Group 1 Social Entrep. PDF

THE EXTERNAL ENVIRONMENT OF SOCIAL VENTURES CHAPTER 4 Learning Objectives Discuss the impact of the external environment on entrepreneurial activity. Assess the external environment of social ventures. Describe the role of the institutional environment on social venture creation. Discuss the...

THE EXTERNAL ENVIRONMENT OF SOCIAL VENTURES CHAPTER 4 Learning Objectives Discuss the impact of the external environment on entrepreneurial activity. Assess the external environment of social ventures. Describe the role of the institutional environment on social venture creation. Discuss the tools used to analyze the external environment of social entrepreneurship. Understanding the External Environment of Entrepreneurship Understanding the External Environment of Entrepreneurship Understanding the External Environment of Entrepreneurship 1 UNDERSTANDING THE EXTERNAL ENVIRONMENT OF ENTREPRENEURSHIP 1.1 THE MACRO-ENVIRONMENT OF ENTREPRENEURSH Entrepreneurship is shaped by its context and can both influence and be influenced by social conditions. Entrepreneurs, by engaging with their communities, can drive social change and address local issues, making entrepreneurship a socially embedded process. 1.1 THE MACRO-ENVIRONMENT OF ENTREPRENEURSHIP SAFEENA HUSAIN Created Educate Girls in 2007 to address the issue of girls’ education in rural India, which is a significant problem there and in other developing and emerging areas. Such a venture would not be created in the United States or Western Europe, where girls’ education is not an endemic social problem.. 1.1 THE MACRO-ENVIRONMENT OF ENTREPRENEURSHIP “NO MAN IS AN ISLAND” The idea that no entrepreneur or firm operates in isolation implies that both are shaped by their external environments. Understanding how macro-level factors influence social ventures is crucial, and research in social entrepreneurship can progress by applying insights from commercial entrepreneurship studies. 1.1 THE MACRO-ENVIRONMENT OF ENTREPRENEURSHIP Social entrepreneurship scholars should base their theories on established entrepreneurship research, as social entrepreneurs are a subset of all entrepreneurs. This is crucial because social entrepreneurs utilize both for-profit and nonprofit models. Broadly, three types of environments influence entrepreneurship. political; economic; and sociocultural.  POLITICAL ENVIRONMENT includes factors such as government policies, the stability of the political system, democracy, and rules of law, and it can facilitate or impede entrepreneurial activity. GLOBAL ENTREPRENEURSHIP MONITOR (GEM)- The survey data found that government policies tend to influence entrepreneurial activity. Specifically, governments that provide strong property rights facilitate entrepreneurial activities, whereas entrepreneurial activities tend to be limited where corruption and weak property rights prevail. ECONOMIC ENVIRONMENT The country includes the state of the economy in general growth or recession exchange rates and monetary policy, The financial system as well as the level of employment or unemployment and capital availability. SOCIO-CULTURAL ENVIRONMENT includes the value system of the country, demographic factors, culture and traditions, and lifestyle. Research has recently added a fourth type of environment, the (technological environment) - to create the acronym PEST (political, economic, social, and technological).  PEST MODEL will be used to explore the role of the four environmental factors in social venture creation, However, it is important to understand the concept of institutional environment and its role in entrepreneurship. The external environment has recently been reconceptualized as the institutional environment, and entrepreneurship scholars are using the construct of institutional profile to describe the external forces that influence new venture creation in a given country.  1.2 INSTITUTIONAL PROFILE AND ENTREPRENEURSHIP A country’s institutional environment comprises relatively stable rules, social norms, and cognitions that guide, constrain, and liberate domestic economic activity. It sets the framework for market transactions by defining the alternative courses of action that are open to firms. A country’s institutional environment comprises relatively stable rules, social norms, and cognition that guide, constrain, and liberate domestic economic activity. It sets the framework for market transactions by defining the alternative courses of action that are open to firms. Institutions structure human interactions and are made up of formal and informal constraints FORMAL CONSTRAINTS INFORMAL CONSTRAINTS laws, norms, rules, behaviours and, conventions, Constitutions self-imposed codes of conduct SCOTT provided an interesting classification of the institutional environment encompassing three dimensions: NORMATIVE COGNITIVE; AND REGULATORY.  