PECULIARITIES
OF SOCIAL BUSINESS CONCEPT
Arturas Simanavicius
Lithuanian Sport University, Lithuania
E-mail: zansim55@gmail.com
Eimantas Kisielius
Lithuanian Sport University, Aland Islands
E-mail: ekisielius@gmail.com
Liliia Kharchevnikova
State Biotechnological University, Ukraine
E-mail:
kharchevnikova.lily@gmail.com
Liliya Svorobovych
Odesa National Economic University, Ukraine
E-mail:
lilisvor@gmail.com
Alla Chykurkova
State Agrarian and Engineering University in Podilya, Ukraine
E-mail:
alladomanchuk@gmail.com
Submission:
8/8/2021
Accept: 9/20/2021
ABSTRACT
The essence and uniqueness of social business in solving the most sensitive problems of the society, being able to survive independently and ensure the continuity of activities gives this form of activity an advantage and determines its growing popularity. There are many different definitions of social business. Some authors explain the definition of social business by distinguishing the main aspects that distinguish social business from other forms of activity. However, there are also forms very close to social business. The research objective is to present differences of social business concepts and to identify advantages of such initiatives. The analysis of social business concepts has shown that social business is defined by three principles: social business solves social problems that are not addressed by the public sector; the main motive of social business is public benefit; representatives of social business exploit market mechanisms (without excluding the existing ones) when creating social benefits. Research has shown that social business does not yet have one specific definition, but, according to the development and perception of social business, two main directions can be distinguished: Anglo-American and European.
Keywords: social business; social business concept; advantages
of social business
1.
INTRODUCTION
Social business solves problems
which cannot be solved by traditional businesses, government agencies, or
traditional non-governmental organizations. The essence
and uniqueness of social business in solving the most sensitive problems of the
society, being able to survive independently and ensure the continuity of
activities gives this form of activity an advantage and determines its growing
popularity. Such businesses are based on the laws of the market, use proven
business principles, are grounded on effective ways to meet the social needs
and solve the currently existing societal problems. Social business is
associated with such phenomena as social economy and social innovation, and thus
social business has been receiving increasing interest from various
stakeholders.
Researchers, Kostetska and Berezyak
(2014) argue that, for all countries, regardless of their economic or social
development, the most important factor for success is the social stability of
the society, thus it is necessary to exploit social innovations which manifest
themselves through social business. Indeed, social business is expected to
integrate business principles into their functioning and adopt an entrepreneurial
‘approach’ in providing social goods and/or services in order to compete and
survive in a demanding and modern market (Borzaga et al., 2014; Piboonrungroj,
2012).
Recent research by researchers
around the world (Arantes, Zou & Che, 2020; Duffield, 2020; Hlatshwayo,
2020; Fathalikhani, Hafezalkotob & Soltani, 2020; Szczepanska, 2020; Zajda
& Pasikowski, 2020) show that, in cases of disasters, crises, pandemics,
social business in cooperation with various structures and organizations can
contribute to solving various problems because social entrepreneurship fosters
social cohesion (e.g., it employs vulnerable people, ensures equality – in many
social business enterprises, women are managers and board members), and
increases the social capital (social business builds trust, it solves problems
that public authorities or traditional enterprises have previously failed to
deal with), which creates new opportunities for employment and integration into
the labor market; it also complements the provided public services (those
municipalities which are looking for ways how to serve their people should
include social businesses as partners). Social business is valued for its
contribution to the economic and social well-being and its ability to cope
innovatively with social challenges.
2.
LITERATURE REVIEW
2.1.
Theoretical justification of social
business
There are many
different definitions of social business. Some authors focus on the
interpretation of the definition of social business by distinguishing among the
main aspects that distinguish social business from other forms of activity.
However, there are also forms that are particularly close to social business.
Some authors identify them specifically, whereas others say that they are only
forms of different levels.
The analysis
of social business concepts shows that three principles are most commonly used
in social business definitions:
a) Social business tackles
social/environmental problems that the public sector and the free market cannot
solve;
b) The essential motif of
social entrepreneurship is social benefit;
c) Social entrepreneurs
usually operate by exploiting (rather than rejecting) market mechanisms.
