Entrepreneurship & Innovation MGMT8608

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1 BUSINESS SCHOOL Entrepreneurship & Innovation MGMT8608 TOPIC 12: SOCIAL ENTREPRENEURSHIP & CO-OPERATIVE ENTERPRISE

Learning Outcomes Understand the concept of social entrepreneurship Define social entrepreneurship and innovation and distinguish them from traditional entrepreneurship Recognise the importance of

2 Learning Outcomes Understand the concept of social entrepreneurship Define social entrepreneurship and innovation and distinguish them from traditional entrepreneurship Recognise the importance of the social economy Understand the nature of co-operative enterprise and its contribution to economic and community development Understand the theory of community based enterprise Examine the role of social entrepreneurs via case studies

What does this suggest about the nature of social entrepreneurship and innovation?

3 Case Study: Bendigo Bank What were the key motivations and also the key challenges facing Vicki Brown and Jan Pope in trying to get the Bendigo Bank established in Tambellup and Cranbrook? What does this suggest about the nature of social entrepreneurship and innovation? Does it support the theory of communitybased enterprise? Do you think that Vicki and Jan can be called social entrepreneurs?

4 Introduction Social capital is more important than material capital. The solution involves the simple principle that social bonds and norms are of paramount importance for all people and communities. - Williams (2007 p: 179).

5 Jeremy Rifkin Empathic Civilisation

6 Group Discussion What is an empathic civilisation? Why is it that people can empathise with others? Is our natural condition intense competition to win or lose, or cooperation and collaboration?

7 Social Entrepreneurship & Innovation Social Entrepreneurship can be defined as entrepreneurship that aims to provide innovative solutions to unsolved social problems Social entrepreneurship is, therefore, about solving social problems rather than exploiting market opportunities Social Innovation seeks new answers to social problems by: identifying and delivering new services that improve the quality of life of individuals and communities; identifying and implementing new labour market integration processes, new competencies, new jobs, and new forms of participation, as diverse elements that each contribute to improving the position of individuals in the workforce Source: OECD (2010)

8 Entrepreneurial Venture Typology Venture mission Economic Social Primary Market Impact Economic Social Traditional Social consequence Social purpose [2] [1] Hybrids [3] [4] Enterprising non-profit Source: Neck et. al (2008)

9 Social Entrepreneurship Framework Regulatory opportunity people SVP capital SVP = Social-Value Proposition Political Source: Austin et al (2006)

10 Developing the Social Economy Concept of social economy dates back to 19 th Century Distinguished from government & private sectors Italian Economist Achille Loria ( ) recognised that without voluntary, not-for-profit, philanthropy inequality would be too high and cause of much of the world s conflicts 1930s New Deal of President Franklin D Roosevelt offered a response to Great Depression 1980s US President Ronald Regan s New Federalism aimed to reduce role of the state, economic rationalism of Margaret Thatcher in UK a parallel trend Reaction to economic rationalism was Corporate Social Responsibility Anita Roddick, Body Shop Ben Cohen & Jerry Greenfield, Ben & Jerry s Yvon Chouinard, Patagonia 1990s President Bill Clinton in US and PM Tony Blair in UK launched The Third Way and The New Mutualism

11 The Private, Public and Third Sectors Private Sector Public Sector Third Sector Household Social Economy Informal Social Enterprise Voluntary Social Entrepreneurship Source: Birch & Whittam (2008)

12 Social Enterprise A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. Source: DTI (2002)

Social Entrepreneur - Robert Redford Successful film actor and director Butch Cassidy & Sundance Kid (1969) The Sting (1973) All the President s Men (1976) Out of Africa (1985) Sneakers (1992)

13 Social Entrepreneur - Robert Redford Successful film actor and director Butch Cassidy & Sundance Kid (1969) The Sting (1973) All the President s Men (1976) Out of Africa (1985) Sneakers (1992) 1981 est. Sundance Institute in Park City Utah Designed to support new and emerging film makers Aimed to break the monopoly of major film studios Helped to trigger the indie film scene in the US

Social Entrepreneur Mohammed Yunis Bangladeshi economist Founder of Grameen Bank Provider of micro-finance for very poor Fulbright scholar and academic During 1972 Bangladesh famine commenced micro

14 Social Entrepreneur Mohammed Yunis Bangladeshi economist Founder of Grameen Bank Provider of micro-finance for very poor Fulbright scholar and academic During 1972 Bangladesh famine commenced micro loans of around US $27 to 42 women in village of Jobra to assist in self-employment Designed to avoid unscrupulous money lenders Grameen Bank charge tiny rates of interest Very low default rates 98% of customers are women

Social Entrepreneur Victoria Hale Founder of non-profit pharmaceutical company Institute for One World Health in 2000 Vision: To develop affordable medicines for people in developing

15 Social Entrepreneur Victoria Hale Founder of non-profit pharmaceutical company Institute for One World Health in 2000 Vision: To develop affordable medicines for people in developing economies Wanted to break stranglehold of major pharmaceutical firms Focused on infectious diseases with drugs for South America and India Funded by Bill & Melinda Gates Foundation in 2006

16 Cooperative Enterprise A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Source: International Co-operative Alliance (2010)

