Performance measurement in social enterprises – a conceptual accounting approach

Keywords: social entrepreneurship, value creation, performance measurement, SROI, Balanced Scorecard This paper discusses about social entrepreneurship, its value creation, measurement tools and reporting practices. In order... [ view full abstract ]

Keywords: social entrepreneurship, value creation, performance measurement, SROI, Balanced Scorecard

This paper discusses about social entrepreneurship, its value creation, measurement tools and reporting practices. In order to be as effective and successful than profit-making organizations need social purpose organizations be highly innovative in creating reporting practices and measurement systems as they are not as developed and extensive than the measurement systems for financial reporting. Furthermore, the whole measurement and reporting processes are much more complex as social and financial value creation and their evaluation need to be combined.
New reporting innovations seek to consider both value creation approaches as equal in organizations’ strategic planning (Nicholls 2009). Social entrepreneurship is “a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs” defined by Mair & Marti (2006, 37). It is viewed as an attempt and a willingness to achieve change by combining resources differently. Social enterprises are driven by a social purpose and try to seek the balance between their social mission and business performance (Drayton 2002). The status of a social enterprise does not give necessarily any preferences in the competitive market and this is the reason why their financial and social objectives need to be in balance and they must be considered in an appropriate way (Luke et al. 2013). Furthermore Luke states that in order to establish financially sustainable operations, performance needs to be measured effectively. Additionally to dual functions of social enterprises they need to meet requirements for two groups of stakeholders, both external and internal. The need for relevant and reliable information sets measuring performance to the important position. While external stakeholders expect assessments and reporting to be transparent and comparable, internal stakeholders demand information on which to base rational and strategic decisions.
Measuring only because of the need to measure is not enough but relevance and decision-usefulness of chosen measures need to be ensured (Haigh & Hoffman 2012; Luke et al. 2013; Tracey & Phillips 2007). The development of performance measurement systems is seen crucial, simply for the reason to be able to gain and maintain present and future stakeholders’ interest towards social entrepreneurship (Volkmann (Eds.) et al. 2012). Emerson’s (2003) study holds a significant position within the topic “blended value.” Emerson emphasized that the value of organizations cannot strictly be measured with financial indicators, it should be considered that return on investment does not serve only financial interest. It is rather a value proposition of both social and financial interest of which “the blended value proposition” results from. Thus, between two traditional perspectives falls the third perspective which takes a part from both surrounding perspectives; it is operating neither on a pure financial market nor pure social market but social capital market where “social return on investment” (SROI) is considered as much as is the financial metric “return on investment” (ROI).
Also the main stream enterprises have noticed the complexity of performance measurement. Balanced scorecard is one of the widespread management tools that enable organizations to consider also other aspects in entrepreneurship than just so called hard values. Success requires more: soft values are equally important. Balanced scorecard gives the possibility to consider both hard and soft sides of businesses (Kaplan & Norton 1996).
This conceptual paper focus on existing literature about performance measurement and reporting in social enterprises and main stream SMEs. Our conceptual research discusses about ideas and ways to measure social value creation by existing management accounting tools and discusses about the relation between traditional accounting and blended value accounting and reporting.