It has been
found that social business does not yet have one specific definition. Research
has shown that social business can take many forms, but it differs from the
traditional business model in that its primary mission is to have a social
impact and yield benefit to the society – by reducing or mitigating sensitive
social problems or market failures – rather than by maximizing the shareholder
profits. The earned profit is primarily used to achieve social goals, i.e., it
is reinvested in the development of its activities or used for social and/or
charitable activities. Poor understanding of social business leads to a
critical and negative attitude towards such initiatives, and, instead of
support, they receive restrictive criticism.
Social
business undoubtedly has positive aspects, as
evidenced by the growing interest, EU funding, the abundance of research from
academia and the diversity of practice initiatives. When creating a social
business, social entrepreneurs solve social problems in a sustainable way. The
solution to any social problem definitely benefits the target group, and, at
the same time, the society as a whole. Although such initiatives are initiated
on a small scale, social business, according to Santos (2012), addresses
important social issues in the global context, although it only starts at the
regional level.
In
solving social problems, such a business creates value that different scholars
examine through different prisms. Creating value for such a business, according
to Driver (2012), is the basis for major change and leads to a completely
different understanding of capitalism.
The
benefits for one specific type of organization are seen by Dees (2007) – NGOs –
in finding innovative, sustainable sources of funding for their activities
through social business activities.
Researchers highlight the following benefits of social business for the
society:
a) creates
new, long-term jobs;
b) promotes
more sustainable business;
c) increases
the country’s economic competitiveness;
d) reduces
the state budget for social benefits;
e) promotes
smart growth through social innovation;
f)
promotes social cohesion;
g) reduces
social exclusion, inequality and environmental problems.
However,
social businesses face difficulties in measuring the benefits they generate. It
is common for traditional for-profit businesses to use tangible numbers and
rely on a variety of financial indicators, but, according to Austin, Stevenson,
Wei-Skillern (2006), social businesses have to use complex and sometimes
temporary calculation methods. In their view, it is very difficult to assess
the impact and results in the social sector, and, even if some methods had been
developed to measure results, the real organizational impact would be long-term
and difficult to assess.
For
this reason, a number of measurement methods are accepted in the scientific
literature while considering the different characteristics, activities and
objectives of organizations and the aspects to be assessed. Economic efficiency
analysis, cost-benefit analysis, social return on investment are traditionally
used to calculate the social impact. Recently, however, the social return on
investment (SROI) methodology has been promoted more as a holistic approach to
the social impact assessment.
Initially,
the social impact assessment methodology was intended as a social impact
assessment methodology for the preparation of environmental impact assessment
reports. However, researchers (Guclu, 2002; Huda, 2016; Kiss, 2019; Mair,
2006), and practitioners (Borgazo, 2020; Bosma, 2018) currently apply social
impact assessment methodologies to analyze, monitor processes, plan the social
consequences of interventions, and justify aspects of social development.
According
to researchers (Esteves, 2012), the benefits of improved social impact
assessment and management processes for business are now widely recognized and
include:
· greater
certainty of project investment and greater probability of project success;
· reduction
of social and environmental risks and conflicts faced by industry and
communities;
· better
capacity for early identification of problems and therefore reduction of costs
and unavoidable costs through cost-effectiveness assessment and project
planning;
· improved
social and physical infrastructure planning;
· the
process of informing and involving internal and external stakeholders and
helping to build trust and a mutually beneficial future;
· improved
quality of life for workers and better attraction and retention of skilled
workers;
· positive
legacy not only during the project;
· increased
competitive advantage due to superior social performance and increased company
reputation.
2.2.
The concept of social business
There are many different definitions
of social business. Some authors explain the definition of social business by
distinguishing the main aspects that distinguish social business from other
forms of activity. However, there are also forms very close to social business. Some
authors identify them, others argue that these are just forms at different
levels. This section discusses the links and dimensions of social business and
other business phenomena such as social enterprises.
