Policy Briefon Scaling the Impactof Social EnterprisesPolicies for social entrepreneurship

This paper is published under the responsibility of the Secretary General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries or those of the EuropeanUnion.This document and any map included herein are without prejudice to the status of or the sovereignty over any territory, tothe delimitation of international frontiers and boundaries and to the name of any territory, city or area.AcknowledgementsThis paper was drafted by Stellina Galitopoulou, Policy Analyst, and Antonella Noya, Senior Policy Analyst, from theLocal Employment and Economic Development (LEED) Programme of the Organisation for Economic Co-operation andDevelopment (OECD), with expert input from Flaviano Zandonai and Giulia Galera, Researchers at European ResearchInstitute on Cooperatives and Social Enterprises (EURICSE), Trento, Francesca Calò, PhD Student Yunus Centre for SocialBusiness and Health, Glasgow Caledonian University, and Lou Aisenberg, intern at the LEED Programme, OECD. The policybrief is a result of a multi-annual cooperation agreement between the LEED programme of the OECD and the DirectorateGeneral Employment, Social Affairs and Inclusion of the European Commission. Valuable input was drawn from an expertworkshop organised by the European Commission, involving Ute Stephan, Professor at Aston Business School and Directorof the Aston Centre for Research into International Entrepreneurship and Business, Marieke Huysentruyt, Assistant Professorat Stockholm School of Economics, Christiana Weber, Professor at Leibniz Universität Hannover, Felix Oldenburg, DirectorEurope from ASHOKA Globalizer/Localizer Programme, Dan Berelowitz, Chief Executive and Co-Founder of the InternationalCentre for Social Franchising, Sven Bartilsson, Managing Director at Coompanion Göteborgsregionen, Philippe Vanrie, CEO ofEBN Innovation Network and Alberto Masetti-Zannini, Development Director at Impact Hub King s Cross. We are gratefulto Max Bulakovskiy, Policy Analyst at the OECD Global Relations Secretariat, and professor Ute Stephan, Professor at AstonBusiness School and Director of the Aston Centre for Research into International Entrepreneurship and Business for theirvaluable feedback. Very special thanks go to Romy de Courtay for her editorial work on this report. Cover photo: BelgaimageFor any use or reproduction of photos which are not under European Union copyright, permission must be sought directlyfrom the copyright holder(s).Europe Direct is a service to help you find answersto your questions about the European Union.Freephone number (*):00 800 6 7 8 9 10 11(*) The information given is free, as are most calls(though some operators, phone boxes or hotels may charge you).More information on the European Union is available on the internet ( information on the OECD is available on the internet ( Publications Office of the European Union, 2016European CommissionISBN 978-92-79-59765-7 – doi:10.2767/45737 European Union/OECD 2016Reproduction is authorised provided the source is acknowledged.

Policy Briefon Scaling the Impactof Social EnterprisesPolicies for social entrepreneurship

CONTENTSINTRODUCTION .3COMPARING THE SCALING PATTERNS OF SOCIAL ENTERPRISES AND CONVENTIONALENTERPRISES.4Scaling objectives: Social impact versus profit maximisation.4Specificities of goods and services delivered by social enterprises.4Collaborative relations among stakeholders.4STRATEGIES FOR SCALING THE IMPACT OF SOCIAL ENTERPRISES.5Scaling impact through expansion.6Scaling impact through replication.7Scaling impact through partnerships.8Scaling impact through knowledge sharing .9Key considerations .9CHALLENGES AND POLICY RESPONSES FOR SCALING SOCIAL ENTERPRISESAND THEIR IMPACT. 101. Markets.102. Finance.123. Skills .134. Networks’ special role in scaling impact.14CONCLUSIONS. 17BIBLIOGRAPHY . 18

