Why businesses that address social or environmental problems often struggle to survive

Research shows that for social enterprises to enhance their performance, network capability and strategic planning are key

Kampala, Uganda | AGENCIES | Social enterprises are organisations that promote social or environmental issues as their core business. They are useful to societies in lots of ways. They can help solve social and economic problems such as poverty and joblessness, among others. They can also help support the work of local, provincial and national government.

Over the last decade a growing number of these enterprises have been started in many countries. South Africa has also seen an increase in social enterprises.

But running a social enterprise isn’t easy. They need to pursue a social motive while also trying to remain sustainable with little funding.

This often means that they need structures, processes and leadership acumen for both their operational success and sustainability.

Challenges faced by social enterprises

The performance and operation of social enterprises can be affected by a lack of resources. Their failure rate is therefore quite high. So, what could help them?

We conducted a study to try to answer this question. Our focus was on what capabilities needed to be in place for social enterprises to operate effectively.

Our research shows that for social enterprises to enhance their performance, network capability and strategic planning are key. Addressing these challenges can help their owners and managers respond to the challenges such enterprises face. At the core of this is addressing the challenge of funding and sustainability. Social enterprises rely mostly on donor funding.

Experiences on the ground

We conducted our study in the Eastern Cape province of South Africa. It’s one of the poorest regions in the country, with a high unemployment rate and continued social dependence. Industries on which the area’s economy depends are in decline.

Our research focused on 147 social enterprises in the area. One set of enterprises focused on poverty alleviation efforts. They ran empowerment projects for local communities, especially those in the black residential areas.

The social enterprises in the second group in our sample were dedicated to improving livelihoods of communities through agricultural support mechanisms.

Finally, a third group focused on assisting communities to respond to health challenges such as HIV/AIDS, the COVID-19 pandemic and tuberculosis.

Some of the questions we asked in our survey were about how each social enterprise made strategic decisions; the relationship between the social enterprise and its networks; and the enterprise’s continued value creation amid challenges. We then ran a model to see how these three issues related to performance.

The results showed that three important capabilities were needed to enhance social enterprise performance.

The first was strategic planning. This involves defining the enterprise’s direction in the short and long term, what it seeks to achieve in terms of goals and tactics, and how the enterprise will achieve all this.

Social enterprises need to be deliberate and intentional in setting up strategic planning regimes. They need a clear horizon, targets and mandates. These should then drive their day to day operation.

The second need was for strong networks. Building networks involves continued interaction between the social enterprise and its stakeholders. Networking capabilities allow the social enterprise to remain relevant to other important role players in the community.

Finally, our research points to the need for the social enterprise to keep a focus on its main business, the social aspect mandate of value co-creation. This continued quest for the social aspect necessitates continued involvement and relevance of the social enterprise to the community. Our finding on value co-creation – the social enterprise partnering with other stakeholders and community members to achieve its social goal – becomes important here.

Recommendations

We recommend that social enterprises be proactive in improving their internal processes and structures. This can be achieved through ongoing efforts to make improvements from the bottom up – meaning that the employees also drive the changes, not just the management. By being deliberate and intentional in their efforts, social enterprises can improve their operations and achieve better results.

We also recommend that financial and non-financial resources such as tangible assets (land, buildings, motor vehicles and equipment) and intangible assets (patents, goodwill and intellectual property) should be channelled to support strategic planning, networking capabilities and value co-creation. This means they should continue to be deliberate in searching for funding to be able to support their core activities.

Concerning non-financial resources, this includes investing in the training of the people running the social enterprise. Such non-financial investment strengthens the social enterprise through internal development of the three capabilities found in our research: emphasis on strategic planning, the building of strong networks and continued quest to create value together by all stakeholders.

The enterprise also needs clear channels for sharing essential information with stakeholders, including communities, towards achieving the social goal of the enterprise.

Formal networking structures should be established to enable the social enterprise to build, maintain and renew strong relationships with stakeholders.

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Source: The Conversation