Business Skills in the Social Sector

Creating a Social Enterprise Culture

By David J. Rendall, Principal of Rendall & Associates, Assistant Professor of Business at Mount Olive College

More and more nonprofits believe that social enterprise will help them to achieve their objectives. Evidence of this trend can be seen in the rapidly growing membership of the Social Enterprise Alliance, a national association of social enterprise practitioners. However, developing a business venture within an existing nonprofit organization creates significant challenges. One of the most serious is the need to develop a new organizational culture. A new culture is necessary because social enterprises attempt to blend the missions and methods of traditional businesses and nonprofits. Diane Flannery and Kriss Deiglmeier, former CEO and COO of Juma Ventures, a social enterprise in San Francisco, wrote that “one of the biggest challenges for the leader of a social purpose enterprise is to create and manage one organizational culture that brings together both the nonprofit and for-profit cultures.” In this article we’ll examine how to create a social enterprise culture within your organization.

Defining Culture
One way to understand organizational culture is to think of it as similar to an individual’s personality. Some people are shy, while others are outgoing. Some people are rational and objective, while others rely more heavily on emotion. We all have patterns in the way we respond to the world around us. These patterns make up our personality or “the way we are.”
Organizational culture is “the way we do things around here.” It is based largely on what has worked in the past as the organization has met and overcome environmental obstacles. An organization’s founder usually has the most profound impact on the kind of culture that an organization develops over time.

Edgar Schein is a professor at MIT’s Sloan School of Management and one of the most well-known experts on the subject of organizational culture. He defines organizational culture as “a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.” Schein believes that there are three levels of culture--artifact, espoused values and basic assumptions. These levels range from obvious and tangible to invisible and intangible. Additionally, each level presents a varying degree of ambiguity.

Artifacts are the first level of culture. They include physical spaces, dress code, written policies and other very visible phenomenon. Things at this level of culture are easy to identify but difficult to understand or interpret. For example, there are many different inferences that can be drawn from a company’s dress code. While the dress code is relatively obvious, its cultural meaning is not.

The next level of culture is Espoused Values. These are conceptions of the way things should be that are clearly communicated and consciously understood. They are the values that people say that they have. A company’s mission statement is an example of an artifact that represents their espoused values. Espoused values are not seen directly, but only through representation in artifacts and behaviors. Because of this they are less visible than but also less ambiguous than artifacts.

Basic Assumptions represent the final level of culture. These ideas or beliefs are so ingrained in the culture that they go largely unnoticed. They are essentially invisible. Unlike values, they are not directly communicated. They are taken for granted. However, once uncovered, their meaning is very clear and they illuminate previously discovered values and artifacts. This is because they are the basis for values and artifacts.

Conflicting Cultures
Flannery and Deiglmeier believe that nonprofits and for-profits have significantly different cultures. They compared the cultures of each sector along ten different dimensions.

Comparison of nonprofit and business cultures

Note: Original summary of the work of Flannery & Deiglmeier (1999a).

Social enterprises attempt to blend these opposing cultures. According to Greg Dees, in his classic article on social enterprise in the Harvard Business Review, this blending involves the combination of:

• Concern for others and self-interest
• Mission-driven and market-driven approaches
• Social and economic value creation
• Philanthropic and investment capital
• Volunteer and highly paid labor
• Free and full-cost products and services

The process of combining these two disparate cultures creates internal and external conflict. Internally, staff, volunteers and board members commonly resist the new direction and feel angry and betrayed. Externally, clients, communities, government, funders and businesses often criticize nonprofits for adopting earned income strategies.

In order to develop a successful social enterprise, leaders need to develop an organizational culture that is conducive to nonprofit ventures. They may also need to influence the culture of the surrounding community, as has been done in Seattle, Pittsburgh and St. Louis, areas in which government, businesses and nonprofits have created and environment that fosters enterprise success.

To understand the nature of this conflict, just imagine trying to change your own personality. Think about how you would respond to someone’s suggestion that your way of living, which has worked for you throughout your life, was incorrect, inappropriate or irrelevant. Even if you believed them, which you probably wouldn’t, it would be difficult, if not impossible, to change a lifetime of habits and beliefs. This is the task of the social enterprise leader, to change the fundamental practices, values and beliefs of an organization. According to Flannery and Deiglmeier, “leaders play a key role in the creation, management and at times dismantling of a culture.” In fact, a leader’s primary responsibility is to lead cultural change.

Changing Culture
There are five basic steps to changing an organization’s culture: identify, validate, envision, communicate and challenge. The first step of identification is so important because culture is often invisible to those that live within it. Identification involves making the connection between the artifacts, espoused values and basic assumptions of your organization. As with each of the other steps in the change process, this work should be done with significant participation from organizational stakeholders.

It is often tempting to want to destroy the existing culture and replace it with something new, but this is not usually the best approach. Because social enterprise is a combination of business and nonprofit culture, it is probable that elements of the existing culture should be retained. Additionally, because of the resistance from internal and external sources, it is very important to validate the value of current practices. This process reinforces the worth of the organization’s staff and constituents as well as the organization’s history.