INTRODUCTIONSocial enterprises contribute to addressing today’s keysocial challenges – including poverty, social exclusion andunemployment – as well as overcoming gaps in generalinterest service delivery. They also promote sustainabledevelopment and new ways of doing business, drawing onlocal assets and supporting job creation while generatingtax revenues and triggering more efficient governmentspending. As social enterprises generate value that benefits local communities and society at large, scaling theirsocial impact is in the interest of today’s decision makersat all levels (Buckingham and Teasdale, 2013; Borzagaand Galera, 2011; Borzaga and Defourny, 2001; Ashoka/McKinsey, 2012; Social Entrepreneurship Network, 2014;OECD, 1999).Social enterprises are mainly concentrated in specificniches – particularly in local contexts – and are not evenlyspread within and across countries (European Commission,2014). Not only is their potential far from fully realised, butfast-growing and increasingly diversified social needs andenvironmental concerns call for a bolder presence of socialenterprises. Public policies should therefore acknowledgesocial enterprises’ capacity to generate value for the community and support their scaling efforts as a key objective.Box 1. Social enterprise definition and development dynamics across European Union (EU) Member StatesNo agreed definition exists at the international level (1) of what constitutes a social enterprise. However, a gradual convergence of understanding has occurred in Europe as a result of intensive research by a growing number of scholars and theadoption of numerous laws specific to this type of enterprise in different countries.At the European level, the definition of a social enterprise is built along three dimensions (2): an entrepreneurial dimension (with earned income generated by the sale of goods/services on the market, includingthrough public contracting); a social dimension (the pursuit of an explicit social aim and delivery of products/services with a social connotation); a governance dimension (accountability, participation and transparency).The degree of development of social enterprises varies significantly across EU Member States. In some countries (e.g. Italy,France and the United Kingdom), social enterprises are well integrated in both the welfare system and market. These countriesare endowed with a fully enabling policy framework that acknowledges the different domains where social enterprises arelikely to emerge and adequately recognises their social added value. From a systemic perspective, they also are distinguishedby the mature stage of development of social enterprises. Other countries (e.g. Bulgaria, Croatia, Czech Republic, Romaniaand Slovenia) are still at an early stage of development, where social enterprises are often invisible and rather isolated.The different levels of understanding and maturity of the enabling ecosystem have a direct impact on the level of supportpolicy makers are likely to provide to help social enterprises scale their impact.(1) Definitions often overlap, mixing terms such as social entrepreneurship (referring to a mindset consisting in the design of innovative solutions toaddress unresolved economic, social and environmental concerns which does not result in a specific type of enterprise) and social enterprise (referringto an institution distinguished by specific features).(2) MEMO-11-735 en.htm?locale ENScaling social impact is a big challenge for all the entities –public agencies, networks of social enterprises, communities of practitioners and researchers – that are committed tosupporting social enterprise development. In most cases, thevalue-creation chain of social enterprises differs significantlyfrom that of conventional enterprises. (3)(3) For the purposes of this policy brief, the term “conventional enterprises”is used here in the sense of purely commercial enterprises or businesses.3

