Description
Detailed explanation regarding the increased awareness of entrepreneurs on the brand value.
LC Paper No. CB(2)1191/13-14(01)
Social Enterprises ? ?? ? Research ? ?? ?Training
Kee Chi-Hing [email protected]
H
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g
K
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g
w
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f
s
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h
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Fullness Social Enterprises Society August 2013
T: (852) 2886 8932 F: (852) 3011 5526
[email protected]
www.fses.hk
Social Return on Investment (SROI) of “Enhancing Employment of People
with Disabilities through Small Enterprise Project” (3E Project)
Summary
• Benchmarking: Social Enterprise UK had commissioned “The State of Social
Enterprise Survey 2013” which provides data on performance of SEs in the UK.
o 38% of SEs had revenue increment in past 12 months, as compared to
the 29% SMEs; 22% of SEs had revenue decrement as compared to 31%
in SMEs. That is, SEs had higher growth rates compared to SMEs.
o The median revenue of surviving SEs grows 5 times in about 10 years.
o In 2013, 78% of respondent used SE status in their marketing, as
compared to 53% in 2011. Consumers start to internalize the concept of
“Buy Social”.
• SE Definition: The increased awareness of entrepreneurs on the brand value of
“SE” triggers the academic effort on defining the sufficient conditions, instead
of only necessary conditions, on what is a SE to avoid the abuse of the SE label.
According to Professor Filipe Santos of INSEAD, social entrepreneurs should
generate positive externalities benefiting the powerless community through
sustainable solutions based on empowerment.
• Empowerment: Providing a job to the jobless is an empowerment.
• Sustainable solution: The SEs funded by 3E has a median life of 9.3 years, as
compared the median life of 4 years of the US commercial enterprises. So 3E
Project achieves a much higher sustainability relatively.
• Benefit on Workfare to the Powerless: Each grant dollar generates 77.4
cents/year of workfare for the people with disability. Over the 9.3 years, the
total workfare is 7.2 dollars. That is, one dollar grant results to 7.2 dollars
workfare.
• Benefit on Social Costs: The comparison between sheltered workshop and the
SE portfolio in Stewards Ltd, a Christian Charity Organization (hereafter
Stewards), reflect the significant difference in cost-effectiveness if only
counting the workfare. However, social enterprises cannot help those in severe
disability. So, there is a limit on social enterprise application.
• Recommendation: Hong Kong government has done a good job in designing
and running funding schemes to incubate social entrepreneurship, but not a
good job in evaluating and promoting its own achievements. The evaluation
and marketing job should be revised to increase the return-on-investment of
the marketing dollars.
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
2 of 8
Introduction
The first government policy on social entrepreneurship was the Enhancing
Employment of the People with Disabilities through Small Enterprise Project (3E
Project) in 2001 in Social Welfare Department. The second one is the Community
Investment and Inclusion Fund (CIIF) in 2002 also in the then Health, Welfare and Food
Bureau (now the Labour and Welfare Bureau). The third one is the Enhancing Self-
Reliance through District Partnership Scheme (ESR) in Home Affair Department, the
fourth one is the Microfinance Scheme in Hong Kong Mortgage Corporation in 2012,
and the latest one is the Social Innovation and Entrepreneurship Development Fund
(SIE) in the Commission on Poverty in 2012. The funding allocated to all these
initiatives exceeds HK$1,645 million.
There is a growing appreciation on social enterprises. In the 2013 survey
commissioned by Social Enterprise UK, 78%
1
of social enterprise 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 label of Social Enterprise.
Scholars found that concepts like double bottom-lines or a business set up for a social
mission are insufficient as a stringent definition. In 2006, Gregory Dees
2
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, about three quarter of the projects are in developing countries
where ‘systemic changes’ are more likely to achieve. In 2011, Brenda Massetti
3
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. In 2012,
Filipe Santos
4
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.
This report aims at discussing how social enterprises funded by 3E exhibit the positive
externalities and the relatively better sustainability.
