The Future of Social Enterprise: A Q&A With Harvard's Michael Chu
In recent years, we’ve seen a wave of organizations addressing the world’s biggest problems in incredibly innovative ways: Microfinance organizations like Kiva, which provide loans to entrepreneurs in developing countries. For-profit clothing and goods companies with a social good component, including TOMS and Warby Parker. Technologies designed for social good, such as the energy-harnessing soccer ball SOCCKET.
And as this field of social enterprise continues to develop, Harvard Business Review and nonprofit organization The Bridgespan Group, which advises other nonprofits and philanthropies, have taken on the challenge of addressing an important question: “How can we achieve social impact at a larger scale? How can these new technologies, solutions, products, and ideas reach not just one community, or even one region, but everyone who needs them?”
With this challenge in mind, the two organizations recently launched the Insight Center on Scaling Social Impact, an online resource featuring today’s best thinking on social enterprise and how we can scale the current entrepreneurial efforts underway and bring them to communities worldwide.
To learn more, we sat down with Harvard’s Michael Chu, an expert on microfinanace and social enterprise, and a firm believer that for-profit organizations should play a key role in addressing the biggest problems facing our world. Read on for his insights into the future of the field—then learn more at his upcoming webinar on Friday, Jan. 17 (you can register here).
The concept of social enterprise has been around for a long time, but it seems to have taken off recently. Can you tell us a bit about where the field stands today and where it’s headed?
At Harvard Business School, we define social enterprise as any organization that has as one of its key objectives to address a social issue, whether it is nonprofit, for profit, or public sector. What has commanded much attention in recent years is the application of commercial, or for-profit, models to address issues that have traditionally been associated only with the public or non-profit sectors. Much of this has been driven by the success of microfinance. I believe this new direction for the private sector will be one of the drivers of emerging markets in the next decade.
Your upcoming webinar poses the question, “Are profit and purpose at odds?” What’s the message you’re hoping to communicate?
While there are plenty of examples where profit and social good are in conflict, my participation in the evolution of microfinance taught me the power of building an intervention with high social impact on a strong commercial platform. When that happens, far from being at odds, profit becomes the gateway through which social impact can go from just alleviation to becoming a true solution.
For any social intervention to win over the problem it is addressing, four attributes are necessary: It must deliver the best solution accessible, at the lowest price to end user possible, to all those that need it, in the shortest time possible. This can best be accomplished by commercial solutions that generate superior returns, because they lead to the creation of new industries. And industries are the only way to ensure, simultaneously and consistently, another four key characteristics: reaching very large numbers of people, across generations, with interventions that become better and better, and cheaper and cheaper, through time.
We've seen this with microfinance and with cell phones, to name two dramatic examples. In fact, one might argue that the really large problems faced by humanity will be difficult to vanquish without the involvement also of the private sector.
You mention that “Many believe that mixing profit and purpose is a recipe for long-term disaster.” What are the key arguments of these critics, and why do you disagree?
At the root of that interpretation is the view that profits are the result of high prices, and if it is related to interventions that must reach the poor, who are the majority of humanity, the higher the price, the lower the social impact. This is clear and direct, and compelling. The only problem is that it is wrong.
In business, we know that financial returns are the end result of managing three components: your income statement (how much you get paid less what it cost you), your assets (how efficiently you use your inventory and plant and equipment), and your capital structure (the balance between debt and your own capital). Only one of these is affected by price. So it is perfectly possible to maintain or increase profitability while prices decline. In fact, that has been happening consistently in Latin American microfinance.
What are some of the most interesting social enterprises—or social good solutions by for-profit companies—you’re seeing right now?
We've already talked about microfinance, so let me mention great examples like Compartamos Banco in Mexico, Mibanco in Peru, BancoSol in Bolivia, Bank Rakyat in Indonesia, Farmacias Similares, also in Mexico, and Manila Water in the Philippines.
What advice would you give professionals considering a career path in social enterprise, or looking to incorporate social good into their companies or organizations?
Humanity's largest, most intractable problems surely deserve the application of the best, state-of-the-art, professional skills, not only in areas such as medicine and engineering, but also in management—the ability to make things happen by mobilizing the best of people and resources.
Want to learn more about the future of social enterprise? Attend Michael Chu’s webinar on January 17 at 12 Noon EST. Get the details and register here.
Photo of children courtesy of Shutterstock.
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