SEFORїS research informs revised approach to identifying social enterprises in the UK
A joint project between UK government’s Department for Business, Energy and Industrial Strategy and Department for Digital, Media, Culture and Sport, SEFORїS researchers at Aston University and BMG research estimates that nearly one third of all UK small businesses ( 1.7 million small businesses) pursue social or environmental goals. This is one in three UK small businesses. They provide employment to a total of 4.8 million individuals (including the entrepreneurs).
Based on a review of best practice, in-depth methodological research and stakeholder consultation, we have devised an approach that allows the identification of social enterprises in the business population via an efficient 3-minute survey instrument. It differentiates social enterprises and mission-led businesses. Both pursue social or environmental goals, but mission-led businesses have no constraint to use their profits/surpluses to further those goals.
The project highlights that:
- One in 10 small businesses in the UK are social enterprises (just under half a million organizations), which provide employment to 1.4 million people.
- Another 1.2 million UK small businesses are mission-led, pursuing social or environmental goals, and they provide employment to about 3.5 million people.
- Profiling social enterprises against all other small businesses in the UK reveals that social enterprises introduce more innovations and have stronger growth aspirations, they are also more financially sustainable with higher share of social enterprises having generated surplus/profit over the last year compared to small and medium-sized businesses that are not social enterprises.
Background and development of the methodology
Being able to identify social enterprises in the general business population is important for policy makers, support organizations and researchers, because it allows them to gain an understanding of the scale and scope of the population they seek to support. Designing user-friendly and easy-to apply measures for social enterprises also opens up new opportunities for comparative research.
Through a rigorous process of review, testing and piloting, we have designed a measurement instrument that can identify social enterprises within the general business population in roughly 3 minutes. The instrument consists of a set of seven survey questions asking respondents about the goals of their organisation, their income from trading, their use of surplus and their legal form.
The process of developing the methodology for identifying social enterprises included the following steps:
- A review of existing measures being used in local and international academic and government surveys as well as measures used by social enterprise support organisations.
- Developing a set of survey questions based on this review. These questions were then cognitively tested with social enterprises, charities and commercial small- and medium sized enterprises. We were surprised by how much the interpretation of certain questions varied across these types of organizations. Only the most unambiguous and reliable questions were considered for the next step.
- A pilot study with 100 respondents allowed us to refine the survey instrument further.
- We used the instrument to survey a representative sample of the UK small business population (N=1000) and derive estimates of the size, employment and other features of social enterprises and mission-led businesses.
The instrument uses seven questions to identify social enterprises, these include:
- Organisational goals: The organisation has to have specified social/environmental goals (the list of goals is available in the full report), which are equally or more important than financial goals.
- Income: The organisation generates at least 50 per cent of its income from trading activity.
- Use of surplus/profit: The organisation has either rules in place that ensure surpluses are chiefly used to further the social/environment organisational goals, or past surpluses have been chiefly used for that purpose.
- Charitable status and legal form: This question takes advantage of the fact that certain organisational forms have a social purpose enshrined in their legal form and are verified by an independent regulator or registrar such as the CIC Regulator, the Charity Commission or the Financial Conduct Authority (FCA). (An organisation can still be identified as a social enterprise if it does not have charitable status or a social enterprise-legal form if it complies with the other criteria above.)
There are two ways of combining the responses to the survey questions to classify social enterprises: a decision tree and an index.
- The decision tree (shown below) is a particularly useful way for government departments, policy makers or support organizations to obtain estimates of the scale and scope of the social enterprise population and could be used in national accounts and statistics.
- The index approach will be more useful for researchers and academics, who seek to identify predictors or outcomes of the relative social and economic orientation of social enterprises. For more detail see pages 19-25 of the Social Enterprise: Market Trends 2017 report.
The decision tree starts from criteria that are easy to identify, such as legal form and charitable status. Charitable status and some legal forms ensure that an organisation has a verified social purpose. Similarly, a charitable status puts constraints on the use of surpluses. Having a charitable status thus implies that the only additional criterion that needs to be checked is the degree to which the organisation engages in trading. If this constitutes 50% or more of its income, the organisation can be classified as a social enterprise. If an organisation has a ‘for-profit’ legal form such as private limited company, yet has social and/or environmental goals and has constraints in place to use profits/surpluses to further their social goals, this organisation is also classified as a social enterprise. (For a more detailed explanation see page 19-25 of the Social Enterprise: Market Trends 2017 report).
Note. ‘For-profit’ legal forms include sole proprietorship/trader, private limited company, limited company by shares, public limited company, private unlimited company, foreign company. ‘Other’ legal forms include partnerships, limited liability partnerships, private company limited by guarantee, co-operative, ‘other’, don’t know and refused answers. ‘Social’ legal forms include Community Interest Company (limited by guarantee or shares), Friendly Society, Industrial and Provident Society, Trust, Unincorporated Association, Community Benefit Society, Charitable Un/Incorporated Organisation. ‘Env.’ - Environmental. S/E – social or environmental.
The instrument has been implemented in the UK Government’s Longitudinal Small Business Survey and will be used in the years going forward to identify social enterprises in the UK.
The full research report on social enterprises in the UK and the development of this methodology to identify social enterprises are published in the Social Enterprise: Market Trends 2017 report, https://www.gov.uk/government/publications/social-enterprise-market-trends-2017. The report was commissioned by the Department for Digital, Culture, Media & Sport, (DCMS), the Department for Business, Energy and Industrial Strategy (BEIS) and the Government Inclusive Economy Unit (GIEU).
Professor Ute Stephan and Dr Emma Folmer