17 Co-operatives in the Developing World

18 Co-operatives in the Developed World

19 Cooperative Enterprise A Global Network International Cooperative Alliance est the ICA had 248 member organisations in 92 countries 300 largest cooperatives have a combined annual turnover of US$953 billion Found across all sectors 40% financial services 33% agriculture & agribusiness 25% wholesaling & retailing The Top-10 Co-operative Enterprises Globally Zen-Noh, Japan Zenkyoren, Japan Crédit Agricole Group, France Nationwide Mutual Insurance, USA National Agricultural C-operative Federation, Korea Groupma, France Migros, Switzerland The Co-operative Group, UK Edeka Zentrale AG, Germany Mondragon Corporation, Spain Source: International Co-operative Alliance (2010)

20 Rochedale Society & Cooperative Principles 1844 est. of Rochedale Society of Equitable Pioneers in UK Not the first coop but recognised as the founding point for the international coop movement Established a set of key principles for operation that are still the foundation for all coops around the world The Co-operative Principles Voluntary and Open Membership Democratic Member Control Member Economic Participation Autonomy and Independence Education, Training and Information Co-operation among Cooperatives Concern for Community Source: International Co-operative Alliance (2010)

21 Benefits of Cooperatives Enhanced market access and market risk reduction Financial benefits from enhanced pricing Improved productivity via pooling of resources Access to resources Community building Source: Krivokapic-Skoko (2002)

22 5 Generic Problems of Coops Free Rider Problem Where non-members benefit from members efforts or some members actively trade and others don t Horizon Problem Where the residual claim a member has on the coop s assets is shorter than the productive life of the asset caused by members unable to transfer or trade ownership rights Portfolio Problem Lack of transferability and liquidity of ownership rights with benefits linked to patronage of the coop Control Problem Caused by divergence of interests between members and coop management Influence Cost Problem Emerges where the strategic goals of the coops management and the membership are not aligned Source: Cook & Illopoulos (1999)

23 Taxonomy of Co-operatives Redeembale Benefits to Patrons Non-Proportional Member Investment Proportional Memeber Investment Traditional Co-op Proportional Investment Coop Restricted to Member-Patrons Benefits to Investors Member-Investor Co-op Ownership Rights Non- Redeemable & Transferable Non-Conversion Outside Equity not in Co-op New Generation Co-op Co-op with capital seeking entities Not Restricted to Member-Patrons Outside Equity in Co-op Investor-Share Co-op Conversion to Publicly Traded Common Stock Investor-Oriented Firm Source: Chaddad and Cook (2004)

24 New Generation Cooperatives Generic Problems Traditional Co-op New Generation Co-op Free Rider Problem Individual benefits & property rights are poorly aligned to ensure members get full benefits and bear full costs. Investment and optimal levels of product flows are determined before the firm begins conducting business. Horizon Problem Portfolio Problem Lack of liquidity through secondary market for shares. Investment decision is tied to patronage. Members often pressure coop board to structure assets to reduce risk. Stock can be traded to allow entry and exit from coop as desired. Risk is aligned with members strategic goals as the risk profile is agreed prior to the formation of the coop. Members can trade shares and risk. Control Problem Information and external pressure from public share trading is absent. NGC seek greater property rights and alignment of risk via patronage-based voting. Influence Cost Problem Influence depends on centralisation of authority and member homogeneity. NGC are centralised and limited to specific purpose. Source: Katz & Boland (2002)

25 Cooperative Lifecycle Model Lifecycle stages Stage one: Stage two: Stage three: Stage four: Stage five: Characteristics A co-operative is formed as a response to market failure: individual producers act collectively. Co-operative s strategy is defensive in nature The co-operative provides net benefits by marketing products or providing services on more favourable terms than original IOFs, oligopolies or olgopolists. The market changes and co-operative benefits relative to IOFs are less certain. Focus turns inward to examine co-operative s own transaction costs, especially free rider, horizon, portfolio, control and influence cost problems. Managing the co-operative becomes exceedingly difficult and co-operative leaders consider strategic alternatives: exit, continue or transition to new ownership. The co-operative leaders implement a new strategy: 1. Exit by liquidation, merger or conversion to IOF 2. Continue but address tendency to undercapitalise by: a. Seeking outside equity without complete restructure to IOF, or b. Pursuing proportionality strategy of internally generated capital. 3. Transition into a new generation co-operative. Co-operative s strategy is more offensive in nature. Source: Brewin et al (2008)

26 Theory of Community-Based Enterprise A Community Based Enterprise At the centre of our argument is the concept of community-based enterprise (CBE), which we define as a community acting corporately as both entrepreneur and enterprise in pursuit of the common good (Peredo & Chrisman 2006). Characteristics of Community Based Enterprise Based on available community skills A multiplicity of goals Dependent on community participation Source: Peredo & Chrisman (2006)

27 Strategies for enhancing Social Entrepreneurship & Innovation Social Entrepreneurship Build enabling environments and implement supporting policies (e.g. tax laws) Provide sustainable finance Provide better education and training for social entrepreneurs Social Innovation Form innovation funds for social innovation Establish incubators for social innovation Measure the impact of social innovation Source: OECD (2010)

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