The world-wide knowledge regarding social enterprises is mainly focused on best practices and success stories. Failure cases are not widely disseminated and analysed, therefore, little is known about the unsuccessful practices in the social enterprise sector. The following paper intends to investigate the role of human capital in the failure of social enterprises, through data collected in South Africa.
During the process of establishment and development of a social venture, the social entrepreneur faces a set of different opportunities but also barriers that can influence their success or failure. It can be said that failure is the termination of an activity that has fallen short of its goals, although for some organizations failure is temporary and followed by a turnaround (Paton & Mordaunt, 2004). In a business setting, the causes of failure are multiple, and generally they can be divided between the external environment, (e.g. market characteristics, competition, unexpected events) and the internal environment (e.g. poor corporate decision making, poor management, conflicts) (Anheier, Helmut & Moulton, 1999; Arasti, Zandi, & Bahmani, 2014; Mellahi & Wilkinson, 2004). As such, the individual specificities of the employees, with regards to the internal causes, are considered a determinant factor for the positive performance of the organization. It is important to underline that internal causes generally are predictable and controllable by the social entrepreneur. In this sense, in order to avoid failure, social enterprises should be able to strategically plan their development, while also paying close attention to specific characteristics of the employees. Throughout this process it is essential to improve the professional structure, by the incorporation of skilled human recourses into their workforce. Alongside the literature on business and economics, human capital appears to play an important role on the performance of ventures. Human capital is the stock of knowledge and skills, either innate or acquired, residing within individuals and developed through formal and/or informal learning as well as continuous experience (Becker, 1962, 1964; Schultz, 1961). According to Coleman (1988) human capital acts as a resource, it is created through the changes in skills and capabilities of enabling them to act in new ways.
In line with the theoretical background, the research question that we pose is “can the role of human capital be a determinant of the failure of social enterprises”. To answer the follow question, both cases of failure and success were pointed-out and analysed, in order to comprehend if there exists differences in human capital. This comparative analysis between the failure and success, even if the focus of the research is on the failure, is an attempt to understand and establish the variances on human capital, as well as to determine whether or not the human capital can be a determinant of failure.
From the preliminary analysis of the collected data, it is possible to understand a relation between human capital and the failure of social enterprises. In this sense, the data collected and analysed, so far, reflect what is reported in the literature, whereby low levels of human capital were verified among the failure cases.
Learning through the analysis of unsuccessful ventures is essential in order to assimilate a deeper knowledge of how the social enterprises are functioning, and consequently, to enhance their performance and achieve a higher societal impact. Nevertheless, it also gives the possibility to social entrepreneurs to voice their failure stories and to learn from them. It is about bringing value to the field from which initially there were negative outputs.
References:
Anheier, Helmut, K., & Moulton, L. (1999). Organizational Failures, Breakdowns, and Bankruptcies. In When Things Go Wrong: Organizational Failures and Breakdowns. Thousand Oaks, CA: Sage.
Arasti, Z., Zandi, F., & Bahmani, N. (2014). Business failure factors in Iranian SMEs: Do successful and unsuccessful entrepreneurs have different viewpoints? Journal of Global Entrepreneurship Research, 4(1), 1–14. doi:10.1186/s40497-014-0010-7
Becker, G. S. (1962). Investment in Human Capital: A Theoretical Analysis. The Journal of Political Economy, 70(5), 9–49.
Becker, G. S. (1964). Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. New York: Columbia University Press.
Coleman, J. (1988). Social Capital in the Creation of Human Capital. American Journal of Sociology, 94, S95–S120.
Mellahi, K., & Wilkinson, A. (2004). Organizational Failure : A critique of recent research and a proposed integrative framework. International Journal of Management Reviews, 5-6(1), 21–41.
Paton, R. A., & Mordaunt, J. (2004). What’s Different About Public and Non-Profit Turnaround. Public Money & Management, 24(4), 209–2016.
Schultz, T. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1–17.
5. Social impact, value creation and performance
