Business Model Innovation in Social Enterprise: Philippine Cases

The world is changing and the ethos of social enterprises makes them a legitimate and growing business model for the 21st century. The delivery of high quality service, with all the profit being invested back into the community, is a model that will become increasingly impossible to ignore. Tracy Axten, Head of Social Economy Banking, The Royal Bank of Scotland and NatWest In a free market economy, price determines the optimal allocation of goods and services to its people. However, factors like monopolies, externalities, rent seeking behavior by private firms, and gross inequality in income distribution can lead to sub-optimal allocation of resources – some segment of the population are better off than others – leading to market failure (Phills and Denend). Market failure manifests itself when large segments of the population are unable to access basic needs like food, shelter, clothing or other needs like education and medical care. Private enterprises, driven by their profit maximization ethos, produce goods and services in quantities and prices can sometimes lead to a situation that leave these segments – generally the low income earners - unable to afford or access them. In a free-market economy, private businesses were rarely called upon (or expected) to respond to breakdowns in efficient market operations by modifying their behavior, such as taking on profitability and sustainability risks in order to serve these sectors of society. Traditionally, societies have looked to government intervention to correct these market failures through regulations or subsidies or the provision of these goods and services itself at below market-determined prices. Sometimes it is civil society that comes in to fill the gap in the market that private business is unable or unwilling to fill or when government intervention is inadequate, utilizing grants or donations, but which in recent years have become more stringent. Private businesses also recycle some of their profits through corporate social responsibility (CSR), which are often targeted, and whose scale have not been enough to generate large scale social impact. These efforts have fallen short of addressing these market failures thus leaving large sectors of society with unmet needs (Phills and Denend). Social enterprises have recently gained recognition as possibly providing more effective and sustainable solutions to so-called market failure. These new breed of enterprises use entrepreneurial skills and leverage market principles, just like ordinary business, but with one important difference ! they prioritize social impact over the creation of wealth. By shifting their emphasis from financial to social returns, social enterprises have been discovering and implementing new ways serving the needs of poor, disadvantaged, and neglected communities who have hitherto not been adequately reached by private business or government. The new business models that have been developed by social entrepreneurs expand existing markets, create new ones, increase competition that benefits consumers and generate new, more collaborative networks and ecosystem. This development promises strategies that could lead to long-term market based solutions to realize unmet social needs and reach the underserved segment of society. By “doing well by doing good” these new models address allocation inefficiencies without necessarily undermining the free market system (which subsidies or market regulation would have done). Through research and application of theory to real-life examples, this paper found that one crucial factor for this success stems from the approaches that the social enterprises’ employ to generate their business model - from which proceeds their business plan and organizational and operational strategy. These approaches are more sensitive to market signals, more human-centric and collaborative. They derive from the ethos of a social enterprise which is a factor of being: 1) established to solve a pre-existing social problem; 2) having a dual bottom line of social value and economic value; and, 3) driven by stakeholders’ interest rather than stockholders’. Purely for-profit businesses are also beginning to use these approaches to gain market share but primarily for profit. A compromise has led to the creation of hybrid enterprises where for profit and non-profit enterprises collaborate to service the market while remaining true to their respective reason for their existence. There are valuable lessons for private enterprise, government policy makers and civil society in their quest to develop a market-based ecosystem that benefits all sectors of society and leaves no one behind