International Social Entrepreneurship.doc

Social entrepreneurship A study on the source and discovery of social opportunities Javier Monllor University of Illinois at Chicago 2 INTRODUCTION Social entrepreneurship practice has progressed immensely in the last 30 years Close to 80 million adults Drucker 1989 work for nearly 2 million citizen sector organizations of which 70 percent were established in the last 30 years Davis 2002 There has been a 40 percent increase in their number in the last decade Johnson 2000 5 percent more than new business formation Austin et al 2006 Sensing the need to educate this new wave of social entrepreneurs programs catering to the education of social entrepreneurs have begun to emerge in major and elite universities such as Columbia Harvard Yale Duke and others The growth and evolution of social entrepreneurship has created a new wave of hybrid organizations termed social purpose business ventures Hockerts 2006 that combine aspects of both non profit and for profit ventures These hybrid organizations have a mission to create both economic and social value and are therefore no longer at opposite ends of a continuum This in turn has made it difficult for researchers to catalogue social entrepreneurship and to find the defining characteristics that differentiate it from business entrepreneurship To try and differentiate the two some researchers have singled out entrepreneurial motives while others use the priority that is given to the created value social or economic Opportunity recognition is widely recognized as a central and defining aspect of entrepreneurship Shane and Venkataraman 2000 Zahra and Dess 2001 and although it has also been acknowledged as an important part of the social entrepreneurship process 3 Dees et al 2002 Seelos and Mair 2005 Thompson 2002 Thompson et al 2000 researchers in this area have largely ignored the opportunity recognition process of social entrepreneurs Embracing opportunity recognition opens the door for cross fertilization between social and business entrepreneurship and provides researchers with a discernible roadmap to follow Some questions that researchers should be asking are How are social opportunities created how do social entrepreneurs recognize opportunities why do they recognize different opportunities from business entrepreneurs how are these opportunities evaluated and exploited and what type of value is created from different opportunities In the following sections this paper will analyze where social opportunities come from and how the concept and study of the discovery evaluation and exploitation of social entrepreneurial opportunities can have a positive impact on the social entrepreneurship field It is our hope that it will open the discussion of social opportunity recognition initiate future research opportunities for the field and will attempt to establish social opportunity recognition as a differentiating characteristic between the two types of entrepreneurship LITERATURE REVIEW Development of Social Entrepreneurship Research Social entrepreneurship is not a new phenomenon and examples of early social 4 entrepreneurship exist in the literature including Florence Nightingale pioneer of modern nursing abolitionist William Lloyd Garrison Drayton 2002 and the creation of Victorian private hospitals Thompson et al 2000 Still there is no denying that compared to business entrepreneurship it is still in its infancy However compelling evidence points to the fact that this development gap that separates the two types of entrepreneurship is closing Just as in business the social arena is now headed by independent competitive citizen created and citizen run organizations Drayton 2002 Peter Drucker was one of the first to notice this transition from early bureaucratic and monopolistic to entrepreneurial competitive and innovative social organizations Drayton 2002 In an article published in the California Management Review 1989 Drucker states that the best management practices and most innovative methods are not coming out of Fortune 500 corporations but from non profit social organizations such as the Salvation Army and the Girl Scouts Not only are social venture s management practices rivaling those of for profits their growth is also extraordinary Academic institutions have also noticed the shift in the development of social entrepreneurship and the increasing interest by practitioners in social enterprises and have started to establish programs and centers dedicated to catering to the needs of individuals and organizations interested in for profit and non profit social ventures Table 1 provides a sample list of programs that exist in various academic institutions 5 Table 1 Sample of Social Entrepreneurship Programs Brock 2006 InstitutionProgram Berea CollegeEntrepreneurship for the Public Good Columbia UniversityResearch Initiative on Social Entrepreneurship RISE Duke UniversityCenter for the Advancement of Social Entrepreneurship CASE Harvard Business SchoolInitiative on Social Enterprise University of NavarraIESE Business School New York UniversityStewart Satter Program in Social Entrepreneurship Oxford UniversitySkoll Centre for Social Entrepreneurship Roberts Wesleyan CollegeInstitute for Social Entrepreneurship Seattle UniversityThe Center for Non profit and Social Enterprise Management Stanford UniversityCenter for Social Innovation Sterling UniversityMcVay Social Entrepreneurship Center Yale School of Management Goldman Sachs Foundation Partnership for Non profit Ventures For all the growth in the social entrepreneurship sector and the creation of academic programs that cater to this new breed of entrepreneur until recently academic research has shown little interest Prabhu 1999 and lags behind that of business entrepreneurship Johnson 2000 To validate this point the researcher conducted a search of the major journals that cater to marketing management and