Business Model Innovation for Social Enterprises

Innovating BMs to foster impact

We largely covered the topic of business modeling in the past and identified most common business models (BMs) used by social enterprises, including social businesses too. However, often times either internal or external factors can lead organizations to rethink and change their BMs. So, in this article we are going to tackle the notion of “business model innovation” and analyze opportunities (as well as implications) for impact enterprises.

Defining “innovation”

To begin with, what we mean by “innovation“? Over time, the term became indeed an almost meaningless buzzword, as it has been frequently misused by many. For instance, for some the term “innovation” equals “new ideas“. Others instead associate it to nothing but new technologies and digital novelties. Yet, innovation is a much broader concept than that.

As a matter of fact, innovation can be described as the successful application of novel and useful ideas in order to generate additional value and/or solve previously unaddressed problems. Ideas are the spark, whereas execution is key. When all efforts as such aim to tackle complex societal issues, well.. that’s what we call “social innovation“.

Focusing on businesses, innovation activities generally move on a spectrum that ranges from exploiting (improving) current models to exploring new opportunities for radical disruption. Here, each business can choose where to place the needle, reshaping its business model accordingly.

Business Model Innovation explained

Based on the above, “business model innovation” (BMI) naturally follows. The notion first appeared in literature in 2013, thanks to the work carried out by Schneider and Spieth. Although a universally accepted definition seems to be still missing, business model innovation basically consists in redefining the ways an organization creates, delivers and/or captures value.

Simply put, traditional for-profit companies, as well as non-profit ones, innovating their business models usually rethink one or more of the following:

target market (the “Who?” of their business models)
value proposition (the “What?” of their business models)
operating model and value architecture (the “How?” of their business models)
revenue model (the “What’s in it?” of their business models)

Academics as well as practitioners recently tried to provide practical guidelines for BMI. The work done at Doblin and Odissey 3.14. are just couple great examples of that. In the next section, we present out framework of business model innovation, specifically meant for impact organizations. We hope this “navigation map” will come handy for those social entrepreneurs eager to decide where, when and how to change their BMs.

Types of Business Model Innovation for Social Enterprises

As anticipated, BMI can act on one or more of the following dimensions: the “Who?“, the “What?“, the “How?” and the “What’s in it?” of an existing business model. Let’s now discuss common innovation pathways for each category.

Innovating the “Who?” of a BM

To begin with, social enterprises may leverage existing resources, competences and capabilities to expand their current reach. In most cases, BMI happening at this level relates to:

looking for new beneficiaries and customers within the same sector;
looking for new beneficiaries and customers in other business segments and industries.

Similar strategies work best when organizations can easily identify (or even anticipate) trends and overcome those barriers keeping away potential new targets and audiences. BioLite is a great example of that, as this social enterprise understood early on how to use its innovative thermo-electric technology to serve two very diverse segments: outdoor recreation users and off-grid households. Apparently unrelated targets that allowed the company to successfully expand in American, European and African markets.

Innovating the “What?” of a BM

Let’s move onto exploring other opportunities for BMI, especially those impacting on the Value Proposition. This is the dimension where so-called product/service innovations usually take place. Here, socially-oriented organizations can typically choose among:

Improving performances of existing products/services
Introducing new functionalities and features to existing products/services
Changing the way products/services are used by the target
Developing complementary products/services to existing offerings
Replacing existing products/services with new ones

As you may see, such options move from improving current models (“incremental innovation”) to radically reinventing them (“disruptive innovation”). Proximity Designs, a Myanmar-based social enterprise, has pretty much experienced them all, since it first improved its initial value proposition and then created over time new, complementary products and services for its target market, adjusting to their evolving needs.

Innovating the “How?” of a BM

Innovating the operating model means rethinking the way we deliver value to both beneficiaries and customers. Thus, it relates to core activities, key resources and strategic partnerships arranged by a social enterprise. The most diffused innovations falling in this category are:

Introducing new technologies and/or new key resources
Associating with competitors and “supplementors” (namely, companies offering complementary products/services)
Modifying, removing or adding steps in the value chain
Including “impact creation” at one or more steps of the value chain (i.e. employment of vulnerable targets, sustainable sourcing, etc.)

Probably innovations at this stage are among the most radical ones a social enterprise can implement. But benefits may be huge. For instance, Aravind Eye Care reinvented its core processes by adding two surgical tables to every operating room, in order to more quickly and affordably treat blind people in India. Again, RecyclePoints added impact to its value chain, supporting low-income, waste-pickers through economic incentives and empowerment. Thanks to similar innovations, both organizations have been able to magnify impact.

Innovating the “What’s in it?” of a BM

Finally, BMI can also relate to the revenue model itself. Here, main pathways include:

Changing pricing and/or payment mechanisms for current revenue streams
Creating new revenue streams

Since impact organizations often deal with vulnerable targets, price increases are quite uncommon in social entrepreneurship, especially when beneficiaries are unable to directly pay for a product or service. Thus, social enterprises may need to create new revenue engines and identify new customers to add to the equation, just like Sanergy did with its byproducts.

Timing, opportunities and implications of BMI

Although introduced as silos, BMI strategies can be deeply intertwined. As a matter of fact, a change happening on one dimension (i.e. targeting new beneficiaries) usually has implications on the other ones too (i.e. developing new products/services, modifying the value chain, creating new revenue streams). But when does a social entrepreneur should begin thinking about BMI?

As previously said, BMI is often driven by either internal or external factors (or a combination of both). So, it is fair to claim that social enterprises may choose to innovate their business models when they identify to new opportunities to pursue, new threats to overcome (i.e. technology, competition, regulation) or new untapped needs to tackle. Failing in that often compromises long-term sustainability of the enterprise.

Conclusion

In this article, we explored business model innovation for social enterprises and analyzed ways to turn it into practice. In general terms, BMI can impact on value creation (“Who?” and “What?” of a BM), value delivery (“How?”) as well as value capture (“What’s in it?”). Each having its own pool of strategies to choose among.

Although social enterprises and social businesses primarily exist to tackle complex social problems, at times business model innovation may be needed in order to survive in the long run. Thus, we hope the framework provided will be helpful for social entrepreneurs to more easily and effectively navigate business model innovations and successfully keep generating positive impact!

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