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Stanford Social Innovation Review (SSIR) | Social-Tech Entrepreneurs: Building Blocks of a New Social Economy

Social-Tech Entrepreneurs: Building Blocks of a New Social Economy

By Mario Calderini, Veronica Chiodo, Francesco Gerli & Giulio Pasi

Stanford Social Innovation Review (SSIR), 2nd June 2021

Is it possible to create a sustainable, human-centric, resilient economy that achieves diverse objectives—including growth, inclusion, and equity? Could industry provide prosperity beyond jobs and economic growth, by adopting societal well-being as a compass to inform the production of goods and services?

The policy brief “Industry 5.0,” recently released by the European Commission, seems to reply positively. It makes the case for conceiving economic growth as a means to inclusive prosperity. It is also an invitation to rethink the role of industry in society, and reprioritize policy targets and tools.

The following reflection, based on insights gathered from empirical research, is a first attempt to elaborate on how we might achieve this rethinking, and aims to contribute to the social economy debate in Europe and beyond.

A New Entrepreneurial Genre

A new entrepreneurial genre forged by the values of social entrepreneurship and fueled by technological opportunities is emerging, and it is well-poised to mend the economic and social wounds inflicted by both COVID-19 and the unexpected consequences of the early knowledge economy—an economy built around ideas and intellectual capital, and driven by diffused creativity, technology, and innovation.

We believe this genre, which we call social-tech entrepreneurship, is important to inaugurating a new generation of place-based, innovation-driven development policies inspired by a more inclusive idea of growth—though under the condition that industrial and innovation policies include it in their frame of reference.

This is partly because social innovation has undergone a complex transformation in recent years. It has seen a hybridization of social and commercial objectives and, as a direct consequence, new forms of management that support organizational missions that blend the two. Today, a more recent trend, reinforced by the pandemic, might push this transformation further: the idea that technologies—particularly those commoditized in the digital and software domains—offer a unique opportunity to solve societal challenges at scale.

Social-tech entrepreneurship differs from the work of high-tech companies in that, as researchers Geoffrey Desa and Suresh Kotha explain, it specifically aims to “develop and deploy technology-driven solutions to address social needs.” A social-tech entrepreneur also leverages technology not just to make parts of their operations more efficient, but to prompt a disruptive change in the way a specific social problem is addressed—and in a way that safeguards economic sustainability. In other words, they attempt to satisfy a social need through technological innovation in a financially sustainable manner.

We believe social-tech entrepreneurship can play a central role in designing fully integrated social and industrial policies. It can also give concrete sense to a broad and contemporary conception of a purpose-driven economy—one that includes a wider range of players than traditionally defined in social economy models, and that shifts in the behavior of organizations and individuals toward generating benefit for people and the planet. To accomplish this ambitious political task, however, technology and research institutions must step forward and assist the third sector and social entrepreneurs.


Using Technology to Deliver Social and Economic Value in Tandem

Starting in 1990s, institutions, universities, and businesses had high expectations for the knowledge economy; they believed technological innovation would spur economic growth and prosperity in an equitable and inclusive way. The diffusion of knowledge-intensive activities would displace manufacturing as the most advanced mode of production, and unleash creativity at the basis of a new economy full of opportunities.

Unfortunately, research shows that the knowledge economy has so far fallen short of these expectations—debatably in terms of absolute growth performance but certainly in terms of equitable opportunities. While innovative and creativity-based activities have contributed to the growth of gross domestic product, knowledge and wealth have concentrated in selected areas, excluding the vast majority of territories, communities, and social segments. This uneven distribution of resources not only has produced new inequalities but may well represent a glass ceiling on Europe’s prospects for growth.

