Understanding The Social Role Of Entrepreneurship
Understanding the social role of entrepreneurshipPAGE TITLE HEREUnderstanding the social role ofentrepreneurshipShaker A. Zahra and Mike WrightERC Research Paper No.33June 20151
Understanding the social role of entrepreneurshipUnderstanding the social role ofentrepreneurshipShaker A. ZahraUniversity of Minnesotazahra004@umn.eduMike WrightImperial College Business School and University of Ghentmike.wright@imperial.ac.ukThe Enterprise Research Centre is an independent research centre whichfocusses on SME growth and productivity. ERC is a partnership betweenWarwick Business School, Aston Business School, Imperial CollegeBusiness School, Strathclyde Business School and Birmingham BusinessSchool. The Centre is funded by the Economic and Social ResearchCouncil (ESRC); the Department for Business, Innovation & Skills (BIS);Innovate UK; and, through the British Bankers Association (BBA), by theRoyal Bank of Scotland PLC; HSBC Bank PLC; Barclays Bank PLC andLloyds Bank PLC. The support of the funders is acknowledged. The viewsexpressed in this report are those of the authors and do not necessarilyrepresent those of the funders.2
Understanding the social role of entrepreneurshipABSTRACTThere is a need to rethink and redefine the social value added ofentrepreneurial activities to society. In this paper we develop five pillars onwhich the evolving social role of entrepreneurship can rest and have itsimpact: (1) connecting entrepreneurial activities to other societal effortsaimed at improving the quality of life, achieving progress, and enrichinghuman existence; (2) identifying ways to reduce the dysfunctional effects ofentrepreneurial activities on stakeholders; (3) redefining the scope cognizingentrepreneurship’s social multiplier; and (5) pursuing blended value at theorganizational level, centring on balancing the creation of financial, socialand environmental wealth. In a final section we discuss implications forpractices and for further research.Keywords: social entrepreneurship; blended value; hybrid organizations;sustainabilityAcknowledgements: We appreciate the supportive comments of theanonymous reviewers and Andrew Corbett. Some of the ideas discussed inthis article were presented at seminars at Twente University, Uppsala,Minnesota, and academy of management.3
Understanding the social role of entrepreneurshipCONTENTSABSTRACT . 3UNDERSTANDING THE SOCIAL ROLE OFENTREPRENEURSHIP . 5THE FIVE PILLARS OF THE SOCIAL ROLE OFENTREPRENEURSHIP . 6INTEGRATING CSR, BOP AND SE FOR GREATERSOCIETAL IMPACT . 9Corporate social responsibility (CSR) . 9Bottom of the pyramid (BOP) . 10Social entrepreneurship (SE) . 11REDUCING THE DYSFUNCTIONAL EFFECTS OFENTREPRENEURSHIP . 12Resisting technological change . 13Influencing, controlling and abusing powers . 13Abuse of the environment and natural resources . 16The hazard of entrepreneurial environments . 17HARNESSING ENTREPRENEURSHIP’S SOCIALMULTIPLIER. 17REDEFINING THE SCOPE OF ENTREPRENEURIALACTIVITIES . 20FOCUSING ON BLENDED VALUE . 21DISCUSSION . 24IMPLICATIONS FOR PRACTICE AND RESEARCH. 25Practice . 25Research . 26CONCLUSION . 29REFERENCES . 314
Understanding the social role of RENEURSHIPThe study of entrepreneurship has advanced significantly, showing greaterresearch breadth, depth and rigor. Yet, research has left some fundamentalquestions answered unsatisfactorily. For example, what is the best way todefine the social role of entrepreneurship? For some, this is a question thathas been fully addressed; they view the value of entrepreneurship siderentrepreneurship to be a key plank of economic recovery; the engine oftechnological, economic and social growth. Entrepreneurs have introducednew technologies that have spawned countless industries, creating jobsand improving the social and economic conditions of nations (Audretsch,Keilbach and Lehmann, 2006; Baumol, 1986, 2010; Birch, 1979; McMullenand Warnick, 2015). Entrepreneurship has also improved the quality of life(Baumol, Litan, and Schramm, 2007; McMullen and Warnick, 2015). It isthe engine that moves and sustains capitalism, and is universally acceptedas a means of creating momentum for growth in developed, emerging andless developed economies.Other researchers from various perspectives (Beaver and Jennings, 2005;Kets de Vries, 1985; Khan, Munir and Willmott, 2007; Steinmetz andWright, 1989; Wright and Zahra, 2011), public policy makers, wellrecognized world leaders (e.g., the President of the US and the Pope) andeven some successful entrepreneurs (e.g., Bill Gates and Warren Buffet)have sounded the alarm that entrepreneurship’s potentially dysfunctionaleffects on society are not being carefully considered. Entrepreneurs mayadd to (and even create) problems that impair progress in their societies,often without assuming responsibility for addressing these issues. Theconsensus from these different perspectives is that we need to rethink andredefine the social value added of entrepreneurial activities to society.Given these vastly divergent views, we hope to promote a conversation onthe net value added of entrepreneurship by recognizing its significant social5
