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Understanding Social Enterprise Approach and Its Potential An Emerging Strategy for Creating and Scaling Social Impact Seungchul Seo September 5, 2011.

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Presentation on theme: "Understanding Social Enterprise Approach and Its Potential An Emerging Strategy for Creating and Scaling Social Impact Seungchul Seo September 5, 2011."— Presentation transcript:

1 Understanding Social Enterprise Approach and Its Potential An Emerging Strategy for Creating and Scaling Social Impact Seungchul Seo September 5, 2011 Presentation at SK 경영경제연구소

2 Key Questions What is the definition of Social Enterprise? How is SE different from NPO/NGO and business? How do SEs create social impact? What should be done to nurture SEs and amplify their social impact? What are the implications for SK Group?

3 SE bridges and fills the gaps of Govt, Business and Civil Society Government Business Civil Society Social enterprise Market failure Short-sighted Government failure Slow and inflexible Limited by national boundaries Limited reliable resources Under-developed system

4 How is “Social Enterprise” defined? A Social Enterprise is… “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners” Department of Trade and Industry (UK) “an organization or venture that achieves its primary social or environmental mission using business methods… Social enterprises build a more just, sustainable world by applying market-based strategies to today's social problems” Social Enterprise Alliance (US)

5 SE’s defining characteristics & key success criteria Defining Characteristics Key Success Criteria (4Ss) Social impact 1st Broader accountability Market- based strategy ScalabilitySpeed Sustain- ability Systemic change

6 SE represents alternative approach to advance social values Social Impact 1 st ◎△◎ ○ Market Based Strategy ◎◎△△ Broader Accountability ◎△ ○ ◎ Systemic Change ○○ △◎ Speed ◎◎ ○ △ Scalability ○○ △◎ Sustainability ○○ △◎ GovernmentBusinessCivil Society Social Enterprise

7 SE addresses market failure where externalities exist Price Quantity Supply Social Demand Producer Surplus Consumer Surplus Private Demand External Benefit Welfare loss

8 3 sources of SE’s social impact Price Quantity Supply w/o SE Social Demand Producer Surplus Consumer Surplus Private Demand External Benefit Supply w/ SE e.g. Advocacy & Sensitization; Subsidization e.g. Process innovation; Subsidization 2. Distribute & reinvest PS fairly and equitably 3. Expand market & internalize externalities through social innovation 1. Offer goods/services to the marginalized to meet their needs

9 ModelDescriptionExamplesKey Success Factors Entrepreneur support Sells business support to its target population Microfinance organizations, consulting, or tech support Appropriate training for the entrepreneur Market intermediary Provide services to clients to help them access markets Supply cooperatives like fair trade, agriculture, and handicraft organizations Low start-up costs, allows clients to stay and work in their community EmploymentProvide employment opportunity and job training to clients and then sells its products or services on the open market Disabilities or youth organizations providing work opportunities in landscape, cafes, printing, or other business Job training appropriateness and commercial viability Fee-for-serviceSelling social services directly to clients or a third-party payer Membership organizations, museums, and clinics Establishing the appropriate fee structure vis a vis the benefits Low-income client Similar to fee-for-service in terms of offering services to clients but focuses on providing access to those who couldn’t otherwise afford it Healthcare (prescriptions, eyeglasses), utility programs Creative distribution systems, lower production and marketing costs, high operating efficiencies A multitude of business models are available to SE Source: Virtue Ventures (Retrieved Sept 1, 2011, from

10 ModelDescriptionExamplesKey Success Factors CooperativeProvides members with benefits through collective services Bulk purchasing, collective bargaining (union), agricultural coops, credit unions Members have common interests/needs, are key stakeholders, and investors Market linkageFacilitates trade relationships between clients and the external market Import-export, market research, and broker services Does not sell clients’ products but connects clients to markets Service subsidization Sells products or services to an external market to help fund other social programs. This model is integrated with the non-profit organization; the business activities and social programs overlap. Consulting, counseling, employment training, leasing, printing services, etc. Can leverage tangible assets (buildings, land, employees) or intangible (expertise, methodologies, or relationships) Organizational support Similar to service subsidization, but applying the external model; business activities are separate from social programs Similar to service subsidization– implement any type of business that leverages its assets Similar to service subsidization. A multitude of business models are available to SE Source: Virtue Ventures (Retrieved Sept 1, 2011, from

11 SE’s social impact creation is not limited to employment Beneficiary as actor Beneficiary as client HighLow Entrepreneur Support Employment Fee-for- service Low-income client Cooperative Market linkage Service subsidization Organizational support Degree of innovation required Market intermediary

12 SE has great potential, but is still at a fledgling state What can be done to nurture SEs and amplify their social impact?

13 Business sector’s evolution has been enabled by nurturing ecosystem SupplierRetailer VC Stock market Investment bank Rating agency Recruiting agency Management consultant Regulator Advertising agency Research services Business lawyer Distributor Auditor Company A News media

14 Low-profit company Creation of SE ecosystem encourages social innovation + Social return Rogue company Good company NPO/NGO SE Immediately to be ejected A B Designate low-profit high-social impact business as SE Build nurturing ecosystem Attract migration to SE category Leave donation pool to those NPOs in the filed with no revenue generation potential Support high-potential SE’s “graduation” to ordinary good company B A C

15 But it is unrealistic to try to develop entire ecosystem for SE all at once Efforts should be focused at first on the most critical piece of ecosystem

16 Designing money flow is the key Money flow = Blood flow Right financial mechanisms can catalyze the evolution of ecosystem –Allow merit-based resource allocation –Ensure accountability –Accommodate diverse values and promote diverse approaches

17 Impact investment cycle Mobilize resources to provide growth capital for SE Inform investors of the social impact their money has created Reward investors in proportion to their contribution to social impact

18 Impact investment seeks for both financial and social return Financial return Social return Ordinary investment Charity donation / grants Impact investment

19 Impact investing filed is evolving fast globally For-profit Non-profit Investment fund Market platform Microfinance Impact measurement

20 SE’s process of social impact creation must be evaluated ValueOutcomeOutputInput EfficiencyEffectivenessRelevance Sustainability & Scalability

21 Critical question How can SK Group’s CSR activity maximize its social impact?

22 Doing everything is the worst strategy Strategy is about making a razor- sharp focus on the most important by giving up the less important Don’t try to boil the ocean!

23 Clarifying intended impact and theory of change is a starting point Source: Bridgespan Group (Retrieved Sept 1, 2011, from Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

24 Resources should be allocated according to expected contribution Source: Bridgespan Group (Retrieved Sept 1, 2011, from Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

25 Float shares on a social capital market Reorganize as mutual funds Open the fund to accredited investors Strategy idea to contribute to the devt of SE ecosystem Create a closed fund to invest in SE Start with narrower focus -Industry & Issue area -Geographic area Develop a framework for internal evaluation & resource allocation Start building networks of: -Potential investees -Institutional & individual investors -Regulators -Other impact investment practitioners (e.g. IIX Asia) Invite institutional investors to invest as LP Increase the number of investees Refine monitoring/auditing & impact assessment system Open the impact assessment data to the public & invite feedback Obtain required license from financial regulators Open the fund to individual investors Link the payout not only to individual investee’s financial return but also to social impact IPO on Impact Investment Exchange Asia in Singapore Alternatively, create a social capital market in Korea

26 Thank you for your attention URL:


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