Is social innovation the future of the economy?

city progress and growth

As a theme, social innovation emerged in the 1960s, driven by management theorists like Peter Drucker and social entrepreneurs such as Michael Young, founder of the Open University. But only in the last decade has it really taken off, by redrawing the sometimes blurry line between business and civil society, one drawing inspiration from the other and vice versa.

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It is often said that today we live in the world of Joseph Schumpeter, who highlighted the cycles of creative destruction animating capitalist economy. The Austrian economist notably pointed to two renewal factors: technological innovation and the role of entrepreneurs. Technological innovation can take on several forms: product creation, new production processes, new organizations of production, new markets or new source of raw material or energy. And the entrepreneur is precisely the one who endeavors for innovation, striving to meet the challenge with his drive and achieve success.

As for business and management models, they have long risen to the point of now being on par with technological innovation. The art of organizing manpower and of skillfully streamlining interactions within the workforce is core to the creation of value. Some economists go further, by asking whether social innovation could play a similar role tomorrow.

In 1970, James Taylor defined it as “new ways of doing things in order to meet social needs.” It can involve two types of stakeholders: activists, and as in Schumpeter’s analysis, entrepreneurs. Whether its commitment is with charity or with social emancipation, the action of the former is traditionally played out despite the market, in its interstices. As for the latter it is quite the opposite: their ambition is to expand the market by bringing their business to it, either by competing with existing players, by offering new services or new products, or by targeting new customers.

Profit vs. non-profit: an outdated distinction?
For a long time, the distinction between profit and non-profit has had the trappings of obviousness: it was so naturally self-evident that questioning it made no sense. At the most a few contact areas could be pinpointed such as the existence of forms of capitalism concerned with their social impact, from pioneers like Frederic Le Play to the social doctrine of the Church (in the late nineteenth century) and today’s CSR. In addition, as early as the 1950’s, sociologists like George Friedman have emphasized the enterprising character of activists, the professional qualities they display, and the managerial and organizational capabilities that are required to run an organization.

But in essence, these two worlds diverged in their purpose: it was either making money or helping others. However, in the course of the last ten years this distinction has started to fade out. The new forms of social entrepreneurship that are emerging today need to be scrutinized because they may well prefigure some of the aspects of tomorrow’s economy.

As early as 1994, Peter Drucker observed that “non-profit” was but a legal term that merely means that under U.S. law these organizations do not pay taxes: whether they are directed towards profit or not has no impact whatsoever, “neither on their function, nor their behavior.”

All things considered, it would not be the first time. The mutual insurance companies historically founded by the workers of the nineteenth century were the very womb where social insurance systems of the present day were born – the latter being one of the pillars of modern capitalism, as in absorbing significant financial flows to pay millions of people, they provide consumer society with consumers alleviated from worrying about the next day.

More recently, the development of open source systems and the fascinating economic uses of free services have shown how the profit economy could revitalize itself by incorporating non-profit exchange. Networks like Facebook have revealed that social interaction has economic value. Yet the distinction between business entrepreneurs and social entrepreneurs was precisely based on these diverging finalities or outputs. What happens with such a differentiation if the creation of social ties is to become the core for new economic activities?

Social creativity and entrepreneurship
In a symposium held in Paris in November 2011, Arnaud Mourot, managing director of Ashoka for French-speaking Europe, told an original story which showcases the interpenetration between the two worlds. In India, an NGO which funded cataract surgery suddenly saw its funds dry up. While not very expensive, many families were unable to afford it. Then an American volunteer had the idea to have them pay anyway, but based on what they could give: it appeared that they could afford a budget of about fifty dollars, and on that basis what the NGO was able to build was not aid from a charity, but a business model. This volunteer turned into a contractor, manufacturing intraocular lenses in large quantities. He now runs a profitable company and has contributed to restore sight to four million people. So, at once, one has profit and non-profit.

