Innovation and scale are two concepts that are sought after by most for profit organizations and by many non profits and social enterprises.
The for profit world has spent five or more decades scaling their operations by working down the learning curve. We all know what that cure looks like—it gets flat when you reach high volume output, and most manufactured products have been at high volumes for a while. They get scale through big investments in automation, and when that isn’t enough they outsource functions to get scale in services like human resources and information systems. In this scenario, it is harder to squeeze out that next increment of savings and innovation cycles are shorter. All in all, you get less bang from those innovation bucks.
So is social innovation similar? Is it only possible to win if you scale? And does scale eventually level with incremental investment yielding smaller and smaller value increases?
Here are four fundamental differences that can make social innovation respond differently to scale and perform well as scale increases. Not all social enterprises embody all these features, but the most scalable ones do.
1. Social innovation leverages more entrepreneurs in creating new value.
In the for profit world, there are entrepreneurs and there are those that follow. In the social world, many of the value chains are in fact populated by entrepreneurs throughout the chain.
Microfinance is the obvious example. Muhammad Yunus is one of several master entrepreneurs. Every MFI contains entrepreneurs and most of the loan recipients are entrepreneurs as well. The innovations at the end of the chain create value because there is so much capacity to improve–increments are big in these situations and gains go directly to the entrepreneurs for basic needs.
2. Innovation in the for profit world tends to focus on productizing. Standards are set, experiences are defined, repeatability is sought. The consumer uses the same product or service as others in the market.
Social innovation requires productization as well but only up to a point. And the most interesting social innovations often require significant innovation at the delivery point to create something tailored to each client’s experience.
Teach of America does a lot to productize the preparing of talented young people to teach. However once in the classroom, there is ample room for innovation and ample necessity. Each student’s decision to take the Teach for America job is unique as well, and it creates repeatable but unique wins for Teach for America that are talked about extensively.
3. In the for profit sector the competition vs collaboration trade off leans heavily in the compete direction.
In the social sector the most interesting scale opportunities lean in favor of collaboration. Often the most scalable social enterprises are collaborating with existing social and for profit value chains to create new offerings and innovations.
Self-help pioneered lending in poor urban neighborhoods and then scaled by partnering with Bank of America and other large institutions.
4. Innovation and scale are often trade offs in the for profit world. As we standardize and productize to increase volume, the operation becomes less flexible and innovative.
The most interesting social enterprises see innovation and scale as virtuous reinforcing systems.
Grameen and Acumen did not try to own microfinance. Instead they disseminated microfinance knowledge and encouraged other players to play. This dissemination approach enabled the ecosystems to scale to $30 billion plus as the attraction factor drew medium and large organizations with plenty of incentives to invest, innovate and grow.