Description
In such a elucidation with regards to social innovation and entrepreneurship development fund task force.
2013-08-29 Copyright© Kee Chi Hing p.1 of 22
The Blank Spots and Blind Spots on Hong Kong SE Policies
KEE, Chi-hing
1
Fullness Social Enterprises Society, +852-62910286, [email protected]
ABSTRACT
Purpose: The objective of this paper is to evaluate the effectiveness of the Social Enterprise
(SE) policies of Hong Kong government. The prevailing discourse in Hong Kong is that Non
Government Organizations (NGOs) are not effective in running social enterprises. The
research question is how the performances of the SEs funded by government compared to
relevant benchmarks.
Design/Methodology/Approach: Summaries of data collected from Hong Kong government
on SEs it fund. Benchmark data are collected from published articles and reports.
Social-Return-On-Investment (SROI) is adopted as an indicator to evaluate the combined
effects of positive externalities benefiting the powerless segments of the population and the
SEs’ median life span sustained. The performance of SEs funded by Hong Kong government
is compared to commercial enterprises on sustainability, and then compared to the
cost-effectiveness of traditional welfare approach on similar social impact.
Finding: The first finding is the median life span of the SEs is about double that of
commercial enterprises. Another finding is the cost effectiveness of the generation of
workfare, which is the aimed social impact of the SEs funded by government, can be
multiple-fold of that of traditional sheltered workshops.
Research implication/limitation: The current focus on the SROI is only on the monetized
impact. There are other positive impacts not counted and compared.
Originality/Value: This paper constructs a benchmark on the SROI results for those SEs
aiming at workfare, based on the successful implementation of the SE policies of Hong Kong
government.
Keywords: Social Enterprise, Social Return on Investment, Workfare, Sustainability, Work
Integration Social Enterprise
1
Kee, Chi-Hing is a member of the Social Enterprise Advisory Committee of Home Affair Bureau, a member of
the Community Investment and inclusion Fund of Labor and Welfare Bureau, and a co-opted member of the
Social Innovation and Entrepreneurship Development Fund Task Force of Commission on Poverty of Hong
Kong Government. He is also a part-time lecturer on “Entrepreneurship Development” course of the MBA
program in Hong Kong Baptist University.
2013-08-29 Copyright© Kee Chi Hing p.2 of 22
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2
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2013-08-29 Copyright© Kee Chi Hing p.3 of 22
1. Introduction
Objectives of the paper
This paper aims to evaluate the effectiveness of the social enterprise (SE) policies of Hong
Kong government, which are consisted of the Enhancing Employment of People with
Disabilities through Small Enterprise (3E) Project approved in 2001, and Enhancing
Self-Reliance through District Partnership (ESR) Program approved in 2006. Both schemes
fund Work-Integration Social Enterprises (WISE) which create job opportunities for the
powerless segments of the population.
There are 75 SEs in the 3E Project. They create jobs for the disabled people including
physically disabled, mentally retarded, and mental illness. There are 144 SEs in ESR Program.
They create jobs for the socially disadvantaged people including elderly, low skilled people,
deviant youth, ethnic minorities, and ex-offenders. Together with about another 10 SEs
funded by Community Investment and Inclusion Fund (CIIF), the total number of government
funded SEs account for 56% of the 406 social enterprises listed in the 2013 SE Directory
3
compiled by Hong Kong Council of Social Services.
The Development of Social Enterprises in Hong Kong
Hong Kong Government has introduced the policy of “welfare-to-work”, or simply workfare,
to empower able-bodied but disadvantaged groups with work. It is because one third of safety
net beneficiaries are able-bodied. This is to be realized through the jobs created by SEs which
were recommended by the Commission on Poverty in 2007. In fact, the 3E Project had
already been set up in 2001. In 2013, 71% of the 406 SEs listed in the SE Directory employs
the disabled or socially disadvantaged.
According to Stephen Fisher
4
, the then Secretary of the Commission on Poverty explained
that the intention of the government was to have social enterprises to solve “problems that the
market fails to resolve or the government cannot resolve satisfactory.” He recalled that back in
2007 there were 32% of the households who were on Comprehensive Social Security
Assistance (CSSA) but the adults in the households are employable, including single parents
who have small children; people with low incomes; and people unemployed. They suffered
from structural unemployment which resulted from Hong Kong’s transformation of the
manufacturing economy to service economy that usually required highly educated staff.
3
Hong Kong Council of Social Services (2013), 2013 Social Enterprise Directory
4
Chan, KK Allan; Chen, YY Amy; and Young, N. Michael (2010), Social Enterprises for a New Age: Six Case
Studies in China, Hong Kong Baptist University, p.11-12
2013-08-29 Copyright© Kee Chi Hing p.4 of 22
Fisher further explained that while SEs can help alleviate the poverty problem, the
government’s consideration is more than just social cost saving or reduction of wastage of
human resource, but helping the disadvantaged to have a dignified way of living because
work is an important element in the core value of Hong Kong
5
.
In Hong Kong, there is worry that social enterprises operated by Non-Government
Organizations (NGOs) may have great challenges in the business performance. In 2008, the
Central Policy Unit
6
reported constraints faced by NGOs in running the social enterprises:
a) “Some SE managers pointed out the indecisiveness in NGOs – social workers from
NGOs do not always follow decisions, particularly relating to the discipline of workers.
b) There is some difficulty in changing the mentality of NGOs that pay too much attention
to social mission.
c) Social workers working for SEs lack the business knowledge and related mindset, and
they may not be able to survive in open-market competition after the first two years of
using all the seed money.
d) The specific abilities these NGOs lack include: expertise in running a business,
managing skills and knowledge in formulating market strategies.”
The former Chief Executive of Hong Kong Special Administrative Region Government,
Donald Tsang, had SE policy on his annual Policy Address in 2007 to 2010. However, the
success rate of SE was considered as not up to expectation. The prevalent opinion was that
most SEs operated by social workers need more training to cope with the business challenges.
He had not cover the SE policy in his last Policy Address in 2011, in which he concluded his
contributions for his role as the Chief Executive.
The Development of the Definitions of Social Enterprises in Academia
However, there is a growing appreciation on SE overseas. In the 2013 survey commissioned
by Social Enterprise UK, 78%
7
of SEs used the SE status in their marketing, as compared to
only 53% doing so in 2011. The concept of “Buy Social” in the UK has increased the
commercial value of the SE label. As SEs is going to the mainstream and the number of SEs
keep increasing, scholars found that SE definitions like a business set up for a social mission
or SEs have double bottom-lines are insufficient as a stringent definition.
5
Chan, KK Allan; Chen, YY Amy; and Young, N. Michael (2010), Social Enterprises for a New Age: Six Case
Studies in China, Hong Kong Baptist University, p.15
6
Tang, Kwong-Leung; Fung, Ho-Lup; Au, Y.F. Kevin; Lee, Kin-ching James; and Ko, S.F. Lisanne (2008),
Social Enterprise in Hong Kong: Toward a Conceptual Model, Central Policy Unit of The Government of the
Hong Kong Special Administration Region of the People’s Republic of China, p. xiv-xv
7
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.26
2013-08-29 Copyright© Kee Chi Hing p.5 of 22
Back in 1972, Banks
8
first coined the word social entrepreneur as one “who saw the
possibility of using managerial skills directly for socially constructive purposes.” Not much
had been discussed since then.
In 1998, Gregory Dees
9
proposed that social entrepreneurs can be defined as a change agent
in the social sector by:
• “adopting a mission to create and sustain social value (not just private 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, and
• exhibiting heightened accountability to the constituencies served and for the outcomes
created.”
In 2006, Dees
10
proposed how to differentiate social enterprise from social innovation. While
business income generation is a must for social enterprises, it is not the case of social
innovation which focuses on ‘systemic changes’. But, while the US practitioners talk much on
social innovation, 69%
11
of the projects are in developing countries where ‘systemic changes’
are more likely to achieve.
In 2011, Brenda Massetti
12
proposed how to differentiate social enterprise from corporate
social responsibility (CSR). Social enterprises focus on social impact maximization as long as
sustainability is achieved, while companies with CSR still focus on profit maximization. This
helps screening out commercial enterprises with CSR as SEs in the US.
In 2012, Filipe Santos
13
proposed a positive theory on social enterprise that “social
entrepreneurs address the neglected problem in the society, with sustainable solution based on
empowerment, which generates positive externalities to the powerless segments of the
population”. This is a much improved criteria to distinguish between the selfless social
enterprises aiming at the common good and the limited-selfish enterprises which capture most
of values created though they claim themselves as social enterprises.
8
Banks, J. A. (1972), The Sociology of Social Movements, London: Macmillan, p.53
9
Dees, J Gregory (1998, revised in 2001), The Meaning of “Social Entrepreneurship”
10
Dees, J Gregory and Anderson B Beth (2006), ‘Framing a theory of Social Entrepreneurship: Building in Two
Schools of Practice and Thought’, REDF, can be retrieved on 22 August 2013 fromhttp://www.redf.org/from-the-community/publications/457
11
Mair, Johanna; Battilana, Julie; and Cardenas, Julian (2012), ‘Organizing for Society: A Typology of Social
Entrepreneuring Models’, Journal of Business Ethics (2012) 111:353-373
12
Massetti, Brenda (2011), ‘The Duality of Social Enterprise: A Framework for Social Action’, Review of
Business, Vol. 33, No. 1
13
Filipe M. Santos (2012), “A Positive Theory of Social Entrepreneurship”, Journal of Business Ethics, 111:
335–351
2013-08-29 Copyright© Kee Chi Hing p.6 of 22
2. Research Question
Four Stages of Knowledge Development
Knowledge is developed through four stages. First, cases in a new phenomenon are studied
and followed by landscape surveys. Second, tentative theories are proposed based on
imaginations for the phenomenon. They are then criticized and debated based on existing data.
Third, the relatively better theories are validated on the accuracy of their prediction by large
scale surveys. Even those theories survive through the validation are not necessary the truth
but only the better theories in explaining and predicting the phenomenon. They may be
replaced by newer theories later. Finally, practical values of the new knowledge are exploited
by applied researches.
Problem in Concluding the In-effectiveness of SEs in Stage 2
But SE researches in Hong Kong have been staying in stage two ever since 2006 when
Commission on Poverty first showed interest in SEs. One of the tentative, but prevailing,
theories is that NGOs are not good at running social enterprises, that in turns, implying that
the 3E Project and ESR Program are not successful. These opinions had been reflected in
Policy Addresses from 2007 to 2010 in the rhetoric as the lack of entrepreneurial skills and
mindset or as training and supporting measures. These claims have been taken from granted.
But there are blank spots and blind spots
14
.
No Evidence on who can run SEs better than NGO
Critical examination is absent before concluding the validity of the statement. For example,
there is not any examination and discussion on the success rate of social enterprises run by
non-social workers. Hence there is not any benchmark. Social workers are not good at
business, but conclusion cannot be drawn that they are worse than non-social workers in
running business as there is no evidence provided. In fact, most people are not good at starting
and running businesses, hence most people are employees instead of business owners
Absence of Accounting for the Cost to generate the Social Impact in SEs
Moreover the primary purpose of social enterprise is the creation of social value, but there is
not any study on the achievement of their social impacts. The social mission requires
additional resource to make it happen. In fact, those SEs which employ mentally retarded or
physically disabled have to consume a lot of energy and resources not only to teach these
14
Kamler, Barbara; and Thomson, Pat (2006) Helping Doctoral Students Write: Pedagogies for Supervision,
Oxon: Routledge, p.4. What we do not know well enough to even ask about or care about are Blind Spots. What
we know enough to question but not answer are Blank Spots.