Understanding the social role of entrepreneurshipcosts. Entrepreneurship is not always productive (Baumol, 1986). To beginthis conversation, we propose that we need to strike an effective balancebetween gaining economic or financial “wealth” and enhancing the qualityof life in a society (“social wealth”). Without the motive and opportunity tocreate financial wealth some may forgo entrepreneurial activities. Similarly,without attention to the needs of their communities and societies,entrepreneurs would fail to contribute to the common good—harmingthemselves and their societies. Because entrepreneurship takes place inindependent ventures and existing companies (Westhead and Wright,2013), such challenges apply to the roles of corporate and independententrepreneurs. Defining this social role poses great challenges (and offersignificant opportunities) for independent entrepreneurs who have theopportunity, ability and power to define the type of value they want tocreate and steer their ventures accordingly. Independent entrepreneurs aremore apt to articulate social needs and decide how to address them and touse their own skills and resources to address these needs. As such, theseentrepreneurs are the sense makers who define and pursue opportunitiesto improve social wealth without a mandate from stakeholders. Thispromotes a focus on the community and society, potentially curbing greedthat afflicts some entrepreneurs. Similarly, corporate entrepreneurs alsohave bountiful opportunities to shape and guide their firms’ differentinitiatives and contribute to the public good while making profits andsustaining growth. They can shape their companies’ thinking about thesocial role associated with their entrepreneurial activities.THE FIVE PILLARS OF THE SOCIAL ROLE OFENTREPRENEURSHIPEntrepreneurship research can be viewed as largely being concerned withfive broad themes. First, who does entrepreneurship involve? This questionis especially important given the growing variety of stakeholders involved inan entrepreneurial ecosystem, not just the individual entrepreneur (Autio, etal., 2014). Institutions and other companies, both new and established, areimportant to birthing and growing entrepreneurship. For example, new6
Understanding the social role of entrepreneurshipcompanies in energy-related industries have to deal with many establishedinstitutions and emerging ones, host of other companies and multiplestakeholders with competing interests and claims. The diversity of thesegroups and their multiple needs affect these new ventures’ behavior andalso shape the evolution of their ecosystems.Second, what does entrepreneurial behavior involve? This questionconcerns the activities of entrepreneurs, which may be productive,unproductive or dysfunctional (Baumol, 1986). As Shane (2009) points out,a large portion of entrepreneurial activities takes the form of “petty selfemployment” that is limited in productivity or economic benefits. Eventhough these activities may serve the needs of those individuals whootherwise may be unable to gain employment, they raise a legitimatequestion about the overall value added of entrepreneurship. This suggestsa need to reflect on the significance of entrepreneurial activities and whatactions are needed to make them happen.Third, what format does entrepreneurship take? To date, research haslargely focused on formal dimensions, notably independent start-ups orspin-offs, and various forms of corporate entrepreneurship (Fryges, andWright, 2014), but entrepreneurship may also be informal (Webb et al.,2009). These informal activities occur in advanced as well as emerging andunderdeveloped economies. They provide legitimate employment and fulfilspecific social and economic needs. But sometimes informal entrepreneursengage in illicit trade in prohibited items such as rare and exotic animal,sex trade, and drug trafficking (Zahra, Pati and Zhao, 2013).Fourth, where is the impact of entrepreneurship felt? This is a concern thatgoes beyond individual and firm wealth creation to encompass macroeconomic effects such as growth in GDP (Autio, Pathak, and Wennberg,2013). Entrepreneurship affects communities, societies and humanity. Thework of entrepreneurs addressing issues from food and water shortages,environmental pollution and decay and sustainability through innovativeand affordable technologies covers and crosses these levels.7
