A couple of years ago, hip-hop artist Macklemore topped the Billboard 100 chart with Thrift Shop, a paean to buying inexpensive used clothing from Goodwill Industries. Indeed, like the rapper, millions of people know Goodwill primarily as a successful retailer; in 2014, the organization generated $3.94 billion in sales from its more than 3,000 retail stores and its online auction site.
Even so, Goodwill’s core mission is to provide job training and placement to people with disabilities, criminal backgrounds, and other challenges to employment. Goodwill is a good example of a work integration social enterprise (WISE), a type of organization that helps people transition back into the labor market after long-term unemployment. It also exemplifies what organization theorists call a hybrid: Rather than depending on charitable donations or grants, the organization depends largely on its own commercial revenue to fund its social mission. As such, hybrids combine typical aspects of both corporations and social organizations.
Hybrids have to simultaneously pursue commercial and social objectives
Managing a hybrid is no easy feat, especially when the commercial mandate may conflict with the social mission. “Hybrids have to simultaneously pursue commercial and social objectives,” says Julie Battilana, an associate professor in the Organizational Behavior unit at Harvard Business School. “The big question is, is it really possible to do well on the social dimension while engaging in commercial activities? And if so, how? Addressing this question is crucial at a time like now, when an increasing number of organizations engage in hybrid organizing.”
Battilana pursues that big question in a new paper, Harnessing Productive Tensions in Hybrid Organizations: The Case of Work Integration Social Enterprises, co-written with Metin Sengul, an associate professor at Boston College; Anne-Claire Pache, a professor at ESSEC Business School; and Jacob Model, a doctoral candidate at the Stanford Graduate School of Business. Published in the Academy of Management Journal, the paper looks at why some hybrid organizations succeed in achieving social success, while others fail.
Hybrid organizations, which pursue social missions but depend on their own commercial revenue, face big challenges, says Associate Professor Julie Battilana. As more organizations hybridize, Battilana and three colleagues are researching how these businesses can best manage the tension between helping others while serving paying customers.
In this video, HBS professor Julie Battilana discusses the challenges of managing the duel missions of a hybrid organization.
The secret to success lies in how the organizations manage tensions between the social and commercial activities in which they engage.
Managing a catch-22
Hybrid organizations always face the challenge of how to allocate resources between their social and commercial missions. As social ventures add more for-profit elements to their business models, they can suffer so-called mission drift by focusing on profits to the detriment of their social mission.
Battilana’s previous work suggests that hiring employees who embrace the social mission is not sufficient to avoid mission drift and to ensure hybrid organizations’ success. In “Harnessing Productive Tensions,” further explore the factors that enable hybrids to meet and sustain their social mission, while also engaging in commercial activities to support their operations.
The researchers began by constructing a database containing annual data on more than 200 WISEs in France for a five-year period between 2003 and 2007. Their analysis revealed that these organizations face a paradox: Focusing on the social mission is critical to their success in achieving their social mission, and yet such a focus can lead to a lack of focus on commercial operations. Consequently, profits start to fall. That’s a big problem when the social mission of an organization depends on its own commercial success: More revenue means more resources to invest in the core mission.
“It becomes this catch-22,” Battilana says.
In “Harnessing Productive Tensions,” Battilana and her co-authors explain a strategy to overcome this paradox the result of an in-depth comparative analysis of two of the organizations in their sample.
The two WISEs appeared to be extremely similar: Both operated in the recycling industry with similar work-training missions, and both had recently struggled through an economic crisis. But while one WISE was able to overcome the economic crisis that it faced and to maintain higher than average economic productivity, the other performed below average. “One of them failed, and one of them succeeded,” Battilana says. “Our paper explores the reasons why one of these organizations succeeded.”
Spaces of negotiation
The researchers found that one of the keys to success lay in the way the two organizations managed tensions between their commercially focused production supervisors and their socially focused job counselors. In the organization that performed badly, the executive director tried to solve conflicts single-handedly, arbitrating disputes as they arose.
“These ad hoc interventions allowed him to temporarily relieve tensions and provided fixes to immediate issues,” the researchers explain in the paper. “However, they did not equip staff members with the necessary tools and skills to manage these tensions themselves.”
In contrast, the successful organization required the job counselors to consult with the production supervisors before making any key decisions, and vice versa. And it provided ample time and opportunity for these mandatory conversations to happen. Battilana and her co-authors refer to this business model as “spaces of negotiation,” where there is no overlap of job functions, but there is constant communication between the socially focused and the commercially focused employees.
While maintaining spaces of negotiation takes a lot of time and effort to facilitate, it results in an environment of “productive tension,” says Battilana. “The obvious solution to a conflict might be to integrate everything in an attempt to make the problem disappear,” she explains. “But what we found in this context is very different: The organizations that are successful are the ones that keep the tension alive.”
The researchers plan to extend their studies into other types of hybrid organizations, such as hospitals, other social enterprises, and universities. And Battilana believes spaces of negotiation could be useful not just for hybrid organizations but also for corporations, which are under increasing pressure to demonstrate corporate social responsibility in addition to generating profits.
She acknowledges that the idea could be a tough sell. “If I went to a corporation and said, ‘Well, actually, you should have these spaces of negotiation,’ they’d look at me and say, ‘This is insane. It’s going to be too costly. Why would we discuss every aspect of what we have to do?’” Battilana says.
But she argues that the research illustrates the overall value of creating time and space for healthy debate among employees whose individual job functions might clash, even when they are all working toward the same organizational mission. “It is especially important to create and maintain such spaces of negotiation when it comes to managing trade-offs between social and commercial activities,” Battilana says. “That’s certainly an issue in any organization, not just social enterprises.”