Sustainable enterprise?

‘Bank’ by Caren Parmelee

There’s now a lot of talk about some kind of new business bank, with Vince Cable’s announcement this week reinforcing the Chancellor’s comments in a BBC interview at the weekend while arguably going some way beyond. Some commentators, including Anthony Hilton, are sceptical, and it will be interesting to see what SME owners and managers make of the idea – it’s also something we hope to be exploring shortly in the Quarterly Survey of Small Business in Britain. Clearly, businesses have diverse financing requirements, so while economists have frequently pointed to fairly compelling evidence that market imperfections may act as a constraint on ‘growth’ for some firms, it’s also the case that financing growth strategies is not on the radar for the vast majority. This is a highly contentious and technically complex issue, and unpicking the underlying causal factors is far from simple. However, it’s also interesting to see something like a consensus emerging, with a variety of actors, including the British Chambers of Commerce and the Labour Party publishing studies that make the case for some kind of Business Bank. Watch this space!

David Floyd of the ‘Beanbags and Bullsh!t’ blog has just interviewed June O’Sullivan, CEO of the UK’s biggest childcare social enterprise, LEYF. Floyd’s interview raises a number of challenging questions about the kinds of business models that are now being developed in order to deliver social impact in key areas such as childcare. This is a field that is full of strongly-held views and powerful vested interests, but you get a strong sense that LEYF is navigating its way towards a more balanced and streetwise approach to growing social ventures. For example, they seem to be recognising the vital importance of its historical heritage and core values (not just ‘window dressing’), while also taking some fairly radical steps to reconfigure the organisation’s underlying business model.

Another important issue raised by June O’Sullivan is what she perceives as a lack of public awareness of social enterprise, despite the best efforts of organisations such as Social Enterprise UK. If she’s right, we’re entering uncharted, and potentially dangerous waters. Dangerous because, without a well-informed public and a very well-constructed governance structure, there’s a real prospect of seeing vast swathes of the social sector marketplace becoming the preserve of larger and less scrupulous commercial players.

Fergus Lyon and Heather Fernandez have done some work on the growth of LEYF for the Third Sector Research Centre. I’ve also been working with Fergus in a study that examines LEYF as part of our attempt to take a more historical perspective on the growth of social ventures, presented recently at the Skoll SE Colloquium.

Personal carbon trading is back on the agenda and there are some interesting questions to ask about the way that a PCT-based regulatory system would feed through into entrepreneurial activity. A British politician, Tim Yeo MP, chair of the cross-party Energy and Climate Change Committee, has called for the launch of a pilot personal carbon allowance (PCA) trading scheme, funded by the private sector and possibly the EU.

There’s plenty of evidence that regulation can drive significant market transformation and the sheer scale and scope of national/international PCTs is also likely to open up all kinds of new productive opportunities as individuals and communities seek out innovative ways of reducing their own carbon footprints. There are also lots of questions for researchers and policy-makers regarding the design and implementation of such a scheme. I’ve had a long-term interest in PCAs, sometimes referred to as ‘personal carbon rationing’, and have heard (via a certain close relative) all of the many arguments for and against. However, from my own reserach perspective, some of the most interesting issues concern the kinds of social and commercial entrepreneurship that would be engendered by this kind of intervention. The nature and scale of the response would be critical to the success of any scheme, because it would have a direct impact on the ‘feasibility’ of achieving particular carbon limits, and the rate at which those limits could be lowered. If the bar is set to low, the baby will not thrive. If the spur towards radical or disruptive innovation is insufficient, new entrants will find it harder to enter while the usual suspects will devise ingeniously unproductive ways of milking the system without making changing their existing practice (sound familiar?). If it’s set too high, the politicians will find it impossible to ‘sell’ and the level of resistance will strangle it at birth. However, if they get it right – with a gentle entry level combined with a clear and unambiguous downward trajectory thereafter – the entrepreneurial start-ups, the powerful incumbents and all the rest of us will be in for a really interesting ride.