1
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.26
2
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/
3
Massetti, Brenda (2011), ‘The Duality of Social Enterprise: A Framework for Social Action’, Review of
Business, Vol. 33, No. 1
4
Filipe M. Santos (2012), “A Positive Theory of Social Entrepreneurship”, Journal of Business Ethics, 111:
335–351
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
3 of 8
Research Question
In the social enterprises funded by 3E, the powerless segment is the people with
disability. The neglected problem is the unemployment rate of the people with
disabilities. Job creation is a way to empower the people with disabilities, the
benefits include the four C’s: cash (earned income), capability development,
confidence resulted from trust and respect, and CV (job credential).
The research questions are as below:
1) Whether the social enterprises are sustainable?
2) Are there positive externalities?
3) How much positive externality benefits the powerless, and how much positive
externality benefits those not the powerless?
Data Collection
The data provided by the 3E team in Social Welfare Department on the survival pattern
of all the approved ventures are listed below. Up to now 76 ventures were approved
and 75 of them were set up. About 76% of SEs was
5
approved in the initial 3 years.
Table 1: The Survival pattern of ventures funded by 3E Project up to 2013
Years in operation
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
Sustainability of the Social Enterprises
To calculate the social-return-on-investment (SROI) over the life span of the social
enterprises, there must be a number on the life span. Since 69% (52/75) of the social
enterprises still survive, the median life span has to be projected from the annual
5
As a reference, the presentation on 3E Project in June 2005 showed that there were 32 ventures
approved with $16 million grants. Of which, 5 were profitable, 8 at breakeven, 9 were at loss
5
, and the
remaining 10 were less than one year in operation hence could not be concluded on the profitability.
These ventures employed 300 people with disability, and each get average $3,600/month.
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
4 of 8
“dying” trend; especially the younger batches of social enterprises 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%
6
of the
total number of social enterprises. Hence a more conservative dying rate
7
is used. So is
the case for year 10 and year 11. 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
8
based on those 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%
The social enterprises funded by 3E have a much better sustainability, because as a
comparison the median life span of US commercial firms is only 4 years
9
.
Positive Externality benefiting the Powerless
The social mission of the 3E grantees is to enhance the employment of the 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. There were 541 people with disability employed
with an average income of $6,245/month. The total workfare is $40,542,540/year
10
.
As the total amount granted to the 75 social enterprises were $52,364,580, therefore
each dollar granted generates workfare valued to 77.4 cents/year
11
. In short, each
dollar granted will lead to 7.2 dollars
12
over the median life span of 9.3 years. The
social-return-on-investment (SROI) of the 3E grantees is very good.
6
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.
7
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.
8
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”
9
Barringer, Bruce; and Ireland, Duane (2010, 3rd edition), Entrepreneurship: Successfully
Launching New Ventures, New Jersey: Prentice Hall
10
541 people with disability employed with an average income of $6,245/month. Hence the total
workfare is 541 people with disability x $6,245/month x 12 months = $40, 542, 540/year
11
$40,542,540/$52,364, 580 = 77.4%
12
77.4 cents/year x 9.3 years = 7.2 dollars
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
5 of 8
Positive Externality benefiting the Taxpayers
In 2009, Stewards commissioned a comparative study to KEEP Consulting Ltd 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 social enterprises 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 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 social enterprises
was widened to $5.0 to $0.7, a difference of seven times.
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 social
enterprises is $5.0 to $0.0. Moreover, each dollar of investment generates $2.79 of
annual revenue, and $1.08 workfare/year.
In summary, from a taxpayer’s point of view we have a social responsibility to help the
disabled and socially disadvantaged. Social enterprises can provide a relatively better
sustainable solution and more cost-effectiveness to address a social problem. Even if
the social enterprise is not yet breakeven, the cost for the same workfare is less. As a
reference, this is why the UK government is so keen to promote social
entrepreneurship. A consideration behind is the financial difficulties faced by the
government.
