01 Dec 1997

Growing Together

HBS Initiative Fosters Social Enterprise in Business and the Community
by Marguerite Rigoglioso and Nancy O. Perry


Since its official launch four years ago, the School's Initiative on Social Enterprise has flourished, providing ever-greater support and know-how for HBS students, alumni, and nonprofit leaders who are keen on bringing their expertise to bear on the social issues that touch all of our lives.

Nick Gleason (MBA '97) is finding a way to make both a profit and a difference. Last fall, as a part of HBS associate professor Marco Iansiti's Managing Product Development course, Gleason created a model for a company that would employ inner-city residents to design, produce, and update World Wide Web sites and perform other labor-intensive high-tech work. A year later, that company is up and running. CitySoft (www.citysoft.com), which harnesses the computer skills of young adults from low-income Boston neighborhoods, has just completed its eleventh contract and is bidding for large corporate jobs in several major cities.

Ira A. Jackson (100th AMP), the executive vice president of BankBoston, is also finding a way to turn social ideals into good business practice. Locally, Jackson is guiding the bank in its efforts to provide jobs for inner-city youth. Internationally, he has inspired the institution to donate funds and expertise to build a half-way house for homeless teenagers in Sao Paulo, Brazil, where the bank has a major presence, and to link up schoolchildren in New England and Latin America over the Internet. "What we're doing boosts employee moral, is a source of pride with our customers and the community, and differentiates us from our competitors," explains Jackson. "It's all part of our business strategy for leading BankBoston into the 21st century and is consistent with the philosophy of managing with values for value."

Meanwhile, David V.B. Britt, president and CEO of Children's Television Workshop in New York, which produces educational TV programs for children such as Sesame Street, is finding that using business strategy has been critical to the success of his nonprofit organization. "In an environment where government, philanthropic, and foundation resources are stretched very thin, we've had to become very entrepreneurial," Britt explains. "To generate income we license toy companies, retailers, and park operators to use our Sesame Street characters, and we publish are own educational magazines, for example."

Whether social entrepreneurs like Gleason, agents for corporate leadership in the social sector like Jackson, nonprofit executives like Britt, nonprofit board members, or even soup kitchen volunteers, more and more HBS alumni are finding that, as HBS professor James E. Austin puts it, "the boundaries between traditional business activity and what was once considered the province of nonprofit organizations are becoming increasingly blurred." Businesses, says Austin, are finding they can benefit in many ways by working to strengthen the communities in which they operate. And nonprofits are learning they can become more effective by adopting business practices.

Helping students, alumni, outside business leaders, and nonprofit managers develop skills and innovations they can apply to the social sector is one of the main goals of the Initiative on Social Enterprise, an effort the School established in 1993. Supported in large part by the John C. Whitehead Fund for Non-for-Profit Management (created by John C. Whitehead [MBA 11/'47], who now chairs the Initiative's advisory board), guided by HBS Social Enterprise Interest Group cochairs Jim Austin and V. Kasturi ("Kash") Rangan, and administered by director Robert Burakoff, the Initiative serves as an umbrella for a wide range of research projects, course development activities, and related endeavors.

Now in its fifth year, the work of the Initiative has coalesced into three distinct yet interdependent areas of study. One focuses on the strategy and management issues facing both nonprofits and other social-purpose enterprises. Another concerns the ways in which businesses can influence a community's health and create meaningful partnerships with government and nonprofit organizations. A third has to do with the governance of social enterprises, seeking to address questions such as how to develop effective nonprofit board leadership. In the pages that follow, the Bulletin spotlights some of the compelling research and curricular developments in each of these arenas.

Caring for Orphans - A Strategy Challenge

For the past fifty years, children around the world who have been orphaned, abandoned, and left destitute have been given a second chance to grow into well-adjusted, productive adults, thanks to the efforts of SOS-Kinderdorf International. Founded by Austrian-born Hermann Gmiener, who himself lost his mother at an early age and witnessed World War II's devastating effects on children, SOS-KDI, headquartered in Innsbruck, Austria, runs special children's villages in 130 countries around the world. A village consists of a cluster of ten to fifteen homes, each of which houses six to eight children who are cared for by an SOS "mother," a single woman trained to fill the role of the natural mother. Villages also run K-12 schools, vocational facilities, and medical centers in many countries, especially in Africa, Asia, and Latin America.

