The Growth of the Social Enterprise
To branch or affiliate? Different organizational structures have different strategic implications for nonprofit expansion, say HBS’s Jane Wei-Skillern and Duke-based colleague Beth Battle Anderson.
Social enterprise groups are traditionally organized along one of two lines: The affiliation model favors decentralized control, while the branch model concentrates control at a central headquarters. Most social enterprise groups choose the branch model, even thought it often leads to slower growth. Why? HBS's Jane Wei-Skillern and Duke-based colleague Beth Battle Anderson discuss their analysis of some 300 social enterprises.
Tishler: How do you distinguish between branches and affiliates?
Wei-Skillern and Anderson: Branches are organizational units that are legally incorporated under the same 501(c) (3) as the central organization. Branches are managed and controlled by the central organization, with local staff operating the branch but reporting directly to the central office. Local branches may have their own advisory boards, but the governance responsibility lies primarily with the central board of directors.
In contrast, affiliates are independent, 501(c)(3) organizations that have an agreement with a coordinating, central organization to be part of an identifiable network. Each affiliate has its own governing board, as does the central organization. The affiliate relationship can range from loose to tight with respect to the financial and operational interactions between affiliates and the central organization. A loose affiliation generally refers to a network of organizations committed to exchanging knowledge, pursuing a similar mission, and implementing the same social programs or services, but with limited formal mechanisms for central control and few prescribed interactions between local sites and the center. Tight affiliates are quite similar to business franchises, where the central organization retains significant control over the network's brand and operations. Thus, the key distinctions between the two organizational forms, affiliates and branches, are ownership, governance, and control.
Nonprofits choosing the branch approach should consider the potential trade-offs between maintaining central control and having widespread impact.
Q: What makes a social enterprise more likely to choose branching?
A: While our survey did not explore the reasons for choosing branching over affiliation, some nonprofits may prefer branching because it allows the nonprofit leader to exert the most control since the new organizational units are established and managed centrally. This level of control is conducive to protecting the organization's brand and reputation and coordinating overall strategy and operations. A high degree of control might be particularly desirable when the program being implemented is complex or relies heavily on intangibles, an organization is in the early stages of growth and is interested in testing and refining its model in new locations, or a nonprofit has less ambitious, less geographically dispersed expansion plans.
In fact, our survey data show that pure branch organizations were smaller, grew at slower rates, and had less ambitious growth plans than affiliate organizations. While this finding is perhaps not surprising given that branching would likely entail a greater investment of resources by the central organization than expansion via affiliates would, it does suggest that nonprofits choosing this approach should consider the potential trade-offs between maintaining central control and having widespread impact.
Q: Are there one or two social enterprises that exemplify the characteristics that make them trend toward branching?
A: While not always the case, many branch organizations are tightly managed with very specific practices and identifiable cultures. For example, City Year, the national youth service organization, has programs in fourteen cities across the country. Its founders made a strategic decision from the start to spread a comprehensive organizational model that includes specific practices designed to promulgate a particular culture, commitment to diversity, strategy for corporate involvement, and other core elements of City Year's theory of social change. It is expanding geographically through branches, in part, because its founders believe its success has been dependent on intangibles (such as its distinctive culture) and tacit knowledge that could best be conveyed within a single organizational structure. Similarly, but on a much larger scale, the Salvation Army operates primarily as a branch organization, which is conducive to sustaining its very hierarchical, religious, and army-influenced culture.
Q: For social enterprises that choose the affiliate route, what are the likely factors that point them in that direction?
A: Nonprofits may adopt an affiliate model because they have a bias towards local ownership and autonomy or feel that expanding via affiliates will allow them to grow more quickly while still providing some brand benefits and quality control. While branch organizations, such as The Nature Conservancy, may choose to allow a significant amount of local autonomy by decentralizing authority and decision-making, affiliates are by nature locally governed and operated, which promotes local responsiveness, empowers entrepreneurial managers, and appeals to many nonprofit leaders.
Additionally, as our survey data supported, affiliate organizations do often grow more quickly than branches, which could be a result of several factors. As independent, local organizations, affiliates may have better success fundraising and mobilizing resources locally, and the fundraising responsibility may be more efficiently allocated between the central office and local affiliates. In fact, in our survey, relative to branch organizations, affiliates did report greater access to philanthropic funds as a result of their expansion efforts. Moreover, nonprofits expanding via affiliation may decide to partner with existing local organizations or networks of organizations, which can facilitate faster growth and better leverage outside resources. For example, in order to accelerate their expansion efforts, Jump Start, an early childhood education program that pairs college students with pre-schoolers struggling in Head Start, began entering into affiliate partnership agreements with colleges and universities to host the Jump Start program on their campuses.
Q: What is the major take-away you would like social enterprises to get from your research? What are the major implications in terms of building and running a nonprofit?
A: While perhaps not surprising, our research suggests that there is no single, optimal structure for nonprofit geographic expansion. Rather, different structures appear to have different strategic implications, and nonprofits must consider how these implications align with their particular organization and expansion goals. In addition to branch organizations being smaller, less ambitious, and growing more slowly, there were some notable differences across the branch, affiliate, and plural (organizations with both branches and affiliates) structures. For example, while plural organizations reported significantly greater benefits than pure branch or affiliate models, they also claimed to have faced greater challenges and seem to require stronger, more committed leadership. And branch organizations reported more challenges with human resource issues, while affiliates asserted greater challenges in governance.
While these patterns are not necessarily generalizable to all nonprofits, they do suggest that nonprofit leaders should anticipate some of the distinct challenges that seem to be associated with particular organizational structures.
Q: Did you come across any major surprises during your research?
A: The most surprising finding from our survey was that regardless of organizational structure, some of the anticipated benefits of geographic expansion failed to materialize, while other benefits seemed to exceed expectations. Economies of scale were actually less than anticipated for branch, affiliate, and plural organizations, and tapping into new funding sources appeared to be a significant benefit primarily for affiliates only. The fact that many of the key anticipated benefits for expansion were never realized is a stark reminder to nonprofit leaders to be realistic in their expectations of what benefits expansion will bring.
Building a brand was consistently one of the strongest motivators for expansion.
In contrast, across all organizational structures, the benefits from both brand and organizational learning were considerably greater than our survey respondents anticipated at the outset. This finding was particularly striking because building a brand was consistently one of the strongest motivators for expansion, yet the benefits nonetheless exceeded the expectations. By recognizing the potential benefits from brand and organizational learning from the beginning, nonprofit leaders may be able to increase their ability to capitalize on these factors through more deliberate planning and strategy.
Q: What is the next step in your research? Will you continue to focus on branching vs. affiliation?
A: In conjunction with this research, we have produced another paper with Professor J. Gregory Dees, Pathways to Social Impact: Strategies for Scaling Out Successful Social Innovations, that explores a broader range of strategies by which nonprofits can spread their social impact into new communities. Dees and Anderson plan to continue with conceptual research that will help nonprofit leaders spread their success in more timely, effective, and appropriate ways. Additionally, building on this research, Wei-Skillern is working on a long-term study on how multi-site nonprofits are structured and managed to achieve their goals. This research focuses on various structures ranging from branch to looser affiliate and network forms of organization. The study explores key management challenges of multi-site nonprofits and the facilitators and barriers to effectiveness of various multi-site, nonprofit structures. The goal of this research is to develop a framework to aid social sector managers in planning their growth strategies and managing multisite nonprofits more effectively.