Social Enterprise and Innovation: lessons from the Italian Experience

Giulia Galera

EURICSE

Bertinoro – July 22, 2011

Main issues Part 1: conceptual aspects

Part 2: social enterprises and socio-economic development

Part 3: dynamics of development of social enterprises and legal evolution

Part 4: the Italian case study

Part 5: main lessons learned

PART 1: Conceptual aspects

1. Introducing conceptual aspects

Multiplication of definitions with “social” suffix next to typically economic concepts: Social Economy Social Entrepreneurship Corporate Social Responsibility Social Innovation Social Business Social Enterprise

1. Social Economy

French in origin, sometimes used as a synonym of Third Sector

Refers to organizations aimed to benefit members or the community

Developed to bring together: coops; mutual aid societies; associations; foundations

Broadcasted by the Revue des Etudes Cooperatives Mutualistes et Associatives (RECMA)

Comprehends also organizations that play non-economic roles, including advocacy and participation

Hence, the general character of Social Economy and its country-speficity

1. Social Entrepreneurship

Covers a broad range of activities falling along a continuum

Strong emphasis on “extraordinary individuals” Comprehends social initiatives of profit-seeking

businesses; practices that yield social benefits; entrepreneurial trends in non-profit organizations up to ventures developed within the public sector (Johnson, 2000; Roper and Cheney, 2005)

Hence, the very general character of Social Entrepreneurship, which crosses across all sectors

1. Corporate Social Responsibility

Concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (EU Commission)

Concept that can in principle be applied to all forms of enterprises, but is mainly used to refer to for-profit enterprises

1. Social Innovation (SI)

Recent construct Meant to grasp lasting social change Dismatles the barriers between sectors and

refers to a wide set of novel solutions Can be a product; a production process, an

idea; a social movement or a combination of several elements (Phills, Deiglmeier, Miller, 2008)

Hence, the intrinsic vagueness of Social Innovation

1. Social Business

Comprehends companies that focus on providing a social

benefit rather than on maximizing profit; and profit-maximizing businesses that are owned

by the poor or disadvantaged (Yunus, 2008) Reference mainly made to the second typology Non-profit distribution: investors may not, after

having had their investments paid back, take profits out of the enterprise

Hence, the strong focus of Social Business on poverty, its limited reach, and the voluntary nature of the profit distribution constraint

1. Social Enterprise

Partially overlaps with other concepts (social economy/third sector; social business; social entrepreneurship)

Narrower focus (focus on the entrepreneurial component)

This notwithstanding it is supposed to have a more consistent beneficial impact on society

WHY?

1. Social Enterprise

Core product produced by social enterprises = activities that are of interest to the entire community

Refers to a “different way” of doing business and providing general-interest services

It is a specific type of institution that is supposed to perform in addition to public and for-profit enterprises

Encompasses:entrepreneurial component of the non-profit

sector innovative component of the cooperative

movement

1. How to overcome conceptual confusion?

Diversity in approaches, concepts, and cultures generates confusion and calls for a clarification

Tentative classification: various concepts pictured in a dynamic way

Classification built along two axes:

Institutional dimension= incorporation of the social goal by the organization

Entrepreneurial dimension=conduction of economic activities in a stable and continuous way

1. Positioning the different concepts

Institutionalized social aim Entrepreneurial nature

YES NO

YES 1. Not-for profit private organizations supplying general interest services

2. For profit enterprises (concerned with the social consequences of their actions)

NO 3. NPOs running advocacy and/or re-distributive activities

4. Spontaneus/not instit. initiatives of individ/enter. aimed to achieve a specific, transitory social goal

Social Economy

Social Economy

Social Enterprise CSR

SI

SI SI

SI

Social BusinessSocial entrepreneurshipSocial Business Social entrepreneurship

Social entrepreneurship

1. Defining social enterprise

Main features of social enterprises

i. Economic dimensionii. Social dimension iii. Ownership and governance structures

1. Economic dimension

Continuous and stable production of goods and services

High degree of autonomy, hence:significant level of economic riskuse of costly production factors (labour; capital;

infrastructures)

