Innovation and Entrepreneurship in a Social Context

“Social innovation is the process of developing and deploying effective solutions to challenging and often systemic social and environmental issues in support of social progress Solutions often require the active collaboration of constituents across government, business, and the nonprofit world”

Social entrepreneurship involves creating new products or services to address social or environmental needs. The products and/or services are made available through existing market structures. These are enterprises with a social betterment goal that are structured to make a profit. This business model creates shared value, meaning that the organization simultaneously generates financial benefits and environmental and/or social benefits.

Social innovation is about creating new social structures that allow issues of justice, education, environmental protection, sustainability and/or community development to be reframed so that new solutions can come forward. Social innovators question the premises on which existing social structures are built and then reimagine systems and institutional relationships to bring about change. The distinction between social entrepreneurship and social innovation is fluid, and there is often overlap between the two changemaking approaches.

Social innovation and social entrepreneurship may work through a variety of organizational architectures to enable change. We can think about organizations as being on a spectrum: At one end of the spectrum are not-for-profit entities that fill vital social and environmental needs through traditional charitable approaches, relying on donations as their primary source of funding. At the other end of the spectrum are for-profit businesses that fill customer needs through market-based mechanisms: selling the product or service for what the market will bear. Many for-profit companies incorporate sustainability and socially responsible practices into their operations and culture, but they are still primarily focused on the financial bottom line. In between these two ends of the spectrum are a range of organizational architectures that innovatively address social and environmental needs by developing new products and services and/or through creative structures for the delivery of these products and services. This space between traditional not-for-profit and traditional for-profit organizations encompasses social innovators and social entrepreneurs.

The Process of Social Innovation

The Open Book of Social Innovation is a useful toolkit emerging from the collaboration between Nesta and The Young Foundation. The volume offers tools and methods used across various social innovation sectors ranging from private to public and provides insights into the process of social innovation:

• Prompts, inspirations and diagnoses: highlight the need for and inspiration behind innovation;
• Proposals and ideas: draw insights and generate ideas through creative methods;
• Prototyping and pilots: test and refine ideas;
• Sustaining: sharpen your idea by identifying ways of sustaining it in the longer term (e.g.: income streams);
• Scaling and diffusion: expand your idea (e.g.: ‘organisational growth, through licensing and franchising to federations and widespread dissemination’);
• Systemic change: the ultimate goal of social innovation the creation of new frameworks or architectures made up of many smaller innovations (e.g.: new technologies, supply chains, institutional forms, skills, and regulatory and fiscal frameworks).

From the users’ perspective, the experience was inefficient and unsatisfactory. But since the centralized computing model was the only one available, users put up with it and built the delays and inefficiencies into their workflow, resulting in an equilibrium, albeit an unsatisfactory one.

System dynamicists describe this kind of equilibrium as a “balanced feedback loop,” because there isn’t a strong force that has the likely effect of breaking the system out of its particular equilibrium. It is similar to a thermostat on an air conditioner: When the temperature rises, the air conditioner comes on and lowers the temperature, and the thermostat eventually turns the air conditioner off.

The centralized computing system that users had to endure was a particular kind of equilibrium: an unsatisfactory one. It is as if the thermostat were set five degrees too low so that everyone in the room was cold. Knowing they have a stable and predictable temperature, people simply wear extra sweaters, though of course they might wish that they didn’t have to.

Entrepreneurial Characteristics

The entrepreneur is attracted to this suboptimal equilibrium, seeing embedded in it an opportunity to provide a new solution, product, service, or process. The reason that the entrepreneur sees this condition as an opportunity to create something new, while so many others see it as an inconvenience to be tolerated, stems from the unique set of personal characteristics he or she brings to the situation inspiration, creativity, direct action, courage, and fortitude. These characteristics are fundamental to the process of innovation.

The entrepreneur is inspired to alter the unpleasant equilibrium. Entrepreneurs might be motivated to do this because they are frustrated users or because they empathize with frustrated users. Sometimes entrepreneurs are so gripped by the opportunity to change things that they possess a burning desire to demolish the status quo. In the case of eBay, the frustrated user was Omidyar’s girlfriend, who collected Pez dispensers.

The entrepreneur thinks creatively and develops a new solution that dramatically breaks with the existing one. The entrepreneur doesn’t try to optimize the current system with minor adjustments, but instead finds a wholly new way of approaching the problem. Omidyar and Skoll didn’t develop a better way to promote garage sales. Jobs and Wozniak didn’t develop algorithms to speed custom software development. And Smith didn’t invent a way to make the handoffs between courier companies and common carriers more efficient and error-free. Each found a completely new and utterly creative solution to the problem at hand.

Once inspired by the opportunity and in possession of a creative solution, the entrepreneur takes direct action. Rather than waiting for someone else to intervene or trying to convince somebody else to solve the problem, the entrepreneur takes direct action by creating a new product or service and the venture to advance it. Jobs and Wozniak didn’t campaign against mainframes or encourage users to rise up and overthrow the IT department; they invented a personal computer that allowed users to free themselves from the mainframe. Moore didn’t publish a book telling mothers how to get more done in less time; she developed the Snugli, a frameless front- or backpack that enables parents to carry their babies and still have both hands free. Of course, entrepreneurs do have to influence others: first investors, even if just friends and family; then teammates and employees, to come work with them; and finally customers, to buy into their ideas and their innovations. The point is to differentiate the entrepreneur’s engagement in direct action from other indirect and supportive actions.

Entrepreneurs demonstrate courage throughout the process of innovation, bearing the burden of risk and staring failure squarely if not repeatedly in the face. This often requires entrepreneurs to take big risks and do things that others think are unwise, or even undoable. For example, Smith had to convince himself and the world that it made sense to acquire a fleet of jets and build a gigantic airport and sorting center in Memphis, in order to provide next-day delivery without the package ever leaving FedEx’s possession. He did this at a time when all of his entrenched competitors had only fleets of trucks for local pickup and delivery they certainly didn’t run airports and maintain huge numbers of aircraft.