Box 2. Scaling the social impact of social enterprises: What does this mean?Scaling is defined as the most effective and efficient way to increase a social enterprise’s social impact, based on itsoperational model, to satisfy the demand for relevant products and/or services. This definition focuses on increasing socialimpact, rather than the relative growth of the social enterprise itself. In other words, it is entirely possible to scale a socialenterprise’s innovative concept by using mechanisms and strategies that adhere to principles other than those used by aconventional enterprise.Source: Weber, Kröger and Lambrich, (2015).When considering scaling social impact, the following questionsshould be addressed: does the service or product offered by theorganisation have a significant impact on the problem it aimsto solve? If the answer is “yes”, would it be possible to have thesame effect on a larger scale, by including different beneficiaries or clients, as well as people (e.g. local communities) whobenefit indirectly from social enterprises’ activities – potentiallyin different geographic locations? This leads to a key questionfor policy makers: how can policies contribute to this processof scaling social enterprises’ social impact?This policy brief will address this question in two steps. First, itwill illustrate a number of strategies currently being used bysocial enterprises to scale their impact. Second, it will discussthe challenges encountered in this endeavour and the policyresponses that could help overcome them.COMPARING THE SCALING PATTERNS OF SOCIALENTERPRISES AND CONVENTIONAL ENTERPRISESAlthough scaling is not an issue specific to social enterprises,the chain of value creation they follow is often different fromthat of conventional enterprises. These differences can beascribed to social enterprises’ specific features and overallobjectives, which have an impact on their growth and scalingstrategies. Three key issues differentiate the scaling strategiesof social and conventional enterprises: their objectives, thespecific characteristics of goods or services delivered by socialenterprises, and the highly collaborative relations they establishwith other stakeholders (see Table 1 below).Scaling objectives: Social impactversus profit maximisationWhen an organisation’s main objective is to prioritise profitmaximisation or shareholder value – as is the case for conventional enterprises – scaling normally means growing thebusiness, expanding markets and reaching economies ofscale. Conversely, the main aim of social enterprises is toexpand and deepen the social impact by creating value forpeople, communities and society. Some social enterprisesaspire to reach a greater number of users or beneficiaries, and therefore aspire to scale widely their social impact(quantitative approach). Others diversify their activities,either to address emerging needs at the local level or tacklethe same needs from multiple angles. These social enterprises aspire to scale deeply their social impact (qualitativeapproach) (Heinecke and Mayer, 2012). In this view, scaling translates into expanding, or replicating and adapting,organisational structures and processes (André and Pache,2014). This may also prompt social enterprises and otherpublic or private stakeholders to establish partnerships andshare knowledge.4Specificities of goods and servicesdelivered by social enterprisesSocial enterprises in Europe are active in many areas andsectors, from the more traditional (e.g. care services) to themore innovative (e.g. energy). Some social enterprises delivergeneral-interest services; these focus on the local context, andare labour-intensive and relationship-based, as they stronglydepend on the interaction between providers and users orbeneficiaries. The services supplied by these kinds of socialenterprises – e.g. work integration social enterprises (WISEs) –might be difficult to replicate elsewhere, and are therefore bestsuited for addressing deeply rooted and/or context-specificchallenges. Other services and goods can be relocated andtraded more easily – including through online platforms – sothat the social enterprise can achieve broad – or even transnational – social impact. In both cases, social enterprises mayinspire social entrepreneurs in different locations or contexts toreplicate and adapt their model in order to address challengesof a similar nature.Collaborative relations amongstakeholdersMost social enterprises operate according to the co-productionparadigm. This presupposes that users – and often other localstakeholders – participate in the enterprise’s governing bodies,leading to the adoption of multi-stakeholder governance models and bottom-up efforts to create social impact (Stephan,Kelly and Patterson, 2013). Furthermore, scaling- strategiesand operations are strongly shaped by the collaborative relationships that social enterprises establish with various actors,such as other social enterprises, public bodies, third-sector and

civic actors, and for-profit enterprises. Developing collaborative relationships and partnerships allows social enterprisesto diffuse their knowledge, overcome entry barriers to newmarkets and meet additional needs for resources. This, inturn, allows them to scale their impact without scaling theiroperational model.Table 1. Comparing the main scaling patterns of social enterprises and conventional enterprisesCharacteristics/ Typeof EnterpriseSocial enterpriseConventional enterpriseMain objectiveExpand social impactMaximise profitProducts or servicesdeliveredMain – although not exclusive – focus ongeneral-interest services that are difficultto transfer as they are generally labourintensive, personalised and relationalMainly standardised products or services,which can often be easily transferred ortraded from one place to anotherRelations establishedwith other actorsHighly collaborative relationsHighly competitive relationsMain scaling patterns1. Expand a well-functioningsocial business model2. Replicate a well-functioningsocial business model3. Establish partnerships4. Engage in knowledge sharing.ÈGrow business, expand to new marketsSTRATEGIES FOR SCALING THE IMPACT OF SOCIALENTERPRISES“Scaling down social barriers and scaling up impactful activities”BRAC Social Innovation Lab, 2015Policy design has a significant role to play in helping socialenterprises scale their impact, by considering the differentstrategies to this aim. Given the variety of available strategies, policy makers should be aware of which are mostcommonly used, and under what conditions. Although dataon strategies and activities to scale impact that can be usedto inform policy making are limited, it is worth highlighting the few that do exist, keeping in mind some caveats:some surveys are context and country-specific (e.g. theState of Social Enterprise UK Survey 2015), whereas someothers are the result of relatively small convenience samples (e.g. BENISI and TRANSITION, 2015; Weber, Kröger andLambrich, 2015).A recent survey undertaken by Social Enterprise UK (4)(2015) shows that 93 % of social enterprises had takenspecific actions to scale in the past 12 months. The majoritytried to attract new customers or clients (83 %) or developed new products and services (59 %). Almost half (44 %)(4) The results of the survey are based on 1 159 interviews, gathered bothonline and over the telephone.diversified into new markets, and just over one-third (38 %)expanded into new geographic areas. Only 21 % managedto attract investments in order to expand, but 40 % plannedto attract new investments in the next 12 months.Franchising, as well as mergers and acquisitions seem toplay a significant role - especially for larger social enterprises (more than 250 employees). Among these, 15 %have franchised or replicated over the last 12 months,compared to 7 % of all social enterprises surveyed. Another15 % had grown through mergers, compared with 4 % forsocial enterprises taken as a whole (Social Enterprise UK,2015). This is also in line with BENISI and TRANSITION(2015) findings that most of the “scalers” in their sampleprefer to scale alone.As was underscored by a recent study examining 378 socialenterprises in Europe, social enterprises use the differentscaling strategies separately or combined (Weber, Krögerand Lambrich, 2015). Hence, no single strategy should beput forward by policy makers as a silver bullet for tackling social issues at scale. On the contrary, policy makersshould consider these strategies in their policy design andhighlight successful cases, which can then inspire others.5