2013-08-29 Copyright© Kee Chi Hing p.7 of 22
employees the technical skills but also have to take care of their psychological conditions and
their family problems. Relatively, those employing seniors or low skilled are easier to manage.
However, there is not any study to account for the cost of these extra resources for delivering
the social impact. Without a proper accounting, an apple to apple to comparison to similar
commercial enterprise is not possible.
Blended Return on Investment (BROI)
Instead of accounting for the extra costs, another approach is the accounting for returns.
Some scholars proposed the concept of blended return on investment which includes both the
value of traditional financial returns and the social impact in the denominator. However, the
quantification of the social impact in financial terms is still not yet mature. Unlike financial
impact of businesses, work in social science always has the problem of evaluation. The
problem has not been faced directly. Scattered answers are merely assumed without critical
analysis
15
(Mills 1959, 2000: 76).
The Value of this Paper
These issues are seldom seriously debated nor researched through comparative studies. The
major blind spot is the ignorance on benchmark data like SE data in the UK, the commercial
enterprise data in the US, and Hong Kong data from those NGOs have both the welfare arm
and the SE arm and hence comparative results can be made.
In Santos’ proposal, there are four elements of social entrepreneurship: sustainable solution,
logic of empowerment, positive externalities, benefiting the powerless segments of the
population. Since the government funding schemes require job creation for the powerless, the
logic of empowerment is already built in.
Therefore, the research questions covering the remaining three elements are as below:
• Whether the social enterprises run by NGOs and funded by Hong Kong government
are as sustainable as commercial enterprises?
• Are the positive externalities generated by these social enterprises at least as cost
effective as those generated by traditional welfare approach, or even better?
• How much positive externality benefits the powerless segment of the population, and
how much positive externality benefits those not the powerless segment?
15
Mills, C. Wright (1959, 2000), The Sociological Imagination, Oxford: Oxford University Press, p.76
2013-08-29 Copyright© Kee Chi Hing p.8 of 22
3. Methodology
A pragmatic view
16
is taken for the strategy of inquiry, because the purpose is to criticize the
prevailing tentative theory that NGOs are not good at running social enterprises. Within the
pragmatism, the data is treated in a postpositive manner which is reductionistic, logical, and
deterministic based on priori theories. A comparative study
17
is adopted to criticize the
prevailing theory. The dependent variables are the cost-effectiveness of similar social impact,
and the median lift spans of the social enterprise and commercial enterprise. The independent
variable is whether it is a social enterprise or not. The former is the test group and the latter is
the benchmark group.
The Dependent Variables and Independent Variables
The two dependent variables are the median life span and cost-effectiveness of social impact.
The independent variable is the grouping, either the SE group or the benchmark group.
Since local social enterprises are not listed companies, it is difficult to get audited financial
report to check the profitability. Hence an objective measure is the survival rate or the median
life span which are objective fact that can be observed. Self-reported profitability from social
enterprise, though will be biased, is also collected but only as a supplementary data. In fact it
is even more difficult to get the audited financial report of commercial enterprises. Though
audited reports of listed companies are available, the size and complexity of SEs are not
comparable.
A way to empower the powerless segments of the population is job creation. Hence the wage
taken by the employees with disabilities or socially disadvantaged employees is a good proxy
for workfare, which is the intended social impact. The benchmark is the cost for generating
similar workfare through traditional welfare approach, that is, the local sheltered workshop.
Social enterprises are set up for the social mission. Sustainability is a way to increase the total
social value created through its life span. The longer the life span, the more the social value
created. Sustainability is a condition for increasing social value. Sustainability can be
achieved by financial breakeven through business income or a mix of business income and
donation. That is, sustainability dose not equal to business financial breakeven. The
benchmark is the survival rates or median life span of commercial enterprises.
16
Creswell, John (2013), Research Design: Qualitative, Quantitative, and Mixed Methods Approach (4
th
Ed.),
Los Angeles: SAGE, p.10-11
17
Creswell, John (2013), Research Design: Qualitative, Quantitative, and Mixed Methods Approach (4
th
Ed.),
Los Angeles: SAGE, p.12
2013-08-29 Copyright© Kee Chi Hing p.9 of 22
Research Design
The table below is how the social impact and business performance of social enterprises are to
be compared.
Table1: Design of Comparative Study to evaluate social enterprises
Test Group Benchmark Group
1) Median life span of SEs
funded by 3E Project
2) Comparison with the US commercial
enterprises on median life span
Enterprise
performance
3) Percentage of profitable SEs
funded by ESR Program
4) Comparison with the UK on
percentage of profitable SEs
8) Comparison with Stewards on
cost-effectiveness on workfare
generation in sheltered workshop
9) Comparison with UnLtd on cost
effectiveness on funding social
entrepreneurship
Social
impact
5) Workfare/year generated by
selected SEs, plus reference on
selected NGOs’ funding
allocated to generate social
impacts
6) Workfare/year generated by 3E
Project
7) Workfare/year generated by
ESR Program
10) Comparison with the social capital
project of CDA on comprehensiveness
of SROI measurement
The test group is SEs funded by government, except item (5) which contains two SEs from 3E
Project and Two SEs from ESR Program, plus one SEs which is run as a limited-by-share
company by businesspeople. All of them are profitable. The purpose is to demonstrate the
ratio of revenue to investment, and the ratio of workfare to investment.
For item (1), the 3E Project is used for estimating the median life span because 3E Project has
data for 11 years while the ESR Program only has 5 years. Moreover, since the survival rate
of the year 4 and year 5 of the two scheme is quite close, hence showing the 3E Project data is
quite representative for the ESR data. For item (3), 3E Project had not collected the
profitability data. Only ESR has. Item (6) and (7) show the assumptions and calculations to
derive the total workfare received by the disable or socially disadvantaged over the media life
span as a ratio of the one-time investment (or grant) received.
The cases in benchmark group are selected for comparison on different aspects of the SEs.
2013-08-29 Copyright© Kee Chi Hing p.10 of 22
4. Data Collection
1) Median Life Span of Social Enterprises funded by 3E Project
In August 2013, the data on 3E Project was received from Social Welfare Department. The
survival pattern of all the approved ventures is listed below. Up to now 76 ventures were
approved and 75 of them were set up.
Table 1: The Survival pattern of social enterprises funded by 3E Project up to 2013
Years in operation
Year
Y
Year
Accumul-
ative
no. of
ventures
Accumulative
funding
amount
approved
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
2003 10 $6,196,945 10 10 10 9 9 9 8 8 8 8 7
2004 20 $9,960,925 10 10 9 8 8 7 7 6 6 6
2005 27 $14,084,250 7 7 7 7 7 7 7 6 6
2006 35 $18,269,906 8 8 7 6 4 4 4 3
2007 42 $21,723,978 7 7 7 6 6 6 5
2008 45 $24,762,997 3 3 3 3 3 2
2009 52 $30,355,414 7 6 5 4 3
2010 60 $34,481,387 8 8 7 5
2011 66 $41,104,545 6 6 6
2012 70 $45,828,331 4 4
2013 75 $52,346,580 5
Since 69% (52/75) of the social enterprises still survive, the median life span has to be
projected from the annual “dying” trend of the SEs; especially the younger batches of SEs by
referencing the trend of those with longer histories. This is done up to year 8 in the table
shown above. It is because in year 9, the size of the reference sample (ie, the batches of 2003,
2004 and 2005) drops to 36%
18
of the total number of SE ventures. Hence a more
conservative dying rate
19
is used. So is the case for year 10 . The resulting median life span is
between year 9 and 10. It is calculated to be 9.3 years. This is not the actual median of
survival years, but the best available estimate
20
based on those ventures with long histories.
Table 2: The projected survival rate of the SEs funded by 3E Project
Year Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Survival 100% 99% 93% 81% 75% 71% 67% 59% 52% 45%
18
The total number of venture is 75. The sample sizes for calculating the overall annual dying rate are: 70
samples in 2
nd
year, 66 in 3
rd
year, 60 in 4
th
year, 52 in 5
th
year, 45 in 6
th
year, 42 in 7
th
year, 35 in 8
th
year, and
27 samples in 9
th
year over the total 75 ventures which means 27/75=36% sampling rate only.
19
The annual dying rates are: 2
nd
year 98.6%, 3
rd
year 93.8%, 4
th
year 87.3%, 5
th
year 93.0%, 6
th
year 94.6%, 7
th
year 93.9%, and 8
th
year 88.5%. Hence the worse annual dying rate is 87.3%. This rate is used to estimate
survival rate for 9
th
year which is 52%, 10
th
year is 45%, and 11
th
year is 39%. So the median is between 9
th
and
10
th
year.
20
Miller, David (1985), Popper Selection, Princeton, p.30: “We do not know, we only guess… if you criticize
my guess, and if you offer counterproposals, I in turn will try to criticize them”
2013-08-29 Copyright© Kee Chi Hing p.11 of 22
2) Percentage of Profitable Social Enterprises funded by ESR Program
In 2013, the ESR team in Home Affair Department provided their 2012 survey data as shown
below. ESR was approved in 2006, hence the longest in the year of operation is only 5 years. .
The start dates of the social enterprises were aligned.
Table 3: Survival rates and self-sustainability rate of ESR projects
End of Funding
21
Year 3 Year 4 Year 5
Projects ceased 0% 13% 20% 23%
Survival rate
-Project at loss
-Project not at loss
100%
-81%
-19%
87%
-51%
-36%
80%
-30%
-50%
77%
-24%
-53%
The survival rate at the fifth year of projects is 77%, of which 24% is at loss and 53% is either
breakeven or profitable. Since the survival rates in Year 4 (80%) and 5 (77%) are very close to
that of 3E’s Year 4 (81%) and 5 (75%), and the context of these two schemes are very similar,
it is assumed the median life span of ESR is similar to 3E to be 9.3 years.
As a reference, in the Hong Kong Council of Social Services 2013 report, a sample of 48 SEs
out of the total of 406 surviving SEs, 24 of them indicated profitable and the other 24
indicated at loss. However, the sample contains surviving SEs with varying years in operation.
3) Comparison with the US Commercial Enterprises on Median Life Span
In the US, 70% of new commercial firms survives by end of second year, 50% survives by
end of fourth years
22
. Hence the median on the life expectancy of commercial firms is 4 years.
In another survey, only 40% of commercial firms can survive after 6 years, and only 18%
after 10 years
23
. Hence the median life is also less than 6 years.
4) Comparison with the UK on Percentage of Profitable SEs
According to a 2013 report
24
by Social Enterprise UK, 55% of the social enterprises were
profitable, 18% breakeven, 22% at loss, and 5% did not replied. But the sample contain only
surviving SEs and with varying years in operation.
21
In year 2011, the Funding Period of ESR has been changed from 2 years to 3 years. Hence the data in the
column “End of Funding” include both projects with 2 years of Funding Periods and projects with 3 years of
Funding Period. However, since the survey was in 2013, the data in the column “2 year after [Funding]“ were all
at their 4 fourth years, and the last column were all at their fifth years of even longer.
22
Barringer, Bruce; and Ireland, Duane (2010, 3rd edition), Entrepreneurship: Successfully Launching New
Ventures, New Jersey: Prentice Hall
23
Marcum, Dave; and Smith, Steve (2002), businessThink: Rules for Getting It Right – Now and No Matter
What!, New York: Wiley
24
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.30.
2013-08-29 Copyright© Kee Chi Hing p.12 of 22
5) Workfare generated by selected Social Enterprises
The following are data obtained from five individual social enterprise organizations, which
operate a total 22 SEs, 5% of the total SE population. The percentages of the annual revenue
on total investment and the percentages of the annual workfare on total investment are listed.
