Small and medium social enterprises (SMSEs) play a critical role in the development of a nation’s economy (Hillary, 2017; Arena et al., 2018; Littlewood & Khan, 2018b; Weaver, 2018). They create and provide jobs, especially when the government lacks them (Ayandibu & Houghton, 2017, Hillary, 2017). Since SMSEs employ the citizens in developing countries such as SA, they
14 assist in reducing crime rates (Ayandibu & Houghton, 2017). SMSEs are a source of entrepreneurial and innovative spirit and exploit individual creative efforts. They create competition and are the starting point for future businesses (Lee et al., 2016, Choi et al., 2018).
SMSEs are mainly challenged by financial insecurity and a high likelihood of failure (Lyon and Owen, 2019). SMSE sustainability is affected by exposure to higher levels of risk, due to economic instability and many size-related factors (Davies et al., 2019). These factors include access to funding; access to customers and markets; retention of knowledgeable and competent staff;
influence over communities; research and development; access to technology; and the productivity and quality of their value-added outputs (Jackson et al., 2018). To respond to these challenges, scholars and practitioners suggest the identification of a funding model for SMSEs and increased involvement of stakeholders within the enterprises.
The funding model is used by SMSEs to fund their enterprises to achieve their social mission (Lyon & Owen, 2019). The literature mentions various funding models for SMSEs, including grant/donations from public and private institutions; self-funding; family support; stakeholders;
bank credit; and investment companies (Heminway, 2012; Bengo & Arena, 2019; Guo & Peng, 2020). However, the majority of SMSEs rely on grants and public funding (Bugg-Levine et al., 2012). The business operation of their enterprises mainly depends on funding from traditional sources such as philanthropic foundations, and private and government institutions (Dees, 1998) to achieve their social goals. The lack of diversification in SMSE funding is explained because, even when SMSEs are applying for credit, only a limited number of enterprises are accepted and granted the requested funding because banks and financial institutions are reluctant to fund these enterprises (Bengo & Arena, 2019). Furthermore, SMSEs are expected to indicate their social performance and impact within the community for the banking and investment communities to release the requested funds (Christlieb, 2012; Crucke & Decramer, 2016). However, SMSEs with few resources experience difficulty in measuring their social value and impact as there are no unified measurement frameworks (Florman et al., 2016). SMSEs encounter several challenges, including little structure, reflected by the lack of a formal organizational structure and inexperienced accounting, management and control systems (Bull, 2007; Costa & Pesci, 2016).
They are well known for lacking financial resources (Bengo & Arena, 2019). SMSEs also lack collateral and tangible assets that the financial investment communities can use to provide credit (Bengo & Arena, 2019).
15 Furthermore, investment communities, such as banks, have little knowledge of the characteristics of social business organizations in terms of their business model, organizational structure and governance (Choi et al., 2018; Álvarez Jaramillo et al., 2019). Since the investment communities are less aware of a business model that generates both social and financial returns, they are resistant, and very careful, to invest in SMSEs (Arena et al., 2018). Thus, there is a need to investigate the funding model of SMSEs and develop a social performance measurement framework to respond to the call for accountability by the investment communities and other stakeholders.
Small and medium social enterprises are very engaged in the community, creating strong relationships with different groups of stakeholders (Mair & Marti, 2006). Finding and collaborating with the right stakeholders helps open up opportunities, gain access to new resources, and acquire knowledge, which may lead to further development and growth. Partnership, co- operation and the exchange of ideas about the strategic operation of social activities, between private, public and non-profit organizations, are highly productive and effective, allowing risk sharing and becoming major success factors (Alegre & Berbegal-Mirabent, 2016). For SMSEs to survive and achieve their social goals, it is crucial to understand their business model regarding their customers, beneficiaries, shareholders and other partners (Alegre & Berbegal-Mirabent, 2016). There is increasing attention from practitioners and researchers on social enterprise environmental and social issues (Bertotti et al., 2011b, Chmelik et al., 2016, Dufour, 2019). At the same time, the issue of environmental and social accountability has gained the attention of researchers. Considering the evolving expectations of consumers and investors, enterprises have recently experienced the need to communicate to internal and external stakeholders how their business structure, strategy, social mission and activities are integrated with the concept of sustainability (Bagnoli & Megali, 2011a). In the light of this growing interest, a question is raised about the real mission and objectives of SMSEs and the best way to account for, and inform, the degree to which these objectives are being realised. The development of social and environmental measurement results in a wide range of actual improvements and achievements in society and the environment (Dufour, 2019). With that in mind, it is more crucial than ever for SMSEs to take into consideration their stakeholders’ opinions when defining their strategies and mission on the one hand and, on the other, to reveal relevant information concerning their ability to achieve their
16 social mission and contribute to sustainability, while giving value to all their stakeholders (Bellucci
& Manetti, 2018).
The literature identifies stakeholders’ various needs regarding the performance measurement of non-profit organizations (Costa & Pesci, 2016). For instance, donors are interested in identifying whether the funding they provide to the enterprise is properly spent (Guo & Peng, 2020). Donors are, therefore, eager to calculate measurements of effectiveness which will indicate that funds are utilized for the purpose and aim for which they donated. Other stakeholders, such as managers, could be concerned about different measurements of enterprise effectiveness associated with administrative and managerial decisions. Different stakeholders require different kinds of information. Thus, SMSEs need to identify the needs of their stakeholders and adopt the necessary performance measurement metrics accordingly.
Small and medium social enterprises are under pressure to measure their impact, leading to an increasing demand to evaluate their activities. Performance measurement systems implemented excellently can deliver precise information, and support strategic, tactical, and operational objectives. Additionally, the use of performance measurement system can avoid sub-optimization;
and inadequate resource utilization (Carlyle, 2013). Performance measurement identifies the logical causal interaction between activities and results. It also allows organizations to determine the relationship between business processes (Waśniewski, 2017). Measurement of performance does not only emanate from the request of external stakeholders. Measuring the social performance of SMSEs is helpful in making strategic decisions, offering essential information to guide SMSE managers in their choices. Furthermore, measuring performance boosts business operation effectiveness, efficiency, and economic and social performance (Grieco, 2018; Almansour et al., 2019; Majetić et al., 2019). In addition, apart from only considering economic performance based on quantitative representation, measuring social value generates a basis for contrasts between diverse SMSEs within the same sector and across industries (Bertotti et al., 2011a). PM facilitates an understanding of the successful activities that lead to success within the business. PM enables the spread of good and bad practice limitations across the SMSE sectors (Bertotti et al., 2011a, Arena et al., 2015a). There is an emphasis on PM through its perceived advantages for organizational learning (Barraket & Yousefpour, 2013; Arvidson & Lyon, 2014). Developing a social performance measurement framework would provide more nuanced insights and an understanding of past performance and would guide future decision-making (Hassan, 2018b).
17 In light of the above discussion, this study explored the funding model and business operation of SMSEs. Furthermore, the study investigated the stakeholders involved and their information needs and developed a social performance measurement framework using social; environmental;
cultural; human; and educational metrics from a developing country perspective, with particular reference to small and medium social enterprises in KwaZulu-Natal, South Africa.
This study attempted to fill the gap in existing performance measurement methods and the other frameworks for the under-researched issue of qualitative performance measurement of small and medium social enterprises by suggesting a new framework that is able to address problems relating to evaluating the social performances of the small and medium social enterprises in the KwaZulu- Natal, by using the social performance metrics related to the social mission, enterprise activities, and stakeholder involvement underpinning the study.
The next section discusses the theoretical framework that guides the study.