What can businesses learn from social entrepreneurship initiatives?

What can businesses learn from social entrepreneurship initiatives?

With ESSEC Knowledge Editor-in-chief

Lessons in how companies can achieve both social and financial goals

Is it possible to have a positive social impact without sacrificing the bottom line? Anne-Claire Pache of ESSEC Business School, Julie Battilana (Harvard Business School), Metin Sengul (Boston College) and Marissa Kimsey (Harvard University) studied companies around the world that simultaneously pursue financial and social goals, finding that the most successful commit to creating economic and social value into their core organizational activities. 

Social entrepreneurship refers to companies that use business logic in a novel way to address social needs, blending financial goals with social ones. A famous example is Veja, a company that sells sneakers made under fair trade and environmentally friendly conditions in small cooperatives in Brazil. This setup allowed them to embrace and achieve two goals: profitability as well as social and environmental impact. Often, profitability and sustainability can be in conflict, making it valuable for corporations to take notes from social businesses that have pulled off accomplishing both. 

Corporations are increasingly being taken to task for their social impact and customers and stakeholders alike expect companies to change. This is easier said than done, since they often need to rework their business model to ensure long-term sustainability as well as profitability, leading them to abandon the former in favor of the latter. The fact remains that companies need to keep their finances in mind if they want to stay afloat, and indeed, the researchers found that successful socially driven businesses adopt a dual purpose: social good and profitability. 

These dual-purpose businesses share an approach the researchers dubbed hybrid organizing. 

This model includes 4 components:

  1. Setting and monitoring social goals as well as financial ones

  2. Structuring the organization to support both socially oriented and financially oriented activities 

  3. Hiring and training employees to take on both goals

  4. Practicing dual-minded (social and financial) leadership 

Setting and monitoring dual purpose goals 

Organizations need to set both social and financial goals and measure their performance on both dimensions. This means having well-structured goals that explain a company’s purpose to its stakeholders. To set successful social goals, it’s important to do research: what are the needs the company wants to address and who are the beneficiaries? Goals must also be clear and enduring to achieve a long-term impact. 

Setting dual goals is only half the battle: companies also need to monitor progress made on these goals. This includes identifying key performance indicators: simple for financial goals, less straightforward for social ones. The research process involved in setting goals will help companies identify a way to measure them. For example, Grameen Veolia Water, which aimed to provide safe, affordable drinking water and have sustainable operations, consulted academic experts and members of the rural communities they were serving and identified KPIs from their information-gathering process. Companies also need to foster a learning mindset, as it may be necessary to do some experimentation and adaptation to come up with the most relevant KPIs.  Setting well-researched dual goals with measurable KPIs is a key component of a successful dual purpose company.

Structuring the operations 

Dual purpose companies need to align their activities and their structure. To do so, companies should consider the kind of value an activity creates: social, economic, or both? If an activity creates both kinds, it makes sense to integrate the organizational structure, but if not, it’s best to manage the activities separately. For example, an American company called Revolution Foods offers healthy lunches to low-income students. When they sell a meal, they fulfill a social purpose - supporting a child’s health - and an economic one - earning money. In their case, it makes sense to integrate their structure, such that one manager is in charge of different tasks like business growth and promoting nutrition education, as educating children on healthy foods helps both their wellness and sales. 

On the other hand, a French company, ENVIE, learned their lesson that sometimes a differentiated organization is best. Its purpose was to reintegrate people into the job market by hiring them to collect and repair appliances that were then resold, with the reselling activity creating economic value. It offered training for their employees in professional skills and appliance repair, helping them find new jobs. This did create social value- but it didn’t help the bottom line. Initially, supervisors were asked to provide both social support and technical guidance, often struggling to do both. In the end, ENVIE’s founders separated their organizational units with one for social support and another for technical skills, allowing them to generate both kinds of value more effectively.

Unfortunately, complications will still arise. This means it’s important to create spaces for negotiation. These spaces are essential to give employees the tools to address and work through tensions. In doing so, they can find compromises between economic and social goals.