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
6 of 8
Discussion
Drivers behind the longer sustainability
There are three reasons why the 3E grantees have a life span better than commercial
firms. This first reason is similar to the case of Stewards. Even the social enterprise is
at loss, the amount of money needed is still much less compared to traditional social
welfare approach. Hence it is funded to cover the loss. It is the characteristic of NGOs
in emphasizing positive externality benefiting the powerless.
The second reason is the bigger social capital owned by social enterprises. Because
the primary motive of social entrepreneurs is to generate benefits for the powerless
people instead of for themselves, their selfless motive earns the respect and voluntary
supports from others. Though commercial entrepreneurs also perform corporate social
responsibility, their primary motive is self interest. So the difference in social capital is
due to the perception and reaction of others to “selfless” and “limited selfish”.
Finally, social enterprises have higher revenue growth rates as compared to the
small-medium enterprise. There is no Hong Kong data, but Social Enterprise UK 2013
survey
13
has as below.
Table 3: 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%
As a reference point, the first batch of 10 projects was approved in 2003. Seven of
them are still in operation.
• Cheers Gallery Convenience Store (???? ???? - ?????)
• MentalCare Cleansing Service (????????)
• Enterprise Vegetable and Fruit Processing Service (???????????)
• Oi Kwan Catering Service (??????)
• Mobile Massage Service of Hong Kong Society for the Blind (???????
??????)
• Richmond Welbiz Cleaning Service (??????????)
• Hong Yip Cleaning Service (????????)
Social enterprises like MentalCare continue to grow rapidly since 2002. Last year its
revenue was $71 million/year, with a workfare of $6.9 million/year. Tung Wah which
operates Enterprise Vegetable and Fruit Processing Service has capitalized on the
industry knowledge and evolved to set up Cookeasy and then later iBakery line of
shops. These organizations are able to keep expanding their social enterprises portfolio
to benefit increasing number of people with disability.
13
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
7 of 8
Driver behind the growth of workfare per dollar invested
The level of workfare for the same 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
14
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
Conclusion
The 3E Project is very successful in sustainability relative to commercial enterprises,
and in generating workfare for the people with disabilities relative to traditional
welfare approach.
Recommendation
Knowledge is developed in four stages. First, cases in a new phenomenon are studied
and followed by landscape surveys. Second, tentative theories are proposed and then
debated for the phenomenon. Third, the theories are validated by large scale surveys.
Finally, practical values of the new knowledge are exploited by applied researches. 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 non-profit organizations are not good at
running social enterprises. This theory is seldom debated, or validated through
available data. The common 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
Stewards and other welfare service providers.
Government has commissioned evaluations of its funding schemes. But usually it does
not know how to specify the core expertise needed. 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). Hence the job should consult scholars and business executives with rich
practical experience in the rhetoric articulating TQM benefits.
Government’s two SE schemes are successful in terms of SROI. Public money is well
spent on the schemes. However, the public appreciation of the achievements is low.
The blank spot to be corrected is the current promotion strategies which should be
revised to improve the return-on-investment of the public money on marketing!
14
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
8 of 8
Our Research Team
Kee Chi-hing
Before retirement, Kee was a Corporate Vice President and Hong Kong Managing
Director of Hewlett-Packard (HP). Now he is a part-time lecturer of the MBA program
in Baptist University. His publications include “??????????”, “20 Business
Strategies for Social Enterprises”, “Social Enterprise and Spirituality” and “????”.
Kee is a member of the Social Enterprise Advisory Committee in Home Affair Bureau,
and a member of the Community Investment and Inclusion Fund in Labor and
Welfare Bureau; a co-opted member of the Social Innovation and Entrepreneurship
Development Fund Task Force in the Commission on Poverty, and a co-opted member
of the Digital Inclusion Task Force of Office in the Government Chief Information
Officer.