Understanding the social role of entrepreneurshipFifth and finally, how is the impact of entrepreneurship measured? Thisquestion has traditionally concerned issues relating to the measurement ofgrowth and financial performance (Davidsson, Steffens and Fitzsimmons,2009; Gilbert, McDougall and Audretsch, 2006; Wright and Stigliani, 2013),but may also need to encompass measures of social impact (Nicholls,2009), such as community development, happiness and social cohesion.We build on these themes to develop five pillars on which the evolvingsocial role of entrepreneurship can rest and have its impact: (1) connectingentrepreneurial activities to other societal efforts aimed at improving thequality of life, achieving progress, and enriching human existence bypaying attention to wealth distribution and balancing the interests ofdifferent stakeholders; (2) identifying ways to reduce the dysfunctionaleffects of entrepreneurial activities on stakeholders including the(4)scopeofrecognizingentrepreneurship’s social multiplier, which refers to the potential ofentrepreneurial activities to lead to the discovery of creation of additionalopportunities, leading to the birth of new firms in different sectors of theeconomy. These companies may have purely economic, social or hybridgoals; and (5) pursuing blended value at the organizational level, centeringon balancing the creation of financial, social and environmental wealth.This value is crucial to developing sustainable quality of life (Zahra, Neweyand Li, 2014). New ventures with a focus on sustainability often seek tostrike a balance among these three dimensions.Together, these five pillars underscore the importance of social wealth as akey yardstick in evaluating corporate and independent entrepreneurialactivities. As important as financial wealth creation is, the field ofentrepreneurship can benefit from considering social value creation. Thislikely has two implications. First, it will shift focus from the implicitrecognition of social value to its explicit analysis and thus promote researchthat defines this value and its manifestations in different settings. Second, ithighlights the need to align individual motives (e.g., wealth creation) with8
Understanding the social role of entrepreneurshipsocial good by reducing abuses to resources and the environment byentrepreneurs while supporting and undertaking those activities thatpromote the public good. This alignment will raise awareness of the need tomove from “do no harm” to “do good” and thus improve personal as well associal wealth.This would be a qualitative shift from examining “what”entrepreneurs do to studying and analyzing “who” they do it for and “how”they do it, with an eye on creating and improving social wealth.INTEGRATING CSR, BOP AND SE FOR GREATERSOCIETAL IMPACTRefining the social role of entrepreneurship requires the creative integrationof the corporate social responsibility, bottom of the pyramid and socialentrepreneurship perspectives. Though each has its unique focus, togetherthe three perspectives can lead us to a more balanced view of blendedvalue.Corporate social responsibility (CSR)Despite its many positive contributions, entrepreneurship also createsdifferent and sometimes difficult societal problems requiring carefulattention (Baumol, 1986). In response, some entrepreneurs have workedhard to minimize and address some of these concerns and have been apowerful voice in focusing on the common good. These entrepreneurs havealso persuaded others to consider the challenges and opportunities ofaddressing persistent societal issues, even on a worldwide scale (Zahra etal., 2008). Further, they have drawn attention to the limitation of formalcorporate social responsibility (CSR) programs.CSR refers to a company’s efforts, investment and activities aimed toimprove relations with stakeholders such as customers, investors andcommunities. These activities center on building the company’s reputationand relationships with stakeholders (Aguilera, Rupp and Williams, 2007).Recently, many have come to view CSR programs as simply a part of9