The media revenue on investment is the 324% by taking the average between Stewards and
HKTS (Hong Kong Translingual Service), which rank second and third in the numbers.
Table 5: Ratio of Revenue on Investment and Ratio of Workfare on Investment
Name of SE
Organization
Years in
operation
Funding Source Investment
(HKD ,000)
Revenue
(HKD ,000)
Workfare
(HKD ,000)
Number of
SE Unit
Investment/
Investment
Revenue/
Investment
Workfare/
Investment
MentalCare
14
11 3E Project
grant+ Donation
11,570
100%
70,700
611%
6,860
59%
HKTS
1
3 ESR Program
grant
700
100%
2,700
386%
1,170
167%
Stewards
6
9 3E Project
grant+ Donation
2,510
100%
6,580
262%
2,730
109%
My Concept
1
6 ESR Program
grant +Donation
1,300
100%
1,700
131%
430
33%
Total 22 units Media 324%
As a reference, the percentages of the income of the charities allocated to the service
programs are collected from iDonate
25
, a charity rating agency. Examples of big charity
organizations which have to publicize their financials and do not have significant business
income are Oxfam which spent 80% of its total expenditure on service programs, World
Vision 95%, MSF (Medicines Sans Frontiers) 80%, and Community Chest which only
allocate 82% of the donation income to other charities, after deducting its own overhead. The
median of these four organizations is 81%.
6) Workfare generated by 3Es
The social mission of the 3E project is to enhance the employment of people with disabilities.
The main component of workfare (work-to-welfare) is the wage, which is a good proxy for
the social impact. First, it can be monetized to calculate the ratio between the investment and
the social impact. Second, it is much better than using the number of employees as most SEs
cannot provide the full-time-equivalent (FTE) number on the part-time employees. In 2013,
there were 541 disabled employed with an average income of $6,245/month, the total
workfare is $40,542,540/year
26
.
25
The web-site of iDonate ishttp://www.theidonate.com/
26
541 disabled employed with an average income of $6,245/month. Hence the total workfare is 541 disabled x
2013-08-29 Copyright© Kee Chi Hing p.13 of 22
As the total amount granted to the 75 ventures were $52,364,580, therefore each dollar
granted generates workfare valued to 77.4 cents/year
27
. In short, each dollar granted will lead
to 7.2 dollars
28
over the median life span of 9.3 years. The social-return-on-investment (SROI)
of the 3E funding is very good.
7) Workfare generated by ESR Program
The social mission of the 3E project is to enhance the self-reliance of the socially
disadvantaged people through employment. Hence the concept is also workfare. Up to 2012,
there have been 144 projects funded with HKD156 million. Half of them had responded to the
survey. The 144 ESR projects employ 2,370 people, of which 604 employees are full time and
the remaining 1,766 are part-time. This numbers include 2,064 Socially Disadvantaged (SD),
of which 368 are full time and 1,696 are part-time.
A proxy of the workfare is the wage earned by the SDs. Though we use the wage as a proxy,
the actual values received by the SD are more than money, but “a dignified way of living” as
recalled by Fisher. At present the total annual workfare to the 2,064 SDs is HKD64 million.
The accumulated ESR grant is HKD156 million. That means each ESR grant dollar leads to
41 cents of SD wage. In 9.3 years, the total workfare generated is 3.81 dollars
29
.
The ratio in the 6 years old ESR is 0.41 and that in the 12 years old 3E is 0.77. The level of
workfare for the same dollar of investment will grow over the years. It is because the level of
workfare is proportional to the business revenue, which in turns is a function of the years of
operation due to the learning curve of the business knowledge and the accumulation of the
customer base. The Social Enterprise UK survey
30
also reported the revenue of social
enterprises with different ranges of years in operation. The longer the years of operation, the
bigger is the size of the revenue.
Table 4: The correlation between the revenue size and years of operation
Years of operation of the SEs < 3 years 4-5 years 6-11 years >11 years
Medium annual revenue size ?44,000 ?89,000 ?205,000 ?360,000
$6,245/month x 12 months = $40, 542, 540/year
27
$40,542,540/$52,364, 580 = 77.4%
28
77.4 cents/year x 9.3 years = 7.2 dollars
29
Calculated by $0.41 x 7.2 years = $2.95.
30
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
2013-08-29 Copyright© Kee Chi Hing p.14 of 22
8) Comparison with Stewards on workfare generated in sheltered workshops
“In 2009, Stewards commissioned a comparative study to KEEP Consulting Ltd
31
in
Stewards on the SROI of the two sheltered workshops, and that of their five social enterprises,
such as Catering service in schools and Car beauty service with the purpose for providing job
opportunity for disadvantaged groups.
Sheltered workshop aims to provide persons with disabilities with appropriate vocational
training and enhance their working capacity in order that they can move on to supported or
open employment. Various training and activities are provided to them, such as training in
work habit, training allowance and activities to meet the services users’ developmental/social
needs. In this study, focus is on the comparison on the workfare between Sheltered Workshop
and Social Enterprise because it is “numerically comparable” on the economic impact to the
society.
In the first sheltered workshop, for $1/year of workfare, the on-going funding needed is
$6.4/year. In the second workshop, the funding needed is $5.0/year. At that time, the portfolio
of SEs consisted of some profitable ones and some at loss. But the overall number was still at
loss. For $1/year of workfare, Stewards had to inject $1.7/year to maintain all social
enterprises. Therefore, the cost to maintain the same amount of workfare is less through social
enterprises. The ratio between sheltered workshop and the SEs was $5.0 to $1.7.
After the comparison, Stewards tuned its social enterprises portfolio based on the Blended
Return on Investment (BROI) consisted of two measures: the financial return and the
workfare (as the social impact). Both of them can be expressed in dollar value.
For continuous improvement of the enterprise, Stewards closed down those social enterprises
with negative BROI and shifted the people and resources to other social enterprises. After the
tuning, the portfolio was still at loss at the first place. But within months, for $1/year of
workfare the funding needed to cover the loss significantly reduced to $0.7/year. The ratio
between sheltered workshop and the SEs was widened to $5.0 to $0.7.
Later, the profitability of portfolio of social enterprises was turned around. The portfolio is
self-sustainable financially. Now for $1/year of workfare, Stewards does not need to inject
funding. The ratio between sheltered workshop and the SEs is $5.0 to $0.0. Moreover, each
dollar of investment in SEs generates $2.79 of annual revenue, and $1.08 workfare/year.”
32
31
KEEP Consulting’s web-sitehttp://www.keep-consulting.com/index.html
32
This part of the paper was extracted from FSES Research Report 2013 August, “ SROI of 3E of SWD” by Kee,
Chi-hing; and Chiu, Jimmy
2013-08-29 Copyright© Kee Chi Hing p.15 of 22
9) Comparison with UnLtd on cost-effectiveness of funding SEs
UnLtd
33
is a charity founded in 2000 for developing social entrepreneurs. It was selected as a
reference because it provides insights on the difference between a charity and a SE.
One of its programs called HEFCE
34
reveals its operation data. It partnered with 70 Higher
Education Institutions (HEI) to realize the potential of social entrepreneurship. Out of the £1
million total cost, £625,000 was given out as awards to 200 students and HEI staff to set up
200 social ventures . There were 191 awardees at Level 1 with a start-up fund amounted
£2,500 (HKD30, 200). The most promising 5% (ie 9 persons) were awarded at Level 2 with a
scale-up fund amounted £15,000 (HKD181, 200). The most popular businesses included:
• training local people and raising aspirations of young people under 18, both of which
were helping to increase access to Higher Education
• services to students within their HEI in order to improve their experience and success
• creating volunteering opportunities and to improve students’ employability prospects
The average awarded amount is £3,125. From their business, they generated additional £5,800
income. Each has 540 beneficiaries, which means 540 customers paying £5,800 for services
which cost = £8,925
35
.
The HEFCE program used £1 million to develop 200 awardees each costing £5,000 (HKD60,
400/person). As most could not break even, they were at-loss businesses which were not
generating positive externalities for the powerless people, but benefiting the students and HEI
staff. As a result of these entrepreneurship experiences, 90% of awardees felt better able to
run a social venture and they intended to continue.
Table 4: Breakdown of 2012 UnLtd expenditure
Cost of supports
to awardees
Awards Cost of fund
generation
Governance Trading activities
in subsidiary
Total
Expenditure
£5,010,253 £3,268,496 £127,692 £121,531 £79,122 £8,764,059
As a reference, in 2012 the total expenditure of UnLtd
36
was shown above. Since there were
1,000 awardees, the average cost per awardees was £8,764 (HKD106, 000), of which only
37% was directly go to the awardees. Since year 2000, there were at least 7,000 awardees. If
its survival rate is similar to 3E Project, close to 5000 of their ventures should still exit.
Unfortunately, the survival data cannot be found in its web-site. As a reference, there are
about 70,000
37
SEs in the UK.
33
The web-site of UnLtd ishttp://unltd.org.uk/ .
34
The HEFCE program is documented in a report “Unlocking the Potential of Social Entrepreneurship in
Higher Education” which on 25 August 2013 can be retrieved fromhttp://unltd.org.uk/wp-content/uplo...otential-of-social-entrepreneurship-in-HE.pdf
35
£3,125 +, £5,800 = £8,925, ie, HKD114, 240.
36
The UnLtd 2012 Report can be retrieved on 26 August 2013 fromhttp://unltd.org.uk/wp-content/uploads/2012/07/UnLtdAnnualReview_2012_no_crops_compressed.pdf
37
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.6
2013-08-29 Copyright© Kee Chi Hing p.16 of 22
10) Comparison with Community Development Association on SROI measurement
Community Development Association (CDA) is a small NGO which had a social capital
project in Hong Kong’ Tin Siu Wai called Dawn Market in 2008 to 2012. Oxfam Hong Kong
had provided HKD1.5 million over three years to fund CDA’s effort to help the marginalized
families in Tin Shui Wai. The services of CDA to those families soon evolved from assistance
to get welfare supports and counseling only to helping them to increase family incomes
through being a hawkers in main pedestrian path in the district that was not intended for
commercial activities. The number of hawkers increased from around 20 in 2008 to more than
80 in 2012. The average income per hawkers increases from HKD126/day to 253/day. By the
end of 2013, Hong Kong government built a new market in another location in the same
district to house all these hawkers.
The accumulative results of this CDA project over three years in the Donald Kirkpatrick
38
Model are as below.
• Cost: The total financial input is the HKD1.5 million from Oxfam
• Cost: Volunteers contributed 5,040 man-hours: 144 man-hours from 2 scholars, 1,440
man-hours from 5 social workers, and 3,456 man-hours from other volunteers
• Level 1 Satisfaction: The overall current life satisfaction 3.61 in a scale of 1 to 5 with
5 being the best. When asking the hawkers to assess their life satisfaction before being
hawkers, the average satisfaction was 2.40.
• Level 2 Knowledge: The overall media daily income increased from HKD 126/day to
253/day. This was echoed by their self assessment on business knowledge
improvement from 2.6 to 4.5 in the scale of 1 to 5.
• Level 3 Behaviour: The median on number of good friends is 9.94, of which they can
ask 2.26 friends to borrow a sum of money equal to the hawkers’ monthly income.
Receive from others Provide to others
Helps between good friends 87.5% 83.3%
Helps on taking care of the “shop” 79.2% 75.0%
Initiate chats 62.5% 62.5%
Borrow goods or tools 37.5% 25.0%
Ask to help buy things 25.0% 12.5%
• Level 4 Impact: The total income of the hawkers over three years was HKD8.9 million,
the resident’s benefits from lower price of the hawkers was HKD1.3 million, and the
possible saving of government CSSA cost was HKD3.7 million.