Chiu Lap-kee, Jimmy
Jimmy is the Chief Executive of Stewards Ltd., which is a non-profit making Christian
Organization with 700 staff members providing social welfare, education, health care
services and social enterprise for the Hong Kong community. Before taking this post,
he had served in Social Welfare Department for 15 years. Jimmy obtained BA in Social
Policy and MA in Social Work in UK. He was awarded MA in Arbitration and Dispute
Resolution, and Juries Doctor in 2003 and 2009 respectively.
Currently, Jimmy is a member of Community Investment and Inclusion Fund in
Labour and Welfare Bureau; the NTW Cluster Clinical Research & Ethics Committee
in Hospital Authority; and Midwives Council of Hong Kong Preliminary Investigation
Committee. Besides, Jimmy is a member of the Hong Kong Institute of Arbitrators. He
is also the Hon. Advisor of Hong Kong Association for Parents of Persons wit Physical
Disabilities.
About FSES
Fullness Social Enterprises Society (FSES) is non-profit organization aiming to be the thought
leader in the social enterprises movement in Hong Kong. Through applied research,
publication, and dedicated training, FSES provides insight and intelligence to social enterprises
practitioners in Hong Kong.
The Society can be traced back to Fullness Christian Vocation Training Centre (FCVTC), which
was the Hong Kong pioneer of social enterprise setup in 1987. After applying business skill to
turnaround the profitability in 2007, it was the first social enterprise to raise capital through
issuing stocks in 2008 to set up Fullness Christian Social Enterprise (FCSE). The latter promoted
ethical consumption in 2009, and knowledge volunteering in 2010. It then set up FSES in 2011.
FSES promoted on social return on investment in 2011, and social marketing in 2012.
This document is for information only and for the use of the recipient. It is not to be reproduced or copied or made
available to others. They may contain information which is private and confidential. Any unauthorized use,
disclosure, copying and distribution of their content are strictly prohibited. While the information contained herein
is from sources believed reliable, we do not represent that it is accurate or complete and it should not be relied upon as
such. Fullness Social Enterprises Society shall not in any circumstances whatsoever be liable or responsible for any
inaccuracies, incompleteness, omissions, mistakes, errors in the document, or for any economic or any other loss or
damage incurred, sustained or suffered by the recipient(s) of the document or any other person, whether directly or
indirectly, arising out of or in connection with the document.
doc_952137303.pdf
Detailed explanation regarding the increased awareness of entrepreneurs on the brand value.
LC Paper No. CB(2)1191/13-14(01)
Social Enterprises ? ?? ? Research ? ?? ?Training
Kee Chi-Hing [email protected]
H
o
n
g
K
o
n
g
w
w
w
.
f
s
e
s
.
h
k
Fullness Social Enterprises Society August 2013
T: (852) 2886 8932 F: (852) 3011 5526
[email protected]
www.fses.hk
Social Return on Investment (SROI) of “Enhancing Employment of People
with Disabilities through Small Enterprise Project” (3E Project)
Summary
• Benchmarking: Social Enterprise UK had commissioned “The State of Social
Enterprise Survey 2013” which provides data on performance of SEs in the UK.
o 38% of SEs had revenue increment in past 12 months, as compared to
the 29% SMEs; 22% of SEs had revenue decrement as compared to 31%
in SMEs. That is, SEs had higher growth rates compared to SMEs.
o The median revenue of surviving SEs grows 5 times in about 10 years.
o In 2013, 78% of respondent used SE status in their marketing, as
compared to 53% in 2011. Consumers start to internalize the concept of
“Buy Social”.
• SE Definition: The increased awareness of entrepreneurs on the brand value of
“SE” triggers the academic effort on defining the sufficient conditions, instead
of only necessary conditions, on what is a SE to avoid the abuse of the SE label.
According to Professor Filipe Santos of INSEAD, social entrepreneurs should
generate positive externalities benefiting the powerless community through
sustainable solutions based on empowerment.
• Empowerment: Providing a job to the jobless is an empowerment.
• Sustainable solution: The SEs funded by 3E has a median life of 9.3 years, as
compared the median life of 4 years of the US commercial enterprises. So 3E
Project achieves a much higher sustainability relatively.