The third aspect of cultural change is to develop a vision of an ideal organizational culture. Involving all stakeholders significantly should minimize resistance and maximize commitment to the new approach. Again, it is important not to rush the process. Destroying the old culture before envisioning a realistic alternative can create organizational chaos and derail the success of a potential venture.

Fourth, it is necessary to communicate a clear picture of the new culture. Effective communication requires both educating and persuading the organization’s primary constituents. It is not enough simply to inform people of the impending changes. Since people always resist change, communication needs to focus on the benefits of the change for each group that will be affected.

The final step is to challenge the existing culture. Many people will maintain their current habits and beliefs throughout the first four steps and deny the reality of impending changes. By challenging the culture, you show people that you are serious about developing a new culture. This step is accomplished primarily by removing, replacing and adding artifacts.

One common practice is to create a new name, brand or logo for the social enterprise or the entire organization. This new image communicates a distinct identity and a change of direction. Changed artifacts can also include a new mission statement, modified compensation systems, different policies and procedures and new staff or board members. When deciding which artifacts to modify, it is important to choose those with the greatest meaning. Certain elements of any organization are symbolic of its culture. Changing those symbols will clearly communicate a new direction for the organization.

Alignment of Employees’ Skills and Values
The most influential element of any culture is its people. Ultimately, a new culture will require at least some new people. In the case of a nonprofit launching a social enterprise, these people may have business education and experience or other necessary skills and values. Cultural change may also necessitate the removal of people who cannot or will not adapt.

John Brauer and Michele Tatos were senior leaders at Community Vocational Enterprises (CVE, Inc.) a social enterprise supported by the Roberts Enterprise Development Fund. They offered a four-part model, based on values and skills, for determining which employees should remain and which should be removed.

• Category 1 - Right values, right skills
• Category 2 - Right values, wrong skills
• Category 3 - Wrong values, right skills
• Category 4 - Wrong values, wrong skills

It is relatively obvious that employees in category one should be retained and those in category four should be removed. Employees in category two should remain and be trained in whatever new skills the venture requires.

The most problematic employees are those in category three. It is very tempting to keep them because of their competence. However, their incongruent values will poison the culture and prevent necessary changes. Even though they have the right skills, their values will prevent them from using them to further the organization’s new purposes. Brauer and Tatos offer clear direction regarding this group. “If employees make their numbers but do not have the right organizational values – they will never fit into the organization, and can do more harm than good. These employees need to be let go.”

What if Cultural Change is Not Realistic?
In some cases, it is not realistic to attempt to change an organization’s culture. There are two alternatives to wholesale cultural change. First, you can develop a social enterprise sub-culture by creating a distinct department or division within the organization. Second, you can start new culture by developing a separately incorporated nonprofit or for-profit organization. The decision to avoid widespread cultural change is usually based on the organization’s age and size. Generally, the larger an organization is, the more difficult it will be to change the culture. Similarly, it is difficult to change the culture of older organizations and somewhat easier for smaller ones.

Developing a social enterprise culture within an existing nonprofit organization is a tremendous challenge. However, it is both possible and necessary for nonprofits that need new and diverse sources of revenue. The resources below offer additional guidance for leading and changing organizational culture.

NOTE: David Rendall is principal of Rendall & Associates, a consulting firm that specializes in social enterprise and leadership development for nonprofits. His clients include numerous nonprofits throughout North Carolina. His seminar entitled, "Generating New Sources of Revenue," which offers an introduction to social enterprise, is part of Duke University’s Certificate Program in Nonprofit Management. He is also assistant professor of business at Mount Olive College in Mount Olive, North Carolina. For the last ten years, he has managed social enterprises, and in 1997 he founded SERVE Enterprises, a program in Wisconsin that provides employment to people with disabilities. Prof. Rendall earned a doctor of management degree in organizational leadership; social enterprise was the focus of his dissertation research. A summary of this research and other resources are available at www.drendall.com. Prof. Rendall is also the author of the recently published book, "The Four Factors of Effective Leadership." To order, please send an email to dave@drendall.com or call (919) 222-6295.

Recommended Readings:

"Reframing organizations: Artistry, choice, and leadership," (2nd ed.), by L. Bolman and T. Deal, Jossey-Bass, 1997.

The Challenges of Staffing and Leading a Social Purpose Enterprise, by J. Brauer and M. Tatos, in "Social Purpose Enterprises and Venture Philanthropy in the New Millenium: The REDF box set," edited by J. Emerson, Roberts Enterprise Development Fund (REDF), 1999.

"Enterprising Nonprofits," by J.G. Dees, Harvard Business Review, January-February 1998.

Managing the Social Purpose Enterprise, by D. Flannery and K. Deiglmeier, in "Social Purpose Enterprises and Venture Philanthropy in the New Millenium: The REDF box set," edited by J. Emerson, Roberts Enterprise Development Fund (REDF), 1999.

"Organizational Culture and Leadership," (2nd ed.), by E. Schein, Jossey-Bass, 1992.