Business Operations

Three leading management challenges for social enterprises


In concept, the social enterprise makes sense: it provides an innovative way to solve social problems while allowing clients to enter or stay in the economic mainstream. Clients earn money and gain work experience while they improve their given situations. The combination of real work experience with a closely aligned social program provides a powerful model for change. Additionally, the nonprofit organization through earned income creates an additional stream of revenue for the parent organization.

At the same time, the operation of the social enterprise provides managers with a complex challenge of bringing together seemingly competitive business goals with a mission of providing jobs and work experience to disadvantaged individuals. Three management challenges specific to the operation of these ventures are:

  1. Operating competitively with an unskilled and disadvantaged labor pool
  2. Achieving a level of efficiency while balancing social and business goals
  3. Finding and retaining management staff


1. Unskilled and Disadvantaged Labor Pool

The most difficult management challenge involves operating competitive businesses with an unskilled and disadvantaged labor pool. Social enterprises hire people that other businesses would not hire, due to the level of their skills and their life circumstances.

The labor pools managers choose from when operating social enterprises consist of individuals who confront significant barriers to employment such as: are or have been homeless, poor, abused, involved with crime, or victimized by domestic violence. There are two sets of issues a disadvantaged workforce brings to the social enterprise that must be managed effectively: (1) poor skill levels; and (2) varying degrees of social problems.

Poor Skill Levels

In the work place, employees are usually evaluated according to two sets of skills: hard skills and soft skills. Hard skills include an employee’s proficiency in reading and math, operating equipment such as a telephone, calculator, fax machine or cash register, and his or her ability to understand directions, problem solve and exercise good judgment.

Soft skills, referred to as emotional intelligence or social skills, are harder to describe and measure, and tend to be the most difficult for employees to master. Soft skills include an employee’s attitude, ability to handle frustration, manage anger, delay gratification and his or her ability to develop appropriate relationships.

Business managers rely on their employees to possess a certain level of both hard skills and soft skills in order to meet business goals. Frequently, many employees of the social enterprise are seriously lacking in both sets of skills and do not possess basic hard and soft skills that employers can take for granted when they hire from the general working population.

Social Problems

In addition to poor hard and soft skills, these employees also bring the problems associated with living in disadvantaged communities. Often their life circumstances lead to situations that impact their ability to work successfully. In our experience, many of our employees live on the edge, where one small event can send their lives cascading down. Just because disadvantaged workers become employed does not mean their “social” problems go away. In fact, the workers bring their problems into the workplace.

Hiring employees with poor skills and complicated life circumstances results in operational dilemmas for the manager. Employees with poor skills make more mistakes and are not as productive. Employees from disadvantaged living situations miss more work due to circumstances outside of their control. They experience more unsettling life events that directly affect their job performance than their more advantaged peers do.


2. Balancing Goals

The second fundamental challenge for the manager is to achieve a certain level of efficiency while balancing the social and business goals. Producing business results requires a manager to take a different course of action from one that produces social program results. A manager must be aware of these differences and maintain a balance that results in efficient operation of the business and social program. Balancing the dual goals sets up a situation whereby the manager often works in an environment with a high degree of uncertainty, contradiction and possible stress.

In operating social enterprises, managers frequently find themselves in situations where the social goals directly oppose the business goals. The living wage example does not have a simple, clear solution and may never. The manager must balance the two opposing viewpoints and continue to operate her business without an immediate resolution to the issue.

Finding a balance bet ween profit and people is a common management challenge to any business operation. The quandary for the social enterprise encompasses the dual goals of these ventures. The fact that both the business and social goals are equally important and are housed under the same business structure result in the decisions being more complicated for managers to make.


3. Finding and Retaining Competent Management Staff

The third challenge of successfully managing a social enterprise is to find and retain management staff. Having the right manager in place is the central ingredient for the success of the venture. The manager occupies the position that orchestrates the connections among the business staff, the program staff, the clients and the parent organization. The business manager operates on the front-line and must possess the disposition necessary to hire people no one else will hire and operate a competitive profitable business with these same people as their primary labor force.

Recruiting and Hiring

When recruiting and hiring management staff it is important that they have: (1) sound business skills; (2) the ability and skill to handle a marginalized population as their workforce; and (3) the capacity and energy to work in an environment with dual goals and courses of action. Employers can avoid many business problems by making careful hiring decisions based on examining qualifications in these three areas.

Retaining Managers

There are several ways the parent organization that hires the business manager can position him or her for success and ease some of the tension associated with this job. First, traditional nonprofit service organizations develop structures and procedures to act as buffers between the “social worker” and the client population. Constant exposure to individuals with overwhelming life situations takes its toll on the workers. In the social enterprise, one of the strengths of the model lies in the constant exposure of the client to real work environments. Consequently, this also means constant exposure for the front-line management staff to serious social problems. Business managers also need buffers and support in handling some of the difficult social mission situations they will inevitably encounter.

Second, working in the dual environment of the social enterprise requires more energy, skill and responsibility than a single environment. It is important that the parent organization be aware of the complexities involved with the manager position and set realistic expectations.

Third, financial compensation can be an issue because individuals with the skill set required to operate these ventures can easily make more money in the private sector. While working in the nonprofit sector will never be as lucrative as private industry, steps can be taken to address this issue. Creating bonus structures based on sales goals is one solution. Added benefits from the parent organization such as training, more vacation time than private industry standards and health insurance coverage are all ways to add to the compensation package for the business manager. If a nonprofit social enterprise decides to incorporate a bonus structure it is important to research the legality of this approach. Traditional bonus plans are considered a violation of IRS statutes and these plans need to be developed accordingly.

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