• Benefit on Workfare to the Powerless: Each grant dollar generates 77.4
cents/year of workfare for the people with disability. Over the 9.3 years, the
total workfare is 7.2 dollars. That is, one dollar grant results to 7.2 dollars
workfare.
• Benefit on Social Costs: The comparison between sheltered workshop and the
SE portfolio in Stewards Ltd, a Christian Charity Organization (hereafter
Stewards), reflect the significant difference in cost-effectiveness if only
counting the workfare. However, social enterprises cannot help those in severe
disability. So, there is a limit on social enterprise application.
• Recommendation: Hong Kong government has done a good job in designing
and running funding schemes to incubate social entrepreneurship, but not a
good job in evaluating and promoting its own achievements. The evaluation
and marketing job should be revised to increase the return-on-investment of
the marketing dollars.
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
2 of 8
Introduction
The first government policy on social entrepreneurship was the Enhancing
Employment of the People with Disabilities through Small Enterprise Project (3E
Project) in 2001 in Social Welfare Department. The second one is the Community
Investment and Inclusion Fund (CIIF) in 2002 also in the then Health, Welfare and Food
Bureau (now the Labour and Welfare Bureau). The third one is the Enhancing Self-
Reliance through District Partnership Scheme (ESR) in Home Affair Department, the
fourth one is the Microfinance Scheme in Hong Kong Mortgage Corporation in 2012,
and the latest one is the Social Innovation and Entrepreneurship Development Fund
(SIE) in the Commission on Poverty in 2012. The funding allocated to all these
initiatives exceeds HK$1,645 million.
There is a growing appreciation on social enterprises. In the 2013 survey
commissioned by Social Enterprise UK, 78%
1
of social enterprise 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 label of Social Enterprise.
Scholars found that concepts like double bottom-lines or a business set up for a social
mission are insufficient as a stringent definition. In 2006, Gregory Dees
2
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, about three quarter of the projects are in developing countries
where ‘systemic changes’ are more likely to achieve. In 2011, Brenda Massetti
3
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. In 2012,
Filipe Santos
4
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.
This report aims at discussing how social enterprises funded by 3E exhibit the positive
externalities and the relatively better sustainability.
1
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.26
2
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/
3
Massetti, Brenda (2011), ‘The Duality of Social Enterprise: A Framework for Social Action’, Review of
Business, Vol. 33, No. 1
4
Filipe M. Santos (2012), “A Positive Theory of Social Entrepreneurship”, Journal of Business Ethics, 111:
335–351
Social Enterprises ? ?? ? Research ? ?? ?Training
Research Report August 2013
3 of 8
Research Question
In the social enterprises funded by 3E, the powerless segment is the people with
disability. The neglected problem is the unemployment rate of the people with
disabilities. Job creation is a way to empower the people with disabilities, the
benefits include the four C’s: cash (earned income), capability development,
confidence resulted from trust and respect, and CV (job credential).
The research questions are as below:
1) Whether the social enterprises are sustainable?
2) Are there positive externalities?
3) How much positive externality benefits the powerless, and how much positive
externality benefits those not the powerless?
Data Collection
The data provided by the 3E team in Social Welfare Department on the survival pattern
of all the approved ventures are listed below. Up to now 76 ventures were approved
and 75 of them were set up. About 76% of SEs was
5
approved in the initial 3 years.
Table 1: The Survival pattern of ventures funded by 3E Project up to 2013
Years in operation
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
Sustainability of the Social Enterprises
To calculate the social-return-on-investment (SROI) over the life span of the social
enterprises, there must be a number on the life span. Since 69% (52/75) of the social
enterprises still survive, the median life span has to be projected from the annual
5
As a reference, the presentation on 3E Project in June 2005 showed that there were 32 ventures
approved with $16 million grants. Of which, 5 were profitable, 8 at breakeven, 9 were at loss
5
, and the
remaining 10 were less than one year in operation hence could not be concluded on the profitability.
These ventures employed 300 people with disability, and each get average $3,600/month.