Large companies are taking keen interest in the “bottom of the pyramid”, the socio-economic group that is both the largest and the poorest, who represent 2.5 billion people and that, regardless of its poverty, constitutes a substantial proportion of global purchasing power. Almost nobody had truly measured its potential until the famous article by C.K. Prahalad and Stuart L. Hart, “The Strategies for the Bottom of the Pyramid” was published on the Internet and then by the Harvard Business Review; it then went on in expanded form to become a best seller. While it suddenly fell in the category of profit stakeholders, this economic segment remains associated with practice characteristic of non-profit, which may bring the two groups to mingle, as the example of cataract surgery has shown. In this particular case, the success of the social entrepreneur is a function of his ability to mutate into a regular entrepreneur, while the businessman he is would never have arisen without the volunteering spirit that drove him at the beginning of his journey. Both postures are inextricably intertwined.

In a recent communication, Julien de Freyman (ESC Troyes), Katia Richomme-Huet (Euromed-Marseille) and Robert Paturel (Université de Brest) have carried out a systematical study of the personal stories of businesspersons who, throughout their career or within the framework of a single activity, have experienced both postures. Entrepreneurial reality is complex, they found, because a middle ground reconciling economic and social motivations, societal entrepreneurship, has now added itself to the equation where there were previously only two extremes – traditional entrepreneurship and social entrepreneurship. Such an approach enables them to explore the various links between the three forms of entrepreneurship.

Thus a new template is emerging for business types, marked by a search for meaning. Kevin Cardona, in an article published in 2006 on the Observatory of alternative management, noted the emergence of a different paradigm, dominated by themes of self-realization and the refusal tasks that are at once imposed and meaningless. “If a company is in itself a small world of sorts, it is also a perspective on the world, one of its reflections, and one of the faces of society. Modern entrepreneurs are now aware of this responsibility and wish to part ways with a posture of mere consumption of the world.” Business people driven by a commitment towards social innovation would then just be the most visible, and perhaps most radical portion, of a new business world.

The search for an innovation
Social innovation can thus be regarded as an experimental space which provides leeway for the renewal of services (commercial or public), but also of the main forces (the businessman, utility, and value) that drive our societies.

It needs to be studied, analyzed and appraised. However it’s not that simple, for various reasons. First, right away integrating the concept of externality, that is to say, of collateral results that are impossible to measure is characteristic of these innovations. In the longer run, they may well develop a social efficiency that could go beyond the agenda of the initial project, by being a catalyst for social change and by contributing to the emergence of a new development model. But it remains difficult to reduce their value to statistics that command public policy and investor interest.

How can greater recognition and development of such experimental spaces be achieved? Speaking at the aforementioned conference, Romain Beaume, professor at the Ecole Polytechnique (Chair of Innovation Management), rightly pointed out that for over 100 years, technological innovation has been the center of attention: be it through tracking, promotion, training of stakeholders, creation of dedicated private or public structures, tax policy, nothing has been neglected in fostering it. In contrast, social innovation is a practice at once ancient and very recent in the sense that its value has only been noticed in recent years. Institutions and economic tools liable to support its development are still of a rudimentary nature.

However models are emerging and new spaces appear. Speaking at the Paris Symposium of late November, Romain Beaume suggests that the steps taken towards social innovation relate to design thinking, which was developed at Stanford University and is now the core activity of companies like Ideo. While industrial design aims at optimizing the function, the value and the appearance of a product, the notion of design thinking applies to “situations of use.” Resting on a method based on user-centered innovation (human centric design), it involves diverse fields: services, marketing, strategy, forecasting. And with this we truly have reached one of the central themes of social innovation: to play around new interactions and benefit from them, turning them into the engine of an exchange dynamic – in a word: to give them value.

