Bachelor Thesis
Performance Measurement Systems for Social Enterprises
July 8th, 2017 Emiel Gieles – ANR 500729 / S 1265836 Supervisor: Dr. J. S. Small Second Reader: Dr. M.A.H. Groen Word Count: 10,188 University College Tilburg - Liberal Arts and Sciences
Major Business and Management Table of contents I. Chapter 1: Introduction 3 1. Problem Indication 3 2. Problem Statement 5 3. Research Questions 5 4. Relevance of Research 5 5. Research Design 6 II. Chapter 2: Defining Social Entrepreneurship 7 2.1 The starting point: Entrepreneurship 7 2.1.1 Historical Background 7 2.1.2 Contrasting Definitions & Core Characteristics 8 2.2 Social Entrepreneurship 10 2.2.1 Definitions and Key Characteristics 10 2.3 The Social Enterprise 13 2.3.1 Origin and EMES Definition of Social Enterprise 13 2.3.2 Social vs. Commercial Enterprises: Four Distinguishing Variables 15 2.3.3 Position of Social Enterprise in the Spectrum 17 III. Chapter 3: Performance Measurement Systems for Social Enterprises 21 3.1 Defining Performance Measurement 21 3.2 Issues in Measuring the Performance of Social Enterprises 22 3.3 Performance Measurement System for Social Enterprises 24 3.3.1 Social Return on Investment 24 3.3.2 Balanced Scorecard and adaptations 25 3.3.3 Multidimensional model by Bagnoli & Megali (2011) 28 3.3.4 The PMS Model by Arena, Azzone & Bengo (2015) 30 3.4 Comparing Social Enterprise Performance 34 IV. Chapter 4: Discussion and Conclusion 36 4.1 Key findings and Discussion 36 4.2 Contribution 38 4.3 Limitations 38 4.4 Recommendations for future research 39 V. References 40 VI. Appendices 44
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Chapter 1: Introduction 1. Problem Indication
In the traditional view of markets, a distinction between two types of organizations can be made: for-profit and not-for-profit. While the former type of organizations has a clear principle which states that the ultimate goal, according to classical theory, is to maximize its profits, the latter’s focus is on providing services and products without the need to make profit (Besley & Ghatak, 2016). However, in modern day markets, this division is rather simplified as it leaves out hybrid forms of these organizations. One of these types, a hybrid form that is tied to social entrepreneurship, is the social enterprise.
The use of the term is gaining increased popularity, however, social entrepreneurship “as a focus of academic enquiry has a relatively brief history.” (Weerawardena & Mort, 2006). At the beginning of this century, Dees (2001) was one of the first to discuss the meaning of social entrepreneurship and identified five key characteristics. At this point in time, the term meant different things to different people.
Since the late 1990s, social entrepreneurship has gained increased attention in not only the US and EU countries, but also in regions such as Eastern Asia and Latin America (Defourny & Nyssens, 2008). In line with the growing number of social enterprises, attention from academics in the field of social entrepreneurship has grown. Yet, there is still little consensus on what the key characteristics and boundaries of the term are. Definitions range from broad to narrow, as some opt for a more inclusive definition, while others argue in favor of a more rigorous definition because it would otherwise include too many activities that cannot be regarded as entrepreneurial. The current lack of a common definition is one of the factors that causes limitations, hinders research, and leaves room for discussion on which activities fall under the spectrum of social entrepreneurship (Martin & Osberg, 2007).
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Another challenge that arises is the categorization of different organizational types of social enterprises. Social enterprises are not limited to merely the non-profit sector, but can also be active in the for-profit sector (Austin, Stevenson & Wei-Skillern, 2006). It is important to categorize different social enterprises taking into account the organizational structure in order to allow for comparisons between them.
Besides the definitional and categorization challenges, the issue of performance measurement in social enterprises has become a topic of increasing interest for researchers. Since a social enterprise does not put profit maximization as the main goal, but rather aims at social impact, alternative models to measure their performance are needed. Even though there has been a rise in methodologies to measure social impact, a model that allows for systematic comparisons between different approaches, firms and sectors is lacking. Yet, the need to do so is increasingly gaining attention. According to Arena, Azzone and Bengo (2015), one important reason why social enterprises should start measuring their performances in a systemic way is to provide accountability towards stakeholders.
According to Mair & Martí (2006), the issue in measuring social impact might not be the problem per se, but the quantification of the outcomes is what makes measuring social enterprise performance complicated. While traditional enterprises often rely on monetary values and financial indicators like profits to determine the company’s performance, social enterprises seem to lack a key quantitative factor that indicates their performance. This is also what causes the uncertainty in investment in social enterprises to be higher compared to traditional enterprises (Austin et al., 2006).
A final challenge in establishing performance measurement system for social enterprises is the comparability between multiple performances in the social dimension. The comparison of social value creation as a consequence of different activity or interventions has been regarded as a great challenge by scholars (Austin et al., 2006; Mair & Martí, 2006; Zahra, Gedajlovic, Neubaum, & Shulman, 2009). This is due to the qualitative nature of social value and its quantification problem.
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2. Problem Statement
Based on the discussion above, the problem statement for this thesis has been defined as: How can a social enterprise’s performance be measured and how could it be compared with that of others?
3. Research Questions
The following research questions have been identified in order to find an answer to the problem statement:
1. What are the key characteristics of entrepreneurship as defined in the literature? 2. What are the key characteristics of social entrepreneurship as defined in the literature? 3. What are the key characteristics of social enterprises and how can they be categorized? 4. How can performance by not-for-profit and for-profit social enterprises be measured and compared?
4. Relevance of Research
By establishing a more clear definition, the consensus among researchers is likely to grow on what social entrepreneurship means, and future research might not be limited by a multi-interpretable nature of the term. Social entrepreneurship could gain more importance in the academic literature if there is a well-defined meaning that forms the basis for a framework on performance measurement.
The main aim of this thesis is to provide insights into performance measures and how to make comparison in performances by social enterprises. This may lead to clearer rules and regulations. Another advantage could be that it would allow for less arbitrariness on whether a social enterprise underperforms in relation to its core values.
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Such an analysis could lead to a model that systematically measures the performance of social enterprises which could be of relevance for government funding. The ability to measure social enterprise performance enables government funding to be performance dependent. Performance dependent funding could also function as an incentive for social entrepreneurs to improve and innovate.
5. Research Design
The main approach of this thesis is a literature review. Sekaran and Bougie (2010) define a literature review as “a clear and logical presentation of the relevant research work done thus far in the area of investigation” (p. 67). They state that “its purpose is to identify and highlight the important variables, and to document significant findings from earlier research that will serve as the foundation on which the theoretical framework for the current investigation can be built and the hypotheses developed” (p. 67). Secondary sources are relied on in order to formulate answers to the posed research questions. The literature was gathered from academic journals such as the Entrepreneurship Theory and Practice journal (ET&P) by using search engines such as WorldCat, JSTOR and Google Scholar, where articles were identified in the field of social entrepreneurship and especially that of performance measurement have been investigated.
Key terms: social entrepreneurship, social enterprise, social impact, social value, framework, performance measurement, measure, corporate social responsibility, CSR, SROI
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Chapter 2: Defining Social Entrepreneurship 2.1 The starting point: Entrepreneurship
2.1.1 Historical Background
The term social entrepreneurship consists of two elements. In order to obtain a complete and adequate understanding of the term, it is important to take entrepreneurship as the starting point, since the word ‘social’ simply connotes a specific form of entrepreneurship.
The meaning of entrepreneurship was discussed by Dees (2001) when social entrepreneurship still had little recognition as an academic discipline. In pursuance of a definition that included key characteristics, he first returned to the origins of the word entrepreneur, and discusses previous ideas by Say, Schumpeter, Drucker and Stevenson. The roots of the word go back to the 17th and 18th century, but it was about a century later when French economist and businessman Jean-Baptiste Say described the entrepreneur as one shifting economic resources out of an area of lower productivity into that of higher productivity and greater yield. It is evident that in Say’s view, entrepreneurs create value.
Following this description, Joseph Schumpeter, the economist that is most often associated with entrepreneurship theory, saw serving new markets or creating new ways of serving markets as the core concept behind the term. According to his idea, fulfilling the needs of new markets or approaching markets differently makes economic progress possible and entrepreneurs can therefore be seen as change agents. The two definitions by Say and Schumpeter have jointly been used as the groundwork for the concept as it is known nowadays.
Peter Drucker draws upon these definitions but takes a different stance because in his opinion entrepreneurs are not required to cause change, but rather sees them as the players who exploit the opportunities to generate value that are created by change. The first argument that he puts forward is that not every new business or organization
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is entrepreneurial. The following example will be used for clarification: If there is already a large number of barbershops, then opening another one would not be innovative nor driven by an opportunity for change. A second addition that Drucker makes is that entrepreneurial activity does not need to be profit-driven. The generated value does not necessarily need to be monetary value, but can also take the form of social value.