The
phenomenon of social business emerged only after welfare states and mixed
economic systems were engulfed in crisis situations. Research focuses on the
uniqueness of this business in terms of operating principles (Šalkauskas &
Dzemyda, 2013; Kvieska, 2015), social business models (Kuklytė &
Vveinhardt, 2016; Yunus, Moingeon & Lehmann-Ortega, 2010; Pol & Ville,
2009).
Šalkauskas
(2013) states: “Social business is a form of business in which the social
mission of an organization is carried out together with economic activity. Such an organization
applies private sector approaches to public sector goals and is able to fully
sustain itself in its commercial activities. Social business is a business
whose innovative activity or structure (including ownership) is used to create
a certain social network in the course of economic activities, i.e. y. the
supply of goods, the manufacture of products or the provision of
services."
Kvieska
(2015) defines social business as a process in which organizations use
innovative entrepreneurial solutions and contribute to or initiate projects for
the well-being of society.
Kuklytė
and Vveinhardt (2016) links the origins of social business to the existing form
of traditional business, where improvements are made and the business is
adapted to create economic value based on social impact. According to this
concept of social business, the principles of management of organizations
operating in the private sector are used, which help to achieve the goals of
the public sector by conducting commercial activities and creating social value
for the society.
Social
business, according to Navasaitienė (2017), as a business model, using the
market mechanism, seeks profit related to social goals and follows the
provisions of socially responsible business. It is created in an effort to fill
a niche that cannot be filled by a public service. The definition of a socially
responsible company is generally understood in such a way that the managers of
these companies voluntarily follow social and environmental principles, the company's
own ideology is focused on close cooperation with the community, local
authorities and attention to socially sensitive (vulnerable) groups.
Social
business is perceived as directly related to society and living conditions in
it. Therefore, when interpreting which companies may belong to the category of
social entrepreneurship, the so-called non-governmental organizations (NGOs)
dealing with social problems first come to the fore, and this is usually
associated with the terms "non-profit", "voluntary",
"non-governmental" associations; public institutions; specific
non-profit organizations (Markaitienė, 2018).
Ridley-Duff
and Bull (2011) described social business in detail and pointed to the place of
social business in the business environment. Researchers Alter (2007), Defourny
(2001), Martin, and Osberg (2007)) have extensively analyzed social business
and discussed how it should be perceived. Other researchers (Guclu et al.,
2002; Perrini & Vurro, 2006; Sommerrock, 2010) have examined the
functioning of the social business model. However, the presented analysis of
the perception of social business and the mechanism of operation of the social
business model lacked completeness, the essential components of the social
business model were not singled out.
According
to Yunus (2010), social business is a new type of enterprise and it differs
from traditional forms of enterprise organization, the main goal of which is to
maximize profits. The researcher describes two types of social business, two
forms of organization or management that would distinguish "pure"
social business from other businesses that may currently acquire the term
"social". According to the researcher, there are two main types of
social business.
Yunus
(2010) points out that the first type of social business is described as an
enterprise in which income and costs are balanced, there are no losses and
dividends that are devoted to solving a social problem. The owners of such
companies are investors, they invest profits by expanding and strengthening the
business (Yunus, 2010). In such a business, investors could anticipate the
period within which they would withdraw the amount invested.
Wildmannova
(2018) points out that the concept of social business is based on
public-private partnerships in the provision of public services and the
promotion of public employment policies.
The
European Commission (2013) provides the following definition of a social
enterprise: “A social enterprise is a social economy entity whose main purpose
is to have a social impact and not to make a profit for its owners or
shareholders. It operates by providing goods and services to the market on the
principles of entrepreneurship and innovation, and uses its profits primarily
to achieve social goals. It shall be managed in an open and accountable manner,
in particular involving employees, consumers and stakeholders affected by its
commercial activities. "This definition shows that the social economy in
particular is a good example at the micro level and that market economy
principles rather than making a profit. Social business is based primarily on
the entrepreneurial aspect, that there is a regular economic activity, which is
defined by various indicators - what is the share of market revenue and paid
labor, and what is the share of volunteering. The second aspect of the social
goal states that the primary motive of the activity is a clear social goal,
which distinguishes social business from traditional businesses and is measured
by the following indicators: how many activities are aimed at ensuring social
benefits and which target groups are focused on social problems.