So, if social innovation can become an intellectual and methodological model, could it in turn end up trapped into formulas and methods? Not unlike classic entrepreneurship, it is mainly driven by unusual characters, closer in kinship to the adventurer or the navigator than to the manager. Denis Harrison, former director of the Centre for Research on Social Innovations at the University of Quebec at Montreal, emphasizes the part played by creativity in social innovation, not only respecting its overall objective of advancing the well-being of individuals and communities, but also in relation to its “outstanding, non-standard character.”

While it is fascinating to observe social innovation in action, there is no certainty that it can be reproduced, nor that one successful experience can be set as a solid reference. However, it is now crucial to promote its development, which by no means should limit itself to allowing initiatives to flourish on their own. Just as important is the challenge of supporting that development, especially by paying attention at the time of the rise, when momentum is being gained. This is where professionalization and training prove to be decisive. But how can social innovation be managed?

Managing social innovation
The question of managing social innovation was first posed by major foundations as they searched for projects that would be led by sensible, credible figures. These foundations are trying to develop intern capacities, as they must work both on identifying the most creative innovators and on helping them to develop their projects in an efficient way. The challenge is to keep creativity alive and to check that funds are spent as rationally as possible.

Stephen Huddart, who chairs the JW McConnell Family Foundation, insists on developing a capacity for social innovation within foundations and charities. This boils down, in short, to tuning in and empowering oneself and one’s company to notice projects and nurture them. Stephen Huddart is a notable speaker in the seminar organized by Frances Westley, Chair of Social Innovation at the University of Waterloo (Canada) and co-founder of the Waterloo Institute for Social Innovation and Resilience ; for her part, she asserts that the crucial element in a project is to achieve sustainability.

Large foundations are facing issues that can be compared to the daily challenges of business angels. Risk-capital management is basically a mix of gambling and rationality. Part of this business is to leave innovators lead projects their own way, be they more qualified to innovate than to manage a company. Meanwhile, risk capital managers have to get results and report to investors, so they also have to intervene within the start-up companies into which they decided to invest. The same occurs with foundation managers when they report to their sponsors. More than in any other field, decision-making requires taking different perspectives on the same project and being able to make strong choices.

This capacity to deal with several points of view and several logics is a crucial competence. It is the heart of a recent training project launched by HEC Paris, around alternative management. The aim is both to train efficient managers who will work in the social innovation field, and to educate future corporate managers with methods and experiences from the NGO and social work field. It’s basically a cross-fertilization initiative, aiming to create a dialogue between different worlds. Founded in September 2006 by professor Eve Chiapello, the Alternative Management Major aims at anticipating evolutions in management and at deepening alternative approaches so that its students make sure they will be a step ahead in the world of tomorrow. Students from this Major may later steer towards different professional realms, from Goldman Sachs to field work in NGOs, but they will have one thing in common: they learned to develop a pluralistic vision of management practices.

Eve Chiapello regards the history of management as having built itself around a state of permanent questioning: “Today we are witnessing a proliferation of initiatives and proposals to change the world. The concept of sustainable development is a symptom of this situation: few people had heard of it ten years ago, and now it is taking the center stage! We must make sure that our students are fully in touch and awash with this effervescence that is teeming with novel ideas.” Social innovation, thus, would be one of the elements leading to what Chiapello sees as the reconstitution of a “reformist nebula”. Here, Schumpeter would have seen the beginning of a cycle of innovation: the invention, on the fringes of the current central model, of tomorrow’s economy.

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References

BOOKS

The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits
C.K. Prahalad
List Price: EUR 18,87
Business Cycles: A Theoretical, Historical, And Statistical Analysis of the Capitalist Process

List Price:
The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good
Stephen Goldsmith
List Price: EUR 32,92
The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good
Stephen Goldsmith
List Price:

Online

“Introducing social innovation” (Jams B. Taylor, 1970)
“The Age of Social Transformation” (Peter Drucker, 1994)
HEC’s Alternative Management Major
The Waterloo Institute for Social Innovation and Resilience

ParisTech Review