A point to note is that in a SE project, SE organization is the primary driver of the social
impact and financial impact. But in this social capital project, CDA’s role was of a trigger and
enabler. The financial impact was driven by the hawkers themselves.
38
Wikipedia on “Donald Kirkpatrick”, can be retrieved fromhttp://en.wikipedia.org/wiki/Donald_Kirkpatrick
2013-08-29 Copyright© Kee Chi Hing p.17 of 22
5. Discussion
The data collected are summarized and organized in the table below.
Table 6: Results of Comparative Study to evaluate social enterprises
Test Group Benchmark Group
Enterprise
performance
1) Median Life Span of SEs funded by
3E Project is 9.3 years
2) At the 5
th
year, 53% of social
enterprises funded by ESR Program
self reported as profitable. If those
ceased in operation are taken out
from the denominator, the
percentage is 66%. By the way, the
more the years in operation, the
higher the likelihood of being
profitable.
3) Median Life Span of the US
commercial enterprises is 4 years.
This matches another survey in
which the median is less than 6
years.
4) Profitability of SEs in the US
ranged from 50% to 66%. The
denominator does not include those
already ceased to operate.
Social
impact
5) The media annual revenue of the
five selected SEs is 386%, and the
median annual workfare is 64%. In
the four selected major NGOs in
Hong Kong, for each $1 of
donation or grant received, $0.81
is used in service programs,
including direct benefits to the
beneficiaries and administrative
costs of the specific service
program
6) Workfare/year generated is
$0.41/year/dollar-granted by ESR,
which is in operation for 6 years.
Assuming the median life span is
same as 3E, the total workfare over
9.3 years is $3.8 workfare/year for
$1 of one-time grant
7) Workfare/year generated is
$0.77/year/dollar-granted by 3E,
which is in operations for 11 years.
So the total workfare over 9.3 years
is $7.2 workfare/year for $1 of
one-time grant
8) In Stewards, $1/year of workfare
required at least $5/year of grant or
donation. That is $0.2 workfare/
year for $1/year of grant or
donation. But the benefits received
by the beneficiaries are more than
$0.2, such as the welfare supports
and counselling services to the
beneficiaries and their families
9) The expenditure of UnLtd in 2012
was £8,607,094 for 1,000 award
recipients. That means the average
expenditure per recipient was
£8,607 (HKD103, 972). The actual
money to the awardees was
£3,268,496, ie, 37% of the total
cost.
10) In CDA, a more comprehensive
measurement covering monetized
impacts, behavioural statistics,
skills improvement reflected by
income changes, and pre- and post
overall satisfaction score.
2013-08-29 Copyright© Kee Chi Hing p.18 of 22
Social enterprises has much longer media life span than commercial enterprise
The median life span of SEs is about double that of commercial enterprises in the US. So,
they have a relatively much better sustainability. The better business of SEs as compared to
commercial enterprises was also found in Social Enterprise UK 2013 survey
39
. It shows that
SEs have higher revenue growth rates as compared to the small-medium enterprise. A possible
explanation is the bigger social capital owned by SEs. Because the primary motive of social
entrepreneurs is to generate benefits for the powerless people instead of for themselves, their
selfless earn the respect and voluntary supports from others.
Table 7: Comparison on revenue growth between SE and SME in UK
% of Social Enterprises % of Small-Medium Enterprise
Revenue increased
in past 12 months
38% 29%
Revenue decreased
in past 12 months
22% 31%
Moreover, if a SE is at loss, but the amount of loss is still less than the cost for delivering
similar social impact, then the existence of the social enterprise is still worthwhile and the SE
is kept. The case of Stewards which compares the two approaches shows the superiority of the
SE approach, as long as for those only mildly mentally handicapped.
The social-return-on-investment (SROI) of social enterprises are well justified
The SROI of ESR Program is about 380%, which means $3.8 per $1 granted, as calculated by
the average annual workfare generated times the median life span
40
. The SROI of 3E Project
is about 720%
41
. The difference in the two SROI is due to the difference in workfare. The 3E
Project has a higher one because annual workfare is proportional to annual revenue, which in
turns is affected years of business experience and accumulation of customer base.
The Social Enterprise UK survey
42
also reported the revenue of social enterprises with
different ranges of years in operation. The longer the years of operation, the bigger is the size
of the revenue.
Table 8: The correlation between the revenue size and years of operation
Years of operation of the SEs < 3 years 4-5 years 6-11 years >11 years
Medium annual revenue size ?44,000 ?89,000 ?205,000 ?360,000
39
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
40
For ESR Program, average annual workfare is $0.41. The median life span used is 9.3 years.
41
For 3E Project, average annual workfare is $0.77. The median life span is 9.3 years
42
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
2013-08-29 Copyright© Kee Chi Hing p.19 of 22
The traditional welfare approach operates in a subtraction equation. The resource allocated to
the service program is the money input minus the overheads. So in the best cases, one dollar
becomes 81 cents only. But the SE approach operates in a multiplication equation due to the
business operation. The money input will be multiplied to become the annual revenue, and not
once but for years again and again. So one dollar becomes 7.2 dollars over 9.3 years.
Comparison between 3E Project and UnLtd on cost-effectiveness on funding SEs
The similarities between UnLtd and 3E Project include the following.
• both started around year 2001
• both are funders to social entrepreneurship ventures
• both have measures to support the grantees
The differences between them are as below.
• 3E Project focuses on the beneficiaries of the SEs funded, with a very specific
requirement on the beneficiary should be the people with disabilities. UnLtd focuses
on the potential social entrepreneurs and only has a generic social mission requirement
• The average cost per grant of 3E Project is more than 10 times of UnLtd award, but
the average number of grant/year of 3E Project is only 7 while that of UnLtd is 1,000
• The sustainability of the ventures funded by 3E Project is much better than UnLtd
• 3E Project collects data about the social impact which is the level 4 measure of
Donald Kirkpatrick
43
Model, while UnLtd is the lower three levels as show below
Table 9: Comparison between UnLtd’s 2009-11 HEFCE Program and ESR Program
Measure UnLtd’s HEFCE 3E Project
Level 4:
Impact
No data Generate HKD540, 567/year of workfare
to 7.2 disabled employees, over 9.3 years
Level 3:
Behaviour
Create 2 jobs, and 12 volunteer
opportunities, and sell to 540
clients for a total of £5,800
No data
Level 2:
Knowledge
No data No data
Level 1:
Feeling
80% intend to run the SE after
graduation. 90% feel better able
to run social enterprise
No data
Cost Each get £3,125 (HKD37, 750),
or cost £5,000 (HKD60, 400)
44
if
included overhead cost
Each SE granted HKD697, 941 in average.
No data on 3E Project overhead cost.
43
Wikipedia on “Donald Kirkpatrick”, can be retrieved fromhttp://en.wikipedia.org/wiki/Donald_Kirkpatrick
44
For HEFCE, the cost for each award is about the price of an average self-funded Master degree provided by
universities in Hong Kong. But it does not seriously assess the knowledge gained like a formal education.
2013-08-29 Copyright© Kee Chi Hing p.20 of 22
6. Conclusion
The better cost-effectiveness of SE echoed J A Banks who defined social entrepreneurship in
1972, and emphasized the “managerial” skill as the main driver of the intended results.
The SE funding schemes of Hong Kong government perform very well in meeting their
objectives as reflected by the social return on investment (SROI). It is because unlike the
traditional welfare approach which has a subtraction effect on the funding due to overhead
costs, SE has the multiplying effect from the revenue-generating business, which in turn leads
to workfare provided to the disabled or socially disadvantaged year after year.
One of the grantees of 3E Project is Stewards which had a favourable evaluation on the
cost-effectiveness of its SEs as compared to its sheltered workshop in workfare generation.
While sheltered workshop needs injection of funding as long as it is in operation, SE has the
opportunity of breakeven, and no more funding is required while the operation still keeps
going. The limitation is that SE can only handle those people with minor disabilities only.
On the other hand, though both 3E Project and UnLtd fund social entrepreneurial ventures,
they cannot be compared as the focus of UnLtd is developing social entrepreneurs, not social
enterprises. Since the cost per award is close to the price of self-funded Master degree
programs, UnLtd’s effectiveness is better compared to the mindset changes, knowledge
gained and new behaviour developed of a formal education program.
Finally, this paper demonstrates a way to evaluate the SROI of the SEs in two funding
schemes, together with the survival trend of about 200 SEs over 10 years of operation, and
change of the mix consisted of those SEs ceased, those profitable and those still at-loss. The
assumptions and estimations in deriving the results are listed so that future research can
improve them to get more accurate results. It also argues against prevailing theories or
opinions in conferences, media, and public impression that NGOs funded by government are
not good at running SEs. Finally, though the number of the SEs and sizes of SEs are smaller
to the UK and some developed countries, the ecosystem developed in Hong Kong is a
forerunner in terms of the SE performance and the way to measure the performance.
2013-08-29 Copyright© Kee Chi Hing p.21 of 22
7. Recommendation
Many evaluation methods have been proposed for SEs. Actually, the trick is how to monetize
the intangible social benefits. In business, similar problems on monetizing intangible benefits
were encountered during the days of Total Quality Management (TQM) in 1980’s. Hence the
job should borrow the knowledge from multinationals with rich practical experience in the
rhetoric articulating TQM benefits.
The case of CDA demonstrates a more comprehensive way to reflect the social impacts of
SEs, based on the Kirkpatrick model, covering dimensions on affective, cognitive,
behavioural, and financial. In fact, CDA had also collected narratives from the hawkers in its
qualitative study, together with the surveys to quantify the changes, and the monetized
impacts. CDA set an example on communicate the social impact.
8. References
Barringer, Bruce; and Ireland, Duane (2010, 3rd edition), Entrepreneurship: Successfully
Launching New Ventures, New Jersey: Prentice Hall
Chan, KK Allan; Chen, YY Amy; and Young, N. Michael (2010), Social Enterprises for a
New Age: Six Case Studies in China, Hong Kong Baptist University
Creswell, John (2007), Qualitative Inquiry & Research Design: Choosing Among Five
Approach (Second Edition), Thousand Oaks; SAGE Publication,
Creswell, John (2013), Research Design: Qualitative, Quantitative, and Mixed Methods
Approach (4
th
Ed.), Los Angeles: SAGE,
Dees, J Gregory and Anderson B Beth (2006), ‘Framing a theory of Social Entrepreneurship:
Building in Two Schools of Practice and Thought’, REDF, can be retrieved fromhttp://www.redf.org/from-the-community/publications/457 on 22 August 2013/
Filipe M. Santos (2012), “A Positive Theory of Social Entrepreneurship”, Journal of Business
Ethics, 111: 335–351
Foster, William; and Bradach, Jeffrey (2005), “Should Nonprofits Seek Profits?”, Harvard
Business Review, February 2005,
Kamler, Barbara; and Thomson, Pat (2006) Helping Doctoral Students Write: Pedagogies for
Supervision, Oxon: Routledge
2013-08-29 Copyright© Kee Chi Hing p.22 of 22
Kee, Chi Hing; and Kwan, Ted (2011) “Profitable or Valuable”, FSES Newsletter, 2011 July
Mair, Johanna; Battilana, Julie; and Cardenas, Julian (2012), ‘Organizing for Society: A
Typology of Social Entrepreneuring Models’, Journal of Business Ethics (2012) 111:353-373
Massetti, Brenda (2011), ‘The Duality of Social Enterprise: A Framework for Social Action’,
Review of Business, Vol. 33
Miller, David (1985), Popper Selection, Princeton, p.30: “We do not know, we only guess… if
you criticize my guess, and if you offer counterproposals, I in turn will try to criticize them
Mills, C. Wright (1959, 2000), The Sociological Imagination, Oxford: Oxford University
Press
Marcum, Dave; and Smith, Steve (2002), businessThink: Rules for Getting It Right – Now and
No Matter What!, New York: Wiley
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey
2013
Tang, Kwong-Leung; Fung, Ho-Lup; Au, Y.F. Kevin; Lee, Kin-ching James; and Ko, S.F.