KOSTOVA They were further operationalized who introduced the concept of a three-dimensional institutional profile to explain how a country’s government policies; Regulatory dimension - widely shared social knowledge Cognitive dimension - and value system Normative dimension - affect domestic business activity. Entrepreneurship scholars have shown that general perceptions of technological uncertainty and attitudes toward Risk influence entrepreneurial - activity and innovation. Risk propensity - plays a positive role in fostering entrepreneurship. - The type of activity in which entrepreneurs engage is likely to influence the potential contribution of entrepreneurship to economic growth and prosperity. Analyzing data from 40 countries collected between 2002 and 2004  BOWEN AND DE CLERQ found that the allocation of entrepreneurial effort toward high-growth activities was positively related to a country’s financial and educational activities targeted at entrepreneurship and negatively to a country’s level of corruption The regulatory dimension of the institutional environment consists of - laws, - regulations, and - government policies That promote certain behaviors and restrict others. These factors influence economic growth and set the basic rules of the game. Supportive regulatory environments are crucial for the development of entrepreneurial activities. WILLIAMS AND VORLEY used the concept of institutional asymmetry to explain the discrepancy between the formal and the informal institutions and note that despite efforts to reform formal institutions to make entrepreneurial activity easier, informal institutions have undermined their impact as the culture remains averse to entrepreneurial activity. BAUMOL Argues that the external environment facilitates the type of entrepreneurship that emerges in a particular society. He uses the term “rules of the game” to indicate the extent to which what is valued and rewarded in a given society influences the emergence of a particular type of entrepreneurship.  GLOBAL ENTREPRENEURSHIP MONITOR (GEM) To explores the role of entrepreneurship in national economic growth, unveiling detailed national features and characteristics associated with entrepreneurial activity. The collected data are harmonized by a central team of experts, guaranteeing quality and facilitating cross-national comparisons. GEM has three objectives: to measure differences in the level of entrepreneurial activity between countries; to uncover factors leading to appropriate levels of entrepreneurship; and to suggest policies that may enhance the national level of entrepreneurial activity. 2.1 POLITICAL ENVIRONMENT AND SOCIAL ENTREPRENEURSHIP The PEST Model and Social Entrepreneurship Multi-country research indicates that government policies, economic factors, and capital availability significantly influence macro-level differences in entrepreneurship. Key predictors of entrepreneurial activity include the size of the government, the quality of monetary policy, and the financial environment.  The existence of entrepreneurs in a given community also influences the likelihood of engaging in entrepreneurial activity. People who reside in highly entrepreneurial neighborhoods are more likely to become entrepreneurs themselves and invest more in their own businesses, even though their entrepreneurial profits could be lower and their alternative job opportunities more attractive. Shane examined the preferences of a sample of 4,405 individuals from 43 organizations across 68 countries regarding four innovation roles: Organizational maverick Network facilitator Transformational leader Organizational buffer  Several studies have also found a positive relationship between individualism and entrepreneurship and innovation. Innovation is directly related to entrepreneurship. A society that is innovative is more likely to be Gerente General entrepreneurial.  Perhaps individualistic societies may have a competitive edge over collectivistic ones because they not only provide a more tolerant environment for would-be innovators but also offer more social incentives for such Gerente General individuals to innovate 2.4 Technological Environment and Social Entrepreneurship Extended to social entrepreneurship, one could argue that the technological environment influences social venture creation in several ways. First, technology, especially information technology, facilitates increased awareness of the existence of social problems not only locally but in other parts of the world. 2.4 Technological Environment and Social Entrepreneurship Second, technology can facilitate the creation of social ventures because social entrepreneurs can easily use the internet to advertise their social ventures. Third, technology facilitates partnerships among social entrepreneurs located in various parts of the world  Technology can reduce the costs of starting and operating social ventures. By the same token, entrepreneurs who have been successful in creating technology ventures are now turning into social entrepreneurs. For example, highly successful technology-turned-social entrepreneurs like Jeffrey Skoll and Pierre Omidyar of eBay, Bill Gates of Microsoft, and Larry Page and Sergey Brin of Google have inspired other entrepreneurs to turn their attention to tackling today’s global social problems. 