There has, for decades, been a split in the business world. If you want to be financially successful, go corporate; if you want to change the world, go nonprofit. And yet, the last decade has demonstrated a shift not only in how customers choose companies to support, but also in how social impact creates financial value for a business.
Social enterprises were born from this merger of social good and for-profit frameworks. The question, however, of how businesses marry financial viability, long-term growth, and commitment to a socially-embedded mission has not yet been answered. These firms often struggle to scale because of the stringent demands — and perceived conflict — of creating both kinds of value at once. Contrary to traditional theories, new research shows that businesses with social consciences may have a major financial advantage over traditional corporations.
In work recently published in the Journal of Small Business Management, researchers present new concepts that explore how social value is created, captured, and measured. The team of researchers include: Lloyd Greif Center for Entrepreneurial Studies Assistant Professor of Clinical Entrepreneurship Katrina Brownell and Adjunct Professor of Entrepreneurship Stefano Rumi; and Åbo Akademi University Professor Malin Brännback. This team of scholars was led by Colleen Robb, interim director of the Daveler and Kauanui School of Entrepreneurship at Florida Gulf Coast University.
“We spend a great deal of time [in class] discussing the importance of firms achieving and maintaining competitive advantage over other firms, but it does not account for the social value and social impact of non-economic work being done by firms,” said Brownell, who is also a Brittingham Social Enterprise Lab research scholar.
To capture social impact elements, the team introduced the term “contributive advantage,” which refers to one firm producing more social value and more economic value than another.
The team defines “social rent” as returns on social impact beyond opportunity costs. The research argues that social rent can be combined with resource-based theory (competitive advantage is earned by accumulating and using resources in a way that’s difficult to replicate) and applied beyond traditional management frameworks.
Robb began this research as part of her dissertation at Åbo Akademi University. Like the work of many social entrepreneurs, it stemmed from a place of frustration — a vexing problem in the world she wished to see solved.
“Why is animal welfare such a profit-loss kind of activity?” Robb posed. “In my dissertation, I interviewed more than 30 CEOs in the animal welfare industry asking if they are making decisions based on growth or efficiency. It opened my eyes to the limitations of how leaders of organizations are thinking about social value and social value creation.”
But this is a research issue too, Robb said. “Researchers were trying to put organizations in boxes: are you socially focused or economically focused? But there should be leeway for organizations to vary on that spectrum at any given time.”