 

Hiring and training employees

For dual-purpose companies to succeed, they need to build a workforce with shared values, behaviors, and processes. This starts at the hiring process. The researchers identified three profiles of successful dual-purpose employees: hybrid, specialized, and blank slate. The hybrid employees have training or experience in both business and social value fields (think environmental science or social work), equipping them to understand and connect to both goals. They tend to do well in managerial and coordination roles.  Another successful profile is that of specialized talent: this allows companies to benefit from someone’s more in depth expertise and experience. This person is well-suited to middle manager roles in differentiated structures. However, someone who is highly specialized in a social field may not understand the business side of things, which can lead to tension and turnover especially in companies with a differentiated structure. To mitigate this, companies should make both goals clear to candidates from the outset of the recruitment process. The third kind of profile is the blank slate candidate: someone who has no social or business experience who is hired for an entry-level position and then trained to acquire the required skills and values. However, this requires a significant amount of training and can impact productivity, so they are best suited to entry-level roles that don’t require too much training.

Regardless of an employee’s background, their socialization is key, but it is challenging as it entails employees understanding, valuing, and eventually contributing to both the financial and social goals of the company. Some ideas for doing so include: 

  • Retreats where goals and values are explained and discussed

  • Training sessions to remind employees how interconnected economic and social activities are

  • Job shadowing programs to foster empathy and perspective taking

  • The aforementioned spaces of negotiation, which can offer informal learning opportunities where people can ask questions and discuss tough topics 

  • Promotion and compensation for excelling in embracing the company’s values and accomplishing both social and financial goals. This also means equitable compensation within the company itself.

More generally speaking, it’s critical for dual purpose companies to foster psychologically safe environments, where employees feel comfortable asking thorny questions and discussing complicated topics. This also helps employees feel that their contribution is valued and that the company is “walking the walk’ in addition to talking the talk.

Dual-minded leadership 

Leadership is essential to pulling off all of this. Specially, dual-minded leadership, that embraces both financial and social goals and deals with tensions head-on. It involves different leadership activities, including making decisions that  embody dual goals and representing the dual goals of the company to the board.

Goals are one thing: decisions are another. Showing a company’s commitment to dual goals involves deciding how to allocate their profits as well as taking actions that align with the company’s values. Take Veja, a company that makes fair-trade sneakers: its founders committed to a zero-ad policy, which allowed for them to have reasonable prices despite high labour costs. They educated salespeople at major retailers about the social benefits of their product, reducing initial skepticism. . This is an example of a bold decision which helped them achieve both social impact and economic success but also showed employees and other stakeholders the leaders’ commitment to their dual goals and highlighting their priorities. It also is proof that dual companies are able to avoid the trap of prioritizing profits over social impact if their leaders are truly committed to their dual mission. 

 

The board is another important component of leadership, since the board acts as a guardian of the dual purpose. A diverse board is crucial, with both business and social expertise having a seat at the table. While this diversity is key, it can also engender conflict because of differing viewpoints. One way to address this kind of conflict is to have a chair or director that can bridge the gap between the two groups, helping them share information and come to a mutual understanding.

The dual purpose playbook 

A dual purpose company can’t control all external factors, however, and there are still roadblocks to success. These include the fact that creating shareholder wealth is still a priority in the business ecosystem, and that social ratings are not consistent across the board. While dual purpose companies face challenges and it is not necessarily an easy road to success, the four components identified by the researchers form a useful framework for setting up a dual purpose business that is designed to succeed. Companies wishing to serve a dual purpose should keep in mind those four components: setting and tracking dual goals, the organizational structure, hiring and socializing employees, and dual-minded leadership. 

Reference

Battilana, J., Pache, A.C., Sengul, M. And Kimsey, M. (2019). The Dual Purpose Playbook: What it really takes to do good and do well at the same time. Harvard Business Review, 97(4), pp. 3-11.

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