A few first principles for a booming third sector

May 21, 2004

Social enterprise is all the rage in government circles - James Austin, one of its gurus, explains the vital role higher education has to play.

Throughout the world, charitable enterprises are the fastest growing sector, springing up at a rate that exceeds that of the private or public sector. Governments are also increasingly turning to charitable enterprises to deal with complex social problems that either they or the market cannot solve. But for the third sector to meet these greater responsibilities effectively, it must innovate. The emergence of social enterprise and social entrepreneurship is one way it is doing so and higher education has an important enabling role to play in helping social enterprise to realise its potential.

The social sector is important economically, socially and politically. In the US, the charitable sector constitutes 6.7 per cent of gross domestic product - more than the computer industry, or the automobile and steel industries combined. It also mobilises 11.6 per cent of the workforce and is equivalent to about 40 per cent of US manufacturing. In the UK, it is also economically significant, although less so than in the US, suggesting that it has unrealised economic potential.

Socially it is significant because of its major role as a deliverer of social services. It exists because either the market or the public sector have failed to meet certain societal needs or because social enterprises can do so better. But beyond this, social enterprise plays an important role in expressing and reinforcing social values and creating social capital through the development of positive interpersonal relationships that foster social cohesion and stability.

Its political importance stems in part from this economic and social clout.

Moreover, in the UK, as the government seeks ways of implementing public policies in a more efficient and effective manner, its emergence is very opportune.

So what can higher education do for this increasingly important sector? It is important to recognise that charities are enterprises, producing and delivering goods and services and sustained to a large extent by earned income from fees paid by service users or others. Consequently, management skills are vital for their success. Yet, many of their executive directors and staff come from specialised backgrounds or have experience in the social field they are serving. They possess technical expertise but lack formal management training despite shouldering the responsibility of managing complex multimillion-pound enterprises. And the managerial complexities of social enterprises exceed those of businesses. Given the scarcity of resources in the social sector and the societal importance of their missions, ensuring managerial excellence in social enterprises is of utmost importance. Therein lies the challenge to higher education - and particularly to management schools.

The starting point is to recognise that this is not simply a question of admitting social sector students to traditional management courses. Social enterprises have many distinct characteristics, starting fundamentally with their missions. The processes for starting and growing social enterprises are radically different from those of the business world. The presence of volunteer workers and psychological motivations complicates things further.

While many aspects of management science are transferable, many are not.

Business schools throughout the world are increasingly taking up the challenge of creating the new approaches that social enterprise needs. In the US almost all of the leading business schools have mounted social enterprise efforts and it is percolating throughout the MBA industry.

Similarly, top schools in Europe and Scandinavia have moved in this direction. The same is occurring in Latin America. Fuelling this is the business world's adoption of corporate social responsibility and the non-profit sector's moves towards managerial professionalism. We are witnessing the blossoming of a new field of inquiry within the management academy.

As is to be expected in the formative stages of a new field, there is considerable discussion and debate around defining the scope of the endeavour. The approach that we took in the Social Enterprise Initiative at Harvard Business School when we began a decade ago did not follow the traditional path of defining our undertaking in terms of managing a particular type of organisation. Instead the starting point is a specific social problem or need from which one designs the organisational form that would be most appropriate. Neither academics nor practitioners should be boxed into traditional organisational forms or solutions. This opens up options across a whole spectrum of organisational structures and managerial approaches - from a charitable soup kitchen operating entirely on donated goods, labour and space to a commercial enterprise operating in a competitive marketplace operating on a fee-for-service basis for the provision of socially important goods. In between are a wide range of social purpose organisations with earned and unearned income sources, paid and volunteer labour, including hybrids such as for-profits with nonprofit subsidiaries. Our definition also encompasses corporations that have within their total operations some activities that have an embedded purpose of creating social value. Most major companies engage in philanthropic activities, often in collaboration with charitable organisations, and so their role as generators of social value merit inclusion. Similarly, government enterprises and the management of their collaborations with charitable organisations become important. What a business school decides to focus on within this gamut of options is a strategic decision that needs to be tailored to each institution's particular orientation, competencies and resources. There is room and need for attention across the entire social enterprise spectrum. The common link is that social enterprise is not just an institutional form of doing business but a holistic way of "being" characterised by a fundamental concern for creating social value.

There is a dire need for generating intellectual capital in the emerging social enterprise field. It has been under-researched, particularly by the management academy, on both the theoretical and applied sides, when both can feed off each other in a virtuous circle. Social enterprise is a rich arena because it is interdisciplinary and multifunctional. Academics from any of the management functions - marketing, production, accounting, organisation, finance and entrepreneurship - can contribute. It is not simply a one-way street: work on social enterprise can inform and enlighten the management of business enterprises.

On the teaching side, it is important to integrate social enterprise into the MBA course portfolio as both a new subject and embedded in existing courses. Avoid adding social enterprise as a "nice thing" to do. Failing to migrate it into the mainstream can relegate it to the margins. If it's not seen as central to the mission, then it is better not to undertake it.

It is also important to recognise that for the social enterprise field to advance, management education must reach not only future leaders, but also current practitioners. Executive education programmes aimed at these managers need to be shorter in duration and have configurations that fit their needs and constraints, allowing them to learn from each other as well as from academics. Managers often do not have an appropriate forum in which they can engage in structured productive lateral learning. When they learn together, they also often find ways to work together. And such programmes help academics to learn from managers.

Like any industry, higher education is partly driven by an element of competition. This is healthy if it stimulates continuous improvement. In a field that is just emerging, there is an understandable motivation to gain superior positioning. I would suggest that in social enterprise a cooperative rather than competitive path provides greater opportunity.

Because the field is relatively young, it still needs to earn its full place at the academic table. The more professors who are engaged in research and teaching throughout the industry, the greater the legitimisation of the field. This can be achieved most rapidly through collaboration to allow the small number of professors in each school engaged in developing their institution's social enterprise portfolio to combine expertise and achieve economies of scale. Collaboration opportunities are many: from undertaking joint research to sharing course syllabuses. All of the social enterprise ships will sail better on a rising tide.

James E. Austin is Snider professor of business administration and chair of the Social Enterprise Initiative at Harvard Business School.

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