector’, ‘the not-for-prot sector’, ‘the voluntary sector’ and the ‘social economy’ made up of ‘voluntary organisations’, ‘non-prot businesses’, ‘community enterprises’, ‘social purpose business’, ‘civil society organisation’, ‘non-governmental organisations’, ‘charities’, ‘non-prot enterprise’, ‘self sustainability team’ and others. For the purposes of this research we use this more holistic interpretation of social enterprise allowing us to include within the investigation a wide remit of businesses within the social economy.

BACKGROUND

In 1948, the Government took prime responsibility for the planning, funding and provision of services such as health, education and social welfare, which led to the eventual decline of friendly societies. With traditional markets diminishing as the state undertook provision of most of the services previously afforded by friendly societies, voluntary organisations complemented or supplemented the ‘welfare state’. The late 1970s and the 1980s saw social and political changes, reductions in public expenditure, new attitudes to social problems and new expectations from citizens. Under the Thatcher government (1979–90), the welfare state model was replaced by a new social policy framework that was based on neo-liberalism. Free market fundamentalism replaced democratic idealism where the government pursued deregulation, privatisation and reliance on the market and private philanthropy, which created economic and social inequality (Teckel & Peck 2003). However, it is claimed that social demographic changes and the economic problems surrounding a universal welfare programme are stimulating a renewal of social enterprise. Opportunities have been created due to the continuing devolution, deregulation and privatization of state and local government services in the last decade:

‘…by central and local government [moving] away from the grant-funding of voluntary and community organisations towards contracting with them to provide various services has accelerated both the business-like behaviour of the organisations and strengthened their self-perception as community or social enterprises. This trend has been re-enforced by the continuing process of contracting-out services which were previously provided by the local state, thus increasing trading opportunities for voluntary and community organisations.’ (Pearce 1999: 6)

Over the last 20 years there has been a move from offering unrestricted grants to giving contracts for specied activities or services. While some argue that this undermines the sector’s independence, others suggest that contracts can protect independence, because they make clear what has been agreed between the funder and the provider (NCVO Survey). Salamon et al. (2003) point to a recent growth in social enterprises due to factors such as increased public expectations, dissatisfaction with inexible market, and state mechanisms leading to demands for improved service delivery through more citizen activism. With expanding state services, a more plural approach to welfare is prominent and the voluntary sector is again providing some essential welfare services. Government is now the biggest funder of voluntary and community organisations – and this is largely through contracts and not grants. Labour’s Small Business Minister has also recently stated that social enterprises are seen as a viable alternative to the private sector (Tyler 2005). However, relatively few social enterprises benet from large-scale public fundraising and social enterprises report intense competition for grants. Additionally, some endowed charitable trusts have seen the value of their endowments decline dramatically over recent years due to economic downturns and rising costs (Charities Aid Foundation).

EMERGING BUSINESS PRACTICES

As options for grant funding are diminishing, social enterprises face difculties in securing long-term funding with increased competition for resources. In a review of the social economy in Scotland, McGregor et al. (2003) report that 54% of all respondents identied difculty in obtaining appropriate funds as the main obstacle to developing or sustaining organisations. With the funding declining, the line dividing commercial and

social enterprises is blurring. The voluntary sector’s dependence on government or

philanthropic grants (dependency model) has started to change to a business-based Business practices in social enterprises

‘contract culture’. Social enterprises are seen as customer-focused quality providers but face competition in procuring contracts between others working in a similar eld, either other social enterprises or private companies. There is also a political ‘push’ to become commercial (sustainable) and form socially responsible partnerships with the business sector. In becoming commercial, social enterprises are not only increasingly accountable to funders but are also facing growing demands for transparency and public accountability (Herzlinger 1996; Krug & Weinberg 2004).

The pressures to prove efciency and compete for funding have led to the adoption, implementation and integration of mainstream business practices. Competition, scarce resources and the push towards sustainability through not-for-prot commercialisation has led to an emphasis on competitive strategies and nancial management, with models and tools imported or copied from the business world (ergo the management of costs and revenues for prot maximisation). According to Conti (2002) the most applicable business tools for nonprots include strategic planning, technological capacity building (fund-raising, databases, internet and e-mail), marketing and new management practices.

However, business models do not always ‘t’ with the social enterprise model, which has several ‘bottom lines’. As noted by Anheier, ‘Financial management is rst and foremost formal management, not management of purpose and mission.’ (Anheier 2000: 5) Standard business ideologies are not readily translated for use in a social enterprise context and cannot fully replicate standard business practices (Anheier 2000). For example, in business terminology, measurement is emphasised in relation to a single bottom line (nancial) and does not include social and environmental outcomes, which social enterprises excel in. Management approaches need to be sensitive to multiple bottom lines. An issue for managing performance in social enterprises is the difculty in articulating all its objectives in a measurable way.

Running a social enterprise is a dynamic process. It is a balancing act requiring strategic reection and analysis on the part of managers and stakeholders in achieving an ongoing sustainable impact by incorporating business strategy to accomplish vision. Yet it is important to determine the different managerial needs of social enterprises. As long ago as 1978 Newman & Wallender warned:

‘The popular belief that business management concepts can be applied readily to not- for-prot enterprises needs qualication. Not-for-prot enterprises differ widely; each has its own managerial needs, and many have discriminating constraints that sharply modify which concepts will be effective.’ (1978: 24)

Anheier (2000) also presents a model of the non-prot form as a conglomerate of multiple organisations with multiple bottom lines that demand a variety of different management approaches and styles. He suggests that:

‘The notion of non-prot organisations as multiple organisations and as complex, internal federations or coalitions requires a multi-faceted, exible approach, and not the use of ready- made management models carried over from the business world or public management. This is the true challenge non-prot management theory and practice face: how to manage organisations that are multiples and therefore intrinsically complex.’ (2000: 8)

Given Anheier’s comments, this research study, in its attempt to ascertain the business practices that are pertinent to social enterprise as a form of non-prot organisation, is therefore timely, appropriate and valid to the knowledge capital of the sector. The next section will highlight the theoretical framework of the Balanced Scorecard, which underpins the examination of these business practices.