Another notable aspect of the knowledge economy’s first era is the self-referential, super-functional, performance-oriented dynamic of innovative activities, as seen in the case of expensive and high-tech bionic limbs, whose prices can range from $2,000 to well over $50,000. More-affordable alternatives such as the Jaipur Knee and additive manufacturing limbs produced by Limbitless have allowed more people to access similar solutions, but the original models exemplify the tendency to serve high-return market activities, rather than social need. For this reason, we need to revisit the prevailing narrative of VC-fuelled, innovation-driven growth, or at least give equal importance to an inclusive innovation agenda that pursues growth while addressing inequalities. To achieve this, entrepreneurs must develop social and economic value together.

In addition to supporting more equitable, inclusive innovation, social-tech entrepreneurship can help fundamentally strengthen the third sector. The enormously detrimental consequences of COVID-19 on health-care, social, and economic stability has intensified pressure on charities, social enterprises, NGOs, and other third-sector institutions. And while these organizations have been important, even heroic at times, in addressing the fallout from the pandemic, many have struggled to show resilience at scale. Those on the front lines have faced steep increases in operating costs, responsibilities, and risks. Others, such as those working in education, have found themselves paralyzed by restrictions, unable to perform normal activities and deliver their usual services. These challenges have caused many to fold.

It is worth asking whether earlier adoption of digital technologies—coupled with a solid financial structure that mixed grant-based and commercial capital—would have allowed social entrepreneurs to deliver more scalable, robust, and structural solutions to these problems. More generally, although many social entrepreneurs adopt technology as part of their process innovation to increase the efficiency of their interventions, relatively few are prepared to use technology to transform the way social challenges are addressed. We need to encourage all social entrepreneurs to adopt digital and other technologies that can help them envision novel solutions that feed both social and economic prosperity from the start.


Five Ways Technology Can Support a New Purpose-Driven Economy

Technology in the service of social entrepreneurship presents many opportunities. It can enable robust new solutions and help scale existing ones. It can also support engagement, contribute to the sustainability of social enterprises, and boost financial investment.

  1. New solutions | Technology enables novel entrepreneurial approaches to social problems, by creating solutions that would have not existed otherwise. One example is the adoption of robotics and sensors to improve people’s independence, or enable data-intensive and personalized care. Carebidet, for example, is an automatic toileting system that ensures dignity and self-dependence for people with reduced mobility. Algorithms that spot delays in interest or energy-bill payments as an early proxy of emerging poverty is another one.
  2. Scale | Technology can also play a big role in scaling existing solutions so that they reach more beneficiaries in more places. Good examples include mobile communications solutions like the famous M-Pesa system and Tala, which analyzes data collected from clients’ cellphones to provide microfinancing; the use of drones to deliver medicines in remote areas; and platforms like HumusJob, which helps the agricultural industry hire laborers on a fair contractual basis.
  3. Co-creation | When it comes to engagement, technology is also hugely useful. Social enterprises can share expensive technologies with underserved segments of population via digital platforms, allowing them to develop and test solutions that address their needs. The Hackability project, for example, engages makers and people with disabilities in creating objects that solve the same daily challenges they experience personally.
  4. Sustainability | Technology reinforces the economic sustainability of social entrepreneurship models, and often paves the way for greater balance between social and business logic. That’s because it typically helps enterprises scale, and an increase in the volume of activity both multiplies thin sustainability margins and contributes to efficient operations. For example, many organizations that care for the elderly install inexpensive monitors in older adults’ homes. This helps them better understand their habits and needs of those they serve so that social workers can be more effective and reach more people.
  5. Investment potential | By transforming labor-intensive models into capital-intensive ones, social-tech entrepreneurs can motivate investment in social-tech entrepreneurship and spur social enterprises to become investment-ready. Social-tech entrepreneurship stands in the very middle between the demand for innovative social solutions and impact investors who are willing to provide specialized financial resources, making them crucial to building a hybrid, impact-oriented value chain.

Balancing Opportunity and Purpose

Exciting as these opportunities are, they are subject to managerial and governance issues related to things like complex intellectual property rules. New investors also often bring high expectations of financial returns alongside social impact objectives, which can strain the balance between economic and social objectives, and introduce new sources of mission drift.

