In a context where social enterprises see the for-profit logic a path towards financial sustainability (Dees, 1998), new organizational models accommodate both socio-environmental and financial autonomy goals. These new models oftentimes combine elements from the public and private sectors to create social value while generating revenue through the sale of goods or services. Smith, Gonin, & Besharov (2013) discusses the performance, organizational, belonging and learning tensions that arise from the potentially conflicting goals of imprinting a social mission while adopting business logic. They also highlight a theory gap to discuss such issues. Organizational Hybridism theory can shed light on these new organizational models and their intrinsic challenges (Battilana, Lee, Walker, & Dorsey, 2012), such as defining their legal and financial structure, their organizational culture, and differentiating consumers from beneficiaries. In the Brazilian context, Teodósio & Comini (2012) argue further that the need to maximize both social and financial returns is a key challenge to social ventures (here interpreted as hybrid organizations). Although hybrid organizations strive to be financially independent, many require external support, especially to kickstart their operations. More importantly, hybrid organizations demand not only financial, but also intellectual and social capital. These in-kind contributions, especially in the form of expertise sharing and networking, can be instrumental in the design, operation and scalability of these new models of social enterprises. In particular, we had first-hand contact with such tensions and challenges by working closely with PanoSocial, a Brazilian hybrid organization that produces organic cotton t-shirts by employing formerly incarcerated in their production line, and Bemtevi, a Brazilian impact investing fund. In 2015, we provided academic advice in the design of PanoSocial’s Theory of Change, as well as their social indicators and metrics. This collaboration together with the theoretical background lead us to the following research question: How impact investors and investees deal with dilemmas and challenges of hybrid organizations? To answer this question, we conduct a qualitative case study (Stake, 2005) with PanoSocial (investee) and Bemtevi (investor) carrying out observations, interviews and document analysis for data collection. PanoSocial faced the following challenges and tensions: (i) legal structure and funding challenges; (ii) performance tensions; and (iii) organizational and learning tensions. (i) The legal structure and funding challenges are linked. PanoSocial adopted the for-profit model, to be able to access more sophisticated options of financing. In this context, Bemtevi’s investment model suits PanoSocial goals better, as it provides key financial support while maintaining PanoSocial decision-making autonomy and full enterprise ownership. Equally importantly, Bemtevi’s investments include management consulting and networking opportunities to support enterprises’ managerial demands. Bemtevi’s investment comes with the demand that PanoSocial operates without profit redistribution. (ii) PanoSocial’s entrepreneurs have a strong commitment to the socio-environmental mission and Bemtevi supports them in balancing the attention with financial goals and metrics. Performance monitoring tools are also co-developed to help PanoSocial track and improve management abilities. (iii) Working with Bemtevi and partners has been crucial for PanoSocial to cope with its organizational and learning tensions. A better integration of its social mission and for-profit model comes via external support on defining the organizational structure, designing the Theory of Change, or deal with difficult decision-making. For example, hiring non-ex-detainees to increase the production line efficiency apparently maximizes short-term financial results and threaten long-term social results. However, creating better apprenticeship environment for ex-detainees with such team structure reorg is aligned with the long-term social mission. The case studied highlights the importance of social ventures to seek investors who are aligned to its values and comfortable with hybrid models, it helps investor and investee to better cope with challenges and tensions inherent to hybrid models. The case also shows the importance of in-kind contributions from investors and partners, which can be as valuable as financial capital itself. For instance, even after the investment cycle is over, PanoSocial intends to rely on Bemtevi as advisors. We also highlight the win-win relationship that was established by PanoSocial and Bemtevi. Bemtevi learns from the collaboration and reciprocity to improve its model to better work with other hybrid organizations.
References
Battilana, J., Lee, M., Walker, J., & Dorsey, C. (2012). In search of the hybrid ideal. Stanford Social Innovation Review, 10(3 (Summer)), 51–55.
Dees, J. G. (1998). Enterprising Nonprofits - What do you do when traditional sources of funding fall short? Harvard Business Review, (January-February), 54–67.
Smith, W. K., Gonin, M., & Besharov, M. L. (2013). Managing Social-Business Tensions. Business Ethics Quarterly, 23(3), 407–442.
Stake, R. E. (2005). Qualitative case studies. In Y. S. Denzin, Norman K.; Lincoln (Ed.), The Sage handbook of qualitative research (3rd ed., pp. 443–466). Thousand Oaks, CA: Sage Publications Ltd.
Teodósio, A. D. S. D. S., & Comini, G. (2012). Inclusive business and poverty: prospects in the Brazilian context. Revista de Administração, 47(3), 410–421.
4. Financing issues for social enterprises, philanthropy and social finance