To do so effectively, they need to be better informed abouthow social enterprises scale their impact. The section belowbriefly presents the main scaling strategies, supported bya few examples, and bundled under four categories, basedon whether social enterprises choose to scale their impactby expanding, replicating, partnering with others, and/orsharing their knowledge.Scaling impact through expansionSocial enterprises select a variety of means – organisationalgrowth, mergers and/or acquisitions and diversification –based on whether they want to scale their impact to newmarkets and locations, through new products and services,or through a combination of both. Social enterprises thatwant to grow competitively and have revenue-generatingactivities may also select these strategies.Organisational growth is preferred by social enterprisesthat have a consolidated operational model with provensocial impact, and therefore decide to do “more of the same”by reaching out to a larger number of beneficiaries and/orimproving the quality of their services or products (Weber,Kröger and Lambrich, 2015). Like small and medium-sizedconventional enterprises (SMEs) or start-ups, social enterprises capitalise on economies of scale and try to reducecosts while increasing the efficiency and productivity oftheir operations and processes.Mergers and acquisitions (M&A) are useful when deciding to grow in an already known or new location or sectorby engaging in strategic buying and selling, or combiningdifferent organisations. This strategy helped several socialenterprises to survive – and even to scale their impact –when faced with unfavourable economic conditions during the financial crisis, thanks to the business support andknow-how provided by the parent social enterprise.Diversification allows social enterprises to scale theirimpact by diversifying the activities related to their mission, either by adding an upstream or downstream activityto their value chain (vertical), adding a new activity to theirportfolio in the sector where they already operate – therebybuilding on their expertise (horizontally) – or expanding toa completely new field of activity (resulting in a conglomerate) (Weber, Kröger and Lambrich, 2015; Avise, 2014;Edwards and Hulme, 1992; Ansoff, 1965).Example 1: Groupe SOS (France)Description: Created in France in 1984, Groupe SOS is now one of the largest social enterprises in the world. It hasgradually widened its scope of action to the fight against social exclusion. Groupe SOS now numbers 350 differentstructures (NGOs, commercial enterprises, co-operatives) and operates in multiple sectors – ranging from childcare,senior care, care for the handicapped and healthcare to social housing, catering, transport, fair trade and communication, as well as services for people suffering from addictions and HIV/AIDS. Groupe SOS entities employ a totalof 14 000 individuals and support more than 1 million beneficiaries each year in France and 20 other countries.In 2015, the group generated EUR 700 million in revenues, mostly stemming from contracts with the public sector(75 % in 2013). Other revenue sources include partnerships with the private sector (EUR 1.1 million in 2011) (OECDand Centre d’analyse stratégique [CAS], 2013) and consumer payments. Finally, Groupe SOS receives governmentsubsidies (representing less than 1 % of the total budget), as well as some project-related grants from the EuropeanSocial Fund. Like other social enterprises, Groupe SOS has specific governance rules, including regulated salary scales,an absence of shareholders and non-redistribution of profits.Scaling strategies: Groupe SOS bases its growth primarily on economies of scale, M&A and diversification. In 1995,Groupe SOS decided to pool several functions (accounting, legal services, finance, human resources) within an “economic interest grouping”, resulting in optimised resources and management processes. It simultaneously expandedby acquiring other social enterprises, which were either in financial difficulty or simply seeking to grow throughshareholder participation. Groupe SOS also diversified its activities by creating innovative responses to numeroussocial issues. More recently, it has engaged in work integration.In order to scale up the impact of social enterprises in France and around the world, Groupe SOS has developed twospecific programmes: “Social Novation” and “Ambassadeurs Solidaires”. The Social Novation programme, co-fundedby the European Social Fund, follows a three-step process: identifying a market niche and social needs that havenot yet been addressed (based on interviews with local stakeholders), enhancing the impact of existing solutions orcreating new ones when needed, and sharing the results of the process with the relevant stakeholders. This opensource initiative aims to facilitate exchanges between professionals (associations, public authorities, partners) indifferent fields, within and/or outside Groupe SOS, by organising multidisciplinary working groups. The Ambassadeurs6