Lisanne (2008), Social Enterprise in Hong Kong: Toward a Conceptual Model, Central Policy
Unit of The Government of the Hong Kong Special Administration Region of the People’s
Republic of China
UnLtd, “Unlocking the Potential of Social Entrepreneurship in Higher Education” which on
25 August 2013 can be retrieved fromhttp://unltd.org.uk/wp-content/uploads/2012/11/Unlocking-the-potential-of-social-entrepreneu
rship-in-HE.pdf
UnLtd 2012 Report can be retrieved on 26 August 2013 fromhttp://unltd.org.uk/wp-content/uploads/2012/07/UnLtdAnnualReview_2012_no_crops_compr
essed.pdf
Wikipedia on “UnLtd”, on 26 August 2013 can be retrieved fromhttp://en.wikipedia.org/wiki/UnLtd
doc_854095939.pdf
In such a elucidation with regards to social innovation and entrepreneurship development fund task force.
2013-08-29 Copyright© Kee Chi Hing p.1 of 22
The Blank Spots and Blind Spots on Hong Kong SE Policies
KEE, Chi-hing
1
Fullness Social Enterprises Society, +852-62910286, [email protected]
ABSTRACT
Purpose: The objective of this paper is to evaluate the effectiveness of the Social Enterprise
(SE) policies of Hong Kong government. The prevailing discourse in Hong Kong is that Non
Government Organizations (NGOs) are not effective in running social enterprises. The
research question is how the performances of the SEs funded by government compared to
relevant benchmarks.
Design/Methodology/Approach: Summaries of data collected from Hong Kong government
on SEs it fund. Benchmark data are collected from published articles and reports.
Social-Return-On-Investment (SROI) is adopted as an indicator to evaluate the combined
effects of positive externalities benefiting the powerless segments of the population and the
SEs’ median life span sustained. The performance of SEs funded by Hong Kong government
is compared to commercial enterprises on sustainability, and then compared to the
cost-effectiveness of traditional welfare approach on similar social impact.
Finding: The first finding is the median life span of the SEs is about double that of
commercial enterprises. Another finding is the cost effectiveness of the generation of
workfare, which is the aimed social impact of the SEs funded by government, can be
multiple-fold of that of traditional sheltered workshops.
Research implication/limitation: The current focus on the SROI is only on the monetized
impact. There are other positive impacts not counted and compared.
Originality/Value: This paper constructs a benchmark on the SROI results for those SEs
aiming at workfare, based on the successful implementation of the SE policies of Hong Kong
government.
Keywords: Social Enterprise, Social Return on Investment, Workfare, Sustainability, Work
Integration Social Enterprise
1
Kee, Chi-Hing is a member of the Social Enterprise Advisory Committee of Home Affair Bureau, a member of
the Community Investment and inclusion Fund of Labor and Welfare Bureau, and a co-opted member of the
Social Innovation and Entrepreneurship Development Fund Task Force of Commission on Poverty of Hong
Kong Government. He is also a part-time lecturer on “Entrepreneurship Development” course of the MBA
program in Hong Kong Baptist University.
2013-08-29 Copyright© Kee Chi Hing p.2 of 22
???????????????????
???
2
??????, +852-62910286, [email protected]
??
???????????????????????????(??)????????
??????????????????????????????????????
??? UnLtd????????????????????????????????
??????????????????????????????????????
??????????
2
?????????????????????????????????????????????
?????????????????????????????????????????????
??????????????????????????????????????????????
?????????????????????????????????????HP???????
????????????????????????????
2013-08-29 Copyright© Kee Chi Hing p.3 of 22
1. Introduction
Objectives of the paper
This paper aims to evaluate the effectiveness of the social enterprise (SE) policies of Hong
Kong government, which are consisted of the Enhancing Employment of People with
Disabilities through Small Enterprise (3E) Project approved in 2001, and Enhancing
Self-Reliance through District Partnership (ESR) Program approved in 2006. Both schemes
fund Work-Integration Social Enterprises (WISE) which create job opportunities for the
powerless segments of the population.
There are 75 SEs in the 3E Project. They create jobs for the disabled people including
physically disabled, mentally retarded, and mental illness. There are 144 SEs in ESR Program.
They create jobs for the socially disadvantaged people including elderly, low skilled people,
deviant youth, ethnic minorities, and ex-offenders. Together with about another 10 SEs
funded by Community Investment and Inclusion Fund (CIIF), the total number of government
funded SEs account for 56% of the 406 social enterprises listed in the 2013 SE Directory
3
compiled by Hong Kong Council of Social Services.
The Development of Social Enterprises in Hong Kong
Hong Kong Government has introduced the policy of “welfare-to-work”, or simply workfare,
to empower able-bodied but disadvantaged groups with work. It is because one third of safety
net beneficiaries are able-bodied. This is to be realized through the jobs created by SEs which
were recommended by the Commission on Poverty in 2007. In fact, the 3E Project had
already been set up in 2001. In 2013, 71% of the 406 SEs listed in the SE Directory employs
the disabled or socially disadvantaged.
According to Stephen Fisher
4
, the then Secretary of the Commission on Poverty explained
that the intention of the government was to have social enterprises to solve “problems that the
market fails to resolve or the government cannot resolve satisfactory.” He recalled that back in
2007 there were 32% of the households who were on Comprehensive Social Security
Assistance (CSSA) but the adults in the households are employable, including single parents
who have small children; people with low incomes; and people unemployed. They suffered
from structural unemployment which resulted from Hong Kong’s transformation of the
manufacturing economy to service economy that usually required highly educated staff.
3
Hong Kong Council of Social Services (2013), 2013 Social Enterprise Directory
4
Chan, KK Allan; Chen, YY Amy; and Young, N. Michael (2010), Social Enterprises for a New Age: Six Case
Studies in China, Hong Kong Baptist University, p.11-12
2013-08-29 Copyright© Kee Chi Hing p.4 of 22
Fisher further explained that while SEs can help alleviate the poverty problem, the
government’s consideration is more than just social cost saving or reduction of wastage of
human resource, but helping the disadvantaged to have a dignified way of living because
work is an important element in the core value of Hong Kong
5
.
In Hong Kong, there is worry that social enterprises operated by Non-Government
Organizations (NGOs) may have great challenges in the business performance. In 2008, the
Central Policy Unit
6
reported constraints faced by NGOs in running the social enterprises:
a) “Some SE managers pointed out the indecisiveness in NGOs – social workers from
NGOs do not always follow decisions, particularly relating to the discipline of workers.
b) There is some difficulty in changing the mentality of NGOs that pay too much attention
to social mission.
c) Social workers working for SEs lack the business knowledge and related mindset, and
they may not be able to survive in open-market competition after the first two years of
using all the seed money.
d) The specific abilities these NGOs lack include: expertise in running a business,
managing skills and knowledge in formulating market strategies.”
The former Chief Executive of Hong Kong Special Administrative Region Government,
Donald Tsang, had SE policy on his annual Policy Address in 2007 to 2010. However, the
success rate of SE was considered as not up to expectation. The prevalent opinion was that
most SEs operated by social workers need more training to cope with the business challenges.
He had not cover the SE policy in his last Policy Address in 2011, in which he concluded his
contributions for his role as the Chief Executive.
The Development of the Definitions of Social Enterprises in Academia
However, there is a growing appreciation on SE overseas. In the 2013 survey commissioned
by Social Enterprise UK, 78%
7
of SEs used the SE status in their marketing, as compared to
only 53% doing so in 2011. The concept of “Buy Social” in the UK has increased the
commercial value of the SE label. As SEs is going to the mainstream and the number of SEs
keep increasing, scholars found that SE definitions like a business set up for a social mission
or SEs have double bottom-lines are insufficient as a stringent definition.
5
Chan, KK Allan; Chen, YY Amy; and Young, N. Michael (2010), Social Enterprises for a New Age: Six Case
Studies in China, Hong Kong Baptist University, p.15
6
Tang, Kwong-Leung; Fung, Ho-Lup; Au, Y.F. Kevin; Lee, Kin-ching James; and Ko, S.F. Lisanne (2008),
Social Enterprise in Hong Kong: Toward a Conceptual Model, Central Policy Unit of The Government of the
Hong Kong Special Administration Region of the People’s Republic of China, p. xiv-xv
7
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.26
2013-08-29 Copyright© Kee Chi Hing p.5 of 22
Back in 1972, Banks
8
first coined the word social entrepreneur as one “who saw the
possibility of using managerial skills directly for socially constructive purposes.” Not much
had been discussed since then.
In 1998, Gregory Dees
9
proposed that social entrepreneurs can be defined as a change agent
in the social sector by:
• “adopting a mission to create and sustain social value (not just private 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, and
• exhibiting heightened accountability to the constituencies served and for the outcomes
created.”
In 2006, Dees
10
proposed how to differentiate social enterprise from social innovation. While
business income generation is a must for social enterprises, it is not the case of social
innovation which focuses on ‘systemic changes’. But, while the US practitioners talk much on
social innovation, 69%
11
of the projects are in developing countries where ‘systemic changes’
are more likely to achieve.
In 2011, Brenda Massetti
12
proposed how to differentiate social enterprise from corporate
social responsibility (CSR). Social enterprises focus on social impact maximization as long as
sustainability is achieved, while companies with CSR still focus on profit maximization. This
helps screening out commercial enterprises with CSR as SEs in the US.
In 2012, Filipe Santos
13
proposed a positive theory on social enterprise that “social
entrepreneurs address the neglected problem in the society, with sustainable solution based on
empowerment, which generates positive externalities to the powerless segments of the
population”. This is a much improved criteria to distinguish between the selfless social
enterprises aiming at the common good and the limited-selfish enterprises which capture most
of values created though they claim themselves as social enterprises.
8
Banks, J. A. (1972), The Sociology of Social Movements, London: Macmillan, p.53
9
Dees, J Gregory (1998, revised in 2001), The Meaning of “Social Entrepreneurship”
10
Dees, J Gregory and Anderson B Beth (2006), ‘Framing a theory of Social Entrepreneurship: Building in Two
Schools of Practice and Thought’, REDF, can be retrieved on 22 August 2013 fromhttp://www.redf.org/from-the-community/publications/457
11
Mair, Johanna; Battilana, Julie; and Cardenas, Julian (2012), ‘Organizing for Society: A Typology of Social
Entrepreneuring Models’, Journal of Business Ethics (2012) 111:353-373
12
Massetti, Brenda (2011), ‘The Duality of Social Enterprise: A Framework for Social Action’, Review of
Business, Vol. 33, No. 1
13
Filipe M. Santos (2012), “A Positive Theory of Social Entrepreneurship”, Journal of Business Ethics, 111:
335–351
2013-08-29 Copyright© Kee Chi Hing p.6 of 22
2. Research Question
Four Stages of Knowledge Development
Knowledge is developed through four stages. First, cases in a new phenomenon are studied
and followed by landscape surveys. Second, tentative theories are proposed based on
imaginations for the phenomenon. They are then criticized and debated based on existing data.
