Hybrid Organizations

New Business Models for Environmental Leadership

Brewster Boyd, Nina Henning, Emily Reyna, Daniel Wang, Matthew Welch, Andrew J. Hoffman

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351279222
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book offers a glimpse into the future. The companies it describes are pioneers, the first-movers in market shifts that will eventually become mainstream. These "hybrid organizations" – or what others call "values-driven" or "mission-driven" organizations – operate in the blurry space between the for-profit and non-profit worlds. They are redefining their supply chains, their sources of capital, their very purpose for being; and in the process they are changing the market for others. Using a combination of high-level survey analysis and, more importantly, in-depth executive interviews, the book helps fill the present gap in literature on environmentally focused and financially driven for-profit businesses. Moreover, it highlights key trends and critical themes that enable this new wave of socially conscious and fiscally minded enterprises to be successful in meeting both sets of goals. The takeaway for readers of this book is not only an appreciation for common business practices that hybrid organizations adopt, but also an understanding of the complexity of the integration of such adoption that allows them to successfully achieve both mission- and market-driven goals. The book begins with key definitions to establish the scope of this new sector, including explicit definitions for hybrid organizations, environmental sustainability missions, as well as specific criteria to create useful boundaries for the field of hybrid organizations. Building on prior work conducted by researchers on corporate social responsibility, sustainable entrepreneurship, and social enterprise, the book catalogues the best practices within this growing sector, helping others to learn from both the successes and failures of those that are choosing this strategy. The core of the book is built on an analysis of survey data from 47 hybrid organizations, investigating their business models and strategies, finances, organizational structures, processes, metrics, and innovations. The organizations represent a cross-section of size, age, industry, and geography, although the sample set is biased towards young, small, U.S.-based hybrids. Based on analysis of the survey data, five best-in-class companies were selected for in-depth case studies in order to provide instructive lessons for hybrid practitioners and researchers alike. In short, this book presents research that shows hybrid organizations to be a practical and feasible organizational model for contributing solutions to global environmental issues. The lessons in this book will help other social entrepreneurs, business managers, non-profit leaders, or students interested in careers that fuse profitability and responsibility do it even better.

1
Why hybrid organizations?

FIGURE 1 Hybrid organization definition See also page 18.

This book presents the results of an 18-month effort into researching companies that pursue the two-pronged goal of environmental sustainability and profitability. Such organizations are referred to here as hybrid organizations ("a market-oriented and common-good mission-centered organization; see Fig. 1). This book compiles the wisdom, trends, and lessons learned from the 47 hybrid organizations that provided valuable responses to survey questions about strategies, finances, organizational structure, leadership, processes, and innovations. Five of these companies allowed the research team to perform interviews with their organizations for the development of case studies.

The hypothesis for this research is that the inherent business model of hybrid organizations can contribute positively to environmental sustainability outcomes. The business model of this type of organization strives to have a positive impact on the environment, not just to minimize or reduce negative impact. Hybrids are different from traditional for-profit and nonprofit organizations because their primary motivation is to use business and market forces as tools to solve the world's largest challenges. This book highlights hybrid organizations that are effectively combining goals of financial viability and environmental stewardship.

Since minimal research has been done on this combination, the main aim of this book is to explore the trends, solutions, and lessons learned from hybrid organizations with specific environmental missions. Documentation and better understanding of these findings may facilitate value creation for other practitioners in this sector, as well as provoke discussion among researchers exploring high-impact organizations. Furthermore, understanding the struggles and successes of the hybrid organizations in this study will help future entrepreneurs combat environmental degradation in more effective ways.

Background — hybrid organizations defined

According the United Nations Millennium Development Goals, poverty, income and gender inequality, disease, and environmental degradation are among the most challenging problems facing the world today (Sachs 2005). Numerous approaches to solving these problems have been attempted by local and national governments, international organizations, regional nonprofit organizations, and for-profit businesses seeking to adhere to corporate social responsibility (CSR) standards. While no one company or organization is expected to solve the world's problems alone, some nonprofit and for-profit organizations endeavor to be valuable and significant contributors to larger solutions. However, the current approaches of both traditional nonprofits and for-profits have often proven ineffective in generating and continuing large-scale change.

A growing understanding exists in the nonprofit world that traditional funding sources will no longer be adequate to address such problems and that organizations cannot rely upon a continuous supply of donor funding for their operations (Alexander 2000; Draper 2005). The result is a need for a new emphasis on social enterprise models that provides some direction for solving this funding problem through earned income creation, though work in this field is in a nascent phase. Various challenges remain to be solved in this new area; for example: the tax classification of nonprofit social enterprises, potential mission drift among nonprofits undertaking earned income strategies, and achieving consensus regarding the appropriateness of nonprofit organizations in competitive business ventures (Billitteri 2007; Foster and Bradach 2005; Heritage and Orlebeke 2004). For all the important work being done by nonprofit organizations throughout the world, such effort has yielded limited success in achieving large-scale solutions.

Traditional businesses have fared even worse due to their reluctance to address development goals, primarily leaving social and environmental issues to government agencies and civil society. Though some people argue that the majority of the problems facing the world are the result of market failures, many businesses answer that it is not in their corporate mandate to attempt to address these problems. This situation is slowly changing, and many businesses now understand that it is in their best interest to deal with social and environmental issues (Beheiry et at. 2006; Hillman and Keim 2001; Swanson 1999). The growth of corporate philanthropy and sustainability departments within many large multinational corporations attests to this changing attitude among businesses. However, even with this new emphasis on social and environmental issues, the traditional business model often fails to adequately address the critical problems facing the world today.