Solidaires programme sends Groupe SOS ambassadors around the world (5) to establish partnerships with local actorsand share their expertise on scaling social enterprises.Lessons: Groupe SOS illustrates the capacity of social enterprises to scale up through the years by combiningmultiple innovative scaling strategies – such as organisational growth, M&A and diversification – across multiplelocations. The success of Groupe SOS can also be explained by its ability to identify unmet social needs and diversifyits financial resources.For further information, please see:; solidaires(5) The programme has been implemented so far in 12 large cities (London, Milan, Mumbai, Singapore, Montreal, New York, San Francisco, Sao Paolo,Seoul, Hong Kong, Buenos Aires and Cape Town).Scaling impact through replicationSocial enterprises might decide to scale by replicating models or methods that have proven successful in creating socialimpact, in other geographical contexts. Some of the advantagesof replication are that it scales impact without growing theorganisation, allows for local ownership, and can be rapidlyadopted and adapted by others.Replication may occur spontaneously, when social enterprises replicate an inspiring model or case without goingthrough a formal process. It may also occur more formally,for instance, through branches or social franchising. A socialenterprise builds its local presence and tailors its services tothe local social needs by establishing branches, allowing itto retain some control over and coordinate the methods usedto achieve social impact. Social franchising facilitates therapid and exact replication of a social enterprise’s provenbusiness model by other social enterprises, in accordancewith a set of parameters agreed with the parent organisationin a compliance agreement (Mavra, 2011). Such an agreement may specify how the social enterprise should be run,and how the products or services will be sold or delivered;it may also include marketing and training procedures. Theparent organisation can provide the new social enterprise(franchisee) with a manual describing all these aspects,along with management practices. This entails high levelsof quality assurance for the delivery and management systems, as well as strong oversight to prevent social brandequity dilution and social focus dispersion. Both strategies –branches and social franchising – may ensure that the brandis easily recognisable by public or private stakeholders andconsumers, perhaps facilitating the social enterprise’s accessto new markets.Example 2: Le Mat (multiple countries)Description: Le Mat is a social franchise system of social entrepreneurs operating in tourism, hospitality and local development through the creation of hotels, hostels, and bed and breakfasts, as well as other tourism services. The first hotelwas set up in 1985 in Trieste; the Le Mat brand and network were launched in Italy through a European project in 2005.Scaling strategies: Since 2005, Le Mat has expanded to several areas in Italy, Sweden, the United Kingdom, Poland andHungary, and has created a strong brand name. A specific feature of this social franchise is that it allows social franchiseesto adapt their model to the local context, in terms of culture, geography, architecture, production of goods and social aspects.Therefore, Le Mat provides social franchisees with: a site-specific Quality Handbook, which explains the rules governing dailywork and management, as well as the inclusion of disadvantaged members and workers; a Le Mat Quality Assurance Card,which allows guests to provide feedback and evaluation; and manuals on marketing, sales, furniture, local tourism systems,training, organising and business planning. Finally, Le Mat experts offer their support through consultancies.Lessons: Social enterprises choose to reproduce an already tested model through social franchising because it is easilyreplicable and backed by a recognised brand. They als

social enterprises' capacity to generate value for the com-munity and support their scaling efforts as a key objective. Box 1. Social enterprise definition and development dynamics across European Union (EU) Member States No agreed definition exists at the international level(1) of what constitutes a social enterprise. However, a gradual conver-