Dr Ow Chee Chung, Today Online 7 Dec 07;
In 2005, Harvard Business School published an article, "Should non-profits seek profits?" Its findings are similar to those in Singapore: Too much is made of social enterprises by citing success stories, without stating that the majority do not do well.
The key challenge for social enterprises is in finding a clear, intended outcome. Is it to relieve the fundraising efforts of non-profit organisations (NPOs), create employment for the disadvantaged or a purely commercial attempt?
The first notion of helping to relieve the fundraising burden is debatable. If an NPO requires $1 million to operate its social services, it has to generate a turnover of at least $10 million from its enterprises, with a profit margin of at least 10 per cent.
What would this organisation then be — similar to a commercial firm with a significant corporate social responsibility agenda or, in business terms, a social marketing strategy?
The study from Harvard showed that only 39 per cent of small businesses are profitable, and half fail in the first five years. The odds against social enterprises are even higher.
The study also found that many NPOs into social enterprise lost not only money but also the "basis of their existence". They were so busy rescuing the business that they were distracted from their core social services.
Meanwhile, the issue of using donations to fund social enterprises raises a key question. There is currently no social enterprise fund that covers start-up costs fully. How and where to find the balance without compromising donors' contributions?
The other oft-cited outcome — of employing the disadvantaged — is probably a more compelling motivation.
Unfortunately, the issues remain: Can employment be sustainable if the enterprise is failing? It makes more sense to incentivise and encourage successful multinational corporations (MNCs), government bodies and small and medium enterprises (SMEs) to employ the disadvantaged.
These agencies have the machinery to sustain operations and maintain their workforce. From an investment viewpoint and to secure a return of sustainable employment, it is illogical to invest in an untested social enterprise vis-a-vis a well-entrenched commercial or public entity.
Social enterprises also compete directly with SMEs, retailers and food stalls. This may cause tension and lead to undesirable behaviour among the competitors.
At a meeting on employment for the disabled, held by the National Council of Social Service, a representative from a local SME spoke up against NPOs engaging in social enterprise. The SME would rather hire the disadvantaged and make a donation, provided it is "kept afloat with contracts".
The social enterprise concept can, however, be deployed in two ways: By developing an enterprise mindset in social services and by creating supported employment.
By identifying and developing core competencies to the point of optimum operations, an NPO can create a social enterprise model from which services are provided — these could be in counselling, therapy, psychological or even social work, training/consultancy and other specialised services.
The customer could be the Government, other NPOs, private agencies and even private individuals, as long as there is a service fee model.
The key is to have quality service (in a social/community service model) and a replicated business service model.
Now, there will always be a group of disadvantaged people for whom open employment is not possible. This group generally faces productivity and accessibility issues. Regardless of the type of social enterprise, the NPO hardly ever gets the best talent and ideal circumstances in which to operate.
Structural deficit due to productivity and accessibility issues is inevitable. To keep the enterprise viable, an NPO can pay the workers as low as possible. But how low can wages go if the venture is to be worthwhile? The alternative is for the NPO to seek supported funding (to cover the structural deficit).
It is good that the government is pushing the social enterprise agenda, but the reality on the ground is very different. It would be good to know the amount invested so far in the various social enterprises and how many of these are viable, taking full costs into account.
More incentives should be provided to encourage open employment. NPOs who venture into earned income outside their social service charter should be considered and supported by Spring Singapore as it would any entrepreneur and SME.
Funding should focus on supporting NPOs that want to develop social enterprises out of their social services charter. More importantly, more grants should be provided in the area of supported employment.
The writer is the executive director of the Society for the Physically Disabled
