Harvard Professor Kash Rangan on Social Enterprises

Harvard Business School Professor V. Kasturi Rangan, one of the pioneers of Harvard Business School's Social Enterprise Initiative made the following comments in a Q&A available on the Harvard Business School Working Knowledge site: The Coming Transformation of Social Enterprise (September 15, 2008):

Q:  Many alumni get involved with corporate social responsibility (CSR) initiatives. Critics of CSR often cite Milton Friedman, who famously said that "the social responsibility of business is to increase profits." Do you agree?

A:I absolutely think it's too narrow a view. In the decade of the '90s, maximizing shareholder value became a corporate mantra. But the notion that the corporation exists only to maximize shareholder value lasted only a decade. It was a historical anomaly. In almost every other decade business leaders have acknowledged that corporations exist within the larger fabric of society. The School's second dean, Wallace Donham, said that the focus of a business is to make a decent profit decently.

Q: Another hot topic in the nonprofit world is the idea of creating a for-profit business to help underwrite the cost of operations. Is this the way to go to secure a reliable stream of funds?

A:I don't think so. There's a lot of charitable money available. … [T]here is an intergenerational transfer estimated at $6 trillion over the next fifty years specifically earmarked for social enterprises. None of these sources of money is actually looking for an economic return. They're definitely looking for a social return. That being the case, I don't think that nonprofits should quickly jump at creating for-profit enterprises. In certain segments like health care, and even arts and culture, it might make sense when the for-profit and nonprofit parts are tightly linked by a common purpose or platform. For example, in health care several very successful social entrepreneurs have created a hybrid model where paying clients subsidize the "free" clients. The whole organization, however, is doing only one thing, eye surgery or heart surgery or orthopedic surgery and so on.

But to think that an environmental organization could sustain itself by selling mugs and T-shirts is a bit of a stretch. It is not that hard to put together a for-profit arm, but to have it be a significant contributor to the core mission requires considerable strategic work. It may not be possible for a vast majority of organizations in this space. It could be an unnecessary distraction.

Professor Rangan co-authored The Future of Social Enterprise with Herman B. Leonard and Susan McDonald published on July 3, 2008.  The Working Paper, available at http://hbswk.hbs.edu/item/5986.html, considers three potential scenarios for how the social enterprise sector may evolve:

Consolidation:  In this scenario of sector evolution, funding will keep growing in a gradual, linear fashion, and organizations will compete for resources by demonstrating performance, with a focus on efficiency. The sector will consolidate.

Entrepreneurial: In a more optimistic future, existing and new enterprises will apply strategies to achieve and demonstrate performance, improving efficiency and effectiveness and attracting new funding sources.

Expressive: Rather than focusing exclusively on performance, funders and organizations may view their investment as an expressive civic activity.