Abstract
Scaling has remained a challenge for social enterprises, which strive to balance social impact with financial performance to facilitate sustainable development. Product diversification, a common scaling strategy in commercial enterprises, has been recently proposed as a strategy to scale social enterprises while keeping their dual goals in balance. We empirically investigate this using a combination of qualitative and quantitative analyses of microfinance institutions in India. Our inductive analysis reveals that product diversification in social enterprises varies along two dimensions—relatedness and locus of impact—to give four distinct diversification strategies. Each of these strategies impacts the social and financial goals of the organization differently. To scale successfully, social enterprises need to deploy a deliberate and dynamic mix of product diversification strategies. The paper makes an important contribution to the field of social entrepreneurship by exploring how diversification strategy can help social enterprises scale. It also provides important insights to social entrepreneurs on how they should deploy a mix of diversification strategies to maintain a balance between their social and financial goals.
Highlights
We aim to take a first step towards addressing this gap by empirically exploring the following questions: How do social enterprises engage in product diversification? What are the product types they diversify into and the factors that influence the decision? How does it impact sustainable development; i.e., what is the tradeoff between social impact and financial performance in scaling through product diversification?
Is what CEO of microfinance institutions (MFI)-I says on the choice of its market segment: “What we identified at that time was that the urban poor in India was a significant population, may not be as large as the rural poor, but a significant number, and one of the fastest growing segment of population in India, and frankly no microfinance institution has been directed towards urban poor even Grameen was focused on the rural poor.”
Our analysis of 155 MFIs that operated between 2013 and 2019 in India revealed that 69% of them engaged in product diversification
Summary
Scale has remained elusive for social enterprises [3]. For every poster child such as Grameen Bank, there exist many social enterprises that stagnate and remain limited in their impact. A core challenge for scaling social enterprises stems from the fact that they need to simultaneously manage two goals—social impact and financial performance—that ensure sustainable development. Social impact is the raison d’etre for social enterprises, but they need to generate financial returns to be self-sufficient and invest towards enhancing their social impact. Pursuit of these dual goals is a difficult balancing act [4,5,6,7]
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