Business support to third sector organisations contract review: research summary

5 Looking Forward

5.1 This chapter considers the context in which considerations of a future Business Support to Third Sector Organisations service offer should be framed. Much has changed since the initial Just Enterprise service was introduced, including policy developments and wider social, political and economic change. It is also important to seek to learn lessons from elsewhere.

5.2 The chapter therefore covers:

• The Social Enterprise Census 2017 and what this tells us about sector support needs;
• The Social Enterprise Strategy 2016 - 2026 and the 2017 - 2020 Action Plan, again focusing on what this means for future business support to the sector; and
• International best practice and lessons. Scotland is regarded as a world leader in the support it provides to the social enterprise sector, however it is important to learn from approaches that are developing elsewhere.

The Social Enterprise Census 2017

5.3 The 2017 Social Enterprise Census identified 5,600 social enterprises operating in the sector, up 8% from the 2015 Census, with 599 new social enterprises formed over the last two years. The sector is clearly large, and growing, and making a substantial contribution to the Scotland economy, some £2bn in Gross Value Added (output).

5.4 The 2017 Census provides rich contextual data on the profile of the sector, with most remaining fairly small in the scale of their operations, with the majority (57%) reporting an annual income of less than £100,000. Social enterprises operate in a number of different forms, with the majority (71%) being incorporated as private companies and three-quarters also operating as a charity.

5.5 Whilst most social enterprises in Scotland remain concentrated within the Central Belt, more than a third (34%) are located within rural areas, compared to just 18% of the Scottish population. What the 2017 Census tells us is that rural areas have also seen a higher rate of social enterprise growth between 2015 and 2017 than urban areas. The prevalence of social enterprises in rural areas may reflect the fact that they are often working to fill gaps in services / goods where there is more limited market provision. The private sector is often more reluctant to offer services in rural areas where a lack of population density can impact upon profitability.

5.6 The vast majority (80%) of social enterprises offer services rather than goods. Reflecting the tendency towards smaller scale operations, 26% of social enterprises serve one particular community or neighbourhood, and 60% work within the boundaries of one local authority area. At the same time, a number of social enterprises are starting to operate, or think about operating, on a large scale: 10% operate Scotland-wide and 7% now operate internationally.

5.7 As noted, social enterprises make a significant contribution to the Scottish economy, and there were more than 81,000 FTE employees in the sector in 2017. Seventy percent of social enterprise income comes from the Housing, and Health and Social Care sectors. This represents an area of financial strength as just 16% of social enterprises operate in these sectors.

5.8 Although many social enterprises are diversifying, social enterprises are increasingly moving into public sector markets, here these contracts remain an important source of business: 20% of social enterprises had bid for public contracts over the previous year. Whilst recognising the important role of social enterprises to deliver public services, given the financial pressures continuing to face the public sector, further diversification is important to prevent over reliance on one source / one public sector contract alone.

5.9 Constraints on public sector budgets is one reason the economic outlook for social enterprises identified in the Census was not entirely positive. Half the social enterprises reported being negatively affected by the economy in the previous year. This is borne out in the figures: between 2015 and 2017 spending by social enterprises increased by 14% but income only grew by 5%, meaning that surplus income reduced by 5% to £287 million over this period. In all, 41% of social enterprises in Scotland also reported a loss in 2017.

5.10 The challenges for the social enterprise sector mean that supporting the sector, and supporting the sector to grow and become more sustainable and resilient, is more important than ever. The Census specifically asked about social enterprise support needs over the next 12 months. The top 10 support needs were identified as:

Measuring social impact	44%
Researching new opportunities	40%
Collaborating with others to succeed	39%
Developing the workforce	39%
Developing the market strategy	39%
Developing new products and services	35%
Improving business practices	33%
Developing digital capabilities	33%
Attracting new and young talent	33%
Preparing a business plan for growth	32%

5.11 Some of these (workforce development, measuring social impact, attracting new and young talent) do not directly involve business support and so are not part of the current or likely future support offer, although intervention should seek to address these needs. However, the majority are clear business support functions: market strategy; new products and services; business practices; and business plans, and are core features of Just Enterprise, and demonstrate the ongoing demand for the service.

5.12 What is also clear from the top 10 support needs is that scoping new opportunities is important; many need help to identify new market opportunities. The role of digital is also recognised, with many social enterprises recognising they need to develop their digital capability.

5.13 Other support needs were identified, again a number of which are part of the current Just Enterprise offer, including Leadership and Tendering:

Planning for business change and succession	30%
Developing leadership capabilities	28%
Tendering for public sector contracts	23%
Learning new business skills	22%
Finding property solutions	19%
Finding a business mentor	19%
Improving environmental sustainability	14%
Managing Intellectual property	12%
Starting up a new business venture	10%
Attracting repayable / loan finance	8%
Recovering from business difficulties	8%
Doing business in international markets	6%

5.14 As revealing, are the areas in which social enterprises are not seeking support. The Census identifies that, over the last 12 months, three-quarters of social enterprises had applied for grant funding, and just 9% for a loan, and so in this context it is clear why just 8% are seeking support to attract repayable or loan finance over the coming year. Uncertainty of the ability to meet loan repayments is the largest obstacle, again reinforcing the need for more diverse income streams for social enterprises, underpinned by a sound business plan.

The Social Enterprise Strategy and 2017-2020 Action Plan

5.15 The Scottish Government has emphasised its continuing support for social enterprises and has described social enterprise as being part of ‘the national identity’ with reference to a Scottish history of social enterprises dating back to Robert Owen, who is credited with establishing the cooperative movement in New Lanark in the 19 ^th Century. ^[42] The Scottish Government has provided sustained investment in the sector for the past 10 years. ^[43] The importance of the social enterprise sector in Scotland is also reflected in the availability of Masters courses focused on social enterprises at Stirling and Glasgow Caledonian Universities.

5.16 The Scottish Government’s economic strategy ^[44] , which is organised around the four I’s of Investment, Innovation, Inclusive Growth and Internationalisation, also sets the broader context to social enterprise support. In particular, social enterprises can help to promote Inclusive Growth as they seek to contribute economically in terms of employment and gross value added but they also prioritise making a social contribution and tackling inequalities. The Census indicates that social enterprises, for example, have a much narrower pay differential within their organisations than commercial businesses.

5.17 This means that social enterprises are particularly well placed to offer growth that is inclusive as they can help to promote a fairer distribution of wealth and opportunities across society. As will be discussed further in the next section, the Scottish Government is also looking to develop the potential of social enterprises to contribute to further internationalisation of the Scottish economy. ^[45] The Census identification of support needs shows that only 6% of social enterprises are seeking support to do business in international markets: and so raising the aspiration (and ability) for social enterprises to trade internationally is a policy imperative.

5.18 Scotland’s Social Enterprise Strategy 2016 - 2026 was published in December 2016 and sets out the Scottish Government’s long-term framework for developing social enterprises. The framework is organised around the following three priorities: stimulating social enterprise, developing stronger organisations and realising market opportunity.

Figure 5.1: Priorities and corresponding workstreams from Scotland’s Social Enterprise Strategy 2016 - 2026

5.19 The ‘Stimulating Social Enterprise Priority’ focuses on engaging more people with the social enterprise sector and encouraging the development of new social enterprises. The priority includes workstreams around local development, social entrepreneurship and innovation, social enterprise in education and national recognition. The local development workstream involves encouraging the development of social enterprises in the local community, with a particular focus on offering the necessary support to areas experiencing deprivation.

5.20 The ‘Developing Stronger Organisations Priority’ focuses on workstreams that can help social enterprises to further build their capacity and ambitions. This includes working to increase the finance available to social enterprises and also increasing the ability of social entrepreneurs to access this finance. Of particular note for this review, there are also commitments around developing social enterprise business support. This includes the continued provision of specialist support but also a focus on aligning this appropriately with mainstream business support as the Scottish Government is looking to work with mainstream business support services to develop the social enterprise advisor network and increase their knowledge of and work with social enterprises.

5.21 Within the Priority Two workstream there is also a view to increasing the internationalisation support available for social enterprises. Other workstreams within this priority include working to develop social enterprise leadership, which includes commitments to extend and develop available training and learning opportunities; and workforce development, which includes working to ensure that social enterprise is a recognised and promoted destination within careers guidance for young people.

5.22 The ‘Realising Market Opportunity Priority’ encompasses three workstreams: public markets, consumer markets and business markets. The public markets workstream focuses on increasing social enterprise delivery of public contracts and involves working with public bodies to improve their engagement with the social enterprise sector and making changes to procurement and commissioning practices. The consumer markets workstream focuses on increasing consumer engagement with social enterprise goods and services. Finally, the business markets workstream focuses on increasing the participation of social enterprises in business to business trade. ^[46]

5.23 Following the publication of the Social Enterprise Strategy, ‘Building a Sustainable Social Enterprise Sector in Scotland: Action Plan 2017 – 2020’ was released in April 2017. This plan sets out the first steps that will be taken to put the strategy into practice with future action plans planned to be published in 2020 and 2023.

