Dr. Nardia Haigh, Assistant Professor of Management and Marketing at the
University of Massachusetts Boston, and Guest Editor of CMR’s Special Issue on
Hybrid Organizations, discusses the emergence of new forms of socially conscious
enterprise and their impact on the business landscape.
Hybrid organizations are, by nature, hard to define. By incorporating elements from multiple
economic sectors into their business models and everyday operations, hybrids often exhibit
qualities of both nonprofit and for-profit
enterprises. But at the core of any hybrid organization
lies a commitment to making positive social or environmental impacts. Whether in response to a
lack of traditional sources of philanthropic funding or simply in response to growing demand
from a more socially conscious
consumer market, these organizations are proliferating rapidly,
and are poised to assume a much larger role in the corporate world.
In this installment of the CMR interview series, Dr. Haigh spoke with California Management
Review’s Senior Editor Gundars Strads about hybrid organizations.
What are hybrid organizations, and what need do they fill?
I like to think of hybrids as being on a spectrum. If you imagine a spectrum with pure nonprofit
on philanthropy and grants on
one end, and pure forprofit
little or no social mission on
the other end, hybrids occupy the
intermediate points between them. Hybrids may be nonprofits that earn most or all of their
revenue [without support], or they may be forprofits
that have a very strong social mission and
a business model designed to alleviate a particular social issue be
it poverty, education, the
environment, or income inequality, just to name a few.
In terms of the need that hybrids fill: over the past few decades, government services and
funding for social programs has been reduced, and obtaining grants from foundations has
become very competitive. In response, hybrids have emerged as a type of organization that
earns part or all of its revenue to support a social mission.
Are hybrids simply an attempt to compensate for the failures of government institutions
and market capitalism?
To some degree, I think that hybrid organizations are an attempt to compensate for failures of
the government they’ve
certainly emerged as a means to address reduced funding of social
programs. Government services also generally seek to meet the needs of the masses, and
hybrid organizations tend to operate in more niche markets that are often overlooked or
underserved by traditional government funding programs.
But I would say that the aim is now to harness the power that capitalism holds for capturing
value from a market, and to use [that power] to create social value. Hybrids are serving a
growing market segment, called LOHAS (Lifestyles of Health and Sustainability), and this
demographic demands goods and services that are focused on health, the environment, social
justice, and sustainable living. That segment is actually worth about $209 billion. So hybrids are
also directly serving that market. The hybrid entrepreneurs that I’ve come into contact with are
all incredibly strategic and pragmatic people. They want to prove a point: that the capitalist
system can be used to create social value and address social ills while at the same time
creating economic value.
Does new legislation (like benefit corporation status) create any unfair legal or tax
advantages for hybrid organizations? Is there any reason for conflict amongst the
different “points on the spectrum?”
I don’t believe so. Registering as a benefit corporation, benefit LLC, or L3C (low profit limited
liability company) gives businesses the freedom and legal protection to pursue their own bottom
line, and to pursue whatever their own social mission might be. That legislation seeks to protect
the social mission by insulating hybrids from things that might sway the company from that
as a majority of shareholders seeking to promote profit over the designated
social mission, for instance. The legislation can also protect the company from acquisition from
a large corporation that, for instance, may have a poor reputation on human rights.
Benefit corporations and similar structures are required to simultaneously promote a material,
positive impact on society and the environment, extend accountability, consider the interest of
stakeholders, and to publicly report on their social performance against a thirdparty
To my knowledge, registering as a benefit corporation or benefit LLC confers the same tax rules
as any other corporation or LLC, so there are no specific tax advantages.
When critics see the word “social” attached to a discussion about business, they often
assume it to be a stand in
for “idealism” or “charity.” What is it about hybrids that
distinguishes them from other organizations with purely philanthropic motivations?
Hybrid entrepreneurs aren’t generally looking for philanthropic funds. In many cases, they’re not
looking for philanthropy at all; they typically can’t even access [that type of funding], because
they’re operating under a forprofit
model and can’t apply for grants or put out a call for
donations, for example.
Hybrid organizations compensate for the lack of access to philanthropy by being highly attentive
to changes in consumer preferences. In many ways, hybrids can be seen as a response to a
more discerning market and
quite a strategic move, in that way. There is also a healthy
appetite for investing in hybrids; the market for socially responsible investing these days is worth
about $3 trillion, around 12% of managed funds in the United States. And investors are
interested in funding organizations that adopt a new approach to creating social impact and
financial returns. These investors are certainly looking for a [financial] return, but understand
that it might have a longer lead time than other types of venture investment.