Third, the relatively better theories are validated on the accuracy of their prediction by large
scale surveys. Even those theories survive through the validation are not necessary the truth
but only the better theories in explaining and predicting the phenomenon. They may be
replaced by newer theories later. Finally, practical values of the new knowledge are exploited
by applied researches.
Problem in Concluding the In-effectiveness of SEs in Stage 2
But SE researches in Hong Kong have been staying in stage two ever since 2006 when
Commission on Poverty first showed interest in SEs. One of the tentative, but prevailing,
theories is that NGOs are not good at running social enterprises, that in turns, implying that
the 3E Project and ESR Program are not successful. These opinions had been reflected in
Policy Addresses from 2007 to 2010 in the rhetoric as the lack of entrepreneurial skills and
mindset or as training and supporting measures. These claims have been taken from granted.
But there are blank spots and blind spots
14
.
No Evidence on who can run SEs better than NGO
Critical examination is absent before concluding the validity of the statement. For example,
there is not any examination and discussion on the success rate of social enterprises run by
non-social workers. Hence there is not any benchmark. Social workers are not good at
business, but conclusion cannot be drawn that they are worse than non-social workers in
running business as there is no evidence provided. In fact, most people are not good at starting
and running businesses, hence most people are employees instead of business owners
Absence of Accounting for the Cost to generate the Social Impact in SEs
Moreover the primary purpose of social enterprise is the creation of social value, but there is
not any study on the achievement of their social impacts. The social mission requires
additional resource to make it happen. In fact, those SEs which employ mentally retarded or
physically disabled have to consume a lot of energy and resources not only to teach these
14
Kamler, Barbara; and Thomson, Pat (2006) Helping Doctoral Students Write: Pedagogies for Supervision,
Oxon: Routledge, p.4. What we do not know well enough to even ask about or care about are Blind Spots. What
we know enough to question but not answer are Blank Spots.
2013-08-29 Copyright© Kee Chi Hing p.7 of 22
employees the technical skills but also have to take care of their psychological conditions and
their family problems. Relatively, those employing seniors or low skilled are easier to manage.
However, there is not any study to account for the cost of these extra resources for delivering
the social impact. Without a proper accounting, an apple to apple to comparison to similar
commercial enterprise is not possible.
Blended Return on Investment (BROI)
Instead of accounting for the extra costs, another approach is the accounting for returns.
Some scholars proposed the concept of blended return on investment which includes both the
value of traditional financial returns and the social impact in the denominator. However, the
quantification of the social impact in financial terms is still not yet mature. Unlike financial
impact of businesses, work in social science always has the problem of evaluation. The
problem has not been faced directly. Scattered answers are merely assumed without critical
analysis
15
(Mills 1959, 2000: 76).
The Value of this Paper
These issues are seldom seriously debated nor researched through comparative studies. The
major blind spot is the ignorance on benchmark data like SE data in the UK, the commercial
enterprise data in the US, and Hong Kong data from those NGOs have both the welfare arm
and the SE arm and hence comparative results can be made.
In Santos’ proposal, there are four elements of social entrepreneurship: sustainable solution,
logic of empowerment, positive externalities, benefiting the powerless segments of the
population. Since the government funding schemes require job creation for the powerless, the
logic of empowerment is already built in.
Therefore, the research questions covering the remaining three elements are as below:
• Whether the social enterprises run by NGOs and funded by Hong Kong government
are as sustainable as commercial enterprises?
• Are the positive externalities generated by these social enterprises at least as cost
effective as those generated by traditional welfare approach, or even better?
• How much positive externality benefits the powerless segment of the population, and
how much positive externality benefits those not the powerless segment?
15
Mills, C. Wright (1959, 2000), The Sociological Imagination, Oxford: Oxford University Press, p.76
2013-08-29 Copyright© Kee Chi Hing p.8 of 22
3. Methodology
A pragmatic view
16
is taken for the strategy of inquiry, because the purpose is to criticize the
prevailing tentative theory that NGOs are not good at running social enterprises. Within the
pragmatism, the data is treated in a postpositive manner which is reductionistic, logical, and
deterministic based on priori theories. A comparative study
17
is adopted to criticize the
prevailing theory. The dependent variables are the cost-effectiveness of similar social impact,
and the median lift spans of the social enterprise and commercial enterprise. The independent
variable is whether it is a social enterprise or not. The former is the test group and the latter is
the benchmark group.
The Dependent Variables and Independent Variables
The two dependent variables are the median life span and cost-effectiveness of social impact.
The independent variable is the grouping, either the SE group or the benchmark group.
Since local social enterprises are not listed companies, it is difficult to get audited financial
report to check the profitability. Hence an objective measure is the survival rate or the median
life span which are objective fact that can be observed. Self-reported profitability from social
enterprise, though will be biased, is also collected but only as a supplementary data. In fact it
is even more difficult to get the audited financial report of commercial enterprises. Though
audited reports of listed companies are available, the size and complexity of SEs are not
comparable.
A way to empower the powerless segments of the population is job creation. Hence the wage
taken by the employees with disabilities or socially disadvantaged employees is a good proxy
for workfare, which is the intended social impact. The benchmark is the cost for generating
similar workfare through traditional welfare approach, that is, the local sheltered workshop.
Social enterprises are set up for the social mission. Sustainability is a way to increase the total
social value created through its life span. The longer the life span, the more the social value
created. Sustainability is a condition for increasing social value. Sustainability can be
achieved by financial breakeven through business income or a mix of business income and
donation. That is, sustainability dose not equal to business financial breakeven. The
benchmark is the survival rates or median life span of commercial enterprises.
16
Creswell, John (2013), Research Design: Qualitative, Quantitative, and Mixed Methods Approach (4
th
Ed.),
Los Angeles: SAGE, p.10-11
17
Creswell, John (2013), Research Design: Qualitative, Quantitative, and Mixed Methods Approach (4
th
Ed.),
Los Angeles: SAGE, p.12
2013-08-29 Copyright© Kee Chi Hing p.9 of 22
Research Design
The table below is how the social impact and business performance of social enterprises are to
be compared.
Table1: Design of Comparative Study to evaluate social enterprises
Test Group Benchmark Group
1) Median life span of SEs
funded by 3E Project
2) Comparison with the US commercial
enterprises on median life span
Enterprise
performance
3) Percentage of profitable SEs
funded by ESR Program
4) Comparison with the UK on
percentage of profitable SEs
8) Comparison with Stewards on
cost-effectiveness on workfare
generation in sheltered workshop
9) Comparison with UnLtd on cost
effectiveness on funding social
entrepreneurship
Social
impact
5) Workfare/year generated by
selected SEs, plus reference on
selected NGOs’ funding
allocated to generate social
impacts
6) Workfare/year generated by 3E
Project
7) Workfare/year generated by
ESR Program
10) Comparison with the social capital
project of CDA on comprehensiveness
of SROI measurement
The test group is SEs funded by government, except item (5) which contains two SEs from 3E
Project and Two SEs from ESR Program, plus one SEs which is run as a limited-by-share
company by businesspeople. All of them are profitable. The purpose is to demonstrate the
ratio of revenue to investment, and the ratio of workfare to investment.
For item (1), the 3E Project is used for estimating the median life span because 3E Project has
data for 11 years while the ESR Program only has 5 years. Moreover, since the survival rate
of the year 4 and year 5 of the two scheme is quite close, hence showing the 3E Project data is
quite representative for the ESR data. For item (3), 3E Project had not collected the
profitability data. Only ESR has. Item (6) and (7) show the assumptions and calculations to
derive the total workfare received by the disable or socially disadvantaged over the media life
span as a ratio of the one-time investment (or grant) received.
The cases in benchmark group are selected for comparison on different aspects of the SEs.
2013-08-29 Copyright© Kee Chi Hing p.10 of 22
4. Data Collection
1) Median Life Span of Social Enterprises funded by 3E Project
In August 2013, the data on 3E Project was received from Social Welfare Department. The
survival pattern of all the approved ventures is listed below. Up to now 76 ventures were
approved and 75 of them were set up.
Table 1: The Survival pattern of social enterprises funded by 3E Project up to 2013
Years in operation
Year
Y
Year
Accumul-
ative
no. of
ventures
Accumulative
funding
amount
approved
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
2003 10 $6,196,945 10 10 10 9 9 9 8 8 8 8 7
2004 20 $9,960,925 10 10 9 8 8 7 7 6 6 6
2005 27 $14,084,250 7 7 7 7 7 7 7 6 6
2006 35 $18,269,906 8 8 7 6 4 4 4 3
2007 42 $21,723,978 7 7 7 6 6 6 5
2008 45 $24,762,997 3 3 3 3 3 2
2009 52 $30,355,414 7 6 5 4 3
2010 60 $34,481,387 8 8 7 5
2011 66 $41,104,545 6 6 6
2012 70 $45,828,331 4 4
2013 75 $52,346,580 5
Since 69% (52/75) of the social enterprises still survive, the median life span has to be
projected from the annual “dying” trend of the SEs; especially the younger batches of SEs by
referencing the trend of those with longer histories. This is done up to year 8 in the table
shown above. It is because in year 9, the size of the reference sample (ie, the batches of 2003,
2004 and 2005) drops to 36%
18
of the total number of SE ventures. Hence a more
conservative dying rate
19
is used. So is the case for year 10 . The resulting median life span is
between year 9 and 10. It is calculated to be 9.3 years. This is not the actual median of
survival years, but the best available estimate
20
based on those ventures with long histories.
Table 2: The projected survival rate of the SEs funded by 3E Project
Year Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Survival 100% 99% 93% 81% 75% 71% 67% 59% 52% 45%
18
The total number of venture is 75. The sample sizes for calculating the overall annual dying rate are: 70
samples in 2
nd
year, 66 in 3
rd
year, 60 in 4
th
year, 52 in 5
th
year, 45 in 6
th
year, 42 in 7
th
year, 35 in 8
th
year, and
27 samples in 9
th
year over the total 75 ventures which means 27/75=36% sampling rate only.
19
The annual dying rates are: 2
nd
year 98.6%, 3
rd
year 93.8%, 4
th
year 87.3%, 5
th
year 93.0%, 6
th
year 94.6%, 7
th
year 93.9%, and 8
th
year 88.5%. Hence the worse annual dying rate is 87.3%. This rate is used to estimate
survival rate for 9
th
year which is 52%, 10
th
year is 45%, and 11
th
year is 39%. So the median is between 9
th
and
10
th
year.
20
Miller, David (1985), Popper Selection, Princeton, p.30: “We do not know, we only guess… if you criticize
my guess, and if you offer counterproposals, I in turn will try to criticize them”
2013-08-29 Copyright© Kee Chi Hing p.11 of 22
2) Percentage of Profitable Social Enterprises funded by ESR Program
In 2013, the ESR team in Home Affair Department provided their 2012 survey data as shown
below. ESR was approved in 2006, hence the longest in the year of operation is only 5 years. .
The start dates of the social enterprises were aligned.
Table 3: Survival rates and self-sustainability rate of ESR projects
End of Funding
21
Year 3 Year 4 Year 5
Projects ceased 0% 13% 20% 23%
Survival rate
-Project at loss
-Project not at loss
100%
-81%
-19%
87%
-51%
-36%
80%
-30%
-50%
77%
-24%
-53%
The survival rate at the fifth year of projects is 77%, of which 24% is at loss and 53% is either
breakeven or profitable. Since the survival rates in Year 4 (80%) and 5 (77%) are very close to
that of 3E’s Year 4 (81%) and 5 (75%), and the context of these two schemes are very similar,
it is assumed the median life span of ESR is similar to 3E to be 9.3 years.
