Essay Issues in Measuring Performance of Social Enterprises – Management Assignment Help

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Issues in Measuring Performance of Social Enterprises
According to Mair & Martí (2006), “assessing social performance and impact is one of the greatest challenges for practitioners and researchers in social entrepreneurship” (p.42). This challenge is rooted in the hybrid nature of a social mission combined with commercial activity. As already established, commercial entrepreneurship aims at profit maximization, which allows performance to be based on financial data like revenues and costs (Kirzner, 1978). This means that commercial entrepreneurs as well as their funders aim to gain a financial return from investments, and therefore aim attention at the assessment and valuation of the financial value of the company (Austin et al., 2006).
However, for social entrepreneurship there is no specific key indicator, like profit or investment returns, that reflects the interests of different investors and stakeholders. Speckbacher (2003) points out that profit is not adequate as a single valued measure for social enterprise performance because there are other dimensions which are at least as important that profit measures do not capture. The absence of this factor causes uncertainty with regard to investment in social entrepreneurial activity to be higher compared to commercial entrepreneurship (Austin et al., 2006).
One could argue that social value creation or social impact could function as the key metric, which is defined by Clark, Rosenzweig, Long and Olsen (2004) as “the portion of total outcome that happened as a result of the activity of an organization, above and beyond what would have happened anyway” (p. 7). Yet, as Mair & Martí (2006) point out, “the real problem may not be the measurement per se, but how the measures may be used to ‘‘quantify’’ the performance and impact of social entrepreneurship” (p. 42). According to Austin et al. (2006), the quantification of the performance by social enterprises is complex because of the “nature of social phenomenon, multicausality of underlying factors, and lengthy temporal manifestations, among other factors” (p. 15).

Another issue that arises in measuring performance is the varying interests of stakeholders. In the social entrepreneurial context, the number of financial and
nonfinancial stakeholders are often greater compared to those of commercial enterprises, which results in high complexity in accountability towards these stakeholders. It should be evident that social impact and social value creation are regarded as inherently difficult to measure. Still, various models have been developed over time to measure performance of social enterprises that identify different dimensions, rather than merely focusing on the economic evaluation of the enterprise. The model presented by Bagnoli & Megali (2011) contains three reference fields for management, which are economic-financial performance, social effectiveness and institutional legitimacy, and can be regarded as an example of the models that are multidimensional.

Social enterprises that are active in the for-profit sector as defined by Abu-Saifan (2012) encounter another issue in performance measurement. The implementation and
importance of economic and financial performance has proven to be a challenge for forprofit social enterprises. On the one hand it is important to take into account the
economic and financial values as they provide information on efficiency and to a limited extent on impact. On the other hand, the economic and financial aspect in performance measurement should not outweigh the social impact in terms of importance, as this would be in contradiction to the purpose of social enterprises. Yet, it is important to note that the distinction made in Chapter 2 between not-for-profit and for-profit social enterprises is crucial since the performance measurement systems should take into account the differences in regulations and organizational structure, as previously pointed out mentioning the non-distribution constraint for not-for-profit
organizations. Because of this non-distribution constraint, measurement systems that adopt economic or financial performance as one of the dimensions to measure overall performance might be less applicable to not-for-profit organizations.