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Research Report August 2013
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“dying” trend; especially the younger batches of social enterprises 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%
6
of the
total number of social enterprises. Hence a more conservative dying rate
7
is used. So is
the case for year 10 and year 11. 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
8
based on those 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%
The social enterprises funded by 3E have a much better sustainability, because as a
comparison the median life span of US commercial firms is only 4 years
9
.
Positive Externality benefiting the Powerless
The social mission of the 3E grantees is to enhance the employment of the 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. There were 541 people with disability employed
with an average income of $6,245/month. The total workfare is $40,542,540/year
10
.
As the total amount granted to the 75 social enterprises were $52,364,580, therefore
each dollar granted generates workfare valued to 77.4 cents/year
11
. In short, each
dollar granted will lead to 7.2 dollars
12
over the median life span of 9.3 years. The
social-return-on-investment (SROI) of the 3E grantees is very good.
6
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.
7
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.
8
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”
9
Barringer, Bruce; and Ireland, Duane (2010, 3rd edition), Entrepreneurship: Successfully
Launching New Ventures, New Jersey: Prentice Hall
10
541 people with disability employed with an average income of $6,245/month. Hence the total
workfare is 541 people with disability x $6,245/month x 12 months = $40, 542, 540/year
11
$40,542,540/$52,364, 580 = 77.4%
12
77.4 cents/year x 9.3 years = 7.2 dollars
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Positive Externality benefiting the Taxpayers
In 2009, Stewards commissioned a comparative study to KEEP Consulting Ltd 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 social enterprises 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 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 social enterprises
was widened to $5.0 to $0.7, a difference of seven times.
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 social
enterprises is $5.0 to $0.0. Moreover, each dollar of investment generates $2.79 of
annual revenue, and $1.08 workfare/year.
In summary, from a taxpayer’s point of view we have a social responsibility to help the
disabled and socially disadvantaged. Social enterprises can provide a relatively better
sustainable solution and more cost-effectiveness to address a social problem. Even if
the social enterprise is not yet breakeven, the cost for the same workfare is less. As a
reference, this is why the UK government is so keen to promote social
entrepreneurship. A consideration behind is the financial difficulties faced by the
government.
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Discussion
Drivers behind the longer sustainability
There are three reasons why the 3E grantees have a life span better than commercial
firms. This first reason is similar to the case of Stewards. Even the social enterprise is
at loss, the amount of money needed is still much less compared to traditional social
welfare approach. Hence it is funded to cover the loss. It is the characteristic of NGOs
in emphasizing positive externality benefiting the powerless.
The second reason is the bigger social capital owned by social enterprises. Because
the primary motive of social entrepreneurs is to generate benefits for the powerless
people instead of for themselves, their selfless motive earns the respect and voluntary
supports from others. Though commercial entrepreneurs also perform corporate social
responsibility, their primary motive is self interest. So the difference in social capital is
due to the perception and reaction of others to “selfless” and “limited selfish”.
Finally, social enterprises have higher revenue growth rates as compared to the
small-medium enterprise. There is no Hong Kong data, but Social Enterprise UK 2013
survey
13
has as below.
Table 3: 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%
As a reference point, the first batch of 10 projects was approved in 2003. Seven of
them are still in operation.
• Cheers Gallery Convenience Store (???? ???? - ?????)
• MentalCare Cleansing Service (????????)
• Enterprise Vegetable and Fruit Processing Service (???????????)
• Oi Kwan Catering Service (??????)
• Mobile Massage Service of Hong Kong Society for the Blind (???????
??????)
• Richmond Welbiz Cleaning Service (??????????)
• Hong Yip Cleaning Service (????????)
Social enterprises like MentalCare continue to grow rapidly since 2002. Last year its
revenue was $71 million/year, with a workfare of $6.9 million/year. Tung Wah which
operates Enterprise Vegetable and Fruit Processing Service has capitalized on the
industry knowledge and evolved to set up Cookeasy and then later iBakery line of
shops. These organizations are able to keep expanding their social enterprises portfolio
to benefit increasing number of people with disability.
