Daffodil International University
Faculties and Departments => Business Administration => Business & Entrepreneurship => BBA Discussion Forum => Topic started by: hassan on September 10, 2013, 11:53:25 AM
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The term Social Business was defined by Nobel Peace Prize laureate Prof. Muhammad Yunus and is described in his books Creating a world without poverty—Social Business and the future of capitalism and Building Social Business—The new kind of capitalism that serves humanity's most pressing needs.
In Yunus' definition, a Social Business is a business:
Created and designed to address a social problem
A non-loss, non-dividend company, i.e.
It is financially self-sustainable
Profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact.
Unlike a "PMB" (Profit-Maximizing Business, the term Yunus uses to refer to standard business in capitalism) the prime aim of the business is not to generate profits (although generating profits is auspicable). Furthermore, business owners are not receiving any dividend out of the business profits, if any.
Unlike a Non-Profit, the business is not dependent on donations or on private or public grants to survive and to operate, because, as any other business, it is self-sustainable. Furthermore, unlike a Non-Profit, where funds are spent only once on the field, funds in a Social Business are invested to increase and improve the business' operations on the field on an indefinite basis. Per Yunus' quote: "A charity dollar has only one life; a Social Business dollar can be invested over and over again."
Yunus has repeatedly claimed that the Social Business model is not meant to be a substitute or aiming to replace the standard capitalistic business model; it is merely a new tool in the toolbox to solve human problems, aiming at filling the gaps that the non-profit, government, and business sectors cannot - alone - fill.
Besides the Yunus' definition, several other, wider definitions of Social Business are sometimes used by media and other sources, including any business which has a social rather than financial objective.
Disambiguation: social enterprise and social network business
A more commonly used and better understood concept is the related model of social enterprise. This term describes broadly 'commercial activity by socially minded organizations'.[1] Charities may engage in social enterprise in order to generate funds, as per the 'op-shop' model; a social enterprise model may also be used to provide supported employment to those with barriers to work. Some commentators define social business as a subset of social enterprise, with the specific characteristic that, whereas a social enterprise can derive part of its revenue from philanthropy or government grant along with its trading income, a true social business should support itself by trading on the market. In Europe however, social enterprise and social business are treated as synonyms:
The [European] Commission uses the term 'social business' to cover an enterprise:whose primary objective is to achieve social impact rather than generating profit for owners and shareholders; which operates in the market through the production of goods and services in an entrepreneurial and innovative way; which uses surpluses mainly to achieve these social goals and which is managed by social entrepreneurs in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activity.[2]
The use of the term "social business" is also used to refer to a completely different concept - a standard business adopting marketing and communication strategies leveraging the impact of social networks such as Facebook, Twitter, and others - although this is disputed.
Prototype
In Yunus’ book Creating a World without Poverty—Social Business and the Future of Capitalism, two different types of social businesses are proposed:
A Type I social business focuses on providing a product and/or service with a specific social, ethical or environmental goal. A prominent example is Grameen Danone.
A Type II social business is a profit-oriented business that is owned by the poor or other underprivileged parts of the society, who can gain through receiving direct dividends or by indirect benefits. Grameen Bank, being owned by the poor, is the prime example of this type, although it would also classify as a Type I social business.
Grameen Danone, which is Yunus' prototype social business, was launched in 2005. Its social mission is to address malnutrition in Bangladesh, by providing products, such as yoghurt, containing many of the nutrients missing in an impoverished child's diet and providing these products at a price affordable to everyone. Grameen Danone received seed capital and in-kind support from dairy products company, Danone and the brand credibility leant by Yunus' well-known micro-finance company, Grameen Bank.
Idea
Professor Muhammad Yunus, a well-known advocate of the social business model, argues that capitalism is too narrowly defined. The concept of the individual as being solely focused on profit maximizing ignores other aspects of life. Failures of this system to address vital needs, that are commonly regarded as market failures are actually conceptualization failures, i.e. failures to capture the essence of a human being in economic theory by limiting humankind to the homo economicus.
Yunus postulates a new world of business in which profit-maximizing enterprises and social-benefit-maximizing enterprises coexist. In addition, a social business would operate much like a profit-maximizing business in that the company as a whole grows financially and gains profits. The only difference is that the company's shareholders and investors would be re-accumulating their initial investment as opposed to receiving dividends. He calls the latter social business.
Key ingredients to the success of the approach are education, institutions to make social businesses visible in the market place (a social stock market), rating agencies, appropriate impact assessment tools, indices to understand which social business is doing more and/or better than other social businesses so that social investors are correctly guided. The industry will need its Social Wall Street Journal and Social Financial Times.
Therefore, a social business is driven to bring about change while pursuing sustainability. Although from a strictly profit-maximizing perspective it seems inappropriate to pursue a goal other than profit, social business’ aim is to achieve certain social and environmental goals. In this perspective, a social business can also be understood as a business-pursuing NGO which is (eventually) financially self-sufficient.
Social business is a cause-driven business. In a social business, the investors or owners can gradually recoup the money invested, but cannot take any dividend beyond that point. The purpose of the investment is purely to achieve one or more social objectives through the operation of the company, since no personal monetary gain is desired by the investors. The company must cover all costs and make revenue, but at the same time achieve the social objective.
The impact of the business on people or environment, rather than the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business.
Seven Principles of Social Business
These were developed by Prof. Muhammad Yunus and Hans Reitz, the co-founder of Grameen Creative Lab:
Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
Financial and economic sustainability
Investors get back their investment amount only; no dividend is given beyond investment money
When investment amount is paid back, company profit stays with the company for expansion and improvement
Environmentally conscious
Workforce gets market wage with better working conditions
Do it with joy
Source: wikipedia.org