Table 1: Development of social
business concepts
|
Author |
Year |
Social business perception |
|
Melo Neto and Froes |
2002 |
They believed that social
entrepreneurship was created with the aim of creating a link between human,
social and sustainable development in communities. |
|
Cruz |
2006 |
Perceptions of social
business are still being developed. However, most social movements operated
by individuals and business groups with the sole goal of improving the lives
of the poor. |
|
Mair and Marti |
2006 |
Social entrepreneurship is a
process that involves the combination of innovative tools and resources to
seek opportunities to bring about social change and / or meet social needs. |
|
Robinson |
2006 |
Social entrepreneurship is
defined as a process that involves the identification of a specific social
problem and its appropriate solution. This process includes the assessment of
the social impact of companies, the business model and sustainability, as
well as the development of a profit-oriented or non-profit social mission,
always considering social sustainability. |
|
Novaes and Gil |
2009 |
Social entrepreneurship is a
process that encourages greater participation in local entrepreneurship by
strengthening people’s connection to their city, land and culture. |
|
Yunus |
2010 |
Social business is a
business that focuses on the social cause. The purpose of a business is to
achieve one or more social goals through the activities of the company. Investors do not want any personal benefit. |
|
Nicholls |
2010 |
Social entrepreneurship is
understood as the process of changing the supply of public goods and social /
environmental services. |
|
Campos et al. |
2012 |
Social enterprises tend to
operate in situations where the primary competence to act and decisions lies
with government agencies. |
|
Rosolen et al. |
2012 |
The concept of social
entrepreneurship is embedded in the creation of social value and in the
question of what innovative methodology, services or products to choose to bring
about social change. |
|
European Commission |
2013 |
A social enterprise is a
social economy entity whose main purpose is to have a social impact and not
to make a profit for its owners or shareholders. It operates by providing
goods and services to the market on the principles of entrepreneurship and
innovation, and uses its profits primarily to achieve social goals. It shall
be managed in an open and accountable manner, in particular involving
employees, consumers and stakeholders affected by its commercial activities. |
|
Šalkauskas |
2013 |
Social business is a form of
business in which the social mission of an organization is carried out in
conjunction with economic activity. Such an organization applies private
sector approaches to public sector goals and is able to fully survive in
commercial activities. Social business is a business whose innovative
activity or structure (including ownership) is used to create a certain
social network in the course of economic activities, i.e. y. the supply of
goods, the manufacture of products or the provision of services. |
|
Kvieska |
2015 |
Social business is a process
in which organizations use innovative entrepreneurial solutions and
contribute to or initiate projects for the benefit of society. |
|
Social business concept |
2015 |
Social business is a
business model that, using the market mechanism, links profit-making to
social goals and priorities, is based on the provisions of socially
responsible business and public-private partnerships, and applies social
innovation. |
|
Kuklytė and Vveinhardt |
2016 |
The origins of social
business are linked to the existing form of traditional business, where
improvements are made and the business is adapted to create economic value
based on social impact. |
|
Navasaitienė |
2017 |
Social business as a
business model, using the market mechanism, seeks profits related to social
goals and follows the provisions of socially responsible business. Developed
in an effort to fill a niche that cannot be filled by a public service. |
|
Wildmannova |
2018 |
The concept of social
business is based on public-private partnerships in the provision of public
services and the promotion of public employment policies. |
|
Pučetaitė et al. |
2019 |
The narrow concept of social
business treats social business as an actor in the non-governmental sector
that applies business principles to make a profit. In a broad sense, social
business is an organization operating in any sector, which presupposes the
unmet needs of the private and public sectors. |
The aspect of social business
management is also singled out when explaining what mechanisms ensure the
implementation of social goals and how limited profits are distributed.
It is
observed that social business does not have one specific definition, but according
to the development and perception of social business, two main directions can
be distinguished:
· Anglo-American;
· European.