I recently interviewed Warren East, CEO of the Cambridge-based microprocessor designer ARM Holdings, as part of the BBC/OU co-production, The Bottom Line. ARM has an unusual business model, based around a web of collaborative partnerships with over 300 firms. It’s excellence in engineering design is reflected in the fact that almost 8 billion ARM-designed chips were shipped last year. That’s a staggering number by any measure, and it is reflected in some other startling statistics. For example, more than 95% of the world’s mobile phones contain chips that were designed by this British company.

Warren East spoke eloquently about ARM’s growth and development over the last two decades, highlighting some of its distinctive features and capabilities. We also talked about the environmental sustainability issues associated with the global information and computing technology industries. Clearly, any activity that results in the creation of 8 billion processors, however tiny they might be individually, is going to have a significant impact on the natural world – there are issues around resource extraction, energy use in production and consumption, and associated environmental pollution. The counter-argument revolves around the way in which these materials are used, and in the positive contribution they can make in economic, social and environmental terms. It is also very easy to lose sight of the human ingenuity at work here – the people who slave away to design and manufacture chips that can run electric motors far more efficiently, reduce the power consumption of servers by up to 75%, or help us to make ‘smarter’ use of energy in our homes and workplaces. Of course, such efficiency improvements can often be trumped by increases in volume or throughput – think air travel, for example. They do not, in themselves, remove the imperative for operating within natural constraints, and for mitigating the damage that we continue to inflict on our fragile eco-systems. However, it is also heartening to see just how ingenious our fellow human beings can be, and to acknowledge some dramatic technological innovations that are often taken for granted.

Managerial folklore has it that, ‘if you can’t measure it, you can’t manage it’. As everyone knows, almost all businesses are small. However, one of the most striking things about the environmental impact of smaller organisations, is that there aren’t really any consistent and reliable measures. This glaring gap in our knowledge is evident in recent a European research study. It grapples heroically with the issue, generating a striking claim – that SMEs contribute roughly 64% to the industrial pollution in Europe – but the report also leaves many questions unanswered. Research conducted as part of our own Quarterly Survey of Small Business in Britain found less than one in three small businesses reporting any spending on their environmental impact over the last year, with 12% of small firms measuring their carbon footprint (a proportion that increased to 22% for those with 20 or more employees). But again, these are no more than isolated snapshots, which leave the inherent complexity and dynamism of the situation largely unexplored.

There are many good reasons for the lack of data, including the sheer heterogeneity of small firm population, differences in reporting requirements, and the fact that many smaller firms have far more limited resources than their larger counterparts – not to mention their day-to-day struggle to survive these recessionary times. However, the end result is that we are left with a yawning gap in our understanding. And it’s one that really does need to be filled. Without better information, it is hard to see how countries like the UK stand a realistic chance of delivering on their sustainability targets, not least of these being carbon reduction.

As little as forty years ago, policy makers in the UK woke up to the economic importance of small firms, having got into something of a fluster about an apparent decline in numbers, and started taking them more seriously (The Bolton Committee Report, 1971). In the wake of Bolton, there was a major expansion in small firms and entrepreneurship research. And as a result of all this effort, we now have much more reliable datasets on small business. These cover a variety of economic variables: business start-ups and closures, sectoral and regional trends in sales, profitability and investment, and much more besides. It’s a picture that contrasts sharply with our current state of knowledge about the environmental impact and performance of smaller firms. Of course, there’s plenty of public, private and voluntary sector activity in this arena, with each week bringing new initiatives that range from waste recycling and carbon foot printing. But how do we know if it’s actually working? There are many open questions. For example, are we better off encouraging smaller (and more local) models of enterprise, or are there some occasions when large is more beautiful – at least in environmental terms? It is difficult to see how governments, entrepreneurs and communities can make informed judgements about questions of this kind, unless we engage in a more concerted effort to measure the environmental impacts of SMEs, and to track longer-term outcomes. So are we – in some senses – back in 1971? Should our politicians be commissioning a 21st century equivalent of the Bolton Committee, but equipped this time with a more wide-ranging environmental brief?