Stevenson adds to the debate by discussing the role of resourcefulness, that is, whether resources are currently controlled, to Drucker’s interpretation. Dees (2001) points out that the theorist of Entrepreneurship at Harvard Business School stated that entrepreneurs disregard whether resources currently available limit their options, and defines entrepreneurship thus as “the pursuit of opportunity without regard to the resources they currently control” (p. 3).
Combining the four interpretations, the notion of an entrepreneur can be described as an agent who is focusing on identifying an opportunity for change and does not let resources limit his options. Dees (2001) states that the previously mentioned ideas posed by Say, Schumpeter, Drucker, and Stevenson are both applicable in both the social as well as the business sector, and this is what makes these definitions attractive.
Yet, it is important to note that some scholars discuss the entrepreneur as a person while others focus on the concept of entrepreneurship. Still, these interpretations and definitions can be combined as the characteristics of an entrepreneur can often be translated into requirements for entrepreneurial activity and vice versa.
2.1.2 Contrasting Definitions & Core Characteristics
Over the course of time various other definitions on the term “entrepreneurship” have been proposed. While the ideas presented by Schumpeter, Say, Drucker and Stevenson are complementary and can be combined, other definitions have been proposed that are in contrast with each other. Abu-Saifan (2012) provides a table containing contrasting definitions and core characteristics of the terms “entrepreneur” and entrepreneurship” (see Appendix 1). However, the goal of the current literature review
8 is not to establish a new definition or theory on social entrepreneurship, as this would only increase the dissension in its academic field. Rather, it strives to provide an overview of the previous definitions and theories and create more clarity on what entrepreneurship entails and on what a social entrepreneurship and enterprise consist of by combining the existing views on the topic.
Schumpeter (1934) would describe an entrepreneur as an innovator who implements the aforementioned entrepreneurial change in one of the five following ways: 1) the introduction of a new/improved good 2) the introduction of a new method of production; 3) the opening of a new market; 4) the exploitation of a new source of supply; and 5) the carrying out of the new organization of any industry. However, in 1962, Davis and McClelland based their vision on entrepreneurship on the Need Theory, where he states that an entrepreneur has a high need for achievement, which is one of the three needs that compose his theory, next to this is the need for affiliation and the need for power. These perspectives differ to a large extent as the former emphasizes innovation, while the latter focuses on achievement and risk bearing, and does not regard novelty as a key component in the definition process.
Both Kirzner (1978) and Shapero (1975) take a different stance towards defining the concept. Recognizing and acting upon market opportunities is crucial for entrepreneurs according to Kirzner (1978), and he compares the entrepreneur with an arbitrageur, described by the Cambridge Business English Dictionary (2017) as “someone who buy something, such as shares or currency, in one place and sells them in another where they can get a higher price at the same time”. The definition that Shapero (1975) proposed is more in line with that of Davis and McClelland (1962), as both emphasize risk taking, but to Shapero taking initiative regardless of the outcome, is regarded a key characteristic, which seems to be contradicting the aforementioned need for achievement as the two concepts differ in the need for a positive outcome.
Carland, Hoy, Boulton and Carland (1984) opt for innovative behavior and strategic thinking as the characteristics that differentiate entrepreneurs from small business
9 owners. However, this innovative behavior is absent in the description by Kao and Stevenson (1985), who focus on value creation by pursuing business opportunities, which is, to a certain extent, similar to Kirzner’s (1978) proposition.
Finally, Timmons and Spinelli (2004) agree on the opportunity principle, but state that entrepreneurship is not only acting upon these opportunities, but that it is a way of thinking and reasoning as well, which is holistic and leadership balanced.
After discussing these different definitions of entrepreneurship, Abu-Saifan (2012) states that according to business management literature, “entrepreneurship is an exceptional set of activities carried out by individuals with an exceptional mind-set in order to maximize profit.” (p. 23) The broad terms ‘exceptional set of activities’ and ‘exceptional mind-set’ are used because of the wide range of the core characteristics associated with entrepreneurship that can be observed in the previous section. Therefore, it is troublesome to propose one clear and specific definition of entrepreneurship. When comparing the definitions and looking for similarities, one can state that the shared principles across them lie in venture creation, opportunity exploitation, and profit maximization (Abu-Saifan, 2012). In the traditional view, entrepreneurs can thus be described as individuals with an exceptional mind-set that seek venture growth, and seek opportunities to maximize profit and economic prosperity.
2.2 Social Entrepreneurship
2.2.1 Definitions and Key characteristics
Now that an overview has been provided as to how the term entrepreneurship came into being and what it entails, it is important to inquire into the characteristics that set the social type apart from its traditional, commercial form. The clarification of the meaning of social entrepreneurship and its core characteristics has proven to be complex and it is important to state that many scholars have previously acknowledged the difficulties that establishing core characteristics of social entrepreneurship contains.
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(Christie & Honig, 2006; Mair & Martí, 2006; Perrini, 2006). The main difficulty lies in the fact that in most definitions, social entrepreneurship refers to the management of a system of conflicting ideas, being, on the one hand, the social mission and, on the other hand, the commercial activities. (Bacq & Janssen, 2011)
Definitions of social entrepreneurship have a wide range from broad to narrow. Some scholars have opted for an inclusive definition, where social entrepreneurship refers to innovative activity with a social objective (Austin et al., 2006). This innovative activity can take place in either the for profit sector, like in social-purpose commercial ventures (Dees & Anderson, 2003), or in the non-profit sector, or in hybrid forms that mix for- profit and not-for-profit approaches. In the narrow definition, social entrepreneurship is often regarded as the application of market-based skills in the non-profit sector (Thompson, 2002).
Another difficulty that scholars have encountered when trying to establish a concept of social entrepreneurship is the question whether social entrepreneurship is actually distinct form of entrepreneurship at all. In order to answer this question, often attention is paid to what it is meant by ‘social’ and how this term distinguishes its form from other types of entrepreneurship. (Dees, 2001; Peredo & McLean, 2006). It is stated that every successful enterprise can be regarded as social since it generates some social value, whether it be via directly solving a societal issue or problem, or via contributing to job creation and generating tax revenues (Mair, 2006).
The main misunderstanding in claiming that social entrepreneurship can be categorized under other forms of entrepreneurship (because every successful enterprise generates social value) lies in confounding the intention and outcome of entrepreneurial activity. Common across all definitions of social entrepreneurship is the idea of an underlying social mission or drive to create social value, rather than personal and shareholder wealth (Zadek & Thake, 1997). The central driver for social entrepreneurship is the social problem being addressed, and the particular organizational form a social enterprise takes should be a decision based on which format would most effectively mobilize the
11 resources to address that problem (Austin et al., 2006). So, despite commercial enterprises delivering a social contribution, one way to distinguish between commercial and social entrepreneurship is by focusing on the mission of the enterprise instead of the outcome and value that is generated, since social entrepreneurs start from the aim to solve a social problem and use generated profit as a means to this end, while commercial entrepreneurs prioritize creating economic wealth and rather put profit maximization as the end itself. (Abu-Saifan, 2012).
This distinguishing characteristic that sets social entrepreneurship apart from its commercial form was first mentioned by Drucker. He emphasized that entrepreneurship does not necessarily imply a profit-driven goal, and this is also found in the vast majority of other definitions of social entrepreneurship. Dees (2001) regards this adoption of a social mission as the first of five key conditions. The other four are further based on the ideas by Say, Schumpeter, Drucker and Stevenson that are discussed previously. According to Dees, the five ways in which social entrepreneurs are change agents in the social sector are the following:
Adopting a mission to create and sustain social value (not just private value) Recognizing and relentlessly pursuing new opportunities to serve that mission Engaging in a process of continuous innovation, adaptation, and learning Acting boldly without being limited by resources currently in hand Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created
It is important to mention that this is an ‘idealized’ definition, as Dees described it, which means that different social entrepreneurs will comply with these conditions to different extents. The higher the compliance with the first condition, the more the person can be regarded as a social entrepreneur. It is important to note that the other four criteria are focused on the compliance with traditional entrepreneurial activity, and an increase in compliance with one of these criteria does not make the entrepreneurial activity more social. Since the first criteria of this idealized definition can be met to varying extents,
12 and thus leave room for discussion whether one’s entrepreneurial activity is indeed social, many scholars over time have proposed alternative definitions of social entrepreneurship, as illustrated in the table in Appendix 2 provided by Dacin, Dacin & Matear (2010).
Based on an analysis of the 37 definitions shown in Appendix 2, it can be argued that the social mission is the most common distinguishing feature that sets apart social from commercial entrepreneurship. The idea of social value creation as the main goal rather than monetary profit is present in all definitions. Now that the main distinguishing characteristic has been identified, it is important to investigate the organizational forms in which this social goal can be pursued.
2.3 The Social Enterprise
2.3.1 Origin and EMES Definition of Social Enterprise
While social entrepreneurship starts with the individual, the social enterprise begins as an organizational movement applying market-based strategies with the aim to achieve social change (Popoviciu & Popoviciu, 2011). Often, scholars make an assumption concerning the relationship between social entrepreneurship and what is called ‘‘social enterprise.’’ Social enterprise as an activity (normally represented by using the term without a definite or indefinite article) is commonly equated with social entrepreneurship (Peredo & McLeantra; 2005). Regarding an activity, this similarity will be accepted. However, it is important to discuss the organizational form of a social enterprise (using the term with a definite or indefinite article) and its place in the spectrum of not-for-profit and for-profit markets.
It can be argued that the first social enterprises as an organizational form appeared in the late 20th century, when in 1990 the journal called Impresa Sociale was launched, which promoted the concept. Yet, it is important to stress that the concept of cooperation in a social context existed already long before the 20th century. Initially, Italian associations were not allowed to make profit or develop economic activities.
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However, a law passed in 1991 allowed for a new type of organization: the social cooperative (Defourny & Nyssens, 2012). This law can be regarded as the starting point for the organizational structure of social enterprise. The development of the social enterprise spread through Europe in the years that followed.
The EMES European Research Network (EMergence des Entreprises Sociales en Europe) developed the first theoretical and empirical groundwork for social enterprise analysis by carrying out a research project from 1996 to 2000. During this research, nine indicators were identified in order to establish a concise and elegant definition (Defourny & Nyssens, 2012). These nine indicators are categorized into three subsets: (1) economic and entrepreneurial dimensions, (2) social dimensions and (3) participatory governance of social enterprises. Even though it can be stated that there is ambiguity to which extent they should be fulfilled, these indicators describe in more detail the requirements for social enterprise as an activity.
Economic and entrepreneurial dimensions of social enterprises
The first indicator that is identified is concerned with the (a) continuous activity of producing good and/or selling services. Defourny & Nyssens (2012) state social enterprises, unlike traditional not-for-profit organizations, are often directly involved in the production of goods or provision of services on a continuous basis. The second indicator is (b) a significant level of economic risk. It is pointed out that the viability of a social enterprise depends largely on whether its employees manage to acquire the adequate and suitable resources. The final indicator in the economic and entrepreneurial dimension states that the activity that is carried out in social enterprise requires (c) a minimum level of paid work.
Social dimensions of social enterprises
Regarding the social dimensions, three aspects are regarded as distinctive: (d) an explicit aim to benefit the community, which can be compared to the social mission that has been identified previously, (e) an initiative launched by a group of citizens or civil society organizations, and (f) a limited profit distribution. Each of these indicators stress the
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Participatory governance of social enterprises
In the final subset three indicators are identified with regard to participatory governance of social enterprises. Even though social enterprises may rely on donations and public subsidies, they show (g) a high degree of autonomy and are not managed by public authorities or other organizations like federations or private firms. Next to the high degree of autonomy, the voting power should not be based on capital shares, but to the ‘one-member, one vote’-principle, and thus h) decision-making power is not based on capital ownership. Finally, social enterprises should adopt i) a participatory nature which involves various parties affected by the activity, to ensure the aim to integrate the influence of stakeholders and customers in the development process of social enterprises.
2.3.2 Social vs. Commercial Enterprises: Four Distinguishing Variables
Apart from the EMES Definition, Austin et al (2006) identify four variables in which social entrepreneurship differs from traditional, commercial entrepreneurship. From Appendix 2, it can be concluded that the social mission or social value creation rather than profit maximization is at the core and achieving this mission should be the main goal of the social enterprise, since this is mentioned in all the definitions provided. The social mission is one of the four variables that they identify to comparatively analyse commercial and social entrepreneurship: market failure, mission, resource mobilization, and performance measurement.
Market failure
Austin et al. (2006) argue that social entrepreneurship comes into play when commercial market forces do not meet a social need, known as social-market failure. The main reason for social-market failure is the lack of financial income to pay for services provided by commercial entrepreneurs. Since in general a problem for a commercial
15 entrepreneur is an opportunity for the social entrepreneur, the proposition is made that “market failure will create differing entrepreneurial opportunities for social and commercial entrepreneurship” (p. 3). Externalities are an example of social-market failure, illustrated by for example air pollution as a consequence of car emissions and chemicals by factories, which creates an entrepreneurial opportunity to address this social problem.
Mission
The mission is a key variable in distinguishing social from commercial entrepreneurship. As stated in the vast majority of definitions provided in Appendix 2, the fundamental purpose of social entrepreneurship is creating value for the public good, whereas commercial entrepreneurship aims at creating profitable operations resulting in private gain (Austin et al., 2006).
Resource mobilization
The proposition that Austin et al. (2006) make regarding resource mobilization is that “human and financial resource mobilization will be a prevailing difference and will lead to fundamentally different approaches in managing financial and human resources” (p. 3). The reason for differences in resource mobilization mainly lie in restriction on surpluses generated by social entrepreneurs in not-for-profit organizations, known as the non-distribution constraint.
Performance measurement
As a consequence of the social mission that is adopted by social entrepreneurs, adequate measures should be used to evaluate performance on achieving the set goals. While commercial enterprises are evaluated on the basis of profitability using quantitative methods, different measures should apply to social enterprises, since the core idea is transforming the maximization of wealth creation in the means by which the social entrepreneur fulfils unmet social needs (Arena et al., 2015). While commercial businesses use monetary terms like profit to analyse performance, social enterprises are
16 still in search of the adequate indicators to combine economic and social aspects of performance.
The variable regarding performance measurement will be further discussed in Chapter 3, where various performance measures are investigated and compared, and the question on how to measure performance within a social enterprise is tried to be answered, as well as the issue of comparing performance by different social enterprises. First, it is important to investigate the organizational structure of social enterprises and its position in the spectrum in the following section.
2.3.3 Position of Social Enterprise in the Spectrum
Another important observation regarding the definition of the social enterprise that can be made from analyzing the content of Appendix 2 is that many definitions do not limit the social enterprise to merely one sector, such that they can be active in either the not- for-profit or for-profit sector (Thompson & Doherty, 2006; Robinson, 2006; Light, 2006). As Defourny & Nyssens (2012) point out, the multiple forms that a social enterprise can take is also reflected in the Belgian and Italian law on social enterprise which “define a label which crosses the boundaries of all legal forms and can be adopted by various types of organizations (not only cooperatives and non-profit organizations, but also investor- owned organizations, for instance), provided they define an explicit social aim and they are not dedicated to the enrichment of their members” (p. 9). As illustrated by Popoviciu & Popoviciu (2011) (see Figure 1), the social enterprise can be placed in the middle of a spectrum from traditional non-profits to traditional for-profit enterprise, characterized by the socio-economic vision and social mission that they try to accomplish.
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Figure 1 Continuum of programs depending on the outcome sustainable vision (Popoviciu & Popoviciu, 2011)
Abu-Saifan (2012) has created a more in depth overview on social enterprises and the organizational forms it can take. According to Abu-Saifan, even though social enterprises can indeed be seen as a hybrid form that combines entrepreneurial activity with a social mission, as presented by Popoviciu & Popoviciu (2011), it is important to distinguish between not-for-profit social enterprises and for-profit social enterprises. Apart from the traditional non-for profit organizations and the traditional commercial enterprises, Abu-Saifan (2012) categorizes the social enterprises into, on the one hand, not-for-profit organizations that adopt an earned income strategy, and on the other hand for-profit organizations adopting a mission-driven strategy (See Figure 2).
For the purpose of this thesis, this distinction will be adopted. The reason for distinguishing between not-for-profit and for-profit social enterprises lies in the nature of their organizational structure and regulations. Not-for-profit organizations are rigid due to the non-distribution constraint (Besley & Ghatak, 2016), which means these organizations are barred from distributing net earnings, and thus are not allowed to distribute the profits among individuals who oversee the organization. If a not-for-profit organization generates net earnings, “they must be retained and devoted entirely to
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financing further productions of the services that the organization was formed to provide” (Hansmann, 1980, p. 835). This means that a not-for-profit social enterprise cannot generate profit in the way for-profit organizations can, which makes it inherently difficult to compare the performance of not-for-profit social enterprises with those of for-profit social enterprises, since profit is normally used as an indicator of performance for commercial businesses.
Figure 2 - The entrepreneurship spectrum illustrating the boundaries of social entrepreneurship (Abu Saifan, 2012)
To conclude Chapter 2, it can be stated that resulting from the literature analysis, entrepreneurs can be described as individuals with an exceptional mind-set that seek venture growth, and seek opportunities to maximize profit and economic prosperity. The social mission is the component that is common across the 37 definitions analyzed on social entrepreneurship. The characteristics of the organizational structure of the social enterprise have been identified by the EMES European Research Network and divided into three subsets: economic and entrepreneurial dimension, social dimensions and participatory governance of social enterprises. Austin et al. (2006) distinguish
19 between commercial and social enterprises in four dimensions: market failure, mission, resource mobilization, and performance measurement. It can be concluded that social enterprises are not bound to one specific sector, but can be active in both the not-for- profit sector and the for-profit sector (Abu-Saifan, 2012). In the following chapter challenges in measuring performance are investigated and possible solutions to the issues are proposed.
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Chapter 3: Performance Measurement Systems for Social Enterprises
3.1 Defining Performance Measurement
The number of social enterprises is on the rise and has been developing across the globe. (Defourny & Nyssens, 2008). Yet, in order to achieve progress through social enterprise, a challenge arises: measuring performance and social impact. Even though impact measurement can be rather complex and costly, it is critical for further development of such organizations (Hanna, 2010). As discussed in Chapter 2, performance measurement is one of the distinguishing characteristics that sets social entrepreneurship apart from its commercial form (Austin et al., 2006). Since the social mission is at the heart of social enterprise, different measures are required that focus on social value creation and social impact measurement rather than quantitative monetary figures, as is often the case for commercial enterprises.
First, it is important to define performance measurement and the corresponding systems. Performance measurement is generally defined of outcomes and results, which generates reliable data on the effectiveness and efficiency of programs. Originating from the business sector, performance measurement systems (PMS) were originally created for commercial, profit-based enterprises in order to compare performances over time and determine the future directions that should be taken. Organizations using such an approach rely heavily on financial measures to measure their performance (Upadhaya, Munir & Blount, 2014). The main critique of such an approach is that since financial measures investigate results of business activities performed in the past, they provide limited direction for potential actions and growth, and are rather focused on cost reduction (Langfield-Smith, Thorne & Hilton, 2012). An example of a performance measurement system that has been widely adopted is the Balanced Scorecard as developed by Kaplan & Norton (1996). An alternative social measurement scheme is the Social Return on Investment (SROI) approach. Both are
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discussed as possible PMS’s for social enterprises, as well as the models presented by both Bagnoli & Megali (2011) and Arena et al. (2015).
3.2 Issues in Measuring Performance of Social Enterprises
According to Mair & Martí (2006), “assessing social performance and impact is one of the greatest challenges for practitioners and researchers in social entrepreneurship” (p. 42). This challenge is rooted in the hybrid nature of a social mission combined with commercial activity. As already established, commercial entrepreneurship aims at profit maximization, which allows performance to be based on financial data like revenues and costs (Kirzner, 1978). This means that commercial entrepreneurs as well as their funders aim to gain a financial return from investments, and therefore aim attention at the assessment and valuation of the financial value of the company (Austin et al., 2006).
However, for social entrepreneurship there is no specific key indicator, like profit or investment returns, that reflects the interests of different investors and stakeholders. Speckbacher (2003) points out that profit is not adequate as a single valued measure for social enterprise performance because there are other dimensions which are at least as important that profit measures do not capture. The absence of this factor causes uncertainty with regard to investment in social entrepreneurial activity to be higher compared to commercial entrepreneurship (Austin et al., 2006). One could argue that social value creation or social impact could function as the key metric, which is defined by Clark, Rosenzweig, Long and Olsen (2004) as “the portion of total outcome that happened as a result of the activity of an organization, above and beyond what would have happened anyway” (p. 7). Yet, as Mair & Martí (2006) point out, “the real problem may not be the measurement per se, but how the measures may be used to ‘‘quantify’’ the performance and impact of social entrepreneurship” (p. 42). According to Austin et al. (2006), the quantification of the performance by social enterprises is complex because of the “nature of social phenomenon, multicausality of underlying factors, and lengthy temporal manifestations, among other factors” (p. 15).
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Another issue that arises in measuring performance is the varying interests of stakeholders. In the social entrepreneurial context, the number of financial and nonfinancial stakeholders are often greater compared to those of commercial enterprises, which results in high complexity in accountability towards these stakeholders.
It should be evident that social impact and social value creation are regarded as inherently difficult to measure. Still, various models have been developed over time to measure performance of social enterprises that identify different dimensions, rather than merely focusing on the economic evaluation of the enterprise. The model presented by Bagnoli & Megali (2011) contains three reference fields for management, which are economic-financial performance, social effectiveness and institutional legitimacy, and can be regarded as an example of the models that are multidimensional.
Social enterprises that are active in the for-profit sector as defined by Abu-Saifan (2012) encounter another issue in performance measurement. The implementation and importance of economic and financial performance has proven to be a challenge for for- profit social enterprises. On the one hand it is important to take into account the economic and financial values as they provide information on efficiency and to a limited extent on impact. On the other hand, the economic and financial aspect in performance measurement should not outweigh the social impact in terms of importance, as this would be in contradiction to the purpose of social enterprises.
Yet, it is important to note that the distinction made in Chapter 2 between not-for-profit and for-profit social enterprises is crucial since the performance measurement systems should take into account the differences in regulations and organizational structure, as previously pointed out mentioning the non-distribution constraint for not-for-profit organizations. Because of this non-distribution constraint, measurement systems that adopt economic or financial performance as one of the dimensions to measure overall performance might be less applicable to not-for-profit organizations.
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3.3 Performance Measurement Systems for Social Enterprises
This section will critically evaluate the literature presenting different performance measurement systems for social enterprises. First, Social Return on Investment (SROI) will be discussed, followed by the Balanced Scorecard. Then the multidimensional controlling model by Bagnoli & Megali (2011) will be investigated, followed by the PMS contingency framework proposed by Arena et al. (2015). Finally, the conceptual framework for Comparing Social Value Creation by Kroeger & Weber (2014) will be examined.
3.3.1 Social Return on Investment (SROI)
In the 1990s, the first social impact assessment method was developed in the form of Social Return on Investment by the Roberts Enterprise Development Fund, and was then tested by the New Economics Foundation (NEF, 2007). The main idea behind the concept of SROI is to assign monetary values to results that are social and environmental, and can be defined as an “outcomes-based measurement tool that aims to quantify organizations’ extra-financial outcomes” (Florman, Klingler-Vidra & Facada, 2016, p. 31). According to Nicholls, Lawlor, Neitzert & Goodspeed (2009) SROI aims to reduce environmental issues and improve wellbeing by incorporating costs and benefits from three perspectives: social, environmental and economic. SROI aims to express social enterprise performance in one unit and it can be regarded as a performance indicator for social enterprises. Carrying out an SROI analysis is done in six stages (Nicholls et al., 2009): (1) establishing scope and identifying key stakeholders, (2) mapping outcomes, (3) evidencing outcomes and giving them a value, (4) establishing impact, (5) calculating SROI and (6) reporting, using and embedding.
An advantage of SROI as an indicator for social enterprises compared to simple methods such as profits is that it consists of two variations: evaluative and forecast SROI. While evaluative SROI is retrospective and focuses on data and outcomes that have taken place, forecast SROI is a predictor of social value creation under the condition that the activities met intended outcomes (Nicholls et al., 2009).
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Another advantage of SROI is that it allows for comparison with other monetary data, since there is one unit in which data is described. However, assigning monetary values to social and environmental impact can also be regarded as a disadvantage. One criticism that has been made, is that although an SROI analysis provides the opportunity for a more complete understanding of value creation, it inevitably involves subjective judgment (Nicholls et al., 2009; Florman et al., 2016). Secondly, as Arena et al. (2015) point out, it is not possible to translate certain impacts of activities into money, and since it can lead to an underestimation of the social contribution of a social enterprise, this translation can even be counterproductive. An illustration of such an untranslatable activity is the improvement of personal utility. It seems impossible to objectively quantify personal utility, defined as “the quality of life of the beneficiaries” (Beckerman and Pasek, 2001; as cited in Arena et al., 2015, p. 656).
Furthermore, the translation of social impact into monetary values seems to be counterintuitive with the social mission that is at the core of a social enterprise. Apart from the difficulties that arise in assigning monetary value to social and environmental impact, it is at odds with the main goal of the social enterprise because they prioritize social improvement rather than monetary gains (Hartigan, 2006; Haugh, 2006; Hibbert et al., 2005), while SROI assigns a financial value to the social activities carried. By assigning a monetary value to social and environmental impact, the social mission and economic goals of social entrepreneurship seem to get entangled. A final remark that can be made towards SROI is that it does not ascribe causes to environmental and social change. This makes it inadequate in supporting managers’ decision-making process (Arena et al., 2015).
3.3.2 Balanced Scorecard and adaptations
The Balanced Scorecard (BSc) has been developed by Kaplan & Norton (1996) and can both function as a strategic management and a performance measurement tool that incorporates different dimensions to balance financial and non-financial as well as short- term and long-term success measures. Kaplan & Norton (1996) argue that financial
25 indicators are not sufficient to indicate whether the current work done corresponds with the adopted strategy. For the BSc, four dimensions are identified to develop objectives, measures, targets and initiatives (see Appendix 3):
Financial Customer / Stakeholder Internal Business Process Learning and Growth
However, the original model seems to lack applicability in measuring social enterprise performance, as “it does not reconcile the tensions that exists between generating additional social versus financial profit” (Somers, 2005; p. 44), thus it does not entirely reflect the goals and achievements of social enterprise. In response to this limitation, Somers (2005) adapted the Balanced Scorecard creating the Social Enterprise Balanced Scorecard and introduced three major changes.
First, Somers (2005) ensured the social mission was centralized by adding an additional layer in which social goals are put above the financial perspective. The second change that was made was broadening the financial perspective to focus on sustainability. Finally, in order to be able to respond to a larger number of stakeholder groups the customer perspective was widened. The Social Enterprise Balanced Scorecard Model by Somers (2005) is illustrated in Figure 3, which differs from the original model shown in Appendix 4 in these three aspects.
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Figure 3 – The Social Enterprise Balanced Scorecard Model by Somers (2005)
Two years later, Bull (2007) made other adaptations to the Balanced Scorecard as proposed by Kaplan & Norton (1996), transforming it into five dimensions: 1) return, 2) a learning organization, 3) the stakeholder environment, 4) internal activities and 5) visioning.
Even though the adaptations of the Balanced Scorecard by Somers (2005) and Bull (2007) improve the comprehensibility of what measuring performance of social enterprises entails, there is room for improvement. For example, Arena et al. (2015) criticize previous adaptations by stating that the enlargement of the customer section does only partially answers to the variety of information needs of stakeholders. Second, in the Social Enterprise Balanced Scorecard (SEBC) no information is provided on the weight of
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each dimension in measuring the performance, which can be important in addressing the legitimacy of the social enterprise with regard to the social mission. If the financial dimension is as important as, or more important than the social performance, then this might contradicts the original priorities of the social enterprise.
3.3.3 The multidimensional model by Bagnoli & Megali (2011)
Another model that has been proposed in order to measure performance of social enterprises in both economic-financial and social terms is the multidimensional controlling model from Bagnoli & Megali (2011). They state that a social enterprise are “sustained mostly on earned income and run business that itself accomplishes the social aim through its operation” (p. 150). The three dimensions that they identify are; economic-financial performance, social effectiveness and institutional legitimacy.
Figure 4 - The multidimensional controlling model by Bagnoli & Megali (2011)
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Economic-financial performance
Despite the fact that social enterprises are founded with a purpose other than making profit (Dees, 2001; Haugh, 2006), it is still important to measure the economic and financial performance to evaluate firm sustainability and to measure financial and economic performance as a component of overall effectiveness. Social enterprises’ social goals should be pursued while still complying to economic and financial efficiency standards (Bagnoli & Megali, 2011). It is important to note that this model is more applicable to for-profit social enterprises, as the economic-financial performance section in not-for-profit organizations differs to such an extent that it should be amended for the specific organizational format.
Social Effectiveness
Bagnoli & Megali (2011) state that while economic and financial information are relevant for social enterprises, effectiveness is “fundamental to meeting the social needs it has been designed to address, thereby pursuing its mission” (p. 156). Correspondingly, the performance measurement that Bagnoli & Megali (2011) propose for social effectiveness consists of four indicators.
1. inputs, the resources that contribute to the activities undertaken; 2. outputs, in terms of both activities realized to achieve the mission and direct and countable goods/services obtained by means of the activities carried out; 3. outcomes, the benefits or impact for the intended beneficiaries; and 4. impact, the consequences for the wider community. Institutional legitimacy
Institutional legitimacy, when compared to the previously presented models, is a new dimension. Bagnoli & Megali (2011) point out that this dimension involves “verifying that the social enterprise has respected its self-imposed rules (statue, mission, program of action) and the legal norms applicable to its institutional formula” (p. 158). It is relevant because it takes into account the process in which the social mission is pursued, rather than merely looking at the social effectiveness and economic performance
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outcomes. One could argue that the social effectiveness can be affected if illegitimate manners are adopted. The following examples could be used to illustrate the issue: If a social enterprise evades taxes or buys material from other organizations that engage in child labor, then the question could be raised on to what extent this social enterprise is actually socially effective.
Despite the relevancy of this dimension, it invokes a similar issue that is also present in the social effectiveness dimension, that is, how to measure and especially how to quantify the outcomes with regard to institutional legitimacy in order to allow for comparison with other social enterprises in this domain. An example of a variable that seems difficult to measure is the ‘willingness to listen’, which is part of the verification of institutional coherence as presented by Bagnoli & Megali (p. 159, 2011).
The dimension of social effectiveness tries to measure the achievement of goals in accordance with the mission set by the social enterprise. Even though the examples of indicators named per dimension as shown in Figure 4 seem to be adequate, an important criticism can be made. By stating that there are methodologies available that translate impacts into concrete financial-economic calculations, Bagnoli & Megali (2011) seem to disregards to a certain extent the aforementioned issue on the quantification of social impact. A second criticism that has been added to the debate with regard to the model by Bagnoli & Megali (2011) is that it “overlooks the existence of different information requirements coming from different stakeholders” (Arena et al., 2015, p. 655).
3.3.4 The Performance Measurement System Model (Arena et al., 2015)
Arena et al. (2015) adopt three main elements for their framework as identified in the contingency model by Ebrahim and Rangan (2010): input, output and outcome (See Figure 5). While input refers to the resources needed for a specific activity, output refers, according to Arena et al. (2015), to “the result of a transformation process” (p. 658).
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Outcome differs from output in the sense that it refers to the long-term impact of the output instead of the immediate transformation that is caused.
Based on the main elements input, output and outcome, Arena et al. (2015) adopt three performance dimensions that have been previously identified by Simmons (2003): 1) efficiency; 2) effectiveness; and 3) impact. As social enterprises focus on achieving a social mission, the coherence between the results and this mission should be measured (Arena et al., 2015). Resource value, products value and results value have been established as the three components measuring the compliance of the social enterprise’s performance with its social mission (see Figure 5), each corresponding to their respective element.
Figure 5 – The proposed framework by Arena et al. (2015)
Social enterprises often have to report their activities to clients, funders, employees, volunteers, and achieving consensus on what factors to evaluate often turns out to be a challenge (Arena et al., 2015). The framework developed by Arena et al. (2015), as illustrated in Figure 5, forms the foundation for the performance measurement system that is to be designed by the social enterprise. Based upon this framework, a six-step model is developed that could be followed by a social enterprise to develop its own performance measurement system have been proposed by Arena et al. (2015) in order
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to respond to these different information needs of diverging group of stakeholders
(illustrated in Figure 6). These six steps are:
1. Preparation: In the first step, an analysis should be made that contains (1) the specific characteristics and key features of the social enterprise’s process and (2) the mapping of all internal and external stakeholders. 2. Interviews – defining of stakeholders’ information needs: Second, information needs of different stakeholders should be defined based on both the analysis made in Step 1 and interviews with representatives of different categories of stakeholders. 3. Association - The performance dimension most coherent with their information needs (in terms of efficiency, effectiveness, impact, consistency, financial sustainability) should be identified for each stakeholder 4. Construction of Performance Measurement System – In this step, indicators need to be defined which are coherent with the specific context in which the social enterprise competes and the characteristics and information needs declared by its stakeholders. It should consist of both quantitative and qualitative indicators, though issues that are quantifiable should have priority. 5. Collection of feedback – The performance measurement system should be presented to the stakeholders to collect feedback and comments 6. Redefinition of Performance Measurement System – From the feedback and comments the indicators should be refined.
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Figure 6 – The six steps to build the Performance Measurement System by Arena et al. (2015).
The six steps aim to develop a performance measurement system that answers to the diverging information needs from different stakeholders that are involved with regard to a social enterprise. The lack of accountability and transparency towards different stakeholders is the main criticism by Arena et al. (2015) of previous models that have been developed to measure social enterprise performance. However, the main disadvantage of creating a PMS model specifically designed for a certain social enterprise is that it impedes comparisons between different social enterprises because of the often rather specific measures that are identified in the process of determining the PMS model.