1. Social dimension

An explicit social aim of serving the community or a specific group of people (social aim defined at a statutory level)

General-interest character of the goods and/or services produced

1. Ownership and governance structure

Collective nature of the enterprise Involvement of interested stakeholders (membership

and governing bodies) A non-profit distribution constraint (total or partial),

which prevents members from dividing up profits in case of sale of the enterprise

1. Approach proposed

highlights the contribution of social enterprises – as specific types of enterprises – to:the delivery of general-interest serviceseconomic development

limits confusion with CSR and other forms of social responsibility

has a “revolutionary” character: it challenges the conventional concept of enterprise and entrepreneur

1. Strength of the definition proposed

The relevance of social enterprises for economic development stems from:

1. Type of activities performed needs of the entire community addressed considerable emphasis on general-interest,

often disregarded by other institutions

1. Strength of the approach proposed

3. Collective dimension of the enterprise reduces the probability of opportunistic

behaviours by single individuals ensures the survival of the enterprise

beyond the involvement of its founding leaders

furthers the participation of several stake-holders

1. Strength of the approach proposed

2. Sustainability supply of general-interest services

organized and managed in an entrepreneurial way

limitations concerning eligible sectors/activities (eg Italy; UK)

mobilization of a plurality of resources asset lock ensures that welfare and

development goals are observed

PART 2: Social enterprises and socio-economic development

2. Impact of social enterprises on economic development

complement the supply of general-interest services (eg social services, elecricity, gas, safe drinking water, etc. ) that public agencies and for-profit enterprises fail to deliverInteresting experiences from some developing

countries (coops guaranteeing access to infrastructure and utilities)

Experiences from CIS: basic services efficiently provided through the self-organization and self-reliance of the citizens concerned

2. Impact of social enterprises on economic development

generate new jobs in their fields of activity; create new employment in the sectors in which

they are engagedemploy unoccupied workers (women with children)

some social enterprises are specifically aimed to integrate into work disadvantaged workers

develop new forms of work organization

2. Impact of social enterprises on economic development

contribute to a more balanced use and allocation of resources available at local level to the advantage of the community“Internalization” of economic growth to the

advantage of the entire communitycommunity dimension allows to adjust to local

contexts and take stock of local resources

2. Impact of social enterprises on economic development

help foster social cohesion and enhance social capitalthey supply goods/services that are

characterized by a high social potentialadopt inclusive and participatory institutional

structures

2. Impact of social enterprises on economic development

support the institutionalization of informal activities belonging to the underground economyseveral social enterprise-like initiatives arise

informallyInstitutionalization allows irregular workers to

get out of the black market

PART 3: Dynamics of development of social enterprises and legal evolution

3. Social Enterprise in Europe

until 1970s two-poles institutional framework (State and Market) worked efficiently

crises welfare states and shortcomings of the privatization process renewed vitality of civil society through the development of voluntary initiatives

different trends in Europe

3. Socio-economic context

Associations/Foundations increasingly engagedin the production of services

Social

EnterpriseCo-operatives engaged in the production ofgeneral-interest services for non-members

3. Fields of activity

Social services

Work integration

New fields of interest for the community (e.g. local development; cultural services; social farming; general-interest services…..)

3. Dynamics of development of social enterprise

Drawing on the definition proposed, we can identify 3 stages of development of social enterprises

Pioneering stage

Institutionalization stage

Differentiation stage

3. Dynamics of development of social enterprise

Pioneering stageBottom-up emergence of new social enterprise-

initiativesNot legally recognizedOperate despite the lack of an enabling

institutional and legal environmentsNormally, no umbrella organizationsOrganizational freedomHigh degree of innovationStrong reliance on voluntary workPhase concerns countries with weak welfare

systems

3. Dynamics of development of social enterprise

Institutionalization stageDynamic concerns countries where social

enterprises have beeen recognized are connected to public policies

Enjoy a low degree of freedomRely also on paid, trained staffRun the maximum risk of isomorphism

