(Illustration by Ben Wiseman)
Every year, 16 people who have prison records get jobs on the Snowday Food Truck, a takeout food business in New York City. From the window of the truck, they serve maple-syrupsoaked grilled-cheese sandwiches to hungry city dwellers. The business generates income for Drive Change, a nonprofit social enterprise that provides job training to formerly incarcerated young people and then helps them find work. Revenue from the Snowday Food Truck is critical to the operation, but it’s not the driving force behind Drive Change. The company won’t commit to a big catering job, for example, if it means subjecting fellowship recipients to an extra-long shift. “The only reason to have our business is to run our social mission,” says Jordyn Lexton, founder of Drive Change. “We constantly gutcheck our values.”
Organizations like Drive Change—hybrid organizations, which have both a commercial component and a social good component—are of special interest to Julie Battilana, associate professor of organizational behavior at Harvard Business School. For decades, she notes, business scholars have churned out research on for-profit companies. But only recently have they begun to study entities that combine a profit orientation with a social orientation. In her recent work, Battilana has focused on investigating one type of hybrid organization in particular: the “work integration social enterprise” (WISE).
To further that research, Battilana partnered with Metin Sengul, associate professor of management and organization at Boston College; Anne-Claire Pache, professor of public and private policy at ESSEC Business School; and Jacob Model, a doctoral candidate in organizational behavior at the Stanford Graduate School of Business. These researchers built a database that covers more than 200 WISEs that operated in France between 2003 and 2007. For each WISE, they evaluated both its economic productivity (as measured by its “overall efficiency in turning inputs into economic outputs”) and its social performance (as measured by its “effectiveness in enhancing the job market prospects of its beneficiaries”). In addition, they determined whether the “early emphasis” of each WISE was primarily on its social mission or on its commercial activity.
Regression analyses showed that organizations that had an early emphasis on their social mission scored nearly 10 percent higher on social performance than organizations that focused initially on their commercial mission. But that achievement came at the expense of commercial performance. Organizations that emphasized social goals scored 13 percent lower on economic productivity than those that emphasized commercial goals. “It’s a Catch-22,” Battilana says.
Hybrid entities are indeed complex, says Cheryl Dorsey, president of Echoing Green, an organization that provides support and seed funding to social entrepreneurs. “We know how difficult it is to start and grow a nonprofit or a for-profit company with a traditional business model,” she says. So she cautions entrepreneurs to think hard about their reason for adopting a hybrid model. The Echoing Green Fellowship does attract entrepreneurs who want to pursue a hybrid structure—Lexton was an Echoing Green Fellow, for example—but Dorsey and her team don’t necessarily encourage that approach. “We urge entrepreneurs to think first about nonprofit or for-profit partners that already exist and [to see] if they could partner with [those organizations],” Dorsey says.
But how can entrepreneurs who choose a hybrid model overcome the tension between serving their social mission and hitting their financial targets? To answer that question, Battilana and her colleagues conducted a comparative analysis of two WISEs that are in the recycling business. As it happens, both organizations experienced a financial crisis in 2003. But during that period, one of them maintained a higher-thanaverage level of economic productivity, whereas the other barely managed to survive.
Investigation by Battilana and her colleagues revealed that the more successful WISE carved out “spaces of negotiation”—opportunities for people from the social and commercial parts of the business to consult each other before making important decisions. The organization had a mandatory job-shadowing program in which a social-side employee would spend half a day with a commercial-side coworker. This kind of practice brings important benefits, Battilana notes: “You stop seeing the world through only one lens, and you’re able to empathize more and to understand all of the challenges that the organization faces from multiple angles.”
The successful WISE also sent people on its social side to events and programs that were organized for people on the commercial side and vice versa. According to Battilana, employees who socialize together develop a sense of mutual respect that helps them see that they all have the future of their organization at heart. “If you lose this mutual respect for what the other party is doing, you go from productive tension to paralyzing tension,” she says.
Julie Battilana, Metin Sengul, Anne-Claire Pache, and Jacob Model, “Harnessing Productive Tensions in Hybrid Organizations: The Case of Work Integration Social Enterprises,” Academy of Management Journal, 58, 2015.
Read more stories by Corey Binns.