Arena et al. (2015) state in the section on constructing the performance measurement system that the model better attempts to focus on issues that could be quantified. This could lead to managers laying too much focus or weight on the more easily quantifiable
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aspects like financial performance instead of the social aspects that are more difficult to quantify. After analyzing the model by Arena et al. (2015), improvements in the model could be made by trying to find a solution for the quantification issue of social value in order to better allow for comparison between different performances. In the following section, the possibility to compare the social performance of different social enterprises and the quantification problem are investigated.
3.4 Comparing Social Enterprise Performance
Some organizations, such as not-for-profit organizations, are focused almost exclusively on creating social value, whereas others, such as profit maximizing firms, may view it as a pleasant byproduct of their activities. Most organizations exist as variants somewhere in between these extremes. (Kuratko, McMullen, Hornsby & Jackson; 2017) As defined before, social enterprise are one of the hybrid forms that can be active in both the not- for-profit and for-profit sector. After discussing four different performance measurement systems, the issue on how to compare performance by different social enterprises is explored. Scholars consider it a great if not impossible challenge to compare social value creation arising from different, unrelated heterogonous interventions (Austin et al., 2006; Dacin et al., 2010; Mair & Martí, 2006). It seems for example difficult to compare a social intervention that provides nutrition to victims of natural disasters in South-America with the integration process of Dutch ex detainees by offering an education program to work in a bike repair shop.
Yet, Kroeger & Weber (2014) state that their framework contributes to solving the problems associated with comparing unrelated social interventions. Kroeger & Weber (2014) define social value creation as “the positive change in the social well-being of disadvantaged individuals, caused by a social intervention” (p. 519). They identify three characteristics of social value creation that limit its comparability: (1) heterogeneous social interventions, (2) the social element and (3) different socioeconomic and institutional contexts.
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These three limitations to the comparability of social value creation lead to three requirements identified by Kroeger & Weber (2014) with regard to the framework. First, the heterogeneity of social interventions requires the framework on comparing social value creation to use a uniform social value construct and unit of measurement that covers and aligns the measurement of all different social interventions. Second, the social element should be clearly identifiable and the framework should distinguish between social and non-social value creation. The final requirement is that the framework for comparing social value creation allows for different socioeconomic and institutional conditions, since these different conditions are often present in activity carried out by social enterprises.
In order to comply with the requirements on the heterogeneity of interventions, distinction between non-social and social value and the different conditions, Kroeger & Weber (2014) rely on three indicators: subjective well-being, life satisfaction and domain satisfaction.
One advantage of the framework by Kroeger & Weber (2014) is that commercial enterprises that are said to underestimate or disregard the social implications of their activities can use this framework in order to obtain information on their social performance and CSR activity. Another advantage of this conceptual framework is that governments can more easily prioritize which social enterprise should be subsidized, since the outcomes of social value creation can be compared across different sectors. After reviewing the model, still a criticism can be made. It seems to fall short in assessing and quantifying long-term social effects. The model presented by Kroeger & Weber (2014) relies on subjective satisfaction ratings, which might cause a rise in ambiguity when investigating improvement over time, as other confounding variables can play a role in these subjective satisfaction ratings.
After reviewing the models, it can be concluded that the quantification problem, the information needs from different groups of stakeholders and comparisons across firms are the main issues in measuring social enterprise performances.
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Chapter 4: Discussion and Conclusion
4.1 Key findings & Discussion
After discussing the possible performance measurement systems and investigating them from different perspectives, the research question will be addressed and key findings will be discussed. As the result of analyzing the existing literature, entrepreneurs can be described as individuals with an exceptional mind-set that seek venture growth, and seek opportunities to maximize profit and economic prosperity. This formed the basis to investigate the distinction between commercial and social entrepreneurship. From the 37 definitions provided in Appendix 2 it can be concluded that the social mission of prioritizing social value creation over monetary gains is one of the main distinguishing characteristic that sets social entrepreneurship apart from the commercial form.
Based on the literature reviewed, Table 1 provides a summarizing overview of which performance measurement systems are seen as being adequate for which type of organizations. In Appendix 5, an in-depth table presents a more detailed overview containing the challenges, advantages and disadvantages of each performance measurement system for the different organizational structures. SROI can be regarded as inadequate for not-for-profit organizations and social enterprises, because the translation of social value into monetary terms is at conflict with the purpose of these types of organizations and does not solve the quantification issue in an adequate manner. Yet, it is adequate to adopt for traditional enterprises that have a profit- maximizing mission in order to use the social value in calculations with regard to their performance. The Social Enterprise Balanced Scorecard is adequate for both not-for- profit and for-profit social enterprises, but falls short in responding to the information needs of different groups of stakeholders. In addition, it does not provide information on the weight of each dimension, which could cause ambiguity as to what extent a social enterprise should follow social or economic value creation. The multidimensional model by Bagnoli & Megali (2011) is adequate to develop performance measures in for-profit
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social enterprises, but it is not applicable to not-for-profit social enterprise since the economic-financial dimension is irrelevant for these organizations. Bagnoli & Megali (2011) also seem to easily discard the quantification problem by assuming that social performance can be successfully translated into monetary value. Arena et al.’s (2015) performance measurement system model succeeds to respond to the varying information needs of different groups of stakeholders by providing steps to social enterprises to develop its own performance measurement system. However, this makes it difficult to compare between the performances of social enterprises carrying out heterogeneous activity difficult since there are often different assessment criteria across firms. The conceptual framework for comparing social value creation by Kroeger & Weber (2014) could help to solve the aforementioned problem with regard to comparisons, and could be adopted by any organization that wishes to measure their social value creation, thus including traditional enterprises that for example take part in corporate social responsibility.
Table 1 – Summarizing overview of Performance Measurement Systems for each organizational structure
Traditional Not- Not-for-profit For-profit Traditional for-profit Social Social Enterprise organization Enterprise Enterprise Social Return on Investment No No No Yes (SROI) Social Enterprise Balanced No Yes Yes No Scorecard Multidimensional model by No No Yes Yes Bagnoli & Megali (2011) Performance Measurement Yes Yes Yes No System Model by Arena et al. (2015) Conceptual Framework for Yes Yes Yes Yes Comparing Social Value Creation by Kroeger & Weber (2014)
One of the key finding is that comparing overall performance by not-for-profit social enterprises and for-profit social enterprises as defined by Abu-Saifan (2012) is innately
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challenging because of the divergent structures and regulations. Due to the non- distribution constraint, it can be concluded that economic-financial performance by for- profit social enterprises cannot be compared with economic-financial data of not-for- profit organizations, since the former relies on revenues and sales while the latter tends to largely depend on subsidies and donations. Still, the social value creation model presented by Kroeger & Weber (2014) allows for comparison on social value creation between social enterprises from the two distinct sectors.
Another key finding is that the issue of varying information needs by different stakeholders might be partially solved when a social enterprise constructs its own performance measurement system. Yet, the construction of a PMS that is focused on the specific information need of stakeholders of a particular social enterprise diminishes the possibility to compare performance of multiples social enterprises since different methods are used. Therefore, the implementation of both specific PMS construction and methods allowing for comparison into one model seems inherently difficult, if not impossible, and can be regarded as an either-or fallacy.
4.2 Contribution
First, the current thesis tries to create more consensus on the definition of social entrepreneurship as an academic discipline. The main aim of the current literature review is to provide an overview on possible performance measurement systems for social enterprises. Moreover, it tries to identify areas for improvement in the proposed models. Besides, which this thesis suggests synthesizing multiple aspects of the models in performance measurement to establish a performance measurement system that also allows for comparison between social enterprises that are active in different industries, but also complies with the specific information needs of different stakeholders.
4.3 Limitations
The current thesis is subject to a number of limitations. First, it lacks a clear illustration of the way in which comparing social value creation can be integrated into performance
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measurement systems. By applying a case study this illustration might have become clearer and have had a more significant contribution. Second, information on how to implement the comparing social value creation framework by Kroeger & Weber (2014) in the governmental context is missing.
4.4 Recommendations for future research
As mentioned before, even though it allows for comparison of heterogeneous interventions in different socio-economic and institutional contexts, the model proposed by Kroeger & Weber (2014) seems to fall short in adequately measuring progress in social value creation over time as the subjective indicators that are used might be influenced by confounding factors over time. One direction future research could take is to attempt to improve the possibility for comparing social value creation that have taken place at different points in time.
Another step that could be taken with regard to future research is to investigate in which way the conceptual framework for comparing social value creation by Kroeger & Weber (2014) could be implemented into the Performance Measurement System Model by Arena et al. (2015) as an established tool to measure the social aspect in performance by social enterprises, next to the possibility for social enterprise to develop their own specific performance measurement system in order to answer to the varying information needs of different groups of stakeholders. The aim being to find a possible solution to the problem in simultaneously comparing social enterprises and developing a framework for specific performance measurement systems.
