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Can Scaling Social Good Make Firms More Profitable?

Can Scaling Social Good Make Firms More Profitable?

New research suggests social consciousness can be profitable.

A man painting a wall.

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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.”

Something I think we struggle with as a field is that nonprofit and social ventures are perceived as not caring about financial returns. But social ventures have to care about that, or they go out of business. Being able to measure and understand social value creation is a step forward.

— Katrina Brownell

Assistant Professor of Clinical Entrepreneurship

Together the researchers looked at reframing existing theories to ask how social value creation can be translated to economic value creation and create an advantage in the marketplace. “The goal is to make this a less emotional conversation,” Robb said. “Let’s talk strategy.”

Business leaders analyze traditional organizations against a few key elements to determine their future growth potential. One key measurement is costs versus revenues: is the organization set up to create profit?

“The basic principles of economics suggest that as customer volume goes up, cost per customer should go down, allowing for scalability and ultimately long-term profitability, growth, and impact,” Brownell said. “So it makes sense to examine this in the context of entrepreneurship.”

Robb points to Robin Hood, a restaurant in Spain that charges wealthy patrons for breakfast and lunches created by celebrity chefs in order to provide free-of-charge dinners for those with lesser means. This business, Robb explained, is an example of how firms can translate social good into an economic advantage.

“Firms are benefitting financially from social impact, and that means they can drive more social value creation,” Robb said. “Even if another organization tried to replicate what Robin Hood is doing, the chefs won’t feel the same way working for another organization. This contributes to keeping out the competition.”

The researchers emphasized that examining financial value creation through social value creation is essential to understand how companies can embrace social causes while making enough money to thrive in crowded and competitive markets.

“Something I think we struggle with as a field is that nonprofit and social ventures are perceived as not caring about financial returns,” Brownell said. “But social ventures have to care about that, or they go out of business. Being able to measure and understand social value creation is a step forward.”

While this research is largely theoretical, extending existing theory of competitive advantage, Robb asserts that social ventures that focus on their abilities to scale will out-contribute those who do not.