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September 2, 2013

Social enterprise: how to pick a winner

Larger, profitable enterprises providing long-term employment are the best bet for a social investment, according to a study of 28 social enterprises by SVA Consulting.

Social enterprise[i] is growing as a mechanism to tackle labour force exclusion in Australia. People with disabilities and mental illnesses and those with disadvantaged backgrounds face significant barriers to employment as a result of inaccessible and inflexible employment options, prejudice, and lack of employer awareness of their needs, or willingness to accommodate those needs in the workplace. Social enterprises seek to eliminate these inequalities and provide people living with disabilities and other disadvantages the same opportunities that are available to the wider population. These social enterprises face the tough challenge of balancing the demands of running a business with supporting their employees to successfully operate in the workplace.

However, some social enterprises created more value for stakeholders than others.

SVA Consulting has analysed the social impact of 28 employment-focused social enterprises using the Social Return on Investment (SROI) framework. SROI is an approach to understanding and managing the value of the social, economic and environmental outcomes created by an activity or organisation.

Through 40 SROI analyses (some SEs had more than one), SVA Consulting was able to measure and value the changes these social enterprises created. The majority of social enterprises created value for employees and other stakeholders, including government, employees’ families and carers. The majority of social enterprises also created value for themselves e.g. through enhanced reputation.

However, some social enterprises created more value for stakeholders than others. In the sample, the social value created per employee ranged from $3,300 to $115k per year.

Outcomes that social enterprises create

SVA Consulting mapped all the identified outcomes (see Figure 1 below). Some outcomes were common across many social enterprises, such as increasing employees’ employability, while others were far less common, such as volunteers involved with the social enterprises feeling a greater sense of self-worth.

Some outcomes reflect a more significant change for stakeholders than others and are therefore more valuable. Increased resilience and financial independence, for example, have high social value for employees, while the benefit of income support savings resulting from more people working is a high value outcome that accrues to government.

Social enterprises that focus on the highest value outcomes: increasing employees’ self-confidence, financial independence and employability, and income support savings for government produce the greatest social value. All social enterprises would do best to focus on these outcomes, not only because they create the most social value, but because they are achievable – many SEs have been able to produce them.

Figure 1: Outcomes created by SEs that employ people at risk of labour market exclusion

The analysis found three common characteristics of the social enterprises that generate the most social value:

  • They tended to be generating a profit from their activities
  • Bigger social enterprises created more value per employee
  • Ongoing employment (rather than short-term or transitional employment) creates more value.

Profitability is critical

All of the highest value-creating social enterprises examined were profitable businesses that generated income from their commercial activities. These social enterprises had the resources to provide support to employees and had enough business activity to provide employees with meaningful work.

By comparison, social enterprises that incurred net losses from their commercial activities could only provide limited support and/or working hours to employees, limiting the value that these employees gained from their employment. In circumstances where working hours fluctuated, or employees experienced periods without work, employees experienced stress which eroded the value that the employment created. For example, an opportunity shop in Melbourne was unable to cover its operating costs as a result of low sales. Without stable working hours, the employees who had a mental illness felt unsure of their future and could not enjoy the benefits of working.

Bigger social enterprises are better

Social enterprises that create the most social value tend to have 10 or more employees. There are three benefits of social enterprises having larger workforces.

Firstly, employees have a larger pool of colleagues to draw on to build a peer support network to supplement the assistance provided by support workers.

There are economies of scale in providing support to larger groups of employees.

Secondly, employees have a greater chance of observing their colleagues as role models as they develop and transition through training programs, other roles and/or into other employment. This increases the likelihood that they too will make this transition.

Thirdly, there are economies of scale in providing support to larger groups of employees. For example, the cost per employee of modifying equipment is lower if a larger number of employees are using it.

Clean Force is a social enterprise of WISE Employment, operating as an Australian Disability Enterprise (ADE). It was identified as one of the highest value creating social enterprises in the SVA Consulting study. Clean Force provides quality commercial cleaning services for offices, apartment complexes, entertainment venues and vacated residences. In the financial year 2012, Clean Force supported an average of 40 employees with mental illness or other disabilities and an additional 30 employees who were previously unemployed.

Clean Force’s business and support model is unique and is structured to meet the needs of people with mental illness. Flexible working hours, individually designed roles, the team structure and wrap-around support have all been key in providing the most suitable working environment for people who suffered from mental health conditions. As a result of their employment, Clean Force employees experience a range of benefits including increased pride and self-esteem, increased periods of mental health stability and increased psychological wellbeing.

More stable employment environment

The social enterprises that create greater social value also tend to be those receiving higher levels of investment. They secure this investment from a mix of sources such as government contracts, self-funding through commercial revenue, and grants from philanthropic or corporate funds.

Social enterprises with higher levels of investment can spend more on supporting employees to achieve positive outcomes.

Social enterprises with higher levels of investment can spend more on supporting employees to achieve positive outcomes, while a broader funding mix provides greater certainty in planning for the future, creating a more stable working environment.

Of all the social enterprises examined by SVA Consulting, VATMI Stawell generated one of the highest levels of social value overall, and per employee. The organisation provides kerbside collection and sorting of recyclables in rural Victoria. VATMI Stawell offers the only opportunity in the area for people with disabilities to actively participate in the labour force and also helps long-term unemployed people to re-enter the workforce. VATMI Stawell leveraged funds from federal and local government grants and its own commercial revenue to make a significant investment in providing support to employees at its recycling centre.

Around half of the investment in the business comes from government through a combination of case-based funding for supported employment, wage subsidies for long-term unemployed, and funding to administer wage assessments. The social enterprise generates positive changes for employees and their families, all levels of government, and VATMI industries. VATMI Stawell also increases the level of economic activity within the region.

Ongoing employment is optimal

Gaining and retaining secure, ongoing employment has a significant positive impact on people’s lives. As a result, the social value attributed to this outcome is high. Employees of social enterprises that offer ongoing employment rather than a training period or transitional role receive the benefit of job security while they develop the skills in the role.

They also have the option to move on when they are ready, rather than at the end of a specified training period, as is common in Intermediate Labour Market (ILM) model social enterprises. ILM social enterprises create a pathway into employment for employees, however there is a risk that some employees will be unable to transition to mainstream employment and therefore remain excluded from the labour force.

Implications for investors and social enterprises

By their very nature, social enterprises have the challenging task of operating a business while meeting the needs of employees that require additional support in the workplace. It is difficult to develop a social enterprise to a point where it is profitable and in a position to provide ongoing employment to large numbers of workers.

…investors keen to create social impact should also consider investing in growing existing social enterprises that are profitable, and provide ongoing employment to 10 or more employees.

SVA Consulting’s research confirms that while investing in smaller, and possibly start-up social enterprises, can be valuable to the employees, investors keen to create social impact should also consider investing in growing existing social enterprises that are profitable, and provide ongoing employment to 10 or more employees. This study shows that this is where the most value is created.

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[i] A social enterprise is a social benefit business that trades to fulfil its mission. The motivations and business models for social enterprises vary, as does the amount of income they derive from trade. Social enterprises build a more just, sustainable world by applying market-based strategies to today’s social challenges. Social Traders

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