A final recommendation for future research that could be made is to investigate to what extent both not-for-profit and for-profit social enterprises are willing to adopt the models proposed by both Arena et al. (2015) and Kroeger & Weber (2014), and research the implementation of these models to identify possible challenges. This way, a step would be taken in the direction of solving the main issues in social entrepreneurship and would bring the models from theory to practice.
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64. Tan, W. L., Williams, J., & Tan, T. M. (2005). Defining the “social” in “social entrepreneurship”: Altruism and entrepreneurship. International Entrepreneurship and Management Journal, 1, 353–365. 65. Timmons, J. A., & Spinelli, S. (2004). New venture creation: entrepreneurship for the 21st century. 66. Thompson, J. L. (2002). The world of the social entrepreneur. The International Journal of Public Sector Management, 15, 412– 431. 67. Thompson, J., Alvy, G., & Lees, A. (2000). Social entrepreneurship—a new look at the people and the potential. Management Decision, 38, 328 –338. 68. Thompson, J., & Doherty, B. (2006). The diverse world of social enterprise: A collection of social enterprise stories. International Journal of Social Economics, 33(5/6), 399 – 410. 69. Tracey, P., & Jarvis, O. (2007). Toward a theory of social venture franchising. Entrepreneurship Theory & Practice, 31(5), 667– 685. 70. Upadhaya, B., Munir, R., & Blount, Y. (2014). Association between performance measurement systems and organisational effectiveness. International Journal of Operations & Production Management, 34(7), 853-875. 71. Waddock, S. A., & Post, J. E. (1995). Catalytic alliances for social problem solving. Human Relations, 48(8), 951– 973. 72. Weerawardena, J., & Mort, G. S. (2006). Investigating social entrepreneurship: A multidimensional model. Journal of world business, 41(1), 21-35. 73. Yang, C. L., Huang, R. H., & Lee, Y. C. (2014). Building a performance assessment model for social enterprises-views on social value creation. Science Journal of Business and Management, 2(1), 1- 9. 74. Yunus, M. (2008). Creating a world without poverty: Social business and the future of capitalism. New York: Public Affairs Books. 75. Zadek, S., & Thake, S. (1997). Practical People, Noble Causes: How to Support Community-based Social Entrepreneurs. Executive Summary. New Economics Foundation. 76. Zahra, S. E., Gedajlovic, E., Neubaum, D. O., & Shulman, J. M. (2009). A typology of social entrepreneurs: Motives, search processes and ethical challenges. Journal of Business Venturing, 24(5), 519 –532.
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Appendices
Appendix 1
Contrasting Definitions and & Core Characteristics (Abu-Saifan, 2012)
Definition Core Characteristics Schumpeter (1934) An entrepreneur is an innovator who implements Innovator entrepreneurial change within markets, where entrepreneurial change has five manifestations: 1) the introduction of a new/improved good 2) the introduction of a new method of production; 3) the opening of a new market; 4) the exploitation of a new source of supply; and 5) the carrying out of the new organization of any industry Davis & McClelland The entrepreneur is a person with a high need for High achiever (1962) achievement. This need for achievement is directly Risk bearer related to the process of entrepreneurship […] Dedicated Entrepreneur is an energetic moderate risk taker Kirzner (1978) The entrepreneur recognizes and acts upon market Arbitrageur opportunities. The entrepreneur is essentially an arbitrageur (someone who buy something, such as shares or currency, in one place and sells them in another where they can get a higher price at the same time). Shapero (1975) Entrepreneurs take initiative, organize some social Organizer and economic mechanisms and accept risks of Initiative taker failure Carland et al. (1984) The entrepreneur is characterized principally by Strategic innovative behavior and will employ strategic thinker management practices in the business Kao and Stevenson Entrepreneurship is an attempt to create value Value creator (1985) through recognition of business opportunities Opportunity aware Timmons and Entrepreneurship is a way of thinking, reasoning, Leader Spinelli (2004) and acting that is opportunity obsessed, holistic in Holistic approach and leadership balanced Persistent Committed
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Appendix 2
Definitions of Social Entrepreneurship / Social Enterprise by Dacin, Dacin & Matear (2010)
Source Definition 1. Alvord, Brown [C]reates innovative solutions to immediate social problems and mobilizes & Letts (2004) the ideas, capacities, resources, and social arrangements required for sustainable social transformations. (p. 262) 2. Austin, [S]ocial entrepreneurship as innovative, social value creating activity that Stevenson & can occur within or across the nonprofit, business, or government sectors. Wei-Skillern (p. 2) (2006) 3. Bornstein Social entrepreneurs are people with new ideas to address major problems (2004) who are relentless in the pursuit of their visions . . . who will not give up until they have spread their ideas as far as they possibly can. (pp. 1–2) 4. Boschee & A social entrepreneur is any person, in any sector, who uses earned income McClurg (2003) strategies to pursue a social objective, and a social entrepreneur differs from a traditional entrepreneur in two important ways: Traditional entrepreneurs frequently act in a socially responsible manner. . . . Secondly, traditional entrepreneurs are ultimately measured by financial results. (p. 3) 5. Cho (2006) [A] set of institutional practices combining the pursuit of financial objectives with the pursuit and promotion of substantive and terminal values. (p. 36) 6. Dart (2004) [Social enterprise] differs from the traditional understanding of the nonprofit organization in terms of strategy, structure, norms, [and] values, and represents a radical innovation in the nonprofit sector. (p. 411) 7. Dees (2001) Social entrepreneurs are one species in the genus entrepreneur. They are entrepreneurs with a social mission. (p. 2) 8. Drayton (2002) [They] have the same core temperament as their industry-creating, business entrepreneur peers. . . . What defines a leading social entrepreneur? First, there is no entrepreneur without a powerful, new, system change idea. There are four other necessary ingredients: creativity, widespread impact, entrepreneurial quality, and strong ethical fiber. (p. 124) 9. Harding (2004) They are orthodox businesses with 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 maximize profit for shareholders and owners. (p. 41) 10. Hartigan (2006) [E]ntrepreneurs whose work is aimed at progressive social transformation. . . . A business to drive the transformational change. While profits are generated, the main aim is not to maximize financial returns for shareholders but to grow the social venture and reach more people in need effectively. Wealth accumulation is not a priority—revenues beyond costs are reinvested in the enterprise in order to fund expansion. (p. 45) 11. Haugh (2006) Social enterprise is a collective term for a range of organizations that trade for a social purpose. They adopt one of a variety of different legal formats
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but have in common the principles of pursuing business- led solutions to achieve social aims, and the reinvestment of surplus for community benefit. Their objectives focus on socially desired, nonfinancial goals and their outcomes are the nonfinancial measures of the implied demand for and supply of services. (Ch. 1, p. 5) 12. Hibbert, Hogg Social entrepreneurship can be loosely defined as the use of & Quinn (2005) entrepreneurial behaviour for social ends rather than for profit objectives, or alternatively, that the profits generated are used for the benefit of a specific disadvantaged group. (p. 159) 13. Hockerts (2006) Social purpose business ventures are hybrid enterprises straddling the boundary between the for-profit business world and social mission-driven public and nonprofit organizations. Thus they do not fit completely in either sphere. (p. 145) 14. Korosec & Social entrepreneurs are defined as individuals or private organizations that Berman (2006) take the initiative to identify and address important social problems in their communities. (pp. 448–449) [O]rganizations and individuals that develop new programs, services, and solutions to specific problems and those that address the needs of special populations. (p. 449) 15. Lasprognata & Social entrepreneurship means nonprofit organizations that apply Cotton (2003) entrepreneurial strategies to sustain themselves financially while having a greater impact on their social mission (i.e., the “double bottom line”). (p. 69) 16. Light (2006) A social entrepreneur is an individual, group, network, organization, or alliance of organizations that seeks sustainable, large-scale change through pattern-breaking ideas in what or how governments, nonprofits, and businesses do to address significant social problems. (p. 50) 17. Mair & Martí [A] process involving the innovative use and combination of resources to (2006) pursue opportunities to catalyze social change and/or address social needs. (p. 37) 18. Martin & We define social entrepreneurship as having the following three Osberg (2007) components: (1) identifying a stable but inherently unjust equilibrium that causes the exclusion, marginalization, or suffering of a segment of humanity that lacks the financial means or political clout to achieve any transformative benefit on its own; (2) identifying an opportunity in this unjust equilibrium, developing a social value proposition, and bringing to bear inspiration, creativity, direct action, courage, and fortitude, thereby challenging the stable state’s hegemony; and (3) forging a new, stable equilibrium that releases trapped potential or alleviates the suffering of the targeted group, and through imitation and the creation of a stable ecosystem around the new equilibrium ensuring a better future for the targeted group and even society at large. (p. 35) 19. Masseti (2008) Introduce the Social Entrepreneur Matrix (SEM). Based on whether a business has a more market- or socially driven mission and whether or not it requires profit, the SEM combines those factors that most clearly differentiate social entrepreneurism from traditional entrepreneurism. (p. 7)