The range of definitions of social business in the Anglo-American
direction is quite wide: from non-profit companies with a social mission to
those whose main axis is social innovation. According to Monzon and Chaves
(2012), English and American social business models are characterized by
different currents, so the field of social business is defined differently.
Some social enterprises consider social enterprises to be non-profit
organizations pursuing a social goal, while others classify as such enterprises
which, according to Campos (2012), are “related to social innovation and the
satisfaction of social needs and the form of ownership of the enterprise is
irrelevant. private capitalist or in line with the European concept of the
social economy). Continental European traditions are based on three dimensions
that characterize social business: social, entrepreneurial and managerial”.
Monzon
(2012) points out that, according to the traditions of continental Europe,
“enterprises are the result of collective entrepreneurship in the social
economy”. Under the Social Business Initiative, the European Commission
classifies social enterprises in the social economy subsector as key
socio-economic actors.
On
the other hand, when analyzing how researchers perceive social business, it is
important to review how social business is perceived in individual countries
and what commonalities and differences emerge in defining social business.
2.3.
Differences of social business from
other activity phenomena
There
is an opinion that social business is not the same as social enterprises
(Šalkauskas & Dzemyda (2015)). Looking at the definition of a social
enterprise, it shows that most enterprises are socially oriented, generate
income, their main activity is targeted at a certain section of society, the
form itself is diverse, employment relationships are often voluntary,
organizations can be non-profit or for-profit, but reinvesting in development
may also receive support (Institute for SME Research and TSE Entre, Turku
School of Economics, 2007). Although all the elements singled out are related
to social business as well, Thompson (2006) argue that social initiatives can
arise both in social business and in a completely different form of social
enterprise.
According
to Yunus (2008), social business is one of the components of social
entrepreneurship and those who create and manage such businesses are social
entrepreneurs, but not all of them engage in such activities in the form of
social business. According to Yunus (2008), social business aims to meet the
needs of highly deprived consumers from developing countries and is also
different from social enterprise as a form based on social initiatives.
The
differences and concepts of these phenomena were presented by Pagirys (IESEC,
2010) at the conference “Challenge: Social Entrepreneurship” he stated that
there are many different definitions and concepts of social business, therefore
it is necessary to distinguish social business from other phenomena. They are presented in table 2.
Table 2: Characteristics of social
business
|
Social business is an organization that: |
Social business is different from: |
|
|
Source: сreated by IESEC, 2010.
Examining
how social business differs from more well-known and older phenomena such as
corporate social responsibility, traditional business or non-governmental
organizations, it is possible to better understand social business itself.
It
should be noted that other authors also confirm Table 2 indicated differences.
For example, Maniokas (2014) also singles out social responsibility, which, in
his view, is only an ancillary activity typical of traditional businesses that
can afford it for sufficient profit.
How to distinguish social business from other forms of organizations
advises Bozek (2009). Using the spectrum of social and financial returns, the
presented model distinguishes social businesses in comparison with other forms
of organizations.
Source: compiled by the authors
The
spectrum of financial returns presented in the first figure helps to
distinguish traditional business from social, traditional non-profit
organizations. This is confirmed by Maniokas (2014), who argues that the goal
of social businesses is related to the benefits to society and another major
difference from traditional businesses is that profits are invested in business
development. There are also those who contradict the opinion that traditional
businesses stand out for their motivation to make only a profit and make money
for shareholders.
According
to Martin and Osberg (2010), traditional business also has a vision and pursues
a certain mission. The authors present a possible solution for distinguishing
traditional business from social - through value proposition. Traditional
businesses seek to meet an existing need when demand and at the same time
profit are secured, and social businesses provide value, no matter how low the
demand is, lack of money for the target group, but a significant impact
on this group.
Luke
and Chu (2013) presents the differences between social business and non-profit
organizations or traditional businesses, pointing out that social business is linked to a strategy that ensures financial stability, usually
innovations that address unresolved social problems and thus create social
change. value to society.
Santos
(2012) argues that social business seeks long-term solutions suitable for
solving social problems, while traditional business has the goal of gaining
long-term competitive advantage.