entrepreneurship research Journal of Business Venturing Entrepreneurship Theory and Practice Academy of Management Journal Journal of Marketing for the words social entrepreneur or social 6 entrepreneurship and found that only one article has been published on the topic Austin et al 2006 Opportunity Recognition in Social Entrepreneurship Research Entrepreneurship has been defined as the process of first discovering and second acting on a disequilibrium opportunity Kaish and Gilad 1991 and as the attempt to create value through the recognition of business opportunity Hulbert et al 1997 It is clear from these definitions that opportunity recognition is an integral part of the field of entrepreneurship and represents one of it s most important early aspects Hills et al 1999 In fact the most successful entrepreneurs are opportunity focused Craig and Lindsay 2002 and most of them believe they have a special sensitivity or alertness toward opportunities Craig and Lindsay 2002 Social entrepreneurship research has consistently acknowledged opportunity recognition as a vital feature of social entrepreneurs Seelos and Mair 2005 state that social entrepreneurs recognize and act upon opportunities to improve systems create solutions and invent new approaches to social problems Thompson 2000 defined social entrepreneurs as people who realize where there is an opportunity to satisfy some unmet need that the state welfare system will not or cannot meet The author Thompson 2002 later adapted Sykes three stage entrepreneurial process to develop a four step process of social entrepreneurship composed of the following steps Envisioning perceiving an opportunity Engaging engaging the opportunity with a mind to do something about it 7 Enabling ensuring something happens by acquiring the necessary resources Enacting championing and leading the project As can be seen from his process model opportunity perception is the first step in the process Thompson studied two cases both examples of outstanding contributions from a database of 82 schemes to illustrate these four key themes in his social entrepreneurship framework In both cases the author found that opportunity was at the heart of the ventures Dees 1998 2002 defines social entrepreneurs by stating that they play the role of change by Adopting a mission to create and sustain social 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 heightened accountability to the constituents served and for the outcomes created He makes the case that social entrepreneurs see opportunity where others see problems Following that same line of thought Drayton 2002 affirms that both types of entrepreneurs business and social recognize when a part of society is stuck and provide new ways to get it unstuck 8 Finally Peredo and McLean 2006 conducted a critical review of the social entrepreneurship concept and concluded that social entrepreneurship is exercised in part when a person or group shows a capacity to recognize and take advantage of opportunities to create that value p 64 Surprisingly even though social entrepreneurship scholars acknowledge opportunity recognition as a central and important aspect in the process of social entrepreneurship and it is considered a primary definition for business entrepreneurship little if any effort has been made to understand it In a comprehensive review of the social entrepreneurship literature Johnson 2000 provides a list of gaps that are present in the social entrepreneurship literature and while valuable the lack of a mention of opportunity recognition as a research gap is unanticipated In their seminal piece Shane and Venkataraman 2000 define the scholarly domain of entrepreneurship as the examination of how by whom and with what effects opportunities to create future goods and services are discovered evaluated and exploited Consequently the field involves the study of sources of opportunities the processes of discovery evaluation and exploitation of opportunities and the set of individuals who discover evaluate and exploit them In subsequent writings they also acknowledged that outcomes on the level of industry and society should be considered as well Davidsson 2005 Zahra and Dess 2001 Notice how their delineation of the field does not limit entrepreneurship research to business entrepreneurship where only economic value is created since outcomes on the societal level should also be 9 considered If we dissect the previously developed definition we can discern four distinguishable parts see Figure 1 First we have the source of opportunities second we have the discovery of those opportunities third we have the evaluation of such opportunities and finally we have the exploitation of opportunities through social entrepreneurship In the following sections I will explain each of these steps in detail and identify variables that affect each of these steps with the idea of generating a research agenda that can guide future research on the topic of social entrepreneurship opportunity recognition 10 Figure 1 Social Opportunity Identification Process adapted from Gaglio 2004 Exploitation Evaluation Social Opportunity Recognition Recognized Disregarded Ignored Discounted Acknowledged Maintain Status quo Resource Allocation Social Entrepreneurship 11 Sources of Social Opportunities In one of the few studies to examine the source of opportunities for social purpose business ventures Hockerts 2006 created a conceptual framework for social entrepreneurial opportunities and came up with three sources activisms self help and philanthropy The author defined social purpose business ventures as hybrid enterprises straddling the boundary between the for profit business world and social mission driven public and nonprofit organizations Hockerts 2006 p 145 This paper wishes to expand Hockerts conceptual framework and examine the source of opportunities for all social entrepreneurial ventures including not for profits