Social entrepreneurship can not only catalyze innovation, but also help mitigate its unintended consequences and lend it sense and purpose. Indeed, the inherent nature of social-tech entrepreneurship can help nudge novel technologies and innovation toward solving societal challenges, eventually fostering greater parity between technology supply and demand for social solutions. It can also strengthen system-level capacity to anticipate social needs and develop activities that stimulate transformative change.

Alongside this, the sector needs to consider a wider range of innovation models. Although research efforts and expenditures at the global level are generally increasing, research productivity is falling. Indeed, researcher Nicholas Bloom and colleagues demonstrated that the amount of research we can directly translate into ideas and solutions, per dollar invested, is decreasing. For this reason, innovators need to take more advantage of existing knowledge, and use it to fuel innovation and solutions to social problems. Given the questionable sustainability of high-yield, supply-driven innovation, the sector should consider adopting more innovation models developed in conditions where resources are scarce, including frugal innovation paradigms.


Infusing Social Entrepreneurship With Science and Technology

If social-tech entrepreneurship is a valuable building block for the inclusive growth of the social economy, how, then, can technology and research institutions induce and assist technology adoption among social enterprises?

Putting technology at the heart of social entrepreneurship will require more than simply adapting mechanisms used by high-tech start-ups. The hybrid nature of social enterprises and their need to preserve a social mission make the challenge very complex. For example, technology adoption calls for financial investment, and investors may bring different views on the mission of social enterprises. And intellectual property management issues may induce exclusionary strategies that are incompatible with the inclusive, value-oriented mission of social enterprises.

But finding ways to make it work is important. The number of social-tech enterprises is still rather low: In the United Kingdom, for instance, only 0.2 percent of all start-ups are tech-for-good companies, and only 210 of the more than 10,000 start-ups in Italy are socially oriented. Taking a wider view, transforming even a small number of the more than 2.5 million European enterprises active in the social economy (about 10 percent) into innovative, tech-intensive enterprises could make a significant difference in terms of growth; just 1 out of every 100 European social enterprises becoming a social-tech enterprise would equate to 25,000 organizations per year.

We see five areas where technology and research institutions can help unleash the potential of social-tech entrepreneurship:

  1. Inaugurate a new generation of technology transfer policies. Tech transfer is the process by which knowledge and technological competences pass from research institutions to other organizations. Historically, universities and research institutes have had few tech-transfer practices dedicated to social enterprises or the third sector in general. They need to deliver on their third mission of engaging with societal needs, and open up to new forms of social innovation-friendly activities and social impact objectives.
  2. Extend traditional models of open innovation. Open innovation is a process corporations often use, whereby multiple external sources of innovation feed into an organization’s internal research and development process. Technology and research institutions need create policies that spur the inclusion of social enterprises in open innovation through cross-sector partnerships.
  3. Experiment with new forms of capacity building. Public institutions and networks of social enterprises need to establish places of mutual and collective learning, where social enterprises and technology and research institutions exchange ideas and interact across sectors. More policies should target the empowerment of these processes rather than focusing on supporting single initiatives.
  4. Revitalize and renovate demand-side policies. Demand-side public policies support demand for innovations among consumers and citizens, and incentivize the provision of solutions that respond to social problems. They can prompt early market opportunities for both social-tech start-ups and social enterprises facing technological transformation.
  5. Support the impact investing industry in ways that better realize the potential of blended-value, patient capital to social-tech enterprises. This should include smart regulation and measurement standards to guide the development of financial instruments and ensure that there is no trade-off against social value.

In conclusion, we need to think of social enterprise networks in Europe and beyond as incubators and accelerators of new, high-potential entrepreneurship. To do this requires that technology and research institutions create new policies that support a more-even, socially inclusive distribution of knowledge and wealth, and innovation that promotes both social good and economic growth. At the very center of this model, a young generation of social-tech entrepreneurs—the smartest possible ally policy makers can count on—is posed to turn societal challenges into inclusive growth opportunities for the social economy.


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