Can hybrid organizations grow or scale beyond specialty and niche markets? Or will they
always be relegated to the periphery of mainstream corporate activity?
It is true that many hybrids operate in niche markets that are underserved. The concept of
“scaling” in these markets may actually [be more akin to] replicating successful niche activity in
other markets or locations. For some hybrid organizations, scaling is accomplished through
dissemination; they make their solutions, messages, and related intellectual property freely
available to the public. One example of this is Mozilla Foundation, which makes its code for the
Firefox web browser freely available as part of an open source model. Many other hybrids
choose not to focus on the scale of the organization in a traditional sense number
employees, number of branches, or revenue, for instance. Rather, they look at the scale of their
social impact the
number of beneficiaries they’re able to serve, and the quality of service that
they’d be able to offer to those beneficiaries. So it’s a different take on [the concept of] scale.
However, certain other hybrid organizations can, and in fact are, being scaled in much the same
way as traditional companies. They are already in the mainstream and competing headtohead
with other prominent companies. One of the articles in the special issue, by [Matthew Lee and
Jason Jay], explored how hybrid companies have been received by mainstream companies.
And those responses range from acquisition, to partnering, to pure competition. One example is
Toms shoes, a very well known company based in the U.S.
With regards to partnerships between established corporations and hybrid organizations,
is this more than just a PR or CSR effort on the part of the larger organizations?
It really depends on the leadership of the corporation, what they’re hoping to achieve, and what
the market is demanding of them. [Partnerships offer] mutual benefits; it can be an effective way
for the hybrid to scale, and a way for traditional corporations to move beyond conventional PR
or CSR goals, which often involve donation to charity, or providing time for their workers to
For companies looking to move beyond their current CSR efforts, to achieve a more complete
understanding of some of the issues to which they may just be donating at the moment, I would
definitely advocate partnering with a hybrid.
What factors are critical to the success of a hybrid organization?
Hybrid organizations that closely align social mission with profit, and also feature a relatively
simple value chain, are more likely to be sustainable in the long term. Also, it is important for
hybrid entrepreneurs to learn to identify both the positive and negative impacts of conducting
their businesses. Many businesses will have not only some kind of positive impact, but also
some unintended impacts as well. There’s an article by [Diane Holt and David Littlewood] that
helps entrepreneurs identify all of those impacts and find ways to address the negative ones
while leveraging the positive ones.
Is there any particular advice you’d give to someone interested in starting a hybrid
I think that this could potentially be a very long list! So I’ll try to keep it to three short points.
The first would be to define your purpose and unique value proposition. It’s so important that the
purpose of the business be clearly articulated at the start. The purpose guides the creation of
the initial hybrid business model and also guides the business model as it is tested through
various stages of growth. It’s often this clearly defined purpose and the corresponding social
and environmental benefits that allow social ventures and hybrid organizations to leverage
multiple streams of value, and to create more interesting and more innovative models.
The second piece of advice would be to define the financial sustainability model. Without
money, there is no mission. So that includes the traditional revenue model customers
for products and services as
well as the funding model, whether it’s individuals or
organizations contributing initial capital, social impact investors, or something else. Or, if you
decide to operate on the nonprofit end of the spectrum, determining exactly where those funds
would come from.
The final thing would be to define your impact, and how you plan to measure and track that
impact. It is important to be very clear about the direct outcome you’re aiming to create, and to
measure consistently in order to determine whether or not you’re being effective in pursuing
your purpose and fulfilling that particular value proposition. Aligning direct outcomes with key
indicators that can be assessed over time can allow the organization to engage in realtime
Incubating the Third Industrial Revolution 3D Printing has captivated the public over recent years, but the history of this technology is already decades old. This post describes the role of 3-D Systems and the UCLA Venture Development Project in the early-stage development of additive manufacturing. (more)
A New World of Sharing The sharing economy has disrupted the traditional means of communication in society. However, with new companies like AirBnb and Uber on the rise, sharing has the potential to have impacts far beyond communication. Read more about the new world of sharing.(more)
Patents and the Pharmaceutical Industry Patent protections were built to encourage research and development of life-saving medications. However, manipulations of the market exclusivity that comes with patents raise ethical concerns and incentive issues. Read more about patent-protected drugs.(more)