3. Dynamics of development of social enterprise

Differentiation stageSocial enterprises are well consolidated and

organizedTend to expand in new fields of activity (if not

bound to operate in given sectors)Expansion concerns sectors other than social

services and work integration (e.g. environmental, cultural, services; social housing; social farming)

3. Legal evolution

Institutionalization of SEs in EU-15 pre-existing legal forms

association cooperative

legal frameworks designed for SEs adaptation of existing legislation (eg social coops)adoption of new laws providing for social

enterprise “qualifications”

3. Adaptation of existing legislation

Legal form Activities Governance

Italy Social coop Social services (a-type) Work integration(b-type)

Participatory nature/multi-stakeholder structure

Portugal Insertion coop Social services and work integation

Participatory governance not envisaged

France SCIC Production of goods and services of collective interest

Multi-stakeholder membership prescribed (users, workers and 1 additional category)

Poland Social cooperative

Work integration Participatory nature/single-stakeholder structure

3. Adoption of specific legislation

enlargment of the activities run and legal forms admitted trend first appeared in Belgium – Societé à finalité

sociale, 1995 Italy – Law 155/2006 and Decrees of year 2007

definition of Social Enterprise introduced in the Italian legal system

Great Britain – Community Interest Company Regulations of 2005

Slovenia – Law on Social Entrepreneurship, march 2011

PART 4: lessons from the Italian experience

4. Why presenting the Italian experience?

• the social enterprise concept was used in Italy earlier than elsewhere

• social enterprises account for a long history and significant development

• intense legislative activity: law on social coops (1991) and law on social enterprise (2005-2007)

• good availability of data and knowledge from both official statistics and private research

4. The emergence of social enterprises in Italy

• first social enterprises were set up in Italy at the end of the 1970s

• promoted by groups of citizens, given the limited supply of and growing demand for social services.

• most of these organisations were set up through the cooperative form

4. Basic data Since approval of Law 381/1991 on “Social Cooperative”

annual growth rate from 10 to 20%• in 1993: 1,479 social coops (National Cooperative

Department)• in 2003: 6,159 (ISTAT)• in 2005: 7,363 (ISTAT) – 59% A-type; 32.8% B-type;

8.2% mixed or consortia In 2009 (Unioncamere):

• 13,938 social cooperatives, with• 304,645 people employed• more than 30,000 disadvantaged workers integrated• more than 3,500,000 users• more than 6,381 million euros turnover

4. Key factors explaining the growth of SEs in Italy

Acknowledgment of social enterprises• legal recognition: in 1991 Law 381 recognized

social cooperatives ex-post• intense research activity, important:

to assess the importance/impact of the sector for lobbying purposes

• public contracting contributed to create new markets recognized the entrepreneurial charater of the

new initiatives

4. Key factors explaining the growth of SEs in Italy

Decentralization• in 1990 transfer to the regional and local

administrations of: responsibility of delivering social services possibility to delegate the provision of these

services to private providers

4. Key factors explaining the growth of SEs in Italy

Umbrella organizations Cooperative consortia or federations played a

crucial role in supporting new, developing and established social cooperatives enable cooperatives to gain skills which they

cannot afford internally they provide coops with economies of scale

4. Key factors explaining the growth of SEs in Italy

Voluntary contributions as work free of charge:

social enterprises developed as voluntary responses to social needs

also when supported by public resources, SEs continue to be voluntary promoted by groups of citizens

4. Key factors explaining the growth of SEs in Italy

Beneficial tax arrangements The added value of social enterprises is recognised

in Italy in both its laws and Constitution most fiscal incentives are embedded in the law on

social cooperatives A type social coops charge nil rate or 4% VAT disadvantaged members integrated by B type

social coops are exempted from payment of national insurance contribution

4. Key factors explaining the growth of SEs in Italy

Multi-stakeholder membership Mix of members not compulsory

69.7% of Italian SEs have a multistakeholder membership

33.8% of SEs have a multistakeholder governance

The main model consists in memberships involving volunteers and workers (37.9%)

• European Social Funds• Now; Integra; Horizon; Youthstart; Equal;

Progress…

4. Development trends in Italy

The growth experienced by social coops and other types of organisations has progressively made evident that: the social enterprise form was also suited to

provide community services other than social and educational ones

the cooperative form was no longer suitable to manage some of these new activities

4. Development trends in Italy

General Law on Social Enterprise approved in 2005-2007. It:

allows to establish SEs through a plurality of legal forms (association, foundation, cooperative, shareholder company)

enlarges the set of activities of SEs

At the moment 601 social enterprises registered (March 31, 2010)

4. Social Cooperatives and Innovation

As a completely new form of enterprise, Italian social cooperatives are a social innovation in and of themselves.