As a reference, in the Hong Kong Council of Social Services 2013 report, a sample of 48 SEs
out of the total of 406 surviving SEs, 24 of them indicated profitable and the other 24
indicated at loss. However, the sample contains surviving SEs with varying years in operation.
3) Comparison with the US Commercial Enterprises on Median Life Span
In the US, 70% of new commercial firms survives by end of second year, 50% survives by
end of fourth years
22
. Hence the median on the life expectancy of commercial firms is 4 years.
In another survey, only 40% of commercial firms can survive after 6 years, and only 18%
after 10 years
23
. Hence the median life is also less than 6 years.
4) Comparison with the UK on Percentage of Profitable SEs
According to a 2013 report
24
by Social Enterprise UK, 55% of the social enterprises were
profitable, 18% breakeven, 22% at loss, and 5% did not replied. But the sample contain only
surviving SEs and with varying years in operation.
21
In year 2011, the Funding Period of ESR has been changed from 2 years to 3 years. Hence the data in the
column “End of Funding” include both projects with 2 years of Funding Periods and projects with 3 years of
Funding Period. However, since the survey was in 2013, the data in the column “2 year after [Funding]“ were all
at their 4 fourth years, and the last column were all at their fifth years of even longer.
22
Barringer, Bruce; and Ireland, Duane (2010, 3rd edition), Entrepreneurship: Successfully Launching New
Ventures, New Jersey: Prentice Hall
23
Marcum, Dave; and Smith, Steve (2002), businessThink: Rules for Getting It Right – Now and No Matter
What!, New York: Wiley
24
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.30.
2013-08-29 Copyright© Kee Chi Hing p.12 of 22
5) Workfare generated by selected Social Enterprises
The following are data obtained from five individual social enterprise organizations, which
operate a total 22 SEs, 5% of the total SE population. The percentages of the annual revenue
on total investment and the percentages of the annual workfare on total investment are listed.
The media revenue on investment is the 324% by taking the average between Stewards and
HKTS (Hong Kong Translingual Service), which rank second and third in the numbers.
Table 5: Ratio of Revenue on Investment and Ratio of Workfare on Investment
Name of SE
Organization
Years in
operation
Funding Source Investment
(HKD ,000)
Revenue
(HKD ,000)
Workfare
(HKD ,000)
Number of
SE Unit
Investment/
Investment
Revenue/
Investment
Workfare/
Investment
MentalCare
14
11 3E Project
grant+ Donation
11,570
100%
70,700
611%
6,860
59%
HKTS
1
3 ESR Program
grant
700
100%
2,700
386%
1,170
167%
Stewards
6
9 3E Project
grant+ Donation
2,510
100%
6,580
262%
2,730
109%
My Concept
1
6 ESR Program
grant +Donation
1,300
100%
1,700
131%
430
33%
Total 22 units Media 324%
As a reference, the percentages of the income of the charities allocated to the service
programs are collected from iDonate
25
, a charity rating agency. Examples of big charity
organizations which have to publicize their financials and do not have significant business
income are Oxfam which spent 80% of its total expenditure on service programs, World
Vision 95%, MSF (Medicines Sans Frontiers) 80%, and Community Chest which only
allocate 82% of the donation income to other charities, after deducting its own overhead. The
median of these four organizations is 81%.
6) Workfare generated by 3Es
The social mission of the 3E project is to enhance the employment of people with disabilities.
The main component of workfare (work-to-welfare) is the wage, which is a good proxy for
the social impact. First, it can be monetized to calculate the ratio between the investment and
the social impact. Second, it is much better than using the number of employees as most SEs
cannot provide the full-time-equivalent (FTE) number on the part-time employees. In 2013,
there were 541 disabled employed with an average income of $6,245/month, the total
workfare is $40,542,540/year
26
.
25
The web-site of iDonate ishttp://www.theidonate.com/
26
541 disabled employed with an average income of $6,245/month. Hence the total workfare is 541 disabled x
2013-08-29 Copyright© Kee Chi Hing p.13 of 22
As the total amount granted to the 75 ventures were $52,364,580, therefore each dollar
granted generates workfare valued to 77.4 cents/year
27
. In short, each dollar granted will lead
to 7.2 dollars
28
over the median life span of 9.3 years. The social-return-on-investment (SROI)
of the 3E funding is very good.
7) Workfare generated by ESR Program
The social mission of the 3E project is to enhance the self-reliance of the socially
disadvantaged people through employment. Hence the concept is also workfare. Up to 2012,
there have been 144 projects funded with HKD156 million. Half of them had responded to the
survey. The 144 ESR projects employ 2,370 people, of which 604 employees are full time and
the remaining 1,766 are part-time. This numbers include 2,064 Socially Disadvantaged (SD),
of which 368 are full time and 1,696 are part-time.
A proxy of the workfare is the wage earned by the SDs. Though we use the wage as a proxy,
the actual values received by the SD are more than money, but “a dignified way of living” as
recalled by Fisher. At present the total annual workfare to the 2,064 SDs is HKD64 million.
The accumulated ESR grant is HKD156 million. That means each ESR grant dollar leads to
41 cents of SD wage. In 9.3 years, the total workfare generated is 3.81 dollars
29
.
The ratio in the 6 years old ESR is 0.41 and that in the 12 years old 3E is 0.77. The level of
workfare for the same dollar of investment will grow over the years. It is because the level of
workfare is proportional to the business revenue, which in turns is a function of the years of
operation due to the learning curve of the business knowledge and the accumulation of the
customer base. The Social Enterprise UK survey
30
also reported the revenue of social
enterprises with different ranges of years in operation. The longer the years of operation, the
bigger is the size of the revenue.
Table 4: The correlation between the revenue size and years of operation
Years of operation of the SEs < 3 years 4-5 years 6-11 years >11 years
Medium annual revenue size ?44,000 ?89,000 ?205,000 ?360,000
$6,245/month x 12 months = $40, 542, 540/year
27
$40,542,540/$52,364, 580 = 77.4%
28
77.4 cents/year x 9.3 years = 7.2 dollars
29
Calculated by $0.41 x 7.2 years = $2.95.
30
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
2013-08-29 Copyright© Kee Chi Hing p.14 of 22
8) Comparison with Stewards on workfare generated in sheltered workshops
“In 2009, Stewards commissioned a comparative study to KEEP Consulting Ltd
31
in
Stewards on the SROI of the two sheltered workshops, and that of their five social enterprises,
such as Catering service in schools and Car beauty service with the purpose for providing job
opportunity for disadvantaged groups.
Sheltered workshop aims to provide persons with disabilities with appropriate vocational
training and enhance their working capacity in order that they can move on to supported or
open employment. Various training and activities are provided to them, such as training in
work habit, training allowance and activities to meet the services users’ developmental/social
needs. In this study, focus is on the comparison on the workfare between Sheltered Workshop
and Social Enterprise because it is “numerically comparable” on the economic impact to the
society.
In the first sheltered workshop, for $1/year of workfare, the on-going funding needed is
$6.4/year. In the second workshop, the funding needed is $5.0/year. At that time, the portfolio
of SEs consisted of some profitable ones and some at loss. But the overall number was still at
loss. For $1/year of workfare, Stewards had to inject $1.7/year to maintain all social
enterprises. Therefore, the cost to maintain the same amount of workfare is less through social
enterprises. The ratio between sheltered workshop and the SEs was $5.0 to $1.7.
After the comparison, Stewards tuned its social enterprises portfolio based on the Blended
Return on Investment (BROI) consisted of two measures: the financial return and the
workfare (as the social impact). Both of them can be expressed in dollar value.
For continuous improvement of the enterprise, Stewards closed down those social enterprises
with negative BROI and shifted the people and resources to other social enterprises. After the
tuning, the portfolio was still at loss at the first place. But within months, for $1/year of
workfare the funding needed to cover the loss significantly reduced to $0.7/year. The ratio
between sheltered workshop and the SEs was widened to $5.0 to $0.7.
Later, the profitability of portfolio of social enterprises was turned around. The portfolio is
self-sustainable financially. Now for $1/year of workfare, Stewards does not need to inject
funding. The ratio between sheltered workshop and the SEs is $5.0 to $0.0. Moreover, each
dollar of investment in SEs generates $2.79 of annual revenue, and $1.08 workfare/year.”
32
31
KEEP Consulting’s web-sitehttp://www.keep-consulting.com/index.html
32
This part of the paper was extracted from FSES Research Report 2013 August, “ SROI of 3E of SWD” by Kee,
Chi-hing; and Chiu, Jimmy
2013-08-29 Copyright© Kee Chi Hing p.15 of 22
9) Comparison with UnLtd on cost-effectiveness of funding SEs
UnLtd
33
is a charity founded in 2000 for developing social entrepreneurs. It was selected as a
reference because it provides insights on the difference between a charity and a SE.
One of its programs called HEFCE
34
reveals its operation data. It partnered with 70 Higher
Education Institutions (HEI) to realize the potential of social entrepreneurship. Out of the £1
million total cost, £625,000 was given out as awards to 200 students and HEI staff to set up
200 social ventures . There were 191 awardees at Level 1 with a start-up fund amounted
£2,500 (HKD30, 200). The most promising 5% (ie 9 persons) were awarded at Level 2 with a
scale-up fund amounted £15,000 (HKD181, 200). The most popular businesses included:
• training local people and raising aspirations of young people under 18, both of which
were helping to increase access to Higher Education
• services to students within their HEI in order to improve their experience and success
• creating volunteering opportunities and to improve students’ employability prospects
The average awarded amount is £3,125. From their business, they generated additional £5,800
income. Each has 540 beneficiaries, which means 540 customers paying £5,800 for services
which cost = £8,925
35
.
The HEFCE program used £1 million to develop 200 awardees each costing £5,000 (HKD60,
400/person). As most could not break even, they were at-loss businesses which were not
generating positive externalities for the powerless people, but benefiting the students and HEI
staff. As a result of these entrepreneurship experiences, 90% of awardees felt better able to
run a social venture and they intended to continue.
Table 4: Breakdown of 2012 UnLtd expenditure
Cost of supports
to awardees
Awards Cost of fund
generation
Governance Trading activities
in subsidiary
Total
Expenditure
£5,010,253 £3,268,496 £127,692 £121,531 £79,122 £8,764,059
As a reference, in 2012 the total expenditure of UnLtd
36
was shown above. Since there were
1,000 awardees, the average cost per awardees was £8,764 (HKD106, 000), of which only
37% was directly go to the awardees. Since year 2000, there were at least 7,000 awardees. If
its survival rate is similar to 3E Project, close to 5000 of their ventures should still exit.
Unfortunately, the survival data cannot be found in its web-site. As a reference, there are
about 70,000
37
SEs in the UK.
33
The web-site of UnLtd ishttp://unltd.org.uk/ .
34
The HEFCE program is documented in a report “Unlocking the Potential of Social Entrepreneurship in
Higher Education” which on 25 August 2013 can be retrieved fromhttp://unltd.org.uk/wp-content/uplo...otential-of-social-entrepreneurship-in-HE.pdf
35
£3,125 +, £5,800 = £8,925, ie, HKD114, 240.
