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Dr Alex Nicholls MBA

University Lecturer in Social EntrepreneurshipUniversity of Oxford

Fellow of Harris Manchester College

Institutional Dimensions of Social Innovation

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Definitions

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Social Innovation

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Social Innovation

New ideas that meet unmet social needs. And that work

Mulgan (2007)

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Social Innovation

A novel solution to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for

which the value created accrues primarily to society as a whole rather

than private individuals

Phills et al (2008)

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Social Innovation

Social innovations are changes in the cultural, normative or regulative

structures (or classes) of society which enhance its collective power resources and improve its economic and social

performance

Heiscala (2007)

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Social Innovation

• Social processes of innovation• Open source technologies: Linux• Creative commons: wikipedia• Co-production: Southwark Circle (Participle)

• Innovations that have a social focus• WISE model• Social Impact Bond• Smokeless cooking stoves

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Social Innovation

• Incremental: Products and Services• To address identified market failures more effectively

• Negative externalities• Institutional voids

• Institutional: Markets• To reconfigure existing market structures and patterns

• Mobile telephony• Carbon trading• Fair Trade

• Disruptive: Systems• To change the cognitive frames of reference around

markets and issues• Social movements• Microfinance

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Key Questions

• What contribution can social innovation make to solving the greatest challenges of our time?

• What is the role of:• Markets as sources of innovation, investment and

competition• Government as a regulator, policy maker and investor• Civil society as guardian of values and source of non-

market innovation

• And how do all three work creatively together?

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Social Innovation

• ‘Wicked problems need clumsy solutions’• Social innovation blurs sector boundaries and

reconfigures relationships• Often disrupts ineffective or unjust systems• Requires entrepreneurship and intrapreneurship

• Institutional entrepreneurs are champions are critical• Government can generate, sponsor, or catalyse social

innovation

Economic Crisis

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• Failure of perfect market theory• Huge government deficits

• Increased taxes/massive public sector cuts• Euro-zone crisis

• Volatile recovery of stock markets• Limited liquidity• High levels of personal debt• Increasing (youth) unemployment

• Job insecurity

• Tightening of retail sales

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Welfare Reform

Britain needs a long wave of social innovation…this wave of social innovation will come from several

sources. Innovation in ideas and policies will be vital to underpin the values and philosophy of an active,

problem-solving welfare system. Organisational innovation will also be important, to create new institutions capable of delivering a new form of

welfare

Leadbeater (1997)

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Political Drivers

• 1980s • Rise of neo-liberalism

• Free market deregulation/privatisation• Rolling back taxation and state provision

• Enterprise culture: ‘Reinventing Government’• Individualism/entrepreneurial revolution

• 1990s• New Public Management

• ‘Third Way’

• 2000s• New wave of welfare reform

• Quasi-markets• Austerity

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Civil Society

• Growth in scope and influence of citizen sector• ‘Everyone a changemaker’

• Global connectedness• Web 2.0• Crowd-sourcing models

• Pro-Am culture• New localism• ‘Big Society’

• Disruptive innovation

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Civil Society

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Community

Private Sector Public Sector

Formal-InformalSocial Enterprises

Public-Private Partnerships

Shadow StateMulti-Sector

Collaborations

Hybridity

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New Hybridities

• Markets• Impact investing• Islamic finance

• Products and Services• Co-production• BoP

• Supply chains and commissioning• ‘Shared value’

• Organizational structures• Restructured state• ‘New mutualism’ and social enterprise

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The Big Idea, huh?

Haque (2010)

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‘Thin’ v ‘Thick’ Value?

Industrial Era Capitalism Constructive Capitalism

How production, consumption and exchange happen

Value chainsUse resources

Value cyclesRenew resources

Which products and services are produced, consumed and exchange

Value propositionsCommand and control demand management

Value conversationsDemocratic demand management

Why production, consumption and exchange happen

StrategiesShort-term competitive advantage

PhilosophiesLong-term competitive advantage

Where and when production, consumption, and exchange happen

ProtectionDominating markets

CompletionCreating markets

What is produced, consumed and exchanged GoodsEfficient production

BettersHolistic production

New Market Opportunities

• ‘Bottom of the Pyramid’ sectors• Housing• Health• Education• (Micro-)Finance and mobile money• Frugal innovation

• New welfare markets• Developing country infrastructure in agriculture• Distributed utilities and energy• Lease/shared ownership models

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A business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or the community, rather than being

driven by the need to maximise profit for shareholders and owners

DTI (2002)

‘Social Enterprise’

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Key Characteristics

• Purpose is social/environmental• Vehicle is business• Generate earned income

• Not necessarily profitable• Create blended value

• Social + financial (accounting)• Agnostic about legal form

• Method not the means• Strong market orientation

• Performance measurement

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Social Enterprise Models

• More efficient• Driven by competition

• More self reliant/independent• ‘Sustainable’?

