What social enterprises can teach big business

The recent accusations against Rupert Murdoch's News International exposed many to corrupt practices that could happen in the media king's empire. The subsequent public outrage has resulted in the serious questioning not only of the newspaper business, but of corporate behaviour generally.

The sins of multinational companies are well known and, while we may have become normalised to corporate transgressions, it's in periods of scandal (in Murdoch and BP's case) that we are forced to question big companies and the value they create.

So the question becomes, rather than wait for companies to hit crisis, how can we fundamentally reform corporate DNA? On this point, social entrepreneurs may well have something to teach their incumbent counterparts.

Greg Van Kirk, an Ashoka fellow and founder of Community Enterprise Solutions, established to empower business and educational entrepreneurs in the developing world, said of social entrepreneurs: "Companies are very good at innovating solutions and often times not as effective at understanding people's needs; whereas, social entrepreneurs are good at identifying the needs and desires – and the challenges and opportunities – of the most vulnerable populations."

The success of many social entrepreneurs stems from the reality that they design systemic solutions. As Van Kirk suggests, "people don't just need HIV medication, but they need refrigeration and nutrition. Social entrepreneurs think with this holistic framing in mind."

Big companies, however, often fail to put those different pieces of the value chain together. Too often they are restricted by their core competencies – and so they produce value in a silo. Companies can, in fact, learn a lot from social entrepreneurs on how to deliver multi-pronged value.

More directly, one engagement point for big companies to work with social entrepreneurs is through hybrid value chains, which are effectively business models for structuring commercial partnerships between businesses and social entrepreneurs. In this way, business and social entrepreneurs work together to create and transform markets. The experimental use of such chains has been pioneered in the housing sector and is spreading to other sectors.

Hybrid value chains offer a new opportunity for large companies, across many sectors. From a societal point of view, however, many multinationals have seriously failed to furnish us with the products and services that actually improve human wellbeing. Nowhere is this more pronounced than in the pharmaceutical sector.

Much academic research has shown that, overall, R&D productivity is not increased when pharmaceutical companies reach a certain scale.

Sophia Tickell, founder of Meteos and director of Pharma Futures, an investor-led dialogue working to align corporate profitability with improved access to innovative and affordable healthcare, said: "The wave of mergers and acquisitions from the 1980s onwards also contributed to a reduction in R&D productivity as the act of consolidation, rather than enhancing productivity, proved to be an organisational disruption which reduced the pipeline, created distractions and fostered an organisational structure at cross-purposes with product driven value creation."

There is a clear tipping point at which "the quest for big" has diminishing returns. What is interesting about pharma now is that the industry is looking to smaller firms for discovery and drug development and to social entrepreneurs for new types of business models.

Outside the pharma industry, the investment community is also recognising the work of smaller business to contribute to markets that would have historically been driven by large companies. Simon Cottle, an investment manager at Cognetas, a European private equity firm, captures the spirit of the moment well: "Recessionary times may form greater opportunities for smaller business because they don't have the same historic baggage that incumbents have – they can adapt more quickly to changing environments and build their business model more in accord with customer need," he said.

Clearly, new times require new models, and social entrepreneurs are on the frontlines of these new market opportunities. The outstanding question is whether their commitment to social value is something that can be learned and adopted by big companies. If not, companies may find that they face more than just scandal, but are at risk of becoming defunct.

Alexa Clay is a knowledge and learning manager at Ashoka's Changemakers and a senior research associate at Meteos

This content is brought to you by Guardian Professional. To join the social enterprise network, click here.