36
The UnLtd 2012 Report can be retrieved on 26 August 2013 fromhttp://unltd.org.uk/wp-content/uploads/2012/07/UnLtdAnnualReview_2012_no_crops_compressed.pdf
37
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.6
2013-08-29 Copyright© Kee Chi Hing p.16 of 22
10) Comparison with Community Development Association on SROI measurement
Community Development Association (CDA) is a small NGO which had a social capital
project in Hong Kong’ Tin Siu Wai called Dawn Market in 2008 to 2012. Oxfam Hong Kong
had provided HKD1.5 million over three years to fund CDA’s effort to help the marginalized
families in Tin Shui Wai. The services of CDA to those families soon evolved from assistance
to get welfare supports and counseling only to helping them to increase family incomes
through being a hawkers in main pedestrian path in the district that was not intended for
commercial activities. The number of hawkers increased from around 20 in 2008 to more than
80 in 2012. The average income per hawkers increases from HKD126/day to 253/day. By the
end of 2013, Hong Kong government built a new market in another location in the same
district to house all these hawkers.
The accumulative results of this CDA project over three years in the Donald Kirkpatrick
38
Model are as below.
• Cost: The total financial input is the HKD1.5 million from Oxfam
• Cost: Volunteers contributed 5,040 man-hours: 144 man-hours from 2 scholars, 1,440
man-hours from 5 social workers, and 3,456 man-hours from other volunteers
• Level 1 Satisfaction: The overall current life satisfaction 3.61 in a scale of 1 to 5 with
5 being the best. When asking the hawkers to assess their life satisfaction before being
hawkers, the average satisfaction was 2.40.
• Level 2 Knowledge: The overall media daily income increased from HKD 126/day to
253/day. This was echoed by their self assessment on business knowledge
improvement from 2.6 to 4.5 in the scale of 1 to 5.
• Level 3 Behaviour: The median on number of good friends is 9.94, of which they can
ask 2.26 friends to borrow a sum of money equal to the hawkers’ monthly income.
Receive from others Provide to others
Helps between good friends 87.5% 83.3%
Helps on taking care of the “shop” 79.2% 75.0%
Initiate chats 62.5% 62.5%
Borrow goods or tools 37.5% 25.0%
Ask to help buy things 25.0% 12.5%
• Level 4 Impact: The total income of the hawkers over three years was HKD8.9 million,
the resident’s benefits from lower price of the hawkers was HKD1.3 million, and the
possible saving of government CSSA cost was HKD3.7 million.
A point to note is that in a SE project, SE organization is the primary driver of the social
impact and financial impact. But in this social capital project, CDA’s role was of a trigger and
enabler. The financial impact was driven by the hawkers themselves.
38
Wikipedia on “Donald Kirkpatrick”, can be retrieved fromhttp://en.wikipedia.org/wiki/Donald_Kirkpatrick
2013-08-29 Copyright© Kee Chi Hing p.17 of 22
5. Discussion
The data collected are summarized and organized in the table below.
Table 6: Results of Comparative Study to evaluate social enterprises
Test Group Benchmark Group
Enterprise
performance
1) Median Life Span of SEs funded by
3E Project is 9.3 years
2) At the 5
th
year, 53% of social
enterprises funded by ESR Program
self reported as profitable. If those
ceased in operation are taken out
from the denominator, the
percentage is 66%. By the way, the
more the years in operation, the
higher the likelihood of being
profitable.
3) Median Life Span of the US
commercial enterprises is 4 years.
This matches another survey in
which the median is less than 6
years.
4) Profitability of SEs in the US
ranged from 50% to 66%. The
denominator does not include those
already ceased to operate.
Social
impact
5) The media annual revenue of the
five selected SEs is 386%, and the
median annual workfare is 64%. In
the four selected major NGOs in
Hong Kong, for each $1 of
donation or grant received, $0.81
is used in service programs,
including direct benefits to the
beneficiaries and administrative
costs of the specific service
program
6) Workfare/year generated is
$0.41/year/dollar-granted by ESR,
which is in operation for 6 years.
Assuming the median life span is
same as 3E, the total workfare over
9.3 years is $3.8 workfare/year for
$1 of one-time grant
7) Workfare/year generated is
$0.77/year/dollar-granted by 3E,
which is in operations for 11 years.
So the total workfare over 9.3 years
is $7.2 workfare/year for $1 of
one-time grant
8) In Stewards, $1/year of workfare
required at least $5/year of grant or
donation. That is $0.2 workfare/
year for $1/year of grant or
donation. But the benefits received
by the beneficiaries are more than
$0.2, such as the welfare supports
and counselling services to the
beneficiaries and their families
9) The expenditure of UnLtd in 2012
was £8,607,094 for 1,000 award
recipients. That means the average
expenditure per recipient was
£8,607 (HKD103, 972). The actual
money to the awardees was
£3,268,496, ie, 37% of the total
cost.
10) In CDA, a more comprehensive
measurement covering monetized
impacts, behavioural statistics,
skills improvement reflected by
income changes, and pre- and post
overall satisfaction score.
2013-08-29 Copyright© Kee Chi Hing p.18 of 22
Social enterprises has much longer media life span than commercial enterprise
The median life span of SEs is about double that of commercial enterprises in the US. So,
they have a relatively much better sustainability. The better business of SEs as compared to
commercial enterprises was also found in Social Enterprise UK 2013 survey
39
. It shows that
SEs have higher revenue growth rates as compared to the small-medium enterprise. A possible
explanation is the bigger social capital owned by SEs. Because the primary motive of social
entrepreneurs is to generate benefits for the powerless people instead of for themselves, their
selfless earn the respect and voluntary supports from others.
Table 7: Comparison on revenue growth between SE and SME in UK
% of Social Enterprises % of Small-Medium Enterprise
Revenue increased
in past 12 months
38% 29%
Revenue decreased
in past 12 months
22% 31%
Moreover, if a SE is at loss, but the amount of loss is still less than the cost for delivering
similar social impact, then the existence of the social enterprise is still worthwhile and the SE
is kept. The case of Stewards which compares the two approaches shows the superiority of the
SE approach, as long as for those only mildly mentally handicapped.
The social-return-on-investment (SROI) of social enterprises are well justified
The SROI of ESR Program is about 380%, which means $3.8 per $1 granted, as calculated by
the average annual workfare generated times the median life span
40
. The SROI of 3E Project
is about 720%
41
. The difference in the two SROI is due to the difference in workfare. The 3E
Project has a higher one because annual workfare is proportional to annual revenue, which in
turns is affected years of business experience and accumulation of customer base.
The Social Enterprise UK survey
42
also reported the revenue of social enterprises with
different ranges of years in operation. The longer the years of operation, the bigger is the size
of the revenue.
Table 8: The correlation between the revenue size and years of operation
Years of operation of the SEs < 3 years 4-5 years 6-11 years >11 years
Medium annual revenue size ?44,000 ?89,000 ?205,000 ?360,000
39
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
40
For ESR Program, average annual workfare is $0.41. The median life span used is 9.3 years.
41
For 3E Project, average annual workfare is $0.77. The median life span is 9.3 years
42
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
2013-08-29 Copyright© Kee Chi Hing p.19 of 22
The traditional welfare approach operates in a subtraction equation. The resource allocated to
the service program is the money input minus the overheads. So in the best cases, one dollar
becomes 81 cents only. But the SE approach operates in a multiplication equation due to the
business operation. The money input will be multiplied to become the annual revenue, and not
once but for years again and again. So one dollar becomes 7.2 dollars over 9.3 years.
Comparison between 3E Project and UnLtd on cost-effectiveness on funding SEs
The similarities between UnLtd and 3E Project include the following.
• both started around year 2001
• both are funders to social entrepreneurship ventures
• both have measures to support the grantees
The differences between them are as below.
• 3E Project focuses on the beneficiaries of the SEs funded, with a very specific
requirement on the beneficiary should be the people with disabilities. UnLtd focuses
on the potential social entrepreneurs and only has a generic social mission requirement
• The average cost per grant of 3E Project is more than 10 times of UnLtd award, but
the average number of grant/year of 3E Project is only 7 while that of UnLtd is 1,000
• The sustainability of the ventures funded by 3E Project is much better than UnLtd
• 3E Project collects data about the social impact which is the level 4 measure of
Donald Kirkpatrick
43
Model, while UnLtd is the lower three levels as show below
Table 9: Comparison between UnLtd’s 2009-11 HEFCE Program and ESR Program
Measure UnLtd’s HEFCE 3E Project
Level 4:
Impact
No data Generate HKD540, 567/year of workfare
to 7.2 disabled employees, over 9.3 years
Level 3:
Behaviour
Create 2 jobs, and 12 volunteer
opportunities, and sell to 540
clients for a total of £5,800
No data
Level 2:
Knowledge
No data No data
Level 1:
Feeling
80% intend to run the SE after
graduation. 90% feel better able
to run social enterprise
No data
Cost Each get £3,125 (HKD37, 750),
or cost £5,000 (HKD60, 400)
44
if
included overhead cost
Each SE granted HKD697, 941 in average.
No data on 3E Project overhead cost.
43
Wikipedia on “Donald Kirkpatrick”, can be retrieved fromhttp://en.wikipedia.org/wiki/Donald_Kirkpatrick
44
For HEFCE, the cost for each award is about the price of an average self-funded Master degree provided by
universities in Hong Kong. But it does not seriously assess the knowledge gained like a formal education.
2013-08-29 Copyright© Kee Chi Hing p.20 of 22
6. Conclusion
The better cost-effectiveness of SE echoed J A Banks who defined social entrepreneurship in
1972, and emphasized the “managerial” skill as the main driver of the intended results.
The SE funding schemes of Hong Kong government perform very well in meeting their
objectives as reflected by the social return on investment (SROI). It is because unlike the
traditional welfare approach which has a subtraction effect on the funding due to overhead
costs, SE has the multiplying effect from the revenue-generating business, which in turn leads
to workfare provided to the disabled or socially disadvantaged year after year.
One of the grantees of 3E Project is Stewards which had a favourable evaluation on the
cost-effectiveness of its SEs as compared to its sheltered workshop in workfare generation.
While sheltered workshop needs injection of funding as long as it is in operation, SE has the
opportunity of breakeven, and no more funding is required while the operation still keeps
going. The limitation is that SE can only handle those people with minor disabilities only.
On the other hand, though both 3E Project and UnLtd fund social entrepreneurial ventures,
they cannot be compared as the focus of UnLtd is developing social entrepreneurs, not social
enterprises. Since the cost per award is close to the price of self-funded Master degree
programs, UnLtd’s effectiveness is better compared to the mindset changes, knowledge
gained and new behaviour developed of a formal education program.
Finally, this paper demonstrates a way to evaluate the SROI of the SEs in two funding
schemes, together with the survival trend of about 200 SEs over 10 years of operation, and
change of the mix consisted of those SEs ceased, those profitable and those still at-loss. The
assumptions and estimations in deriving the results are listed so that future research can
improve them to get more accurate results. It also argues against prevailing theories or
opinions in conferences, media, and public impression that NGOs funded by government are
not good at running SEs. Finally, though the number of the SEs and sizes of SEs are smaller
to the UK and some developed countries, the ecosystem developed in Hong Kong is a
forerunner in terms of the SE performance and the way to measure the performance.
2013-08-29 Copyright© Kee Chi Hing p.21 of 22
7. Recommendation
Many evaluation methods have been proposed for SEs. Actually, the trick is how to monetize
the intangible social benefits. In business, similar problems on monetizing intangible benefits
were encountered during the days of Total Quality Management (TQM) in 1980’s. Hence the
job should borrow the knowledge from multinationals with rich practical experience in the
rhetoric articulating TQM benefits.
The case of CDA demonstrates a more comprehensive way to reflect the social impacts of
SEs, based on the Kirkpatrick model, covering dimensions on affective, cognitive,
behavioural, and financial. In fact, CDA had also collected narratives from the hawkers in its
qualitative study, together with the surveys to quantify the changes, and the monetized
impacts. CDA set an example on communicate the social impact.
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