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20. Mort, [A] multidimensional construct involving the expression of Weerawardena, entrepreneurially virtuous behaviour to achieve the social mission, a & Carnegie coherent unity of purpose and action in the face of moral complexity, the (2003) ability to recognise social value-creating opportunities and key decision- making characteristics of innovativeness, proactiveness and risk-taking. (p. 76) 21. Peredo & [S]ocial entrepreneurship is exercised where some person or group: (1) McLean (2006) aim(s) at creating social value, either exclusively or at least in some prominent way; (2) show(s) a capacity to recognize and take advantage of opportunities to create that value (“envision”); (3) employ(s) innovation, ranging from outright invention to adapting someone else’s novelty, in creating and/or distributing social value; (4) is/are willing to accept an above-average degree of risk in creating and disseminating social value; and (5) is/are unusually resourceful in being relatively undaunted by scarce assets in pursuing their social venture. (p. 64) 22. Perrini & Vurro We define SE as a dynamic process created and managed by an individual (2006) or team (the innovative social entrepreneur), which strives to exploit social innovation with an entrepreneurial mindset and astrong need for achievement, in order to create new social value in the market and community at large. (Ch. 1, p. 4) 23. Prabhu (1999) [P]ersons who create or manage innovative entrepreneurial organizations or ventures whose primary mission is the social change and development of their client group. (p. 140) 24. Roberts & Social entrepreneurship is the construction, evaluation, and pursuit of Woods (2005) opportunities for transformative social change carried out by visionary, passionately dedicated individuals. (p. 49) 25. Robinson I define social entrepreneurship as a process that includes: the (2006) identification of a specific social problem and a specific solution . . . to address it; the evaluation of the social impact, the business model and the sustainability of the venture; and the creation of a social mission-oriented for-profit or a business-oriented nonprofit entity that pursues the double (or triple) bottom line. (p. 95) 26. Schwab A social enterprise is an organization that achieves large scale, systemic and Foundation sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or acombination of these. (http://www.schwabfound.org/sf/SocialEntrepreneurs/index.htm.) 27. Seelos & Mair Social entrepreneurship combines the resourcefulness of traditional (2005) entrepreneurship with a mission to change society. (p. 241) 28. Sharir & Lerner [T]he social entrepreneur is acting as a change agent to create and sustain (2006) social value without being limited to resources currently in hand. (p. 3) 29. Skoll [T]he social entrepreneur aims for value in the form of transformational Foundation change that will benefit disadvantaged communities and ultimately society at large. Social entrepreneurs pioneer innovative and systemic approaches for meeting the needs of the marginalized, the disadvantaged and the disenfranchised—populations that lack the financial means or political clout
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to achieve lasting benefit on their own. (http://www.skollfoundation.org/aboutsocialentrepreneurship/whatis.asp.) 30. Tan, Williams, A legal person is a social entrepreneur from t1 to t2 just in case that person & Tan (2005) attempts from t1 to t2, to make profits for society or a segment of it by innovation in the face of risk, in a way that involves that society or segment of it. (p. 358) 31. Thompson [P]eople with the qualities and behaviours we associate with the business (2002) entrepreneur but who operate in the community and are more concerned with caring and helping than “making money.” (p. 413) 32. Thompson, [P]eople who realize where there is an opportunity to satisfy some unmet Alvy, & Lees need that the state welfare system will not or cannot meet, and who gather (2000) together the necessary resources (generally people, often volunteers, money and premises) and use these to “make a difference.” (p. 328) 33. Thompson & Social enterprises—defined simply—are organisations seeking business Doherty (2006) solutions to social problems. (p. 362) 34. Tracey & Jarvis [T]he notion of trading for a social purpose is at the core of social (2007) entrepreneurship, requiring that social entrepreneurs identify and exploit market opportunities, and assemble the necessary resources, in order to develop products and/or services that allow them to generate “entrepreneurial profit” for a given social project. (p. 671) 35. Waddock & [A]n individual who brings about changes in the perception of social Post (1991) issues.... [They] play critical roles in bringing about “catalytic changes” in the public sector agenda and the perception of certain social issues. (p. 393) 36. Yunus (2008) [A]ny innovative initiative to help people may be described as social entrepreneurship. The initiative may be economic or non-economic, for- profit or not-for-profit. (p. 32) 37. Zahra, Social entrepreneurship encompasses the activities and processes Gedajlovic, undertaken to discover, define, and exploit opportunities in order to Neubaum, & enhance social wealth by creating new ventures or managing existing Shulman (2009) organizations in an innovative manner. (p. 5)
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Appendix 3
The Balanced Scorecard Framework by Kaplan & Norton (1996, p. 197)
Appendix 4
The for-profit strategy map by Somers (2005, p. 45)
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Appendix 5 – Performance Measurement Systems Evaluated Per Organizational Structure
Traditional Not-for-profit Not-for-profit Social Enterprise For-profit Social Enterprise Traditional Enterprise organization Social Return on No - It seems to easily discard the No - It seems to easily discard the No - It seems to easily discard the Yes - It is applicable to traditional Investment (SROI) quantification problem by assuming quantification problem by assuming quantification problem by assuming enterprises since the translating that social performance can be that social performance can be that social performance can be social value into monetary terms successfully translated into successfully translated into monetary successfully translated into monetary helps calculating data that is to be monetary value. value. value. provided to stakeholders. - Translating social value into - Translating social value into - Translating social value into - Translating social value into monetary terms is contradicting monetary terms is contradicting with monetary terms is contradicting with monetary terms is not necessarily with the social purpose of not-for- the social mission set by not-for-profit the social goals set by for-profit conflicting with the profit- profit organizations. social enterprises. organizations. maximization goal of traditional enterprises. Social Enterprise Balanced No - The dimensions are specifically Yes - The dimensions are specifically Yes - The dimensions are specifically No - The dimensions are specifically Scorecard designed for social enterprises, thus designed for social enterprises, thus designed for social enterprises, thus designed for social enterprises, thus less applicable to traditional not- applicable to not-for-profit social applicable to for-profit social less applicable to traditional for-profit organizations enterprises enterprises. enterprises because of different - Seems to disregard the varying - Seems to disregard the - Seems to disregard the dimensions that are used to measure information needs of different multistakeholder nature of social multistakeholder nature of social performance. groups of stakeholders. enterprises and the varying enterprises and the varying information needs. information needs. Multidimensional model by No - The economic-financial dimension No - The economic-financial dimension is Yes - It is applicable to for-profit social Yes - It is applicable to traditional Bagnoli & Megali (2011) is less relevant for these less relevant for these organizations. enterprises since the economic- enterprise to measure overall organizations. - It seems to easily discard the financial dimension is relevant for performance, but in traditional - It seems to easily discard the quantification problem by assuming these organizations. enterprises it is more common to use quantification problem by assuming that social performance can be - Seems to disregard the profits or profitability as a that social performance can be successfully translated into monetary multistakeholder nature of social performance measure. successfully translated into value. enterprises and the varying - Comparison between traditional monetary value. - Seems to disregard the information needs. enterprises is more easily done by multistakeholder nature of social investigating profits. enterprises and the varying information needs. Performance Yes - It succeeds to respond to the Yes - It succeeds to respond to the varying Yes - It succeeds to respond to the varying No - The model is specifically designed Measurement System varying information needs of information needs of different groups information needs of different groups for social enterprises that need to Model by Arena et al. different groups of stakeholders by of stakeholders by providing steps to of stakeholders by providing steps to answer to different information need (2015) providing steps to develop its own develop its own performance develop its own performance of different groups of stakeholders. performance measurement system. measurement system. measurement system. - Comparison between traditional - Developing one’s own - Developing one’s own performance - Developing one’s own performance enterprises is more easily done by performance measurement system measurement system makes measurement system makes investigating profits. makes comparing performances comparing performances across firms comparing performances across firms - Developing one’s own performance across firms more difficult. more difficult. more difficult. measurement system makes comparing performances across firms more difficult.
Conceptual Framework for Yes - The framework could help to solve Yes - The framework could help to solve Yes - The framework could help to solve Yes - The framework could help to solve Comparing Social Value the problem in comparing the problem in comparing the problem in comparing the problem in comparing Creation by Kroeger & performances by developing a performances by developing a performances by developing a performances by developing a Weber (2014) common measure for social value common measure for social value common measure for social value common measure for social value creation creation creation creation - The framework can be used by - The framework can be used by any - The framework can be used by any - Traditional enterprise could use the any organization that wants to organization that wants to measure its organization that wants to measure its framework to get an overview of the measure its social value creation social value creation social value creation impact of their social impact or CSR activities.
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