3 Tools for Analyzing Social Ventures’ External Environment 3.1 Environmental Scanning Environmental scanning is a strategic management tool that is used to analyze the external environment of a firm. This five-step process involves: identifying the environmental scanning needs of the firm; gathering the information needed by the focal firm; analyzing the information; communicating the results to concerned parties; and making informed decisions 3.1 Environmental Scanning Sources of information for environmental scanning are both external and internal. External sources of information include printed materials and experts in the field and industry as well as the media. Internal sources include organization specific information, such as personal contacts, internal reports and memos, committee meetings, managers, and employees. Examples of driving forces include: 1. increasing globalization 2. internet opportunities 3. regulatory policies/government legislation 4. changing societal concerns 5. attitudes, and 6. lifestyles, and 7. changes in the degree of uncertainty and risk. 3.2 Competitive Intelligence Competitive intelligence is a strategic management tool that is used to garner useful information about the competition, the market, and the technology that can be utilized by managers to make strategic decisions. It can be used by entrepreneurs to learn about their potential competitors and the industry they are about to enter. Strategic and Competitive Intelligence Professionals (SCIP) formed by competitive intelligence analysts who have more than 5,000 members, offers competitive intelligence certification, and organizes regular seminars and an annual conference. It also publishes an academic journal, Competitive Intelligence and Management. Most information related to the competition can be garnered through legitimate means that do not involve spying activities. 3.3 Benchmarking Formally defined, benchmarking is a systematic, continuous process of measuring and comparing an organization’s business processes against the leaders in an industry to gain insights that will help the organization take action to improve its performance.It allows organizations not to waste time and resources reinventing the wheel. Companies often benchmark others on three dimensions— quality, time, and cost 3.3 Benchmarking Although there is no universal way of conducting benchmarking, practitioners, and scholars agree on the importance of following seven steps in the benchmarking process: identify problem areas; identify industries that have similar processes; identify organizations that are leaders in those areas; survey leading organizations for measures and practices; 3.3 Benchmarking visit the leading organizations to identify best practices; implement best practices; and evaluate and make adjustments when necessary. Benchmarking offers nonprofit organizations a systematic and reliable tool to manage and improve performance by studying the best solutions to common problems.  3.4 Applying Porter’s Five Forces Model to Social Ventures In 1980, Michael E. Porter developed the five forces model, which remains one of the foundations of competitive analysis and strategic management to this day. The model is ubiquitous and always takes a prominent place in any textbook on strategic management.  3.4 Applying Porter’s Five Forces Model to Social Ventures The five forces identified by Porter are illustrated in Figure 4.1. They comprise: intensity of rivalry among existing firms; threats of new entrants; pressure from substitute products; bargaining power of buyers; and bargaining power of suppliers The five forces identified by Porter are illustrated in Figure 4.1. They comprise: Competitors Include any social ventures that provide similar services. These ventures compete to acquire much-needed financial resources from benefactors, grants, government contracts, corporate and foundation sponsorships, and for volunteers. The five forces identified by Porter are illustrated in Figure 4.1. They comprise: Beneficiaries The second force, called beneficiaries, equates to buyers in the traditional five forces model. However, in social ventures, most “buyers” are unable to purchase specific products or services themselves, so it is appropriate to call them beneficiaries instead. The five forces identified by Porter are illustrated in Figure 4.1. They comprise: Suppliers Suppliers could have strong bargaining power when they are few in number and have a vested interest in the social needs addressed by the social venture. The five forces identified by Porter are illustrated in Figure 4.1. They comprise: Alternatives The fourth force, substitute products, may not operate in quite the same manner as in the traditional five forces model. Here, the beneficiaries may not have the choice to choose alternative services because they are often needy. The five forces identified by Porter are illustrated in Figure 4.1. They comprise: Threats The fifth force, threats of new entrants, refers to the possibility that new social ventures may enter the “social market” to provide similar products or services.