5.24 Key actions around the ‘Developing Stronger Organisations Priority’ include plans relating to business support that are of particular interest to this review. These include plans to introduce changed support for social enterprise Start-up, Growth and Recovery, designed to complement mainstream provision.

5.25 In tandem, the Scottish Government also plans to increase the number of social enterprises gaining support from mainstream business support providers such as Scottish Enterprise, Highlands and Islands Enterprise ( HIE) and Business Gateway. This mainstream business support is to include increasing the digital capacity of social enterprises and promoting access to digital support initiatives including the Digital Growth Fund and Digital Boost Programme. Relatedly, under the social finance workstream, there are also plans to work with the Scottish Investment Bank to improve social enterprise access to traditional forms of SME finance.

The Enterprise and Skills Review

5.26 The Enterprise and Skills Review is also of direct relevance, with the review focusing on business support services which includes examining social enterprise business support, and in particular how it will be aligned with mainstream business support. The Phase 2 report, published in June 2017, makes reference to the Action Plan and sets out the inclusion of social enterprise support within HIE, Scottish Enterprise and Business Gateway remits, and commits to increasing the number of social enterprises engaging with support from these organisations.

5.27 The Enterprise and Skills Review report also refers to growing the network of social enterprise business advisers with representations from HIE, Scottish Enterprise, Business Gateway, Scottish Development International and Just Enterprise. ^[47] The new multi-agency approach for the South of Scotland is an opportunity to promote greater integration between business support for mainstream businesses and social enterprises (see Chapter 6).

International Best Practice and Lessons

5.28 Scotland’s important place within the social enterprise sector internationally is consistently recognised. Scotland held the first Social Enterprise World Forum ( SEWF) in 2008 and the SEWF will return to Edinburgh for the tenth anniversary in 2018. Not only does the Scottish Government recognise Scotland’s international reputation within the social enterprise sector for being a ‘world leader’ ^[48] , other countries have also recognised Scotland as a leader within the social enterprise sector. For example, in New Zealand, a country which is seeing significant social enterprise development, leading figures have referred to Scotland as an important example to look to in the development of their own social enterprise sector. ^[49]

5.29 Whilst Scotland is considered to be an international leader in the development and support of the social enterprise sector, it is still useful to look to examples of how other countries have developed their social enterprise sector, particularly as the Scottish Government seeks further internationalisation of social enterprise.

5.30 As Scotland looks to increase social enterprise delivery of public contracts, particularly in the Early Learning and Childcare, Health and Social Care, Criminal Justice and Employability sectors, Italian social cooperatives are an important example. Developed during the 1970s at a time of low economic productivity and high unemployment in Italy, they have grown and evolved to form a crucial element of the delivery of social services in partnership with municipalities. ^[50] Social cooperatives in Italy are distinguished by their social goals: their objective is the general benefit of the community and the social integration of citizens, particularly those disadvantaged. ^[51]

5.31 Italian business support for the social enterprise sector has tended to take the form of local consortia, comprised of members made up of social cooperatives in the area. These consortia then offer specialised cooperative business support and sharing of administrative functions to members. In particular, these groups can help to manage contracts from public sector organisations. This example may be an important one for Scotland as we seek to develop social enterprises within local communities and increase participation in public sector contracts. ^[52]

5.32 In terms of the Scottish Government’s aims to develop the work of Scottish Universities in promoting social enterprise, Canada and Hong Kong offer important examples of Higher Education Institutions supporting social enterprises. In Canada, Simon Fraser University and the University of Waterloo have incubation spaces to help social enterprises in their very early development stages. These spaces have offered help to students developing their own social enterprises and wider community organisations. Ryerson University and Carleton University also advance social enterprise as a possible career destination to students and run workshops and events to raise awareness of social enterprises. ^[53]

5.33 Looking more specifically at business support for the Third Sector, in Canada there has been an effort to follow the example of Scotland. The Social Enterprise Council of Canada organised a visit from representatives of the social enterprise sector in Scotland in order to facilitate learning and share experiences of how to develop and support the social enterprise sector. ^[54]

5.34 At the province level, which offers greater similarity to Scotland in terms of size, population and level of devolution, Common Good Solutions ( CGS) offers a programme of business support to social enterprises in Nova Scotia. CGS has developed through a provincial strategy as part of the Social Enterprise Network of Nova Scotia ^[55] , which is now being supported by the Nova Scotian Government to support the establishment and expansion of social enterprises in the area. ^[56] In particular the example of CGS could offer important learning on supporting social enterprises in the initial start-up phase as this is an area of particular focus, with the organisation describing itself as ‘part consultancy, part educator, part social impact incubator’.