Some propose that the optimal approach combines the best of nonprofit organizations and for-profit businesses. These hybrid models — which are variously referred to as Fourth Sector, Blended Value, For-Benefit, or B-Corporations — may hold promise for addressing the most troublesome challenges facing both the developed and developing worlds (Billitteri 2007; Emerson and Bonini 2003; Strom 2007).¹ While some research has been conducted on this type of organization, few comprehensive studies have been completed and little has been done to understand company best practices in this field (Alter 2004; Haugh 2005; Smallbone et al. 2001).

Kim Alter, Founder and Managing Director of Virtue Ventures, has conducted research on hybrid organizations. Her hybrid spectrum, reproduced in Figure 2, categorizes hybrids along a continuum according to their relative position between the traditional nonprofit and for-profit spaces. The Virtue Ventures website states:

All hybrid organizations generate both social and economic value and are organized by degree of activity as it relates to: 1) motive, 2) accountability, and 3) use of income.²

Alter's model presents a taxonomy of four types of hybrid organizations. On the left side of the hybrid spectrum are those nonprofits whose business activities generate profits to fund their social mission and report back to their stakeholders. On the right side of the hybrid spectrum are for-profit companies that create social value, but are mainly driven by profits and are accountable to shareholders.

FIGURE 2 Alter's hybrid spectrum Source: www.virtueventures.com/setypology/dex.php?id=ΗYBRIDPECTRUM&:lm=0

While Alter's model is useful in representing differences and trade-offs among hybrid organizations, we propose that the realm of hybrid organizations cannot be categorized along the single dimension that her model employs; rather, profit and mission motives are relatively independent organizational dimensions. Indeed, hybrid organizations exist that are highly driven by both profit and mission, and thus challenge the notion of trade-offs between mission and profit motives. We developed the illustration in Figure 3 to represent the blurring of boundaries between traditional nonprofit and for-profit organizations.

FIGURE 3 Mission and profit dimensions of business models

This book explores organizations motivated by both mission and profit. Such hybrid organizations not only blur the distinctions between the nonprofit and for-profit sectors but, through their emphasis on environmental, social, and financial value creation, they also provide another business model for addressing worldwide societal problems. For-profit hybrid organizations will not be held accountable solely to the legal fiduciary duty to their shareholders, and can thus gain the flexibility to be innovative in their approaches to these problems. At the same time, because these organizations depend on sufficient profitability to maintain existence and serve their missions, critics may contend that they are hampered by their dual motivations.

Scope

A hybrid organization is defined as a market-oriented, common-good mission-centered organization which operates in the blurred space between traditional for-profit and nonprofit enterprises. In reviewing industry and academic literature, we identified a gap in research on hybrid organizations that are, in particular, for-profit and privately owned. The goal of this book is to fill that gap, with a specific focus on companies with an environmental sustainability mission.

This book narrows criteria for environmental sustainability mission-driven companies to encompass those where either the direct business activity (products or services) or the most significant inputs, raw materials, or resources contribute to at least one of the following basic human needs:

• Clean air
• Clean energy
• Clean water
• Sustainable food or agricultural systems
• Sustainable housing

1 See also "About Β Corp"; www.bcorporation.net/about, accessed January 29, 2009.

2 www. virtueventures.com/setypology/index.php?id=HYBRID_SPECTRUM&lm=0, accessed May 27, 2009.

2
The hybrid landscape

While little has been written about for-profit hybrid organizations, a larger body of literature exists on corporate social responsibility, sustainable businesses, and nonprofit social enterprises. These fields provide the basis for hybrid organizations, but the focus has often been narrow or concentrated on a single aspect of the field.

Research into traditional businesses does not address organizations that go beyond corporate social responsibility While some authors have shown that it is in businesses' best interest to deal with social and environmental issues (Beheiry et al. 2006; Hillman and Keim 2001; Reed and WRI 2001; Swanson 1999), they do not address organizations that make these their primary mission.

Recently, a good deal of literature has been written about social entrepreneurship, but a general focus on addressing social problems mostly ignores environmental issues. A new emphasis on sustainable entrepreneurship — the creation of businesses that have both social and environmental goals — has garnered much attention, but literature on the subject also falls short of offering a comprehensive understanding of hybrid organizations. Sustainable entrepreneurship research deals primarily with the formation of these enterprises, and the motivations behind them. In addition, some rece...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Foreword
• Acknowledgments
• Introduction
• 1 Why hybrid organizations?
• 2 The hybrid landscape
• 3 Uncovering the layers
• 4 Hybrid trends and lessons
• 5 Case study SUN OVENS International — patient dealmaker
• 6 Case study Guayakí — creating an entirely new value chain
• 7 Case study Eden Foods — lasting leadership and the risks of succession
• 8 Case study Maggie's Organics — connecting producers and consumers to the cause
• 9 Case study PAX Scientific — learning to run
• 10 Business lessons for hybrid organizations
• 11 Reflecting back, looking forward
• References
• Appendix: List of hybrid organizations completing survey
• About the authors
• Index