13
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
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Driver behind the growth of workfare per dollar invested
The level of workfare for the same 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
14
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
Conclusion
The 3E Project is very successful in sustainability relative to commercial enterprises,
and in generating workfare for the people with disabilities relative to traditional
welfare approach.
Recommendation
Knowledge is developed in four stages. First, cases in a new phenomenon are studied
and followed by landscape surveys. Second, tentative theories are proposed and then
debated for the phenomenon. Third, the theories are validated by large scale surveys.
Finally, practical values of the new knowledge are exploited by applied researches. 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 non-profit organizations are not good at
running social enterprises. This theory is seldom debated, or validated through
available data. The common 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
Stewards and other welfare service providers.
Government has commissioned evaluations of its funding schemes. But usually it does
not know how to specify the core expertise needed. 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). Hence the job should consult scholars and business executives with rich
practical experience in the rhetoric articulating TQM benefits.
Government’s two SE schemes are successful in terms of SROI. Public money is well
spent on the schemes. However, the public appreciation of the achievements is low.
The blank spot to be corrected is the current promotion strategies which should be
revised to improve the return-on-investment of the public money on marketing!
14
Social Enterprise UK, (2013), The People’s Business: The State of Social Enterprise Survey 2013, p.16
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Our Research Team
Kee Chi-hing
Before retirement, Kee was a Corporate Vice President and Hong Kong Managing
Director of Hewlett-Packard (HP). Now he is a part-time lecturer of the MBA program
in Baptist University. His publications include “??????????”, “20 Business
Strategies for Social Enterprises”, “Social Enterprise and Spirituality” and “????”.
Kee is a member of the Social Enterprise Advisory Committee in Home Affair Bureau,
and a member of the Community Investment and Inclusion Fund in Labor and
Welfare Bureau; a co-opted member of the Social Innovation and Entrepreneurship
Development Fund Task Force in the Commission on Poverty, and a co-opted member
of the Digital Inclusion Task Force of Office in the Government Chief Information
Officer.
Chiu Lap-kee, Jimmy
Jimmy is the Chief Executive of Stewards Ltd., which is a non-profit making Christian
Organization with 700 staff members providing social welfare, education, health care
services and social enterprise for the Hong Kong community. Before taking this post,
he had served in Social Welfare Department for 15 years. Jimmy obtained BA in Social
Policy and MA in Social Work in UK. He was awarded MA in Arbitration and Dispute
Resolution, and Juries Doctor in 2003 and 2009 respectively.
Currently, Jimmy is a member of Community Investment and Inclusion Fund in
Labour and Welfare Bureau; the NTW Cluster Clinical Research & Ethics Committee
in Hospital Authority; and Midwives Council of Hong Kong Preliminary Investigation
Committee. Besides, Jimmy is a member of the Hong Kong Institute of Arbitrators. He
is also the Hon. Advisor of Hong Kong Association for Parents of Persons wit Physical
Disabilities.
About FSES
Fullness Social Enterprises Society (FSES) is non-profit organization aiming to be the thought
leader in the social enterprises movement in Hong Kong. Through applied research,
publication, and dedicated training, FSES provides insight and intelligence to social enterprises
practitioners in Hong Kong.
The Society can be traced back to Fullness Christian Vocation Training Centre (FCVTC), which
was the Hong Kong pioneer of social enterprise setup in 1987. After applying business skill to
turnaround the profitability in 2007, it was the first social enterprise to raise capital through
issuing stocks in 2008 to set up Fullness Christian Social Enterprise (FCSE). The latter promoted
ethical consumption in 2009, and knowledge volunteering in 2010. It then set up FSES in 2011.
FSES promoted on social return on investment in 2011, and social marketing in 2012.
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disclosure, copying and distribution of their content are strictly prohibited. While the information contained herein
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such. Fullness Social Enterprises Society shall not in any circumstances whatsoever be liable or responsible for any
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