Kash Rangan first heard about SOS-KDI from Martin Halbeis (MBA '97), who once worked for the organization. Rangan's research began with meetings with SOS-KDI's senior management, followed by visits to several children's villages and related program sites. Ultimately, he developed a case on the organization for Strategic Perspectives in Nonprofit Management (SPNM), an HBS Executive Education course for leaders of nonprofit institutions that was established under the Initiative's auspices in the fall of 1994.

"SOS-KDI is a $400 million organization with a brilliant formula that has helped them expand internationally to serve more than 100,000 children," Rangan explains, "but now the world is changing around them. To be in tune with their operating environment, they have to make many key strategic decisions about their mission focus, their product/service portfolio, and their value-creation model across a broad range of stakeholders in widely varying political and cultural contexts. Their situation illustrates wonderfully just the kinds of strategy issues that many participants in SPNM face."

Jatrice Martel Gaiter, the executive director of SOS-KDI's fledgling U.S. operation, elaborates on just one of the many issues the organization is grappling with. "In other countries, a woman raises the children and a man serves as the village director, but in the United States that kind of model is seen as sexist," she says. "In fact, gender-based hiring is illegal here. Modifications need to be made if SOS children's villages are going to receive wider acceptance by American policy officials and donors."

In 1996, in fact, Gaiter, did the unthinkable: she hired a man to raise six boys in the children's village in Coconut Creek, Florida. "It's against the principles of our organization, which values the importance of the mother-child bond," says Heinrich Mueller, an Austrian who heads up SOS-KDI in the Andean countries. "Nevertheless, it will be worthwhile to observe it for several years before making a judgment. We can only learn by experimenting."

This debate and other challenges facing SOS-KDI, such as how to determine the cost-effectiveness of their programs and allocate resources appropriately, were vividly brought to life this past spring, when Gaiter and Mueller attended the SPNM course as participants. "Here were people who were actually dealing with their challenges in the moment," says Sandra P. Wood, executive director of the Georgia Council on Child Abuse, who also attended the course. "Having them right there to clarify points and add to the SOS-KDI case was extremely useful for all of use who are dealing with questions of how to move our organizations forward."

Turning Around Cleveland - Business Gets Involved

Such "live" action has become an integral part of another course spawned by the Initiative on Social Enterprise - Society and Enterprise (S&E), a module that offers lessons about corporate involvement in the social sector. S&E is required of all MBA students as a part of Foundations, a new curricular effort aimed at providing students with core, cross-disciplinary business skills and concepts. For the past two years, S&E has culminated in a remarkable day-long event that has brought to the MBA classroom scores of Cleveland's business, community, and government leaders for an animated discussion of that city's groundbreaking efforts to reverse its economic decline.

Austin's case series "Leadership in Action: The Cleveland Turnaround" serves as a backdrop for discussion. The cases introduce students to the Cleveland of the 1960s and 1970s - a city besieged by riots, political conflict, social and economic decay, and, finally, bankruptcy. They also detail how the city's business leaders stepped in to begin the slow, arduous process of creating new organizations, strategies, and alliances that eventually turned Cleveland into a vibrant commercial center. As part of "Cleveland Day," students and Cleveland leaders break into small groups to brainstorm solutions to problems that still plague the community.

One of the Cleveland visitors this January was Richard Shatten (MBA '80), a faculty member at Cleveland's Weatherhead School of Management. Just after graduating from HBS, Shatten became part of the McKinsey & Company consulting team that was initially hired by Cleveland's business leaders to study the community's problems. He subsequently served as executive director of Cleveland Tomorrow, an organization of fifty CEOs who delineated new strategies and funded new institutions that eventually helped the city lift itself out of its quagmire. "The event at the School is fascinating not only because it exposes students to complex social sector issues, but also because it forces up-and-coming Cleveland leaders who attend to engage in the same core content," Shatten says. "It becomes a very productive conversation and is brilliant pedagogy on Jim Austin's part."

"The case studies remind us of the value of public-private partnerships," elaborates Richard W. Pogue, senior advisor of the corporate public relations firm Dix & Eaton and one of the architects of the Clevelend Turnaround. "Cleveland's entire comeback was the result of cooperation between business, government, and civic leadership. If you want to maintain the quality of life in your community, business has got to take a leadership role in civic affairs. That's the real lesson from all of this."

