The Transformation of Social Enterprise

Last Updated Sep 16, 2008 11:30 AM EDT

Managing social enterprise organizations has become quite a sophisticated job. After all, Americans donate almost $300 billion a year to 1.4 million non-profits and other charitable organizations.

Philanthropy, in other words, is big business, accounting for 5 percent of GDP.

But until relatively recently, people who ran social enterprises often lacked business management skills that seemingly would come in handy; experience, for example, in running effective marketing campaigns, identification and recruitment of top talent, and measuring and reporting progress on goals. This has started to change -- in fact, management of nonprofits is seen today in many ways as its own unique discipline. Harvard Business School created its Social Enterprise Initiative in 1993 to address just these issues.

Kash Rangan, a cofounder of SEI, talks to the HBS Alumni Bulletin about the future of social enterprise, and what he views as a sector poised on the brink of transformation.

Some highlights:

  • Non-profits must become more adept at reporting the work they do. "That's a very big issue in this sector because there is no common measure or framework to assess whether these organizations are accomplishing their mission," Rangan says. When you show impact, more money will flow in, he says.
  • Corporations have a responsibility to society as well as to shareholders. "In the decade of the '90s, maximizing shareholder value became a corporate mantra. But the notion that the corporation exists only to maximize shareholder value lasted only a decade. It was a historical anomaly."
  • Venture funding -- where investors expect economic return on social projects -- is of limited value in its current state. "I don't think that's a realistic view of the work of nonprofits in general," Rangan says. "If you look at social service organizations working at the cutting edge of where markets have failed, the idea of venture philanthropy clicking is a little hard for me to buy into."
In the coming decade these organizations, infused with new types of contributors and managers, will begin to tackle difficult social problems in a much more disciplined way. "I expect to see some common understanding in the sector of what performance means, and how social value creation is measured and reported. From there on it is only a matter of aligning the money with the causes they care about."

Rangan defines social enterprise as as an entity that's primarily in the business of creating social value, whether it be a non-profit or for-profit organization. Do you work in one of these organizations? Do you see the changes Rangan discusses?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.