• More scalable • Better access to capital

• More innovative• Hybrid synergies

• Investable

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UK Social Enterprise ‘Stars’

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• New market creation• Commissioning of contract services

• Social investment• Retail: Grants and debt• Wholesale: capitalizing intermediaries

• Fiscal measures• Regulation• Support/capacity building services• Research/piloting

Policy Approaches

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New Labour Policy

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‘Big Society’

Cameron (2010)

Government needs to open up public services to new providers like charities, social

enterprises and private companies so we get more innovation, diversity and responsiveness

to public need

Health White Paper 2011

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We aim to create the largest social enterprise sector in the world by increasing the freedoms of foundations trusts and giving NHS staff the

opportunity to have a greater say in the future of their organizations, including as employee-lead

social enterprises (NHS, 2011, p. 5)

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Conservative Policy

UK Social (Policy) Innovation

• NHS/welfare restructuring• Builds on New Labour legacy• Key focus on mutuals and community organizations• ‘Big Society’?

• Welfare Co-Production• Southwark Circle

• Social investment• Strong policy interest and focus since 2000• > £1 billion direct investment

• Social Enterprise Investment Fund• Social Impact Bond• Big Society Capital

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• Evidence of impact• Impact measurement systems

• Going to scale• Social investment

Challenges

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• No widely accepted social performance measurement systems• SROI

• No good comparative data• Multiple legal forms and sectoral issues make

metrics a real challenge• Nature of metrics themselves is problematic

Evidence of Impact

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• 2005 IFF Survey for Small Business Service and DTI• 15k SEs (IPS and CLGs); 1.2% of all enterprises; £18 billion t/o;

475k staff• Annual Small Business Survey 2005-7 for DTI

• 55k SEs with employees (62k in 2009); likely to exclude many charities and CLGs

• National Survey of Third Sector Organizations 2008-9, Ipsos/MORI for OTS (using Guidestar data)• 82k SEs (ie earning at least 25% of their income)

• NCVO Civil Society Almanack (charities only) 2009-10• 36k SEs (ie earning at least 25% of their income)

• ‘Hidden Social Enterprise’ (Delta Economics) 2010• ‘Businesses with a social purpose’ (inc. job creation)• 232k SEs (‘wanting to make a difference’)• 110k SES (‘wanting to make a social difference’); £17.7 billion t/o

Key Data Sources

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• Microfinance and Fair Trade rare examples• 99% of SE is small and local• NB Co-operatives

• Many institutional factors make scaling difficult• SCALERS model• Competing in mainstream markets• Accessing investment

• Scaling what?• Impact?• Innovation? Models? Ideas?• Organizational size and reach?• Products? Services?• Importance of localisms and embededness

Going to Scale

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• Market is fragmented and incomplete• Lack of liquidity/exit options• Lack of options offering (near) market returns

• Lack of demand-side absorptive capacity• Most SEs too small

• Investment performance data is patchy• Risk-return metrics problematic

Social Investment

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Impact Investing

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• London• £3m of funding• Support from Rockefeller and BSC• Website is live• Due for soft launch in 2013

• Singapore IIX• Support from Rockefeller Foundation and ADB• Impact Investment Shujog (2010)• Impact Partners (2011)• Impact Exchange (due 2013)

Social Stock Exchange

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Social Innovation Fund

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• Non-state social investment c. £192 million (2011)

• Demand for ‘hard’ and ‘soft’ capital: £500-700 million (2011-14)

• Demand for capacity building capital: £120 million (2011-14)

UK Social Investment

Grant Equity LoanPatient Capital Quasi Equity

Revenue generating

charity

Social Enterprise

Social Purpose Business

For Profit

Business

Grant fundedcharity

UK Social Finance Providers

Risk

Return

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Big Society Capital

• Social investment wholesaler• Launched April 2012• £400m unclaimed assets + £200m from Merlin

Banks as equity

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Market Innovation

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Conclusions

• Social innovation is a fluid and sometimes ill-defined field• Its impacts are poorly understood and measured

• Increasingly institutionalized in markets and policy

• Scaling social innovation has challenges• Lack of investment• Resistance from vested interests

• Hybridity is key to addressing wicked problems• Can social innovation maintain its legitimacy

across boundaries over time?

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London Riots 2011

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