and social purpose business ventures and the process of recognizing them Shane and Venkataraman 2000 have posited that the study of sources of opportunities is one of the fundamental aspects of entrepreneurship research In this section I will build on the research by Dean and McMullen 2002 2005 and Cohen and Winn 2005 on market failure and entrepreneurial opportunity and on the research on government failure to describe how social opportunities are created But before continuing we must first define what is a social opportunity Hockerts 2006 explains that in order to keep their balance social purpose business venture those that are in the boundary of for profit and social mission driven need to discover opportunities to create both social and economic value Weerawardena and Mort 2006 conclude that social entrepreneurs seek market opportunities that will enable them to create better social value Given the scope of this study social opportunities are defined as those that when exploited will allow the 12 entrepreneurs to create enhanced social value With this definition in hand we can carry on with the study of sources of social opportunities Economists call an ideal state where no clear social welfare improvement is possible a Pareto optimal condition When Pareto optimal conditions are achieved the only way for one person to make himself better off is if he makes someone else worse off To reach a Pareto optimal state Pareto optimal improvements need to take place Pareto optimal improvements are transactions where one individual is made better off by a given exchange while at the same time compensating the losers For economists a system that is not in a Pareto optimal condition is one where market inefficiencies and failures exists but for entrepreneurship researchers it is the perfect system to find market opportunities As Dean and McMullen 2002 explain in a Pareto efficient economy the system conditions are stable there are no potential gains to trade and therefore no entrepreneurial opportunities But in a system that has yet to reach a Pareto optimal condition entrepreneurs see opportunities everywhere to gain through trade The conditions where markets fail to achieve the Pareto efficient ideal have often been categorized by the general term of market failure The five primary classes of market failure that are mentioned in the welfare economics literature are imperfect information monopoly power public goods externalities and market pricing Below I will delineate how each one of these types of market failures create social opportunities in specific ways and will provide examples of current entrepreneurs who have perceived and acted upon these opportunities 13 Imperfect information Neoclassical economics suggests that everyone has perfect information This implies that sellers and buyers have all possible information available Cohen and Winn 2005 However in reality knowledge is never perfect and this situation is one of the primary causes of market failure and therefore the creation of entrepreneurial opportunities As Kirzner 1973 explains entrepreneurs have an alertness toward opportunities their possession of knowledge of time and place allows them to perceive and exploit opportunities that others do not recognize Recognizing that consumers do not have all of the information all of the time Kailash Satyarthi created Rugmark This program labels rugs created in India by factories that agree to be regularly inspected as child labor free By labeling these products Kailash is informing consumers in developed countries of how their expensive Indian rugs are made and of the existence of rugs that utilize child labor in their factories With this new information he dissuades consumers from purchasing rugs that are made in factories that use child labor and therefore is reducing this social problem Monopoly Power The condition of monopoly is one in which there is only one seller Dean and McMullen 2005 In perfect competition models the assumptions state that the sellers are numerous and therefore each seller s decision has no effect on market price When a monopoly exists the firm will aim for profit maximization through the under provision and over charging for goods and it is for this reason that it is considered a market failure As Dean and McMullen 2002 explain in their paper on market failure and entrepreneurial opportunities to make use of these opportunities entrepreneurs must 14 discover production technologies that operate efficiently at a small scale Fabio Rosa from Brazil is a textbook example of a social entrepreneur who was able to perceive the opportunities that arose due to monopoly power In the late 1990 s the electric industry of Brazil was privatized and the new owners being a monopoly power refused to provide service to the countryside claiming that the profit margins were too low Rosa then decided to use solar technology and established IDEAAS The company now rents solar equipment to farmers which provides them with electricity and a better life By utilizing solar power technology Rosa was able to operate at a small scale and in a way that is affordable for poor farmers Public Goods The most important characteristic of public goods is that they are non excludable If one person is able to consume the public good then others cannot be excluded from consuming it Dean and McMullen 2005 This characteristic has two important implications it stimulates over use when one person s use diminishes the amount or quality of the good available to others and it provides incentives for free riders Ackerman 1996 since there is little economic motivation for entrepreneurial production because non payers cannot be excluded from consumption These situations are commonly referred to as the tragedy of the commons Rivers are a good example of a public good No one is excluded from consuming the water or from using it for other purposes such as washing clo