Understanding the social role of entrepreneurshipdoing business and/or a means of successfully executing competitivestrategies. Though useful in building a company’s name and reputation aswell as connecting with different stakeholders, even the modest empiricalevidence on the value added of CSR to a company needs to be qualifiedwith various methodological caveats (Brammer and Pavelin, 2013). CSRcould motivate corporate and independent entrepreneurial activities. Forexample, companies—new and established—could develop innovativeways to perform and provide the benefits intended from undertaking CSR.By being innovative, risk taking and proactive in carrying out their CSRprograms, entrepreneurs can gain a competitive advantage by addressingsocial needs.Bottom of the pyramid (BOP)Recognizing the pervasive existence of particular social problems aroundthe globe, new ventures have targeted customers at the bottom of thepyramid (BOP), defined as groups of people who lead a meager existencedue to poverty. They often live on incomes lower than US 2.0 a day(Brooks, 2009; London and Hart, 2011; Prahalad, 2005; Zahra et al. 2008).Corporate entrepreneurs have also crafted strategies that center on servingthe BOP, a widely ignored population (Auriac, 2010; George, McGahan andPrabhu, 2012), applying existing corporate capabilities (Zahra, Newey andLi, 2014). Corporate entrepreneurs have also succeeded in highlighting theimportance of social business for their companies’ market success,engaging senior executives and linking their newly created business toexisting operations.As with CSR, strategies focused on serving poverty-related needs in theBOP market focus on improving the firm’s financial performance. As aresult, established companies can use these strategies to address theneeds of millions of people who live under some of the harshest economicconditions and at the same time foster more productive entrepreneurship(Hall, Matos, Sheehan and Silvestre, 2012). Using this approach, newventures and established companies alike often collaborate with local10
Understanding the social role of entrepreneurshiporganizations, NGOs, not-for profit, social ventures and activist groups.Still, using strategies focused on serving poverty-related needs in the BOPmarket can have serious side effects. For example, soft drink companiesmight help provide fresh water and serve other important local socialneeds, yet their main products can lead to cavities and other problemswhen consumed by individuals not well educated in terms of dental health. 1Social entrepreneurship (SE)Some independent entrepreneurs have focused more on creatingcompanies around opportunities derived from societal problems such aspoverty, health care, energy, private education, and water purification(Zahra et al,, 2008, 2009, 2014). These new firms have been founded innearly every sector of the economy to address particular needs whilemaking a profit. As such, they are distinct from not-for-profit socialentrepreneurs (Kroeger and Weber, 2014). The phenomenal growth of SEand ventures around the globe attests to the growing realization thatentrepreneurs could be responsible while being profitable. SE activitiesfocus on creating social and financial wealth (Zahra et al., 2008). Theseventures vary in their financing, ownership structures, organizational forms,and business models. While they focus on addressing social needs (e.g.,providing inexpensive good medical care for the poor), these ventures varysignificantly in their relative emphasis on financial and social goals(McMullen and Warnick, 2015). Many of these ventures are hybrid,focusing on both sets of goals. Social ventures often work side by side withnot-for profit, government agencies, community organizations, and NGOsin delivering their products and services. Successful (commercial)entrepreneurs often use their resources to establish these ventures toaddress social issues or needs of particular interest to them (e.g., betterschooling for young children).1We are grateful to one of the anonymous reviewers for providing these usefulexamples.11
Understanding the social role of entrepreneurshipCSR, BOP and SE activities have different goals, although they have profitmaking as a common focus. What differentiates these activities is theprimacy of social over other goals and motives. CSR emphasizesalleviating social problems, but a company’s mission and financial goalsdominate organizational culture and thinking as well as strategy making.BOP activities also enrich the existence of particular groups of people byredeploying existing organizational resources and capabilities. SE focuseson social wealth creation while stressing profits (Dacin, Dacin and Matear,2010; Zahra et al., 2008).Another fundamental difference is the amount of autonomy decisionmakers have. This autonomy reflects the perceived importance of each ofCSR, BOP and SE activities and their centrality in the company’s thinkingand strategizing processes. The greater the perceived importance andcentrality of these activities, the higher the amount of autonomy decisionmakers h
Entrepreneurship research can be viewed as largely being concerned with five broad themes. First, who does entrepreneurship involve? This question is especially important given the growing variety of stakeholder
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