Moreover, Italian SCs have:

Introduced new services to satisfy new needs

Innovated the “production process”, replacing bureaucratic and hierarchical forms with participatory ones,

Challenged the conventional conception of enterprise: from profit maximization to collective problem solving

Changed the conception of social services from activities with mainly redistributive purposes to activities based on entrepreneurial principles

Entirely new form of enterprise, devoted to carrying out economic activities, with strict limits to the distribution of profit and a collective governance system

Different from traditional cooperatives because not strictly mutualistic

Different from traditional non-profits because they are primarily engaged in economic activities

4. Social Cooperatives ARE a Social Innovation

Product Innovation SCs respond to rationed demand for services and specific

needs of particular groups of people With the evolution and diversification of needs, SCs have

responded by continuously developing new services and experimenting with new solutions to better meet those needs

Provision of many social services was started directly by cooperatives, regardless of availability of public resources

4. Social Cooperatives Generate Social Innovation

Process Innovation Replaced hierarchical and bureaucratic mechanisms with flexible and

participatory ones Multi-stakeholder governance “Strawberry field” strategy and use of consortia to capture economies of

scale Unique resource mix (including donations, voluntary work, etc.) combined

with cost savings (lowe wages to motivated workers) enabling “distributive” allocation pattern

Innovative management of human resources, relying on mix of intrinsic and extrinsic motivations, leads to high job satisfaction despite low wages

4. Social Cooperatives Generate Social Innovation

4. Focus: Alternative Allocation Patterns

Social coops use allocation patterns that differ from conventional enterprises. As a consequence they also modify the distribution of income.

social coops also provide services to users who are: unable to pay the full price or to pay at all not covered by contracts stipulated with the

public authorities

This is explained by the resource mix that characterizes many social cooperatives.

4. Focus: Innovative HR Management

Given their limited resources, SCs have managed to develop a new model of relations with their workers:based on a pluralistic mix of incentivesable to select workers that share the missioncharacterized by a high level of effort even in the absence of strict control

This model has proved able to compensate for relatively low wages (especially in the start-up phase). Workers interviewed declared:

high satisfaction with their work (an average of 5.2 on a scale of 7)

high level of loyalty (74.2% declare that they want to stay with the coop as long as possible because they share the mission)

PART 5: main lessons

5. Lesson 1: Having a Social Aim Matters

The Italian case shows that, at least with respect to social innovation in the social services sector:

Organizations with an explicit social aim have a distinct competitive advantage in the development of social innovation

This advantage is closely connected to the collective dimension of these organizations

Involvement of a diverse set of stakeholders makes it easier both to tailor the supply of services to customers’ needs and to secure resources that would

not be available to a different type of organization

5. Lesson 2: Importance of a Supportive Framework

Process of social innovation is complex and can encounter serious obstacles

Obstacles can be overcome by presence of supportive legislative framework and clear demarcation of roles and responsibilities for the supply of relevant goods and services In Italian case, social cooperatives were bottom up

innovation that had strength to overcome initial difficulties

However, approval of law on social cooperatives and transfer of responsibility in social service provision from central government to local agencies were instrumental in growth of the sector

5. Lesson 3: Being Innovative is not Enough

Innovative capacity is not the only important factor in addressing social problems

If social needs are widespread, solutions must be deployed on a large scale in order to make an impact

Strength of social cooperatives was not only innovation, but ease of replication and scalability (easy to set up, quickly became consolidated model, role of 2nd and 3rd level consortia in supporting individual enterprises, etc.)