5.35 In Hong Kong, universities have been a key source of support for social enterprises and have run development programmes such as The Hong Kong Social Enterprise Challenge. This involved students pitching business ideas and receiving training and mentorship to help develop them as a new generation of social entrepreneurs. ^[57]

5.36 As well as providing its own advisory and support services to social enterprises, the Hong Kong Government has also provided incentives and established programmes to encourage the private sector and other local organisations to provide support to social enterprise. Outside of the Government, the Hong Kong Social Entrepreneurship Forum also provides specialised business support. ^[58]

5.37 New Zealand has seen a rise in prominence of social enterprises with the Government publicly stating their support for social enterprises and announcing funding to expand the Akina Foundation, a social enterprise support organisation, in 2014. ^[59] The growth of the social enterprise sector in New Zealand is reflected in the fact that the 2017 SEWF was held in Christchurch, an area that has seen an important development of social enterprises in helping to rebuild the city since a devastating series of earthquakes in 2010 and 2011.

5.38 The programme of events at the 2017 SEWF reflected the international nature of a number of the Scottish Government’s development goals for the social enterprise sector in Scotland. For example, in line with the goals set out by the Scottish Government, sessions at the 2017 SEWF included discussions around social enterprise involvement in the private business supply chain, developing a customer base and public contract delivery along with how social enterprises can develop their leadership and finance options, and opportunities for empowering communities and working in the education sector. ^[60] The 2018 SEWF will be held in Edinburgh in September 2018 ^[61] .

5.39 In close proximity to New Zealand, Social Traders and Social Ventures Australia ( SVA) have been key to the development of the social enterprise sector in Australia. ^[62] As with Just Enterprise, these organisations have been funded in their work through government contracts. In terms of business support, SVA is the principal specialist business strategy consultancy firm for social enterprises in Australia. It provides specialist advice and consultancy around collaboration and development as well as wider training. ^[63] The role of SVA in promoting collaboration may be of particular interest as it fits with workstreams within priorities of the Scottish Government’s Social Enterprise Strategy.

5.40 In Germany, the development of the social enterprise sector has focused around Social Firms which provide employment to disabled and disadvantaged people. Government support is provided to companies where between 25% and 50% of employees are disabled people. This support comprises funding for creating new jobs for disabled people, funding for the salaries of disabled people and Government funding for business support services. ^[64]

5.41 These business support services have been delivered by Fachberatung Für Arbeits-Und Firmenprojekte ( FAF) over the past twenty years. The business consulting services include the delivery of guidance and training material in relation to the foundation of growth of social firms, the formation of business concepts and plans for social firms and guidance and support for social firms that have come in to difficulties. ^[65]

5.42 Closer to home, in other parts of the UK business support for social enterprise varies significantly by local authority area. Whilst in 2001, the UK Social Enterprise Strategy identified the no longer existing Regional Development Agencies and Business Links as having a role in the delivery of social enterprise support, there is no longer a national programme or strategy of support in England and Wales. ^[66] This has meant that support is delivered locally either privately or through cooperative development agencies or local authority support. One such example is iSE in Birmingham, a social enterprise support organisation funded by European Structural Investment Funds which offers advice, training and room hire to social enterprises. ^[67]

Summary and Conclusions

5.43 The Social Enterprise Strategy for 2016 - 2026 and the Action Plan for 2017 - 2020 are clear about policy objectives and interventions that should be taken forward, and these lay the foundations for sound future support decisions. Clearly new evidence continues to emerge which requires the refinement of the direction and actions: the 2017 Social Enterprise Census and reviews like this one here are two examples of such evidence.

5.44 What is clear from the latest Census is that the types of support made available through Just Enterprise continue to be in demand. Core parts of the Just Enterprise service, around business planning, product development and market strategy, remain important and fundamental to social enterprise Start-up, Resilience and Growth.

5.45 What is also clear as new evidence is collected is that there are new areas of support required. Building digital capabilities is a case in point, not historically a large part of the Just Enterprise offer, yet one in which there is growing demand. The way in which support is accessed is also changing, and there is increasing demand for digital methods of communication. Scotland remains at the forefront of enterprise support to social enterprises, yet as the international comparator work show us, the support in Scotland must continue to evolve and innovate, in order to meet ever changing market demands.