This is one of the questions we’ll be considering at a workshop to be held at the Open University in a couple of weeks’ time. Of course, attempting to tackle a field as large as ‘environmentally sustainable enterprise’ is always going to be something of a challenge. I have been airing some thoughts on one small small corner of that field – how should we measure the environmental impact of smaller businesses? – and would welcome your comments.

Entrepreneurship has always had a strong ethical dimension. From the earliest times, there was a recognition that the responsibilities of farmers and business owners extend beyond that of securing immediate benefits for themselves and their families. Over the centuries, a variety of rules, norms and practices were developed that sought to reduce the harmful effects of entrepreneurial activity, and to promote positive outcomes. However, it seems to have been only in the last few decades that ethics and responsibility have become integrated into the mainstream entrepreneurship research agenda. In doing so, the agenda has broadened, raising some important new questions. From an ethical perspective, as George Brenkert (2002: 33) points out, ‘entrepreneurship is not simply about how one creates a business or the workings of the economy. It is far more about how we organise today’s society.’

I thought I’d begin my blog by telling you about the ISBE SEE conference track (www.isbe.org.uk). It is one small attempt to respond to this broader agenda and to connect it with mainstream entrepreneurship research, policy and practice. We received a record number of quality papers for last year’s conference and our 2011 submissions are looking to build on that. The SEE track is divided into three main sub-themes:

• Social and community enterprise and entrepreneurship
• Sustainable entrepreneurship and environmental impacts of enterprise
• Ethics, enterprise and social responsibility

Many of the issues addressed under these sub-themes are attracting increasing attention from policy-makers, practitioners and the wider population. For example, we are particularly interested in the ways that entrepreneurial activity contributes to current social and environmental problems, and how such energies might be redirected towards more socially and environmentally benign purposes. This has direct implications for public policies on climate change mitigation, including efforts to promote a ‘low carbon’ economy. The ‘environmental’ sub-theme is concerned with the pursuit of environmentally-responsible opportunities by mainstream enterprises, the creation of self-consciously ‘eco-preneurial’ ventures, and more radical models that challenge prevailing assumptions about enterprise and growth. Our ‘social’ sub-theme addresses contemporary issues in social and community enterprise, including the tension between maintaining core social aims and continuing to prosper in a highly competitive and turbulent marketplace. Ethics is another important sub-theme. Current topics in this area include the growth of ethical markets and the opportunities these can create in terms of providing services for disadvantaged groups or in facilitating markets in fairly-traded goods and services.

Micro enterprise manufacturing fuel-efficient ‘Gyapa’ stoves in Ashaiman, Ghana

So what is the future for the SEE track? Having reviewed our sub-themes, it might be reasonable to ask whether we are simply replicating the work of the business ethics and Corporate Social Responsibility (CSR) tracks that are found at most management conferences and in those of functional specialisms such as marketing and accounting. However, while there are some obvious overlaps, the distinctive feature of this track is its focus on the entrepreneurial dimensions of responsibility. In other words, we are much more interested in how organisations seek to pursue new ‘social’ and ‘environmental’ opportunities, rather than in how they manage existing operations. One of the major challenges for the track, and for the emerging field that it represents, is in developing a more coherent and integrated perspective on the complex and often contentious issues that it addresses. We also need more empirical work, including more reliable indicators of social and environmental performance and more in-depth case studies to explore the underlying mechanisms. I hope you may be able to join us, either by attending the track in Sheffield this autumn or by getting in touch directly as we seek to build a stronger research community.

You might also be interested in an event that we are running at the Open University on 20th September, What next for sustainable enterprise?: policy and research perspectives. Full details can be found here: