Social Innovation Models Explained

For those who are familiar with the principles of social entrepreneurship, the dividends they create for society are obvious, and the case for encouraging more of this kind of enterprise development is intuitive. But for the majority of people who have heard these terms thrown around in many different contexts and situations, the significance is still unclear. 

For that reason, part two of this report profiles 20 case studies of how social innovation models achieve positive social and environmental change, just as part one showcases 12 case studies of how governments and policy-makers are trying to stimulate and scale social enterprise activity. The social innovation models profiled in the pages that follow are drawn from the Schwab Foundation’s global network of social enterprises and address diverse challenges in education, health, employment, urban development and rural development.

We can no longer count on governments alone to provide all of the services a person needs to thrive. We probably never could. Nor can we leave it to the markets alone. This next chapter in history must start with a commitment to justice for all of the world’s people and be spurred on by our collective courage to innovate and experiment with new models that don’t sit neatly within government or market forces alone.

We have it within our grasp to identify, support and grow solutions where markets have failed and governments alone have fallen short. What it requires of us is moral leadership and the recognition of fundamental human values of dignity, choice and opportunity. Our interconnected world demands leaders who take risks and look for pragmatic, not ideological solutions, and see investment as a means, not an end. Fundamentally, this is about whether our generation can use the tools, skills and technologies available to us, and create a global society where all individuals have the chance to flourish and contribute.

Jacqueline Novogratz,
Founder and CEO, Acumen Fund;
member of the Global Agenda Council
on Social Innovation

Despite these differences, they share some compelling commonalities. They help to catalyse markets for underserved populations by aggregating demand and reducing risk. They think creatively about how to achieve better outcomes with existing resources. They design their processes and products for affordability and develop “sliding scale” pricing structures. They realize that a new technology is only half the battle and devote significant energy to creating the distribution channels and incentive structures to spur adoption.

And very rarely do they act alone. If there is one overriding message of the case studies, it is that social enterprises are able to “punch above their weight” because they are intensely strategic about collaborating with corporate and government partners who help them to replicate their idea and reach more beneficiaries. 

We hope the models profiled in part two demonstrate how social enterprises occupy the grey space between governments and markets, how they deliver products and services that lead to improved outcomes for poor people, and thus why it is in the overwhelming public interest to encourage the growth of these models through appropriate policy tools.

What is Social Entrepreneurship?

The application of innovative, practical and sustainable approaches to benefit society in general, with an emphasis on those who are marginalized and/or poor. The innovation can take the form of a new product or service, a new production or distribution method, a new labour supply, the reformulation of an existing product for an underserved population, or new organizational structures or funding models.

The use of business methods and practices to generate direct social and/or environmental impact.

The optimization of financial value creation as a secondary objective and a means to reach more beneficiaries, not as an end in itself. This should be codified in a social enterprise’s governance structure or by-laws.

A learning process that involves conceiving a more effective way to address a poorly met or emerging need; testing and refining the initial concept; mobilizing the resources and partners necessary to scale the model; and continual improvement through rigorous impact measurement and an openness to incorporate feedback.

Perhaps most importantly, social entrepreneurship is strongly rooted in values – such as dignity, access to opportunity, transparency, accountability, fair pricing, and empowerment of beneficiaries – regardless of sector or organization type.

Categories of Social Enterprises

Leveraged non-profits engage a cross-section of society, including government agencies, civil society, or the business sector, to drive forward the innovation through a multiplier effect. Leveraged non-profit ventures continuously depend on outside philanthropic funding, but their longer-term sustainability is enhanced given that their partners have a vested interest in growing the impact. 

Hybrid non-profit ventures include some degree of cost recovery through the sale of goods or services to a cross-section of institutions, public and private, as well as to target population groups. Often, this requires the establishment of several legal entities to distinguish revenue-generating activities from charitable expenditures. While public or philanthropic funding is generally required to sustain some portion of the organization’s activity, specific initiatives might be appropriate for soft loans or even quasi-equity.

Social business ventures are set up as a for-profit entity or business to provide a social or ecological product or service. While revenues are generated, the main aim is not to maximize financial returns for shareholders but to grow the social impact and reach more people in need. The entrepreneur of a social business venture seeks investors who are interested in combining financial and social returns on their investments.