Elizabeth Ward (HBS '98), who also participated in Cleveland Day in January, agrees. "The Cleveland Turnaround is an excellent example of the kind of impact business can have on society," she says. "It's important that HBS is training us to think not just like business leaders, but like community leaders."

The Local-Global Connection

As U.S. companies strive to compete globally, their relationships with local communities have changed, says HBS Professor Rosabeth Moss Kanter. "Now that many businesses have focused beyond our borders," she says, "the ties with home communities that have traditionally relied on business for leadership and financial support have loosened."

Through her research into how businesses and communities interact, Kanter is finding ways for the two to join forces as companies move into the global economy. In fact, she says, what's good for towns and cities is good for business and vice versa. "Companies need a market that's attractive and a workforce that fits their needs - all within a comfortable community where key employees will want to live. Locales that offer an effective infrastructure, a skilled workforce, and business-friendly regulations will attract global companies. My research shows that when businesses and communities work together they both benefit," says Kanter.

Through questionnaires and interviews, Kanter created a broad profile of businesses in Boston, Miami, Seattle, Cleveland, and Greenville-Spartanburg, South Carolina, documenting their ties to the global economy. With the cooperation of civic groups, she also used this research process to encourage existing community organizations to build closer relationships with locally based businesses. Kanter held forums to help each city develop an "action agenda" where business and the community were collaborating on mutually beneficial goals. "The research became a catalyst for business education and civic engagement," she says.

Kanter's action agenda, summarized in her book World Class: Thriving Locally in the Global Economy, outlines steps that communities and businesses should take together to make progress in five areas: quality and excellence-becoming the best in the world; enhancing business-to-business networking and partnering; becoming world-ready, foreign-friendly, and globally linked; creating employability security and spreading workplace education; and promoting civic engagement and leadership development.

In Boston, for example, Kanter worked with the Greater Boston Chamber of Commerce and the Associated Industries of Massachusetts on a forum held at HBS in April 1994, which helped stimulate the formation of the Alliance for the Commonwealth, a public-private partnership to encourage exports. A follow-up forum last March, cohosted by the Chamber of Commerce and BankBoston, inspired the formation of The Year 2000 Commission, an eclectic group of government, business, community, and religious leaders. "The Year 2000 Commission will showcase improvements that have been made in public education, technology, technological competence in the schools, infrastructure, friendliness to foreign visitors, and marketing the region to the world," explains Kanter.

Commission member Paul Guzzi, president of the Greater Boston Chamber of Commerce, views this collaboration as an extraordinary opportunity for these diverse sectors to come together around some important issues. "The Commission serves as a rallying point to renew our focus on the educational system, on ways to promote racial and ethnic harmony, and on how we can balance economic growth and development. It presents a unique opportunity for business, education, government, and the neighborhoods to connect with each other. We want this commission to leave a legacy that will make a difference well beyond the year 2000," says Guzzi.

Looking forward to delving further into the role of business in society, Kanter sees community-business relations as yet another important partnership that business must learn to manage. "This research has led to larger questions about the role businesses should play in solving social problems. The next step is to look specifically into how business resources can add the most value to social issues and a community agenda," she concludes. —Judith A. Ross

Who's Minding the Store?

The Initiative on Social Enterprise also focuses on a third major area of study: how nonprofits ought to be governed and made accountable to the public. One result of this inquiry has been the creation of a new three-day Executive Education program, Governing for Nonprofit Excellence: Critical Issues for Board Leadership (GNE). GNE provides leaders of nonprofit boards with valuable insights on matters such as strategic planning, managing mission transitions and organizational transformations, and helping their nonprofits to achieve financial stability.

One faculty member who has been particularly interested in these questions is HBS professor Regina E. Herzlinger, a member of the HBS Social Enterprise Interest Group who has published extensively in areas such as accounting and control, effective oversight, and health care. According to Herzlinger, although public and nonprofit institutions are entrusted with taxpayer and donor dollars to provide social goods such as education, health, and art, they have few systems and tools for objectively assessing their performance. "Nobody owns nonprofits. Without ownership, there isn't the kind of feedback the stock market provides to owners of public organizations," she explains.

To address this gap, Herzlinger has developed a four-part process called DADS - which stands for disclosure, analysis, dissemination, and sanctions - to enable nonprofits to account for their own performance. The process helps these organizations measure the volume of services they deliver, determine customer satisfaction, apply special analytic techniques to evaluate performance, and keep the public abreast of the results.

