The fourth in a series comparing the 10 principles for creating shareholder value within the world of social enterprise. Just a reminder: this series is adapted from the work of an eminent expert on the subject for private industry, Alfred Rappaport (Kellog School of Mgmt (USA)). Most notable is the updated version of his principles in Harvard Business Review, September 2006.
Principle #4: Carry only assets that maximize value.
This instructs social enterprises to invest in and keep only assets that produce a high value in BOTH monetary and mission oriented terms. This is a bit trickier for the management team of a social enterprise, but still a necessary step. The organisation must constantly evaluate how much value is being produced by its people and its physical assets. In a private sector business, this is a bit easier to measure: are there buyers willing to pay a premium over the cash flow value of these assets to the firm? In a social enterprise, I suggest this measurement is: is the service/product we are offering delivered cheaper and/or with more social impact by anyone else? If your competition or near region equivalents are delivering a higher social return and at a lower price – they are maximizing value – and you are not. *Note: it gets a bit more complicated b/c you must look at the cash value of those assets to each firm (and this is dependent on the running costs and value of the assets themselves). But, just a check at the high level will be enough to understand if you are driving value in your organisation.
The second part of this involves the reduction of capital employed to increase value. Rappaport instructs this is accomplished by "focusing on high value-added activities [your core competencies] and outsourcing low value-added activities [like your bookkeeping, et. al]". [my comments] In other words, develop your social enterprise in a way that social and financial return are closely matched to activities you perform. This will ensure you have more money to spend developing more effective services / products to support your social mission. Giving you control of your destiny. Example of this in the private sector: Apple is a great design firm that outsources all its production of iPods and computers. Example in hard core [service is mission, not just a byproduct] social enterprise: Youth intervention organisation outsources its answering service, bookkeeping, and other administrative tasks so it can spend more of its time and energy on paying their staff more (holiday or pay) while simultaneously engaging more with the youth.
Links:
Principles #1,#2, #3
Harvard Business Review
Jim Collins Noted here for his discipline oriented approach to social sectors.
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