There
is another view that there is no need to compare different phenomena.
Tukamushaba, Orobia and George (2011) argue that traditional business is not
the opposite of social and has commonalities and similarities, only the
percentage distribution of social or economic aspirations in these forms of
organizations differs.
However,
saying that social business differs from other forms and types of activity,
such as social enterprise, corporate social responsibility, or green business,
allows the scope to be understood and defined more precisely, which is
precisely necessary for further research.
Social
business certainly has its positive aspects, as evidenced by the growing
interest, EU funding, the abundance of research from the academic community and
the diversity of practice initiatives.
When
creating a social business, social entrepreneurs take on social problems in a
sustainable way. The solution to any social problem definitely benefits the
target group and, at the same time, society as a whole.
Although
such initiatives are still scarce, social business, according to Santos (2012),
addresses important social issues in a global context, albeit only at a
regional level. In solving social problems, such a business creates value that
is examined by different scholars from different perspectives.
Creating
value for such a business, according to Driver (2012), is the basis for major
change and leads to a completely different understanding of capitalism.
Dees
(2007) sees benefits for one specific type of organization, non-governmental
organizations, which can find innovative, sustainable sources of funding for
their activities through social business activities.
When
analyzing the benefits of social business or its positive aspects, researchers
first single out the components of the social business model. According to
Anacleto et al. (2017), social business is characterized by:
•
Impact of social profit: Unlike
financial profit, social profit measures the impact of social business on
society. Basically, business will be good for society. Environmental profit is
another feature under consideration if social business also benefits the
ecosystem.
•
Social value: the development of
products and services to provide social value not only to customers but also to
stakeholders, as all such countries are included in the social business model.
Another approach is who the products / services will be for and who the
beneficiaries will be.
•
Value creation: Internal and
external value chains must be established and operational to create and deliver
this value to target customers, which is the production and delivery of
products / services, respectively. This includes available resources and
relationships with partners and suppliers.
•
Financial profit: this describes the
need for a cost structure, maximizing the revenue generated by using the products
/ services and their respective values, and the recovery of capital employed so
that the profitability results have to be reinvested in the business itself.
Other
researchers (Jablonski, 2019) suggest that trust can be a component that can be
used to develop effective social business models. And it is precisely the
benefits created by social business that are described as the greatest positive
impact of social business.
3.
CONCLUSIONS AND RECOMMENDATIONS
· social business solves social
problems that are not addressed by the public sector;
· the main motive of social business
is public benefit;
· representatives of social business
exploit market mechanisms (without excluding the existing ones) when creating
social benefits.
Research
has shown that social business does not yet have one specific definition, but,
according to the development and perception of social business, two main
directions can be distinguished: Anglo-American and European. Some representatives of social
business consider non-profit organizations pursuing a social goal as social
enterprises. Others classify companies in this area only those that are related
to meeting social needs. In this case, the form of ownership of the company is
irrelevant to them. Continental European traditions are based on three
dimensions that characterize social business: social, entrepreneurial and
managerial.
The analysis allowed to refine the
concept of social business and show different interpretations of its perception
in different countries. Research has shown that social business can operate in
a variety of forms, but differences in social business from the traditional
business model have been identified. Research has shown that social business
solves sensitive social problems without seeking to increase shareholder
profits, so most of the profits earned are spent primarily on solving social
problems, i. y. reinvested in the development of its activities or used for
social, charitable activities. The scope of social business has been refined.
Research has shown that researchers
are debating the benefits of social business. Social businesses face
difficulties in assessing the benefits they create. It’s easy for traditional
for-profit businesses to use tangible numbers and rely on a variety of
financial metrics, but social businesses have to use complex and sometimes
temporary calculation methods. Studies have revealed that it is very difficult
to assess impact and outcomes in the social sector. Even if methods were
developed to measure results, the real organizational impact would be
long-term.
Researchers are now faced with many
vague concepts, tools, and methods for purposes other than measuring the impact
of social business. For this reason, a number of measurement methods are found
in the scientific literature, taking into account the different
characteristics, activities and objectives of organizations and the aspects to
be assessed.
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