"There's a swell of interest in making nonprofits more accountable to the public," Herzlinger says. "I think it shows just how much the public is counting on nonprofits to provide solutions for the vexing social problems that government has been unable to solve."

Herzlinger has also developed four questions to help organizations measure performance and chart a course for the future, which she outlines in her Harvard Business Review article "Effective Oversight" and her book Financial Accounting and Managerial Control for Nonprofit Organizations (with Denise Nitterhouse). The following are her guidelines, with some examples of how one organization, the Girl Scouts of the U.S.A. (GSUSA), responded to them.

* Are our goals consistent with our financial resources? "In 1976, the GSUSA did not sufficiently reflect the social and economic diversity of this country," notes Frances Hesselbein, who led the organization from 1976 to 1990. "We worked to ensure that it had adequate financial aresources to attain its diversity goals."

* Are we practicing intergenerational equity? According to Herzlinger, a nonprofit should check if present and future generations will be able to benefit equally from its resources. In the case of the Girl Scouts, whose constituency is girls ages five through seventeen, Hesselbein says, "we realized our financial planning needed to put us in a secure position where we could serve these girls, as well as new members - not just today, but as they grew with the organization."

* Are our sources and uses of funds appropriately matched? If fixed revenues cannot cover all of an organization's expenses, says Herzlinger, they should at least be matched with fixed expenses; variable revenues should be used to cover variable expenses. Many GSUSA councils that discovered fixed costs exceeding fixed revenues were able to correct the imbalance by decreasing fixed costs and hiring temporary workers.

* Is the organization sustainable? Unforeseen disaster can always strike, as it did in for the Girl Scouts in 1984 following false rumors that some of their cookies, sales of which were a main source of income to councils, contained pins. The key to success, says Herzlinger, is to diversify income streams, which GSUSA did by expanding their fund-raising activities and finding new sources of income.

Herzlinger continues to investigate various topics in the nonprofit field. She recently completed an update to her textbook Measuring the Financial Results of Nonprofit Organizations and is designing an MBA course based on this material. Her latest research examines the factors that make for effective nonprofit management.

The "Invisible" Side of Leadership

HBS Alums Go to Work for Nonprofits Who gets involved in nonprofits? The short answer is: almost every HBS graduate. In his recent study, "The Other Leadership Arena," HBS professor Jim Austin surveyed nearly 10,000 HBS alumni and discovered that 81 percent of them are involved with nonprofits, with 57 percent serving as board members. "Involvement starts high early in the careers of our alumni and grows to nearly universal participation later," Austin says. Why? "The desire to give something back and make a difference are the primary motivators," he says. "People also find that it's a good way to build managerial and leadership skills and to network."

Other New Items on the Menu

Several other curricular, research, and program efforts have been developed recently under the auspices of the Initiative on Social Enterprise.

In addition to the Society and Enterprise module, the MBA Program, for example, now offers of Entrepreneurship in the Social Sector, an elective that examines how to create and manage the challenges of nonprofit or for-profit social enterprises. Field Studies in Social Enterprise, a practice-based elective, offers students the opportunity to work in teams with leading nonprofits on major strategic challenges. The School is also making efforts to attract more students interested in social-sector careers to the MBA Program.

In the area of research, faculty are studying a wide range of social enterprise issues, periodically convening to discuss their work in a special faculty seminar series. Their inquiry has spawned a new series of working papers and some 106 cases on social sector topics. Faculty in the Social Enterprise Interest Group are also forming ties with related initiatives throughout Harvard University, such as the Hauser Center on Nonprofit Institutions based at the Kennedy School of Government. Finally, a series of research conferences is in the works, including this April's "Business Leadership in the Social Sector" - which will explore how businesses are dealing with critical social issues such as public education, moving welfare recipients into the workforce, and urban revitalization - and next fall's "Social Enterprise Research Forum on Nonprofit Strategy" - which will look at issues of social enterprise management and governance.

"The Initiative on Social Enterprise has been a highly successful 'startup' at HBS," says Jim Austin. "The remarkable reciprocal learning among faculty, students, alumni, and other social enterprise practitioners has allowed us to continually refine our research and teaching and, in turn, add value to the growing field of social enterprise. With the anticipated growth of the Initiative, the School is poised to make an increasingly valuable contribution to this important arena, which touches so many of our lives."


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